China has pledged to lend an additional US$2 billion to Pakistan to increase the foreign exchange reserves of its South Asian ally, according to a government official in Islamabad.
On Wednesday, an official who is not authorised to speak publicly on the matter said: “As Pakistan’s financial position is weak and to further avoid economic crisis, the government is preparing to take appropriate measures to fix the economy through financial help from China.”
Pakistan is trying to overcome its looming currency crisis – in the past year the rupee has lost more than a fifth of its value against the US dollar.
The latest financial assistance was not announced by Islamabad or Beijing. Pakistan finance minister Asad Umar did not respond to a request for comment.
Zhao Lijian, the Deputy Chief of Mission at the Chinese Embassy in Islamabad, said: “We don’t have the actual amount of loans and CPEC [China–Pakistan Economic Corridor] investment given to Pakistan but China will continue to provide grants for economic development.”
The latest US$2 billion injection follows Beijing reportedly pledging US$2 billion in July last year to help Pakistan weather the economic crisis. There was no confirmation of the earlier amount, which was reported by the country’s Express Tribune newspaper, citing unnamed finance ministry officials.
Pakistani Prime Minister Imran Khan, who came to power in August 2018, has been desperately seeking finances to fix Pakistan’s dwindling foreign exchange reserves, high debt repayments and poor fiscal position.
Its allies from the Middle East have helped: Saudi Arabia has agreed to lend US$6 billion for the financial year to June 2019 and United Arab Emirates offered to lend US$3 billion during the same time period with negotiations going on deferred oil payments.
The Pakistani government is in the middle of negotiations with the International Monetary Fund (IMF) for a possible US$7 billion bailout package.
Miftah Ismail, Pakistan’s former finance minister, said: “It is a welcome move from Beijing – China always helped Pakistan in difficult times and this financial help will help boost the foreign exchange reserves.”
After three weeks of meetings in November, Pakistan’s finance minister and the IMF are due to resume talks on January 15, to finalise the IMF’s financial assistance under tough conditions including job cuts and increasing tariffs.
But the United States has expressed concerns the IMF money will be used to help Pakistan pay back its Chinese loans, as indicated by US Secretary of State Mike Pompeo in July.
The country’s foreign reserves of US$7.3 billion are critically low and may not cover imports for the coming months. Fitch has cut Islamabad’s debt rating to junk level – another alarm bell for the deteriorating economy, although Asad said early last month the country’s economic crisis was over.
“The Chinese financial help will strengthen Pakistan’s economy, and could win the trust of foreign investors and it will improve the overall situation of Pakistan’s foreign exchange reserves,” said Muhammad Sohail, an economic expert heading Topline Securities, a brokerage house.
“Imran Khan’s government may think to delay the IMF bailout after help from its Chinese and Middle East friends but an IMF bailout is necessary to bring economy on the right track through structural reforms.”
Beijing, through the CPEC, has committed US$62 billion to a series of infrastructure and transportation projects, primarily in the Baluchistan province, including a Chinese-operated port in Gwadar. Last weekend, just before the new year, the Chinese embassy in Islamabad issued a clarification to local media explaining that to date, 22 projects had been completed with a total investment from Beijing of US$18.9 billion.
The bulk of this was investment from Chinese companies and their partners in energy projects so the Pakistan government would only be liable for loans of US$6.02 billion plus interest.
Baluchistan is a mineral-rich region of key significance for Chinese strategic projects. The greater Chinese interest in Gwadar is to take advantage of reduced shipping costs and time for Chinese products. It could provide a cheap alternative in the event of any naval obstruction from the US and its Asian partners.