Pakistan has once again turned to China for help in avoiding a foreign currency crisis by borrowing $1 billion from Chinese banks in April on “good, competitive rates”, the Financial Times (FT) reported on Wednesday.
In an interview with the publication, State Bank of Pakistan (SBP) Governor Tariq Bajwa confirmed the loans were made by Beijing-backed banks on good rates.
“The money strengthens the financial, political and military ties between the two countries,” read the FT article.
“Chinese commercial banks are awash with liquidity,” Bajwa was quoted as saying.
Pakistan’s foreign exchange reserves have dropped from $18.1bn in April last year to $10.8bn in May this year.
According to the article, Pakistani officials also hope that borrowing from Chinese banks will also save Pakistan a trip to the Internation Monetary Fund (IMF).
Since December 1988, Pakistan has had nine separate engagements with the IMF — three of them were double programmes. That means there have been 12 IMF programmes in Pakistan in the last 28 years. Only four of them – all initiated in the 2000s and 2010s – were completed successfully; all the rest were abandoned halfway in the 1990s.
Lending money to Pakistan also favours China, said FT quoting Pakistani officials, as it does not wish to disclose details of the loans that are part of the CPEC project. China is investing almost $60bn on building infrastructure in Pakistan, however, it is reluctant to reveal the sum it is lending to Islamabad as part of the CPEC project.
“The Chinese are not keen on western institutions learning the minute details of [financing of] CPEC projects,” an unnamed official in Islamabad was quoted as saying. “An IMF programme will require Pakistan to disclose the financial terms to its officials.”
According to the FT report, prior to last month’s loan of $1bn, Pakistan had borrowed almost $1.2bn from Chinese banks since April, 2017 and more loans might follow. Another anonymous official quoted by the publication claimed that Pakistan’s finance ministry has held “informal discussions” with the Chinese to lend at least an additional $500mn before the end of the financial year April, 2019.
“Borrowing from China has become an increasing feature of our external side,” the official said.
The article also touches upon the skepticism around the Chinese loans. Mushtaq Khan, a former SBP economist, while speaking to FT said: “Pakistan’s policymakers are not doing enough to narrow the external deficit — instead, they’re just financing the gap.”
“China factors importantly into this financing, but that doesn’t really solve our problem — it only postpones and exacerbates the issue,” he added.
Pakistan secured a $1 billion commercial loan from a Chinese bank a day after the announcement of the federal budget 2018-19 on April 27 which is repayable in three years, Dawn reported earlier this month. This improved the country’s total foreign exchange reserves to $17.7bn, jacking up official reserves held by the State Bank of Pakistan by 5.5 per cent to $11.5bn.