Increased lending comes as US cuts aid to the country and Islamabad scrambles to shore up plummeting forex reserves
Pakistan expects to obtain fresh Chinese loans worth US$1-2 billion to help it avert a balance of payments crisis, Pakistani government sources said, in another sign of Islamabad’s growing reliance on Beijing for financial support.
Lending to Pakistan by China and its banks is on track to hit US$5 billion in the fiscal year ending in June, according to recent disclosures by officials and Pakistan finance ministry data reviewed by Reuters.
The ramp-up in China’s lending comes as the United States is cutting aid to Pakistan following a fracture in relations between the on-off allies. In February, Washington led efforts that saw Pakistan placed on a global terror financing watch list, drawing anger in Islamabad amid fears it will hurt the economy.
The new Chinese loans that are being negotiated will help bolster Pakistan’s rapidly depleting foreign currency reserves, which tumbled to US$10.3 billion last week from US$16.4 billion in May 2017.
The talks come only weeks after a group of Chinese commercial banks lent US$1 billion to Pakistan’s government in April.
The reserves decline and a sharp widening of Pakistan’s current account deficit have prompted many financial analysts to predict that after the general election, likely in July, Islamabad will need its second International Monetary Fund (IMF) bailout since 2013. The last IMF assistance package was worth US$6.7 billion.
Beijing’s attempts to prop up Pakistan’s economy follow a deepening in political and military ties in the wake of China’s pledge to fund badly needed power and road infrastructure as part of the US$57 billion China-Pakistan Economic Corridor (CPEC), a key cog in Beijing’s vast “Belt and Road Initiative”.
“I think this month we will get that US$1-2 billion,” said a senior Pakistan government official, saying the funds will come from Chinese state-run institutions.
A second government official confirmed Pakistan was in “sensitive” talks with Beijing over extra funding for up to US$2 billion.
Pakistan finance ministry officials did not respond to a request for comment.
China’s finance ministry and central bank, who were faxed questions about the loans, did not immediately respond to requests for comment.
