Pakistan needs to tackle IMF loans attachment with CPEC wisely

Pakistan to tackle IMF loans attachment with CPEC wisely My Country
Pakistan to tackle IMF loans attachment with CPEC wisely My Country

Pakistan to tackle IMF loans attachment with CPEC wisely My Country

By Hamza Murad

Mark Sobel, an expert on political economy, writing for center for strategic and international studies, sounded the alarm that Pakistan may use International Monetary Fund ( IMF) loans to bailout China Pakistan Economic Corridor (CPEC) related Chinese lending so fund should get all the information and details on Chinese initiative in Pakistan.

It is an interesting fact that the previous government did not release such information on demands of any international financial institutions but the new government and finance minister Asad Umer has repeatedly showed their intention to make the details public for the sake of transparency.

Taking the cue from Sobel, US Secretary of State, Mike Pompeo impulsively threatened Pakistan and advised IMF to abstain from issuing bailout to Pakistan, in case Pakistan asks for financial help.

There is no evidence or any indication from the government of Pakistan that it is looking for ways to pay back Chinese loans taken under CPEC framework. There is no denial of the fact that macro-economic outlook of Pakistan does not look robust, foreign reserves are depleted, we have enough to support for our two months imports only.

Balance of Payments crisis is in the offing and the incumbent government of Pakistan faces two options; face insolvency or get more loans.

Governing Pakistan and restructuring the economy is not going to be an enviable task for the populist Imran Khan and his finance minister Asad Umer who stand to lose the good will of people if they make the tough but much needed choices.

US’ stance on loan issue is not based on principles nor dictated by economic wisdom, rather it is dictated by hardcore realism and Trump administration’s new approach of confronting China in South Asia region, outlined in the last year’s security document of Congress.

On a foreign policy level US president Trump seems to have a transactional view and he is willing to compromise long stated strategic goals of American policy to achieve the short-run financial scoring, more so in the view of upcoming mid-term elections in November. This explains his arm-twisting of his allies, which include Canada, Mexico, Europe, Turkey, so increasing pressure on Pakistan is not an isolated case.

In a break from past, when American policy in South Asia was peaceful resolution of Afghan crisis which made the cooperation of Pakistan mandatory, new policy aims to contain China and thus sees Pakistan as a potential enemy instead of ally, due to its friendly relationship with China.

 Pakistan’s relation with US has been transactional in nature instead of strategic, and at times when the American interests in the region converged with the Pakistan’s , both went along well but as soon as American interests diverged , relationship saw a rupture only to be resurrected later when Pakistan seemed useful in America’s equation.

So, for now, Pakistani government should not bank on American goodwill, be this economic or security related, because there is no such thing as American good will but only American interest which currently run against Pakistan.

But there is no need to get cold-feeted yet, though America command considerable clout on IMF by virtue of being its largest contributor, approximately $160 billion annually, it still cannot dictate Funds decisions without providing considerable evidence that the loans will be used for some unstated purpose, say, to payback Chinese or if the country is facing sanctions due to violation of international Law which of course Pakistan has not.

Though Pakistan is on the “gray list” of Financial Action Task Force (FATF) and that tends to cause some financial troubles especially in dealings with the global financial market but that was another decision thrusted by America and it does not bring in sanctions. Moreover, a review is expected in November and if measures taken by Pakistan satisfy (Asia Pacific Group) APG , that deals with Pakistan then Pakistan will be removed from the list.

Then there is the news of Saudi Arabia extending $4 billion loan to Pakistan, its terms and conditions are unknown yet, but it will give the country some breathing space, meanwhile there are some other avenues for loan that governments can tap, E.g. Overseas Pakistanis and selling of Sukuk bonds.

Coming back to CPEC which is $60 billion project, meant to build roads and invest in energy sectors and develop free economic zones, it is financed by the investment and loans from a group of private Chinese banks.

CPEC is part of Belt and Road Initiative to connect the world and promote trade and give China an easy access to global markets, which translates into a threat to US hegemony.

So, we cannot expect Trump to have the good of the region at heart and do not do something stupid. Instead by escalating the trade war with China, he has already shown the world how the near future is going to be, America taking desperate and poor policy choices to prevent the steady ascent of China.

New government of Pakistan needs to formulate a clear foreign policy and a strategy to deal with America without compromising the national interest. For that, they will have to lobby aggressively and present the view of Pakistan to the concerned quarters.

Last but not least, government needs to take our fate in our own hands instead of expecting the world to bail us out, that would require the restructuring of economy. What restructuring entails is not the subject of this article but it is no easy task by any means and it will require strong intention of the government along with integrated policies and institutional reforms.

Recently government of Pakistan have announced that we have obtained a total of $ 6 billion concessional loans from China at an interest rate of 2.29 percent with a seven-year grace period and a 25-year repayment period for infrastructure projects under the China-Pakistan Economic Corridor (CPEC).

According to data released by the Pakistani government, 42% of foreign debt of Pakistan is from multilateral financial institutions, 18% of the debt is from Paris Club. Chinese preferential loans only account for only 10% of whole foreign debt, and offer a much lower rate than commercial bank loan.

The figures proved that if those who are unable to offer tangible assistance to Pakistan, they can at least try to put the sincere cooperation between other countries in perspective.

Pakistan to tackle IMF loans attachment with CPEC wisely My Country