Pakistan may turn to China for bailout in absence of IMF programme, says report

Crisis-hit Pakistan may call upon its all-weather ally China to bail it out of its severe economic condition if the International Monetary Fund does not revive its $6.5 billion programme. According to a news report in The News International, cash-strapped Pakistan, which is also facing political turmoil, might have to take China’s help in a bid to avert a full-fledged eruption of the Balance of Payment (BoP) crisis.  

Last week, the global financial body rejected the Pakistan government's claim that it has met all the conditions to avail of the fund to be released under an already agreed loan facility with the country. 

Earlier, it was reported that IMF will be discussing Pakistan's budget plans for the coming financial year as part of a process to unlock the crucial financing injection for the cash-strapped nation. 

The IMF review of Pakistan’s budget for the next fiscal was seen as a fresh hurdle for the crisis-hit country as the funds are crucial to resolving its acute balance of payments crisis. A staff-level agreement to release $1.1 billion from IMF has been delayed since November 2022 due to various reasons. 

Speaking about the IMF deal, a top government official quoted in the report said that the crisis-hit country will not share any more data with the IMF without completion of the ninth review 

"Amid deepening political and economic crisis in the country, the IMF has adopted the policy of wait and see but this policy cannot be pursued for a longer period… Either the IMF will have to be revived through the completion of the 9th review or the programme will be scrapped. We will share no more data with the IMF without completion of the ninth review," the official said on Monday. 

The IMF had signed a deal to provide $6 billion to Pakistan in 2019 on the pretext that it would fulfill certain conditions. The plan was derailed several times and the full reimbursement is still pending due to insistence by the donor that Pakistan should complete all formalities. 

The IMF fund arrangement with Pakistan would have ensured a flow of dollars from multilateral, bilateral and commercial monies to ease the imports and unclog the economic activity. 

Looking at the urgency and political crisis in the country, independent economists have been suggesting the Shehbaz Sharif-led government should ditch reviving the IMF programme and look towards China, Pakistan's closest ally, to bail it out. 

Last month, Chinese Premier Li Qiang assured his Pakistani counterpart Shehbaz Sharif that China supports Pakistan in maintaining financial stability. China has already given financial aid to Pakistan. 

Former minister for Finance and renowned economist Dr Hafiz A Pasha said if the IMF does not move forward then Pakistan would have no other option but to request China to devise any mechanism for helping Islamabad to avert a full-fledged crisis. 

He said that the Asian Infrastructure Investment Bank (AIIB) could be used as an instrument to help out Pakistan to avert the BoP crisis. 

Dr Khaqan Najeeb, former advisor in the Ministry of Finance, said of late, the country has taken a number of steps for macro stabilisation and paving the way for completion of the 9th review by the IMF. 

However, considering a weak State Bank of Pakistan reserves position at just $4.38 billion and a precarious balance of payment position, the IMF is in two minds and is being extra careful in ensuring financing needs are more than adequately met. 

In April, Pakistan's year-on-year inflation surged to a record high of 36.4 per cent, which is the highest in Asia. Pakistan's inflation crossed Sri Lanka's inflation, which recorded a sharp decline from 50.3 per cent in March to 35.3 per cent in April. Inflation in Pakistan soared to a record level because of a weaker currency, skyrocketing food prices, and rising energy costs. 

Pakistan's finance ministry has projected that inflation would remain in the range of 36-38 per cent mainly due to the rupee's depreciation and rising prices, which contributed to the increase in overall prices. The Pakistani rupee is one of the worst-performing currencies globally so far, declining 20 per cent to the dollar in 2023. 

(With agency inputs)

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