Pakistan\u2019s government has finally admitted it needs help. Finance minister Asad Umar says he will be meeting officials of the International Monetary Fund on the sidelines of its annual meeting Bali this weekend. There he\u2019ll try and work out the terms for a bailout that would cover a $10 billion hole in Pakistan\u2019s financing needs.<\/p>\n
The decision has to be a little humiliating for new Pakistani Prime Minister Imran Khan an anti-Western firebrand who\u2019s had to turn to the West for help just like virtually every other Pakistani leader before him. More importantly, the process is likely to be a window into what\u2019s wrong with China\u2019s globe-spanning Belt and Road infrastructure initiative.<\/p>\n
On the one hand, this is a familiar situation: Pakistan has had to seek bailouts 10 times since 1990 and still owes money from the last time it needed a handout. Khan was wise to approach the IMF early enough in his tenure that he can blame the previous government and accuse it of mismanagement.<\/p>\n
Pakistan\u2019s problem isn\u2019t only poor macroeconomic stewardship, however. It\u2019s the deals the preceding administration struck with China. A few years ago, Chinese President Xi Jinping promised to invest $60 billion into Pakistan\u2019s economy. Since then, Pakistanis have hoped Chinese money would fund the power and transport infrastructure that could jump-start growth.<\/p>\n
Building the China-Pakistan Economic Corridor often hailed as the most crucial leg of the Belt and Road has proved to be more expensive than expected. Machinery imports for Chinese projects caused Pakistan\u2019s current account deficit to rise by over 50 percent in the first two years of the CPEC build-out.<\/p>\n
Islamabad has struggled to pay for all this and probably can\u2019t expect more help from China: Beijing has been generous enough already, lending Pakistan $5 billion in 2017-18 and putting in an emergency $1 billion this summer when the country was staring once again at empty coffers.<\/p>\n
If CPEC operated on straightforwardly commercial terms, none of this would be a problem. Then the projects would be remunerative for Pakistan. The IMF might demand some mild adjustment to their payment schedules and other parameters, and business could continue. The Fund\u2019s likely other bailout terms devaluing the currency, privatising the state airline, hiking interest rates and implementing long-delayed structural reforms would probably hurt a lot more.<\/p>\n
But nobody expects that to be the case. In fact, it\u2019s likely that CPEC\u2019s costs to Pakistan are much higher than would make sense for the projects in question. Worse, currently these costs are opaque and some are hidden by the security establishment behind a veil of secrecy.<\/p>\n
The IMF doesn\u2019t operate like that; it will expect to be told, transparently, what the actual costs are for CPEC projects. That\u2019s the point at which Khan\u2019s backers in the military will begin to worry, because if the terms are as ruinous as suspected, support for CPEC and, by extension, for China\u2019s paramountcy in Pakistan will wither. Worse, the IMF may withhold some aid: Senior U.S. officials have already said any bailout shouldn\u2019t lead to Western taxpayers paying off Chinese bondholders.<\/p>\n
It\u2019s an open question what Khan himself will pick, if he\u2019s then forced to make a choice between staying the course with CPEC and financing his own grandiose new welfare schemes. But the lesson for Pakistan\u2019s leaders and, indeed, all those looking to China to rescue them from the pesky demands made by Western finance runs deeper.<\/p>\n","protected":false},"excerpt":{"rendered":"
Pakistan\u2019s government has finally admitted it needs help. Finance minister Asad Umar says he will be meeting officials of the International Monetary Fund on the sidelines of its annual meeting Bali this weekend. There he\u2019ll try and work out the terms for a bailout that would cover a $10 billion hole in Pakistan\u2019s financing needs. […]<\/p>\n","protected":false},"author":1,"featured_media":44281,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[87],"tags":[],"class_list":["post-44280","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-world"],"_links":{"self":[{"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/posts\/44280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/comments?post=44280"}],"version-history":[{"count":1,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/posts\/44280\/revisions"}],"predecessor-version":[{"id":44282,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/posts\/44280\/revisions\/44282"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/media\/44281"}],"wp:attachment":[{"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/media?parent=44280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/categories?post=44280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blastingskyhawk.com\/english\/wp-json\/wp\/v2\/tags?post=44280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}