Cash-Strapped Pakistan Considers Turning to China for Economic Support
Pakistan is facing a critical situation as it grapples with a balance of payment crisis. The delay in the revival of the $6.5 billion IMF bailout program has prompted the nation to look for alternative solutions. With no other option in sight, Pakistan is considering approaching China to devise a mechanism for rescuing its ailing economy, according to sources familiar with the matter. The IMF’s wait-and-see policy cannot be sustained for much longer, and Pakistan is now urging the completion of the ninth review to revive the program.
Implications of Delay: Pakistan May Withhold Data Sharing
Reports indicate that Pakistan has already conveyed its stance to the IMF staff, stating that if the ninth review is not completed, the budgetary framework for 2023-24 will not be shared. The country’s economic and political crisis has raised concerns among diplomats, who have begun inquiring about domestic political affairs. In response to such inquiries, Pakistani officials have reiterated their commitment to avoiding default.
Economists Suggest China as a Potential Solution
As the IMF’s progress remains uncertain, independent economists are advising the government to make last-ditch efforts to revive the IMF program or turn to China for economic assistance. Dr. Hafiz A Pasha, a renowned economist and former finance minister, suggests that if the IMF fails to move forward, Pakistan should request China to devise a mechanism for averting a full-fledged crisis. He proposes leveraging the Asian Infrastructure Investment Bank (AIIB) or establishing a similar institution to assist Pakistan.
Challenges Faced by Pakistan: Weak Reserves and Balance of Payments
Dr. Khaqan Najeeb, former finance ministry adviser, acknowledges the steps taken by Pakistan for macro stabilization and the completion of the ninth review. However, he points out the weak position of the State Bank of Pakistan’s reserves, which stand at just $4.38 billion. The IMF is being cautious due to Pakistan’s precarious balance of payments position. The easing of imports is also a concern for the IMF, as Pakistan needs to build reserves and ease administrative restrictions.
Potential Solutions and Consequences
Dr. Najeeb suggests that a staff-level agreement with the IMF could facilitate commercial and multilateral inflows, providing the necessary financing for Pakistan. Failing an agreement, Pakistan would be forced to continue with heightened restrictions on imports, leading to a constrained economy. The country would resort to borrowing and seeking rollovers from friendly countries and other available sources. However, this is not the preferred option, as it would impede economic growth.
Pakistan’s Dilemma and the Need for Swift Action
Pakistan finds itself at a crossroads, urgently seeking alternatives to the delayed IMF bailout program. With the economy in crisis, the government must act swiftly to either revive the IMF program or explore other avenues. China emerges as a potential partner, and leveraging institutions like the AIIB could provide the necessary support. However, time is of the essence, and a comprehensive financing plan is essential to avert a full-blown crisis and promote economic stability in Pakistan.