The Pakistan economy has been in doldrums and it is new prime minister Imran Khan’s challenge to retrieve the situation. On Thursday, the Pakistani government formally began the process of seeking an International Monetary Fund bailout worth up to $12 billion. But analysts fear the country’s financing gap may be as high as $20 billion, and for the remainder of its needs it is apparently banking on China and Saudi Arabia for more loans, after taking several billions of dollars worth of loans from Beijing this year alone.
However, this week Pakistan did the exact opposite of the austerity measures the global body is demanding: He inaugurated a public-housing project to deliver five million homes. The contradictions between Imran’s promise of building a social welfare state and IMF prescription to help the economic revival could indeed prove too strong for the eagle-eyed IMF to accept. The IMF, sceptical as it is, could predictably seek greater compliance and transparency including opening up the books of loans taken from China particularly. How compliant the Pakistan government would be in the circumstances is consequently the key.
Ahead of Pakistan’s July elections, Imran had promised to open up the books on Chinese investments and even cut projects that were unnecessary or too costly. Pakistan’s previous government, led by ousted prime minister Nawaz Sharif, was harshly criticised for refusing to publicly disclose the financing terms and conditions around China’s investments, leaving the country in the dark about exactly how much debt it has committed to repay. Although Pakistan faces an external debt burden of $8 billion this year, the first payments to China as part of the Belt and Road Initiative come due in 2019, with $1 billion owed, officials say. Pakistan’s foreign exchange reserves hit a four-year low last week, hovering at $8.4 billion according to the central bank. That is less than enough to cover even just two months of imports