More financial aid from China to help the plummeting foreign reserves of Pakistan

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News Analysis |

China has acknowledged that it is stepping in with up to $2 billion dollars to help Pakistan stabilize with its dwindling reserves. Chinese foreign ministry spokesman Lu Kang in his daily media briefing in Beijing said: “The Chinese side has offered and will continue to offer its best through assistance, trade, investment, and all-around practical cooperation to support and boost Pakistan’s economic and social development.”

The terms of the assistance have not been made public yet but it is speculated to be a loan with a relatively high-interest rate. Moreover, Pakistan is also planning to reach out to the Chinese public in the form of a government bond, proposedly called “Panda Bond”. It hopes to gather a sum total of up to $1 billion from the Chinese equity market, with long-term maturity.

Prime Minister Imran Khan has already stated that the government is aiming to reach out to an arrangement which is best suited for the current needs of Pakistan and its growth in the future.

Imran Khan led PTI government had inherited the balance of payment woe from the previous government. All the economic pundits were of opinion that whosoever assumes power as a result of the 2018 election, they would have to reach out for yet another IMF program.

Given the propensity of Monetary Fund to make Pakistan comply with harsh terms, due to the failure of previous programs, the government decided to reach out to the friends to ease out the reliance on the IMF money. So far, due to Prime Minister Imran Khan’s efforts, Saudi Arabia and the United Arab Emirates had chipped in with the billions of dollars moved to State Bank of Pakistan, China is the latest addition.

Prime Minister sought Chinese help during his recent visit to the mainland China where currency swapping, both Pakistan and China dealing in their currencies for bilateral trade instead of Dollar, and increase exports from Pakistan to China was on cards. There have been many speculations regarding the former intuitive but so far no tangible, substantial document has surfaced proving that both governments have actually signed the agreement to use the national currencies.

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The reason could be a recent downward drift of Rupee which the Chines might be waiting for it reaches its actual real position as compared to the Dollar. But overall this step alone could help Pakistan and China both since the e-commerce revolution in the form of Ali Baba etc. have led to millions of Dollars being transacted in online shopping.

As per the balance of trade, China Pakistan Economic Corridor has certainly increased Pakistan’s import quarter as the bulk of equipment were to be imported for the construction of mega projects. Since the entire purchasing was debt-powered, it was further detrimental to the national economy in the long run.

As Finance Minister Asad Umar says that it is going to be the last IMF program Pakistan is going for, the hope and efforts should be to keep it the same way.

To balance the import tilt, it is very important that more Pakistani products make to the Chinese market. As per the statement of Chinese foreign ministry spokesperson, the current package is going to more inclusive, implying that arrangements to cut short the trade deficit between both the countries would be made.

The help which Pakistan has received from its long-term friends have given the government a maneuvering space to negotiate the terms of the bailout from the International Monetary Fund. Prime Minister Imran Khan has already stated that the government is aiming to reach out to an arrangement which is best suited for the current needs of Pakistan and its growth in the future. Binding terms of the new program could have clipped the government’s wing, especially from ambitious welfare projects.

Read more: What can Pakistan learn from China? – Farid A Malik

While it is good to see countries chipping in at the time of need for Pakistan, it is equally important that steps should be taken to end the vicious cycle of dependence once and for all. As Finance Minister Asad Umar says that it is going to be the last IMF program Pakistan is going for, the hope and efforts should be to keep it the same way.

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