SBP governor confirms Chinese loans amid currency crunch

KARACHI: Pakistan's central bank chief confirmed on Wednesday receiving Chinese loans  to stave off a foreign currency crisis as Islamabad finds itself caught in growing global pressure on emerging markets.

Talking to the Financial Times, State Bank Governor Tariq Bajwa said that Pakistan received one billion US dollars’ worth of loans at “good, competitive rates” from Chinese banks last month after official data showed the country’s foreign currency reserves almost halved in the past two years.

Pakistan previously secured Chinese loans worth 1.2 billion US dollars in the 12 months prior to April 2017, with authorities in Islamabad keen to avoid seeking financial aid at the International Monetary Fund, a route the country has been forced to take 12 times in the past 30 years.

Pakistan’s foreign currency reserves have dropped from over 18 billion US dollars to 10.8 billion, with the country struggling with low exports and increasing imports.

While Bajwa told the Financial Times that “Chinese commercial banks are awash with liquidity,” critics have said authorities are not doing enough to handle structural problems within the economy.

A lack of fiscal discipline has seen Pakistan’s budget deficit reach a record 1.48 trillion rupees (12.8 billion US dollars) in the first nine months of the fiscal year, equal to 4.3 percent of the country’s GDP, according to Finance Ministry data released on Tuesday.

The rupee hit a record low in December 2017, but the country's exports still remain low. /VCG Photo

In the face of an increasingly strong US dollar, that currency slide could get even worse, with Pakistan suffering from many of the same issues seen in other emerging markets in recent weeks.

A recent tendency for short-term foreign currency loans has seen Pakistan spend 1.172 trillion rupees (10.1 billion US dollars) on servicing debt in the last nine months, equal to 86 percent of the annual budget estimate. The strong dollar and a weak rupee will only make that debt more expensive.

However, the 54 billion US dollar investment from China via the China-Pakistan Economic Corridor (CPEC) is expected to solve significant infrastructure problems across the country.