Breathing space for smooth transition: China loans Pakistan $1.5b to $1.7b

ISLAMABAD: In a bid to get a breathing space for Pakistan for completion of ongoing political transition in a smooth manner, China has provided $1.5 to $1.7 billion in shape of official bilateral loan on soft terms and conditions to Islamabad out of total agreed size of $2 billion assistance.

The remaining small amount of this soft loan will be deposited into the State Bank of Pakistan (SBP) very soon, a top official confirmed to The News on Saturday. However, economic experts believe this bilateral assistance from China cannot become alternative to the IMF program keeping in view the projected financing gap in the range of $26 to $28 billion for the current fiscal year 2018-19.

In his maiden speech after winning election, PTI chief Imran Khan dwelt upon certain issues relating to economy such as taxation and austerity to reduce expenditure but he did not mention this huge financing gap of $28 billion which is the biggest economic problem for Pakistan right now.

But one former bureaucrat who has dealt with economic ministries for his whole carrier, suggested to the incoming government led by Imran Khan that they must give one chance to existing tax amnesty scheme by extending it for one month with the hope that the new administration having no baggage might lead people to convince for benefitting from this scheme while living abroad and Pakistan might get the desired $3 to $4 billion inflows on immediate basis. “This can be a great start for the new government”, he told this reporter on the condition of anonymity.

He said in such case Pakistan might be able to avoid the IMF program. Imran Khan also met with Saudi Ambassador in Islamabad which also raised hopes that the Kingdom might provide few billion dollars as a sign of good gesture for the new government as Riyadh had provided $1.5 billion to the PML-N-led government in 2014 as a gift.

When contacted former finance minister and renowned economist Dr Hafiz Pasha on Saturday, he said Pakistan’s financing gap on external front was projected at $28 billion for the current fiscal year and the incoming government will have to place a comprehensive strategy to bridge this gap.

He said China had provided over $6.5 billion on different accounts to Pakistan in last fiscal year and again agreed to provide $2 billion more in this fiscal year but it could be used as “breathing space” only. “We can meet around 40 percent financing requirement with help of China but we will have to manage remaining 60 percent from other avenues,” he added.

If the foreign currency reserves continued to fall and remain two months below import bill then the multilateral creditors such as the World Bank, ADB and others would not provide assistance for budgetary support so the IMF support will become necessary in such situation. As The News had already broken a story regarding a proposal under consideration to increase additional customs duty by one percent on almost all items and jacking up Regulatory Duty (RD) on luxury items before July 25 elections so now the next government will have to take such tough steps in a bid to reduce the rising trade and current account deficit on immediate basis. ­