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October 14, 2018

Conditions of debt


October 14, 2018

The often-counterproductive economic strings that come attached to IMF bailout packages are well known to Pakistan – which is seeking its 13th such bailout since 1988. It is now beginning to dawn on us that going to the IMF for help may come with political conditions too. A statement from IMF Managing Director Christine Lagarde has made it clear that the package would only be approved if Pakistan provides details of all its debt, including that which was provided by China under CPEC. This was immediately pounced upon by the US, with their State Department spokesperson saying that Pakistan’s debt to China is part of the reason the country finds itself in its current economic predicament. The US had previously opposed an IMF bailout if it would be used to pay off our Chinese debtors. It is safe to say that the US worry about Pakistan’s debt is completely informed by its own political interests. The Trump administration has launched a trade war against China and is doing everything it can to push back against growing Chinese influence in Asia. By blaming our economic troubles on China and warning the IMF against giving loans that would be used to repay China, the US hopes to push Pakistan away from its closest ally. Former planning minister Ahsan Iqbal has pushed back against the American statements by pointing out that Pakistan does not even have to start repaying loans from China by 2022.

That does not mean that the people of Pakistan do not deserve more transparency about arrangements with China. CPEC was sold to the nation as an unalloyed positive even as most of the details of the agreements were kept secret. From the little information that is publicly available, it appears that most of the loans for power projects under CPEC were made to private entities but the government of Pakistan is a guarantor for a certain level of annual profits. We have also taken further loans to maintain our foreign currency levels and prevent rapid depreciation of the rupee. The gains expected from CPEC, particularly in the form of increased exports, are yet to materialise. The project, though, is far from a failure. Financing for energy projects was offered at favourable terms and much of the work in completing them has been done. Where the previous government faltered was in setting out a realistic time period for economic gains to be realised and taking independent measures to keep Pakistan’s economy afloat in the interim. Now, due to its negligence, the new government will have to swallow the bitter medicine of IMF structural reforms and US sniping about Chinese debt.

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