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November 8, 2018

Economic realities


November 8, 2018

Has Pakistan averted the balance of payments crisis? After returning from the official visit to China, Finance Minister Asad Umar has seemingly attempted to stem criticism of the China visit for being unable to deliver the promise of financial assistance from China. Umar insists that the ‘balance of payments crisis is over’. But somehow everything else the government is continuing to do suggests otherwise. Next week, another delegation is set to reach China to pursue financial aid for Pakistan. This week, a delegation from the IMF is set to arrive in Pakistan to discuss a bailout for the country, no matter what language it is couched in. From what was made public, Pakistan has around a $20 billion financing gap to bridge for this year – based on its current account deficit. Around $6 billion of the gap has been secured from Saudi Arabia. Before the China visit, signals from the government indicated that the trip would lead to PM Imran Khan securing another $6 billion in finance from China. That much-needed finance agreement from China has not been secured.

The finance minister has claimed that a gap of $12 billion has already been filled. The government will have to clarify how this is the case. The requested finance includes a $1.5 billion deposit, a $1.5 billion grant and a loan of around $3 billion. This is all fine, but the numbers make little sense until a formal agreement has been secured. Official press statements have confirmed an agreement to double exports to China, which is a positive signal. The balance of trade between Pakistan and China itself remains heavily skewed in China’s favour. Further press releases have suggested that the visit to China was about ‘refocusing’ the CPEC agreement towards the industrial, agricultural and trade sectors. But once again, this is empty language that merely restates what already exists in the CPEC agreements, and does little to allay concerns of the PM making a low-returns trip to China. One would hope that the backchannel work required to push a financing agreement through will be completed in the coming weeks.

The problem is that Pakistan has two major issues in its relationship with China: one, Pakistan’s largest trade deficit is viz a viz China; and, two, Pakistan now owes a significant amount of debt to China. More than Asad Umar, it was Foreign Minister Shah Mehmood Qureshi who seemed more focused on defending the PM’s China visit in its ‘symbolic’ value. The reality is that Pakistan is not out of the balance of payments crisis yet. Anyone who suggests as such before some solid policymaking is put in place is only telling half the story.

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