Twin deficits to force Pakistan’s new government to seek US $ 12 billion loan

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By Muhammad Luqman

While deviating from its  stated policy of self-reliance,  Pakistan’s right leaning Tehreek-e-Insaaf  will have no choice to seek over US $ 12 billion loans from the world  lenders especially International Monetary Fund (IMF) soon after taking over government.

The minister designate for Finance, Asad Umar, a former head of Pakistani conglomerate Engro Corporation  said the nation’s financing gap is somewhere between $10bn to $12bn, though the new government would need a bit extra so it doesn’t “live on the edge,” he said in an interview with Bloomberg news.

He also promised to make all Chinese agreements public after criticism of China-Pakistan Economic Corridor loan terms.

“The decision needs to be taken in the next six weeks, the further you go forward the more difficult, the more expensive the options become,” Umar said.

Pakistan could turn to the International Monetary Fund, friendly countries and issue Diaspora bonds to bolster the nation’s depleting reserves, he said.

Pakistan’s deteriorating financial situation is a key challenge for new leader Imran Khan, the ex-cricket captain who is attempting to form a coalition government after winning the most seats in last week’s election. Many investors and analysts see a bailout from China or the IMF as inevitable.

Foreign-exchange reserves have  dwindled this year on the back of a widening current-account deficit, prompting the central bank to devalue the currency four times since December and hike interest rates. Moody’s Investors Service downgraded the nation’s outlook to negative last month, citing the nation’s worsening finances.

If Pakistan asks the IMF for support, it won’t be the first time. The South Asian nation has gone through decades of debt blowouts and balance-of-payment imbalances and 12 IMF programmes since the late 1980s.

The amount of Chinese loans given to Pakistan over the last 13 months alone comes close to the IMF’s last bailout of $6.6bn. Those vast debts from Beijing have prompted  the US Secretary of State Mike Pompeo to issue warning. Umar said he would bring more transparency to the more than $60bn Belt and Road infrastructure projects in Pakistan and hit back at Pompeo’s comments.

“One friendly advice to the Americans, we’ll worry about our Chinese debt, but I think they better handle their own Chinese debt first,” he said.

Pakistan’s caretaker Foreign Minister, Abdullah Hussain Haroon  while talking to media , said that $5 billion of that loan would go back to the IMF.

He said that a wrong impression has been created by the US which registered objection to the fund against approving the loan, citing fears that Pakistan would repay Chinese loan through that bailout.

“The US move to stop the IMF from issuing loan to Pakistan comes as a first. This reflects shamelessness of the US regime.”

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