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Pakistan Requests China For More Loans

Pakistan is facing extreme foreign currency crisis these days. In order to deal with this crisis, Pakistan has asked China to keep on lending it money by warning them that Beijing’s planned investment of $60bn in the South Asian country is at risk due to this crisis.

In response, China has lent Pakistan $1 billion to help settle down its foreign currency crisis. Over the last financial year ended June 2018, Pakistan borrowed $4bn from China according to government officials and wants to keep the money flowing to avoid having to ask IMF for a bailout.

Officials in Islamabad have warned their Chinese counterparts that if the lending stops, it could threaten the future of the China-Pakistan Economic Corridor, the cornerstone of President Xi Jinping’s Belt and Road Initiative. They say that if Pakistan is forced to approach the IMF instead, it may have to disclose details of how the scheme is being funded, and even cancel some of the infrastructure projects already planned.

In a statement, one government official said: “We had a detailed discussion with the Chinese and we shared our concern. The main issue is that once we are locked in an IMF Programme, we will have to make full disclosure of the terms on which China has agreed to build the CPEC”.

Another added: “Once the IMF looks at CPEC, they are certain to ask it Pakistan can afford such a large expenditure given our present economic outlook”. Pakistan’s stocks of foreign reserves have been falling for the past two years, as imports rise and remittances from abroad have fallen. But the slide has gathered pace in recent few months, due in part to higher oil prices pushing up the price of imported goods. 

By the beginning of June, the State Bank of Pakistan had just $10 bn worth of foreign currency, down from $16.1 bn a year earlier and it’s not even enough to cover two months’ worth of imports. The situation is set to become worse in 2019, when $12.7bn of external repayments are due, compared with $7.7bn this year. Fitch issued a warning last week saying declining forex reserves and rising current account deficit were adding to Pakistan’s burgeoning external financing risks.

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