Budget 2023-24: the IMF factor - Part II

Pakistan is rather lucky to have the support of friendly countries that have extended financial assistance to the country. Besides Saudi Arabia and the UAE, China has also allowed the rollover of its $2 billion in loans. These financial lifelines from various countries offer temporary relief, corroborating the significance of external support in bolstering Pakistan’s economic stability and alleviating immediate concerns over its fiscal situation.

Among all these friends, China stands out as the best bet for Pakistan in the existing circumstances. While referring to China’s unwavering commitment to Pakistan’s economic stability, Director of a Washington-based think tank Pakistan Initiative at the Atlantic Council Uzair Younus recently said, “there’s no way that the Chinese...will walk back from Pakistan at this time.” This concise statement encapsulates the resolute mindset shared by the majority of Pakistanis.

Historically, Beijing has always accorded very high strategic importance to its relations with Pakistan. However, propelled by the Belt and Road Initiative (BRI), China’s economic engagement with Islamabad has deepened further. While the China-Pakistan Economic Corridor (CPEC) is the BRI’s flagship project, Beijing has huge stakes in the political and economic stability of the country. Chinese participation in CPEC projects are beneficiaries of financing from Chinese policy banks, notably the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM).

In less than 10 years, China has emerged as Pakistan’s largest creditor and the principal source of foreign direct investment. This rapid shift in economic dynamics highlights the strengthening ties between the two nations and the critical role that China plays in supporting Pakistan’s financial growth. Similarly, China’s economic footprint in Pakistan has greatly expanded since the inception of CPEC.

It is no secret that China is the biggest lender to other countries and a major creditor to low- and middle-income nations. However, what is less recognized is that China’s exposure to financially troubled borrowers has grown considerably. As a result, China has transformed itself from being a loan provider to a debt collector and becoming a significant player in sovereign debt renegotiations. This situation has also caused China to change its strategy by providing balance of payments support to partners like Pakistan instead of project lending to repay project debts.

Until now, China has dealt with debt distress by rescheduling loans instead of writing them off, offering emergency loans without requiring borrowers to implement economic policy reforms, and taking an independent approach rather than coordinating with other creditors and the IMF. Chinese officials apparently have urged Islamabad to mend its relationship with the IMF, suggesting that Beijing views the resumption of the IMF’s lending program as crucial in reducing Pakistan’s risk of default.

Despite such a transparent and rational approach by China, the US and its allies are busy in loudly chanting the mantra of ‘China debt trap’, which is reflective of their myopic approach toward China.

China’s emergence as a leading lender to other nations has brought economic benefits and helped manage debt crises. While China’s exposure to financially troubled borrowers has increased, it has adopted a pragmatic approach in dealing with countries in debt distress. Rather than writing off loans, China has focused on rescheduling debts and providing balance of payments support to countries like Pakistan. The fact is that a battle of narratives wages on, and the latest chapter in this unfolding drama is an insidious plot by Washington and its allies to fan the flames of anti-China sentiment, all in a calculated effort to revive the faltering fortunes of the Republican Party.

Under the guise of concerns over the ‘China debt-trap’, they seek to dissuade developing nations from seeking soft developmental loans from China – a generous lifeline that the US and its Western allies have long been reluctant to extend for uplifting infrastructure in these struggling lands. The American establishment paints a bleak picture, asserting that Beijing’s provision of these loans comes with ulterior motives: ensnaring nations in a web of debt, which can then be wielded as a coercive tool for future geopolitical gain and policy manipulation. But alas, nothing could be further from the truth than this meticulously crafted and misleading propaganda.

Let us scrutinize the case of Pakistan – a nation teetering on the precipice of economic turmoil, where, according to the American narrative, Chinese loans are supposedly the root cause of its plight. Yet, the stark reality on the ground reveals a far more nuanced tale. Throughout the past three decades, China has consistently demonstrated its unwavering commitment as a dependable ally, offering crucial support during times of financial crises. To attribute Pakistan’s economic travails solely to Chinese loans is to overlook the intricate complexities of its challenges.

Pakistan’s Chinese debt has no direct or indirect linkage with the existing economic turmoil in the country. Years of domestic economic mismanagement, political instability and corruption have primarily contributed to Pakistan’s ongoing crisis. Besides this, Pakistan has faced severe hardships in the past year – including devastating floods that resulted in an estimated $30 billion in damages and lost productivity.

The ongoing war in Ukraine has caused food and fuel prices to skyrocket, further exacerbating the situation. The economic tribulations of Pakistan bear no relation to these Chinese loans. In this hour of the acute crisis, it is China and not the US that has extended a generous hand and offered unwavering support to Pakistan.

For Pakistan’s finance managers, it is crucial to recognize China’s role in bolstering our economy and find ways to enhance this partnership, instead of inordinately relying on the dictatorial and bullying IMF.

Concluded

The writer is a freelance contributor.