Pakistan needs $12 billion in loans. Needs it in 6 weeks

The Chinese Belt and Road projects in Pakistan have left the country in an urgent need of bail out. For CPEC China poured in money into Pakistan (as debt) to build bridges and roads.

The problems started when this huge debt was for importing men, material and services from China itself. As a result, much of this money, while appearing as a debt in Pakistan, has flown back to China as a cost of import.

While Pakistan badly needed infrastructure assistance, the mode of development has left it dry. Its local companies and communities have not benefitted from the massive Government spending – since most of it went back to Chinese companies. Even unskilled labor used in the projects is from China.

This has made increase in local economic activities a mirage as compared to the spending by the government.

Further the reliance on imports for almost everything has taken a toll on the Current Account of the country.

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. The irresponsible financial policies have already forced the country to beg for as many as 12 IMF programs since the late 1980s.

Meanwhile US, which has been sidelined by Pakistan in favour of its all-weather friend China has decided to make the IMF interventions conditional.

“Make no mistake: we will be watching what the IMF does,” US Secretary of State Mike Pompeo threatened Islamabad, talking to CNBC. “There’s no rationale for IMF tax dollars — and associated with that, American dollars that are part of the IMF funding — for those to go to bail out Chinese bondholders or China itself.

For the nuclear armed Islamic state this is going to be a tricky situation. Pak­istan’s incoming finance minister Asad Umar, a former head of Pakistani conglomerate Engro Corporation, estimates the economy may need more than $12 billion infusion of loans within six weeks.

Asad has put forward options asking for bail off from International Monetary Fund, friendly countries (Read China and Saudi Arabia) and issue Diaspora bonds.

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