China’s $2.3 bn loan to Pakistan will provide temporary relief but can it tide over its current economic crisis?

Pakistan urgently needs about $23 billion in order to meet its foreign debt servicing requirements in 2022-23. Though Islamabad is already in talks with the International Monetary Fund for a bailout package, this is not the first time that Pakistan has sought the assistance from the multilateral agency. Since its birth, Pakistan has borrowed money from the IMF 23 times in the past 30 years.

“Data shows that this is not the first time Pakistan is knocking on IMF doors for assistance. It has done it in the past and the financial packages have helped Islamabad tide over the crisis only for a limited period. The country has not managed to set the basic framework in place,” an analyst with a rating agency told India Narrative.

Though the Chinese assistance will boost Pakistan’s foreign exchange reserves which fell below the $9 billion mark in the short term, Islamabad would require to revive the $6 billion financial assistance. But this money too will only help Pakistan for a limited period of time. “Until deep-rooted structural reforms are not put in place the same story will repeat..Pakistan will use this asistance to tide over its immediate crisis but another will start coming up,” he said.

Even as the much-required assistance cushioned the Pakistani rupee, which is one of the worst performing Asian currencies this year, it is still at over 207 to a US dollar.

“It will give Pakistan breathing time to keep negotiations on the with the IMF but Islamabad will be hoping to seal the deal with the multilateral agency at the earliest,” the analyst said, adding the south Asian nation is running “the show” by taking loans to repay its earlier loans and “this cycle” keeps continuing.

Sushant Sareen in an article published by the Observer Research Foundation said that it is clear that without the IMF coming to the rescue, Pakistan will default and become a Sri Lanka-like crisis on steroids given the scale of the problem.

He noted that most government expenses-subsidies, pensions, running of civilian government, development projects are being funded by taking on additional debt.

“This situation will get worse in the next fiscal if interest rates rise to dampen inflation. In any case, given that the rate of growth of total debt and liabilities is outstripping the GDP growth rate, it means Pakistan is now living off debt and is caught in a debt trap situation,” Sareen wrote.

IANS

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