IMF bailout for Pak not enough to pay off China loans, warns US
31 July 2018
The United States has warned that a $1-billion loan that Pakistan has sought from the International Monetary Fund (IMF) to stabilise its foreign currency reserves, could find its way to China and its banks and further complicate that country’s currency crisis.
Pakistan, which has around $5 billion in outstanding loans from China to fund major infrastructure projects under China’s 'One Belt One Road’ initiative, has sought another $1 billion in loans from the IMF to stabilise its plummeting foreign currency reserves.
US Secretary of State Mike Pompeo on Monday said any potential IMF bailout for Pakistan's new government should insist that the funds are not used to pay off Chinese lenders of there is going to be any meaningful bailout.
In an interview with CNBC television, Pompeo said the United States looked forward to engagement with the government of Pakistan's expected new prime minister, Imran Khan, but said there was "no rationale" for a bailout that pays off Chinese loans to Pakistan.
"Make no mistake. We will be watching what the IMF does," Pompeo said. "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," Pompeo said.
Officials in the Trump administration have criticised China's infrastructure lending to developing countries, arguing that this has saddled them with unsustainable debt. The $57-billion China-Pakistan Economic Corridor, a chain of port and rail projects envisaged under China's Belt and Road infrastructure initiative, has led to massive imports of Chinese equipment and materials, swelling Pakistan's current account deficit.
Pakistan is struggling to avert a currency crisis and if the bailout is approved, it would be Pakistan's second such bailout in five years.
Pakistan has had 14 IMF financing programmes since 1980, according to fund data, including a $6.7-billion three-year loan programme in 2013.
The Financial Times reported on Sunday that senior Pakistani finance officials were drawing up options for Khan to seek an IMF bailout of up to $12 billion.
Pakistan is struggling to avert a currency crisis that has presented the new government with its biggest challenge.
An IMF spokeswoman, however said there was no request from Pakistan for financial support. "We can confirm that we have so far not received a request for a Fund arrangement from Pakistan and that we have not had discussions with the authorities about any possible intentions," she said.