China’s bailout
Finance Minister Asad Umar on his return from China tried to
reassure the country and the markets in a press conference on November 6, 2018
that the imminent balance of payments crisis had been averted. This was made
possible, he asserted, through the Saudi bail-out package of $6 billion ($3
billion to be parked in our foreign exchange reserves and $3 billion for
deferred payments for oil imports), to which could now be added another $6 billion
from China. However, the announcement was strong on rhetoric but woefully
lacking in detail. It turns out from reports that in fact all China has done as
our good friend so far is to promise financial help in principle, with the
details and modalities of the package to be worked out by a high powered
Pakistani delegation to visit Beijing on Nov 9. Also, China has reportedly
agreed to boost Pakistani imports from Pakistan to twice and eventually three
times their present level, which would go some way towards reducing our trade
deficit with China, currently around $ 14 billion. Some of this burgeoning
trade deficit is owed to imports from China related to CPEC, but the underlying
reality is that Pakistan does not possess the sufficient exportable surpluses
needed to dent the deficit meaningfully, although opening China’s market to
Pakistani sugar and rice exports seems promising. Asad Umar was naturally
expected to reveal what had been achieved during the China visit to an
expectant country. Another consideration may have been the skittishness of the markets
for the last few days amidst reports that the trip to China under Prime
Minister Imran Khan’s leadership had failed to achieve much. Whether the
announcement by Asad Umar will serve to relieve the uncertainty gripping the
markets and restore confidence that Pakistan has manage to wriggle out of the
economic hole it seemed trapped in remains to be seen. Unless and until the
details of the China bail-out are authoritatively revealed, much remains in the
realm of speculation, not a conducive atmosphere for business and market
confidence. Another important aspect of the deliberations in China is the
proposal to trade through a yuan-rupee swap arrangement on the argument that
this would release pressure on our dollar reserves. This arrangement too
remains to be discussed and worked out in detail in further meetings between
the two sides. While these outcomes in principle and further deliberations
focus on Pakistan’s immediate financial needs, perhaps the even more
significant convergence in the long term is the agreement that now that CPEC’s
first phase concentrated on infrastructure is drawing to a close, the second
phase will concentrate on industrialisation (with the Special Economic Zones
playing a critical part), agriculture, employment creation and vocational
training. The PTI before and after coming to power had been critical of these
aspects not being included in CPEC’s formulation, but that reservation seems to
have been met in principle by our Chinese friends, a development that will
boost the chances of the PTI government’s welfare agenda. The day after Asad
Umar’s presser, meetings with the IMF visiting delegation started, whose
results may be influenced by, and indeed impinge on, what has been agreed with
China.
Without meaning to be too critical, the perception that the
PTI government has been strong on rhetoric from its agitational days in
opposition and weak in grasping firmly the nettle of our economic straits is
perhaps abating. However unprepared for office in terms of policy (and the rub
is always in the detail), the government’s team seems more realistically to be
coming to grips with economic reality and the way things work, both at home and
abroad. Our rock-solid Chinese friends are prepared to go out on a limb to help
Pakistan, but they and the people of Pakistan expect and deserve that our
government too would now burn the midnight oil to take full advantage of
Beijing’s generosity in order to stabilise the country’s finances and move incrementally
with good planning towards the implementation of the agreements with China.
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