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China’s Aid for Pakistan’s Foreign Exchange Reserves

China has pledged to provide Pakistan with a total of $2 billion in financial aid to increase its foreign exchange reserves. Russian experts pointed out that there is a high possibility that China will respond to Pakistan’s request to provide financial support for its all-weather strategic partners.

In the year 2018, the value of the rupee shrank by more than 20 percent with respect to the dollar. Repayment of foreign debts, including $8 billion paid in December 2018, almost emptied Pakistan’s foreign exchange reserves.

The ongoing three-month negotiation with the International Monetary Fund (IMF) has not generated any tangible results. The two sides will resume negotiations on January 15 for a loan of $7 to 8 billion. It is very likely that Pakistan will satisfy the conditions that the IMF has set and will make transparent all terms to international lenders of Chinese loans and infrastructure projects under the framework of the China-Pakistan Economic Corridor. However, due to the budget gap, the Pakistani side has been in arrears in paying for the amount of work and services that the Chinese companies have completed. Therefore, it is very likely that the future loans received from the IMF will be used to pay to Chinese companies. The United States, which plays a major role within the IMF, has warned the IMF that the U.S. membership fee at the IMF is taxpayer’s money and should not be used to pay the Chinese lenders or Pakistani bond holders.

Pakistan’s foreign exchange reserves fell to a critically low amount of only $7.3 billion, which cannot even cover imports in recent months. The international rating agency Fitch has listed Islamabad’s debt rating as junk. Against this backdrop, China’s commitment of $2 billion will strengthen the Pakistani economy, improve the overall foreign exchange reserves, and, more importantly, will help increase the confidence of foreign investors.

The current promised $2 billion is the second allocation within six months. In July 2018, Beijing already pledged $2 billion to Pakistan to deal with the economic crisis. Earlier, according to Pakistan’s newspaper The Express Tribune, quoting from a Chinese Ministry of Finance’s anonymous source, China will give additional financial support. However, this information has not been corroborated; nor has any other source denied it.

In view of this, Russian experts pointed out in an interview with the Russian Sputnik News that China and Pakistan have reached a consensus and will not disclose information on the specific amount and conditions of the financial assistance. Pakistan’s Minister of Finance, Asad Umar, did not answer inquiries from foreign media about China’s new financial assistance. Zhao Lijian, representative of the Chinese Embassy in Islamabad, insisted that he did not have the information regarding the amount of loans and investments under the framework of the China-Pakistan Economic Corridor. However, he pointed out that China will continue to provide assistance for Pakistan’s economic development.

Source: Sputnik News, January 4, 2019