Economy

Will China prove it is Pakistan’s fair whether friend by not bailing it out from financial distress?

As negotiations between the International Monetary Fund and Pakistan for the resumption of the $6.5 billion financial assistance package is yet to yield any result, Islamabad is hoping China will play a bigger role.

But will China help? Going by past experiences, China may not provide any “meaningful” assistance.

Beijing, considered a close ally of Sri Lanka, did not come forth in helping the island nation either.

Earlier this month Beijing decided to roll over a $1.3 billion loan for Pakistan. But many say this is “hugely insufficient.”

Analysts said that China will possibly provide “some breather” but it may not come forth in rescuing Pakistan.

Farrukh Iqbal, former Executive Director of Karachi based Institute of Business Administration in an article published in local newspaper Dawn said that so far, China has not played a big role in debt restructuring for developing countries.

“It has had to be dragged into such negotiations and has not been known for generosity in the process,” he wrote. However, he added that as a political ally and a major lender to Islamabad, “it may find its interests best served by taking the lead in Pakistan’s hour of need.”

Though Pakistan’s Finance Minister Ishaq Dar is putting up a brave face and has also assured that Pakistan will not default, concerns are rising especially after global ratings agency Moody’s downgraded the country.

The bond holders are already preparing for a potential default.

Pakistan’s debt under Prime Minister Shehbaz Sharif has continued to rise and rise at a pace of 15 per cent. Between July—the beginning of the new financial year in the country and January, (Pakistani) Rs 7.2 trillion was added in debt to touch a total of about Rs 55 trillion, largely driven by the depreciation of the local currency.

In December alone, the government’s total debt increased by 7.7 per cent month-on-month touching Rs 51 trillion.

According to Arif Habib Limited “this is the highest monthly increase due to PKR depreciation during January 2023.”

Also read: Moody’s downgrades Pakistan’s rating amid depleting forex reserves

Mahua Venkatesh

Mahua Venkatesh specialises in covering economic trends related to India and the world along with developments in South Asia.

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