Pakistan will be facing a tough time getting the loans it needs to fund its worsening balance of payments position, says a report by the Economic Intelligence Unit (EIU).
It holds the view that a bailout package might be hard to come by, owing to political resistance from both US and China.
While the US Secretary of State, Mike Pompeo, has recently put forth American concerns that Pakistan might pay off Chinese debts with the loans it will require from the International Monetary Fund, China could as well be concerned about disclosures on CPEC related projects to the Fund.
In addition to that, China has already lent over $5 billion in the fiscal year 2018 with $ 1 billion lent as recently as June 2018, not including the more recent $2 billion lent to Pakistan to boost the country’ plummeting foreign currency reserves that had gone down to $9 billion prior to this loan.
The $2 billion loan, besides supporting the country’s foreign reserves, also served as a confident booster in the country’s foreign exchange market, that witnessed the rupee appreciate despite the country’s worsening external accounts situation.
The currency appreciation comes after a 20% fall in the value of the local currency since December 2017, with respect to the US dollar.
This major depreciation witnessed by the rupee over this time frame comes about as a result of rising import bills driven by high oil prices in the global marketplace, capital needs for projects associated with CPEC, and a loose fiscal policy, which combined with a stagnant exports growth, has led to record high trade deficits for the country.
Trade deficits in the first half on 2018 have surged to $16.5 billion compared to $15.1 billion in the corresponding period of the prior year.
While talking to local media sources, Asad Umar, the man pinned to be Pakistan’s next finance minister, said that although difficulties are inevitable, he was optimistic that Pakistan would pull through this as it had done in the past.
Meanwhile, EIU holds the view that Pakistan should introduce much tighter controls over imports, while the government should its deficit through bond issuance and borrowings from commercial and bilateral partners instead.