Islamabad [Pakistan]: Caught in a quagmire between political instability and economic turmoil, the development projects under the China-Pakistan Economic Corridor (CPEC) have been delayed in Pakistan, angering China, reported The Friday Times.
China is angry in particular as it recently helped Pakistan out by rolling out loans and extending much-needed support. Diplomatic sources say Chinese authorities are ‘much annoyed’ by the mismanagement in Pakistan.
‘China rolled over loans with a guarantee of IMF compliance and renewal but this did not happen. The power plant’s payment is stuck in the billions. (Pakistani) The government made assurances but nothing practically happened,’ said a senior diplomat.
However, the International Monetary Fund (IMF) funding is still in doubt, Pakistan is hardly able to execute plans, let alone complete the development projects under the CPEC, reported The Friday Times.
China, the diplomat added, is also worried about the political instability in Pakistan. ‘We hear that due to the continuous delays, considering future challenges, IMF is demanding a USD 8 billion loan arrangement, and this may go up with delays as more repayments are coming in. Inflation is up (as well), so the IMF also wants (some) real interest (from Pakistan).’
The political unrest that’s engulfed Pakistan since former Prime Minister Imran Khan was arrested earlier this week will complicate efforts to secure a financial lifeline from the International Monetary Fund and exacerbate the country’s economic crisis.
Growth has stalled and inflation has soared in the South Asian country of 220 million over the past year. With Pakistan’s rupee sharply depreciating and reserves of foreign currency dwindling, the country has struggled to import essential products like food, leading to deadly stampedes at distribution centres. Fears Pakistan could default on its debt have lurked for months, reported CNN.
Now, as nationwide protests and violent clashes sweep the country following Khan’s dramatic arrest on corruption charges, the country’s ability to secure much-needed financial help has been cast further into doubt.
Moreover, investors are skeptical that Pakistan and the IMF can reach an agreement to unlock much-needed funds, with the volatile political environment adding to uncertainty ahead of elections in the fall.
Growth has slowed to a crawl, while a severe shortfall of dollars hamper imports. Shortages of food items are contributing to skyrocketing prices. Inflation reached an annual rate of 36.4 per cent in April, with the cost of food rising nearly 47 per cent in urban areas and more than 52 per cent in rural regions, reported CNN.
According to Tahir Abbas, director of research at Arif Habib, a financial firm in Karachi, foreign reserves at the central bank of roughly USD 4.4 billion are sufficient to cover about a month of imports.
What’s known as a ‘balance of payments’ crisis is eroding standards of living in a country still reeling from devastating flooding last year. It could ‘reverse the poverty gains achieved in the last two decades and further reduce the incomes of already poor households,’ the World Bank warned last month.
Pakistan’s ability to maintain payments on its debt has also been called into question. Ratings agency Moody’s downgraded the country’s credit rating in late February, noting that foreign currency reserves were ‘far lower than necessary to cover its imports needs and external debt obligations over the immediate and medium term.’