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Economy

Pakistan rules out possible IMF bailout funds to repay China

Officials say Islamabad examining options as it seeks way out of debt crisis

Prime Minister and the leader of Pakistan Tahreek-e-Insaf party Imran Khan seized power in an election in July.    © AP

HONG KONG -- Pakistan would not use any funds from a possible bailout from the International Monetary Fund to repay its debts to China and instead would use them to continue financing its imports, a government official said on Monday.

If the U.S. "vehemently" objects to an IMF bailout, "we are going to convince them that this money will not go to China," said Abdul Qadir Memon, Pakistan's consul general in Hong Kong. "It will go to balance our external accounts so that we are able to sustain our imports for the next year or so," he said in a question-and-answer session following a speech at the Foreign Correspondents' Club.

The country is facing a fiscal crisis and the new government of Prime Minister Imran Khan, who took office last month, is considering a bailout from the international lending agency. U.S. Secretary of State Mike Pompeo, who is scheduled to visit Pakistan later this week, has warned that any bailout by the IMF should not include funds to pay off Chinese loans. The U.S. is the largest contributor to the IMF.

Pakistan has seen its foreign exchange reserves plunge over the past two years due to ballooning international payments, partly reflecting the previous government's massive spending on infrastructure projects supported by China's Belt and Road Initiative. The $62 billion China-Pakistan Economic Corridor, or CPEC, is a flagship project in the initiative and an important investment in Pakistan's economy.

Memon rejected assertions by many that the Belt and Road Initiative was to blame for the country's financial crisis and the belief that Pakistan would go to the IMF to repay Chinese loans. "The balance of payments difficulties for Pakistan is because of high oil prices," he said. Brent crude prices have jumped nearly 50% over the past year. They were trading around $78 a barrel on Monday. 

Abdul Qadir Memon, Pakistan's consul general in Hong Kong, says that the country will not use any IMF funds to repay debts to China.  (Photo by Dean Napolitano).

But he cautioned that an IMF bailout would come with "stringent" conditions, which could undermine the government's ability to implement policies if it agrees to the terms. The government "may opt for other resources, and [the] People's Republic of China, Saudi Arabia -- in the past we had this deferred payment imports of oil," he said, adding that the government is examining its options.

Concerns that Pakistan is falling into a debt trap with China have also extended to Sri Lanka. Last year, China wrote off more than $1 billion in debt in exchange for a long-term lease on a deep-water port in the Indian Ocean nation. Sri Lanka again is working with China's central bank for an injection of cash.

Memon said that China has shown flexibility in its negotiations with Pakistan on terms and conditions of loans. "The payback period is longer," he noted. "Pakistan has no history of default."

The consul general also addressed the news over the weekend that the U.S. had suspended $300 million in military-related funds for Pakistan, with the Department of Defense citing what it said was Islamabad's "failure to take action against terrorists," according to National Public Radio.

Memon criticized the decision, saying it was not aid for Pakistan but a payment the U.S. "owes" the country. "This is the money the United States has committed to Pakistan for providing support for the coalition logistics and air support so that the United States can fight its war on terror inside Afghanistan," he said, adding that "in our books, this is a receivable."

He called Washington's move a pressure tactic and cited the "ups and downs" of the two countries' relationship. "There has been suspicion, acrimony and, at times, hostility displayed by the U.S. leadership, but we are willing to work with them based on mutual respect, mutual trust."

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