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Pakistan turns bullish with backing of Beijing and Riyadh

Islamabad begins bailout talks with IMF, but lacks sense of urgency

After a visit to Beijing, Pakistani Prime Minister Imran Khan now faces negotiations with the IMF for financial assistance.   © Reuters

ISLAMABAD -- Pakistan began negotiations with the International Monetary Fund this week on a bailout package, but the South Asian country feels no sense of urgency as it sees enough support from China and Saudi Arabia to avert a crisis, at least for now.

When Pakistan's main stock index -- the KSE-100 -- fell roughly 0.5% on Thursday, investors and analysts were hardly alarmed.

"A few weeks ago, investors were getting a heart attack every time the market sunk," a wealthy Pakistani equity investor said. "But today, many of us see hope in the future. No one is in a state of panic."

Shuja Rizvi, a stock market analyst in the southern port city of Karachi, said Pakistan's crisis is widely seen to have ended.

"People in the [stock] market are now much more relaxed," Rizvi said.

Senior cabinet ministers in Islamabad share that sense of returning comfort. Ahead of the beginning of formal talks between an IMF delegation and Pakistan on Wednesday, Finance Minister Asad Umar claimed that "Pakistan's immediate balance of payments crisis is over."

His comments came after Saudi Arabia last month announced a $6 billion loan to Pakistan -- half of that amount to boost the country's foreign currency reserves, and the other half in credits to finance part of the bill for oil imports during the current financial year ending in June 2019.

New Prime Minister Imran Khan visited China this month and met with government leaders. It was Khan's first visit to China since being elected as prime minister in July.

Though China did not announce an aid package like Saudi Arabia, senior Pakistaniofficials have told the Nikkei Asian Review that Beijing will continue to help Pakistan as it did in the last financial year. Chinese commercial banks lent at least $4.5 billion to boost Pakistan's liquid foreign exchange reserves last year -- a gesture that helped to avert an all-out default on foreign payments.

One senior finance ministry official on Thursday said that China was committed to protecting its interests, driven by a promised investment of $62 billion under the China-Pakistan Economic Corridor -- a cornerstone of Chinese President Xi Jinping's Belt and Road Initiative.

"China's interests in Pakistan are huge," the official added. "They [China] will quietly continue to help Pakistan to avoid an economic crisis."

But critics have warned that an end to the sense of crisis is not sufficient to stabilize Pakistan's economy for the medium to long term. The country's recurring challenges have included a failure to reform one of the world's worst-performing tax collection systems. Fewer than 1% of Pakistan's roughly 200 million people pay a regular income tax.

Additionally, the current-account deficit of about $18 billion during the last financial year -- Pakistan's largest ever -- was fueled by a failure to curb rising imports while exports crashed.

"Pakistan's industrial production has sagged over the years while the country's imports have grown and no credible reforms have taken place," said one Western economist in Islamabad who requested anonymity.

Christine Lagarde serves as managing director of the International Monetary Fund, which has granted Pakistan more than 20 loans since the 1980s.

Pakistan still needs a loan from the IMF despite the greater comfort level among government decision makers, analysts said.

"Sooner or later, we will have to head to international markets and raise money through bonds. Help from countries like Saudi Arabia or China will not improve Pakistan's standing," the senior finance ministry official said. "Pakistan needs to be placed under a tough IMF program to send the right message to global markets."

Umar has said publicly on a number of occasions that Khan wants to seek a new IMF loan, which should become a driver for bold reforms and must be the last in the history of Pakistan's relations with the Washington-based lender. This would be in contrast to the more than 20 loans that Pakistan has received from the IMF since the 1980s.

Khan gave approval in a cabinet meeting on Thursday for the publication of an annual tax directory, which will list Pakistan's taxpayers and how much they paid last year. Government officials say Khan intends to make the publication of that directory an annual feature, mainly to shame wealthy tax evaders.

Plans to publish such a directory have been initiated twice since 1993, but subsequently were shelved amid resistance from influential Pakistanis who either do not pay their taxes or paid amounts far below their income tax due.

Analysts said the Saudi announcement and possible support from China by themselves will not help tackle Pakistan's many economic challenges.

"What we are seeing so far is an improvement in Pakistan's liquidity position," Mushtaq Khan, former chief economist of Pakistan's central bank, told Nikkei. "But having more money in the bank still leaves many questions over long-term reforms like the tax collection system."

The economist and other analysts warned that a failure to undertake long-delayed reforms will only send Pakistan through another economic crisis in the future, even if Khan's government secures another IMF loan.

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