IMF warns Pakistan against ‘excessive loans’ from China

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NUSA DUA (Indonesia): IMF’s chief economist Maurice Obstfeld has said that Pakistan has not yet formally approached the International Monetary Fund for financial assistance, but if bailout talks get underway this week, the goal will be to help Pakistan reach its full potential.

Addressing a news conference at the IMF and World Bank annual meetings in Bali on Tuesday, the IMF’s Maurice Obstfeld cautioned that increased Chinese involvement in Pakistan’s economy could bring both benefits and risks.

Obstfeld said Pakistan is facing financing gaps as it has been hit by a large fiscal and current account deficit, a low level of reserves and a currency he described as “too rigid” and over-valued.

Finance Minister Asad Umar said on Monday the government would seek to open talks with the IMF in Bali this week for emergency financial assistance. Prime Minister Imran Khan had earlier sought alternatives to a second bailout programme in five years from the IMF as it impose austerity and limit his vision of an Islamic welfare state.

Obstfeld said that if the IMF does enter into talks with Pakistan this week on a possible new financing programme, the goal would be reforms that would help Pakistan reach its “immense potential” without providing specific details.

“The government has expressed its desires to enact deep structural reforms that might break the cycle of Pakistan needing financial support from the Fund,” he said.

Pakistan needs more infrastructure development, Obstfeld added, and the country could benefit from China’s role in supporting its project financing. But China’s involvement could also bring potential risks, he said.

Islamabad has cut the size of the biggest Chinese “Silk Road” project in Pakistan, a reconstruction of the main rail line between the port city of Karachi and Peshawar in the northwest by $2 billion, citing government concerns about the country’s debt levels.