Pakistan's bailout becomes a pawn in US-China tensions

With its economy in distress, Pakistan's new government is expected to soon go cap in hand to the IMF seeking yet another loan. But US Secretary of State Pompeo's recent comments highlight the tough road ahead.

Political tumult and civil-military tensions figured prominently in Pakistan's recent raucous parliamentary election campaign. The vote saw cricketer-turned-politician Imran Khan's party emerging as the leading actor in the nation's politics. Khan is widely expected to take over the reins as prime minister.

Regardless of the political challenges he may encounter, the prime minister in waiting and his government will have their work cut out when it comes to tackling the difficulties the Pakistani economy is grappling with.

Read more: 'New Silk Road' and China's hegemonic ambitions

The South Asian nation's economy has been in poor shape over the past several years. While its current account deficit jumped 43 percent to $18 billion ($15.4 billion) in the fiscal year that ended June 30, its fiscal deficit rose to 6.8 percent of GDP. 

The country's foreign exchange reserves, meanwhile, are dwindling, plummeting to just over $9 billion now from $16.4 billion in May 2017. The central bank has been forced to devalue the currency thrice since December. Rising global crude prices present another challenge, as Pakistan imports about 80 percent of its oil needs.

IMF to the rescue, again?

Creating enough employment opportunities for the nation's over 200 million people will also be a daunting task for the government. Experts say Pakistan needs to generate 2-3 million jobs annually, and that would require measures to ensure security, cut bureaucratic red tape, improve ease of doing business and strengthen the nation's manufacturing industry, among other things.

"Pakistan is facing the biggest economic challenge in the country's history," Khan said in his victory speech.

Now live
01:18 mins.
Business | 25.07.2018

Will Sino-Pak friendship benefit the two nations?

Economic problems over the past three decades have repeatedly forced Islamabad to knock on the doors of the International Monetary Fund (IMF) seeking assistance. Since 1980, Pakistan has had 14 IMF financing programs, according to fund data, including a $6.7 billion three-year loan program in 2013.

Many inside and outside Pakistan expect Islamabad to once again seek IMF's financial help. A loan from the Fund could help the country close its external financing gap temporarily and avert an economic catastrophe.

"Pakistan urgently needs $10-15 billion. We have no other option but to reach out to the IMF for loans," said Muzzamil Aslam, a financial analyst.

'No rationale'

But recent statements made by US Secretary of State Mike Pompeo about any potential IMF bailout of the country have underlined the difficulties the Pakistani government would face in accessing IMF funds this time around.

In an interview with CNBC, Pompeo said the United States looked forward to engagement with the government of Pakistan's expected new PM, Imran Khan, but said there was "no rationale" for a bailout that pays off Chinese loans to Islamabad.

"Make no mistake - we will be watching what the IMF does. There's no rationale for IMF tax dollars - and associated with that, American dollars that are part of the IMF funding - for those to go to bail out Chinese bondholders or - or China itself," Pompeo said.

His comments were in reference to Pakistan's involvement in China's mammoth Belt and Road Initiative (BRI), an ambitious $1 trillion infrastructure project that aims to bolster China's trade and investment links with economies in Asia, Africa and Europe.

Pakistan is estimated to have already received over $5 billion in bilateral and commercial loans from China this fiscal year. And Beijing is also pumping billions into the South Asian country as part of the China-Pakistan Economic Corridor (CPEC). The multibillion-dollar initiative, part of BRI, is aimed at modernizing Pakistan's infrastructure by building and expanding ports, railways, power plants and other physical infrastructure.

While the initiative's proponents view CPEC, valued at over $60 billion, as a positive force that could transform and boost the Pakistani economy, detractors say it will turn Pakistan into China's "economic colony."

Who is Imran Khan, Pakistan's new prime minister?

Affluent upbringing

Imran Khan was born in Lahore in 1952, the son of a civil engineer. Khan grew up with his four sisters in a relatively affluent part of the city. He received a privileged education, first in his hometown and then in Worcester, England. It was there that Khan's love and talent for the game of cricket became evident. In 1972, he enrolled at Oxford University to study politics and economics.

Who is Imran Khan, Pakistan's new prime minister?

Pakistan cricket's blue-eyed boy

Khan played cricket throughout his time in England and after returning to his native Pakistan in 1976, he quickly became a regular in the national team. By 1982, he was awarded the captain's armband. Khan enjoyed an illustrious career and was regarded by many as one of the best all-rounders in the world.

Who is Imran Khan, Pakistan's new prime minister?

World champion

The ultimate high point of Khan's sporting career saw him captain Pakistan to the 1992 Cricket World Cup in Melbourne, Australia. As if his popularity couldn't get any bigger back home, Khan even took the winning wicket in the final against England.

Who is Imran Khan, Pakistan's new prime minister?

From playboy to (thrice) married man

Khan enjoyed hedonistic bachelor life and was a regular fixture on London's nightlife scene. However, in 1995, at age 42, he finally tied the knot to 21-year-old Jemima Goldsmith. During their nine-year marriage, the famous couple provided plenty of fodder for the British and Pakistani tabloids. Despite separating in 2004, Goldsmith has remained a vocal supporter of Khan's politics.

Who is Imran Khan, Pakistan's new prime minister?

Khan enters politics

Khan wasted little time after retiring from cricket in 1994. Just two years later he entered Pakistani politics and founded the Pakistan Tehreek-e-Insaf (PTI) party. However, his popularity was slow to carry over from cricket into politics. In the 1997 general elections, his PTI party failed to win a single seat.

Who is Imran Khan, Pakistan's new prime minister?

Political activist

Khan remained active in politics over the next decades. In 1999, he supported General Pervez Musharraf's military coup, only to later turn against Musharraf ahead of the 2007 presidential election. Khan was subsequently placed under house arrest and even spent a few days in prison. However, his supporter base continued to grow, and by 2013 he became a key candidate in the general elections.

Who is Imran Khan, Pakistan's new prime minister?

2013: Khan's political breakthrough

The PTI made substantial gains in the 2013 election, claiming 30 parliamentary seats and finishing second behind the Pakistan Muslim League. The party became the main opposition in the key provinces of Punjab and Sindh. However, its greatest feat was winning its first province in Khyber Pakhtunkhwa.

Who is Imran Khan, Pakistan's new prime minister?

"Taliban Khan"

Khan has often been the butt of jokes for his pacifist stance towards terrorism in the region. He earned the moniker "Taliban Khan" for claiming that the only way to achieve peace with the Taliban in neighboring Afghanistan was through negotiation. Khan was also a vocal critic of US drones strikes on Pakistan and has promised to disengage Pakistan from America's conflicts in the Middle East.

Who is Imran Khan, Pakistan's new prime minister?

Two more marriages

Since his divorce from Goldsmith in 2004, Khan has remarried twice. In January 2015, Khan announced his marriage to British-Pakistani journalist Reham Khanm although just 10 months later the couple said they were filing for divorce. In February 2018, Khan married his third wife, Bushra Manika (pictured front row, second from the left), whom he describes as his spiritual adviser.

Who is Imran Khan, Pakistan's new prime minister?

Making waves in 2018

By 2018, Khan's PTI were among the favorites going into the general election. Campaigning on a populist platform, Khan pledged to break away from Pakistan's corrupt legacy. His plans include a poverty reduction program similar to that seen in China. This would see the establishment of an "Islamic welfare state," the creation of 10 million jobs and construction of 5 million homes for the poor.

Who is Imran Khan, Pakistan's new prime minister?

Prime Minister Imran Khan

Khan completed his journey from all-star cricketer to political leader on July 26, 2018. With most votes counted, the PTI is expected win up to 119 seats in Pakistan's 272-seat parliament. "I started this struggle 22 years ago and today I have been given a chance to fulfill what I dreamed for the country," Khan said in a televised speech. "We will run Pakistan like it's never been run before."

Pressure on Pakistan

Following Pompeo's remarks, China on Tuesday said it expects the IMF to follow its own rules and standards when providing funds to countries. "I believe they will handle it properly," Chinese Foreign Ministry Spokesperson Geng Shuang said.

The Chinese government has also repeatedly refuted the claims that its BRI scheme has saddled a number of developing countries with excessive and unsustainable debt.

Shi Yinhong, a professor of international studies at the Beijing-based Renmin University of China, told DW that Pompeo's statements showed that the US wants to put pressure on countries relying on Chinese money to develop their infrastructure.

The US, he said, is joining forces with countries like the US, Japan, Australia and India, in a bid to counter Beijing's growing economic clout. "The 'Indo-Pacific' alliance, including these countries, has so far been mainly strategic, but now they're also looking to develop an economic component," Yinhong said.

Read more: Why are Pakistanis keen to learn Chinese language?

The US secretary of state's remarks have also caught the attention of Pakistanis. US President Donald Trump's administration is trying to impose "harsh conditions on Pakistan" as part of its efforts to "harm China's interests," said Ikram Sehgal, a defense and security analyst.

"The US generally tries to influence the economy and politics of developing countries," he stressed, adding that Washington's ongoing trade spat with Beijing meant nations like Pakistan would come under growing American pressure to move away from China and side with the US.

In order to escape the repeated boom-and-bust cycles and improve Pakistan's financial position, experts say the new government will have to undertake an array of structural reforms. They include reforming the nation's state-run firms as well as furthering liberalizing the product and labor markets. 

However, it's uncertain at present whether the new government in Pakistan would be up for the task.

Now live
02:32 mins.
DW News | 27.07.2018

Pakistan vote - EU election observer Gahler talks to DW