China's $2.3 billion refinancing for Pakistan

Islamabad Updated: Jun 03, 2022, 01:09 PM(IST)

China-Pakistan flags [ representative image] Photograph:( Twitter )

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Pakistan is trying to refurbish its economy to avail of funds from the International Monetary Fund (IMF), but it needs fiscal adjustment of around 2.5 per cent of GDP, by increasing the revenue and decreasing the expenditure in the next budget. Meanwhile, Chinese banks have agreed to refinance Pakistan with USD 2.3 billion worth of funds on Thursday amid a forex reserve shortage in the country.

Chinese banks have agreed to refinance Pakistan with USD 2.3 billion worth of funds on Thursday amid a forex reserve shortage in the country. This move comes at a time when Pakistan is trying to refurbish its economy to avail of funds from the International Monetary Fund(IMF). 

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Last week,  the Shehbaz Sharif government in Pakistan raised fuel and electricity prices, which is a key IMF demand for releasing funds. The government decided to hike the electricity prices by PKR 7, and petrol and diesel by PKR 30 per litre in order to stabilize the country’s economy amid a deepening political crisis.

The Pakistani government is expected to make a fiscal adjustment of around 2.5 per cent of GDP, by increasing the revenue and decreasing the expenditure in the next budget. The agreement on payout will only be made after the next IMF compliant budget, as indicated by Pakistan Finance Minister Miftah Ismail.

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It is a tough decision to implement such a budget for the Shehbaz Sharif government, as it could affect their party’s performance in the general assembly elections scheduled for next year.

Former Pakistan Prime Minister, Imran Khan’s government had also applied for a bailout package from IMF but had failed to meet loan conditions. Mr Khan was ousted from the position in April 2022, on grounds of mismanagement through a no-confidence motion.

It has become a regular feature of the Pakistani economy to receive funds and bailout packages from China, but this raises geopolitical security concerns for India as Pakistan, one of its neighbouring countries succumbs to the Chinese ‘debt-trap policy.’

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