Imran Khan’s biggest challenge would be the economy

The toughest task that Imran Khan will have to grapple with soon after he becomes Pakistan’s new prime minister is not the security situation or political tensions; it is the issue of seeking another bailout from the International Monetary Fund (IMF) to shore up its currency reserves and plug an external financing gap. Some reports have suggested that Pakistani officials are finalising a plan to seek a $12 billion package from the IMF, while others have suggested that the Pakistan Tehreek-e-Insaf chief could turn to China, Pakistan’s “iron brother ally”, for financial assistance in view of the worsening relations between Islamabad and Washington. The Donald Trump administration, which has already ensured that security aid for Pakistan has come down from the historic levels of more than $1 billion a year to a few hundred million dollars, has made it clear that any IMF bailout cannot be used to pay back Chinese loans. Secretary of state Mike Pompeo said the US will be watching “what the IMF does” as there is no rationale for IMF tax dollars to go to China.

Pakistan’s economy has struggled in the past decade, largely due to a mix of poor security conditions following a spate of terrorist attacks and poor governance. If it showed signs of picking up in the last few years, it was largely because of Chinese investments in the $60 billion China-Pakistan Economic Corridor (CPEC), part of the One Belt, One Road initiative. Pakistan’s current account deficit has already risen because of massive imports of Chinese equipment and materials for CPEC and the country has already taken loans worth almost $5 billion from China and its banks. Latest reports from Islamabad suggest Beijing has agreed to give another loan of $2 billion that will boost foreign currency reserves, which the State Bank of Pakistan reported last month had fallen to $9 billion.

While it may be tempting for Pakistan to turn to China for help in the face of its worsening relations with the US, even an inexperienced administrator such as Mr Khan will be aware of the complications, including debt traps, that have arisen in countries which aligned themselves too closely with China’s Belt and Road Initiative. Any IMF bailout is expected to come with stringent conditions. Mr Khan will also be aware of the need for tax reforms, with only about one per cent of Pakistan’s population of nearly 200 million paying taxes, and the need to rein in external debt that has soared to 31% of the GDP. All in all, Mr Khan has his work cut out for him on the economic front.

First Published: Aug 06, 2018 12:50 IST