China has recently pledged to lend at least $2 billion to Pakistan so that the latter can bulk up its foreign exchange reserves in order to prevent any further devaluations of the Pakistani rupee against the dollar. This was told by two senior government officials to the Financial Times.
The financial support is not being publicly announced by China.
“China’s promise to Pakistan is an indication of their commitment to help us avoid a crisis. If the rupee falls sharply and we need to prevent its slide, we can turn to China,” said a senior government official in Islamabad.
After decades of close military co-operation, Beijing has been stepping up financial support for Pakistan, with Chinese state-backed banks lending $4bn to Islamabad in the year ending June 2017.
China has committed to invest more than $60bn in infrastructure, energy, railway and road projects in Pakistan under the China-Pakistan Economic Corridor, a centrepiece of Chinese president Xi Jinping’s Belt and Road Initiative. The corridor is intended to link China’s western region with Pakistan’s newest deep seaport financed by Beijing at Gwadar near the Gulf.
In December, Mr Khan’s cabinet approved a plan to issue renminbi denominated “panda bonds” in the Chinese market, which one officials said could raise $1bn to $1.2bn.
Analysts said that by not publicly announcing its offer to Pakistan, Beijing hoped to avoid further raising US concerns over its relationship with Islamabad. As opposed to China’s method pledging funds covertly, US appropriates funds in the form of public aid packages.
In July 2018, Mike Pompeo, the US secretary of state, warned the IMF against a bailout to Pakistan that would help the country pay back its loans to China.
Zubair Khan, a former Pakistan commerce minister, said China’s discreet dealings with Pakistan were not meant to “undercut” the IMF. “China is a very important member of the IMF. They [China] also want Pakistan to fix our economy,” he said.
Pakistan’s allies in the Middle East are also stepping up to help Islamabad. Saudi Arabia has pledged to lend $6bn to Pakistan in the financial year to June 2019 while the United Arab Emirates has promised to lend another $3bn during the same period.