In the past few years, through the Belt and Road Initiative, Beijing has managed to increase its economic clout as well as its political influence in different parts of the world. The US along with its allies has virulently opposed BRI due to the lack of transparency and adverse long term implications. A report brought out by the Centre for Global Development (CGD) in 2018, underscored the fact about how eight countries, including Pakistan, were specifically vulnerable with regard to falling into a ‘Debt Trap’.
While multilateral organizations like the International Monetary Fund (IMF) and World Bank have in recent years faced scathing criticism from different quarters– for differing reasons. China along with other developing countries has often criticized these organizations for being out of sync with the times, and insensitive to the needs and requirements of developing countries.
IMF and World Bank often dismissed by developing countries for being exploitative, have been quick of the blocks. On March 4, 2020 the International Monetary Fund’s Managing Director Kristalina Georgieva announced a $50 billion aid package through its rapid disbursing Emergency Financing Facilities for low income and emerging market economies. It would be pertinent to point out that Iran has also sought assistance worth $5 billion from the IMF (the request is under consideration).
Both the IMF and World Bank have also stated that poorer countries need to be given debt relief in order to counter the pandemic. The World Bank President, David Malpass in a meeting with the steering committee of the IMF stated that poor countries which were already facing indebtedness needed special assistance.
One country which has been quick to seek the assistance of IMF and World Bank is Pakistan (as of Saturday, March 28, 2020 there were 1398 cases with 11 deaths). In recent years China-Pakistan relations have further strengthened, owing to the China-Pakistan Economic Corridor (CPEC) project, and as a result of the deterioration of ties with Washington, Islamabad’s economic dependence upon Beijing has risen.
China has promised assistance to Pakistan in its fight against the coronavirus in recent weeks. On Friday, March 27, 2020 Pakistan also opened its border with China and medical assistance was being delivered through the Khunjerab Port.
Beijing has assured Islamabad that CPEC will go ahead as per schedule, and some Chinese workers and engineers working on CPEC related projects have already returned to Pakistan.
What is important is that, during this hour of crisis, Islamabad has sought help from multilateral agencies like IMF, World Bank and Asian Development (ADB).
Pakistan which went into lockdown, and faces a serious economic crisis has announced a relief package of 1.2 trillion rupee (Pakistani) on March 25, 2020 to support different sections of the population in dealing with the economic turbulence arising out of the current situation. Some of the important steps taken as part of the relief package were; a tax rebate to the tune of Rs. 100 billion for the export sector, Rs. 200 billion has been directed towards aid for labor and finally, concessional loans to Small and Medium Industry and slashing of diesel and petrol prices by Rupees 15. Apart from this, State Bank of Pakistan reduced its key interest rates from 12.5% to 11%.
On Friday, March 27, 2020 the Pakistani Rupee was pegged at 166 against the US Dollar, this is the lowest it has ever touched since June 2019. Moody’s Investor’s Services has also made a forecast that the country’s growth will dip to 2.5% (as a result of coronavirus pandemic) from the earlier forecast of 2.9%. The only relief for Pakistan is the fact that oil prices have reduced, and this will mean a reduction in Pakistan’s oil import bills.
The Pakistani Prime Minister, Imran Khan was opposing a complete lockdown in spite of pressure from many lobbies. He even urged provinces like Sindh and Balochistan, which decided to impose a lockdown before the Federal Government, to rethink the utility of going in for a complete lock down (Sindh has announced a lockdown on March 22, 2020 for 15 days), arguing that Pakistan was a poor country, and could not afford the same.
It has been argued that the main cause of opposition to the lock down was pressure from the business lobby in Pakistan, which believed that such a move would be detrimental. It has been argued that Khan’s government went ahead with a lockdown on March 23, 2020 due to pressure from the Pakistan army (the announcement for a complete lockdown had been made by the DG ISPR, Inter Services Public Relations, General Babar Iftikhar on March 23rd).
Assistance from World Bank, IMF and ADB
If one were to look for the specific assistance from multilateral institutions, Pakistan has requested for another $1.4 billion from the IMF in order to fight the virus. IMF sanctioned a three year loan of $6 billion last year which imposed conditionalities (including information with regard to economic relations between Pakistan and China), but has also contributed towards the recovery made by Pakistan’s economy in recent months. In December 2019, Moody’s Investor’s Services had upgraded Pakistan’s outlook from negative to stable.
Apart from assistance sought from the IMF, Pakistan has also sought assistance from World Bank and Asian Development Bank to the tune of $1 billion and $1.25 billion respectively.
While it is true, that multilateral institutions like IMF, World Bank have their shortcomings, and are in need of urgent reform, they still have their own relevance, as is clearly evident from the constructive role they are playing in the current crisis. Not just Islamabad, but many other countries which have close economic links with China are likely to seek assistance from IMF and World Bank in dealing with the current crisis. Post the current crisis, many developing countries which have strengthened ties with China in recent years, are also likely to realize that they can not be solely dependent upon Beijing, and need to have other alternatives.
The views and opinions expressed in this article are those of the author.