Pakistan’s latest IMF bailout faces tricky China debt hurdle

Pakistan is heading for its 13th bailout since 1947. But this one could be its most complicated due to the presence of China and its vast investments in the South Asian state.

  • By Elliot Wilson
  • 10 Oct 2018
Email a colleague
Request a PDF

Pakistan IMF 250
Umar: formal talks in Delhi
Pakistan’s finance minister Asad Umar will begin formal talks with the IMF in Bali this week, with the aim of finalising a $12bn bailout that will help it step back — yet again — from the brink.

But tough negotiations could be further complicated by the role of China, which is Pakistan’s most important creditor investing over $60bn in Pakistan in recent years, lending $4bn in the last 12 months alone.

The South Asian state was left with little choice after foreign exchange reserves slipped to $8.4bn in September, barely enough to cover import payments until the end of the year. If approved, it will mark Pakistan’s 13th and largest IMF-led support package since becoming an independent country in 1947. 

In a video message, Umar blamed the previous government for the country’s malaise, and said the talks, which are likely to take up to eight weeks, were necessary to address a mounting balance of payments crisis. The IMF told GlobalMarkets it had “not yet” received a formal request for financial support, but added: “We understand that Pakistan intends to approach [us]. Once we receive a formal request, the IMF will consider it as it does for other members of the IMF.” 

On Tuesday, the director of the Fund’s research department, Maurice Obstfeld, said the IMF would listen “very, very attentively, when and if” it is approached. He pointed to the country’s pressure points, including “very large” fiscal and current account imbalances and a “rigid and overvalued” currency. The Pakistani rupee dropped sharply against the US dollar in the wake of the news, on fears that the IMF will, this time, force the country to implement harsh and unpopular economic policies.

Both sides want the same thing: to ensure that a new facility is also the last. Finance Minister Umar pledged publicly to break the “spiral of being in an IMF programme every few years… once and for all”, while Obstfeld said the Pakistani government had “expressed a desire to enact deep structural reforms” that would break the toxic bailout cycle. 

But is that possible — and what might hamper approval of a new facility? Bilal Khan, MENA and Pakistan senior economist at Standard Chartered, reckons talks may be unusually bumpy this time. China is investing $62bn in local infrastructure, under the banner of the China-Pakistan Economic Corridor (CPEC), part of its Belt & Road Initiative. The IMF, he says, “will only be able to see Pakistan’s external debts by getting a full view of CPEC’s obligations. China isn’t going to like that.” 

Analysts fear another sticking point will be the US, said to be concerned that a new bailout will be partially used to repay its debts to China. Pakistan dismisses these fears, but China is by far the country’s most important creditor. It lent $4bn to Pakistan in the 12 months to end-June 2018. 

  • By Elliot Wilson
  • 10 Oct 2018

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 196,443.08 887 8.16%
2 Citi 185,218.65 764 7.70%
3 Bank of America Merrill Lynch 155,944.17 645 6.48%
4 Barclays 145,423.68 584 6.04%
5 HSBC 122,404.36 645 5.09%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Credit Agricole CIB 23,205.24 91 7.83%
2 BNP Paribas 22,856.10 93 7.71%
3 Bank of America Merrill Lynch 17,912.30 51 6.04%
4 JPMorgan 15,832.35 43 5.34%
5 UniCredit 13,242.71 72 4.47%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 6,646.08 29 10.31%
2 JPMorgan 6,222.43 38 9.65%
3 Goldman Sachs 5,596.92 27 8.68%
4 UBS 4,205.38 21 6.52%
5 Citi 4,178.15 30 6.48%