THE growing tendency to rely on loans from China to finance the current account deficit needs to be carefully reviewed before matters assume unmanageable proportions. The finance minister announced a $1bn loan from China the day after the budget was announced, and has been talking of borrowing a further $2bn before his term ends, which is just days away. Evidently, the government has decided not to stick to its original plan and engage with the global market in the event of a Eurobond flotation. So borrowing on commercial terms from state-owned Chinese banks as a way to finance the growing external sector deficit is fast becoming the new norm, a fact that has very troubling implications for the country.

For one, we do not know what to expect as we continue to go down the road of indebtedness to China. There might be some comfort in the thought that all will be well if our government, or any of our leaders for that matter, had a decent record of comprehending the long-term ramifications of such actions. But apparently, these are not understood. What we are being offered, instead, is a story that might appear reasonable on the face of it, but that may or may not work out. According to this narrative, we are borrowing in the short term to invest in long-term increases in competitiveness, and once those investments begin to yield results, the adverse terms of trade will be reversed and the debts incurred today will automatically pay themselves off. Such optimism is hardly warranted, as we tread the path of increasing indebtedness to an emerging great power, while holding on to nothing but this happy thought. Successive governments in Pakistan have shown a track record of taking the money without worrying about the consequences or the strings that might come attached. The example of the Musharraf regime comes readily to mind in this context. This time the inevitable appeal to the IMF is being postponed with the aid of bilateral loans from China — with no idea of how far we intend to go down this tricky slope. This is the price of failing to reform, to adapt. A new chapter in Pakistan’s dependence on external powers may be opening before us as these loans grow and the deficits persist; one more time, nobody knows how it will all end.

Published in Dawn, May 27th, 2018