WASHINGTON: The core purpose of US economic engagement with Pakistan is to ensure that it’s not a failure in the future and stops being such a poor country, says a senior official of the US Treasury Department.

David Malpass, Under Secretary of Treasury for International Affairs, told lawmakers during a Congressional hearing on Wednesday that the Trump administration also wants to ensure that any IMF loan to Pakistan is not used to repay its Chinese debt.

Pakistan is seeking an $8 billion extended loan facility from the International Monetary Fund (IMF) to bail itself out of a severe balance-of-payments crisis that threatens to cripple its economy. The two parties are still discussing the package and a final decision is expected early next month.

At this House Financial Services Committee hearing on international financial institutions, several US lawmakers expressed concern that Pakistan may use the IMF loan to repay some of the $60bn loans it is borrowing from China for CPEC. Some lawmakers also argued that this huge Chinese debt was responsible for the economic challenges Pakistan was facing.

Read more: US eases fears Pakistan will use IMF loans to clear China debt

Congressman Ed Royce, a California Republican, reminded Mr Malpass that in July this year Secretary of State Mike Pompeo had said that there’s no rationale for using IMF and American tax dollars — that are part of the IMF funding — to bailout Chinese bond holders. What’s the administration doing to prevent this, Congressman Royce questioned.

“With regard to Pakistan, Secretary Pompeo is exactly right. So, we are working and making clear within the IMF that if it were going to supply any funding to Pakistan that it would not be used to repay Chinese loans,” Mr Malpass said.

“We are trying also to make sure that Pakistan changes its economic programme, so that it’s not a failure in the future. So, that’s the core of our purpose with regard to Pakistan,” he added.

Later in the hearing, Congressman Brad Sherman, a California Democrat, raised the issue again.

“Looks like IMF will loan the money to Islamabad so that they can send the money to Beijing. What would we do to make sure that the IMF is not used, in effect, just to pay back China?” he asked.

“We will make strong efforts, and I believe successful efforts, to make sure that what you describe doesn’t happen, meaning a payoff of Beijing via Islamabad,” Mr Malpass said.

“But Pakistan has not been successful yet at all in finalising a package with the IMF. So, it’s something that we follow closely,” he added. “One of the things that we are aware of and do follow is that IMF loans tend to be shorter maturity loans and China’s loans to Pakistan have been longer maturity loans.”

When Mr Sherman demanded to know how would Washington make sure that Islamabad follows the conditions attached to an IMF package, Mr Malpass said: “We will look for ways that that round-tripping does not happen the way you described.”

Helping Pakistan overcome its economic deficiencies, however, was even more important, he added.

“Important in this, in my view also, is the structural reforms in Pakistan that are necessary for it to stop being such a poor country,” Mr Malpass said.

Published in Dawn, December 14th, 2018