On May 24, the People’s Bank of China announced that it had agreed with the State Bank of Pakistan (SBP) to add a three-year extension to a currency swap agreement worth $3.1 billion. This is the latest bilateral measure intended to ease Pakistan’s ongoing foreign exchange crisis, related to a drop in exports and rising imports. In April, Islamabad borrowed $1 billion from Chinese banks at what SBP Governor Tariq Bajwa called, “good, competitive rates.”
In interviews with the Financial Times, however, Pakistani officials suggested that Beijing’s willingness to lend to Pakistan, despite the country’s poor economic vital signs, was because, “The Chinese are not keen on western institutions learning the minute details of [financing of] CPEC projects. An IMF programme will require Pakistan to disclose the financial terms to its officials.”
Chinese lending to Pakistan also intensifies Beijing’s overall level of influence there, which is already high due to China’s position as lender and builder of the vast China-Pakistan Economic Corridor (CPEC) scheme. Indeed, the terms of CPEC deals, if known, would potentially jeopardize Pakistan’s ability to satisfy IMF conditions in the first place. As a former central bank economist Mushtaq Khan put it, Chinese support “only postpones and exacerbates” Pakistan’s financial woes.
Pakistan has also long been reliant on China for its military equipment. Data from the Stockholm International Peace Research Institute (SIPRI) showed that Pakistan imported $514 million of arms from China last year. It only bought $21 million from the United States.