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Photo Source: Dawn

Pakistan Reader# 499, 5 January 2023

China, Saudi Arabia and Pakistan’s foreign exchange reserves



D. Suba Chandran

On 4 January 2023, in a news conference, along with other ministers, Ishaq Dar, Pakistan’s finance minister, announced that Saudi Arabia and China would contribute to Pakistan’s foreign exchange reserves before the end of January 2023. A news report on the subject in Dawn read: “He (Dar) said the International Monetary Fund (IMF) programme would be completed at all costs, China and Saudi Arabia would enhance their support, government-to-government (G2G) disinvestments would be completed, and the current account deficit would be about $3 billion less than earlier projections.” The News quoted Dar saying: “Saudi Arabia’s financial assistance will beef up foreign exchange reserves. China’s commercial loan refinancing of $1.2 billion will be secured.” Dawn also quoted him saying: “Our foreign exchange reserves by end-June would be much better than you can think.” 

The expectations of the PML-N government then seem to be resting on the following two strategies, in terms of addressing the economic crisis: address the IMF requirements (at all costs); and get support from China and Saudi Arabia to increase the foreign exchange reserves. Is it a plan, or a wishlist for the PML-N led government? What is the nature of the economic relationship that Islamabad has vis-à-vis China and Saudi Arabia, and what has been the record of these two countries in shoring up Pakistan’s economy, and how that has helped Pakistan is a separate question. Pakistan needs a quick solution to increase its foreign exchange reserves, not just long-term investments.

Dar’s latest statement seems to be more to do with the latest PTI assault on the government on the latter’s failure to address the economic situation. A day earlier, on 3 January 2023, the PTI issued a “White Paper” on Pakistan’s economy; the primary objective of this paper is to respond to the PML-N’s accusation that the Imran government was responsible for the economic crisis. (See the focus note by Ankit Singh below on the subject) In late December, PM Shehbaz Sharif made a statement that he did not know at the time of taking the oath that Pakistan’s economy was on the brink of default. A series of statements by the PML-N government has focussed on shifting the blame on the PTI for Pakistan’s contemporary economic ills. The PTI’s paper was a formal and written “white paper” response to the PML-N accusations and to create a narrative that the Imran government did well, and it was the Sharif government that mismanaged.

Back to the primary question: will Saudi Arabia and China “beef up” Pakistan’s foreign exchange reserves? What will be the nature of this beefing up, and why has it not happened so far, despite multiple visits? And why will these two states do, and what will they demand in return? These are larger questions that Pakistan will have to address. Imran Khan talked about a similar strategy when he was the PM, and was the reason for his government ignoring the IMF requirements. Expecting friendly states to help is good, but depending on it alone may not be a great strategy.

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