For Pakistan, China’s an Expensive Date

We’re about two months away from elections in Pakistan — elections that are almost certain to be shrouded in controversy, one way or another. And, worryingly for Pakistan, it appears that the economy is weakening, just in time for the instability that might follow from the country’s turbulent politics.

Under the outgoing government — led till last April by Nawaz Sharif, three times prime minister — the economy had appeared to be doing well. In fact, a new energy seemed to have infused Pakistan’s entrepreneurs and investors; in the last fiscal year, the economy grew at 5.8 percent, the fastest rate in 13 years.

That now appears set to change. Economists polled by Bloomberg worry that, in the coming year, growth will slow to 5.2 percent — a full percentage point below the government’s own optimistic forecast.

QuicktakeChina’s Silk Road

The problem is that much growth in the recent past has been unbalanced, depending particularly on investment from China in the China-Pakistan Economic Corridor (CPEC) — a branch of Chinese President Xi Jinping’s world-spanning Belt and Road Initiative — and on Pakistani government spending that matches the CPEC’s aims. China’s big bet on Pakistan’s infrastructure has to be paid for somehow, in part through the purchase of Chinese heavy engineering and other inputs.

Those imports have helped swell Pakistan’s current account deficit by 50 percent, to a record high of over $14 billion. Pakistan’s central bank has devalued the currency twice but has felt that it has few options other than running down the country’s foreign-exchange reserves. Over the past fiscal year, a third of the reserves have evaporated.

These are the classic signs of a fragile economy that is failing to tighten its belt where needed. To give the outgoing government some credit, it tried to correct course slightly in its annual budget last month, which cut infrastructure spending by 20 percent.

As the economists polled by Bloomberg point out, however, that’s going to affect growth going forward. Meanwhile, the government’s other expenditures — on wages, pensions and so on — went up by 20 percent. There’s an election on, after all. And, of course, the pampered Pakistan military had its budget raised by 20 percent.

Many analysts expect that Pakistan is going to have to turn to the International Monetary Fund in a few months, particularly if its reserves continue to dwindle at this rate. Even the rabidly anti-Western opposition leader, Imran Khan, has reportedly admitted in private that he would approach the IMF for help if he’s elected.

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For Pakistan, China’s an Expensive Date

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