Pakistan looks to expatriates and China to stave off crisis

Lahore – Pakistan has stepped up efforts to stave off a foreign exchange crisis, through plans to raise hundreds of millions of dollars both from Pakistani expatriates and wealthy Chinese investors, top officials have told the Financial Times.

Islamabad has been battling for several months to restore its dwindling stocks of foreign currency and hopes to avoid asking for help from the International Monetary Fund through measures including raising US denominated debt from Pakistanis living abroad and a Renminbi-denominated “Panda Bond”. The plans come after a fall in Pakistan’s foreign reserves this month to about $11.4bn — equivalent to about 10 weeks of imports — down from around $14.1bn in December.

Reserves have been squeezed by a combination of falling remittances from Pakistani migrant workers abroad and rising imports and payments to Chinese companies for infrastructure as part of an ambitious, $60bn China-Pakistan Economic Corridor.

The World Bank warned in October that Pakistan would need to raise $17bn to cover its debt repayments and the current account deficit this year. Islamabad argues that affluent Pakistanis abroad can be enticed to support their country, especially if it offers remunerative rates.

“Our expatriates will be offered attractive rates, better than what they will receive elsewhere,” a central bank official in Karachi told the FT on Monday. He said the country would seek to raise up to $1bn from expatriates worldwide, although he declined to reveal the terms of the offer.

Mushtaq Khan, a former chief economic adviser of the central bank, said tapping overseas Pakistanis was a promising idea that could help the country ride out its current woes. “Pakistani expatriates worldwide have a lot of money and we know that expatriates have a strong appetite for Pakistan-related risk,” he said.

Other analysts were sceptical that such a plan would be successful, especially given the country’s current political turmoil, with an election due this year.

A senior government official in Islamabad said that other options include borrowing from Middle Eastern countries or from Chinese commercial banks. Miftah Ismail, the country’s de factor finance minister, had told the FT that the country was also seeking to issue debt denominated in Renminbi for the first time.

The Panda Bond plans, which are still in the early stages, would be the latest example of Pakistan looking to its northern neighbour as a source of finance. Last year the FT revealed that Islamabad had quietly borrowed more than $1bn from Chinese state-backed institutions as its current account deficit worsened, triggering fears that Pakistan was becoming overly dependent on the support of Beijing.

Mr Ismail said: “We have never issued a Panda Bond before, but I am interested in doing so. We are just looking at the rules and requirements. I am interested in doing it in the next financial year — I don’t know if the timing will work out for that though.”

Mr Ismail, the financial adviser to Prime Minister Shahid Khaqan Abbasi, said the government had not decided the amount it wanted to raise. Asked to comment on press reports that it could be around $1bn, he said: “$1bn is a very nice, round number that anybody can just float but I’ve really not even started thinking about it.” In recent months, ministers have allowed the Pakistani rupee to depreciate nearly 10 per cent against the dollar. 

“The rupee has fallen significantly in four months,” said Mr Ismail. “In my opinion that probably is enough right now to change the direction of the current account deficit. “This will hopefully increase in double digits my exports and my foreign remittances and also stem the tide of imports or slow down imports and I think that should be more than enough for now.”

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