Counting the Cost

Pakistan, the IMF and China: Imran Khan’s economic challenges

Why Pakistan’s new leader, Imran Khan, is facing some tough financial and economic questions.

Once Pakistan’s election winner Imran Khan forms a government, there will be little time to bask in his triumph. The country’s next prime minister will inherit a critical economic situation, according to Gareth Leather, a senior economist at Capital Economics.

He says Pakistan is facing a “mounting and seriously increasing” economic crisis.

“The backdrop to this is big infrastructure projects [such as the China-Pakistan Economic Corridor] that … began a couple of years ago. They’re going to build bridges, railways, roads – which is exactly what Pakistan needs to get its own economy back on track,” explains Leather.

“The problem is, the money is coming from China… and it has left Pakistan with a lot of debt. It’s also led to the emergence of a big current account deficit … so what Pakistan’s been doing in the last few months is they’ve allowed the currency to weaken a little bit, they’ve raised interest rates, they’ve been spending their foreign exchange reserves,” says Leather. “But they need something a lot more drastic … which I think the International Monetary Fund (IMF) will ask them to provide.”

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demand a significant tightening of fiscal policy, which means that Imran Khan, who’s elected on these pledges to create an Islamic welfare state in Pakistan, is going to have to do the opposite by cutting spending, rather than increase it. And that’s going to be quite unpopular.”]

Pakistan has had 14 IMF financing programmes since 1980, and new loans are likely to come with strict conditions.

Talk of a bailout is putting the country’s economic relationship with China in focus. The $57bn China-Pakistan Economic Corridor has led to massive imports from China, and some US officials are linking the Chinese super project to Pakistan’s financial ills – demanding details on the terms of any Chinese loans.

“The IMF is going to be quite tough, I suspect … it’s going to demand a lot more transparency on these Chinese investment projects. For the moment, nobody really knows where the money is coming from … They will want a lot more transparency, and that’s going to upset the Chinese who like the fact that nobody knows exactly how much they are making from these projects,” says Leather.

He believes that the IMF will also “demand a significant tightening of fiscal policy, which means that Imran Khan, who’s elected on these pledges to create an Islamic welfare state in Pakistan, is going to have to do the opposite by cutting spending rather than increase it. And that’s going to be quite unpopular.”

“This is very early on in his term in office, so he can at least blame the opposition, but straight away, he is going to have some tough choices to make.”

Extreme heat and wildfires

From water shortages to wildfires, the past 12 months have raised global awareness about the economic and human cost of extreme heat events. There have been wildfires in places that are unprepared for such outbreaks due to unusually hot weather. Drought and blistering heat have been turning forests into tinderboxes in places that were previously fire-free. 

Sweden has experienced 65 fires already this year, up from an annual average of three fires over the past decade. Blazes are now happening as far north as the Arctic Circle, according to Copernicus, the European Union’s earth observation programme.

At least 91 people died last month in the worst wildfire to hit Greece in decades. And in the US, the annual average number of large fires has doubled since the 1970s putting lives and livelihoods at risk.

“At the moment these [heat] events feel slightly unusual, but if we start looking forward and factor in climate change, then this will become the new normal”, explains Sam Fankhauser, director of the Grantham Research Institute on climate change and the environment at the London School of Economics.

“There are predictions that the kind of heat we have this year, we might experience every other year from about 2040 onwards. There’s quite the clear link between the probability of having a heat wave and climate change,” he says.

Also on this episode of Counting the Cost:

China soybeans tariffs: In retaliation to US tariffs, China has slapped a 25 percent levy on US soybeans. The US is the biggest grower and China is the top buyer. China is also trying to shift its supply chain to Latin America and boost domestic production. Adrian Brown reports from Tongbei, Heilongjiang province in China.

Huawei surpasses Apple: Apple’s iPhone put in a solid showing during the three months ending in June, selling 41.3 million units to contribute $29.9bn to a record-breaking $53.3bn in quarterly revenue. The effort was topped by China’s Huawei, however, which surpassed the US tech giant to become the world’s second-largest smartphone vendor.

Facebook and face accounts: Social media giant Facebook says it has deleted fake accounts attempting to influence the upcoming US midterm elections. Almost 300,000 people followed the suspended pages, reports Alan Fisher from Washington, DC.

Iran water shortage: It’s estimated that 97 percent of Iran is suffering from some form of drought due to a shortage of water. Some blame the weather, others think it is a US conspiracy, and environmental experts blame government mismanagement, as Zein Basravi reports from Tehran.