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Pakistan’s ailing economy leaves it stuck between China and the IMF

Emerging market roundup: Dramatic oil drop weighs on Russia

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By Anneken Tappe, MarketWatch


Getty Images
Pakistani Prime Minister Imran Khan and China's Premier Li Keqiang in Beijing earlier this month.

Pakistan has opened its doors to large-scale infrastructure investments and allowed its deficit to soar, leaving its economy struggling and pushing it into the arms of the International Monetary Fund.

Since 2016, imports for construction materials intended for Chinese infrastructure projects —the China Pakistan Economic Corridor — boosted the deficit and weighed on Pakistan’s rupee, which in turn led to higher inflation, and thus, the economy as a whole. In the summer, investors suggested Pakistan could need an emergency loan from China, which is already one of its biggest creditors, to stem its plight. The rupee /zigman2/quotes/210561836/realtime/sampled USDPKR +0.2704% , which isn’t officially pegged but trades in a tight band versus the U.S. dollar, has dropped nearly 18% in the year to date, according to FactSet.

On Friday, separatists claimed responsibility of an attack on the Chinese consulate in the Pakistani city of Karachi. The militants oppose China-funded infrastructure investment projects in Pakistan’s west. According to news agency AFP , the separatists consider Chinese investors, as well as Pakistan’s forces, as the oppressor.

Then there is the International Monetary Fund, in which the U.S. has the biggest single-country voting share . On Tuesday, the IMF wrote that it had, together with Pakistan’s authorities, “made significant progress toward reaching an understanding on policy priorities and reforms that could be supported by a financial arrangement with the IMF.”

These priorities will include reducing the country’s deficits — both fiscal and current account — and could morph into its 14th IMF program since 1980.

Speaking of China

China’s services, manufacturing and non-manufacturing PMIs for November are due next week Thursday and will be watched closely given the recent freakout over global growth in 2019. If China fares worse than expected, those worries would likely soar.

Don’t cry over spilled oil

Or do. Oil deepened its losses on Friday amid thin Thanksgiving week trading , with the global crude oil benchmark   down 6%. This weighed on financial assets across the board, including assets in oil-exporting Russia, which saw its currency /zigman2/quotes/210561862/realtime/sampled USDRUB +0.2092%  among the worst performing and stock benchmark MICEX Index in the red. The iShared MSCI Russia /zigman2/quotes/206979425/composite ERUS -2.33%  dropped 2% on Friday, adding to its nearly 11% drop in the year so far.

Don’t miss: 6 key reasons the ‘bottom is falling out’ of oil prices on Black Friday

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Anneken Tappe is a markets reporter for MarketWatch. She is based in New York.

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