China to help Pakistan out of economic crisis - envoy

ISLAMABAD Fri Oct 17, 2008 5:39pm IST

Chinese President Hu Jintao (R) smiles with his Pakistani counterpart Asif Ali Zardari in front of their respective country's flags during a signing ceremony at the Great Hall of the People in Beijing October 15, 2008. REUTERS/David Gray

Chinese President Hu Jintao (R) smiles with his Pakistani counterpart Asif Ali Zardari in front of their respective country's flags during a signing ceremony at the Great Hall of the People in Beijing October 15, 2008.

Credit: Reuters/David Gray

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ISLAMABAD (Reuters) - China has assured Pakistan of help to get out of its economic crisis, the Pakistani ambassador to Beijing said on Friday, but he gave no details and did not say if China had agreed to urgently needed new loans.

Pakistan, a nuclear-armed U.S. ally, is struggling to come to grips with a financial crisis. Islamabad's rapidly dwindling foreign reserves are at their lowest level since 2002.

It needs $3 billion to $4 billion or it risks defaulting on a $500 million bond due to mature in February, economists say.

President Asif Ali Zardari, the widower of former prime minister Benazir Bhutto, ended a four-day visit to China on Friday during which Premier Wen Jiabao pledged cooperation.

"There will be a negative impact on Pakistan of the world financial crisis. We have to make efforts ourselves but China has assured us, and they will help us to come out of this crisis," said Masood Khan, Pakistan's ambassador to China.

The Washington Post said on Thursday Pakistan was seeking up to $3 billion from China. The Financial Times reported earlier that Zardari hoped to secure concessional loans of $500 million to $1.5 billion.

"There has always been cooperation between Pakistan and China in a specific framework, and this time too we have made efforts to increase bilateral cooperation through various existing mechanisms," Khan said. He did not elaborate.

Pakistan is facing a balance of payments crisis, inflation running at close to 25 percent and heavy government borrowing from the central bank to cover a budget deficit.

The rupee weakened 2.78 percent to a record low of 84.40 rupees to the dollar on Friday after reserves fell by $570 million and on pressure from import payments, dealers said.

The rupee has lost 27 percent against the dollar since the beginning of the year.

Zardari was due back in Pakistan late on Friday.

Shaukat Tarin, a respected banker appointed last week as economic troubleshooter, said he would hold a news conference on Saturday. He was travelling back from China with Zardari.

Tarin said on Monday he was sure Pakistan would fulfil upcoming debt obligations of $3 billion.

Zardari and Chinese President Hu Jintao signed 11 agreements on trade and economic cooperation on Wednesday.

Pakistani officials have also been to Washington and the Gulf to drum up support but there have been no firm commitments.

China agreed to provide $500 million in a concessional loan to help Pakistan meet balance of payment needs in April and the Asian Development Bank has also lent Pakistan $500 million.

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