Pakistan is in informal discussions with the International Monetary Fund and other bodies over a $10-15 billion package designed to stabilize its economy and avoid a balance of payments crisis, the Financial Times reported on Tuesday.
A little over half the total would come in the form of an IMF loan and the balance would be provided by the World Bank, the Asian Development Bank and bilateral donors, potentially including Saudi Arabia, the report said. Pakistan is also seeking funds from China, it said. The scale of support under consideration reflects international anxiety that Pakistan, considered a vital country in the “war on terror”, is at risk of being destabilized by the global financial crisis.
On Monday, a senior Pakistani government official said the country was considering an IMF loan that would disburse funds over the next two years to bolster investor confidence shaken in part by falling foreign currency reserves, the newspaper said. “We are basically seeking help for around seven quarters including the one which began this month,” the Financial Times quoted the official as saying.
The Wall Street Journal quoted an official in Pakistan’s Finance Ministry as saying that the government was looking for $4 billion to avoid defaulting on its debt. “We are hopeful that Pakistan will get approval soon, with the country receiving $1.5 billion in one go and the rest in five equal installments of $500 million,” the official said on Monday. A senior IMF official told Reuters on Monday ahead of talks on Pakistan’s restructuring plan that the country’s seven-month-old civilian government should consider an emergency support package from the IMF. He said Pakistan has not made a formal request to the IMF for emergency funds but that options were running out. “Market borrowing is not an option, not in the current markets,” Mohsin Khan, director of the IMF’s Middle East and Central Asia department said in an interview.
Pakistan is rapidly losing foreign currency reserves. Analysts say Islamabad needs up to $3 billion to $4 billion urgently to stabilize the economy, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009. Pakistan would be required to accept an IMF program as a condition for multilateral financial support, the FT report said.
International officials indicated the IMF would not impose extensive new conditions, but would essentially bless the reform program prepared by Pakistan’s economic team. However, the IMF would require changes in monetary policy, the report said. Shaukat Tarin, the top economic adviser to the prime minister, has proposed cutting the budget deficit from over 7% of gross domestic product to a range of 4 to 4.5%.
Pakistan’s government has already slashed domestic subsidies on fuel and plans to stop borrowing from its central bank. It had intended to raise foreign exchange by selling stakes in two banks and a gas project, but these plans have been jeopardized by the financial crisis. (Reuters)