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Pak may have to opt for IMF loan to avert debt crisis

Source: PTI
October 21, 2008 14:10 IST
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Cash strapped Pakistan opens on Tuesday an informal dialogue with the International Monetary Fund and other bodies to clinch a support package estimated to run up to $15 billion to avert a balance of payment crisis.

Islamabad expects that over half of the total amount could come about in the form of an IMF loan and the balance would be provided by the World Bank, Asian Development Bank and bilateral donors, potentially including Saudi Arabia.

Pakistan is also seeking funds from China, the sources said. However, President Asif Ali Zardari was unable to secure any commitments for cash support during his recent maiden visit to Beijing.

Soaring inflation and a plunging currency and foreign exchange reserves have played havoc with the country's economy leading to almost Pakistan having problems to repay sovereign debt due for re-payment next year.

In the run up for preparations to arrange bridging loans, the country's new financial adviser Shaukat Tarin had a meeting with the Prime Minister Yousuf Raza Gilani during which an alternative economic agenda was also discussed to spur up economic growth in the shape of foreign investments.

But, Gilani is faced with a prospect of an opposition from parties like PML-N as turning to IMF is considered an unpopular option.

Opposition PML-N chief Nawaz Sharif on Monday urged the government not to avail of an IMF package.

The scale of support under consideration reflects global anxiety that Pakistan, regarded as a vital country in the war on terror, is at risk of being destabilised by the international financial crisis.

A senior Pakistani government official told media the country was considering an IMF loan that would disburse funds over the next two years to bolster investor confidence that has been shaken in part by falling foreign currency reserves.

"We are basically seeking help for around seven quarters, including the one which began this month," the official said.

The influential Dawn newspaper also quoted US and diplomatic sources in Washington as saying that Pakistan is seeking three times more than its $2-billion quota from the IMF.

A stand-by arrangement allows IMF to give three times the quota allotted to a country.

Tarin has said that turning to IMF for assistance is a backup option.

IMF aid comes with stiff conditions such as putting a leash on public spending which can affect the programmes  and plans for the poor.

Tarin, a former banker, said on Saturday that Pakistan was running out of time to tackle its financial crisis and IMF aid was one of the options on the table.

"Pakistan cannot wait for long. Pakistan has to take action in the next 30 days," he said.

Tarin has proposed cutting the budget deficit from over seven per cent of gross domestic product to a range of four to 4.5 per cent. Pakistan's government has already removed 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 jeopardised by the financial crisis.

The IMF puts Pakistan's financing gap at $3 billion to $4 billion a year for the next two years.

Officials believe any rescue package should provide additional funds to build Pakistan's reserves, which are now adequate to pay for less than six weeks of imports.

The rupee too has lost over 30 per cent of its value since January, and is currently trading at about Rs 84 to the dollar in the open market.

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