Pakistan seen asking for bailout during IMF check-up
Reuters
Tuesday, October 21, 2008
Simon Cameron-Moore
ISLAMABAD (Reuters) - Pakistan is expected to seek a multi-billion-dollar rescue package from the International Monetary Fund to avert a balance of payments crisis when officials meet in Dubai on Tuesday.
Pakistan is undergoing an annual economic health check-up, which all IMF members have to go through, but it is already in a critical condition, with the central bank holding barely enough foreign currency to cover six weeks of imports.
Inflation is running close to 25 percent, the budget deficit is unsustainable, government borrowing from the central bank has squeezed liquidity in the banking system, and the international bond market has priced in a debt default.
Consultations with the IMF are taking place in the Gulf because of a security scare posed by the Taliban and al Qaeda in Pakistan.
Last month, an IMF team left Islamabad in a hurry after a suicide bomber killed 55 people and destroyed the Marriott hotel.
The seven-month-old civilian government led by President Asif Ali Zardari has been trying to get IMF endorsement for its economic strategies in order to persuade other multilateral lenders and friendly countries to come to its rescue.
But it hasn't wanted to take IMF money unless there was no other option.
"Were they to make a formal request, we can move really fast," Mohsin Khan, director of the IMF's Middle East and Central Asia department said in an interview in Dubai on Monday.
Fears for the stability of the nuclear-armed Muslim nation virtually guarantee Pakistan a sympathetic hearing.
Pakistan's support is crucial in the war against al Qaeda and the global jihadi movement, and for the NATO mission to stabilize neighboring Afghanistan.
Meekal Ahmed, a former IMF economist who also served with the Pakistan's Planning Commission, said the government should stop dithering, and present its economic package. He said the IMF will probably ask Pakistan to to tighten up its proposals.
The fastest prescription, according to Ahmed was to; "Cut development spending, cut current spending, cut defense spending."
Ahmed said that regardless of the security crisis, Zardari should overrule any resistance from Pakistan's powerful army to make sacrifices as defense was one of the biggest tickets on the budget.
He said Pakistani economists have also recommended taxation of agriculture and the services sector, which must include real estate and the stock market, regardless of its current fragility.
Pakistan's landed aristocracy has long resisted a tax on agriculture despite past pressures from the IMF and elsewhere.
REPORTS PAKISTAN SEEKING UP TO $15 BLN
Other lenders appear reluctant to step forward without the IMF first committing funds and setting conditions on Pakistan to fulfill targets for economic adjustment.
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.
The Financial Times newspaper reported on Tuesday that Pakistan wanted $10-$15 billion from the IMF and other bodies, of which the IMF would cover about half with disbursements over a two year period.
"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 balance would be provided by the World Bank, the Asian Development Bank and bilateral donors, potentially including Saudi Arabia and China, it said.
A Dow Jones report said Pakistan was only seeking $4 billion from the IMF, of which $1.5 billion would be up front and the rest disbursed in five quarterly installments of $500 million.
A Pakistani official described the reports as speculative.
(Editing by Jan Dahinten)
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