Pakistan counts on IMF, World Bank, China loans

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Fri Nov 14, 2008 4:39am EST

(Adds S&P credit rating downgrade in paragraphs 2, 23)

By Kamran Haider and Augustine Anthony

ISLAMABAD, Nov 14 (Reuters) - Pakistan expects the IMF and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million to avert a balance of payments crisis, the country's top economic adviser said.

Pakistan has been trying to drum up financial support for some weeks and its tardiness in securing external assistance was cited by Standard & Poor's Ratings Services for its decision on Friday to lower Pakistan's credit rating on sovereign debt deeper into junk bond territory.

The economic adviser, Shaukat Tarin, told Reuters late on Thursday that the government would soon deliver a "letter of intent" to the International Monetary Fund, paving the way for the world's lender of last resort to rapidly release billions of dollars.

"Hopefully it will be done soon. We have done a lot of work on it so we want it to be completed soon," Tarin said.

Asked it that could happen within a week, Tarin responded: "Yes, hopefully."

Tarin told the Pakistan Senate on Thursday the country was likely to receive $5-6 billion from the World Bank and other international financial institutions by December, according to the Associated Press of Pakistan.

The loan from China could arrive within weeks.

"We want to get it as quickly as possible... Hopefully it will be available in the next few weeks," Tarin told Reuters.

Markets were disappointed when President Asif Ali Zardari and Tarin returned with little concrete to show from a trip to Beijing last month to garner support from one of Pakistan's most steadfast allies.

China, like other potential lenders, is believed to have encouraged Pakistan to seek assistance from the IMF first in order to introduce some discipline to economic management, analysts say.

Pakistan is in talks with the IMF, though officials have been coy about saying whether a loan is being negotiated.

Tarin told the Senate the IMF "has agreed to provide (a) facility on our own terms and conditions".

He added that one condition would be that the government stops borrowing from the central bank.

"We discussed with IMF ... zero borrowing from State Bank. We believe there should be no net borrowing from State Bank," Tarin said.

The government had wanted to avoid harsh conditions the IMF might attach to any financial assistance, and explore other potential sources of loans first.

FRIENDS

Pakistan's central bank said on Thursday it had received $200 million from the Islamic Development Bank as the country's reserves are barely enough to cover nine weeks of imports.

Potential donors are gathering in Abu Dhabi on Monday under the banner of the "Friends of Pakistan". The officials-level meeting is not expected to result in loans being pledged, but it could pave the way for a ministerial meeting later.

Pakistan's 8-month-old civilian government is banking on goodwill towards a country undergoing a transition to democracy after more than 8 years of military rule.

The international community is concerned an economic meltdown in the nuclear-armed state could play into the hands of al Qaeda and allied Islamist militant groups seeking to destabilise the 170 million strong Muslim nation.

Several economies have crumbled in the face of first soaring prices for raw materials earlier this year and more lately the escalation in the global financial crisis.

The IMF has already approved loan programmes for some countries, including Ukraine, Hungary and Georgia.

Unless Pakistan gets the support soon it will default on a international bond set to mature in February. The bond market priced in a potential default for Pakistani debt months ago.

Reflecting the delay in finding financial support, S&P cut Pakistan's long-term foreign currency sovereign credit rating to CCC from CCC+, putting it eight notches below investment grade. [ID:nWLB3747]

Pakistan foreign exchange reserves are fast depleting. They fell $20 million to $6.74 billion in the week that ended on Nov. 8, the central bank said on Thursday.

The State Bank of Pakistan on Wednesday hiked its discount rate 200 basis points to 15 percent to curb inflation, currently running at over 25 percent, reduce the current account and fiscal deficits, and build foreign currency reserves. (Writing by Simon Cameron-Moore; Editing by Neil Fullick)



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