Pakistan officially requests IMF aid: Strauss Kahn
WASHINGTON/KARACHI (Reuters) - Pakistan has requested financial assistance from the International Monetary Fund and talks on a loan program will begin in the next few days, IMF Managing Director Dominique Strauss-Kahn said on Wednesday.
The seven-month-old civilian government now running Pakistan after more than eight years under former army chief Pervez Musharraf had been reluctant to go to the IMF, but the severity of its balance of payments crisis has left it little option.
An economic meltdown in the nuclear armed state, would have helped Islamist militants seeking to destabilize the Muslim nation of 170 million people.
"A fund mission will begin discussions with the authorities within the next few days on a program aimed at strengthening economic stability and enhancing confidence in the financial system," Strauss-Kahn said in a statement, adding:
"The amount of fund financing under a stand-by arrangement has yet to be determined. Financing could be made within the framework of the Fund's emergency financing mechanism."
The IMF activated the emergency mechanism in recent weeks as the financial crisis spread to emerging economies. It ensures that the fund processes and approves loans within 10 days with fewer conditions attached than would normally be the case.
A senior Pakistani government official, who requested anonymity, told Reuters it would be a stand-by agreement which would run for two years, though the amount had yet to be settled.
Pakistan needs $10 billion to $15 billion of support from foreign lenders to cover its current account financing gap and undertake economic adjustments over the next two years, the country's newly appointed economic trouble-shooter, Shaukat Tarin, said on Tuesday.
IMF and Pakistani authorities have been meeting in Dubai since Tuesday to discuss details of the country's financial restructuring plan.
Analysts say other multilateral lenders and friendly governments will be more willing to help if they see the IMF bringing some discipline to Pakistan's efforts to put its economy in order.
Aside from the World Bank, Asian Development Bank and Islamic Development Bank, Pakistan has been looking to other potential donors among governments taking part in a conference expected to take place in Abu Dhabi, under the banner "Friends of Pakistan," in mid-November.
Like most emerging economies, Pakistan was badly hit by soaring global oil and food prices over the past year, but the new government's economic troubles were exacerbated by the failure of the previous administration to cut fuel subsidies.
Aside from the unsustainable external deficit, Pakistan is also faced with inflation close to 25 percent, a rapidly falling economic growth rate, and excessive government borrowing to finance a budget deficit.
Foreign currency reserves have been falling at a rate of nearly $1 billion a month, and the central bank has barely enough to cover six weeks of imports. Total reserves, including those held by commercial banks, stood at $7.75 billion on October 11, of which the central bank's accounted for $4.34 billion.
(Reporting by Lesley Wroughton and Emily Kaiser, Sahar Ahmed in Karachi; Editing by Simon Cameron-Moore/Toby Chopra)
