By Mehreen Zahra-Malik
ISLAMABAD, July 4 Pakistan asked for a new
bailout loan from the International Monetary Fund on Thursday to
boost its ailing economy, settling on an initial package of $5.3
billion following weeks of talks with a visiting IMF delegation.
The request marks a step forward for Pakistan's new Prime
Minister Nawaz Sharif as he tries to find ways to fix the
country's finances and show his commitment to restructuring its
But it also highlights a sense of urgency for Pakistan where
the central bank has only about $6.25 billion left in reserves,
enough to cover less than six weeks of imports.
"This is a Pakistan-designed programme. It includes bringing
the fiscal deficit to a more sustainable level," Jeffrey Franks,
the regional adviser to the Fund on Pakistan, told reporters.
"The overall focus of the programme is to boost economic
growth so there is a better life for vulnerable Pakistanis."
Lodging a loan request is the first step in a potentially
long process that will involve Pakistan committing to reforms,
particularly on broadening its narrow tax base and cutting
subsidies, which lenders say benefit mainly the rich.
Pakistan had originally asked for a $7.2 billion programme
but settled on $5.3 billion after the talks. Speaking alongside
Franks in Islamabad, Finance Minister Ishaq Dar said he hoped
the IMF would raise its offer following further consultations
with senior Fund officials in the United States.
The Asian Development Bank, one of Pakistan's major lenders,
has estimated the country will need $6 billion to $9 billion to
meet its obligations, including about $5 billion in outstanding
debt on an earlier $11 billion IMF package suspended in 2011.
Franks said he expected Pakistan to reach a budget deficit
target of 6 percent of gross domestic product as part of the
proposed three-year bailout loan programme, down from 8.8
percent of GDP in 2012-2013.
The country has already once averted a balance of payments
crisis in 2008 after securing the $11 billion IMF loan package,
which was suspended two years ago after economic and reform
targets were missed.
Again, chronic gas and electricity shortages, violent crime
and a Taliban insurgency have all hampered growth and
contributed to falling foreign investment. The $230 billion
economy grew 3.6 percent in the last fiscal year, below a target
of 4.3 percent and well below growth rates of around 9 percent
seen 10 years ago.
Renewed anxiety over the nuclear-armed nation's struggling
economy is one of the many challenges facing its new government.
With reserves shrinking by around $500 million a month and
many Pakistanis angry over unemployment as well as high food
prices and crippling power cuts, Sharif is keen to be seen as
decisive and capable of overhauling the economy.
Unemployment is officially at 6.3 percent but is probably
The new government has already made some steps towards
reforms and has set an ambitious deficit target of 6.3 percent
of GDP for its 2013/14 although some analysts say it might be
hard to meet.
It also plans a new energy policy to tackle power cuts,
which frequently last 12 hours a day and have devastated the
economy and fuelled unrest in parts of the country.
"We think Pakistan is committed to fixing its economic
problems," Franks said. "It is evident from the fact that
policies are already under way."
Islamabad already has a punishing schedule of repayments to
the IMF from its previous loan agreement, which have put
pressure on the rupee and raised concerns of a full-scale
balance of payments crisis.
Conditions attached to a new IMF reform package could also
prove unpopular, adding to concerns over stability at a time
when Pakistan is already under pressure to contain a growing
As the IMF wrapped up its talks in Islamabad, a suicide
bomber rammed an explosives-ridden vehicle into a checkpoint in
the volatile North Waziristan tribal region near the Afghan
border, wounding three members of Pakistan's security forces.