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IMF meet in Dubai Tuesday fuels package talk: Pakistan

KARACHI - Pakistani officials are due to meet representatives from the International Monetary Fund in Dubai on Tuesday amid growing speculation that the country may formally ask for a balance of payments support programme.

The CNBC news channel reported on Sunday that the seven-month-old civilian government would ask the IMF for $10 billion, though officials were unavailable or declined to comment on the report.

‘An IMF mission will be meeting with Pakistani authorities' officials starting tomorrow, Tuesday,’ said Niels Buenemann, the IMF's senior press officer, on Monday.

Shaukat Tarin, the government's top economic adviser, had said on Saturday that officals would meet IMF representatives in the coming week for a regular, usually annual, comprehensive discussion of Pakistani policies, known as the Article IV consultation process.

Pakistan is haemorraging foreign currency reserves, and analysts say it needs up to $3-4 billion urgently to stabilise 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.

Like most emerging economies, Pakistan was badly hit by soaring global oil and food prices over the past year, but the new government's position was exacerbated by the previous administration's failure to cut unsustainable subsidies.

Although oil subsidies have been phased out, critics say the civilian government, which came to power after almost 8 1/2 years under former army chief Pervez Musharraf, has been unable to formulate convincing economic policies to tackle the crisis.

Aside from the dire balance of payments situation, Pakistan's inflation is running at around 25 percent, while heavy government borrowing from the central bank to fund the budget has created a liquidity crunch that requires aggressive central bank medicine.

‘LAST RESORT’

Without support from other multilateral lenders or friendly governments, Pakistan will be left with no other choice than to go to the world's ‘lender of last resort’.

Tarin referred to the IMF option as his ‘Plan C’ in a news conference on Saturday in which he warned that Pakistan was running out of time, and action was need in the next 30 days.

Tarin's comments raised speculation that other lenders' reluctance to trust the government to implement appropriate policies had left it no other option than to go to the IMF.

Central bank reserves are barely enough to cover six weeks of imports, and the country could default on international debt repayments unless it gets a capital infusion from somewhere fast.

The bond market has already priced in a default.

There is, however, widespread expectation that the international community would step in to avert economic meltdown in a country whose support is crucial to the global war on terrorism and the success of the NATO mission in Afghanistan.

The government said earlier it would not seek an IMF package, which come laden with conditionalities.

Usually contractionary in nature, IMF packages often involve cutting spending, raising taxes, accelerating privatisation, increasing interest rates, and exchange rate flexibility to correct fiscal and external imbalances and control inflation.

There had been high hopes that old ally China might bail out Pakistan, but President Asif Ali Zardari and Tarin were unable to announce any big loan from Beijing when they returned from a visit to the Chinese capital late last week.

Suspected central bank intervention helped the rupee recover to close at 81.00/25 to the dollar, having hit a record low of 84.40 on Friday, but trading was very thin, and the rupee remains close to 25 percent weaker than at the start of the year, dealers said.

The stock market was moribund because of an artificial floor the authorities established in late August to protect a market that had already dropped 35 percent this year.