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Pakistan relying on IMF and China to avert crisis
Pakistan expects the IMF and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million (Dh1.8 billion), to avert a balance of payments crisis, the country's top economic adviser said.
- Reuters
- Published: 23:21 November 14, 2008
Islamabad: Pakistan expects the IMF and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million (Dh1.8 billion), 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.
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.
The economic adviser, Shaukat Tarin, said late on Thursday that the government would soon deliver a "letter of intent" to the International Monetary Fund (IMF), 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 if 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 said.
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".
Stopping borrowings
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.
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 eight-month-old civilian government is banking on goodwill towards a country undergoing a transition to democracy after more than eight years of military rule.
The militant link
The international community is concerned an economic meltdown in the nuclear-armed state could play into the hands of Al Qaida and allied 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. Pakistan foreign exchange reserves are fast depleting.
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