Media outlets report that Pakistani officials will meet with 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 program,” noted Reuters. According to the news agency, “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.” Bloomberg reported today that the loan would essentially “prevent default after foreign-exchange reserves plunged 74 percent.“
Bloomberg, in its coverage, also cited Pakistan’s new finance minister, Shaukat Tarin, [replacing Naveed Qamar] who said that Pakistan is also seeking support from the World Bank and the Asian Development Bank. The news agency noted,
Reserves have fallen to about $4.3 billion in the past year, putting at risk the country’s ability to pay the $3 billion in debt- servicing costs due in the coming year. Credit-default swaps on Pakistan’s $2.7 billion of dollar- denominated bonds outstanding have more than tripled since August to 2,453.7 basis points, according to CMA Datavision.
Pakistani officials have so far not commented on whether Tuesday’s IMF meeting will actually include a request for aid. Although Dawn reported that Tarin said 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,” Bloomberg cited him stating in an interview yesterday, “If I don’t feel the comfort level with the multilateral agencies and our bilateral friends in three to four weeks, then I’ll have to write to the IMF… [A default is] out of the question.”
Ultimately, seeking an IMF bailout is a politically unpopular move. However, after Pakistan was “rebuffed” by China, [the NY Times reported that President Zardari returned from his trip without a financial commitment from Beijing], Saudi Arabia refusing to offer concessions on oil, and with the United States and other nations preoccupied with the financial crisis, an IMF-backed plan may be the only viable option. Why is this a last resort? According to the Times, accepting a bailout package would not only be humiliating for the new regime, but it would require Pakistan’s government “to cut spending and raise taxes, among other measures, which could hurt the poor.” Given that the country’s power and food crises have already impacted the entire population, particularly the lower classes, further cuts would be problematic. [Image from the AP]
The AFP framed U.S. Assistant Secretary of State Richard Boucher‘s visit to Pakistan in light of these “economic woes.” According to the news agency, Boucher and Zardari would discuss both the “war on terror” and the worsening economic issues in Pakistan today. According to the NY Times, “The Bush administration is concerned that Pakistan’s economic meltdown will provide an opportunity for Islamic militants to capitalize on rising poverty and frustration,” [also see CHUP’s past piece, “Security Implications of Pakistan’s Bankruptcy Fears”]. Despite this concern, however, Boucher said “Pakistan will not receive aid in cash [from the U.S.] in the meeting of Friends of Pakistan.” According to GEO Television, Boucher added that the meeting “would deliberate on ways to provide aid to Pakistan through alternative modes.” [Image from GEO]
Other good background to check out from CHUP: