ISLAMABAD – The International Monetary Fund said Tuesday Pakistan has notapproached the body to begin negotiations for a possible bailout to stem abalance of payments crisis, hours after Islamabad announced it will entertalks.
Prime Minister Imran Khan’s new administration took office in August vowingto weigh up whether to seek an IMF bailout to stabilise its economy as itsought other avenues of financing, as analysts warned the looming crisiswas becoming more urgent.
“We have not been formally approached yet,” said Maurice Obstfeld, theIMF’s top economist, during the fund’s annual meeting in Bali.
The IMF’s comments added to the appearance of confusion around the abruptlyannounced decision.
Pakistan’s finance minister told a local English newspaper on Saturday thatthe government had not yet decided whether it would go to the IMF, and hadnot sketched out a formal proposal to the fund ahead of the Bali summit.
“We will be listening very, very attentively when and if they come to us,”said Obstfeld.
“Pakistan is suffering from a number of imbalances: A very large fiscalimbalance. A large current account imbalance. They also have a low level ofreserves and a currency that is too rigid and overvalued,” he added.
In a statement issued on Monday, the Ministry of Finance stated: “TheGovernment inherited 6.6% of fiscal deficit, more than a trillion Rupees ofunaccounted for losses in the energy sector and an unprecedented anddebilitating current account deficit running at $2 billion a month. Tocorrect the underlying imbalances, fiscal and monetary actions needed to beundertaken without delay. In this regard, the Finance supplementary(Amendment) Act, 2018 by the government and the policy rate increases bythe State Bank of Pakistan are actions taken to stabilise the macroeconomicsituation. In addition, regulatory duties on non-essential imports have hadto be introduced to curb the unnecessary growth in imports.”
“After taking into account the current situation and consultation with theleading economists, the government has decided to approach the IMF forstabilisation and an economic recovery program. It should be noted that thegovernment has engaged with the friendly countries in the lead up to thisdecision and this engagement will continue,” the ministry added.
Pakistan has gone to the IMF multiple times since the late 1980s. The lasttime was in 2013, when Islamabad got a $6.6 billion loan to tackle asimilar crisis.
Read Top Stories
“There have been ten IMF programs since 1990s in one shape or the other. Itis essential to remember that there is a history of Pakistan repeatedlygoing to the IMF with every new government being forced to go with IMFprogram due to legacy of those who held power in the previous government,”the Finance Ministry explained.
“The challenge for the current government is to ensure that fundamentaleconomic structural reforms are carried out to ensure that this spiral ofbeing in an IMF program every few years is broken once and for all. In thisregard the Finance Minister shall hold meetings with the top leadership ofIMF during the annual meetings of World Bank / IMF at Bali later this week.”
Monday’s announcement sparked a devaluation of the rupee with the currencytrading at 134 for a dollar at the official rate, against 124 the daybefore.
Analysts say Pakistan needs a loan of around $12 billion to turn thecorner, but a diplomat told AFP in August that Islamabad is betting on aloan of at least $6.5 billion to get it through the crisis.
However the US, one of the IMF’s biggest donors, has raised fears Pakistancould use any bailout money to repay mounting loans from China, sparkingcriticism from Islamabad.
The IMF also warned the new government that growth would likely slow andinflation rise further if it does not act fast.
For months analysts have warned Khan’s new government that a new currentaccount crisis could undermine its currency and its ability to repaybillions in debts or purchase imports. – APP/AFP
