Page last updated at 15:34 GMT, Wednesday, 22 October 2008 16:34 UK

Pakistan seeks IMF financial help

Currency dealers count the Pakistani rupees at his shop in Peshawar, Pakistan on Wednesday, Oct. 15, 2008.
The Pakistani rupee has fallen to record lows against the dollar

The International Monetary Fund says Pakistan has asked it to help deal with its looming balance of payments crisis.

Talks on plans to strengthen Pakistan's economic stability would begin in the next few days, an IMF statement said.

It said Pakistan's difficulties were "a result of high food and fuel prices and the global financial crisis". The scale of financing had yet to be determined.

Pakistani officials had said they would only ask the IMF for money if other options failed.

Pakistan is going through its worst economic crisis in a decade, with massive trade and budget deficits, plunging foreign currency reserves and capital flight.

The growing strength of Islamic militants, demonstrated by a devastating attack on the Marriott hotel in Islamabad last month, is deterring many investors.

Its traditional allies, China and Saudi Arabia, have so far refused its request for help.

The BBC's Barbara Plett in Islamabad says an IMF programme to stop Pakistan defaulting on its debt obligations would be politically unpopular because of the strict conditions attached.

Emergency mechanism

"The Pakistani authorities have requested discussions with the IMF on an economic programme supported by financial assistance from the fund to meet the balance of payments difficulties the country is experiencing," IMF managing director Dominique Strauss-Kahn said in a statement.

"The amount of fund financing under a stand-by arrangement has yet to be determined. Financing could be made within framework of the fund's emergency financing mechanism."

There was no immediate response from Pakistani officials.

Although the Pakistani economy has recorded some quite robust growth in recent years, foreign exchange reserves have dropped by three quarters in the last year and it is believed there are sufficient funds for just a few weeks of imports.

On Tuesday, Shaukat Tarin, adviser to the Pakistani prime minister on economic affairs, said the country needed $10bn-$15bn of support from foreign lenders to avert a balance of payments crisis.

Officials believe that a "positive signal" from the IMF may encourage international financial institutions and others to release funds which are already in the pipeline.

But is unclear whether this money will be available over the next month to stop Pakistan defaulting.

The country also needs up to $3bn within a month to avoid defaulting on loans.

Stability fears

In addition to strains on the country's foreign currency reserves there is a deficit in its trade with the rest of the world, approaching 9% of national income this year.

A balance of payments crisis is a possibility, analysts say, which would result in importers struggling to pay for foreign goods, including oil imports from the Middle East.

Soaring inflation and chronic power outages are also affecting the country.

Observers say the economic crisis adds a new element of uncertainty to a country whose stability is of growing concern to the United States and its Western allies.

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