Pakistan to approach IMF for loan

By M Ilyas Khan
BBC News, Islamabad

Pakistan's economy is in a meltdown

A top Pakistani official has said that Islamabad would approach the International Monetary Fund (IMF) for a loan in the next 10 to 15 days.

Pakistan has been exploring other sources of funds in order to avoid stringent IMF conditions, but the efforts have failed so far.

Shaukat Tarin said the country would have to "swallow the bitter pill".

Pakistan needs more than $5bn in less than a month to avoid defaulting on international debts.

The Pakistani economy has grown by 7% to 8% over the last few years, but most of this growth has taken place in sectors such as consumer financing.

By 2006, trade imbalances because of high imports caused the economy to slow down.

A subsequent rise in international prices of food and oil worsened the country's trade imbalance.

This led to a fall in the value of the Pakistani rupee and a flight of capital from the country.

Unpopular

Pakistan has received massive pledges of support from the world's economic powers over the next five to 10 years.

But none of these pledges are likely to be realised over the next 15 to 20 days within which time Pakistan has to pay off loans and meet other obligations.

In the past, Pakistani officials have said the IMF would be their last option due to its unpopularity at home.

IMF conditions entail cutbacks on the size of the government, development expenditure and some politically important subsidies.

But on Tuesday, finance adviser Shaukat Tarin defended the government's plans to approach the IMF, saying the Pakistani team would be able to negotiate a loan with fewer conditions.

He said an IMF loan would also open doors to other international financial institutions (IFIs) as they would be more confident to loan money to Pakistan.

"The IFIs agreed and appreciated our economic programme and social safety net, but they desire to get it approved from the IMF before offering us a financial facility," he told the upper house of the Pakistani parliament.

The IMF has agreed loans to several nations to restore their economies.

Ukraine, Hungary and Iceland have reached agreement with the IMF over loan deals.