Page last updated at 10:43 GMT, Saturday, 15 November 2008

Pakistan asks IMF for rescue loan

Shaukat Tarin (file image)
Shaukat Tarin said the package would help stabilise Pakistan's economy

Pakistan has asked for a loan package from the International Monetary Fund worth at least $7.6bn (£5.1bn), its top economic adviser has said.

Shaukat Tarin, adviser to the prime minister, said the loan would stave off the country's balance of payments crisis and stabilise the economy.

Pakistan needs the money in order to avoid defaulting on international debt.

It had been exploring other sources of funds in order to avoid stringent IMF conditions but failed to find a deal.

Speaking at a news conference in Karachi, Mr Tarin said Pakistan would apply formally for the loan next week.

The government stands to receive $4bn this year as part of the 23-month IMF deal, the AFP news agency reports. It will start repaying the loan in 2011.

Flight of capital

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

People reach for donated food rations in Karachi, 8 Nov
Many people have felt the pinch of rising food prices

But Islamabad was left with few options faced with the need swiftly to raise billions of dollars in foreign loans to meet debt payments and pay for imports.

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 situation.

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

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

Following the recent global financial turmoil, the IMF has agreed loans to several nations to support their economies, among them Ukraine, Hungary and Iceland.

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