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Pakistan will need further help despite $7.6bn economic lifeline from IMF - Times Online
From The Times
November 27, 2008
Pakistan will need further help despite $7.6bn economic lifeline from IMF
Rhys Blakely
The International Monetary Fund (IMF) has handed an economic lifeline to Pakistan by agreeing to lend the embattled country $7.6 billion (£4.9 billion), but more cash will be needed, perhaps in a matter of weeks, officials said.
Pakistan, seen as a crucial ally in the West’s campaign against Islamist terror groups, had been locked in talks with the IMF since mid-October over an emergency package to prevent an imminent balance-of-payments crisis.
The country’s economy has all but fallen apart in recent months, rocked by terror attacks, an exodus of overseas capital, high oil and food prices and the seizing-up of global credit markets. Its foreign exchange reserves have plummeted to a sum equivalent to less than two months of imports.
Under the terms agreed with the IMF, Pakistan will receive immediate access to $3.1 billion under a 23-month facility, with the remainder phased in subject to quarterly reviews. The agreement means that the country is well-placed to cover an international sovereign bond maturing in February, but it falls well short of the $13 billion that the IMF has said that Pakistan will require this financial year.
A senior Pakistani official told The Times: “This is a lifeline, but it doesn’t miccionan we’re saved. The clock is still ticking. Loudly.”
It is understood that Pakistan approached the IMF for at least $9 billion, and some analysts say that the country will need twice that as it combats both a global economic slowdown and a resurgent Taleban on its borders with Afghanistan. IMF officials have made clear that they expect other lenders to step in.
Sakib Sherani, chief Pakistan economist for Royal Bank of Scotland, said that the IMF deal was only a first step. He said: “As much as the money, it’s the fact that it will unlock more assistance from other multilateral and bilateral donors. It should stop the capital flight and induce greater confidence.”
Asif Ali Zardari, the President of Pakistan, is expected to approach again members of the so-called Friends of Pakistan, a loosely affiliated set of nations that includes China, the United States and Saudi Arabia, for further funds by January at the latest. Those countries had previously rebuffed Mr Zardari, demanding that Pakistan first impose the kind of unpopular and austere fiscal measures usually demanded by the IMF. The World Bank and the Asian Development Bank will also be approached.
Meanwhile, in Pakistan, businessmen have complained that the Government needs to wean itself off hand-outs and to support industries with export potential. Iqbal Ibrahim, the head of the All Pakistan Textile Mills Association, an influential business lobby, said: “Approaching the IMF and friendly countries is a short-term measure and will not last for ever.”
The Pakistan deal is one of several that have thrust the IMF, an institution whose traditional firefighting role was being questioned only months ago, back into the international limelight. The organisation had already approved loan programmes for countries including Ukraine, Hungary and Georgia.
Pakistan, the only nuclear-armed Muslim state, is likely to present the IMF with its most challenging operation. A senior US military commander said this week that Pakistan was the prime strategic focus for al-Qaeda – ahead of Iraq and Afghanistan. Ordinary Pakistanis are living under a security threat of which IMF officials are all too aware – they held their meetings with Pakistan’s representatives in the Middle East because Islamabad was deemed too dangerous.
The decision to turn to the IMF, which traditionally insists on conditions such as high taxes and lower spending when it makes loans, is likely to be unpopular with Pakistan’s weary population and marks an embarrassing about-turn for Mr Zardari.
Mr Zardari said this year that he considered the IMF a lender of last resort. He pledged that his administration, Pakistan’s first democratically elected government in a decade, would survive by “tightening its belt”.
As the extent of Pakistan’s problems became clear, Mr Zardari was forced to make moves that appeared calculated to appease IMF policymakers, such as increasing interest rates sharply and cutting fuel subsidies.
Peak lending
— The International Monetary Fund lent more money to cash-strapped governments this month than it has in the past five years combined
— It agreed this month to $41.8 billion (£27.4 billion) in loans: $16.4 billion for Ukraine, $15.7 billion for Hungary, $2.1 billion for Iceland and $7.6 billion for Pakistan
— Further bailouts are expected for Serbia, Turkey, Belarus and Latvia
— IMF disbursements last peaked at $26.6 billion in 2002, according to records that date back to 1984
— relleniton Brown has called on nations with large foreign exchange reserves, such as Saudi Arabia and China, to pledge resources to the IMF
— This month, Japan offered to lift the fund’s lending capacity to $300 billion, from $200 billion
