Pakistan, IMF to begin crisis talks

October 22, 2008

Pakistan will begin talks with the International Monetary Fund over the next few days to secure funding to avert a balance of payments crisis, the IMF said in a statement from Washington.

The statement came after days of speculation that seemed to have gathered pace after President Asif Ali Zardari’s trip to China where according to these media reports he failed to win a commitment for cash to shore up the country’s reserves, barely enough to cover six weeks of imports.


“The amount of Fund financing under a stand-by arrangement has yet to be determined. Financing could be made within the framework of the Fund’s Emergency Financing Mechanism,” IMF Managing Director Dominique Strauss-Kahn said.

Pakistan needs $10 to $15 billion of support from foreign lenders, according to Shaukat Tarin, adviser to the prime minister on economic affairs.

Inflation in Pakistan is running close to 25 percent, the budget deficit is unsustainable, government borrowing from the central bank has squeezed liquidity in the banking system, and the international bond market has priced in a debt default.

Such reports of a fast-approaching economic meltdown and even talk that this could be Asia’s Iceland would rattle any country, given the instinctive resistance to approaching the IMF with all its dreaded conditionalities.

A protest against price rises in Karachi

But it made me think of India’s financial emergency in 1991 when a balance of payments crisis forced the country to pledge its gold abroad. The ignominy of the country’s gold being shipped to Britain to finance imports for a nation with a long colonial history and even longer memories was enough to silence most critics when the government shortly afterwards approached the IMF for loan. Here is a question from parliament then Finance Minister Manmohan Singh answered.

There was a silver lining though. India launched the most sweeping economic reforms that year dismantling decades of license raj, and didn’t ever look back although progress was fitful in the first few years.

Perhaps this may well turn out to be Pakistan’s moment as it steps back from the abyss?


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