Islamabad: Pakistan has said it would approach the IMF for a bailout package of USD 6 to 7 billion to address the mounting balance of payments crisis faced by the cash-strapped country.
Finance Minister Asad Umar on Monday said Prime Minister Imran Khan has endorsed the decision to seek assistance from the International Monetary Fund (IMF).
“After taking into account the current situation and consultation with leading economists, the government has decided to approach the IMF for a bailout programme,” Umar said in a recorded video message.
Pakistan is likely to request the IMF to provide it USD 6 to 7 billion, Geo News reported.
The government took the decision after friendly countries did not bail it out even though Khan himself went to Saudi Arabia with a “begging bowl”, the Express Tribune reported.
Adviser to the Prime Minister on Commerce Razak Dawood, who accompanied the premier, said “it was awful to beg from Saudi Arabia”.
Umar said talks with the IMF will start immediately as Khan approved the decision after consultations.
“It was decided today that we should start negotiations with the IMF for a stabilisation and recovery programme so that we should bring the current difficult economic situation under control,” Umar said in the message.
He said the country is going through a tough time.
Sources said Khan’s government needs at least USD 9 billion to meet the current account deficit.
An assessment by the State Bank of Pakistan and the finance ministry showed that Pakistan needed USD 11.7 billion to service its external debt in the current fiscal year 2018-19.
“We have to find a way to get out of this difficult situation,” Umar said.
Sources in the finance ministry said the government explored all options including asking friendly countries for support as well as seeking donations from overseas Pakistanis before going to the IMF.
However, they said the IMF would demand Pakistan reduce its non-development expenses to bring down the budget deficit.
The sources said the world body will also ask Islamabad to expand the tax net in the country, and added that the IMF also wants Pakistan to decrease circular debts and losses in state institutions, the report said.
Umar is expected to lead a delegation to attend the annual meeting of the IMF and World Bank in Bali, Indonesia from October 12 to 14, where he will start initial talks for the bailout package.
It may take a few months before the agreement is reached and money starts pouring in from the IMF, the report said.
The IMF assistance should be enough to bridge the deficit gap and support the plummeting foreign exchange reserves which have plunged below USD 10 billion, it said.
The government has come under criticism from various quarters, including the opposition, for delaying the decision to approach the IMF soon after Khan’s party won the general election on July 25.
The decision will create hardship for Khan as IMF’s tough conditions will surely result in price hike.
Pakistan has availed 12 IMF bailouts since the late 1980s. The last one was in September, 2013 when the IMF approved a USD 6.6 billion loan support to the government’s programme to stabilise its economy and boost growth while expanding its social safety net to protect the poor.
Meanwhile, the Pakistani rupee on Tuesday also suffered massive devaluation after the government’s decision.
The Dawn reported that the interbank rate of the US dollar was at Rs 124 as the market opened, but rose to Rs 138, then dipped slightly to Rs 133.
The open market rate is Rs 134 to Rs 135, according to Zafar Paracha, Secretary, General Exchange Companies Association of Pakistan.
Currency dealers fear the alarming increase will fan panic in the market for dollars, causing a buying frenzy for the US dollar.
They speculate that the sudden increase in the price of the dollar could be a result of rupee devaluation by the State Bank of Pakistan (SBP) in order to get the IMF package.
The IMF has demanded the government devalue the rupee by at least 15 per cent.