ISLAMABAD (Reuters) – Pakistan has not formally asked for a facility from the International Monetary Fund (IMF), the prime minister’s top adviser on economic affairs said on Thursday, contrary to comments by the head of the multilateral agency.
The adviser, Shaukat Tarin, told a news conference in Islamabad that the country still hoped to secure funds from other lenders, including friendly governments.
“We have not formally requested the board of the IMF for a facility, as of now,” Tarin said.
IMF Managing Director Dominique Strauss-Kahn said on Wednesday Pakistan had requested financial assistance and talks on a loan program would begin in the next few days.
The seven-month-old civilian government running Pakistan after more than eight years under former army chief Pervez Musharraf, has been reluctant to go to the IMF.
But the severity of its balance of payments crisis had appeared to leave it with little option.
Tarin said Pakistan was still hoping for help from other lenders, including friendly governments, to fill a financing gap of between $3.5 and $4.5 billion, but Pakistan had to be prepared for any possibility.
“In the next 15 to 30 days, we need cash,” Tarin said.
“We’ll make a formal request to the board of the IMF when we believe we aren’t getting enough money from option A or B,” he said, referring to plans of getting assistance from multilateral donors, other than the IMF, and friendly governments.
But, Tarin said any IMF facility would have to be on the basis of a plan Pakistan has proposed to the fund.
“We have said in our plan that we’ll bring the fiscal deficit to 4.3 percent. We have said we’ll not borrow money from the State Bank this year. We have said we’ll keep exchange rate flexible and curtail expedition.”
Pakistan’s foreign currency reserves have been falling at a rate of nearly $1 billion a month, and the central bank has barely enough to cover six weeks of imports.
Total reserves, including those held by commercial banks, stood at $7.75 billion on October 11, of which the central bank’s accounted for $4.34 billion.
Tuesday, Tarin said Pakistan needed $10 billion to $15 billion of support from foreign lenders to cover its current account financing gap and undertake economic adjustments over the next two years.
Analyst say, because of its status as a front line ally in the war on terrorism, Pakistan can count on support from a world that otherwise fears Islamists militants could destabilise the nuclear armed state.
But Pakistan faces significant economic challenges.
Annual inflation is running at close to 25 percent and analysts say that the budget deficit is unsustainable. Government borrowing from the central bank has squeezed liquidity in the banking system and international bond prices have priced in the risk of a debt default.
The rupee and stocks were largely flat on Thursday. But its 2016 sovereign bond fell as investors fretted over the potential conditions that could be attached to IMF assistance and how the economy might react.
Rating agencies said a Pakistani request to the IMF would be a positive step toward putting its economy in order but its crisis would be far from resolved.
“The worst is not necessarily over yet,” said Moody’s analyst Aninda Mitra, adding that much would depend on how soon the government was willing to accept and start implementing conditions under which an IMF loan would be granted.
“If we start noticing that reserves are dwindling even faster and the adjustment measures are also taking longer amid continued delays in finalizing a financing deal with the IMF, then we will have to move on the rating front,” he said.
The agency’s current rating B2 is five notches below investment grade.