The International Monetary Fund said Tuesday Pakistan has not approached the body to begin negotiations for a possible bailout to stem a balance of payments crisis, hours after Islamabad announced it will enter talks.
The International Monetary Fund said Tuesday Pakistan has not approached the body to begin negotiations for a possible bailout to stem a balance of payments crisis, hours after Islamabad announced it will enter talks. Former cricketer Imran Khan’s new administration took office in August vowing to weigh up whether to seek an IMF bailout to stabilise its economy as it sought other avenues of financing, as analysts warned the looming crisis was becoming more urgent. “We have not been formally approached yet,” said Maurice Obstfeld, the IMF’s top economist, during the fund’s annual meeting in Bali.
The IMF’s comments added to the appearance of confusion around the abruptly announced decision. Pakistan’s finance minister told the daily Dawn newspaper on Saturday that the government had not yet decided whether it would go to the IMF, and had not sketched out a formal proposal to the fund ahead of the Bali summit. “We will be listening very, very attentively when and if they come to us,” said Obstfeld.
“Pakistan is suffering from a number of imbalances: A very large fiscal imbalance. A large current account imbalance. They also have a low level of reserves and a currency that is too rigid and overvalued,” he added. Pakistan has gone to the IMF multiple times since the late 1980s. The last time was in 2013, when Islamabad got a USD 6.6 billion loan to tackle a similar crisis.
Monday’s announcement sparked a devaluation of the rupee with the currency trading at 134 for a dollar at the official rate, against 124 the day before. Analysts say Pakistan needs a loan of around USD 12 billion to turn the corner, but a diplomat told AFP in August that Islamabad is betting on a loan of at least USD 6.5 billion to get it through the crisis.
However the US, one of the IMF’s biggest donors, has raised fears Pakistan could use any bailout money to repay mounting loans from China, sparking criticism from Islamabad. The IMF also warned the new government that growth would likely slow and inflation rise further if it does not act fast. For months analysts have warned Khan’s new government that a new current account crisis could undermine its currency and its ability to repay billions in debts or purchase imports.