IMF lifeline for Pak on anvil

Islamabad, October 31:

The International Monetary Fund (IMF) yesterday concluded the first round of technical talks in Dubai with Pakistani officials about creating a system to save the south Asian nation from economic collapse, officials said.

Pakistan’s government is facing a tightening balance of payments. Its financing gap stands at around $7 billion for the current fiscal year, which ends June 30, 2009.

“There are one or two points on which both sides could not evolve consensus,” said a senior official, who was part of the returning Pakistani delegation.

The official, who refused to be named, said IMF was insisting on raising discount rates by 3 to 4 per cent above the existing 13 per cent, in order to curtail inflation, which currently stands at over 30 per cent.

Pakistani authorities, however, believed that boosting interest rates would aggravate inflation, creating chaos in the nuclear-armed state, where prolonged power outages and rapidly increasing electricity tariffs have already triggered countrywide protests in recent weeks.

Under a Special Drawing Rights (SDR) quota available to Islamabad, Pakistan could get $1.6 billion a year.

“This quota will be multiplied by four to eight times under a special fund created by IMF to cater to the needs of those countries that are facing balance of payment difficulties,” said the official.

He added that both sides needed to consult with more senior authorities before a decision could be made to approach IMF formally.

The next round of talks will be held in a few days, he said.

Pakistan sought assistance from IMF only after its closest friends, the United States, Saudi Arabia and China, showed reluctance to provide the approximately five billion dollars needed to save the country from economic meltdown.

Pakistan’s financial woes were caused mainly by the political crisis that ended with the resignation of former president Pervez Musharraf in August and dozens of suicide attacks by Taliban militants across the country. Both drove away foreign investors.

The meeting was held in Dubai because the IMF officials refused to visit Islamabad following a deadly September 20 suicide bomb attack there.