Pakistan to approach IMF soon after formation of new government, say officials

KARACHI: Pakistan’s new government is expected to approach the International Monetary Fund (IMF) in the last week of August or early September for financial assistance. The country desperately needs to stabilize the economy, say officials.
The caretaker officials have already started work on the program agenda to be presented to the fund, Dr. Shamshad Akhtar, Pakistan’s caretaker finance minister recently confirmed, saying that they are “working on the agenda just to save the time of the ncoming government.”
The Pakistan Tehreek-e-Insaf (PTI), led by Imran Khan, gained a majority of votes in the election on July 25.
Khan is working on the formation of a new government and is expected to take the oath of office of prime minister on Aug. 11, before the country’s independence day which falls on Aug. 14.
“The final decision to approach IMF, including the required amount, will be taken soon after the formation of a new government,” Senator Mohsin Aziz, member of the Senate’s committee on finance, revenue and economic affairs, told Arab News.”Currently the party is contemplating other options as well to avoid the IMF program, including financial assistance from China and import of oil on credit or deferred payment from Saudi Arabia, but the situation is worst,” said Senator Aziz, who belongs to the PTI.
The country is expected to seek between $6 and $12 billion financial assistance from the IMF.
“The actual need of the country is $28 billion. However, from the IMF the country can avail up to $6 billion out of its $12 billion Special Drawing Rights (SDR) quota as the country has already consumed half of the quota by availing the program in 2013,” Dr. Hafeez Pasha, former finance minister and economist, told Arab News.
Pasha, however, said it would be difficult to get loan of up to $12 billion from the IMF.
“It may only be possible if the friendly countries, especially Washington, support Pakistan in this case. If Pakistan manages to get an IMF loan, other lenders such as the Asian Development Bank and the World Bank can also step forward to help as they need a letter of comfort from the IMF,” Pasha noted.
Pakistan is suffering from historical external account imbalances as its current account deficit swelled to $18 billion by the end of the fiscal year 2018.
The country’s dollar reserves have declined to $9 billion which is not even enough to cover its two months’ import requirements.
The country’s national currency, the Pak rupee, has been constantly under pressure due to the demand-supply gap.
However, after the election the sentiments have changed in favor of the PTI, which resulted in appreciation of the Pak rupee.
On Monday the Pak rupee in the interbank market traded at 124/126, which is an appreciation of 3 percent over Friday’s close of 127.90.
This follows gains witnessed in open market over the weekend where the dollar was quoted at 121/122 compared with the pre-election level of 131.80, an appreciation of 4 to 5 percent.
“The sentiments after election have changed the trends in the open market where we have abundant stocks of currency but no buyers,” Zafar Paracha, general secretary of Exchange Companies Association of Pakistan, told Arab News.
Paracha attributes currency appreciation to three factors: suspension of currency smuggling from Afghanistan and Iran due to the border closure, steps taken by State Bank of Pakistan against unregistered exchange companies, and the sentiment that arose after the election victory of PTI.
Pakistan’s stock market also reacted positively after the election, gaining 2,218 points as investors expressed satisfaction over political clarity.
“Recent news flow regarding a loan from China of $2 billion and possible assistance from Saudi Arabia is helping foreign exchange market sentiments,” said Muhammad Sohail, CEO of Topline Securities.
Senator Aziz said: “Positive sentiments prevail in the currency and stock market of the country but these are not going to stay for long as the country’s actual situation is worse.”
The country will have to seek financial assistance from the IMF, he added.