As the country faces increasing pressure from the global financial crisis, the seven-month old government has been seeking the International Monetary Fund’s endorsement of its economic strategy and appears poised to ask the global body for a loan, according to Reuters.
As of Oct. 11, Pakistan had $7.75 billion of foreign currency reserves, of which the central bank held $4.34 billion, just enough to cover six weeks of imports.
The IMF estimates the financing gap on Pakistan’s balance of payments at up to $4.5 billion, compared to the government’s estimate of $3.0 billion for the fiscal year ending June 30, 2009, said Tarin.
About half of the $10 billion to $15 billion package aimed at stabilizing Pakistan’s economy would come from an IMF loan, and the balance would be provided by the World Bank, the Asian Development Bank and bilateral donors, possibly including Saudi Arabia, according to the Financial Times.
“We are basically seeking help for around seven quarters including the one which began this month,” a senior Pakistani government official told the Times.
Tarin has proposed cutting the budget deficit from over 7 percent of gross domestic product to a range of 4 percent to 4.5 percent.
The main factors behind Pakistan’s widening deficit are soaring oil and food prices, compounded by a poor wheat crop last year. Recent drops in oil prices should help reduce the deficits.
The country’s currency, the rupee, hit an all-time low of 84.4 per dollar on Oct. 17, about 27 percent weaker than it started the year, Reuters reported.
“There is pressure on Pakistan to take action,” Sakib Sherani, chief economist in Pakistan for Royal Bank of Scotland, told the Financial Times. “The challenges are big, such as depleting foreign currency reserves.”