ISLAMABAD  -  The government has decided to approach the International Monetary Fund (IMF) for a bailout package, Finance Minister Asad Umar announced on Monday.

In a video message, the minister said that in the existing situation the IMF bailout had become a necessity to avert the balance of payments crisis which is deepening with the passage of time.

He revealed that Prime Minister Imran Khan had given a go-ahead to open talks with the Fund for a bailout programme after chairing a meeting of Economic Advisory Council. Khan has directed finance minister to start talks with the IMF.

“The prime minister... after consulting everyone decided today that we should open talks with the IMF,” Umar said.

Finance Minister Asad Umar will engage with the IMF leadership on the sidelines of the annual meetings of the IMF and the World Bank scheduled for Oct 8-14 in Bali, Indonesia, for a final future course of action. Umar left for Bali on Monday along with a delegation. Pakistan and IMF had already held talks on economic situation of the country from September 27 to October 4.

Earlier an official of the finance minister told The Nation, “It is premature to say Pakistan will formally request the IMF for bailout package but it will certainly discuss its financing needs during the current fiscal year.”

He however said that Pakistan needed at least $11b additional financing during the current fiscal year.

Prime Minister Imran Khan said Sunday that Pakistan could return to the IMF to address its mounting balance of payments crisis but would seek funding from friendly countries first. “The government is looking to China and Saudi Arabia before formally requesting the Fund for bailout package,” said the official.

The country’s foreign exchange reserves had fallen to $8.4 billion last week, which were enough to cover only one and half months’ imports bill. The State Bank of Pakistan’s reserves had decreased by $627 million in just one week to $8.409 billion due to payments on account of external debt servicing. Meanwhile, Pakistan would have to repay $1.2 billion in next couple of months (October and November), which would further erode the reserves.

However, the PTI-led coalition government is still indecisive to take any decision to build the reserves. Due to uncertainty in economic policy, the stock market continued on its downward spiral as the KSE-100 dipped over 1,300 points during trading on Monday. KSE-100 index, the benchmark index of the Pakistan Stock Exchange, decreased by 1,328.06 points or 3.39 percent to 37,898.29 points, last days. The experts believed that volatility in the market was due to reports of the government approaching the IMF for a bailout package. They added that meeting IMF targets would lead to inflation in the country.

The IMF has recently said that additional decisive policy action, anchored in a comprehensive strategy and significant external financing will be needed in the near term. Policies should include more exchange rate flexibility and monetary policy tightening, further fiscal adjustment anchored in a medium-term consolidation strategy, and strengthening the performance of key public enterprises together with further increases in gas and power tariffs. These steps will help reduce current account pressures and improve debt sustainability.

It further said that Pakistan was facing an increasingly difficult economic situation, with high fiscal and current account deficits, and low international reserves. This mostly reflects the legacy of an overvalued exchange rate, loose fiscal policy and accommodative monetary policy. The fast rise in international oil prices, normalization of US monetary policy, and tightening financial conditions for emerging markets are adding to this difficult picture. In this environment, economic growth will likely slow down significantly, and inflation will rise.

 

 

Government finally decieds to approach IMF