IMF says Pakistan has not approached fund for deal

The IMF's comments added to the appearance of confusion around the abruptly announced decision.

(AFP / Web Desk) - 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.

Prime Minister 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 a local English 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.

In a statement issued on Monday, the Ministry of Finance stated: "The Government inherited 6.6% of fiscal deficit, more than a trillion Rupees of unaccounted for losses in the energy sector and an unprecedented and debilitating current account deficit running at $2 billion a month. To correct the underlying imbalances, fiscal and monetary actions needed to be undertaken without delay. In this regard, the Finance supplementary (Amendment) Act, 2018 by the government and the policy rate increases by the State Bank of Pakistan are actions taken to stabilise the macroeconomic situation. In addition, regulatory duties on non-essential imports have had to be introduced to curb the unnecessary growth in imports."

"After taking into account the current situation and consultation with the leading economists, the government has decided to approach the IMF for stabilisation and an economic recovery program. It should be noted that the government has engaged with the friendly countries in the lead up to this decision and this engagement will continue," the ministry added.

Pakistan has gone to the IMF multiple times since the late 1980s. The last time was in 2013, when Islamabad got a $6.6 billion loan to tackle a similar crisis.

"There have been ten IMF programs since 1990s in one shape or the other. It is essential to remember that there is a history of Pakistan repeatedly going to the IMF with every new government being forced to go with IMF program due to legacy of those who held power in the previous government," the Finance Ministry explained. 

"The challenge for the current government is to ensure that fundamental economic structural reforms are carried out to ensure that this spiral of being in an IMF program every few years is broken once and for all. In this regard the Finance Minister shall hold meetings with the top leadership of IMF during the annual meetings of World Bank / IMF at Bali later this week."

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 $12 billion to turn the corner, but a diplomat told AFP in August that Islamabad is betting on a loan of at least $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.