Pakistan to Request IMF Loan

Pakistan and the International Monetary Fund have agreed on the terms of a $7.6 billion loan to bolster the country's dwindling foreign currency reserves

By Edward Russell

Pakistan and the International Monetary Fund (IMF) have agreed on the terms for a $7.6 billion loan to bolster the country's dwindling foreign currency reserves. The IMF support comes only days after China agreed to a $500 million aid package for Pakistan and as the Friends of Democratic Pakistan prepare to meet in the United Arab Emirates (UAE).

"IMF staff and the Pakistani authorities have reached an agreement in principle on the key elements of an economic programme to be supported by an SDR5.17 billion ($7.6 billion) 23-month stand-by arrangement," according to IMF managing director Dominique Strauss-Kahn.

An SDR, which stands for special drawing right, refers to potential claims on the freely usable currencies of IMF members and are defined in accordance with a basket of major currencies used in international trade and finance.

Pakistan still needs to formally request the $7.6 billion loan from the IMF, and is expected to do so this week. The loan will have a 23-month term and will come from the IMF's Emergency Financing Mechanism.

According to Pakistan's central bank, foreign currency reserves stand at only $7.3 billion as of October 17. In September, Pakistan's foreign reserves fell by $1 billion.

On October 28, Moody's Investor Services followed Standard and Poor's lead and downgraded Pakistan's long-term sovereign credit rating to B3. S&P downgraded the country earlier in October to CCC+.

Pakistan had hoped to raise enough capital from Friends of Democratic Pakistan, a loose grouping that will begin meetings in the UAE today. China has already pledged $500 million in aid and the US agreed to provide $341 million through the United States Agency for International Development (USAID) programme. The meeting may still result in additional support for Pakistan which was previously reported as seeking up to $15 billion in loans.

The Friends of Democratic Pakistan group includes China, Saudi Arabia, the UAE, the US and the UK.

It is hoped that the IMF's loan will spur additional aid to Pakistan. "I would like to call on the donor community to work together and act quickly to support Pakistan's programme in order to mitigate the impact of the current economic difficulties on the poor and ensure an adequate level of spending on development programmes," comments Strauss-Kahn.

However, Pakistan still must battle rising inflation and other domestic worries. Consumer price inflation was a steep 24.6% in the three months from July to October. The Karachi Stock Exchange's 9,144 point price floor remains in place indefinitely with market capitalisation down 41.7% for the year.