Pakistan Requests $4 Billion More IMF Aid, Tarin Says
Pakistan has requested $4 billion more in International Monetary Fund aid as part of an effort to shore up its economy amid a war with Taliban insurgents, said Shaukat Tarin, finance adviser to the prime minister.
The loan would come in addition to a $7.6 billion credit line that Pakistan secured from the IMF in November. Tarin said he expects the IMF to approve the third installment of that initial credit line and the additional $4 billion next month.
“There are no disagreements between us and the IMF,” Tarin said in an interview at the Asia Society in New York. “We will get it approved. Don’t think we’ll be in a rush to use it because we’re already doing well in our balance of payments.”
Pakistan is requesting additional aid as the war against the Taliban costs the government $8.5 billion a year, Tarin said. Pakistan’s army said this month it killed more than 1,600 Taliban militants in a 10-week offensive to regain control of the northwestern Swat district after the group seized territory in violation of an accord with the government that allowed Islamic law to be introduced in the region. The country has spent $35 billion since 2001 to fight militants, Tarin said.
An IMF spokesperson declined to comment on whether the fund will provide the additional aid to Pakistan.
Budget Squeeze
“It’s still questionable to what extent Pakistan is able to meet the conditionalities for the $7.6 billion standby loan,” said Agost Benard, Singapore-based associate director at Standard & Poor’s. “The budget is being squeezed on both the revenue and the expenditure side. If not the IMF, then perhaps the donor community at large and the U.S. especially will take into account the fact that they are faced with a very particular security question. I think Pakistan can continue to expect support from that angle.”
S&P rates Pakistan’s foreign-currency debt CCC+, or seven levels below investment grade.
The IMF loans have helped spark a rally in Pakistan’s bonds and stocks this year fast cash. The country’s dollar-denominated debt returned 96 percent this year, the best performance among the 44 nations in JPMorgan Chase & Co.’s Emerging Markets EMBI Global Diversified Index.
‘Fundamental Reforms’
The Karachi Stock Exchange 100 Index, which has climbed 31 percent so far in 2009, will gain further as economic reforms take hold and investors are able to use leverage, Tarin said.
“We’re putting in place the fundamental reforms,” Tarin said. “It’s a cash market now. As we bring in leverage products over the next 30 days or so — whether it’s the futures or the margin trading — we believe the stock exchange is going to do even better. The bond market improved because people realized there’s no question of a default now.”
Pakistan’s economy deteriorated in the past year as terrorist attacks led investors to sell a net $1.1 billion of stocks in the 11 months ended May 31, compared with purchases of $87.2 million of shares a year earlier, according to the central bank. The government forecasts 3.3 percent economic growth in the year starting July 1.
Pakistan was forced to turn to the IMF in November after foreign reserves shrank 75 percent, the current-account deficit widened to a record and inflation soared to a three-decade high.
Foreign investment in Pakistan’s stock market is beginning to rebound, Tarin said. Industries including telecommunications, oil and gas, banking and power are also receiving foreign investment, he said.
“Foreign direct investment will just wait and see the security situation,” Tarin said. Investors will look at how “the economy reacts to whatever has happened in the last 24 months or so. I don’t have great expectations that this will be done in a hurry. My sense is people will watch.”
Filed under: legal by Wolf