By HARIS ZAMIR IN KARACHI and MATTHEW ROSENBERG IN NEW DELHI
With its foreign currency reserves shrinking fast, Pakistan is seriously considering turning to the International Monetary Fund to stave off bankruptcy and try to extricate itself from a severe financial crisis that threatens to undermine its first democratically elected government in nearly decade.
Pakistani and IMF officials are slated to meet Tuesday in Dubai, and an official in Pakistan's ministry of finance said his government is looking for $4 billion to avoid defaulting on its debt.
"We are hopeful that Pakistan will get approval soon, with the country receiving $1.5 billion in one go and the rest in five equal installments of $500 million," the official said on Monday, asking not to be identified.
A spokesman for the IMF could not be immediately reached for comment.
An aid package from the IMF would likely require deep spending cuts and tax hikes that could hurt Pakistan's poor and prove politically unpopular. Pakistani officials hold out hope that the so-called Friends of Democratic Pakistan -- a group that includes the U.S., China and Saudi Arabia -- will instead provide the needed money. A preliminary meeting of the friends was held Monday in Islamabad and a summit is planned for early next month in Abu Dhabi.
"A program is not on the cards as of yet," said Finance Secretary Waqar Masud in a telephone interview, referring to an IMF aid package. He added that government would wait to see if an alternative could be found before going with "Plan B."
Pakistan failed to get any firm assurances of money from China when President Asif Ali Zardari visited Beijing last week, and a senior U.S. diplomat warned Monday that Pakistan should expect no unconditional handouts.
"There is no money on the table," U.S. Assistant Secretary of State Richard Boucher told reporters in Islamabad. "The goal is to put the money where it belongs. It is not a cash advance."
Pakistan's hard currency reserves fell to a six-year low of $7.75 billion in the week to Oct. 11, down from about $8.32 billion a week earlier. Nearly a year ago, the reserves stoop at $16.4 billion.
A loan from the IMF would represent a humiliating reversal for Mr. Zardari, who last month declared Pakistan would not seek IMF aid and instead "tighten its belt."
His government has tried to do that, cutting the subsidies on fuel that helped bring about the crisis. But the impact of the cuts has been limited, and the global credit crunch has left Pakistan -- which saw Standard & Poor's slash its sovereign debt rating by two notches earlier this month -- with few options for raising money.Pakistan should consider seeking an emergency support package from the International Monetary Fund, a senior IMF official said on Monday ahead of talks on Pakistan's restructuring plan.
Mohsin Khan, director of the Middle East and Central Asia department at the IMF, said Pakistan has not made a formal request to the IMF for emergency funds but that options were running out.
"Market borrowing is not an option, not in the current markets," Khan told Reuters in an interview.
Officials from the IMF and Pakistan will meet on Tuesday in Dubai to discuss details of the country's financial restructuring plan, which does not include IMF funding at this stage, Khan said.
Pakistan is rapidly losing foreign currency reserves, and analysts say it needs up to $3-4 billion urgently to stabilise the economy, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009.
Khan estimated that Pakistan had unmet funding needs of around $4 billion. "Where that money is going to come from is anybody's guess," he said.
Many wealthy donor nations are embroiled with their own financial crises, leaving few options for Pakistan, he said, other than some of the energy exporting nations in the Gulf and multilateral organisations like the IMF.
"There has been no formal approach to the IMF," Khan said ahead of the meeting. "Would I encourage them to? The answer is yes."
The IMF would be able to provide funding to Pakistan on favourable conditions with around 5-6 percent interest, Khan said, adding the most painful part of restructuring requirements -- the abolition of petrol subsidies -- had already been done.
"Were they to make a formal request, we can move really fast," he said.
Khan estimated that Pakistan had unmet funding needs of around $4 billion.10.20.08
DUBAI, Oct 20 (Reuters) - Pakistan should consider seeking an emergency support package from the International Monetary Fund, a senior IMF official said on Monday ahead of talks on Pakistan's restructuring plan. By Thomas Atkins
Mohsin Khan, director of the Middle East and Central Asia department at the IMF, said Pakistan has not made a formal request to the IMF for emergency funds but that options were running out.
"Market borrowing is not an option, not in the current markets," Khan told Reuters in an interview.
Officials from the IMF and Pakistan will meet on Tuesday in Dubai to discuss details of the country's financial restructuring plan, which does not include IMF funding at this stage, Khan said.
Pakistan is rapidly losing foreign currency reserves, and analysts say it needs up to $3-4 billion urgently to stabilise the economy, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009.
Khan estimated that Pakistan had unmet funding needs of around $4 billion. "Where that money is going to come from is anybody's guess," he said.
Many wealthy donor nations are embroiled with their own financial crises, leaving few options for Pakistan, he said, other than some of the energy exporting nations in the Gulf and multilateral organisations like the IMF.
"There has been no formal approach to the IMF," Khan said ahead of the meeting. "Would I encourage them to? The answer is yes."
The IMF would be able to provide funding to Pakistan on favourable conditions with around 5-6 percent interest, Khan said, adding the most painful part of restructuring requirements -- the abolition of petrol subsidies -- had already been done.
"Were they to make a formal request, we can move really fast," he said.
(Editing by Ruth Pitchford)
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