Officials say IMF visit could precede another bailout

Say govt looking for new loan deal to avoid crisis-like situation.

ISLAMABAD: As fears grow that the country will soon find itself knee-deep in its worst balance of payments crisis in recent years, an International Monetary Fund (IMF) team has arrived in Pakistan, purportedly to hold talks on a fresh bailout programme.

The officially-stated purpose of the mission’s visit is to hold a ‘post programme monitoring dialogue’. The large sum Pakistan already owes to the Fund has made it obligatory that it remain under the IMF’s watchful eye. However, the duration of the visit raises suspicions that the delegation may have other things on the agenda. According to some finance ministry officials, the IMF mission’s stay in Pakistan, from January 8 to January 20, will also involve the continuation of a dialogue initiated recently by Pakistani officials during their visit to Washington DC.

They added that Pakistani authorities had decided that they would take recourse to another bailout programme during their trip to the US, and that the IMF mission’s visit will define the contours of the programme.

They said that despite the roughly $2 billion received in payments from the United States on account of the Coalition Support Fund over the last six months, a balance of payments crisis looms ahead. “Pakistan still has to pay roughly $1.5 billion in six months to the IMF, which will put pressure on both foreign currency reserves and the exchange rate,” they explained.

Officials said the size of the bailout programme is still under discussion.

Foreign currency reserves held by the State Bank of Pakistan total around $9 billion, which includes forward contracts. By excluding the pledged amount under forward contracts, the reserves are far too low to even meet Pakistan’s two-month import bill.

Negotiations for the bailout programme will be held in secret, sources told The Express Tribune, as both sides are not yet ready to officially acknowledge that they have been holding formal negotiations for the past few months. The IMF mission will hold a preliminary session on Wednesday morning.

Officials said outstanding issues that will be discussed are the timing of the loan and the political ownership of the programme. They said the IMF will not sign the programme without seeking “solid guarantees”. They also said that the IMF may hold discussions with the leadership of other political parties to make sure the change of government does not affect the deal.

While talking to The Express Tribune, a senior government functionary said the government has yet to decide on how it will make the decision public. “It is better to take small steps, instead of retreating afterwards,” said the cautious bureaucrat, while speaking on condition of anonymity.

Another government official, while talking to The Express Tribune, said that one of the worrisome aspects of the ongoing talks was the lack of coordination and preparedness of government agencies involved in the negotiations. He feared that this could hurt the country’s interests. He went on to claim that the finance ministry was keeping developments secret even from the State Bank of Pakistan, a key stakeholder in the decision on whether the country must go for a bailout programme or not.

Other officials from the finance ministry told The Express Tribune that the IMF mission will hold discussions on various aspects of the economy, including the outlook for Pakistan’s economy for the remaining fiscal year and beyond, Pakistan’s fiscal and external position, monetary aggregates and the steps required to sustain macroeconomic stability in the context of a difficult global economic environment.

The incumbent government signed its first bailout programme in November 2008: forced to do so to avoid a default on international payments. Out of the $11.3 billion promised under the deal, the IMF disbursed only $7.9 billion. The rest was withheld after the government failed to demonstrate the resolve to honour crucial commitments that came as part of the package.

Published in The Express Tribune, January 8^th, 2013.

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