Rupee plunges as Islamabad eyes one of its biggest rescue packages from fund
Pakistan's prime minister Imran Khan wanted to avoid approaching the IMF for help, but the country’s pressing need for foreign currency has pushed him to the fund © AFPT
Kiran Stacey in New Delhi, Farhan Bokhari in Islamabad and Chris Giles in Bali OCTOBER 9, 2018
Pakistan will ask for one of its largest bailouts from the IMF when its finance minister travels to Bali this weekend for the fund’s annual meeting, officials told the Financial Times.
Asad Umar announced on Monday night that his government would approach the IMF to open talks on a financial support package as the country looked for a way out of its foreign currency crisis.
The announcement underlined the gravity of the country’s financial problems, and signalled an end to Prime Minister Imran Khan’s attempts to avoid approaching the fund by courting other lenders. It also adds to concerns about the health of emerging economies across the world, following the crises in Argentina and Turkey.
People briefed on Mr Umar’s plans told the FT on Tuesday that the finance minister was planning to ask for loans worth between $6bn and $7bn, which would put the rescue package in line with the country’s last bailout in 2013.
One person said Pakistan wanted to borrow the maximum allowed under the fund’s normal rules on access to finance, but not to go beyond that, which could have made it difficult to secure the financing it needed.
“Ultimately, the authorities felt it was important to present a request which would not trigger undue pressure from the IMF’s biggest stakeholders — especially the US,” said one economist who was consulted on the plan.
The request to the IMF comes after years of high imports and low exports, which have taken their toll on the country’s stock of foreign reserves.
The situation reached critical levels in recent weeks, with the Pakistani central bank now holding just $8.4bn in foreign currency, barely enough to cover imports until the end of the year.
Mr Khan has spent much of his first few months in office speaking to his country’s major foreign allies, including China and Saudi Arabia, in an attempt to not rely on the US-based fund.
Pakistan’s highly managed rupee has been under heavy pressure all year © Reuters
The prime minister has been heavily critical of US foreign policy in the past, especially in Afghanistan, and his advisers are concerned an IMF loan may trigger greater political interference from Washington.
But officials in Islamabad said an approach to the IMF became inevitable when Riyadh turned down a request to delay payments for oil imports, with the Saudis stressing they instead wanted to invest in schemes such as the redeveloped Gwadar port.
The highly managed Pakistani rupee dropped sharply on Tuesday, falling around 7 per cent to Rs133 per dollar, more than 25 per cent lower than it was at the beginning of December last year. Analysts said the move was a deliberate attempt by Pakistani policymakers to improve the country’s balance of payments and curry favour with the IMF.
Maurice Obstfeld, the fund’s chief economist, on Tuesday welcomed Islamabad’s recent willingness to let its currency fall, calling the new government’s financial reforms “a very good sign”.
But Mr Obstfeld also hinted at an area of possible tension in the upcoming talks, insisting that loans made by China under the $62bn China-Pakistan Economic Corridor should be “sound”.
Islamabad has so far been reluctant to publish any data about the terms of the loans, leading to speculation they are placing undue strain on Pakistan’s parlous finances. But despite some reservations in Islamabad about the scheme’s make-up, advisers say the government has now decided to commit to it in its current form.
“Pakistan will not compromise on CPEC,” said the economist briefed on Mr Umar’s plans. “It is widely considered among decision makers as the lifeline of future prosperity.”
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