Pakistan and the IMF

Pakistan has asked the International Monetary Fund (IMF) for a stand-by credit facility of at least $7.6 billion to stave off a balance of payments crisis, Advisor the Prime Minister of Finance Shaukat Tarin said on Saturday.
Tarin said the IMF had already agreed to lend funds to Pakistan, though the formalities had to be concluded.
‘Next week we will officially apply and send them a letter of intent,’ Shaukat Tarin, told a joint news conference held with Governor State Bank of Pakistan Dr Shamshad Akhtar in Karachi.
A finance ministry official told Reuters on Friday that the government had asked for a credit facility of up to $9 billion, and based on its IMF quota it was entitled to get at least $7.6 billion.
As of Nov. 8 State Bank of Pakistan's foreign currency reserves were equivalent to just nine weeks cover for import payments, and the government faced defaulting on its international debt obligations in February next year unless it received a multi-billion dollar infusion.
‘We want reserves to be above three months of import cover,’ Tarin said, adding he expected the IMF to make the first disbursements later this month.
The interest rate on facility would vary between 3.51 to 4.51 per cent with some changes according to market conditions, and would be repayable between fiscal year 2011/12 and 2015/16, Tarin said. Tarin said the IMF had endorsed Pakistan's own strategy to bring about structural adjustments needed to correct unsustainable current account and fiscal deficits.
The strategy included reducing excessive government borrowing from the central bank to zero, but did not involve a cut in defence spending, one of the heaviest items on the budget, Tarin said.
The only point of difference with the IMF, according to Tarin, was the fund's desire to see higher interest rates, but a 200 basis point hike in State Bank's policy discount rate to 15 per cent announced on Wednesday partially met those concerns.