Pakistan has formally requested financial assistance from the IMF, the fund said in a statement on Thursday, setting in motion a series of talks that could lead to a bailout of the south Asian nation.
Christine Lagarde, the IMF chief, said she had met Asad Umar, Pakistan’s finance minister, and Tariq Bajwa, the central bank governor, on the sidelines of the IMF and World Bank annual meetings in Bali, Indonesia.
“During the meeting, they requested financial assistance from the IMF to help address Pakistan’s economic challenges,” Ms Lagarde said. She added that an IMF team would visit Islamabad “in the coming weeks” to begin talks.
Ms Lagarde’s statement came three days after Mr Umar confirmed plans to approach the IMF. The proposed bailout would be the 13th in Pakistan’s history, and people briefed on the government’s plans said it would request loans of between $6bn and $7bn — roughly the same total as provided during the last round of IMF assistance in 2013.
Authorities had already allowed the highly managed Pakistani rupee to fall 7 per cent in a day on Tuesday, in what analysts saw as a move to anticipate a probable key demand from the IMF.
A senior Pakistani government official told the Financial Times that Prime Minister Imran Khan had ordered the finance ministry to prepare a comprehensive report on the “fine details” of the country’s borrowings over the past decade, in preparation for a domestic backlash against the decision to approach the IMF.
“The conditions associated with a loan will include some harsh measures and the government will have to be very prepared to explain why Pakistan has been forced to return to the IMF,” said the official.
After campaigning on an anti-corruption platform, Mr Khan won July’s general election on wave of popular support. But the country’s heavy current account deficit has cast a shadow over his first months in power, with foreign exchange reserves falling to just $8.4bn, barely enough to cover the country’s imports for the rest of this year. Pakistani officials had held talks recently with China and Saudi Arabia in an attempt to avoid asking for IMF assistance.
“This will be one of the toughest IMF loans in Pakistan’s history,” said Muhammad Sohail of Karachi brokerage Topline Securities, forecasting that the fund would demand full disclosure of the terms of Pakistan’s other recent borrowings, and cuts to subsidies.
Business people in Pakistan are sceptical that the government would agree to disclose the full details of its loans from China, which has committed to invest $62bn through the China-Pakistan Economic Corridor plan. “In our ruling circles, CPEC is seen as the lifeline of Pakistan’s future prosperity,” said one bank head.
Concerns have mounted in Pakistan about the possibility that the US could block a new IMF bailout. In July, US secretary of state Mike Pompeo warned that any such assistance should not provide funds to pay off Chinese lenders.
Such pressure from Washington would not persuade Pakistan to weaken its ties with China, said a senior official in Islamabad.
“China is now Pakistan’s main supplier of military hardware and the Chinese are the only country who want to invest in Pakistan on a grand scale,” the official said. “I just can’t imagine us being able to spoil our relationship with Beijing.”
Additional reporting by Simon Mundy in Mumbai