After months of speculation, Pakistan’s new government has decided to approach the International Monetary Fund (IMF) for financial assistance as it faces an economic crisis marked by a mounting balance of payments deficit and dwindling foreign currency reserves.
Pakistan’s Prime Minister Imran Khan approved the proposal to kick-start negotiations with the US-based global body after consulting economic experts and officials, Finance Minister Asad Umar said on Monday night.
“Today, it was decided that we should start talks with the IMF for such a stabilisation, recovery programme on which basis we could overcome this financial crisis,” Umar said in a video message.
Pakistan’s government, led by the cricketer-turned-politician Khan inherited a mountain of economic challenges when it came to power in July.
The country is currently facing a balance-of-payments crisis – with a nearly $18bn deficit, according to the latest figures by the State Bank of Pakistan.
Pakistan’s foreign currency reserves dropped by $627m in late September to $8.4m, the largest weekly drop in years that left barely enough to cover sovereign debt payments due through the end of the year.
And it’s public sector debt stands at $75.3bn – which is 27 percent of Pakistan’s gross domestic product.
“The difficult financial situation that the country is going through, I don’t need to tell anyone about it, everyone knows the crisis the previous government left us with,” said Umar.
He did not specify how much in emergency financing the government would seek, but he had earlier said the government would need at least $8bn to meet external debt payments through the end of the year.
If an assistance package is agreed on, it would be Pakistan‘s second IMF bailout in five years and its 13th since the late 1980s.
Pakistan’s current accounts deficit has been widening since before the July 25 election that brought Khan’s
Pakistan Tehreek-e-Insaf (PTI) party to power, but his new government wanted to explore options outside the IMF including additional bridge loans from China and deferred payments scheme for oil with Saudi Arabia.
Under the new IMF programme, the government will aim to have a “minimum impact” on low-income people, while passing on the burden to wealthy citizens, PTI’s Umar said.
The decision came after the Pakistani stock markets tumbled by 3.4 percent on Monday and after Khan said the day before that he was still exploring options outside the IMF.
“It’s a big challenge, it’s not easy, everyone knows that these are difficult decisions,” said Umar.
“We have to break this cycle of going to the IMF,” he added. “We will face the pain now, but after this, we have to work towards such an economy that can stand on its own two feet.”
The Pakistani rupee has fallen by more than 20 percent in four devaluations since December.
On Monday, the currency was trading at 128 to the US dollar on the open market and 124.20 in the official interbank rate.