Islamabad : The International Monetary Fund (IMF) has concluded the first round of technical talks in Dubai with Pakistani officials about creating a system to save the south Asian nation from economic collapse, officials said.
Pakistan’s government is facing a tightening balance of payments. Its financing gap stands at around $7 billion for the current fiscal year, which ends June 30, 2009.
“There are one or two points on which both sides could not evolve consensus,” said a senior official, who was part of the returning Pakistani delegation Thursday.
The official, who refused to be named, said the IMF was insisting on raising discount rates by up to four percent above the existing 13 percent, in order to curtail inflation, which currently stands at over 30 per cent.
Pakistani authorities, however, believed that boosting interest rates would aggravate inflation, creating chaos in the nuclear-armed state, where prolonged power outages and rapidly increasing electricity tariffs have already triggered countrywide protests in recent weeks.
Under a Special Drawing Rights (SDR) quota available to Islamabad, Pakistan could get $1.6 billion a year.
“This quota will be multiplied by four to eight times under a special fund created by the IMF to cater for the needs of those countries that are facing balance of payment difficulties,” said the official, who spoke on condition of anonymity.
The official added that both sides needed to consult with more senior authorities before a decision could be made to approach the IMF formally.
The next round of talks will be held in a few days, he said.
Pakistan sought assistance from the IMF only after its closest friends, the United States, Saudi Arabia and China, showed reluctance to provide the approximately $5 billion needed to save the country from economic meltdown.
Pakistan’s financial woes were caused mainly by the political crisis that ended with the resignation of former president Pervez Musharraf in August and dozens of suicide attacks by Taliban militants around the country. Both drove away foreign investors.
Indeed, the meeting with IMF officials had to be conducted in Dubai because IMF officials refused to visit Islamabad following a Sep 20 suicide bomb attack at the capital’s Marriott Hotel, in which more than 60 people were killed and more than 250 injured.
As a result of the political instability, the country’s foreign reserves have dropped some 75 percent over the last 12 months, from $18 billion to around $4.3 billion. At the same time, the rupee has weakened by more than 27 percent against the dollar.