New Pakistan PM Imran Khan faces a mounting debt crisis

Bali (Indonesia) (AFP) - The International Monetary Fund said Tuesday Pakistan has not approached the body to begin negotiations for a possible bailout to stem a balance of payments crisis, hours after Islamabad announced it will enter talks.

Former cricketer Imran Khan’s new administration took office in August vowing to weigh up whether to seek an IMF bailout to stabilise its economy as it sought other avenues of financing.

For weeks analysts have warned that a new current account crisis could undermine Pakistan’s currency and its ability to repay billions in debts or purchase imports.

Late Monday the country’s finance ministry announced that it would begin bailout talks with the IMF.

“We have not been formally approached yet,” said Maurice Obstfeld, the IMF’s top economist, during the fund’s annual meeting in Bali Tuesday.

The IMF’s comments added to the appearance of confusion around the abruptly announced decision.

Pakistan’s finance minister Asad Umar told the daily Dawn newspaper as late as Saturday that the government had not yet decided whether it would go to the IMF, and had not sketched out a formal proposal to the fund ahead of the Bali summit.

“We will be listening very, very attentively when and if they come to us,” said Obstfeld.

“Pakistan is suffering from a number of imbalances: A very large fiscal imbalance. A large current account imbalance. They also have a low level of reserves and a currency that is too rigid and overvalued,” he added.

- Austerity -

Khan came to power on an anti-corruption agenda, vowing to build an Islamic welfare state.

He has sought loans from friendly countries, promised to recover funds stolen by corrupt officials, and embarked on a series of populist austerity measures such as auctioning buffalo and luxury cars owned by the prime minister’s house, and crowdfunding to build a dam in the country’s north.

But economists’ warnings have grown increasingly urgent, and the uncertainty saw the country’s stock exchange lose 3.4 percent of its value on Monday.

The announcement hours later that Islamabad would begin IMF talks sparked a devaluation of the rupee, with the currency trading at 134 for a dollar at the official rate on Tuesday, against 124 the day before.

The drop in the currency’s value shows the government is willing to take tough measures, said Mohammed Sohail, chief executive of the Topline Securities, a Pakistani brokerage house.

Pakistan has gone to the IMF multiple times since the late 1980s. The last time was in 2013, when Islamabad got a $6.6 billion loan to tackle a similar crisis.

Analysts say Pakistan needs a loan of around $12 billion to turn the corner, but a diplomat told AFP in August that Islamabad is betting on a loan of at least $6.5 billion to get it through the crisis.

However the US, one of the IMF’s biggest donors, has raised fears Pakistan could use any bailout money to repay mounting loans from China, sparking criticism from Islamabad.

That has also increased fears that the terms of any IMF programme could be more restrictive than in the past, undercutting Khan’s welfare drive.

The IMF has also warned the new government that growth would likely slow and inflation rise further if it does not act fast.