Pakistan has taken the decision to say ‘goodbye’ to the International Monetary Fund (IMF) for the time being after the existing $11.3 billion Standby Arrangement (SBA) programme ends on September 30, a senior official told reporters on Friday.
Top economic wizards were asked whether there was a possibility of plunging into loose fiscal policy in an election year that could pave the way of another severe crisis, and whether the timing of approaching the IMF might bring tough conditions then. They said Pakistan could not come out of the IMF programme over the medium term, so they would continue engagement with the Fund during this stopgap arrangement. Later, Minister for Finance Dr Hafeez Shaikh told reporters that Pakistan would continue engagement with the IMF and it was agreed that the Fund mission would hold Article IV (4) consultation with Islamabad authorities next month.
However, in a background informal briefing, another top official of Gilani’s government told reporters economic wizards felt Pakistan’s current account deficit (CAD) would remain in the range of 1 to 2 percent of the GDP during the current financial year, adding that Pakistan would have to repay $1.2 billion to the IMF as principal and interest payments in two instalments but the country’s foreign currency reserves might decline in the range of $500 million to a maximum $2 billion compared to the existing level of over $17.5 billion.
Meanwhile Reuters reports that violence is driving away foreign investment:
Foreign investment in Pakistan fell 76.9 percent in the first two months of the 2011/12 fiscal year (July-June) to $65.2 million due to a decrease in both direct and portfolio investment, the central bank said on Friday. FDI fell 39.9 percent in July-August 2011 to $112.4 million from $186.9 million in the same period last year, the State Bank of Pakistan said. Foreign portfolio investment fell 149.3 percent with outflows of $47.1 million in the first two months of the fiscal year 2011/12, compared with inflows of $95.6 million in the same period last year.
At least 400 people were killed in July and August in violence in the country's main commercial hub and investors have started shunning the country's main stock exchange.
Pakistan battered economy needed an International Monetary Fund (IMF) emergency loan package, agreed in November 2008, to help it avert a balance of payments crisis and shore up reserves. It received the fifth tranche of $1.13 billion of the $11 billion loan in May 2010.