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IMF board reviews Pakistan package

November 25, 2008

WASHINGTON, Nov 24: The executive board of the International Monetary Fund began a meeting on Monday afternoon which is expected to approve a $7.6 billion rescue package for Pakistan.

The meeting, which started at 2.30 p.m. Washington time, is expected to approve the aid package in Monday’s session which ends at 5.30 p.m.

Diplomatic sources told Dawn that Pakistan would receive the first instalment of $3.2 billion within 48 hours after the approval of the rescue package. This amounts to 200 per cent of Pakistan’s IMF quota of 1.033 billion SDRs (Special Drawing Rights), a basket of mixed currencies.

Under the understanding reached earlier, Pakistan will receive a total of 500 per cent of its quota, which amounts to $7.6 billion.

It is a 23-month programme, allowing for the transfer of $7.6 billion in six quarterly instalments.

Pakistan will have to pay an interest of 3.15 per cent to 4.15 per cent on the money it borrows from the IMF. Pakistan needs the loan to avoid defaulting on international debt.

Islamabad explored other sources before going to the IMF because of its stringent conditions.

But even the Friends of Pakistan club, formed in New York in September to help stabilise the Pakistani economy, failed to offer financial assistance. The members of this group told Islamabad that while they could back long-term investment projects, they did not have money for providing short-term financial assistance.

The Zardari government had to abandon its search for alternative sources when forced to raise billions of dollars immediately to meet debt payments and pay for imports.

Reports last week said the State Bank of Pakistan’s reserves could only cover nine weeks of imports.

The Pakistani economy had grown by 7 per cent to 8 per cent over the past few years, but by 2006 trade imbalances caused the economy to slow down. A subsequent rise in international prices of food and oil worsened the situation.

This led to a fall in the value of the rupee and a flight of capital from the country. The rupee has plunged 22 per cent against the dollar this year.

But the reports of a deal with the IMF had a steadying effect on the rupee. On Monday, it posted a fifth weekly gain, its best winning streak in a year.

Pakistan hopes that an agreement with the IMF will also encourage other donors to come forward.