Pakistan Seen Needing IMF Bailout as Rupee Drops Before Vote

Pakistan may require an International Monetary Fund bailout after a tumble in foreign reserves and a plunge in its currency to a record low, as a struggling economy saps support for the government before a general election.

The rupee has slid 7 percent versus the dollar in the past year, with reserves down about 19 percent to $13.8 billion on a trade gap and aid repayments. IMF help is needed to stem the declines, said Standard Chartered Plc and ex-Commerce Minister Mohammad Zubair Khan, ahead of a visit by the lender this week.

“The rupee is under serious pressure,” said Sayem Ali, an economist at Standard Chartered in Karachi who previously worked at the World Bank. “The central bank doesn’t have the ability to defend it.”

The vote due by mid-2013 would be the first time a civilian Pakistani government finishes its five-year term and transfers power through the ballot box. Probable IMF loan conditions such as tighter monetary policy and curbs on the budget deficit would be politically costly steps for the administration led by the Pakistan Peoples Party, according to Khan.

“Going to IMF while in the middle of an election process is certainly a risky move,” Ali said. “To some extent, they can afford to delay the arrangement until the elections are held, and that technically means that the new set-up will be burdened with taking all the painful adjustments.”

An IMF mission is expected in the next two days, Rana Asad Amin, a spokesman at the Ministry of Finance, said yesterday.

‘In Talks’

Pakistan is evaluating a possible loan from the IMF as a buffer against shocks, Saleem H. Mandviwalla, the minister of state for finance, told reporters Dec. 19 in Islamabad.

“We are in talks with them but haven’t decided,” he said.

Subdued global growth, an unprecedented power crisis and an insurgency on the Afghan border have buffeted Pakistan’s economy.

Political instability in the nuclear-armed nation may hinder efforts to reconcile at least some Taliban insurgents with the Afghan government of Hamid Karzai, as the U.S. plans to withdraw the majority of its combat troops from a decade-old war in Afghanistan by the end of 2014.

The Washington-based IMF said in a Nov. 29 statement that Pakistan’s economic growth will slow to about 3.25 percent in the fiscal year through June 2013, from 3.7 percent. Foreign reserves in October were “below adequate levels,” it said.

Record Low

The rupee touched a record low of 98.288 per dollar on Dec. 18, and its 36 percent slide in the past five years is one of the worst in Asia, according to data compiled by Bloomberg. It fell 0.1 percent to 97.57 per dollar at 9:53 a.m. in Karachi. Standard Chartered predicts it will weaken to 100 per dollar this quarter.

“To restore stability in the foreign-exchange markets, they need IMF endorsement,” said Khan, now a World Bank adviser.

An earlier, partially disbursed $11.3 billion IMF loan program expired in September 2011 after Pakistan failed to meet the conditions attached to it. The nation has to repay about $7.5 billion to the lender from 2012 to 2015, Moody’s Investors Service said in July.

The South Asian country, which has been ruled by the military for about half its history, turned to the IMF for a bailout in December 2008 after reserves and the rupee tumbled.

To contact the reporters on this story: Haris Anwar in Islamabad at hanwar2@bloomberg.net;

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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