Pakistan said it will discuss a loan program of as much as $7 billion with the International Monetary Fund, as the nation tries to rebuild currency reserves.
“Certainly, we will talk and negotiate for a program,” Finance Minister Ishaq Dar said in an interview late yesterday in Dubai. “We would be looking for anything pragmatic. It would be anything between $5 billion to $7 billion.”
Pakistan’s foreign-exchange reserves slid over 40 percent to $6.24 billion in June from a year earlier, enough to cover about two months of imports, central bank data show. The plunge has weighed on the rupee and adds to other challenges facing the recently elected government of Prime Minister Nawaz Sharif, such as energy shortages and a Taliban insurgency in the northwest.
“An arrangement with the IMF will give the market some confidence,” said Sayem Ali, an economist at Standard Chartered Plc in Karachi. It would calm fears among foreign investors that the rupee is headed for a “drastic” plunge, he said.
The rupee strengthened 0.1 percent to 98.87 per dollar as of 3:01 p.m. local time, climbing for the first time in five days, while the Karachi Stock Exchange 100 index was little changed.
Dar also said the government will clear about $5 billion of so-called circular debt that has choked power generation in the energy industry. Circular debt refers to money owed to power companies from unpaid bills.
The step will boost electricity output by 1,700 megawatts, helping to curb outages that have hurt economic growth, he said.
Dar said an IMF team is already in Islamabad.
Jeffrey Franks, the head of the IMF’s Pakistan mission, said in January that the lender won’t sign a new loan program without a “deep and clear” commitment on a set of policy reforms to curb the budget deficit.
Dar in his June 12 budget speech pledged to narrow the widest fiscal deficit in over two decades and to spur expansion in an economy he said was “shattered.”
He imposed additional levies, such as a sales-tax increase to 17 percent from 16 percent, to help achieve a deficit of 6.3 percent of gross domestic product in the year starting July 1, compared with 8.8 percent in 2012-2013.
“We have already taken steps for reforms,” he said in the interview yesterday after attending an investment conference.
The State Bank of Pakistan on June 21 unexpectedly cut interest rates for the first time this year to boost economic growth, even as higher taxes and the drop in the currency threaten to revive inflation.
The rupee has depreciated about 4.5 percent versus the dollar in the past year, risking costlier imports. Consumer prices advanced 5.13 percent in May, the slowest pace since at least 2009, according to data compiled by Bloomberg.
Sharif is aiming for 4.4 percent economic growth next fiscal year, up from an estimated 3.6 percent in 2012-2013, and to keep inflation in single digits.
He returned to power in a May 11 general election, more than 13 years after his second period as premier was cut short by a 1999 army coup.