Pakistan seeks additional $4bn from IMF

Pakistan has requested an additional $4bn in financing from the international monetary fund (IMF) to meet the higher costs of security, finance ministry officials in Islamabad said on Wednesday.

The funding would come on top of a $7.6bn loan agreed late last year to ward off a balance of payments crisis.
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However, a senior finance ministry official said, the additional IMF loan would be used mainly to bridge the expenditure gap until Pakistan’s major aid donors known as the “friends of Pakistan” begin to provide a $5.25bn promised for the next two years until June 2011.

“The request to the IMF is for a bridging loan. We are not seeking a new loan that will add to our debt stock. This is simply money which will be repaid when the assistance from the friends of Pakistan gets delivered,” said Sakib Sherani, a senior advisor to Shaukat Tarin, the de facto finance minister.

Mr Tarin, currently on a visit to the United States, is expected to meet with officials from the IMF, the World Bank and US Aid to discuss the economic fallout from Pakistan ’s three-month-long battle with Taliban militants in the country’s northern Swat valley.

Pakistani officials and western diplomats warn that the extent of international support to help the country meet the economic fallout of the fighting may be a crucial factor in persuading Pakistan to fight Taliban militants in other areas.

“The international support will be a principal litmus test of how Pakistan reacts in future to international pressure on fighting the Taliban” said one western diplomat..

At least 2m people forced to flee the fighting in Swat began returning home in the first phase of a potentially difficult resettlement process on Monday. The return has coincided with warnings from senior Pakistani officials who say that remnant Taliban militants will try to fight back, possibly carrying out suicide attacks targeting refugess returning home.

“One such security incident and you will surely see people suddenly just driving back to the (internally displaced persons’) camps,” said one senior government official. Pakistani officials and UN experts said, beyond the immediate relief, medium to long-term rehabilitation of the IDPs could cost as much as $2bn or more.

Earlier this year, Mr Tarin told the FT that the fallout from Pakistan ’s campaign against militant Islamists was costing up to $8.5bn annually “in terms of lost exports, lost investments, increased expenses and loss in revenue.”

“Direct annual cost of the security apparatus is about US$2.5bn-US$3bn in the next two years,” he added.

However, some of the IMF conditions are already facing mounting popular criticism in Pakistan including energy price increases proposed earlier this year.