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'Pak must consider IMF medicine'

Pakistan is averse to an International Monetary Fund loan, but the country must consider IMF help as a cure for its ailing economy, President Asif Ali Zardari was quoted today.

world Updated: Nov 03, 2008 12:53 IST

Pakistan is averse to an International Monetary Fund (IMF) loan, but the country must consider IMF help as a cure for its ailing economy, President Asif Ali Zardari was quoted on Monday as saying.

Pakistan is facing a balance-of-payments crisis that analysts say has left the nuclear-armed US ally little option but to accept IMF help. The government has yet to make a formal request and is hoping other donors will come through with funds.

"Getting aid from the IMF is our last option," Zardari told the Saudi Gazette in an interview published in Pakistani newspapers on Monday.

But he added: "Actually, we must consider the IMF option as a medicine that will ultimately cure our ailing economy."

Zardari will travel to Saudi Arabia on Tuesday to seek economic assistance including deferred payments for its crude oil imports. Zardari said Pakistan's annual oil bill had gone up to $12 billion from $3 billion in five years.

"Such an increase is also creating difficulties for our budget as we have tried to protect our people from the rising cost of energy by subsidising fuel and electricity," he said.

Pakistan's economic woes began before the global financial crisis escalated in September as its battled rising global prices for raw materials and food.

But analysts say the crisis has compounded Pakistan's difficulties by making donors, trying to protect their own economies from the global financial storm, reluctant to step in.

Pakistan has been seeking assistance from its allies, including the United States and China, but diplomats say donors, including Saudi Arabia, want to see the government reach an agreement with the IMF before considering their own help.

Pakistani officials have held days of negotiations with the IMF in Dubai and the IMF said on Thursday the talks had been concluded and more discussions would be held in a few days.

Zardari said he would also seek Saudi support for the Friends of Pakistan group, which is due to meet in Abu Dhabi on Nov. 17.

The group was set up in September on the sidelines of the UN General Assembly in New York by countries that want to help Pakistan, whose support is seen as vital in defeating al Qaeda and bringing stability to neighbouring Afghanistan.

Pakistan needs urgent help as its foreign reserves dwindle.

Total reserves fell $400 million to $6.92 billion in the week to October 25. The central bank accounted for $3.71 billion of the total, less than September's import bill of $3.807 billion.

Officials have not given details of the IMF talks but analysts say interest rates were likely the biggest bone of contention.

The prime minister's top economic adviser said on Friday Pakistan would raise interest rates if it believed that was a necessity to cut inflation.

Inflation, fueled by subsidy cuts and a nearly 25 per cent slide in the value of the rupee against the dollar this year, is running at an annual rate of almost 25 per cent.

The IMF had suggested that Pakistan would need to raise its benchmark discount rate of 13 per cent by 3.5 to 4 percentage points in exchange for financial assistance, a government official, who did not want to be identified, said last week.

On the revenue side, the economic adviser, Shaukat Tarin, told the Financial Times the government would make significant efforts to improve its taxation system in the next 12-18 months.

That would include taking politically unpalatable steps such as taxing the incomes of influential landowners and plugging loopholes to curb large-scale evasion, he told the newspaper.

"Reforming the tax collection structure is central to our economic policies," Tarin said.