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Pak's Zardari to seek help in Saudi Arabia

Pakistani President Asif Ali Zardari travels to Saudi Arabia in the hope of securing enough financial help to avoid having to go to the International Monetary Fund for a loan.

world Updated: Nov 04, 2008 15:02 IST
Sahar Ahmed
Sahar Ahmed

Pakistani President Asif Ali Zardari travels to Saudi Arabia on Tuesday in the hope of securing enough financial help to avoid having to go to the International Monetary Fund (IMF) for a loan.

Pakistan is facing a balance-of-payments crisis that analysts say has left the nuclear-armed U.S. ally little option but to accept IMF help.

The government has yet top make a formal request and is hoping other donors will come through.

"We will not require IMF support in case we succeed in getting money from Saudi Arabia," the prime minister's top economic adviser, Shaukat Tarin, said in an interview published by Pakistan's state news agency.

Tarin will join Zardari on his two-day trip to Saudi Arabia.

Zardari has said an IMF programme, which would entail painful conditions, is the last option and he would ask Saudi Arabia to defer payments for crude oil. Pakistan's annual oil bill has risen to $12 billion from $3 billion in five years, he said.

Saudi Arabia has deferred Pakistani oil payments before but diplomats say donors, including Saudi Arabia, want to see the government reach an agreement with the IMF before offering their own help.

But analysts said they expected the Saudis to offer help.

"I don't think Saudi Arabia will let him go empty handed. There will be something on the cards," said Muzzamil Aslam, an economist at KASB Securities Ltd. in Karachi.

"It may not be in the form of cash. It may be an oil facility on deferred payments."

Pakistan imports about 82 percent of its crude oil from Saudi Arabia and Aslam said deferred payments on a third of that, as requested, would provide Pakistan with relief of up to $1.8 billion a year on its balance of payments, at current oil prices.

Pakistan's economic woes began before the global financial crisis set in, but analysts say the crisis has compounded Pakistan's difficulties by making donors, trying to shield their own economies from the financial storm, reluctant to step in.

Bilateral Help

While holding out for bilateral help, Pakistani officials have also held days of negotiations with the IMF in Dubai. The IMF said last Thursday the talks had been concluded and more discussions would be held in a few days.

Pakistan needs urgent help as its foreign reserves dwindle.

Total reserves fell $400 million to $6.92 billion on Oct. 25, out of which the central bank accounted for $3.71 billion, not enough to cover September's imports, totalling $3.807 billion.

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

A government official told Reuters last week, the IMF had requested Pakistan to increase its interest rate by 350 to 400 basis points. The base rate is currently 13 percent.

Zardari said in an interview with the Saudi Gazette published in Pakistani newspapers on Monday 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 U.N. 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.

Analysts say Saudi Arabia has no interest in seeing Pakistan descend into chaos, not least because that would strengthen al Qaeda which has set its sights on the kingdom's rulers.

Saudi Arabia also sees Sunni Muslim-majority Pakistan as a counterweight to Shi'ite Iran, analysts say.