PAKISTAN STARTED talks with the International Monetary Fund yesterday in a bid to ease further strains in a financial rescue plan that had been struggling even before the country was hit by devastating floods.
Pakistani officials have asked for leeway in implementing the tough conditions in the $11.3 billion (€8.9 billion) lending programme, first agreed in 2008 and enlarged in 2009. Yesterday’s talks were at a technical level, with Abdul Hafeez Shaikh, Pakistan’s finance minister, due to arrive towards the end of the week.
But experts say the IMF may face difficulty in adapting its crisis-lending function to a country needing large amounts of aid.
The IMF yesterday did not respond to requests for comment, but a letter published on Saturday from Masood Ahmed, head of the fund’s Middle East and Central Asia department, suggested that the fund was open to renegotiating the agreement. “The scale of the tragedy means that the country’s budget and macroeconomic prospects, which are being supported by an IMF financed programme, will also need to be reviewed,” Mr Ahmed said.
Pakistan, which had been borrowing heavily from international investors and suffered rising inflation, was hit hard in 2008 by the worldwide food crisis and then the global recession.
Experts in IMF programmes said the floods would make these challenges even worse through a combination of the direct fiscal cost, the need to focus all ministerial attention on the floods and the domestic political damage the government is sustaining thanks to perceptions that its response has been slow and inadequate.
The government is under intense pressure to deliver assistance to a public seething at its handling of the crisis. Any unrest could fuel a Taliban-led insurgency the military had said it made serious progress against before the floods hit three weeks ago.
Authorities have been accused of moving too slowly, and Islamist charities, some with suspected links to militant groups, have rapidly provided relief to Pakistanis, already frustrated with their leaders’ record on security, poverty and chronic power shortages.
Eswar Prasad, former head of the fund’s China department and now at Cornell University, said: “The government has lost a lot of popularity as a result of its response to the floods and because of the security situation. Serious reform carries short-run political costs, and even after the crisis is over they will not want to do it.”
Prof Prasad suggested the IMF might continue to pay out loans while temporarily relaxing the conditions placed on them. But he said Pakistan needed a large amount of humanitarian aid very quickly and that the IMF, which gives loans rather than grants, was not best placed to deliver it. “The IMF . . . is not set up to give money with no strings attached.” – (Copyright The Financial Times Limited 2010)