Pakistan IMF bailout

A $7.6 billion loan package has been agreed in principle with the International Monetary Fund (IMF) and Pakistan in order to help the country from defaulting on foreign debt and restore confidence in the financial markets.

Shaukat Tareen, the finance minister, said that the loan will be used for the balance of payments as well as helping to build foreign reserves, insisting that the deal was best in the long term interest of Pakistan.

Although there have been a few eyebrows raised due to Pakistan being at the heart of the fight against global terrorism, Pakistan will join Hungary, Iceland and Ukraine by negotiating rescue packages.

Pakistan has experienced a 75 percent reduction in foreign-exchange reserves which is the same as a month’s worth of imports which indicates the severity of the current predicament as the other donors that had been sought saw the country as too risky.

Pakistan said that the interest rate was the highest agreed to by any country for a foreign currency bailout, and even riskier developing countries had loans at less than 3 per cent in the past. However, the IMF had commented that the economy had deteriorated so rapidly in the last month, and with the erosion of foreign currency reserves, had meant a huge risk was being taken.

The country’s economy has been made even more fragile by the recent political instability, Islamic militant violence, and energy/food prices.

Story link: Pakistan IMF bailout