New IMF loan insufficient for Pakistan problems: economists

KARACHI, Aug 8, 2009 (AFP) - Pakistani economists on Saturday said an additional 3.2 billion dollar loan from the IMF would have little impact on the economic problems facing the cash-starved South Asian country.

The International Monetary Fund on Friday said it had approved an additional 3.2 billion dollar loan to Pakistan after it asked for more help to weather the global economic crisis.

The IMF said the extra funds for its Pakistan loan programme would "help the country address increased balance of payment needs" and raise the total loan to 11.3 billion dollars.

Independent economists said it wasn't enough to solve Pakistan's economic woes though.

"It is just a temporary relief for our economy given the fact that we have to return the loan in a brief two-year period while our economy needs a decade or so to attain stability," economist A.B. Shahid told AFP.

He noted that the Pakistani currency the rupee has already depreciated against the dollar by about a third in the last 18 months and continues to dwindle.

Pakistan's state bank says total liquid foreign reserves currently held by the country stand at 11.71 billion dollars. They dipped to around six billion dollars last year, triggering a balance of payment crisis and forcing Islamabad to seek the IMF's help.

The IMF has already given Pakistan four billion dollars from the 7.6 billion dollar Stand-By Arrangement agreed in November.

Mohammed Sohail, chief of Topline Securities, said the IMF's additional loan would support Pakistan's external account problems.

"This will provide the much needed support to Pakistan's external accounts which came under pressure due to a slowdown in exports and foreign investment," he said, adding that he expected the country's foreign exchange reserves to stabilise at between 12 and 13 billion dollars.

Sohail said that though some stability was expected in the currency market in the short run, the rupee would remain vulnerable to external flows because of the global recession.

He added that news of the extra money would likely help the Pakistani equity market, currently the most under-performing one in Asia, to rise above the key 8,000 point level.

Economist Rauf Nizamani said the IMF's loan actually risked creating new challenges for the government and the country as a whole, by forcing it to withdraw subsidies for utilities.

Islamabad "will find itself sandwiched between its people and the IMF if it withdraws subsidies on oil, gas and power as per (the) IMF's guidelines," he said, adding that this could create political unrest.

The country is already battling an insurgency in the northwest by Taliban and Al-Qaeda-linked extremists whom the United States has accused of posing an existential threat to nuclear-armed Pakistan.

It approached the IMF last year for the rescue package as it grappled with a 30-year high inflation rate and fast-depleting reserves that were barely enough to cover nine weeks of import bills.

Source: AFP

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