By Lester Pimentel
July 15 (Bloomberg) -- Pakistan has requested $4 billion more in International Monetary Fund aid as part of an effort to shore up its economy amid a war with Taliban insurgents, said Shaukat Tarin, finance adviser to the prime minister.
The $4 billion would come in addition to a $7.6 billion credit line that Pakistan secured from the IMF in November. Tarin said he expects the IMF to approve the third installment of that initial credit line and the additional $4 billion next month.
“There are no disagreements between us and the IMF,” Tarin said in an interview at the Asia Society in New York. “We will get it approved. Don’t think we’ll be in a rush to use it because we’re already doing well in our balance of payments.”
Pakistan is requesting additional aid as the war against the Taliban costs the government $8.5 billion a year, Tarin said. Pakistan’s army said this month it killed more than 1,600 Taliban militants in a 10-week offensive to regain control of the northwestern Swat district after the group seized territory in violation of an accord with the government that allowed Islamic law to be introduced in the region. The country has spent $35 billion since 2001 to fight militants, Tarin said.
An IMF spokesperson declined to comment on whether the fund will provide the additional aid to Pakistan.
‘Cash Market’
The IMF loans have helped spark a rally in Pakistan’s bonds and stocks rallied this year. The country’s dollar-denominated bonds returned 96 percent this year, according to JPMorgan Chase & Co. The Karachi Stock Exchange 100 Index, which has climbed 24 percent this year, will rally further as economic reforms take hold and investors are able to use leverage, Tarin said.
“We’re putting in place the fundamental reforms,” Tarin said. “It’s a cash market now. As we bring in leverage products over next 30 days or so -- whether it’s the futures or the margin trading -- we believe the stock exchange is going to do even better. The bond market improved because people realized there’s no question of a default now.”
Pakistan’s economy deteriorated in the past year as terrorist attacks led investors to sell a net $1.1 billion of stocks in the 11 months ended May 31, compared with purchases of $87.2 million of shares a year earlier, according to the central bank. The government forecasts 3.3 percent economic growth in the year starting July 1.
Pakistan was forced to turn to the IMF in November after foreign reserves shrank 75 percent, the current account deficit widened to a record and inflation soared to a three-decade high.
‘Wait and See’
Foreign investment in Pakistan’s stock market is beginning to rebound, Tarin said. Industries including telecommunications, oil and gas, banking and power are also receiving foreign investment, he said.
“Foreign direct investment will just wait and see the security situation,” Tarin said. Investors will look at how “the economy reacts to whatever has happened in the last 24 months or so. I don’t have great expectations that this will be done in a hurry. My sense is people will watch.”
To contact the reporters on this story: Lester Pimentel at lpimentel1@bloomberg.net
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