Citibank urges Pakistan to seek IMF help to avoid default

August 28th, 2008 - 9:50 pm ICT by IANS  

Karachi, Aug 28 (DPA) The US-based Citibank has advised Pakistan to secure help from the International Monetary Fund (IMF) to avoid default on its foreign debt repayments in the face of an ongoing political crisis.The report, “Pakistan: Could the Political Chaos Lead to Sovereign Default?” released in New York Wednesday, cited a ris ing chance of default over mounting political instability, dwindling foreign exchange reserves and the weakening Pakistani rupee.

“Pakistan perhaps now needs an IMF stabilization programme to manage the dire situation,” it said.

The bank said if Pakistan opted to default, it would have to reschedule all of its debt, which amounts to $2.6 billion in self-issued bonds and $13.9 billion in bilateral debt.

Such a rescheduling would undermine the country’s ability to attract foreign investment, which is desperately needed to support a ballooning trade deficit, the report said.

Citibank also said it expected the Pakistani rupee’s fall to continue in light of government inaction and this week’s breakup of the government coalition. The bank warned that if the currency continues slipping, Pakistan would be forced to reschedule its debt payment of around $500 million due in February.

The Pakistani rupee has fallen more than 18 percent in the past four months, taking an especially hard hit since the split of the country’s two major political parties.

Pakistan’s benchmark stock index has also lost around 45 percent of its value in six months.

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