The IMF headquarters in Washington

Karachi, Oct. 20 (Reuters): Pakistani officials are due to meet representatives from the International Monetary Fund (IMF) in Dubai tomorrow amid growing speculation that the country may formally ask for a balance of payments support programme.

Accepting a rescue package from the fund would be seen as humiliating for President Asif Ali Zardari’s government, which took office this year. He returned from China, an important ally, late on Friday without a commitment for cash needed to shore up the crumbling economy, leaving him with the unpopular prospect of asking the fund for help.

The CNBC news channel reported yesterday that the seven-month-old civilian government would ask the IMF for $10 billion, though officials were unavailable or declined to comment on the report.

“An IMF mission will be meeting with Pakistani authorities’ officials starting tomorrow, Tuesday,” said Niels Buenemann, the IMF’s senior press officer, today.

Shaukat Tarin, the government’s top economic adviser, had said on Saturday that officials would meet IMF representatives in the coming week for a regular, usually annual, comprehensive discussion of Pakistani policies, known as the Article IV consultation process.

Pakistan is haemorrhaging foreign currency reserves, and analysts say it needs up to $3-4 billion urgently to stabilise the economy, although the total financing gap for the balance of payments was projected at around $7 billion for the fiscal year ending June 30, 2009.

Like most emerging economies, Pakistan was badly hit by soaring global oil and food prices over the past year, but the new government’s position was exacerbated by the previous administration’s failure to cut unsustainable subsidies.

Although oil subsidies have been phased out, critics say the civilian government, which came to power after almost eight-and-a-half years under former army chief Pervez Musharraf, has been unable to formulate convincing economic policies to tackle the crisis.

Aside from the dire balance of payments situation, Pakistan’s inflation is running at around 25 per cent, while heavy government borrowing from the central bank to fund the budget has created a liquidity crunch that requires aggressive central bank medicine.