Officials fear that a recourse to IMF’s balance of payments support programme is becoming unavoidable because of growing financial stress.

The country's balance of payment position is no more sustainable after its foreign exchange reserves have fallen from $16.4 billion in October 2007 to $10.8 billion on July 16, 2008 and the slide is continuing.

Out of $3 billion expected in the kitty by June 30 this year, only $1 billion could be managed. A $600 million emergency assistance was provided by the Asian Development Bank(ADB) and $400 million was deposited by the Bank of China.

An amount of $2 billion was to be collected from two major privatisation transactions - Grand Depository Receipt (GDR) of the National Bank of Pakistan (NBP) and the block sale of Habib Bank Limited (HBL) shares - along with an exchangeable bond programme. These, transactions, a senior government official said, were put on hold on the advice of Mr Zardari.

However, the new IMF programme, the official said, would not come easily as it would carry difficult political and economic conditionalities.

"But before that, the IMF would expect Pakistan to tighten its belt, increase oil prices in one go and remove all kinds of subsidies immediately", another important official said. In that case, Pakistan will have to compromise its sovereignty and it would be a very painful thing for everyone.

He said there was a need to avoid IMF programme by having prudent foreign exchange reserves management and stability in foreign exchange market and domestic debt management. The two per cent increase in discount rate, he pointed out, has raised the cost of borrowing and there are defaults in repayments every month on car loans and credit cards. Moreover, the economic indicators have not improved after adopting a tight monetary policy.

There is a need to have $1 billion every month to shore up the declining reserves. The exchange rate at Rs60.4 on July 2007 has depreciated to Rs71 on July, 2008 and was creating new problems. Another official said that it has never happened that defence minister also holds the charge of commerce ministry and the foreign minister of the petroleum ministry and the information minister is looking after health ministry. "There is no full-fledged finance minister at a time when the economy is facing serious problems. Major decisions are being taken not by the finance minister or the ministry of finance but by Mr Zardari, he said.

He said the balance of payment and the current account deficit are widening while there were no substantial financial inflows. An important question, he said, was that what happened to $3.2 billion which were given to seven international banks in 2003 ? Had there been two per cent interest rate attached to it, Pakistan would have got $600 million.

He added that the central bank had been asked time and again by the ministry of finance to give the details about these $3.2 billion but it has not responded.

He said during the meeting of Economic Coordination Committee of the Cabinet (ECC) in Lahore last week, Finance Minister Syed Naveed Qamar said that nobody in the government was realising what was going to happen with the economy. In fact, the finance minister was arguing for taking up the economic issues seriously.

The prime minister's advisor on industries and production Manzoor Wattoo asked Mr Gilani to give Rs100 billion subsidy on fertiliser by fixing the price of DAP at Rs2200 per bag against the prevalent price of Rs3400 per bag. However, the secretary finance, Farruk Qayyum opposed the move.

The secretary finance said that there was Rs32 billion provision for subsidy on fertiliser in the budget 2008-09 and it could not be increased because of financial constraints.