Pakistan seeks IMF loan restructuring after floods‎

People walk through flood water in Baseera, Punjab province, Pakistan (23 August 2010) Officials says more than 16 million people have now been affected by the flooding

Officials from Pakistan are holding talks with the International Monetary Fund to discuss its $11bn loan package in the wake of the devastating floods.

The IMF's regional director, Masood Ahmed, told the BBC the organisation wanted to find a way to help Pakistan "through this difficult phase".

This could include lowering some fiscal targets or allowing Pakistan to apply for emergency natural disaster funding.

Earlier, UN officials described the humanitarian situation as critical.

They said that although the UN had raised 70% of the $460m (£295m) needed for emergency relief, many people had yet to receive any help. In the UK, relief agencies say public donors have now given £29m ($45m).

Government officials and aid agencies in the southern province of Sindh said 80% of those affected had fled their homes.

The Indus river outside the city of Hyderabad is at its highest for more than 50 years and is expected to rise further on Tuesday.

Prime Minister Yousuf Raza Gilani is expected to hold high level talks on Tuesday on Pakistan's medical needs, amid growing concern of a public health disaster.

Doctors have been overwhelmed by the need in some areas - skin rashes and dehydration are common, many children have diarrhoea and there is concern about the spread of cholera.

The BBC's Jill McGivering in Islamabad says some homeless women have had to give birth by the roadside with no support.

The planned health talks appear to be an attempt by the government to improve its co-ordination, amid criticism it is not doing enough to help flood victims, says our correspondent.

Budget targets

Mr Ahmed said Pakistan's budget and macroeconomic prospects would have to be reviewed following the floods, which UN officials estimate have left about 1,600 people dead and affected another 16.8 million.

Analysis

The IMF-Pakistan talks are about restructuring an existing $11bn loan that was to help with economic reforms.

The programme began in late 2008 and loan instalments are subject to a review by the IMF of Pakistan's economic policies and performance, including the government's budget deficit.

The flood has wrecked that budget.

A large part of the country's agricultural output has been washed away, severely hitting tax receipts.

Spending to repair the damage will further aggravate the deterioration in the budget.

To get the remaining instalments of the loan, Pakistan will need to get the IMF's agreement to a new, less demanding target for the deficit.

In fact, the IMF revised the target slightly back in May to allow for urgent security spending.

Senior IMF officials have already said they are ready to help Pakistan following the floods, so some relaxation of the target is likely in due course.

"We need to look at these issues together in an objective way and find a solution that helps the economy during this difficult period, but also keeps them on a path that is going to produce a sustainable basis for growth," he told the BBC.

"The Pakistani economy faces challenges even before these massive floods hit them. And those challenges are still there."

"They need to be able to raise more revenue to finance their spending. The government has a very low tax base and we need to be able to find a way where we help them through this difficult phase," he added.

Pakistani Finance Minister Abdul Hafeez Shaikh is due to attend talks with the IMF on Wednesday.

Last week, Pakistani officials said they would ask the IMF to restructure the current $10.66bn loan package - through which it has received about $7bn since 2008 - or consider a new programme with performance criteria that were tailored to their country's new economic reality.

A relaxation of the IMF's target for Pakistan reducing its budget deficit in order to qualify for further instalments of the loan is likely given the circumstances, says BBC economics correspondent Andrew Walker.

Women alongside an ill child in Punjab province, Pakistan (23 August 2010) There are concerns of a growing public health disaster in the country

Estimates for economic growth have been downgraded, with the agriculture sector particularly badly hit. The floods have destroyed or damaged more than 1.7m hectares (4.25m acres) of land, officials say.

Earlier, President Asif Ali Zardari said it might take more than three years for Pakistan to recover from the disaster and cost up to $15bn (£10bn).

"I don't think Pakistan will ever fully recover but we will move on," he told reporters, adding that the government was working to prevent future flooding.

Earlier, Mr Gilani told the BBC that more relief supplies would be flown into the country's remotest region, Gilgit Baltistan, after hearing complaints of slow aid delivery to people there.

The north-eastern area remains cut off due to the closure of the Karakoram highway, its only road link to the outside world.

Under threat

The country's south is now bearing the brunt of the flood surges - an estimated four million people have been displaced in and around the city of Sukkur, in Sindh province.

Flood defences around the southern town of Shahdadkot are still being strengthened - although most of the population have already left.

A makeshift mud barrier, built by the army and volunteers, is Shahdadkot's last line of defence from the flood waters.

Provincial minister Mir Nadir Magsi told the BBC the situation remained critical in Shahdadkot, even though the river level had gone down.

The river water, which is being held back by a temporary barrier of mud and sand, is at a much higher level than the land. Bulldozers are mending small breaches in the barrier.

Evacuation activities, meanwhile, have started in Thatta district next to the Arabian Sea.

Dozens more villages have been inundated and although authorities expect flood waters to drain into the Arabian Sea over the next few days, evacuees who return may find their homes and livelihoods have been washed away.

Map of Pakistan's flooded areas, 23 August 2010

A number of governments and aid organisations are appealing for donations to help those affected by the flooding in Pakistan.

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