ISLAMABAD - Though there is much public resentment over the prospect of the IMF's involvement in Pakistan's national affairs, matched by much fiery speeches by the political leadership, it appears Pakistan might fall again in the clutches of the Fund. Pakistan is facing problems of imbalance of payments, the country paying more to the world against what it is receiving in international trade, and decline in foreign inflows. The imbalance on this account is over 7 per cent of the total size of the economy that the economists term "too dangerous" but ripe for the Fund intervention. Pakistan's reserves of US dollars that support its import bill are on sharp decline. The central bank's reserves decreased by around US $6 billion in less than a year's time. In October 2007, foreign exchange reserves with the central bank stood at US $16.4 billion versus current level of US $ 11.3 billion. "This level of reserves was achieved in 2002-03, thus we have been pushed back five years in our economic achievements", said an official of the Finance Division. Internally, the governments, previous and current, have been spending more than their income, resulting into an unprecedented gap between income and expenditure. The government had spent about Rs 800 billion more than what it earned during the year. Traditionally, it has been plugging in this gap by printing more currency notes, which is inflationary in nature. This option is already dried out. Former Minister of State for Finance, Omar Ayub said that the second available option in such cases, floating bonds in world financial markets, was lost by the government itself. "Negative perception created by the government helped the world rating agencies to downgrade Pakistan investment rating", he said.   The rating agencies, Standard and Poor's, and Moody's, analyze the political and economic situation of countries and give a rating that determines how safe a sovereign bond is for an investor. These two agencies have termed Pakistan a "highly speculative" country for bond investment. JP Morgan, the world's leading investment bank, in its latest market update, shows that Pakistan's ten-year investment bond, a financial instrument being used to borrow money from the world market, is carrying over eleven per cent interest rate. "We cannot borrow money at such a high interest rate, as we do not want to give a message of being so desperate", said one of the top officials of the government economic team.   Omar Ayub said the government can still avoid knocking at the IMF's door, an organization that lends money to the countries facing problem of balance of payments, by taking some prudent measures. He stressed on political stability and to speed up the process of privatization, as according to him, the government still has a year's time to overcome the problems. But the problem is that "strong economic leadership is missing from the horizon", he said. The International Monetary Fund provides cheap loans to the governments that carry "tough conditions". The Fund, with its traditional recipe to cut expenditure - including subsidies on energy and food - and raising revenue by all means usually bring bad news for the people. The distance between the IMF (or any other lending institution ready to help with some conditions) and Pakistan is dependent on the question of whether the government is able to deliver the budget it announced. The Finance Division official said that the key assumptions of the budget on the external side are strong privatization efforts, International Financial Institutions' (IFIs) support, and foreign investment flows. If these are materialized, there will be no problem, he added. "In case they fail, as the last budget failed, there is no cushion", he said. The official linked IFIs' support with elimination of subsidies and said if subsidies are not eliminated, there will be no way to deliver on the budget, and external flows will also be untenable. A perception, with some evidence on grounds, is taking roots that Pakistan has started acting on the "advice" of the IFIs like that the WB by either withdrawing or reducing subsidies on energy and food. But the government insists that it is taking "tough decisions' on its own to avoid dictation" of the world financial institutions. "Pakistan is bringing its house in order to avoid tough conditions of IFIs," said one of the top bosses of the Finance Ministry on condition of anonymity. "Isn't it better that we take tough decisions of passing on high prices of energy and food on consumers instead of waiting for the IMF or the World Bank to impose these harsh measures, coupled with many more of the like on our people", he added. The top official said how could the government afford Rs 1.25 billion daily subsidy on energy when it was facing financial constraints. But the official was not sure whether the country would be politically stable in one year, a key to attract foreign investment.   An official of the Finance Ministry, often part of delegation dealing with the WB and IMF, said that he sensed that Pakistan was getting closer to the IFIs. "This time, during deliberation with the IFIs, I witnessed an authoritative behaviour of the visiting delegates that was not the case a year or two ago." Omar Ayub said the political stability for arrival of flows other than those of the IFIs was also a must. For privatization, bonds and private investment, political conditions will be far more important to take into account than mere removal of subsidies. Dr Qaiser Bengali, an economist, says the IMF recipe can solve the problems of balance of payments in short term. At the same time, "in short term, it also creates severe problems of poverty and unemployment". The programme provides a window for three to five years, a time when the government can improve the situation. Dr Bengali said historically the government did not use this time to improve situation; when the money came in, the government became relaxed. He said the rate at which Current Account Deficit is going and the rate at which US dollars reserves with the central bank are declining will make it necessary to go back to IMF by the end of this year. "Financial support from other capitals cannot plug the big hole," he added.