The economy has been hard hit by soaring world prices for oil and food, which have cut the reserves to a six-year low and pushed the rupee down a fifth against the dollar this year alone.
IMF Director of the Middle East and Central Asia Department Mohsin Khan said Pakistan's five-month-old government was preparing its own strategy to steer the economy away from the rocks and had not requested a fund programme.
In an email reply to Reuters received on Friday, Khan said he had yet to see all the details of the Pakistani strategy, but it had outlined its plan to raise funds and put finances in order.
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"They are looking at accelerating privatisation, obtaining donors' support, and tapping the international markets by issuing GDRs global depository receipts and exchangeable bonds," he said.
Khan said the strategy included letting interest rates rise if necessary, allowing greater exchange rate flexibility, reducing the fiscal deficit and cutting government borrowing.
The government has said it will cut quarterly net borrowing from the central bank to zero, in order to help control inflation already running at close to 25 per cent.
"If the measures outlined in the comprehensive policy strategy are implemented, and sufficient financing is secured quickly, the Pakistani economic authorities could stabilise the economy this year and start to build up reserves," Khan said.
Investors dislike so many ifs, and the international bond market has been pricing in the risk of Pakistan defaulting on its debt early next year.
Currency reserves have been falling at a rate of around $800 million a month since peaking last October.
Frontline role
Latest data released by the Finance Ministry showed reserves fell from $9.13 billion on August 30 to $8.89 billion on September 3, the lowest level since 2002, of which the central bank's reserves accounted for $5.5 billion.
Some bankers have suggested that the civilian government should turn to the IMF for support.
Because of Pakistan's frontline role in fighting terrorism and backing for the NATO mission in Afghanistan, bankers anticipate international help to avert a default and a balance of payments crisis.
The United States and other friendly governments have a stake in seeing Pakistan's transition to democracy succeed after nine years under former president and army chief Pervez Musharraf.
Pakistan was being bailed out by the IMF when Musharraf took over in a coup in 1999, and over the last six years it underwent a remarkable turnaround to become one of the world's fastest growing economies, albeit off a low base.
Between 1999 and early this year, the Karachi stock market's main index rose close to 1,000 per cent.
But in 2007, as Musharraf's grip on power began to slip, the fiscal and balance of payments deficits deteriorated largely as a result of policy paralysis in the face of soaring world prices for oil and food.
After winning a general election in February, the coalition led by the Pakistan People's Party (PPP) of assassinated former prime minister Benazir Bhutto forced Musharraf to resign last month.
Victory for Bhutto's widower, Asif Ali Zardari, in a presidential election on Saturday, appears a foregone conclusion.
The PPP and its allies have a majority among lawmakers from the upper and lower houses of parliament and the four provincial assemblies that make up the electoral college.
Analysts, however, see Pakistan entering a fresh phase of political instability, highlighted on Wednesday by an apparent assassination attempt on Prime Minister Yousaf Raza Gilani. Gilani was not in his car that was stuck by bullets on a highway near Islamabad.
Afghanistan's war has a new battlefield
By Syed Saleem Shahzad
KARACHI - In anticipation of a new era in Pakistani politics under president-in-waiting Asif Ali Zardari, the first volleys have been fired in a renewed joint Pakistan-North Atlantic Treaty Organization venture to fight against the Taliban and al-Qaeda beyond Afghanistan's borders.
Barely a week after a meeting on the US aircraft carrier USS Abraham Lincoln in the Indian Ocean between the chairman of the US Joint Chiefs of Staff, Admiral Michael Mullen, and the chief of the Pakistani Army Staff, General Ashfaq Pervez Kiani, to discuss infiltration points for militants going from Pakistan to Afghanistan and to pin-point al-Qaeda training camps, American special forces carried out two attacks inside Pakistan.
On Wednesday morning, US special forces entered Angorada in the South Waziristan tribal area where members of al-Qaeda's shura (council), Arabs and Uzbeks were believed to be operating. The rugged mountainous area is also a known launching pad for militants staging attacks on a US military post in the Birmal area in Paktika province in Afghanistan.
The special forces, who flew in by helicopter to a small village, soon realized that they did not have the numbers or air cover to conduct effective search operations. Firing broke out and about 20 civilians are believed to have been killed before the forces withdrew.
Twenty-four hours later, four militants were killed in North Waziristan, reportedly by US special forces. The dead did not include any of the senior al-Qaeda or militant leaders who were said to have been in the area.
Contacts in Pakistan's strategic quarters told Asia Times Online that more cross-border attacks were likely as Pakistani intelligence was sharing information with the US on militant activities.
The idea of NATO or US forces stationed in Afghanistan staging raids into Pakistan was conceived in 2007 to eliminate top Taliban and al-Qaeda leaders and their safe sanctuaries. (See US homes in on militants in Pakistan Asia Times Online, January 30, 2008.)
With Pakistan's Zardari expected to be chosen as president on Saturday, and with the US presidential election campaign ripe for a dramatic turn in the "war on terror", Pakistan is poised to become an international battlefield.
Key to this is "Iron Man" Zardari, leader of the Pakistan People's Party (PPP), the dominant party in the ruling coalition in Islamabad.
Although he is presently holed up in the premier's residence for fear of his safety from militant attacks, he has the security apparatus largely in check to force it to abandon its reservations about the "war on terror". Once president, he will be supreme commander of the armed forces and head of the National Security Council.
A man of many compromises
Zardari, widower of assassinated former premier Benazir Bhutto, has shown his ability to make political compromises to achieve his goals. For instance, the architect of the anti-Bhutto campaign in the 1988 elections, Husain Haqqani, who later dubbed Zardari "Mr 10%", was appointed by Zardari as Pakistan's ambassador to Washington. Haqqani, with good offices in the White House and among the neo-conservatives in Washington, lobbied successfully for the US to back the ouster this year of former president Pervez Musharraf.
Another example involves Pakistan's politically influential and financially strong media group run by the Haroon family, traditional opponents of the PPP. (Mehmood Haroon, then minister of the interior, in 1979 signed the execution order for Zulfikar Ali Bhutto on a murder charge. Zulfikar, father of Benazir, was a former president, premier and founder of the PPP.)
All the same, Zardari stunned the political community by appointing the eldest son of the family, Abdullah Hussain Haroon, as Pakistan's permanent representative to the United Nations and is looking to use the Haroon family's international connections for his benefit.
Zardari has also allied with many former Musharraf supporters, as well as with the influential religious group Jamiat-i-Ulema-i-Islam led by the fiery Fazlur Rahman.
With his fingers firmly on the levers of power, and with strong American backing, Zardari will lead Pakistan into a new and potentially extremely bloody chapter of which the US special forces' raids into the country are just the beginning.
Pakistan president to face security and economic crises
ISLAMABAD (Reuters) - Pakistan's new president, almost certain to be the widower of Benazir Bhutto, will have to contend with a host of critical problems including militant violence and an economy in crisis.
Investors, longing for an end to political uncertainty that has helped drag stocks and the rupee down, hope Saturday's presidential vote by members of the two-chamber parliament and four provincial assemblies will usher in a period of stability.
But the chances of that appear slim, not least because of militant violence spilling out of the northwest that this week apparently brought an assassination attempt on Prime Minister Yousaf Raza Gilani.
Analysts say an election win by Asif Ali Zardari, the controversial husband of former prime minister Bhutto, is virtually a foregone conclusion.
Zardari was thrust into the centre of politics by his wife's assassination on December 27, and then to the centre of power by a February parliamentary election victory by their Pakistan People's Party (PPP).
His decision in August to begin impeachment proceedings against former president Pervez Musharraf led to the latter's resignation, and cleared the way for Zardari to win the top job.
But political uncertainty, exacerbated by a split in the PPP-led coalition last month, security worries and a sagging economy have sapped investor confidence and dragged Pakistan's main stock index down 34 percent this year.
The index rose 1 percent on Friday, partly helped by optimism Saturday's vote will bring some political clarity. The rupee has lost 20 percent to the dollar this year but firmed to 76.40/50.
Pakistan's dwindling foreign exchange reserves, widening current account deficit and sliding currency could result in a ratings downgrade as doubts mount over its ability to meet external debt obligations.
But it will probably avoid sovereign debt default as its stability is such an important geopolitical factor institutions such as the International Monetary Fund will eventually help it meet obligations, analysts say.
TIGHTROPE
Zardari, who spent 11 years in jail on corruption and other charges but was never convicted, is seen as close to the United States and has repeatedly stressed the commitment of nuclear-armed Pakistan to the campaign against militancy.
But he will take office as anger with the United States is boiling after a bloody incursion by U.S. ground troops into a remote village on the Afghan border this week.
Musharraf saw his popularity dive partly because he was viewed as too close to President George W. Bush. Zardari will walk a tightrope as he tries to assure Washington of his support on security, while trying to calm public anger.
His two rivals for president are Saeeduzzaman Siddiqui, a former judge, nominated by ex-prime minister Nawaz Sharif's party, and Mushahid Hussain Sayed, a senior official of the party that backed Musharraf and ruled under him.
But the PPP has the most electoral college votes and despite some doubts about Zardari's suitability, party members will stick by him, analysts say.
In an indication of the doubts Zardari faces, a poll by Gallup Pakistan found only 26 percent of about 2,000 people questioned thought he should be president, while 44 percent didn't want any of the three candidates.
The findings reflected a "growing sense of alienation between the public at large ... and the political system and political parties", Gallup Pakistan said.
Analysts say rivalry between the PPP and Sharif's party, the country's second biggest which quit the coalition last month, could bring a return of the fractious politics of the 1990s.
The battleground is likely to be Punjab, Pakistan's richest and politically most important province, ruled by Sharif's party.
Rivalry between Punjab and the central government undermined stability in the 1990s and could do so again, analysts say.
The turmoil of the 1990s, when Bhutto and Sharif served two terms as prime minister, was brought to an end by then army chief Musharraf's coup against Sharif in 1999.
For now, analysts say, the military wants to stay out of politics but intervention is always possible if economic and security problems get much worse.