By Khalid Qayum Oct. 23 (Bloomberg) -- Pakistan, seeking assistance from the International Monetary Fund, faces a credit-rating cut if it doesn't ``stabilize'' its foreign reserves and balance of payments, Standard & Poor's said. The nation's foreign reserves fell $570 million in the week ended Oct. 10 and have shrunk more than 74 percent in the past year to $4.3 billion. Pakistan's balance of payments deficit widened to a record $3.95 billion in the third quarter from $2.27 billion a year earlier. ``The decline in reserves is extraordinary,'' said Agost Benard, associate director at S&P in Singapore. ``If you have this kind of erosion then it is only a question of time before the rating will have to move down again.'' Central bank Governor Shamshad Akhtar is flying to Dubai today to hold talks with the IMF on a bailout to prevent Pakistan from defaulting on its debt, which is perceived by investors as the riskiest in the world after Argentina. IMF Managing Director Dominique Strauss-Kahn yesterday said the package was aimed at ``strengthening economic stability.'' ``IMF loans help to stabilize things more than the actual funds that are transferred to the economy,'' Benard said in an interview in Singapore yesterday. ``It's the policy credibility that comes with it in the eyes of international investors.'' Pakistan may need as much as $10 billion from overseas donors over the next two years to avoid default, IMF Regional Director Mohsin Khan said in an Oct. 20 interview. The amount of money requested ``has yet to be determined,'' Strauss- Kahn said in yesterday's statement. Emergency Program The loan request from Pakistan will be processed under an emergency program announced earlier this month that gives the Washington-based fund's 185 members access to financing within 10 days rather than the usual several weeks. Hungary, Iceland, the Ukraine and Belarus are also seeking assistance from the IMF to help weather the global financial crisis. Belarus has applied for a $2 billion loan, Interfax reported Oct. 22, and the Ukraine said this week it may sign a loan worth as much as $15 billion. Pakistan is also expected to seek financial support from the `Friends of Pakistan' group, which is due to meet next month in the United Arab Emirates. The group, which was established last month to help Pakistan stabilize its economy, includes the U.S., U.K., China and Saudi Arabia. Credit Rating S&P, doubting Pakistan's ability to repay debt, cut the long-term foreign-currency rating on Oct. 6 to seven levels below investment grade, and said it may lower it again. Moody's Investors Service lowered its credit outlook to negative on Sept. 23, citing a risk of ``missed repayments.'' S&P raised Pakistan's credit rating three times between 1999 and 2004, when the South Asian country was last under an IMF program. It has lowered the rating twice this year. The IMF last rescued Pakistan from default in 1999 with a loan of about $600 million loan. Pakistan's next interest payment on its dollar-denominated bonds is due in December and the government is scheduled to repay $500 million in February on a 6.75 percent note. The country's first civilian government since 1999 is facing economic turmoil after the rupee plunged to an all-time low, the current-account deficit widened to a record, and inflation jumped to a 30-year high. The economic crisis mounted after the Pakistan Peoples Party-led government was paralyzed for almost six months because of political wrangling. `Deteriorated Significantly' Pakistan's economy has ``deteriorated significantly'' and growth may slow to a six-year low, the IMF said in an Oct. 20 report. Growth is expected to weaken to 3.5 percent in the year to June 30 from 5.8 percent last year, the IMF said. Pakistan needs political stability and policy predictability to attract foreign investment, said Benard, who has visited the country four times since 2003. The security situation is ``getting worse,'' he said. Military operations in Pakistan's tribal region bordering Afghanistan have triggered retaliatory attacks by militants. More than 50 people were killed in a suicide bomb attack at Islamabad's Marriott hotel on Sept. 20. The U.S. has urged Pakistan to do more to fight al-Qaeda and Taliban militants in its tribal areas, which the Bush administration says the militants are using to regroup and attack the coalition forces in Afghanistan. To contact the reporter on this story: Khalid Qayum in Singapore at kqayum@bloomberg.net.

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