New Prime Minister Imran Khan spent nearly two months since taking office looking for alternatives to a second IMF bailout in five years, which would likely impose tough conditions on government policy that would limit his vision of an Islamic welfare state.
But on Monday, he decided his finance minister should meet with officials at this week's annual conference of the IMF and the World Bank in Bali, Indonesia, to discuss a potential package, the finance ministry said in a statement.
"Today, it was decided that we should start talks with IMF," Finance Minister Asad Umar told GEO TV in an interview on Monday night.
The finance ministry did not specify how much in emergency financing the government would seek, but Umar earlier said the government would need at least $8 billion to cover its external debt payments through the end of the year.
Pakistan's foreign currency reserves dropped in late September to $8.4 billion, barely enough for those debt payments.
The new government blames the previous administration for the country's economic woes.
Khan's decision came after the Pakistani stock markets tumbled by 3.4 per cent on Monday after Khan said the day before that he was still exploring options outside the IMF.
Khan's government had been seeking economic lifelines from its allies, including new bridge loans from China and a deferred payments scheme for oil with Saudi Arabia, but there were no large-scale deals.
Pakistan's current account deficit widened 43 per cent to $18 billion in the fiscal year that ended June 30, while the fiscal deficit has ballooned to 6.6 per cent of gross domestic product.
The rupee has fallen by more than 20 per cent in four devaluations since December. On Monday, the currency was trading at 128 per US dollar on the open market and 124.20 in the official interbank rate.
Monday's news was welcomed by brokers as a clear signal that could help steady markets tired of nearly two months' of uncertainty since Khan's government took office.
"It was much needed and about time," said Saad Hashemy, research director for Pakistani brokerage Topline Securities
"Now what remains to be seen is the amount of funds and the associated to-do list," he added. "That is, how much more currency devaluation, the extent of further interest rate hikes, energy tariff hike, taxation measures etc."
As the world's lender of last resort for governments, the IMF typically sets such conditions on its assistance.
If a package is agreed on, it would be Pakistan's 13th IMF bailout since the late 1980s.
"The challenge for the current government is to ensure that fundamental economic structural reforms are carried out to ensure that this spiral of being in an IMF program every few years is broken once and for all," the finance ministry said.