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Pakistan to seek budgetary support of $1.50 billion for current fiscal year

At a time, when Islamabad’s external front is facing pressure owing to the growing current account deficit in the current fiscal year, multilateral creditors are seen coming to rescue the country from the financial crunch on the balance of payments (BoP) position.

The prevailing political uncertainty on Pakistan’s economic front is a cause for concern for economic managers in the wake of upcoming elections and the smooth process of privatization could be a victim to the deteriorating law and order situation.

The privatisation proceeds that have remained a major source of improving inflows in recent years are set to face a severe blow during the current financial year, sources disclosed.

The country is passing through a phase of political uncertainty, which will remain till the installation of the next elected regime and it can also negatively affect inflows estimated by the government in the form of privatisation proceeds and investments.

Sources in the Finance ministry confirmed that three major multilateral institutions like the WB, ADB and IDB would provide credit lines worth $1.509 billion in the current fiscal year.

During the last financial year in July-March period, multilateral creditors had provided $1.406 billion to Pakistan, according to official documents released before the start of current fiscal year.

The sources also pointed out that the WB would be the leading institution among multilateral creditors providing more than one billion dollars in budgetary support to Islamabad during the current fiscal. The second major creditor would be the Asian Development Bank (ADB), which plans to give a credit line worth $329 million in order to improve the balance of payment situation in the country.

The ADB’s support is mainly pouring into project financing and budgetary support will be a lesser part of it. The ADB has recently brought changes to its strategy wherein it has reduced its programme loans from 81 to almost 60. The third major institution providing budgetary support to Islamabad is the Islamic Development Bank (IDB), and the Finance Ministry estimates say, IDB would provide $100 million budgetary support to Pakistan during FY 2007-08. Although Pakistan’s Balance of Payment (BoP) position is still in a surplus mode, its current account deficit (CAD) is widening sharply.

The CAD had reached the $7 billion mark (4.9pc of GDP) in the last financial year, which is quite worrisome to economic managers. Islamabad is expecting the current account deficit hovering in the same range of 4.9 per cent of the GDP during the current fiscal year.

Policy makers are of the opinion that Islamabad has so far been able to bridge the deficit gap owing to improved inflows in the shape of foreign direct investment and privatisation.

But with an increasingly volatile environment on the political front, it is uncertain whether Islamabad will be able to attract investments or even successfully privatise its state owned entities in the current fiscal.