Gaping deficits pile loan pressure
on Pakistan By Syed
Fazl-e-Haider
KARACHI - Pakistan's Finance
Minister Hafeez Shaikh returned from talks with
the International Monetary Fund (IMF) this week
under growing need to obtain a new loan
arrangement amid fast-widening trade and current
account deficits. Crippling power shortages make
it unlikely finances will improve in the
foreseeable future.
Pakistan's trade gap
widened 43% in the first nine months of this
fiscal year, to US$16.1 billion from $11.3 billion
in the same period last year, beating the
full-year deficit target of $14.5 billion. The
trade deficit may cross the $19 billion mark by
the end of the fiscal year in June, say some
analysts. The current account deficit widened to
$3.09 billion in the same period, from $10 million
a year earlier.
Shaikh is seeking
assistance to repay the country's foreign debts
in the next financial
year starting from July 1. The IMF says foreign
currency reserves may fall to $12.1 billion due to
the weakening external account, not enough to
cover three months of imports. The IMF is
reluctant to sign a new loan deal with Islamabad,
which failed to fully implement economic reforms
required under the previous $11.3 billion Stand-By
Arrangement (SBA) that ended incomplete last
September.
"Our talks with the IMF are
part of a continuing process. The message we are
sending is that even though we have opted out [of
the previous agreement], we are observing fiscal
discipline and will continue to do so," Dawn
quoted Shaikh as saying.
The current
account deficit may widen to $4.6 billion, or 2%
of gross domestic product, say local analysts.
Higher debt payments are adding to pressure on the
rupee, which is forecast to depreciate from the
present 90 to the US dollar to 96 by the end of
2012.
The trade deficit is widening as
demand for cotton and textiles, which account for
over half of the country's exports, declines.
Textile exports fell 9.4% to $9 billion in the
nine months through March, with one-month exports
of some products showing falls of 22% to 43% in
March compared with a year earlier.
Higher
international oil prices and the weakening rupee,
down 5.3% since last July, are meanwhile
increasing import costs, with Pakistan's import
bill surging 14.7% to $33.29 billion in the nine
months through March from $29.02 billion in the
corresponding period last year.
A weaker
rupee has failed to boost exports while increasing
production cost for the textiles sector, where
energy shortages are crippling its ability to meet
those orders it does receive. Some factories are
getting gas supplies only two days a week, and
others none at all.
"On the one hand, we
have been without gas for almost half of the year
and on the other hand we are enduring power
outages for up to 12 hours a day," Waheed Khaliq
Ramay, chairman of Ramay Weaving Industries, told
The Express Tribune. "Many millers are unable to
run their factories and pay back loans."
Pakistan in February paid the first
installment of $399 million of $11.3 billion loan
agreed to with the IMF in 2008 to avert a balance
of payment crisis. It received $7.6 billion but
failed to get the remaining $3.7 billion due to
slippages in performance criteria, leading to
suspension of the program in May 2010. The program
was extended in December 2010 for nine months, but
disbursements were not resumed owing to the
government's failure to take fiscal measures as
demanded by the IMF.
The country has to
pay a total of $1.3 billion to the IMF this fiscal
year. With foreign inflows have almost dried up,
repayments may further drain the country's foreign
exchange reserves, which at around $16 billion are
down from a record $18.31 billion last July.
A new program with the IMF will be signed
before June 30, according to The Express Tribune.
If Pakistan successfully manages to implement some
of the prior actions agreed in the last program,
the new package could be signed by a caretaker
government following general elections.
The IMF will however seek guarantees and
political ownership, as it has previously
experienced a situation where terms and conditions
agreed and signed by caretaker governments were
not fully implemented by the new government.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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