October 9, 2012
Reposted from The News International
By Mehtab Haider
ISLAMABAD: With a $1.1 billion payment due to the International Monetary Fund (IMF) in February 2013, Pakistan’s vulnerability to a balance of payments crisis will be increased around election time, said official sources.
In the wake of the technical talks between Pakistan and the IMF under Post Program Monitoring (PPM) in Islamabad last week, all multilateral and bilateral creditors, including the US, UK, World Bank and the Asian Development Bank, suggested that the government seek the IMF’s assistance before the occurence of a crisis. All creditors conditioned multi-million dollar annual assistance to the government on tight scrutiny by the IMF.
According to official sources, the Fund authorities were also unclear about how they were to respond to a crisis during the interim government’s tenure. The IMF, it is said, wants the next government to take ownership of the next Fund programme.
Islamabad and the Fund authorities have evolved consensus on ambitious fiscal projections. Provided Pakistan gets another installment of $680 million from the US under the Coalition Support Fund (CSF) head and manages to successfully auction 3G licences, the country’s current account deficit is expected to stand between $2.7 billion and $3 billion. However, if these funds don’t materialise, foreign exchange reserves may decline to as low as $6 billion to $7 billion as compared to the existing level of over $10 billion.
During the current fiscal year, total repayments to the IMF have been estimated at $2.8 billion considering the rates of special drawing rights (SDRs).
“There is another payment of $400 million due in Nov but the major installment repaid to the IMF by Feb will be almost $1.1 billion, after which pressure will start mounting on the external account, thus the exchange rate will also come under pressure,” said the sources, adding that the last installment to be paid to the IMF will be to the tune of $500 million in May 2013.
Pakistan has already paid back over $500 million to the IMF in the current fiscal year. Official sources claim that the Fund authorities called US officials to inquire about the reimbursement of the CSF amount and then included $680 million inflows during the second quarter (Oct-Dec) of the current fiscal year.
According to government projections, oil prices will hover around $110 per barrel in the international market and the current account deficit will narrow down close to $3 billion with the 3G auction. But several economists who dealt with the IMF during the last Stand-By Arrangement (SBA) programme said that there are many ifs and buts involved in these projections, as the government claimed to achieve all these objectives but they remained unfulfilled in the last few years.
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