Pakistan struggles to keep fiscal deficit below 7 percent

Pakistan struggles to keep fiscal deficit below 7 percent

ISLAMABAD (December 15): Economic managers of Pakistan have been reported to make frantic efforts for keeping the unbridled fiscal deficit below 7 percent, however, the task they have been entrusted with seems to be daunting. Moreover,
the challenge of keeping the foreign reserves at the presently maintained figure of $ 13 billion also stares the authorities in the Ministry of Finance right into the eyes.

The budget for fiscal year 2011-12 envisages external inflows of 287.2 billion rupees, out of which 117.8 billion rupees was envisaged as programme loans. However, multilateral donors confirmed that they are not likely to extend
any programme lending until the government gets a letter of comfort from the International Monetary Fund or undertakes critical though politically challenging macroeconomic reforms. Neither of these conditions has so far been met to the satisfaction of the
multilaterals as well as bilaterals, and it is unlikely that this amount would materialise.

Sources said that the fiscal deficit may well cross 7 percent in the current fiscal year as materialisation of $850 million on account of 3-G licenscs is unlikely.

Additionally, the government is also unlikely to achieve 1952 billion rupees revenue collection target in the current fiscal year, or contain the subsidies for the power sector. In the wake of the floods and dengue this year the
provinces are also not likely to attain the federal budgetary estimated target of 0.6 percent provincial budget surplus. A top official of the State Bank of Pakistan told the media that foreign exchange reserves of the government with the State Bank of Pakistan
(SBP) may well decline to below $10 billion in the current fiscal year, if estimated $4 billion foreign inflows do not materialise.

He said that current account deficit for the current fiscal year was estimated on the assumption that $1 billion Coalition Support Fund (CSF), $850 million 3-G license as well as $3.9 billion International Monetary Fund (IMF) would
materialise in the ongoing fiscal year. With the suspension of the IMF program, the government is banking on $1 billion each from the Asian Development Bank (ADB) and World Bank (WB) and materialisation of $800 million from privatisation proceeds of Pakistan
Telecommunication Company (PTCL) from Etisalat to support the foreign exchange reserves. Non-materialisation of any of these sources of funds would be a major blow for the economic team and the country would be in a 2008 like balance of payments crisis that
forced it to take bailout package from the IMF to avert the crisis.

Sources said that the situation on trade account was also very gloomy after decline in cotton prices in the international market. That is expected to negatively impact the exports by $2 billion. On the other hand, he said, the
rising price of oil in the international market would balloon the import bill and, consequently, the current account deficit. All these unfolding factors, he said, would bring the exchange rate under further pressure.

He said that the government would resort to borrowing from local banks if programme lending for budgetary support did not materalise and consequently credit to the private sector would be crowded out and have a negative impact
on the GDP growth.

Short URL: https://www.newspakistan.pk/?p=6274

Posted by Fayyaz Yaseen on Dec 15 2011. Filed under Latest News, Pakistan. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry