ISLAMABAD: The reimbursement of $1.18 billion under the head of the Coalition Support Fund (CSF) from USA has rescued Islamabad from weak macroeconomic projections before the upcoming technical talks between Pakistan and the IMF, according to official sources.
According to the finalised macroeconomic framework for 2012-13, the current account deficit has been projected to decline to $3.119 billion in FY13 against $4.6 billion in the corresponding period of last year.
“Although, the current account deficit will decline, its financing will be a major challenge for the government due to a shortfall in inflows that will result in the depletion of foreign currency reserves and will thus put pressure on the exchange rate,” said a source.
The timely receipt of US funds also helped Islamabad in improving the budget deficit figure, which remained below the envisaged target in the first two months of the current fiscal year.
This will also provide some weight to the argument of the national economic team that despite severe challenges, it will achieve an overall budget deficit target of 4.7 percent of the GDP in the current fiscal year.
“Yes, we have finalised a macroeconomic framework on the basis of which Islamabad’s economic managers and the IMF authorities will hold technical talks under Post Programme Monitoring (PPM) in Dubai) from Sep 25 to 30,” said a senior official.
“Then the IMF’s mission chief Jeffery Frank and a couple of other officials of the Fund will visit Islamabad from Oct 1 to 4 to hold policy-level meetings with the finance minister, the president or prime minister as well as other political parties of the country.”
Rana Assad Amin, adviser to the finance ministry, also confirmed that the PPM talks will be held from September 25 in Dubai. He also said that the next round of talks will focus on Islamabad’s capacity to repay its foreign loans.
According to details of the macroeconomic framework for 2012-13, the government has projected the size of the current account deficit at between $200 million and $250 million per month in the current fiscal year.
The Planning and Development Division had projected the current account deficit at $4.9 billion in its Annual Plan for 2012-13, but now the latest projections by the Finance Division show that the current account deficit is likely to stand at $3.119 billion during the current fiscal year.
The ministry of finance has projected exports at $25.9 billion and imports at $42.38 billion, indicating a trade deficit of $16.648 billion in the current fiscal year.
Furthermore, the import of POL products has been projected at $15 billion during the current fiscal year. The government has projected oil imports at $114 per barrel on average and if international prices surpass this level, then it will put pressure on the current account deficit.
In view of other macroeconomic projections, the government has estimated GDP growth at 4.3 percent and inflation at around 10 percent in the current fiscal year. Since outstanding IMF loans to Pakistan have crossed the quota threshold of 200 percent, even without getting a fresh loan, Pakistan has become eligible for the PPM or continuous surveillance by the IMF.
Furthermore, since Pakistan is also an exceptional-access borrower from the IMF, an Ex-Post Evaluation of the country has already been conducted, while the report is yet to be produced before the IMF board.