KARACHI: Following Pakistan’s decision to reopen ground lines of communication (GLOC) for US-led Nato forces, the US is expected to release around $800 million in the first quarter (July-Sept.), of the total of $1.2 billion due to Islamabad under the Coalition Support Fund (CSF) head, sources in the ministry finance said.
They said that the US is likely to release the due CSF amount in a phased manner and there is a clear indication that Pakistan will receive nearly $400 million in military reimbursement as early as next week. Another $400 million under the CSF is expected to be materialise in the first quarter of the current fiscal year, said a source.
Pakistan was to have received $400 million from the US under the CSF in the last fiscal year but it could not get the amount because of strained political relations between the two countries following the Abbottabad raid on May 2, 2011 conducted by US forces on Pakistani soil, which killed Al Qaeda chief Osama bin Laden.
Not a single penny has been released by the US under the CSF since that incident, sources said.
Overall, analysts said, the US has agreed to release the total outstanding amount of $1.2 billion soon, following a agreementl under which Pakistan lifted the blockade on NATO supplies.
They said the release of CSF funds along with other foreign inflows including financial assistance of $1.1 billion under the Kerry-Lugar bill is expected to provide an antidote for the country’s fragile external account position besides providing support to the local currency in FY13.
“The development could reduce the country’s current account deficit from the initial estimates of 1.7 to two percent of the GDP to between 1.3 to 1.6 percent of the GDP in FY13. Further, it could keep overall foreign exchange reserves around $11 to 12 billion level by June 2013,” said Noman Khan, an analyst at Topline Securities.
“With the improving Pak-US relationship, the government could leverage its reaffirmed relationship with the US at the time of likely re-entry in the IMF programme, which is anticipated to happen in later part of this current fiscal year,” he said, adding this in turn could allow country access to tap into other donor agencies funds like the World Bank and the Asian Development Bank with new commitments contingent on the nod from the IMF.
Pakistan closed the GLOC following NATO attacks on the Salala check post in November 2011 while the US reciprocated by curtailing aid and other financial flows to Pakistan. It is important to mention here that the US is providing around $2 billion a year in military and non-military aid to Pakistan from 2001 to 2010. Furthermore, the onus was placed on the parliament, which conditioned the reopening of the GLOC on an apology from the US.
Dr Salman Shah
Former adviser on finance to the prime minister
The resumption of NATO supplies could be the turning point for the under-strain economy. It would improve the foreign investment climate in the country and would have positive implications for the stock and capital markets. Normalisation in Pakistan-US ties is expected to pave the way for the reimbursement of the Coalition Support Fund (CSF) and other foreign flows, providing some respite to the country’s deteriorating balance of payments position.
Dr Ishrat Husain
Former governor of the State Bank of Pakistan
The reopening of NATO supply lines would impact the economy positively, as this will result into the receipt of $1.2 billion from the Coalition Support Fund amid boosting the country’s foreign exchange reserves. The rise in reserves should defeat the speculative attacks on the rupee and help it recover against the greenback and other major currencies. Any further developments on this particular and co-related issue may change the dynamics of the economy accordingly.
This development is expected to provide breathing space for the depleting external sector and the fiscal deficit side. Moreover, the government’s borrowing may see some decline. The fiscal deficit is likely to drop by a nominal 0.5 percent of the GDP. However, financing of the current account deficit will remain challenging if the international oil prices get higher in FY13.