Pakistan has agreed to revise its projections downwards for international trade, which will inflate the gap between external receipts and payments by another $1.2 billion, after the International Monetary Fund (IMF) differed with ‘rosy’ estimates despite global recession.
While economic managers have consented to show near-to-reality picture, the current account deficit – the gap between external payments and receipts – is still $1 billion lower than what the IMF had tabled at the commencement of technical-level talks which ended on Tuesday in Dubai.
Before the talks, Pakistan had assessed a current account deficit of 0.8% of Gross Domestic Product (GDP) or $1.7 billion. With these adjustments, the deficit has been projected at $2.9 billion or 1.7% of GDP. IMF assessments showed the deficit at $3.9 billion.
Analysts believe that despite the revision, the deficit does not pose a serious risk to the external account.
Sources told The Express Tribune that at the end of the first round of talks with the IMF, the authorities have agreed to lower export growth projection to three per cent from five per cent and enhance import growth estimate by one per cent to 13 per cent.
The revisions endorse independent analysts’ arguments that have held the view that the country may not be able to sustain last year’s healthy trend in exports due to weak commodity prices and recession in Europe.
In October, exports registered negative growth of two per cent while imports surged almost 13 per cent.
Pakistan and the IMF have been holding talks in Dubai under Article-IV of IMF’s Articles of Agreement. The technical-level talks in which both the sides exchanged their respective positions are followed by policy-level discussions, headed by Finance Minister Dr Abdul Hafeez Shaikh.
At the end of the talks, Pakistan expects to get a Letter of Assessment – a note authorising international lenders to give programme loans to the country.
Finance ministry officials were not immediately available for comments as they were still holding talks with the IMF.
However, ministry sources said there was also difference of opinion on total external inflows as the IMF was projecting $500 million less inflows than what the country assessed. They added it was not a serious issue and there were hopes that it would be sorted out in policy-level dialogue.
Pakistan has estimated near $4 billion inflows including $500 million from issuance of Oil and Gas Development Company shares backed by exchangeable bonds.
“Generally, the technical-level talks went pretty well,” said another official of the finance ministry.
Sources said the IMF had implicitly indicated that the country may not manage its external payments without another loan programme particularly in the next fiscal year when the bulk of IMF loan would be returned.
Sources said there were also differences on the issue of projected budget deficit for the current fiscal year. Pakistan projected that the budget deficit might be near 5.5% or Rs1,169 billion excluding 1.8% on account of booking past power sector liabilities. The IMF has put the figure near 6%.
However, sources said the government assured the Fund that with doable measures the deficit would be kept below five per cent, yet almost one per cent above the budget estimate of four per cent.
They added that the IMF expressed reservations that Islamabad would not be able to achieve Rs1,952 billion tax collection target, but the government assured them that with new tax measures it would be able to collect over Rs1,900 billion.
Published in The Express Tribune, November 17th, 2011.