KARACHI, Oct 13: The post-September 11 situation is bound to increase the previous projection about the external financing gap but economists say it is too soon to quantify the increase.

Pakistan in consultation with the IMF had projected around $2 billion external financing gap between October 2001-June 2002 before receiving the final tranche of the $600 million loan last month.

But the projection was made before the September 11 terrorist attacks on the US soil that eventually led to the US air strikes on Kabul last week. During this period the world has changed. “So there is a need to reassess certain economic projections,” said a source close to the ministry of finance.

But he would not say Pakistan has raised this point during the ongoing talks between Islamabad and the World Bank in Washington. Top economic managers led by Finance Minister Shaukat Aziz are in negotiation with the IMF-World Bank officials in Washington to seek a medium-term poverty reduction and growth facility (PRGF).

“I cannot say if they have raised this issue but certainly the projections need to be reassessed now.”

The World Bank said on Wednesday after a meeting between its President James D. Wolfensohn and visiting Pakistani economic managers in Washington that the events following the September 11 terrorist attack on the US soil can cost Pakistan $1 billion.

Pakistan also anticipates that its export earning alone could fall short of target by $1.4 billion during the current fiscal year in the wake of the US-driven global recession that is bound to intensify further after September 11.

And export earning is just one of the areas where the economy is going to take the hit. There are other areas too. Like home remittances and foreign direct investment.

Bankers say home remittances that crossed $1 billion mark in the last fiscal year may fall sharply this year if the US attack on Kabul aggravates. Similarly one should not expect much inflow of foreign direct investment under the present circumstances. In the last fiscal year, FDI stood below $400 million but for this year the projection is $600 million. When Pakistan had made this projection in consultation with the IMF, it was anticipating a rise in FDI mainly in the energy sector.

After September 11 there is no hope for realizing this target as well.

Another source of external financing is privatization. Earlier it was anticipated that privatization would fetch at least $500 million.

But Privatization Minister Altaf Saleem has made it clear that the September 11 episode has delayed the privatization of PTCL and National Power Company and the sale of the government shares in nine oil wells. Analysts believe that foreign investors can hardly participate in the sell-off programme at the moment. Thus the scope of earning $500 million through this avenue is also out of question—at least for the time being.

It is against this backdrop that external financing by the IMF and the World Bank has become all the more crucial for Pakistan in the remaining part of this fiscal year.

Sources close to the ministry of finance say the international financial institutions that are fully aware of this situation are trying to tag harsher conditions with any new financial package for Pakistan. “We must be ready to see tougher conditions tagged with future financial packages...be it PRGF or any other thing,” said one of the sources. He said that the post-September 11 debt rescheduling would also not ease off the additional burden that Pakistan is going to see as these rescheduling had already been accounted for when a $2 billion gap in external financing was projected for October 2001-June 2002 period.

The aids and grants that the US, Japan and a other countries have announced for Pakistan in recognition of its support for US attacks on Kabul are very small in size—less than $100 million.

So they too cannot be of much help to Pakistan in managing its external financing gap. The aids and grants that were promised immediately after September 11 are yet to come in.