ISLAMABAD, Nov 29: The frontline status of Pakistan in war against terrorism in the post-September 11 scenario and global recession has put the country’s economy at great risk, a report released by an international bank said.

The immediate impact of September 11 incident was unfolding in the form of loss in revenue collection, export orders, higher shipping and insurance cost due to imposition of war risk levies and deferment of foreign direct investment, according to the economic review report of the Pakistani ABN AMRO Bank.

The report said the net impact on fiscal position was likely to be a decline of Rs12 to 15 billion in CBR revenues collection; an increase in non-debt servicing expenditures of approximately Rs10 to 15 billion and a reduction of around Rs10 billion in external debt servicing caused by an appreciation of the exchange rate.

It said the GDP in fiscal year 2001-02 would decline from an earlier expected range of 3.5 to 3.8 per cent to a revised (provisional) range of 2.5 to 3.1 per cent due to the prevailing condition in the region.

Giving reason for the downward trend in the GDP growth, the report said until the return of an element of definitiveness regarding Pakistan’s economic prospects under the circumstances, economic activity was likely to be slower than it would have been otherwise. More directly, investment decisions in the real sector were likely to remain on hold.

Similarly, with the expected loss of exports to the US, there would be a knock-on impact on the manufacturing sector. The export sector accounts for approximately 28-30 per cent of large- scale manufacturing and a substantial portion of small scale manufacturing.

Cumulatively, the overall contribution of exports to the manufacturing sector was thought to be in the region of 35-40 per cent, which magnifies the vulnerability of GDP growth to a downturn in external demand.

The major impact in the post Sept 11 was registered on the country’s export.

According to industry sources, upto 25 per cent of orders in hand in textiles and clothing have been cancelled by US buyers, with a substantial reduction in the pipeline for new orders.

The declined registered in exports was registered due to various factors — levy of war risk surcharges, a degree of disruption in lifting of air cargoes and an unanticipated appreciation of the rupee.

Nevertheless, as the uncertainty regarding events in Afghanistan and their impact on Pakistan and beyond continue to stalk the region, the bulk of US buyers were preparing contingency plans to shift production elsewhere.

Keeping this in view, the report says, Pakistan could not hope to achieve its earlier export target of $10.0 billion under slowing global conditions.

Moreover, on balance, we expect net import payments to be approximately $700-900 million lower under the most likely post-September 11 scenario compared to what they would have been otherwise, the report said.

Prior to September 11, the government was in an advanced stage of preparation for bringing two of its most lucrative assets in the market within the current fiscal year — Pakistan Telecommunications Corporation Limited (PTCL) and the state-owned oil marketing monolith, Pakistan State Oil (PSO).

Apart from PTCL and PSO, a transaction which was more mature was the divestiture of the government’s working interest in nine oil and gas fields. This was expected to generate a further $150 to 200 million.

While privatization receipts could be lower-than-anticipated to the tune of upto Rs35-40 billion, given their nature, these had not been budgeted as revenue or capital receipts for FY02.

Thus, the potential “loss” of external receipts (and budgetary resources) in FY02 due to a disruption of the privatization agenda, could be in the region of $700 million to $1.4 billion under different assumptions. For our base-case, however, we have assumed that government may be deprived of inflows worth around $800 million on account of privatization proceeds during FY02, the report said.

With the rehabilitation of the country’s credibility with the international financial institutions (IFIs), Pakistan was expected to make gradual efforts to re-access the commercial (bank) loans market. To this effect, it was expected that Pakistan could raise upto $300-350 million during FY02. The events since September 11 appear to have made it more difficult for government, for the time being, to take recourse to international commercial borrowing.

“We estimate, all other factors remaining constant, a decline of close to $200 million in the quantum of commercial borrowing that could be undertaken on the strength of sovereign guarantees- by GOP or the public sector in FY02.”

The sharp rise in shipping and freight charges alone was expected to burden the services account in a range of $200-250 million for the full fiscal year.

Cumulatively, the negative impact on the services account could be to the tune of $250 to 300 million, in our view.

Summing up the different elements of the external account, our estimate of the net financing gap during FY02 was that it was likely to deteriorate by around $600 million as a result of September 11.