ISLAMABAD, Oct 5: Pakistan’s trade balance will widen to 2.3 per cent of GDP in 2002-03, predicts the IMF.

In its latest Country Report 2002 on Pakistan, it said that the balance of payment position is expected to remain strong during the current financial year, despite the subsiding of exceptional factors.

Nonetheless, the trade balance is projected to worsen slightly on account of a significant recovery of imports due to higher domestic growth, notwithstanding a pick-up in exports.

Workers’ remittances are expected to come down closer to higher traditional levels, after the post-September 11 spike. “On this basis, the current account deficit, excluding official transfers, should widen to 2.3 per cent of the GDP in 2002-03,” the report believes.

Official transfers are also expected to decrease from an exceptionally high level, which were experienced in the last financial year. A trapping-off of private capital inflows is projected, on the assumption that the surge in 2001-02 was a one- off portfolio adjustment, possibly triggered by increased scrutiny by host countries of Pakistani balances held abroad.

Nevertheless, the capital account is expected to improve further, reflecting lower net public short-term outflows following large payments of trade credits and of frozen non-resident foreign currency accounts in 2001-02.

Net exceptional financing is expected to be somewhat lower than the current fiscal year. Overall, official reserves are expected to increase.

The report said that the fiscal framework for 2002-03 aims to further reduce the public debt overhang, while protecting social expenditure. The consolidated deficit will be contained at 4.4 per cent of GDP, despite a strong increase in social and poverty related expenditure.

The projections are based on sizable increase in Central Board of Revenue (CBR) tax revenue through the implementation of a tax policy package that aims at broadening the base and simplifying the tax system, and further expenditure restructuring in favour of social sectors and poverty alleviation, including freezing defence expenditure.

Another critical step is a structural electricity tariff increase to enable Wapda to make all scheduled debt service payments to the budget.

It is likely that the planned privatization of Karachi Electric Supply Corporation (KESC) will require additional capitalization outlays. The financial programme would require for adjusting the deficit for up to Rs11 billion on this account.

The report also said that to protect the fiscal deficit target in case of unforeseen events, including higher defence expenditure should tension intensify, the authorities plan to take contingency measures such as reducing non-priority expenditure or raising petroleum taxes while protecting Interim- Poverty Reduction Strategy Paper (I-PRSP) outlays.

The budget involves a major rationalization of expenditure, to make additional room for social and development expenditure. “Defence expenditures are projected to remain broadly constant in nominal terms, thus maintaining the high levels of the current year (which reflect nearly 10 months of exceptionally intense military presence at either western or eastern borders, or both) under the assumption that tensions on both borders do not intensify and do not last beyond last end-December 2002,” the report added.