ISLAMABAD: The government is likely to approach the International Monetary Fund (IMF) in about two months' time for a fresh bailout package as continued rise in international oil prices and limited foreign inflows threaten Pakistan's balance of payments position, informed sources told Dawn.
With a positive revision in economic growth estimate to 4 per cent, the Monetary and Fiscal Coordination Board on Thursday noted with concern that a rising trend in international oil prices and challenging foreign inflows could threaten country's balance of payments position.
The meeting presided over by Finance Minister Abdul Hafeez Shaikh was attended by the commerce minister, deputy chairman Planning Commission, Governor State Bank of Pakistan and Secretary Finance. The meeting was convened to share assessment of the current economic situation and bring consistencies in economic tar-gets and optimal utilisation of policy measures.
Secretary Finance Dr Waqar Masood Khan who briefed the meeting said the GDP growth rate was expected to move up to about 4 per cent from an earlier estimate of 3.6 per cent. This was mainly because of a better crop position and improved largescale manufacturing growth in the first six months of the current fiscal year.
The board noted with concern that rising international fuel prices could affect balance of payments and deteriorate the external position. The estimate was that oil prices could touch $130 per barrel in view of tension in the Middle East region from existing rate of about $112 per barrel.
The meeting identified energy shortages and mobilisation of foreign financing as some of the key challenges and noted the requirement for more foreign resources to reduce burden of government borrowing on domestic sector even though the economicoutlook of Pakistan was stable despite challenges, an official statement said.
The meeting was informed that government's facilitation in the agriculture sector, improvement in supply situation, reduced budget deficit and borrowing from the SBP had helped bring inflation down to single digit or.9.7 per cent in December 2011, while food and non-food inflation also stood at 9.5 and 9.9 per cent respectively.
The Wholesale Price Index (WPI) and Sensitive Price Index (SPI) were also in single digit at 8.3 and 3 per cent, respectively. Core inflation was declining but remained at 10.1 per cent, the meeting was told.
Dr Khan said external sector was showing positive growth as remittances increased by 19.5 per cent to $6.3 billion in first six months of the fiscal year when compared with same period last year while the exports grew by 9.1 per cent to reach $12.1 billion over the six months last year as imports increased to $19.7 billion.
Likewise, the current account balance posted a surplus of $160 million in December 2011. The revenues showed a healthy growth of 27 per cent to Rs840 billion in first half of the year while government efforts for expenditure management, austerity measures, reforms in public sector enterprises would have positive impact on economy going forward.
The meeting was informed that overall expenditure in first six months was contained at 45 per cent of budgeted allocations. The improved revenue and expenditure performance helped contain fis-cal deficit at 2.6 per cent of GDP against a revised annual target of 4.7 per cent which was slightly lower than last year's half year deficit of 2.9 per cent.
A cause of concern for the policy board was a provincial deficit of Rs5 billion in first six months against last year's same period surplus of Rs76 billion or 0.4 per cent of GDP.
The meeting noted that central bank's decision to reduce policy rate to 12 per cent was showing signs of private sector investment as credit expansion to private sector stood at Rs169.3 billion in first six months against Rs123.2 billion same period last year.
The finance secretary said the government borrowing from the State Bank at Rs120 billion at the close of first half was temporary and will soon be retired.Net foreign financing to budget has been positive at Rs20 billion but more foreign resources were required to reduce burden of government borrowing on domestic sector.
The board noted that renewal of growth, decline in inflation, contained fiscal deficit, a healthy balance of payments position and continuation of reforms especially in the power sector has stabilised the economy.
It said the key foreign flows relating to auction of 3G telecom licence, coalition support fund receipts and privatisation proceeds on account of PTCL would be realised during the second half and cover the foreign financing gaps despite a $1.2 billion repayment due to IMF in the second half of the year.