ISLAMABAD, Feb 10: Three leading international financial institutions in their reports have advised Pakistan to ensure sustained inflow of non-debt creating capital for financing the unprecedented current account deficit.

The reports by JPMorgan, Citigroup and Merrill Lynch’s on Pakistan’s current and future outlook pointed out that the current account balance has turned into deficit in the last two years on the back of strong economic aggregate demand but the subsequent surge in capital inflows has been more than sufficient to cover alleviated current account deficit, allowing foreign exchange reserves to be stable-to-higher.

A summary prepared by ministry of finance for the prime minister, a copy of which was made available to Dawn says that these three institutions have raised similar concerns and solutions for Pakistan's economy future outlook.

On inflation, these reports have said that while headline inflation remains alleviated, core inflation has fallen to 5.5 per cent in December 2006 from 7.4 per cent a year earlier. The higher level of CPI stems from higher food prices.

According to the JPMorgan market primer Pakistan’s GDP growth is higher, poverty rates are down, inflation is lower, FDI is up, and fiscal deficits are down. However, the current account balance has turned to a deficit, although over all external balances are healthy.

Pakistan’s economy grew 6.6 per cent during 2005-06; the third consecutive year of GDP growth exceeding 6 per cent compared to the rest of emerging Asia, that recent track record puts Pakistan’s GDP growth rate solidly in the top half of the regions fast growing economies.

Pakistan’s government is targeting a 6-7 per cent range for real GDP growth over the medium term.

According to the Citigroup Report macroeconomic trends are supportive of an improving credit story in Pakistan, which is already increasingly reflected by its recent out performance of its dollar bonds (particularly the Pakistan 2036).

Citigroup has also mentioned about the widening of current account deficit on the back of a strong aggregate demand. However, both JPMorgan and Citigroup agree that large inflows on the financing side of balance of payment including foreign direct investment has ensured a full financing of the current account deficit in 2005-06 and added to foreign exchange reserves.

Accordingly to Merrill Lynch the strength of Pakistan's economy in the face of various exogenous shocks in 2005-06 and the country's future prospects in 2006-07 appear to be on track.

Merrill Lynch estimates that Pakistan’s economy is likely to grow by 7-7.5 per cent in 2006-07 - backed by robust domestic consumption. They also see great progress in reducing inflation from 9.3 per cent in 2005-06 to 7.75 per cent in 2006-07.