IMF asks Pak to bring down current account deficit

Islamabad: The International Monetary Fund (IMF) has said that inflation and the current account deficit are the “main worry” for Pakistan’s economy, and political and security issues confronting the country would only worsen the situation.

The fast developing political and security issues could aggravate the situation but the main worry for Pakistan is its inflation and the current account deficit which needed to be brought down, the visiting IMF Director for Middle East and Central Asian Department Moshin Khan told Dawn on Wednesday.

He said he had come to Pakistan in connection with the Article IV annual consultations with senior Pakistani authorities.

Mr Khan met Prime Minister Shaukat Aziz, and his delegation will formally be holding meetings with various organisations next week, including the State Bank of Pakistan and the finance ministry.

Last year inflation was a bigger problem but this year current account deficit is likely to cause more problems in case the government fails to get the required foreign funding, the IMF director said.

Special secretary, ministry of finance, Dr Ashfaque Hasan, told reporters on Tuesday that the economy was in right direction and it was too early to say whether inflation target of 6.4pc could be achieved during 2007-08.

The current account deficit which was little over $7 billion last year, the IMF director said, has further risen and turned out to be a much bigger worry.

Under these circumstances, he pointed out, the government will have to make sure that this current account deficit is under control and “financeable”.

In principle, he believed, that the government was expected to manage foreign resources for the current financial year.

“But in case the government does not succeed, it will be a serious problem,” he asserted.

The credit spread of Pakistan, he said, needed to be taken into account keeping in view the emerging market situation. Pakistan he said, sought foreign funding also through flotation of bonds.

However, he said credit pattern in the international market was changing due to which it was becoming expensive as well.

He said foreign borrowing on increased interest rate and the issue of repayment of debt this year were some of the worrying points. Pakistan, he said, has to make about $1 billion repayment to its lenders during 2007-08.

Last year, he said, Pakistan required about $10 billion foreign financing and this year it was about $2 billion more and this could cause problem to the current account deficit and debt repayment plans.

Responding to a question, Mr Khan said Pakistan further needed to build its foreign exchange reserves. These were important issues which will be taken up at a policy level discussion to be held between the government and the IMF delegation next week.The IMF director said that he would be holding important meetings with the officials of the central bank, ministry of finance and other organisations to fully gauge the economy.

He was asked to comment on President Musharraf’s recent statement made in Karachi that economy was suffering and foreign investment has declined due to current political situation in the country.

“I am not aware of the president’s statement, but I believe the situation was not very alarming. However, if the current situation persists, I am afraid this could cause problems and it will have a bad impact on the economy,” said Mr Khan.Currently, he said, some of the foreign investment was in the pipeline and hoped that the foreign investors would continue to make investment in the country.

“Till very recently, Pakistan has been a very attractive place for foreign investment,” he said hoping that this trend will continue, provided there was no big political and security turmoil.