The government is expected to face pressure on balance of payment position if budgeted external inflows of around $2 billion are not realised in the current fiscal year, sources told Business Recorder.
Officials of the Finance Ministry told Business Recorder that the position of the external account would become clearer after December this year with respect to (i) $400 million disbursement estimated in the budget for the current fiscal year on account of Coalition Support Fund (CSF) and (ii) $800 million for the award of 3G license and (ii) $800 million for payment by Etislaat for the sale of PTCL privatisation.
A senior official said that he was confident that $400 million of CSF would be disbursed in the current fiscal year, but was sceptical about the sale of 3-G license and payment withheld by Etislaat. If the budgeted external inflows are not disbursed total foreign exchange reserves may fall below $10 billion with the government share around $5 to $6 billion. Such a situation would lead to panic and consequently there would be greater pressure on the exchange rate.
The official said that the increase in oil imports for power generation coupled with higher prices of petroleum products in the international market has been a challenge for the external account. He said that disbursement of $1.18 billion by the US for CSF and substantial remittances have provided the much needed support to current account in the first quarter.
However, he said that pressure is expected to mount on the external account with an expected significant increase in import of oil for power generation in winter when hydel generation plummets due to low availability of water and closure of canals for scheduled maintenance. Disbursement of budgeted inflows of $2 billion would therefore be very critical to support the external account.
The increase in remittances during the first quarter of the current fiscal year is expected to continue during the remaining period of the year, he said and further theorised that a decline in foreign exchange reserves to below $10 billion may compel the economic managers to approach donors for balance of payment support. However he expressed concern over massive increase in subsidy for power sector which was making it difficult to meet the budgeted fiscal deficit target. The official said provisional figures of fiscal deficit for the first quarter have been relatively higher than expected.
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