Drone standoff: economy may face serious consequences

The country's economy could face serious consequences in case of confrontation between Pakistan and US over the continuing drone strikes. Sources said there is a serious concern in the Finance Ministry with respect to future course of relations between Pakistan and US and their possible consequences on the ability of the government to borrow from multilaterals as well as bilaterals.
The country has been heavily reliant on foreign inflows to support the balance of payment position, made possible through US support and remittances. An official on condition of anonymity remarked "if you are going to be confrontational with the US on drone strikes, its response may be to cease all bilateral assistance, and use its considerable clout on other bilaterals as well as multilaterals including the IMF, not to extend any assistance to Pakistan."
He added that the US is a major assistance provider to Pakistan and has also been nudging multilaterals to lend to Pakistan in times of economic crisis. Without US State Department nudging it may be extremely difficult for Pakistan to qualify for a new International Monetary Fund (IMF) programme in the near future, which obviously would not be available in case of standoff on the drone issue. Sources acknowledged that US influence on World Bank and IMF can not be denied and it may be critical in next few months to try to procure IMF assistance to support the rapidly depleting foreign exchange reserves. The considered view of some official is that the rhetoric to take action against drone attacks may sound sweet but entails serious economic implications for the country.
Sources in Finance Ministry said that the country would have to take the decision about a new IMF programme before November 2013 otherwise it may face serious foreign exchange reserves problem subsequent to scheduled repayment of SDR 1.685 billion to the IMF due in November 2013. The projected repayment to the IMF in the first five months of next fiscal year includes SDR 17.228 million in July 2013, SDR 458.498 million in August 2013, SDR 95.837 million in September 2013 and SDR 71.066 million in October 2013. The country would be required to make payment of SDR 467.328 million in November 2013. Pakistan exports could also be affected in the event of a Pak-US confrontation because EU and the US markets are major destinations of Pakistani textiles. Any decline in textile exports would lead to higher trade imbalance with a negative consequent impact on the balance of payment position.