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Islamabad: Pakistan needs a capital infusion of $3-$4 billion 'up front' to stabilise its economy and bolster rapidly dwindling foreign currency reserves, said an economist serving on the prime minister's economic advisory council.
Sakib Sherani said Pakistan faces a total financing gap of $7 billion (Dh25.69 billion) to cover a projected current account deficit of $14 billion for the fiscal year ending June 20, 2009, but not all the funds were needed immediately.
"Up front we need at least $3 to $4 billion to stabilise the economy," said Sherani, who is chief economist at Royal Bank of Scotland in Islamabad.
He described the projected financing gap for the current account as a 'ballpark figure', that took into account already expected financing, and foreign direct investment and portfolio flows.
"The financing gap could be higher or lower, depending on how world oil prices go and what happens to imports."
There are expectations that multi-lateral lenders and friendly governments will help the six-month-old civilian government avoid defaulting on a sovereign bond maturing in February, though the market has priced in the risk.
Analysts say Pakistan hopes to bridge the financing gap with a Saudi oil facility, around $2.5 billion from multilateral lenders and $1.5 billion in US aid.
Former army chief Pervez Musharraf quit as president last month to avoid being impeached by the parliament elected in February, to bring down the curtain on nearly nine years of military rule.
Foreign investments
Pakistan's support is regarded as crucial for the US war against terrorism and for the Nato mission to stabilise neighbouring Afghanistan.
The new government is banking on support from the international community for its transition to democracy while faced with potential economic meltdown and the threat from Al Qaida-linked militants.
A suicide truck bomb attack on the Marriott Hotel in Islamabad that killed 55 people on September 20, has heightened concerns of foreign investors in Pakistan. Foreign direct investment (FDI) has been concentrated in telecommunications, oil and gas, and banking.
Farhan Rizvi, senior analyst at JS Global Capital Ltd in Karachi, said he expected FDI to to fall to $3-$3.5 billion this financial year compared with $5.15 billion in 2007-08.
The government does not want a support package from the International Monetary Fund, and is devising its own strategy to tackle a widening current account deficit, an unsustainable fiscal deficit, and inflation running at over 25 per cent.
Prime Minister Yousuf Raza Gilani was scheduled to hold a news conference late on Monday that would focus on the government's plans to raise funds through privatisation.
Sherani said potential donors have been waiting to evaluate the government's strategy before pledging funds, but the situation was becoming increasingly desperate.
The rupee was quoted at 78.05/15 to the dollar at noon on Monday, having dropped more than 21 per cent since the start of the year to hit a record low of 78.55 on September 22.
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