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'Huge jump in trade deficit "worrying" govt'

ISLAMABAD: A huge jump in Pakistan's trade deficit was "worrying" and underlines the government's need to win international support to turn around its faltering economy, analysts said on Monday.

They said after figures for January were released that the trade deficit for the fiscal year to the end of June was likely to hit $1.7 billion to $2 billion, more than double the government's $800 million target.

A 515 percent month-on-month increase in the trade deficit in January was not alarming because it was due to seasonal factors, but added the overall trend was a problem.

"Sometimes, this is seasonal, the month-on-month trend, but the overall trend is indeed worrying," said Abid Naqvi, head of research at Taurus Securities.

The figures released on Monday by the Federal Bureau of Statistics showed Pakistan's trade deficit was $1.01 billion in the first seven months of the fiscal year, up 43 percent from the year-earlier period.

The figures came as Pakistan scrambled to put a suspended International Monetary Fund loan agreement back on track and amid speculation it will be forced to reschedule $3.1 billion in debt already rescheduled once less than two years ago.

Naqvi said the rising trade gap would make it difficult for the government to plug a foreign exchange hole estimated at $1 billion because it has little access to private credit.

KEY IMF FUNDING

Analysts said it was becoming crucial for the military-led government of General Pervez Musharraf to unlock the IMF's suspended $1.56 billion loan programme to help support its balance of payments.

They also said that was a key to getting lending from other international institutions, such as the Asian Development Bank.

Pakistan won a rescheduling in early 1998 from the Paris Club on payments on debt of $3.1 billion, but that runs out in December, and there are worries the growing trade deficit and a fall in foreign invesment would make it difficult to restart the payments.

Pakistan has had balance of payments problems since it was hit with U.S.-led economic sanctions for its nuclear tests in May 1998.

Although the sanctions were partially lifted in December that year, paving the way for the rescheduling of $3.1 billion in debt by the Paris Club of official creditors, problems in mid-1999 led the IMF to freeze the $1.56 billion loan programme.

But a failure by the government of former prime minister Nawaz Sharif to meet commitments on broadening the tax base and resolving a row over tariffs with private power producers caused the IMF to suspend the loans.

After October's coup, which overthrew Sharif, the IMF said its funding would be on hold while it assessed the situation.

The trade gap in January soared to $246 million, a 515 percent increase from $40.05 million in December, but trade industry sources said textile and other exports always rise in December on orders from industrialised countries ahead of Christmas and the New Year.

In January, the sales drop and so do export orders, with exports falling to $547 million in January from $716 million in December.

-Reuters