Syed Fazl e Haider

KARACHI – Iran has agreed to provide US$250 million to help Pakistan build its end of a gas pipeline between the two countries after Pakistani institutions, including Oil and Gas Development Co Ltd (OGDCL) and National Bank of Pakistan (NBP), refused to provide funds for the project because of US sanctions imposed against Iran at the beginning of this year.

Domestic funding for the project is crucial because the US and international sanctions against Iran are likely to block Western and multilateral funding. Deeply indebted Pakistan had earlier planned to borrow $300 million from local banks and $210 million in equity from state-owned companies.

State-owned OGDCL, Pakistan’s largest petroleum company, fears that financing an Iranian project could prompt the withdrawal of foreign shareholders, while NBP is concerned that involvement would lead to closure of its foreign branches due to US sanctions.
The United States has warned Islamabad that the gas pipeline project could violate US restrictions on major financial deals with Tehran, imposed as part of efforts to have Iran abandon its nuclear program, which the US says will lead to nuclear weapons.
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KARACHI – Pakistan, whose cost of total external debt servicing crossed US$10 billion mark during the first six months of the fiscal year ending in June, repaid at the weekend the first $399 million installment of its stand-by arrangement (SBA) to the International Monetary Fund (IMF).

A surge in overall debt servicing is expected in the coming four months because the country has to pay the IMF $1.1 billion in principle alone by the end of June.

Islamabad turned to the IMF in 2008 for an $11.3 billion loan to avoid default on international payments. The government ended the loan program last September 30 with $3 billion remaining undisbursed. With external debt servicing reached $10.4 billion in the six months to December and a weakening fiscal position, the country risks entering a debt trap, in which government borrowing drives up debt servicing to the point that it creates a cash shortage, analysts said.
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KARACHI – Prime Minister Yousaf Raza Gilani, in the face of International Monetary Fund criticism of reporting on the country’s economy, has reshuffled senior finance officials in advance of the annual budget.

Abdul Wajid Rana takes over as finance secretary from Waqar Masood, becoming the sixth person to hold the post in the four years of the Gilani-led coalition government. Mumtaz Haider Rizvi is the new acting chairman of the Federal Board of Revenue – the second to hold that post this year. Their primary task is strengthen tax recovery to check a widening fiscal deficit.

Their performance could set a new basis for Pakistan’s relationship with the IMF, following the government’s failure to implement economic reforms under a three-year US$11.3 billion IMF loan program that ended incomplete on September 30.
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KARACHI – The International Monetary Fund (IMF) has criticized Pakistan’s economic projections, saying the country’s economic vulnerabilities will further increase in the remainder of the fiscal year ending June.

The fund has projected the country’s economic growth at 3.4%, against the government’s projection of 4.2%, and the fiscal deficit to reach 7% of gross domestic product (GDP), against the government’s revised target of 4.7% for the current fiscal year.

The IMF has criticized the State Bank of Pakistan for pursuing a more accommodative monetary policy and financing the fiscal deficit directly or indirectly through liquidity injections via open market operations. The international lender’s comments came in report following the conclusion last week of its Article IV consultation.
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KARACHI – Pakistan on Tuesday gave an unequivocal assurance to Iran for early implementation of the US$7.6 billion Iran-Pakistan (IP) gas pipeline, a week after the toughest warning issued yet by the United States to Islamabad to shelve the project.

Islamabad and Tehran vowed to intensify work on the IP project during a meeting of the Pakistan-Iran bilateral talks, which began in Islamabad this week, led by visiting Iranian International Affairs Vice President Ali Saeedlou and Pakistan’s Finance Minister Hafeez Sheikh.

President Asif Ali Zardari gave an assurance on Tuesday that his country was committed to the early implementation of the project to meet the country’s ever growing energy needs during his meeting with the Ali Saeedlou. Washington, which has intensified its efforts for increased economic sanctions against Iran, has serious reservations over the IP project.
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