Pakistan is almost certain to seek grace periods for foreign debt repayments in September because its hard currency reserves have all but dried up, analysts say.

Some respite is expected from the likely approval of a $1,500 million fund arranged by a consortium led by Jeddah-based Islamic Development Bank (IDB) but the money will not be enough to prevent Pakistan from defaulting on its foreign loans later in the year.

Abid Naqvi, head of the research team at Taurus Securities, says the IDB fund will not come in time to cover the debt repayments due in September and the authorities will have no option but to invoke the debt servicing grace period. The grace period is usually 60 to 90 days.

Pakistan faces debt repayments of $750 million in September. 'The September repayment is equivalent to the size of our current reserves. The government will not use those reserves to service the debt,' Naqvi says.

He believes Pakistan will default on the loan in four months unless there is an IMF-led rescue package. Such a plan is improbable in view of US opposition to Pakistan's nuclear tests, which have sparked Western economic sanctions.

Analysts say Pakistan's foreign exchange reserves have been hit by the sanctions as well as dwindling remittances from expatriate Pakistanis, who now send money home through unofficial channels because they get a better exchange rate.

ABN AMRO says the State Bank of Pakistan (central bank) has already delayed certain debt payments in an effort to shore up its hard currency reserves. The central bank has asked Pakistani banks to roll over commercial loans, used to finance import of petroleum and edible oils.

Officials say Pakistan faces a funding gap of $4,500 million because of the suspension of aid and commercial loans and slower private inflows as a result of the sanctions following the nuclear tests.

Analysts say Pakistan is likely to have foreign currency receipts of less than $10,000 million in the current year, enough only to finance imports of basic necessities.