Is Pakistan facing bankruptcy?

[AgNoStiC MuSliM]

AM, sorry but I can't help thinking it to be another validation of my post.

BTW, Muse made an excellent post about the same points that you bring up here.

http://www.defence.pk/forums/strate...383-basket-case-reality-bites.html#post208848

I fail to see how it is a validation of the 'point' you made, which quite honestly is itself akin to setting up a strawman, so do expound upon why you think so beyond LOL simileys.

The way I see your post, you generalize and speculate erroneously that most Pakistanis on this forum were expecting unfettered aid from China, and when that did not materialize, they started criticizing the GoP on why it was responsible for not getting that aid.

Almost every premise in that argument is flawed. Starting from the last one, the majority of the posters on this forum have been highly critical and distrustful of the Zardari led government from day one. Shireen Mazari's analysis has found a lot of support during this time, in which she argued that the current GoP was neglecting China through a whole range of policy decisions, and that was tantamount to realigning Pakistan strategically with a historically far more fickle partner; the US.

So criticism of Zardari and this GoP in that light is not something new.

Secondly, I am not really aware of, in private conversations and on the forum, of many senior posters expecting China to extend any major 'aid' to Pakistan. Again, that hypothesis has been advanced by you and you have self validated it, and are now patting yourself on the back over an exercise that is all you.

 

[Vinod2070]

AM, OK let me step back and explain myself.

I do agree that you wanted the Biden bill to come with strings attached along the lines you mentioned here. But my post was only about the adjectives that are always thrown about this "friendship".

Lets say, you have a best friend who has a domestic problem with his family and your friendship is truly extraordinary. That friend runs into financial difficulties which threaten him with loss of face and many domestic problem and he comes to you expecting support.

Is that the time when you give him all the "Gyan" about how he should resolve his domestic problems first and you refuse to come to his aid citing the due diligence that his home is going to break? Is that what friendship is about?

A real friend would advise his friend even when the going is good and his help will be without strings.

And yes, most members on this forum do expect China to even go to war over Pakistan and take "panga" with the whole world, the small financial help would be a given for them. I don't think you personally belong to that group.

 

[Humanoid]

More bad news..


http://www.marketwatch.com/news/story/pakistan-reported-nearing-default-seek/story.aspx?guid={E84C5A75-9C7F-495E-96DE-1CEEF32A8C60}&dist=TNMostRead


After failing to get help from China, Pakistan may need to turn to the International Monetary Fund -- a politically unpopular move -- for cash to bolster its economy and avoid defaulting on its debt obligations, according to news reports Sunday.
The country, perceived as one of the world's riskiest borrowers, may need as much as $6 billion to boost its foreign-currency reserves, which fell more than 74% in the past year to about $4.3 billion, according to a Bloomberg News report.
The next interest payment for Pakistan on its dollar-denominated bonds is due in December, and the government is scheduled to repay $500 million in February on a 6.75% note, the report said.
Pakistan's President Asif Ali Zardari returned from China late Friday failing to secure a cash commitment from its neighbor, the New York Times reported.
China had been seen as a last resort before Pakistan turns to the IMF, the Times report said. Saudi Arabia, another of the country's traditional ally, refused earlier to offer concessions on oil, it said.
Receiving help from IMF would be seen as humiliating for Zardari's government, which took office this year, as help from the world lender would require his government to cut spending and raise taxes, moves that Pakistan officials said could hurt the nation's poor, the report said

 

[AgNoStiC MuSliM]

Humanoid:

'Bad news' depends upon what the conditions associated with the IMF bailout are.

 

[AgNoStiC MuSliM]

AM, OK let me step back and explain myself.

I do agree that you wanted the Biden bill to come with strings attached along the lines you mentioned here. But my post was only about the adjectives that are always thrown about this "friendship".

Lets say, you have a best friend who has a domestic problem with his family and your friendship is truly extraordinary. That friend runs into financial difficulties which threaten him with loss of face and many domestic problem and he comes to you expecting support.

Is that the time when you give him all the "Gyan" about how he should resolve his domestic problems first and you refuse to come to his aid citing the due diligence that his home is going to break? Is that what friendship is about?

A real friend would advise his friend even when the going is good and his help will be without strings.

And yes, most members on this forum do expect China to even go to war over Pakistan and take "panga" with the whole world, the small financial help would be a given for them. I don't think you personally belong to that group.

Vinod:

Lets stop with this generalization and stereotyping of Pakistanis.

Its "they think themselves Arabs', 'they want to replicate the barbaric acts of Islamic conquerors', 'they all expect China to go to war with them'. Do you see how you continuously just ridicule and stereotype Pakistanis?

Merely pointing out every time that "you are not one of them' does not make it less insulting.

If there are specific posters who are making tall claims of China going to war for Pakistan, by all means rub it in their faces, but by generalizing your comments to "Pakistanis', they come across as being directed at all of us.

 

[Vinod2070]

I think you brought the context of some other discussion here.

This was purely about why Chinese didn't come to Pakistan's help and why Pakistanis are trying to justify that.

Nothing to do with Islamic conquerors. Pl. take some time and read the post again in its own context only.

 

[AgNoStiC MuSliM]

I think you brought the context of some other discussion here.

This was purely about why Chinese didn't come to Pakistan's help and why Pakistanis are trying to justify that.

Nothing to do with Islamic conquerors. Pl. take some time and read the post again in its own context only.

I am referring to a trend in your posts.

 

[Vinod2070]

AM, I am sorry if I have been a bit negative in my last posts.

I think some of it may have been mostly because I was replying to highly negative posts about India and Hinduism. I think I never ridicule Pakistan or its society starting on my own. It is only for the cases when people ridicule India or my religion.

 

[BanglaBhoot]

Pakistan facing bankruptcy as world financial crisis deepens

By Vilani Peiris

WSWS - 20 October 2008

Wracked by political instability and hard hit by the global economic crisis, Pakistan is teetering on the brink of default. The country’s foreign reserves have dwindled to around $4.5 billion, equivalent to about six weeks of imports, foreign investors have fled the country in droves and the rupee has fallen sharply. The international credit rating agency, Standard & Poor’s, has downgraded Pakistan to a position superior only to the Seychelles, which has already defaulted.

The government is desperately seeking an infusion of up to $10 billion to shore up the country’s finances. It had been hoping for assistance from longtime ally China, but President Asif Ali Zardari returned from Beijing last Friday without any commitment of cash. Another traditional ally, Saudi Arabia, has refused to provide financial concessions on oil exports to Pakistan.

As a final option, Pakistan may be forced to apply to the IMF for assistance. Such a step would certainly come with unpalatable strings attached that would hit the poor and provoke further unrest. Shaukat Tarin, financial adviser to the prime minister, told Bloomberg.com that he would write to the IMF in three to four weeks if Pakistan is unable to obtain funds from other agencies and allies.

Tarin said that Pakistan had already presented its economic stabilisation plan to the IMF which included an end to price subsidies, tighter monetary policy and plans to slash the budget deficit. Such austerity measures will lead to further prices rises and cutbacks to the country’s limited social spending. A Pakistani delegation is due to meet IMF officials in Dubai today and tomorrow.

The impact of any financial implosion would certainly compound the country’s political crisis which is already being intensified by US demands for the Pakistani army to step up its war on Islamist militias along the border with Afghanistan. Its support for the bogus “war on terror” has been transformed into an argument for financial aid. As a Pakistani official explained to the New York Times: “A selling point to us even has been, if the economy really collapses this is going to mean civil strife and strikes, and put the war on terror in jeopardy.”

A top secret National Intelligence Estimate (NIE) drafted by US intelligence agencies and leaked to the media last week, summed up the situation in Pakistan as “no money, no energy, no government”. According to McClatchy newspapers, the NIE warned that the government was facing an accelerating economic crisis that includes food and energy shortages, escalating fuel costs, a sinking currency and a massive flight of foreign capital accelerated by an escalating insurgency.

Just two years ago, economic commentators were describing Pakistan as a success story under former military strongman President Pervez Musharraf and speculated that it would be the “next Asian Tiger”. But the situation dramatically changed after Musharraf was compelled to call elections. His party suffered a humiliating defeat in February and he was finally forced to step down as president in August. The ruling coalition led by President Zardari’s Pakistan People’s Party (PPP) is already confronting mass resentment over the continuing war in the border areas and a worsening social turmoil.

The political crisis has contributed to a huge exodus of foreign capital and exacerbated the country’s economic problems. As much as $1.2 billion a month was fleeing Pakistan in the northern summer. The rupee has slumped by more than 30 percent against the US dollar since the beginning of the year and share prices have crashed by 40 percent since their all-time high in April.

The country’s plight was graphically symbolised by scenes outside the Karachi stock exchange last Monday. With trading at an all-time low, police surrounded the building to keep angry investors at bay. Chairman of the Small Investors Association, Kayusar Qaimkhani, told the media: “There are no longer small investors left in the stock market, they have all been destroyed.” On July 16, angry investors chanted anti-government slogans and stoned the stock exchange.

The stock market is virtually dysfunctional. When the index fell another 286 points or 3 percent on August 27, the exchange authorities imposed a floor of 9,144 to prevent it plunging further. Since then trading has declined to record lows with a flight from shares that are regarded as overpriced. The floor is due to be removed on October 27, with analysts predicting sharp falls as foreign investors dump an estimated 20 percent of their equities. Foreign investment in equities has already dropped from $4.8 billion to $2 billion since the beginning of the year.

The Daily Times warned on October 14: “The recent decline in the Pakistan stock market suggests that the bubble has burst and experts fear that this is likely to spread to the real estate market, which like the stock market is ‘irrationally overpriced’.”

Global crisis

Market analyst Muhammad Suhail told the Los Angeles Times last week: “The global crisis has really added fuel to the fire. There was a time window earlier this year to address all this, and we missed it.” The drying up of credit internationally has hit Pakistan hard with the banking system suffering a severe liquidity problem this month. Overnight call rates rose to high levels ranging from 32 to 40 percent, despite the injection of 54 billion rupees into the financial system by the central bank.

A Newsweek article entitled “Can Pakistan Stay Afloat” on October 10 described the chaotic situation inside Pakistan. “This time it wasn’t the terrorist scare making Pakistanis nervous. Depositors thronged banks over the past few days to retrieve cash and valuables. Rumours that the government was on the verge of seizing bank lockers and foreign-currency accounts to rescue its deteriorating financial position had been popping up on cell phones.” The panic was temporarily laid to rest by the appointment of Shaukat Tarin, a former banker, as the new financial adviser.

Describing the mounting public hostility, Newsweek explained: “[T]he Zardari-led coalition government, already besieged by political rivals and insurgent groups, has had to take unpopular measures to prop up the economy. It has raised taxes, upsetting the business community. It has trimmed government spending, prompting bureaucrats to grumble. It has increased tariffs on power, angering consumers and businesses already fed up with outages. And it has phased out subsidies on imported fuel, leading to price increases for everything from bus rides to cooking oil and prompting small, periodic protests.”

Pakistan is heavily indebted with foreign debts standing at $44.5 billion. The Pakistani Dawn reported this month that the country’s domestic and foreign borrowing rose by 100 percent in the past three months, reaching $2.21 billion—compared to $1 billion for the same period last year. Loan repayments are contributing to the government’s large budget deficit.

Economic growth is slowing sharply. The IMF’s World Economic Outlook report released last week predicted that Pakistan’s GDP would decline to 3.5 percent for the next fiscal year beginning in July 2009—down from 5.8 percent for 2007-2008 and an estimated 5.4 percent for 2008-2009. “The main concern is a build up of stress in the global financial system and a sharper than anticipated global slowdown,” the report stated.

Ordinary working people are already being affected by inflation that is running at nearly 25 percent on average. The inflation figure measured by the sensitive price index (SPI) reached 30 percent in the week ending October 9. Sharp increases have been reported for essential items such as flour, sugar and transport. Worst hit are the poor. According to the SPI figures, inflation was 33 percent for household groups with incomes less than 3,000 rupees.

The government estimates that about 25 percent of the population of 169 million is living below the poverty line of $1 a day, but other sources put the figure far higher. An Oxfam report released this month estimated that “the number of poor in the country has risen from 60 to 77 million because of food inflation”. It found that the poorest 20 percent spent 50 to 58 percent of their income just to buy cereals.

The government has announced a cosmetic welfare program, known as the Benazir Income Support Program, to attempt to quell popular anger, but has already slashed the allocation from 50 to 34 billion rupees even before the scheme has started. Its main efforts have been directed towards securing financial aid, propping up the banking system and wooing foreign investors with bigger tax holidays at the expense of working people. Even if Pakistan avoids default, the country confronts a rapidly deepening economic and political crisis.

http://www.wsws.org/articles/2008/oct2008/****-o20.shtml

 

[Imran Khan]

AM, I am sorry if I have been a bit negative in my last posts.

I think some of it may have been mostly because I was replying to highly negative posts about India and Hinduism. I think I never ridicule Pakistan or its society starting on my own. It is only for the cases when people ridicule India or my religion.

i know always you think positave react good i hope you stay with us

 

[Vinod2070]

^^ Thx. mate.

 

[batmannow]

Pakistan facing bankruptcy as world financial crisis deepens

By Vilani Peiris

WSWS - 20 October 2008

Wracked by political instability and hard hit by the global economic crisis, Pakistan is teetering on the brink of default. The country’s foreign reserves have dwindled to around $4.5 billion, equivalent to about six weeks of imports, foreign investors have fled the country in droves and the rupee has fallen sharply. The international credit rating agency, Standard & Poor’s, has downgraded Pakistan to a position superior only to the Seychelles, which has already defaulted.

The government is desperately seeking an infusion of up to $10 billion to shore up the country’s finances. It had been hoping for assistance from longtime ally China, but President Asif Ali Zardari returned from Beijing last Friday without any commitment of cash. Another traditional ally, Saudi Arabia, has refused to provide financial concessions on oil exports to Pakistan.

As a final option, Pakistan may be forced to apply to the IMF for assistance. Such a step would certainly come with unpalatable strings attached that would hit the poor and provoke further unrest. Shaukat Tarin, financial adviser to the prime minister, told Bloomberg.com that he would write to the IMF in three to four weeks if Pakistan is unable to obtain funds from other agencies and allies.

Tarin said that Pakistan had already presented its economic stabilisation plan to the IMF which included an end to price subsidies, tighter monetary policy and plans to slash the budget deficit. Such austerity measures will lead to further prices rises and cutbacks to the country’s limited social spending. A Pakistani delegation is due to meet IMF officials in Dubai today and tomorrow.

The impact of any financial implosion would certainly compound the country’s political crisis which is already being intensified by US demands for the Pakistani army to step up its war on Islamist militias along the border with Afghanistan. Its support for the bogus “war on terror” has been transformed into an argument for financial aid. As a Pakistani official explained to the New York Times: “A selling point to us even has been, if the economy really collapses this is going to mean civil strife and strikes, and put the war on terror in jeopardy.”

A top secret National Intelligence Estimate (NIE) drafted by US intelligence agencies and leaked to the media last week, summed up the situation in Pakistan as “no money, no energy, no government”. According to McClatchy newspapers, the NIE warned that the government was facing an accelerating economic crisis that includes food and energy shortages, escalating fuel costs, a sinking currency and a massive flight of foreign capital accelerated by an escalating insurgency.

Just two years ago, economic commentators were describing Pakistan as a success story under former military strongman President Pervez Musharraf and speculated that it would be the “next Asian Tiger”. But the situation dramatically changed after Musharraf was compelled to call elections. His party suffered a humiliating defeat in February and he was finally forced to step down as president in August. The ruling coalition led by President Zardari’s Pakistan People’s Party (PPP) is already confronting mass resentment over the continuing war in the border areas and a worsening social turmoil.

The political crisis has contributed to a huge exodus of foreign capital and exacerbated the country’s economic problems. As much as $1.2 billion a month was fleeing Pakistan in the northern summer. The rupee has slumped by more than 30 percent against the US dollar since the beginning of the year and share prices have crashed by 40 percent since their all-time high in April.

The country’s plight was graphically symbolised by scenes outside the Karachi stock exchange last Monday. With trading at an all-time low, police surrounded the building to keep angry investors at bay. Chairman of the Small Investors Association, Kayusar Qaimkhani, told the media: “There are no longer small investors left in the stock market, they have all been destroyed.” On July 16, angry investors chanted anti-government slogans and stoned the stock exchange.

The stock market is virtually dysfunctional. When the index fell another 286 points or 3 percent on August 27, the exchange authorities imposed a floor of 9,144 to prevent it plunging further. Since then trading has declined to record lows with a flight from shares that are regarded as overpriced. The floor is due to be removed on October 27, with analysts predicting sharp falls as foreign investors dump an estimated 20 percent of their equities. Foreign investment in equities has already dropped from $4.8 billion to $2 billion since the beginning of the year.

The Daily Times warned on October 14: “The recent decline in the Pakistan stock market suggests that the bubble has burst and experts fear that this is likely to spread to the real estate market, which like the stock market is ‘irrationally overpriced’.”

Global crisis

Market analyst Muhammad Suhail told the Los Angeles Times last week: “The global crisis has really added fuel to the fire. There was a time window earlier this year to address all this, and we missed it.” The drying up of credit internationally has hit Pakistan hard with the banking system suffering a severe liquidity problem this month. Overnight call rates rose to high levels ranging from 32 to 40 percent, despite the injection of 54 billion rupees into the financial system by the central bank.

A Newsweek article entitled “Can Pakistan Stay Afloat” on October 10 described the chaotic situation inside Pakistan. “This time it wasn’t the terrorist scare making Pakistanis nervous. Depositors thronged banks over the past few days to retrieve cash and valuables. Rumours that the government was on the verge of seizing bank lockers and foreign-currency accounts to rescue its deteriorating financial position had been popping up on cell phones.” The panic was temporarily laid to rest by the appointment of Shaukat Tarin, a former banker, as the new financial adviser.

Describing the mounting public hostility, Newsweek explained: “[T]he Zardari-led coalition government, already besieged by political rivals and insurgent groups, has had to take unpopular measures to prop up the economy. It has raised taxes, upsetting the business community. It has trimmed government spending, prompting bureaucrats to grumble. It has increased tariffs on power, angering consumers and businesses already fed up with outages. And it has phased out subsidies on imported fuel, leading to price increases for everything from bus rides to cooking oil and prompting small, periodic protests.”

Pakistan is heavily indebted with foreign debts standing at $44.5 billion. The Pakistani Dawn reported this month that the country’s domestic and foreign borrowing rose by 100 percent in the past three months, reaching $2.21 billion—compared to $1 billion for the same period last year. Loan repayments are contributing to the government’s large budget deficit.

Economic growth is slowing sharply. The IMF’s World Economic Outlook report released last week predicted that Pakistan’s GDP would decline to 3.5 percent for the next fiscal year beginning in July 2009—down from 5.8 percent for 2007-2008 and an estimated 5.4 percent for 2008-2009. “The main concern is a build up of stress in the global financial system and a sharper than anticipated global slowdown,” the report stated.

Ordinary working people are already being affected by inflation that is running at nearly 25 percent on average. The inflation figure measured by the sensitive price index (SPI) reached 30 percent in the week ending October 9. Sharp increases have been reported for essential items such as flour, sugar and transport. Worst hit are the poor. According to the SPI figures, inflation was 33 percent for household groups with incomes less than 3,000 rupees.

The government estimates that about 25 percent of the population of 169 million is living below the poverty line of $1 a day, but other sources put the figure far higher. An Oxfam report released this month estimated that “the number of poor in the country has risen from 60 to 77 million because of food inflation”. It found that the poorest 20 percent spent 50 to 58 percent of their income just to buy cereals.

The government has announced a cosmetic welfare program, known as the Benazir Income Support Program, to attempt to quell popular anger, but has already slashed the allocation from 50 to 34 billion rupees even before the scheme has started. Its main efforts have been directed towards securing financial aid, propping up the banking system and wooing foreign investors with bigger tax holidays at the expense of working people. Even if Pakistan avoids default, the country confronts a rapidly deepening economic and political crisis.

http://www.wsws.org/articles/2008/oct2008/****-o20.shtml

Beijing assures Pakistan of financial support
By Farhan Bokhari in Islamabad and Mure Dickie in Beijing

Published: October 16 2008 23:10 | Last updated: October 16 2008 23:10

China has assured Pakistan it will not allow its south Asian ally to be forced to default on upcoming international debt payments, according to Pakistani officials.

Such a pledge would offer a potentially crucial boost to Pakistan, which faces a $10bn (€7.5bn, £5.8bn) gap in external financing in the financial year to June 2009, amid a falling currency and declining liquid foreign currency reserves.

One senior Pakistani government official said Beijing’s backing “begins with $500m with the promise to go upwards”.

Asif Ali Zardari, Pakistan’s president, is visiting Beijing. A second Pakistani official said Mr Zardari had been assured by Chinese leaders of their determination “to not let Pakistan default on repayments”.

“The message from Beijing was strong, precise and reassuring to our side,” the second official said.

Chinese foreign ministry officials on Thursday repeatedly declined to comment on whether Beijing had promised any financial assistance or signed an agreement sought by Islamabad on expanded co-operation on nuclear power.

In a meeting on Thursday, Wen Jiabao, Chinese president, assured Mr Zardari that Beijing would “continue to offer all possible assistance to help Pakistan overcome its current economic difficulties and strengthen its self-development capacity”, Chinese state media said, but gave no details of what assistance China was ready to offer.

Any commitment to large scale assistance to Pakistan would be likely to prompt other nations threatened by the widening impact of the global financial crisis to step up efforts to win Chinese support.

It could also increase pressure on Beijing to take part in any international effort to make emergency funds available to the crisis-hit economies. A number of Pakistan’s economic indicators such as the level of liquid foreign currency reserves and the exchange rate of the rupee versus the US dollar, have recently deteriorated, prompting widespread worries over its economic prospects.

China has more than $1,900bn in foreign exchange reserves. However, some Chinese scholars have said that the level of support that Beijing can give Pakistan and other nations is limited, since China remains a developing country with widespread domestic poverty and huge developmental challenges.

While Beijing has been publicly reticent about how willing it might be to shore up Pakistan’s financial position with soft loans, the two Asian neighbours and long-time allies have signed a raft of agreements during Mr Zardari’s visit.

The deals include expansion of a trade agreement, co-operation on environmental protection and plans for China to build and launch a communications satellite for Pakistan.

Islamabad also yearns to seal a formal pact expanding co-operation with Beijing on the development of Pakistan’s nuclear power industry, but Chinese officials on Thursday declined to comment on whether such a deal had already been signed or would be in the future.

●Singapore and Malaysia on Thursday pledged to guarantee all local and foreign currency bank deposits, joining governments across the world in shoring up confidence in the embattled banking system.

The neighbouring south-east Asian countries announced within minutes of each other they would guarantee bank deposits until December 2010.

Meanwhile, Susilo Bambang Yudhoyono, the president of Indonesia, on Thursday added to calls for the south-east Asian nations to hold a summit in Beijing next week to discuss a coherent response to, and measures to deal with, the global financial crisis.
Copyright The Financial Times Limited 2008

 

[Neo]

Pakistan Faces Default on Its Huge Foreign Debt​

A balance-of-payments crisis looms as the country's foreign exchange reserves drop 75%, thanks to the plunging rupee and soaring oil prices

Pakistani stockbrokers work during a trading session at the Karachi Stock Exchange (KSE) in Karachi on October 16, 2008. The benchmark KSE-100-Index closed at 9184.24, at the end of the day. RIZWAN TABASSUM/AFP/Getty Images

By Mehul Srivastava and Frederik Balfour

Starting a few months ago, the $24 million import bill for Pakistan's Conductor & Cables, a Lahore-based steel business that employs 300 workers, became a drain on the country's most precious resource—the U.S. dollar. As the global credit crisis has intensified and Pakistan has steadily seen its foreign reserves dwindle, privately held Conductor & Cables is facing its toughest challenge yet. In an attempt to preserve its foreign exchange, the Pakistani government has told importers they must provide for one-third of their import bill in cash before a bank can issue letters of credit. As a result, Chief Executive Muhammad Imran Khan's imports are down by 50%. "My company is in a pretty deep crisis right now," he says. "But so is the country."

This is what it feels like when a country faces bankruptcy. The electricity goes out for as much as 12 hours a day, the gasoline lines get longer, and depositors rush to banks to pull out their meager savings. After weeks of begging in vain for help from the international community, Pakistan's foreign exchange reserves have dropped to just $4.3 billion, down nearly 75% in the past year because of soaring prices for commodities, particularly oil, which accounts for about one-third of imports. The country presently has only enough cash to pay for about 45 days of imports at current rates. And the rupee has lost about 25% so far this year. Unlike Iceland, whose economy collapsed (BusinessWeek.com, 10/9/08) as a direct result of the global credit crunch, Pakistan's problems are largely homegrown. Indeed, its banks are well capitalized and did not get caught up buying fancy debt securities linked to the U.S. housing market.

Raging Inflation

Already the country has cut its oil imports so it holds no more than 10 days' supply at any given time. Inflation is raging at more than 24%, and for the first time in a decade, Pakistan's economic growth this year will drop below 5%, according to economists' estimates, compared with 6.5% last year. For the $146 billion economy in Pakistan, a mainstay in the Bush Administration's war on terror, the crisis could not have come at a worse time. Since 2001 the U.S., Pakistan's traditional ally, has given the country as much as $10 billion in military aid.

With the global economic system already in shock, were Pakistan to default on its massive foreign debt obligations—which it has done before—the impact would be painful. At the same time, the West needs Pakistan's newly elected civilian government to remain stable: Pakistan's nuclear arsenal was never completely secure in the best of times, and now, with an increased offensive by the Taliban in Peshawar, the biggest Pakistani city near the border with Afghanistan, Pakistan's role in the global war on terror has never been more important.

With global arteries of credit still constricted, Pakistan's already toxic debt—rated the second-worst in the world by Standard & Poor's—makes it impossible for the country to get bridge loans to make partial payments on outstanding loans. Just this past week, Pakistani President Asif Ali Zardari used his first state visit to China to ask for a loan to Pakistan's central bank, reported by Chinese media to be as large as $2 billion. China said no, but offered to increase bilateral trade and will consider building two nuclear reactors in the country.

Huge Debt Burden

Pakistan's debt burden is significant. It has nearly $3 billion in commercial foreign debt and $38 billion in concessionary loans from the International Monetary Fund and the Paris Club, an informal lending group of about 20 countries, according to an estimate by Credit Suisse (CS) analyst Farid Khan. Payments on dollar-denominated bonds continue, but in February a $500 million bond comes due, bringing debt servicing costs for 2008 to more than $3 billion, according to a government estimate.

"The option of defaulting on those loans has never even been seriously considered," says Sakib Sherani, chief economist for the Royal Bank of Scotland (RBS) in Pakistan and an adviser to the government. "But even if they don't have the willingness to default, that doesn't mean it couldn't happen."

Just to keep afloat, Pakistan's recently appointed financial adviser to the Prime Minister, Shaukat Tarin, has asked the World Bank, the Asian Development Bank, and other lenders for just under $4 billion in loans.

And then there's the measure of last resort—the International Monetary Fund, which is likely to impose strict tariff reductions in exchange for the loans. It's not a pleasant option for Pakistan, which has tried for decades to be free of the IMF's influence. Already, a team from Pakistan has been meeting with the IMF in Washington. "We don't have the luxury of foreign exchange reserves to prolong negotiations by a few months," says Sherani. "So the closer [Pakistan] gets to running out of foreign exchange, the likelihood of turning to the IMF gets stronger."

IMF: "Plan C"

Pakistan hopes things don't come to that—newly appointed Finance Minister Shaukat Tarin has referred to the IMF as "Plan C"—and is waiting for a conference later this month in Abu Dhabi with an informal group called the Friends of Pakistan to see if soft loans or delayed oil payments to its Middle Eastern allies could buy it some breathing space.

But the crisis's impact on Pakistan's real economy, which was already reeling from a 60% increase in oil prices since the beginning of the year and inflation at a 30-year high, has been severe. Last year it was the star performer among Asia's indexes, but for now the Karachi Stock Exchange is in complete paralysis. On Aug. 27 the exchange introduced a circuit breaker that prevents prices from falling. Trade, which had already halved by 50% from January to May, to about 150 million shares a day, has dwindled to a few thousand per day.

"We were faced with a problem of sharply depreciating currency. We had investors panicking, very thin volumes, and the market was falling again," say KSE president Adnan Afridi. "So [in August] we put in the much-talked-about floor."

Afridi plans to remove the floor on Oct. 27. Investors are bracing for a nearly 20% drop, and the government is planning to provide a backstop by selling a put option to foreign investors that would limit their downside losses. "In the backdrop of what's happening globally, with local banks under a lot of liquidity pressure, it [was] probably not a bad thing to freeze things for a while," says Credit Suisse's Khan. "But the sooner they remove the planks from beneath the floor and let the market forces determine the fair level, the better it will be."

Inside Pakistan, though, the situation is seen as just another crisis in a year during which Pakistan People's Party leader Benazir Bhutto was assassinated, military dictator Pervez Musharraf resigned, the country's first civilian government in seven years took office, and terrorists have launched major attacks. Says Shamim Ahmed Shamsi, the head of the Lahore Chamber of Commerce: "Basically, what we need is a short-term measure so that things can return to some sort of 'normalcy,' even with a little bit of short-term borrowing."

Restored confidence in the stock market—and the entire economy—may come soon via foreign aid, especially if this economic crisis distracts Pakistan's leaders for too long from the conflict right on its border with Afghanistan. As Zardari never tires of reminding the world, Pakistan is on the front lines of the war on terror. Indeed, U.S. Assistant Secretary of State Richard Boucher arrived in the country over the weekend, and a series of missile and artillery attacks claimed to have killed several insurgents near the border with Afghanistan. "Pakistan really is a problem, but they will definitely get assistance from the U.S. and Europe because of this al Qaeda thing," says Mark Mobius, executive chairman of Templeton Asset Management, who invests exclusively in emerging markets. "I'm not too worried about it."

 

[waraich66]

KSC ,WAPDA and ARMY have to pay 6 bill rupees to PSO.

Country biggest institutions dont have money to pay their bills ,what you expect in this satuation any thing can happen any time.

Worst thing is pakistan army is badly involved in battle with talaban in NWFP .

I think minimum 1 bill Rupees pakistan is spending per day.If this war will prolong for one year .From where we pay 360 bill rupees.

My estimate is based on 7 weeks of gargil war in which pakistan spent approx. 50 bill rupees @ 1billion per day.
Thank Gen Mush (agentUSA .Rtd.)

I sugest following three step for servival.

Pakistan can only servive if they stop war in NWFP.

Pakistanis should also stop converting rupees to dollar.

Zardar is main danger want he is thinking God know or those who elected him .

 

[dr.umer]

US vows support for Pakistan in overcoming economic challenge ​

WASHINGTON, Oct 21 (APP): The United States on Monday vowed cooperation with Pakistan in overcoming its immediate economic challenges, saying its top official for South Asia was holding talks with Pakistani leaders in Islamabad on how Washington could assist the country through its financial crunch phase. “We will look at ways we can try to help Pakistan, you know, get through this crisis --- Assistant Secretary (Richard ) Boucher, while there, was taking a good look and talking to Pakistanis about how we might be able to support them,”State Department Deputy Spokesman Robert Wood said.

He told daily briefing that Assistant Secretary of State for South Asia Richard Boucher’s current visit to Pakistan is part of regional consultations that”we have with Pakistani officials.”

Boucher’s discussion with Pakistani leaders, he stated, focused on” counterterrorism, the situation in the tribal areas, Pakistan’s economic situation and how we can provide support to Pakistan as it goes through these difficult times.”

Wood said Boucher also participated in a Friends of Pakistan co-chairs meeting in Islamabad which was attended by ambassadors from other member countries of the group as well.

However, the deputy spokesman said he could not at this point lay out any specifics of how Washington would help Pakistan in easing its economic problems.

“But obviously the situation there is of great concern, not just to us but obviously to the Pakistanis. And so we will look at ways we can try to help Pakistan, you know, get through this crisis.”