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Is Pakistan facing bankruptcy?


* IMF Middle East director encourages Pakistan to move fast but says it's their call

WASHINGTON: Pakistan will need $15 billion over the next two or three years to pull itself from its severe financial crisis, with up to $4 billion required, according to Mohsin Khan, International Monetary Fund (IMF) director for the Middle East and Central Asia, according to the Wall Street Journal.

The Associated Press in the meanwhile reported that Pakistan had decided to approach the IMF for a financial bailout.

"I would encourage them to move fast but it's their call," said Khan from Dubai where IMF and Pakistani official began a meeting on Tuesday. He said the country was not at great risk of defaulting on its debts because its only major coming commitment is a $500 million Eurobond payment due in February. But Pakistan’s foreign-exchange reserves are dangerously low, down to $7.75 billion as of October 11, down from $16.4 billion a year ago. In other words, Pakistan is only left with money enough to pay for two months of imports. While Pakistan has been hoping that the Friends of Pakistan group formed in New York will come up with cash, it is not clear if member states are willing to provide the money Pakistan needs. China has failed to announce the cash injection of $3 billion Pakistan was seeking and Saudi Arabia has yet to decide if it will come up with the much anticipated oil facility. Khan said the Pakistanis have "developed a pretty good (economic) programme of their own, which could be a good basis for requesting IMF assistance”. Fuel and electricity subsidies are to be eliminated to help bridge the fiscal deficit.

According to Shaukat Tareen, the newly-appointed financial czar, Pakistan expects to raise $1.4 billion from the World Bank, and it may raise $1.5 billion to $2 billion through an offshore bond issue backed by remittances from overseas Pakistanis. The Wall Street Journal report said an endorsement of Pakistan's economic stabilisation package by the IMF will almost certainly lead to more taxes and a further interest rate hike, at a time when the government is already doing away with subsidies on oil and electricity. The inflation in Pakistan is 25 percent and the interest rate is 13 percent. Economists recommend that real interest rate should be more than the rate of inflation in order to give better returns to depositors.

Elsewhere, former Federal Board of Revenue chairman Abdullah Yousuf said that capital gains taxes on stock market and real estate were the two major exemptions that the government had awarded. However, he added, the current capital loss in the stock market, which was also a global phenomenon, would make the condition unfavourable for withdrawing the exemption. He said the issue of tax on agriculture sector was a provincial subject and the federal government had little to do with it until and unless the constitution is amended. He said the real issues were proper documentation of the economy and proper valuation of the property and the resolution of both these issues could resolve the government's financial problems to a larger extent.
 
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its a simple solution to a complicated problem. imf loan means bad debts,instead pak reserve bank should float govt bonds that can be purchased by domestic and nri. all the money will be accounted for including the spending.tap the reserves .pak is a growing economy.investing in its future will pay rich dividends.:tup:
 
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New envoy urges US to bail out Pakistan - The Boston Globe

New envoy urges US to bail out Pakistan


WASHINGTON - With Pakistan teetering on the brink of bankruptcy, Husain Haqqani put on a powder blue tie and made his pitch. A quick infusion of US cash, he said, would ensure that Pakistan will be able to afford to keep up its expensive military operations near the Afghan border.


"All Pakistan is asking for is a bailout of $10 billion to fight terrorism" and get back on its feet, he told a packed audience recently at the Foundation for the Defense of Democracies, a Washington-based think tank.

Fleeing investors and mounting debts have become serious threats for Pakistan, along with a smoldering insurgency and a history of corruption. Now Haqqani - a former Boston University professor of international relations who became Pakistan's ambassador to the United States in May - is charged with an almost impossible task: trying to secure more funding from the already depleted coffers of the US government.

Haqqani has been an Islamic activist, a war correspondent, a savvy politician, a beloved professor, and an aide to two rival Pakistani prime ministers.

As an envoy from one of Washington's most precarious allies, Haqqani must be an opti mist against the odds. He must believe that the newly elected government he represents can clean up corruption, defeat a Taliban insurgency, survive a major financial crisis, and improve relations with the United States.

"Pakistan has many security challenges," he acknowledged. "It's tough."

Haqqani, 52, came to the United States in 2002, working as a scholar at the Carnegie Endowment for International Peace, where he helped Americans make sense of the Sept. 11 attacks. He then took a professorship at Boston University, where he remained until this year.

A former spokesman for Pakistani Prime Minister Benazir Bhutto, who was assassinated last December, Haqqani rose to prominence in February when Bhutto's party won rare democratic elections.

Haqqani's wife, a member of Pakistan's Parliament, is now spokeswoman for Bhutto's party, which is headed by Pakistani President Asif Ali Zardari, Bhutto's widower.

The election - a resounding defeat for the US-backed military leader, Pervez Musharraf - caused a sea change in US-Pakistani relations.

After Sept. 11, 2001, the United States had wholeheartedly backed Musharraf, paying about $125 million per month to Pakistan to support 100,000 Pakistani soldiers on the Afghan border. But Musharraf, who had ruled Pakistan since a 1999 military coup, became increasingly unpopular with his dictatorial moves. He also lost favor with many in the United States.

This summer, a House subcommittee uncovered evidence of graft in the more than $6 billion worth of US military aid that went to Musharraf's government.

Haqqani faces the task of rebuilding both the Pakistani image in the United States, and the US image in Pakistan, which has been tainted by the Bush administration's association with Musharraf.

"I'm the man in the middle," Haqqani said, adding that he is frequently criticized in Pakistan for being too close to the United States. "It will take a while before the average Pakistani starts trusting the Americans."

But Haqqani has gone about his work with great enthusiasm, touting Pakistan's prospects at public speeches across Washington. This summer, he gave gentle reminders to members of Congress that the alleged corruption took place under the previous government, said Representative John F. Tierney, a Salem Democrat who headed the subcommittee that investigated the graft.

Haqqani is trying to persuade the Americans to fast-track about $1 billion owed to Pakistan for its military operations from April to October, roughly half a percent of Pakistan's gross domestic product. The money has been held up by new Pentagon rules designed to improve accountability, Pakistani officials say.

The latest payment was $364.7 million in September to cover costs for military operations from December 2007 through last March, according to Lieutenant Colonel Mark Wright, a Pentagon spokesman. The Pentagon is reviewing claims for April, and seeking additional documentation for May, Wright said. No further claims have been filed.

Privately, some Pakistani officials warn that the funds must come soon, before Pakistan's economic hardships curb the military operations. But Haqqani issues a more general plea.

"If the world is willing to put the resources into Pakistan, there is no reason why Pakistan is not willing to defeat [terrorism] and become a more predictable nation," he said.

Haqqani is also seeking an additional $10 billion loan from the United States at a "Friends of Pakistan" summit in the United Arab Emirates on Nov. 17. US officials have made no commitments so far.

President-elect Barack Obama supports a plan to give Pakistan a $1.5 billion "bonus" if it remains a democratic state. But it is unclear when, or if, that money will come through.

Tierney said the current financial crisis has become a major test for Pakistan and for Haqqani.

"In the next couple of months, we will see where they are in this financial thing, how they have been able to get through this," he said. "They have to make sure that the graft and corruption that was there is not there."

In many ways, Haqqani's life mirrors changes in Pakistan itself. Born to a conservative Muslim family in Karachi, he joined Jamaat-i-islami, a powerful student movement that has since become known as a religious party with ties to militant groups.

"Coming out of a certain background, this is what you did," said Marvin Weinbaum, a former State Department specialist now at the Middle East Institute.

After getting his master's degree in international affairs, Haqqani became a journalist, covering the Afghan war against the Soviets in the 1980s. He later recounted to his students in Boston how he met Osama bin Laden at that time.

"He likes to stress he was not impressed with [bin Laden] whatsoever - never thought he would amount to anything," said Garrett Eucalitto, a BU master's degree candidate in international relations.

Haqqani soon got into politics, working for both former Pakistani prime minister Nawaz Sharif and Sharif's rival, Bhutto. After Bhutto was ousted on corruption charges, she saw democratic elections as the future of Pakistan and her own return to power, Weinbaum said.

Haqqani became one of the most outspoken voices for democracy, arguing passionately that the United States would be safer from terrorism if it let democracy bloom, rather than back military leaders.

"The average shelf life of a Pakistani dictator is a decade," he said.

At BU, Haqqani was known for never forgetting a face and using a Socratic style in his classrooms to spark debate. He routinely appeared on television as a pundit on the war on terrorism, but was always available for office hours, students said.

"Almost every day there'd be a least three or four students sitting outside his office, and one or two sitting inside," said Aparna Pande, a doctoral candidate whose thesis is still being overseen by Haqqani. "He was like a star and yet someone they could approach."

As a professor, Haqqani cultivated political connections that now served him well.

He helped Representative William D. Delahunt, a Quincy Democrat, hold a town hall meeting for residents of Cape Cod about the Iraq war.

In the summer of 2007, President Bush invited him to the White House with other Muslim scholars to give advice on how to improve the US image in the Muslim world.

But he also maintained ties with an aide to Obama. This summer, Haqqani attended the Democratic National Convention and joined a meeting between Obama and the new Pakistani prime minister.

"Ambassador Haqqani is a hero of Pakistan's struggle for democracy," said Bruce Riedel, a former CIA officer who advises Obama on Pakistan. "Haqqani's message . . . is one that the senator understands very well."
 
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