Pakistan on the edge
Pakistan’s foreign exchange reserves are so low that the country can only afford one month of imports and faces possible bankruptcy.Officially, the central bank holds $8.14 billion of foreign currency, but if forward liabilities are included, the real reserves may be only $3 billion — enough to buy about 30 days of imports like oil and food. Nine months ago, Pakistan had $16 bn in the coffers. The government is engulfed by crises left behind by Pervez Musharraf, the military ruler who resigned the presidency in August. High oil prices have combined with endemic corruption and mismanagement to inflict huge damage on the economy.Given the country’s standing a frontline state in the US-led “war on terrorism”, the economic crisis has profound consequences. Pakistan already faces worsening security as the army clashes with militants in the lawless tribal areas on the north-west frontier with Afghanistan.The economic crisis has already placed the future of the new government in doubt after the transition to a civilian rule. President Asif Ali Zardari has faced numerous but unproven allegations of corruption dating from the two governments led by his wife, Benazir Bhutto, who was assassinated last December. The Wall Street Journal said that Pakistan’s economic travails were “at least in part, a crisis of confidence in him”. While Musharraf’s prime minister, Shaukat Aziz, frequently likened Pakistan to a “Tiger economy”, the former government left an economy on the brink of ruin without any durable base. The Pakistan rupee has lost more than 21% of its value so far this year and inflation now runs at 25%. The rise in world prices has driven up Pakistan’s food and oil bill by a third since 2007. Efforts to defer payment for 100,000 barrels of oil supplied every day by Saudi Arabia have not yet yielded results.
Labels: Pakistan Economy 2008