Pakistan faces bankruptcy
October 8, 2008
Officially, State 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, according to a report published in The Daily Telegraph on Tuesday.
Nine months ago, Pakistan had $16 billion in the coffers. The government is engulfed by crises left behind by former president Pervez Musharraf. High oil prices have combined with endemic corruption and mismanagement to inflict huge damage on the economy.Given the country''s standing as 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 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 Benazir Bhutto.
The Wall Street Journal said that Pakistan''s economic travails were "at least in part, a crisis of confidence in him".
The Pakistan rupee has lost more than 21 per cent of its value so far this year and inflation now runs at 25 per cent. 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, while the government has also failed to raise loans on favourable terms from "friendly countries".
Mr Zardari told the Wall Street Journal that Pakistan needed a bail out worth $100 billion from the international community.
The ratings agency Standard and Poor''s has given Pakistan''s sovereign debt a grade of CCC +, which stands only a few notches above the default level.
The agency gave warning that Pakistan may be unable to cover about $3 billion in upcoming debt payments.
Mr Zardari is expected to ask the international community for a rescue package at a meeting in Abu Dhabi next month.
This gathering will determine whether the West is willing to bail out Pakistan.
Delegation to US for $10 billion aid
The Post Monitoring
LAHORE: The government is likely to send a delegation to the US next week as it seeks $10 billion in emergency assistance to avoid defaulting on its debt, Bloomberg reported on Tuesday. The government is also expected to meet with the Friends of Pakistan Group in the United Arab Emirates soon, Nasir Jamal, a spokesman for the Finance Ministry, said in a telephone interview. The group, which met in New York on September 26, includes the US, UK, China, Saudi Arabia and UAE. The spokesman did not say who would lead the delegation to the US.
"About $8 billion to $10 billion over 18 months is all we need to get out of this based on our own momentum," said Syed Ali Raza, president of National Bank of Pakistan.
Pakistan''s balance of payments deficit increased six-fold to $2.5 billion in the first two months of the fiscal year that started July 1 and the current account deficit reached 1.6 percent of the $150 billion gross domestic product, S&P said.
The rupee fell to a record low of 78.48 to the US dollar Tuesday.
S&P reduced Pakistan''s long-term foreign-currency rating to CCC+ with a negative outlook, above only the Seychelles, rated selective default, according to data compiled by Bloomberg.
In return for support in the fight against al-Qaeda, the Bush administration pumped $10 billion into Pakistan, much of it military aid, and wrote off debt to help turn the economy around.
Pakistan Bankruptcy
Source: Associated Press of Pakistan
ISLAMABAD, Oct 8 (APP): Advisor to Prime Minister on Finance Shaukat Tareen Wednesday said that notions about the bankruptcy of Pakistan are baseless and the government is neither going to seal bank lockers nor freezing foreign currency accounts. In an exclusive interview with APP after taking charge as Advisor to Prime Minister on Finance, Shaukat Tareen said the government would enhance the confidence of investors through concrete measures and alleviation of poverty would be among the topmost priorities.
The Advisor said that he would come up to the expectations of President Asif Ali Zardari who reposed confidence in his abilities and handed over this great responsibility.
Shaukat Tareen said the government would devise a special strategy to alleviate poverty from the country and would increase annual growth rate by promoting agriculture and industry, adding that special measures would be taken to promote our agricultural sector.
He said the new strategy would keep special focus on increasing national exports and decreasing imports by enhancing dependence on the domestic products to save more foreign reserves.
“We can afford decline in annual economic growth rate but not increase in national imports,” he added.
He said on his return from the US visit, he would help restore the confidence of the investors to assure them that the economic reforms would continue and no basic change would be made in the economic policies of the country.
He said not only the local, but also the foreign investors would be taken into confidence to establish the fact that the government is business-friendly.
“The government is striving to resolve all the issues confronting the local industry and it would welcome the positive suggestions and recommendation from the business community in this regard,” he added.
The Advisor said that Pakistan was not facing that financial crisis like some other countries because our banking system is on sound footing. However, there is lack of confidence and the major issue is the deficiency of the capital, which would be resolved through effective policies being formulated by the government.
Shaukat Tareen said the constant depreciation of the rupee value was the result of the wrong economic policies of the previous government, which he said, “maintained artificial parity of dollar between Rs60 to 62 which proved a suicide for national economy.”
He said the rumors in the market also depreciated the rupee value but hoped that the situation would come to normalcy within four to six weeks as rupee is regaining its value, adding that it seemed difficult that rupee-dollar parity comes to its old value.
Shaukat Tareen said the decreasing trend of oil prices in international market would bring positive effects in domestic market and reduce our import bill.
He said though there are some economic challenges confronting the country, the situation is not out of control and “I am sure that the situation would improve within few days.”
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