Pakistan is passing through extreme difficult times and is on the verge of bankruptcy if foreign exchange reserves and inflation are any indicators. At the end of the first week of October’2008, the FE reserves of Pakistan stands at a paltry $8 billion and inflation at a whopping 25%, compared to the corresponding figures of $284bn of FE reserves and 11.5% inflation in the case of India.
Even this amount is not available for footing import bills of Pakistan, as after adjusting forward liabilities, the amount available in absolute terms is only $3bn, just enough for buying about six weeks of oil and food requirement. Coupled with this are the unsustainable budget deficit and the resultant governmental borrowings from the Pakistan’s Central Bank. The borrowings has squeezed liquidity in the banking system.
Even the Pakistani currency has gone on tailspin in recent years, the Pakistani Rupee quoted at Rs.82 a dollar compared to Rs.49 a dollar of Indian Rupee as on today, the 22nd October’2008.
Pakistan badly requires at least $4bn immediately within 30 days and another $10bn to $15bn support over next two to three years from foreign lenders including International Monetary Fund (IMF), to avert a balance of payment crisis and to extricate themselves from the present economic mesh. Shaukat Tarin, the newly appointed economic adviser to the Pakistani Prime Minister Asif Zardari feels that economic imbalance has to be corrected within two years to reign in inflation and other economic parameters that have gone wrong.
Zardari himself has told the Wall Street Journal that (in the long run) Pakistan needed a bail out worth $100bn from the international community. Mr. Jardari is expected to ask the international community for a rescue package at a meeting in Abu Dhabi next month.
In the face of a six-year low reserve, Pakistan is turning to IMF for at least an immediate $4bn loan to bailout from the balance of payment & debt crisis looming large on it.
To estimate just how much money Pakistan needs to jump-start its stalled economy, Pakistani and IMF officials opened an annual meeting in Dubai on Tuesday the 21St October’08 to review Pakistan’s economic health and possibly hammer out an emergency strategy.
However Pakistan’s official position had been to seek IMF help only as a last resort as it is likely to come with so many unpopular conditions attached like cutting expenditures, raising taxes etc. In the meanwhile Pakistan has already taken important decisions like elimination of fuel and electricity subsidies.
Mohsin Khan, the IMF’s director for the Middle East and Central Asia have praised these decisions and said, “They have developed a pretty good (economic) program of their own which could be the basis of IMF assistance. I would encourage them to move fast.” According to him the cut in fuel and electricity subsidies alone can reduce budgetary deficit to 4.3% of GDP in the current fiscal from 7% of GDP in the last fiscal.
We must not forget that India too faced similar situations in 1981 and was bailed out by IMF. Even in 1991 India was facing similar situation when Manmohan Singh took over as Finance Minister of India and at the end of his 5-year tenure, India had FE reserve of $30bn! It is ultimately the financial management that matters. With Civil Democracy in position, I hope Pakistan will pull up shortly and will be back on the path of growth.
Here it needs to be stressed that Pakistan is staging a war against terror, which involves a lot of costs too. So it is the duty of USA and other developed countries to assist Pakistan in this hour of crisis.