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Friday, October 24, 2008

Pakistan The last resort

A NUCLEAR-ARMED front-line state in the “war on terror”, Pakistan faces economic meltdown. On October 22nd the head of the IMF, Dominique Strauss-Kahn, said discussions would begin within the next few days on emergency financial support. How much was still to be determined. Pakistan needs a lot, urgently.

The economy is close to freefall. Inflation is running at about 30%. The rupee has devalued by about 25% in just three months. The fiscal deficit is a whopping 10% of GDP. Foreign-exchange reserves cover just six weeks of imports. A $500m Eurobond matures next February, but the market has already decided it is junk. The country needs at least $3 billion in short order, and a further $10 billion over the next two years to plug a balance-of-payments gap. Without it, default abroad might well coincide with political anarchy at home.

Pakistan’s new president, Asif Zardari, has made desperate begging trips to Saudi Arabia, America and China. To no avail. The Saudis are dragging their feet on a Pakistani request for $5.9 billion-worth of finance in the form of deferred oil payments. The Chinese seem to have done their due diligence and concluded that they cannot blithely advance billions to an increasingly dysfunctional state.[thanks A]


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