CAN PAKISTAN " AFFORD " A WAR ?
Pakistan seems to create war hysteria for its public consumption, just to divert public mind from financial problems faced by it. The idiom " Ulta chor kotwal ko dante " fits quite aptly.
Pakistan is smack in the middle of serious economic meltdown. Its list of woes are tortuously long and varied : purchasing power is being strangulated by 25% inflation rate. The govt. has borrowed a whopping Rs. 1.4 trillion from the Central Bank to fund its spending. The rupee has devalued by 25% in just 3 months and the nuclear state's reserves of foreign exchange has dwindled to less than $ 6.9 billion--- barely enough to buy 9 weeks of imports. For the last two-and-half months, the stock market in Karachi has remained practically closed.
A lot of it has to do with the political situation in the country. In the past decade, Pakistan has frequently suffered bouts of insecurity, but the last year has been extraordinarily wrenching. Fighting extremists in NWFP, Baluchistan and the tribal areas has sapped the country considerably. The brutal assassination of Benazir Bhutto, the scary regularity of suicide bombings and the see-saw battles for power have scared much of the world away from the country. Not surprisingly, foreign direct investment ( FDI ) has plummeted from $ 8 billion to $ 3.5 billion for the current fiscal year. Even wealthy locals have taken much of their money out and stashed it in Dubai, as they do everytime things go awry in Pakistan.
However, insecurity aside, one of the big mistakes the govt. made was the decision to not pass on price increases, linked to big rises in global commodity prices, to its public. This sent the country's fiscal and external current account deficits to breaking point. Then, when the burden on state coffers became unbearable, Pakistan passed on the price effect to its people. This has had a devastating effect on many ordinary Pakistanis. Food prices for instance, rose by 34% in august this year, forcing Pakistan to station paramilitary forces at flour mills in Baluchistan. The salaried and the poor are the worst hit. Social scientist Mr Akbar Zaidi adds " that there are reports of mothers left with little option but to put up their children for adoption ".
Here's another fact that explains Pakistan's current mess : the country is practically broke. It spent $ 3.6 billion on imports in Sept, including a $ 1.9 billion from its exports. The Pakistani Rupee has fallen 33% in just a year. Its external debts are are many and mounting : Pakistan has $ 3 billon in commercial foreign debts and $ 38 billion in IMF concessionary loans that have to be serviced with money that it does'nt have.
If this was not already enough to send an economy into tailspin, along came the subprime-related global credit crunch. Exorbitant inputs and credit costs coupled with low demand have hobbled key industries. Chinese bike makers in Pakistan have shut down 14 production units and chopped up to 30% of their worforce. Pakistan Airlines has announced 5000 jobs cut, 28% of the workforce, after failing to get funds from the cash-strapped govt.
None of Pakistan's buddies seems to want to help it out. Zardari made fund-raising trips to old allies Saudi Arabia and America, which have refused to help, and he had to come back empty handed. Ditto with China. After stalling for a while, the country has finally swallowed the bitter pill of seeking out another IMF loan totalling $ 7.6 billion--- but these borrowings come with strigent reqirements, like the slashing of fiscal deficit and import tariffs.
Pakistan's rich elite, a recession-proof class, played recovery agents, quickly reversing their capital's flight back into evergreen industries such as opticals and surgical instruments. This time around, Pakistan's misery has been compounded by several crisis all kicking in at the same time. Problems are compounded by an inept Zardari-led administration, which has'nt been able to get things right when Pakistan most needs it to.
The country needs to get its debt in order and resolve the the abysmal credit rating ( CCC, which suggests likely default ) that S&P and Moody's have given it.
But let's not forget frustrated Pakistan is more dangerous to India than a stable one.
Pakistan is smack in the middle of serious economic meltdown. Its list of woes are tortuously long and varied : purchasing power is being strangulated by 25% inflation rate. The govt. has borrowed a whopping Rs. 1.4 trillion from the Central Bank to fund its spending. The rupee has devalued by 25% in just 3 months and the nuclear state's reserves of foreign exchange has dwindled to less than $ 6.9 billion--- barely enough to buy 9 weeks of imports. For the last two-and-half months, the stock market in Karachi has remained practically closed.
A lot of it has to do with the political situation in the country. In the past decade, Pakistan has frequently suffered bouts of insecurity, but the last year has been extraordinarily wrenching. Fighting extremists in NWFP, Baluchistan and the tribal areas has sapped the country considerably. The brutal assassination of Benazir Bhutto, the scary regularity of suicide bombings and the see-saw battles for power have scared much of the world away from the country. Not surprisingly, foreign direct investment ( FDI ) has plummeted from $ 8 billion to $ 3.5 billion for the current fiscal year. Even wealthy locals have taken much of their money out and stashed it in Dubai, as they do everytime things go awry in Pakistan.
However, insecurity aside, one of the big mistakes the govt. made was the decision to not pass on price increases, linked to big rises in global commodity prices, to its public. This sent the country's fiscal and external current account deficits to breaking point. Then, when the burden on state coffers became unbearable, Pakistan passed on the price effect to its people. This has had a devastating effect on many ordinary Pakistanis. Food prices for instance, rose by 34% in august this year, forcing Pakistan to station paramilitary forces at flour mills in Baluchistan. The salaried and the poor are the worst hit. Social scientist Mr Akbar Zaidi adds " that there are reports of mothers left with little option but to put up their children for adoption ".
Here's another fact that explains Pakistan's current mess : the country is practically broke. It spent $ 3.6 billion on imports in Sept, including a $ 1.9 billion from its exports. The Pakistani Rupee has fallen 33% in just a year. Its external debts are are many and mounting : Pakistan has $ 3 billon in commercial foreign debts and $ 38 billion in IMF concessionary loans that have to be serviced with money that it does'nt have.
If this was not already enough to send an economy into tailspin, along came the subprime-related global credit crunch. Exorbitant inputs and credit costs coupled with low demand have hobbled key industries. Chinese bike makers in Pakistan have shut down 14 production units and chopped up to 30% of their worforce. Pakistan Airlines has announced 5000 jobs cut, 28% of the workforce, after failing to get funds from the cash-strapped govt.
None of Pakistan's buddies seems to want to help it out. Zardari made fund-raising trips to old allies Saudi Arabia and America, which have refused to help, and he had to come back empty handed. Ditto with China. After stalling for a while, the country has finally swallowed the bitter pill of seeking out another IMF loan totalling $ 7.6 billion--- but these borrowings come with strigent reqirements, like the slashing of fiscal deficit and import tariffs.
Pakistan's rich elite, a recession-proof class, played recovery agents, quickly reversing their capital's flight back into evergreen industries such as opticals and surgical instruments. This time around, Pakistan's misery has been compounded by several crisis all kicking in at the same time. Problems are compounded by an inept Zardari-led administration, which has'nt been able to get things right when Pakistan most needs it to.
The country needs to get its debt in order and resolve the the abysmal credit rating ( CCC, which suggests likely default ) that S&P and Moody's have given it.
But let's not forget frustrated Pakistan is more dangerous to India than a stable one.
posted by vaneet kundra at
Saturday, December 27, 2008
1 Comments:
according to what you have written i dont think that pakistan can afford a war when they are in a middle of a socio-economic crisis..
its just a way of diverting attention & asking for economic stability from other rich countries.
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