Pakistan's Economy:Treacherous ground: Economist

Oct 30th 2008 | DELHI

From The Economist print edition

An earthquake adds to Pakistan’s woes

ON TOP of a bloody insurgency and a listing economy, Pakistan must now contend with a natural calamity. Before dawn on October 29th, an earthquake of magnitude 6.4 or greater struck the mountainous province of Baluchistan not far from its capital, Quetta. The death toll quickly exceeded 200.

It was the biggest earthquake since one in October 2005 that killed over 70,000 in Pakistan-controlled Kashmir. After that catastrophe, America spent almost $1 billion on relief operations, ferrying supplies to mountain villages by Chinook helicopter. According to one American official, cited by an independent working group on Pakistan policy, the goodwill America earned represents “the most successful strategic confrontation to date in the battle with the terrorists in South Asia.”

Even before the latest earthquake, Pakistan was again hoping its strategic position would persuade the world to rush to its aid. The ground is giving way beneath its economy. A distracted, overstretched government has allowed inflation to soar (see chart), the rupee to plummet and foreign-exchange reserves to seep away. On October 17th the central bank’s stash of hard currency was just over $4 billion, enough to cover just four to five weeks of imports.

Pakistan hoped for an infusion of cash from the “Friends of Pakistan”, an informal circle including China, America and Saudi Arabia. But to its dismay, only the IMF appears ready to offer the sums it needs as quickly as it needs them. The IMF is expected soon to approve a loan of up to $12 billion, probably spread over two years.

Pakistan and the IMF may not be “friends”; but nor are they strangers. Some of the politicians and civil servants now in power were “pretty traumatised” by the IMF programmes they endured during the 1990s, says Mohsin Khan of the fund. In those days, the IMF twisted their arms to make tough fiscal commitments they could not keep. In 2005 the military regime, having proudly turned down the last two instalments of its loan, declared that it had “broken the begging bowl forever”.

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