Pakistan May Need Extra Bailouts as War Hits Economy: Bloomberg

By Farhan Sharif and Khaleeq Ahmed

June 15 (Bloomberg) -- Pakistan’s escalating war against the Taliban is taking its toll on the nation’s faltering economy, making a further bailout from international donors more likely.

The government is counting on foreign aid to fund almost a third of next year’s widening budget deficit, Junior Economics Minister Hina Rabbani Khar told parliament in Islamabad on June 13. Pakistan has asked the International Monetary Fund for a $4 billion stand-by loan as “insurance” if the pledged assistance doesn’t arrive, Shaukat Tarin, finance adviser to the prime minister, said yesterday.

South Asia’s second-largest economy has ground to a near- halt as the global recession erodes exports and foreign investment. The situation may get worse as the government intensifies its fight against Islamic extremists in the northwest Swat Valley and struggles to provide food and shelter for an estimated 2 million people displaced by the war.

“It will be very hard to meet development spending and defense expenses without more external support,” said Asad Farid, an economist at AKD Securities in Karachi. “The worry is how we will fund expenditure with low revenue.”

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