By Matthew Brown and Khalid Qayum
The meltdown continues: Pakistan, a nation build on Islam and nothing but Islam, is a failed state and always will be. Like many other Islamic hellholes, Pakistan depends almost entirely on the jiziyah. Without massive tribute payments from infidels the ummah Islamiyah cannot exist and will implode. We should not interfere…Â
The government of Pakistan calculated “they needed financing somewhere in the region of $3 billion to $4 billion,” IMF Regional DirectorÂ Mohsin KhanÂ said in an interview in Dubai yesterday. “We thought that it was closer to $5 billion; $5 billion this year and $5 billion next year.”
Pakistan’s foreign reserves have plunged more than 74 percent to about $4.3 billion in the past year, increasing the risk that the country will be unable to pay the $3 billion in debt-servicing costs due in the coming year. Officials from Pakistan and the IMF are meeting in Dubai today to work out what can be done to help South Asia’s second-largest economy.
“Considering the geopolitical importance of Pakistan in the global war against terror, it seems logical to expect Pakistan’s allies to help the government manage short term and temporary liquidity problems,” saidÂ Asad Farid Khwaja, an economist at AKD Securities in Karachi.
The rupee had its biggest gain in seven years yesterday on optimism a bailout may help avert a crisis. Pakistan came off its last IMF program in December 2004. The currency rose for a second day today, increasing 0.4 percent to 80.90 per dollar at 11:00 a.m. in Karachi.
PresidentÂ Asif Ali ZardariÂ chaired discussions in Islamabad yesterday to prepare for a meeting of the “Friends of Pakistan” group to be held in the United Arab Emirates next month. The group, whose members includes the U.S., U.K., China and Saudi Arabia, was established last month to help Pakistan “meet domestic and global challenges,” the state-run Associated Press of Pakistan reported.
“There’s no hiding the fact we’re in a precarious situation,” saidÂ Atif Bajwa, president of MCB Bank Ltd., Pakistan’s biggest lender by market value. “We’re quite optimistic that an inflow of funds will come through in good time to prevent default.”
The U.S. has helped Pakistan financially for its support in the global war against terrorism, providing $10 billion in funds and canceling more that $1 billion of loans. The Bush administration has urged Pakistan to do more to fight al-Qaeda and Taliban militants in its tribal areas, which the U.S. says the militants are using to regroup and attack the coalition forces in Afghanistan.
Pakistan faces the politically unpopular decision to seek an IMF bailout after China rebuffed its neighbor’s request for cash, theÂ New York TimesÂ reported Oct. 18. The U.S. and other nations are preoccupied with the financial crisis, and Saudi Arabia, a traditional ally, refused to offer oil concessions, the newspaper said.
At the end of the meeting in Dubai, the IMF should have a “firm idea of how much they need, who else is in the picture, and then it will be worked out what the IMF can do,” said Khan.
Pakistan’s economy has “deteriorated significantly” and growth may slow to a six-year low, the IMF said separately in aÂ reportÂ released in Dubai yesterday.
Growth is expected to weaken to 3.5 percent in the year to June 30 from 5.8 percent last year, the IMF said. The government estimates an expansion of 5.5 percent this year.
Pakistan’s first civilian government since 1999 is facing economic turmoil after the rupee plunged to an all-time low, the current account deficit widened to a record, and inflation jumped to a 30-year high. The crisis mounted after the Pakistan Peoples Party-led government was paralyzed for almost six months because of political wrangling.
Standard & Poor’s, doubting Pakistan’s ability to repay debt, cut the long-term foreign-currency rating on Oct. 6 to seven levels below investment grade, and said it may lower it again. Moody’s Investors Service lowered its credit outlook to negative on Sept. 23, citing a risk of “missed repayments.”
Pakistan has said it has almost removed subsidies on fuel by raising domestic fuel prices six times between April and July in line with global crude costs. Subsidies on electricity are due to be removed by June 2009.
“The most difficult measures that the government has had to take have been the elimination of subsidies and the commitment to zero net borrowing from the central bank,” Khan said yesterday. “My guess would be that the other conditions that would be attached to any loan would be relatively minor compared to these.”
Credit-default swaps on Pakistan’s $2.7 billion of dollar- denominated bonds outstanding have more than tripled since August to 2,470.5 basis points, according to CMA Datavision. That means it costs $2.47 million annually to protect $10 million of the country’s debt from default for five years.
Pakistan’s next interest payment on its dollar-denominated bonds is due in December and the government is scheduled to repay $500 million in February on a 6.75 percent note.
“A default is not on the cards,” said Khan. “A balance of payments crisis is much closer. Some people are saying they are already there; others say they are very close to being there.”