Clock ticks on Pakistan's payments crisis

Militants seeking to destablise a nuclear-armed U.S. ally stand to gain most from an economic meltdown in Pakistan.

A six-month-old civilian government, headed by President Asif Ali Zardari, is banking on international support for Pakistan's transition to democracy after more than eight years under former army chief Pervez Musharraf.

Pakistani officials have been to Beijing, Washington, and the Gulf to whip up financial support, but there have been no firm commitments.

How much foreign currency does Pakistan have?

As of Oct. 11, Pakistan's foreign currency reserves totalled $7.75 billion, having fallen $570 million in a week.

Critically, the central bank's share of this has fallen to $4.34 billion, while commercial banks held $3.41 billion.

As a result of deteriorating external balances and dwindling reserves the rupee fell almost 2.8 percent on Friday to a record low of 84.40, having lost 27 percent since the start of 2008.

There have been uncorroborated reports in the media that Pakistan's reserves are in a more parlous state.

The News daily said on Friday central bank reserves had slid to just under $4 billion as of Oct. 16 and out of that $1.5 billion had been consumed by currency forward booking liabilities.

How long can Pakistan go on before it runs out of dollars?

A source with knowledge of the external position said a big capital infusion was needed in the next one to one-and-a-half months: "Otherwise there will be a serious problem."

The data shows the central bank has barely enough foreign currency to cover six weeks of imports. Including commercial bank reserves, it has two months' cover.

How much money does Pakistan need to stay afloat?

Up to $4 billion is needed urgently, according to Sakib Sherani, a bank economist on the prime minister's economic advisory council.

Pakistan needs $7 billion to cover a projected current account deficit of $14 billion for the fiscal year to June.

The international bond market has already priced in a default on a $500 million bond due to mature in February.

How much is Pakistan spending?

Economists say Pakistan is shedding reserves at a rate of about $1 billion a month.

Imports totalled $3.8 billion in September. Exports were $1.78 billion, creating a trade deficit if $2.207 billion.

In July-August the current account deficit widened to $2.57 billion from $1.57 billion in the same period a year ago.

The main factors behind the widening deficit are soaring oil and food prices, compounded by a poor wheat crop last year.

What are Pakistani officials saying?

They say don't panic, help is on the way.

Shaukat Tarin, a respected banker appointed economic troubleshooter last week, said on Monday he was sure Pakistan would fulfil upcoming debt obligations of $3 billion.

The source with knowledge of the external situation was sure Pakistan would not default on the $500 million bond in February.

How can Pakistan help itself stop the drain?

Raise interest rates, while easing banks' liquidity, impose capital controls, ban imports of non-essentials, and limit how much foreign currency foreigners can buy using rupees.

Inflation at 25 percent is a good reason to raise interest rates, but a rapid slowdown in economic growth limits the scope.

Pakistan can also stop foreigners from withdrawing funds. A floor imposed on the stock market in August effectively stopped investors exiting a market that had fallen 35 percent this year. The Karachi Stock Exchange plans to remove the floor on Oct. 27. Investors fear it will probably spark a rush for the door.

Introducing rules to force foreigners to retain proceeds from sales of stocks or bonds in Pakistan for a set period is an option.

The central bank can also buy time by imposing capital controls that would break the link between onshore and offshore players, like ending credit facilities for offshore players.

Where could help arrive from?

The global economic crisis clouds prospects for help.

The International Monetary Fund: The government doesn't want to go through the humiliation of an IMF rescue package. But it has consulted the IMF over policies to reassure other lenders.

The World Bank: It has $1.4 billion available under an existing programme for Pakistan, but it needs board approval.

The Asian Development Bank: It lent $500 million last month.

The United States: Officials say privately that Pakistan's biggest bilateral lender wants it to go to the IMF. The U.S. presidential election complicates prospects of U.S. help in the short-term.

China: Zardari won sympathy in Beijing this week. The old ally granted a $500 million concessional loan in April. Some media reports say Zardari wants another of $1.5 billion or more.

Saudi Arabia: Pakistan said months ago that Saudi Arabia had agreed in principle to deferred payments for oil, but nothing has happened. Other oil exporters have been asked for help.

"Friends of Pakistan": These potential donors, who came together on the sidelines of the U.N. General Assembly last month, are expected to meet in Abu Dhabi in mid-November. Officials say this should not be billed as a pledging forum, but it could help Pakistan generate support.