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Pakistan’s Economy on the Brink of Collapsing

The financial crisis the world over may have little impact on Pakistan’s economy, but the country now virtually on a brink of collapse is seeking emergency monetary assistance to save it from a certain devastation.

A forum called ‘Friends of Pakistan’, which was launched in New York during the visit of President Asif Ali Zardari to assist the country by raising billions of dollars to stop it from failing economically, would be meeting soon in Abu Dhabi this month to decide an economic package for Islamabad.

The forum includes the United States, United Arab Emirates, Canada, Britain, Germany, France, Japan, China, Italy, Australia, Saudi Arabia and Turkey.

Such is the economic turmoil in Pakistan that it’s inflation has shot up to 25 per cent, and forex reserves are plunging to an all time low. With a total of $8.1 billion forex by September, the real reserves are estimated to be just $3 billion after accounting future liabilities.

Reports suggest that it is barely enough for Pakistan’s one-month imports, and if assistance is not provided immediately, the situation would turn for worse. There is a huge gap of $7 billion to cover in a projected current account deficit of $14 billion for the financial year ending June 30, 2009.

The rating agency Standard & Poor has cut the rating on Pakistan’s sovereign debt rating to CCC+, which is barely above the default level.

Currently, Pakistan’s foreign direct investment is projected to fall $3-3.5 billion this fiscal compared to $5.15 billion in 2007-08. Noticeably, Pakistan’s economy recovered spectacularly from the impact of the post-1998 nuclear test sanctions that were done in reaction to India conducting nuclear tests at Pokhran.

After 9/11, the US helped Islamabad generously.More and more foreign assistance, and fresh access to global markets and IMF-approved reforms helped Pakistan come up economically after it pledged joining Washington’s war on terror with the initiative of former President Pervez Musharraf.

But, post Musharraf, things are looking drastically different. Pakistan’s economy has been on one continuous ride downhill, and it is now staring at the possibility of defaulting on its foreign debt obligations, financial experts tell Khaleej Times.