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Analysis: Pakistan's Other Crisis

Council on Foreign Relations

October 24, 2008
Author: Jayshree Bajoria

The International Monetary Fund says Pakistan may need $10-$15 billion from donors over the next two years to avoid defaulting (Bloomberg) on its debts. The country's currency reserves have dipped to $4 billion, enough only to cover payments for oil and other imports for the next several weeks. Islamabad is hoping for more than $4 billion from international financial institutions like the World Bank, the Asian Development Bank, and some others. But without more assistance, analysts say, the future seems perilous.

The IMF also has reportedly offered a $6 billion loan (Dawn) package. The Pakistani government is considering IMF help. However, since the IMF loans come with conditions, including strict requirements on monetary and fiscal policy, experts say such funding may be politically difficult for a government already unpopular because of cuts in oil and food subsidies. The best hope, says the Financial Times in an editorial, is an IMF loan, augmented by individual countries, "that is flexible on conditions without compromising on the most vital of reforms." Islamabad is also rallying potential donor governments of the newly formed "Friends of Pakistan" group-including the United States, Britain, China, Saudi Arabia, and the UAE-for aid. The group will work with Pakistan's government for stability and development.

Pakistan's leadership attributes the balance of payments crisis to the rise in food and oil prices over the last two years. Terrorist attacks and a weak government have added to economic woes; foreign investment has declined, and ongoing fighting between the army and the militants in northwest Pakistan have left nearly 200,000 people displaced. Pakistani officials cite these troubles to make a case for urgent international assistance amid a global economic downturn. Pakistan's ambassador to the United States, Husain Haqqani, argues in a new interview with CFR.org that Pakistan's importance in the fight against militant Islamic terror groups should make the collapse of its economy unthinkable.

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.