The U.S. financial crisis has been a major story in the Western press this week. Of course, this story is merely a part of the overarching global crisis affecting the international community. On Friday, the International Monetary Fund (IMF) “told President Zardari that Pakistan’s economy is facing severe challenges on twin deficits (fiscal and current account) and Islamabad would have to tighten its belt to reduce expenditures as well as raising interest rates to curtail the sky-rocketing inflation,” reported The News. Zardari told reporters the same day, “The message is clear that without declaring economy as the priority number one, Pakistan cannot overcome the existing economic challenges.”
Yesterday, Pakistan’s finance minister Naveed Qamar unveiled a policy package to restore economic stability to the country, also ruling out seeking assistance from the IMF. According to the Daily Times, “The package includes elimination of subsidies, reduction in development expenditures, financing through non-inflationary instruments and arranging foreign exchange through privatization of oil, gas and power sector entities.” Although Qamar stated that Pakistan would not seek the IMF’s assistance, Dawn reported that he “quickly added that international financial institutions, including the IMF, could monitor the implementation of the package.” Both Dawn and the Daily Times quoted Qamar, who stated during Friday’s press conference, “I can safely announce today … we have eliminated the entire fuel subsidy and there is no additional subsidy today that is going out of the budget to subsidize fuel.” According to State Bank Governor Dr. Shamshad Akhtar, the immediate target of the package “was to increase foreign exchange reserves to provide an import cover two to three months.”
Although the current security situation and strained U.S.-Pakistan relations has garnered major press attention in recent weeks, the state of Pakistan’s economy is also a fundamental concern. According to Ahmed Rashid who wrote a recent analysis for the BBC, “Pakistanis… face runaway inflation of over 25% and an economy in virtual meltdown as foreign exchange reserves dwindle and industry grinds to a halt.” According to a Bloomberg piece last week [also see related CHUP article],
International investors have fled a stock exchange that has nearly halved in value this year, the second-worst performance in Asia after China, as state subsidies for food and fuel and record military spending widened the budget deficit to a 10-year high.
The country is also facing major power shortages. According to The Nation, “officials say there is a power deficit of up to 4,000 megawatt.” As a result of this issue, Pakistani PM Gilani held a meeting with senior officials on Friday to discuss the possibility of buying nuclear plants. According to Dawn, Pakistan currently has two nuclear power plants – one built in 1972 with a capacity of 137 megawatts, while the other, built in 1999 with the help of China, has 372 megawatts. China is reportedly helping Pakistan build a third power plant. The purchase of further power plants would therefore help the country further tackle these growing energy shortages. President Zardari will address Pakistan’s Parliament for the first time on Saturday, and will reportedly unveil the government’s economic policy as well as its security plan.