With global donations coming to a halt, Pakistan is on brink of collapse

[sonicboom]

With global donations coming to a halt, Pakistan is on brink of collapse

Feb 5, 2011, 1:02 IST
By Amir Mir

Pakistan is on the verge of economic collapse after multilateral donors including the World Bank, the Asian Development Bank and the Islamic Development Bank have halted budgetary support to Islamabad, asking the PPP government to provide a Letter of Comfort to be issued by the International Monetary Fund (IMF) prior to disbursement.

According to well informed finance ministry sources in Islamabad, the IMF, which is the country’s economic lifeline, is losing patience with the PPP government, which lacks the political resolve to take measures such as imposing a new sales tax to ease the fiscal deficit, as being desired by the IMF. The IMF has been strictly monitoring the country’s performance indicators under a stand-by arrangement. Pakistan had signed with the fund in November 2008 for a US$11.3 billion loan package.

Analysts argue that the widening fiscal deficit is uncontrollable, as fiscal expansion funded by borrowed money, including government borrowings from the central bank, will continue to fuel inflation. They believe that any delay in disbursement from donors will be another setback for the cash-strapped government, which is borrowing US$23.4 million per day from the central bank (State Bank of Pakistan) to run its affairs and the budget deficit has exceeded what is close to US$5 billions. As things stand, the PPP government is sandwiched between the US-backed IMF, pressing for implementation of economic reforms - and other political parties warning the government against taking unpopular decisions under the IMF’s diktat.

The Pakistan government has prepared a revised economic plan that is expected to be acceptable to political parties and bring the IMF standby arrangement back on track. The plans include a 50% rise in development spending, scaling down its revenue target by more than 5% and granting two weekly holidays for the entire public sector.

With global donations coming to a halt, Pakistan is on brink of collapse - World - DNA