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| Downward spiral |
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Thursday, September 25, 2008
Continuing political instability, coupled with a growing financial crisis, has led the credit ratings firm Moody's to cut its outlook for Pakistan's government bonds to negative from stable. The declining foreign exchange situation within the country is cited as a key factor in this decision, which will inevitably act to further deter investment and create still greater economic crisis. Following the bombing at the Marriott Hotel, there are already reports that business and trade teams from other countries have cut short or cancelled trips to Pakistan. Confidence in the country will now slump still further. Moody's has also pointed out that inflation, combined with rising extremism, could in effect paralyze the system and hold up liberalization and privatization within it, adding to its economic woes and preventing the reforms that could help restore normalcy.
At present, total foreign currency reserves stand at $8.91 billion. Moody's has pointed out this is hardly enough to cover imports for the coming two months. This is a situation Pakistan's leaders are already aware of. It is reported also to have figured during President Zardari's talks with President Bush. Emergency funding is also being sought to help Pakistan tide over the crisis. But even if the G-8 nations, Saudi Arabia or China offer a rescue plan, the Pakistani government must realize little will be gained on the economic front until political stability is ensured. Experts have already stated that the unchecked slide in Pakistan's economic indicators, including the fiscal and current accounts deficit, is caused not so much by inherent economic weaknesses or flaws, but by a sense of political turbulence that has not settled down even seven months after the new government took office. Indeed, over the past few weeks, the law and order situation has added to concerns as conflict continues across the northern areas. Rather than tackling the symptoms alone, it is these root causes of the economic crisis the government will need to address. So far, it has struggled to demonstrate that it is able to do so. Too much time has been wasted in bitter infighting between coalition partners; the perception in business circles is that the country lacks capable managers, able to turn around the situation. But now, as Pakistan's economic plight continues to worsen, its leaders must realize there is no time left to lose if Pakistan is to be rescued from spiralling down into the abyss of chaos towards which it seems to be headed. They must then put heads together and devise a plan of action that can prevent still greater ruin.
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ISSN 1563-9479 
