Posts Tagged ‘ International Monetary Fund ’

Key Party Rejoins Pakistan’s Coalition

By J David Goodman for The New York Times

A day after Prime Minister Yusuf Raza Gilani announced a rollback of fuel price increases that were deeply unpopular in Pakistan, a major political party said on Friday that it would rejoin the ruling coalition, defusing a tense political standoff and saving Mr. Gilani’s government from potential collapse, news reports said.

The party, the Muttahida Qaumi Movement, broke with the ruling Pakistan Peoples Party over the weekend in part to protest the price increases and other reforms proposed by the government, causing a political crisis for the prime minister and President Asif Ali Zardari. Opposition parties echoed the call to reverse the increases as well as recent cuts in spending and threatened the government with a three-day deadline before a no-confidence vote.

Political tension deepened on Tuesday with the assassination of Salman Taseer, the governor of Pakistan’s most populous region and an ally of Mr. Zardari, because of his support for changes to the country’s blasphemy law.

Raza Haroon, a senior leader in the Muttahida Qaumi Movement, said on Friday that his party had decided to rejoin the ruling coalition for the sake of democracy and the country, The Associated Press reported.

While the government appears to have survived for the moment, it does so at the expense of political and economic reforms encouraged by the United States.

In a meeting with Muttahida Qaumi Movement party officials on Friday, Mr. Gilani said that he would also put off proposed changes promoted by the State Department and the International Monetary Fund to increase tax collection, Reuters reported.

Pakistan, an important American ally, still faces a widening rift between secular and religious forces within the government, even as its army battles Taliban insurgents around the country’s mountainous northwestern border with Afghanistan.

The killing of Mr. Taseer, by a religiously motivated member of his own security staff, raised concerns for the United States and exposed the deep divisions in Pakistan. His killer, who proudly confessed the crime to the police, has been celebrated by many and was greeted by affectionate crowds throwing rose petals both times he appeared in court this week.

But Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said earlier this week that Pakistan’s security relations with the United States would survive the crisis.

Pakistan Faces Economic Hit from Flood

By David Roman for The Wall Street Journal

The flooding in Pakistan will inflict serious damage on its economy, posing another major challenge for a cash-strapped government struggling to keep a recovery on track in the face of high inflation and a relentless Islamist insurgency.

Assistance from the International Monetary Fund and Western countries will likely help Pakistan avoid another brush with bankruptcy as it tries to cope with the damage, which by some estimates may reach $43 billion. But the floods will weigh heavily on economic growth this year and leave a long-term mark on the economy.

“It’s a very serious tragedy,” said Philip Wyatt, a senior economist at UBS. “The hit on the growth rate is going to be very severe … We can see a loss of one or two points of economic growth, depending on the damage.” In the last fiscal year ended June 30, Pakistan’s economy grew 4.1%.

Moody’s Investors Service, which had expected Pakistan’s economic growth to pick up to 4.5% this fiscal year, may lower its estimate to 3% to 3.5%, said analyst Aninda Mitra.

The flood began in July and at one point covered a fifth of the South Asian nation, or land roughly equivalent to the size of Uruguay. According to the United Nations, the disaster has affected close to 20 million people, killing 1,500 and leaving 1.2 million homes damaged or destroyed.

Coping with the social and economic costs of the catastrophe will strain the government’s finances. The budget deficit was already on track to reach 4.5% of gross domestic product in the fiscal year ending June 30 before the crisis but now could widen to as much as 6% to 7% of GDP, said Mr. Mitra. That’s a grim prospect for a country, which had external debt totaling $55.63 billion as of June 30.

President Asif Ali Zardari’s government has been reaching out to other countries for help. A delegation met with IMF officials Monday in Washington. Donors including the U.K. and the European Union have so far pledged almost $500 million in additional help.

Moody’s is unlikely to upgrade Pakistan’s credit rating in coming months due to the devastation from the floods and other challenges, but the country’s current B3 rating “adequately captures the risk” of the likely economic slowdown and is unlikely to be downgraded further, said Mr. Mitra. A B3 rating is just one notch above the C level, which applies to countries in effective sovereign default, and makes it hard for a country to issue bonds in the international market.

The natural disaster is the latest setback for the Pakistan economy, which after several years of strong growth almost ground to a halt in 2008, hurt by budget overruns, a loss in export competitiveness due to high inflation, and an insurgency that continues unabated. On Monday, while emergency workers worked to shore up levees in two southern cities, at least 36 people were killed in three separate bomb attacks across the country, and 12 suspected militants were killed in U.S. drone attacks near the Afghan border.

Concerns about the economic fallout have kept pressure on Pakistan’s financial markets, though the impact has been moderate.

The cost of insuring against a default or restructuring of Pakistan’s bonds remains at very elevated levels, but has been relatively steady in recent weeks, a sign that investors anticipate IMF and U.S. support to prevent any fiscal crisis. The spread on Pakistan five-year credit default swaps was quoted at 1,099 basis points Tuesday, roughly on par with those of other high-risk sovereign bond issuers like Venezuela, but well below early-2009 highs of over 2,100 basis points during the global financial crisis.

Pakistan’s benchmark stock index, KSE-100, has fallen 7% so far in August, but is up 4% so far this year, roughly in line with other emerging market indexes.

The Pakistan rupee, one of Asia’s weakest currencies in recent years, has fallen in recent days, but has found support above its record low against the dollar of 85.84 rupees hit on Aug. 2, helped by expectations that remittances from overseas Pakistanis, which have averaged around 10% of GDP in recent years, may rise to help families at home cope with the floods.

But analysts expect the rupee to remain under pressure in coming months due to Pakistan’s current account deficit and high inflation rate, which ran at 12.3% in July. The floods are likely to push up food prices and transportation costs for other goods, likely eliminating any chance that inflation might fall below 10% this year, said Mr. Wyatt at UBS.

As Power Shortages Spread, Pakistan Switches Off The Lights

By Saeed Shah for The Miami Herald

LAHORE, Pakistan — Amid fears that severe energy shortages could touch off riots, Pakistan will announce drastic measures this week to save electricity, including a shorter workweek and restrictions on nighttime wedding celebrations, government officials said Wednesday.

With power outages lasting up to 20 hours a day in cities and villages, halting industry and even farming in some places, the electricity crisis could further destabilize a vital U.S. ally. Already this year, there have been streets protests – some violent, resulting in at least one death – over the electricity stoppages.

“Children can’t do their homework. Household work doesn’t get done, as washing machines and other appliances cannot work. When you go home from work, you have no idea whether there will be electricity at home. Your whole life is disturbed,” said Mahnaz Peracha of the Network for Consumer Protection, an independent Pakistani advocacy group.

The Obama administration says that helping Pakistan surmount its electricity crisis is one of the top priorities of its aid effort.

Richard Holbrooke, the U.S. special representative for Pakistan and Afghanistan, said this week that Pakistan’s electricity situation was “not acceptable” and that Washington would help to “the absolute limits of what Congress will fund. It is a big issue.”

Pakistan has been crippled by a shortfall in electricity generation, producing only about 10,000 megawatts of the required 16,000 a day. Further, some generators aren’t working at full capacity because the government owes money to power producers. The government is expected to inject around $1 billion into the system to pay its debts, but energy savings can’t make up for the shortages until new plants come online.

Industries such as the textile sector have had to shorten shifts and lay off workers, and farmers can’t use their electric pumps to irrigate fields. Some businesses, such as tailoring and printing, are telling customers it will take weeks to complete their orders.

As well as suffering from outages, consumers have been hit by a steep increase in the price of electricity, as Pakistan eliminated subsidies to meet lending terms by the International Monetary Fund, causing further resentment.

The energy-saving measures are likely to extend the country’s one-day weekend to a second day, push clocks forward by an hour and close industry for one day during the workweek, according to officials who were briefed on the plans but who spoke only on the condition of anonymity ahead of the government announcement.

Zafaryab Khan, a spokesman for Prime Minister Yousuf Raza Gilani, said the proposals were being finalized Wednesday and would be unveiled Thursday.

Street lighting also will be cut back, so that only every second or third light is on, markets will close soon after sunset and wedding receptions – huge, ostentatious events in Pakistani tradition – will be required to end by 9 or 10 p.m. Individual provinces will impose further restrictions.

In the dominant Punjab province, where more than half the country’s population lives, there will be a ban on electrical billboards, neon signs, decorative lights on buildings and the operation of fountains, and government offices won’t be permitted to run their air conditioners before 11 a.m. Analysts said enforcing the restrictions would be difficult.

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