As Pakistan nears bankruptcy, patience of foreign lenders wears thin

By GRAEME SMITH
Published Tuesday, Dec. 28, 2010 12:14AM EST ISLAMABAD — A terrifying kind of mathematics has become popular among aid workers, analysts and others who spend their lives tracking the fate of Pakistan. It’s a back-of-the-envelope calculation about how the country will get through the coming years without declaring bankruptcy: take the country’s foreign debt ($53-billion), add interest, subtract the $1.8-billion that won’t arrive as scheduled on Jan. 1 from the International Monetary Fund because Islamabad failed to meet loan conditions. Add the staggering cost, perhaps $10-billion, of rebuilding after summer floods. The numbers seem bleak. The government floated the possibility last week of running a deficit for the coming year of $15-billion. Islamabad’s latest plan to raise revenue, a reformed tax law, has become bogged down by stubborn opposition parties, front-page criticism and street protests. The cabinet’s economic team is threatening to quit. Pakistan needs a bailout. But is the country still a good investment? “That’s the conversation people are having now, about whether you’d be throwing good money after bad,” said Mosharraf Zaidi, a development expert and policy analyst based in Islamabad. The international community has accused Pakistan of poor financial management for years. Cables recently posted by the website WikiLeaks show a U.S. intelligence official complaining in 2008 about the country’s preference for spending money on strategic military hardware instead of development: “Despite pending economic catastrophe, Pakistan is producing nuclear weapons at a faster rate than any other country in the world.” … The government also continued printing money to cover its costs. Islamabad had promised to stop borrowing from its own state bank, but instead took almost $4-billion to prop up the budget – contributing to crippling inflation. Defence spending increased this year, and will likely continue rising, while the government cut its development budget in half. …