Pakistan faces new debt crisis

[unhappycamper]

Pakistan faces new debt crisis
By Syed Fazl-e-Haider
Sep 23, 2010

KARACHI - The gap between what Pakistan spends and earns overseas widened a remarkable 48.6% during July and August to a level that may force Islamabad back to the International Monetary Fund (IMF) cap in hand only two years after obtaining a multi-billion dollar bailout from the Washington-based institution.

The current account deficit in the first two months of the financial year ending next June widened to US$944 million from $635 million in the same period 12 months earlier, according to the central bank.

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Slow export growth and rising imports, including higher bills for imported oil and food are the chief factors behind the worsening current account deficit. The deficit in goods and services widened 16.25% during July-August, according to central bank. The trade gap widened to $1.24 billion in August from $1.07 billion a year ago, the Federal Bureau of Statistics reported.

The worsening current account deficit reverses the trend of the last fiscal year, when it narrowed 63% to $3.5 billion due to a lower trade deficit and a record inflow of remittances by overseas Pakistani workers.

The economy was already fragile before the floods hit and the cost of rehabilitation will likely push the fiscal deficit to between 6% and 7% of gross domestic product in the current fiscal year against an original target of 4% agreed to with the IMF.