Pakistan is facing economic collapse. Inflation has soared to a 30-year high and in October its currency plunged to an all-time low.
According to the government’s finance minister, the country only has enough reserves to pay for two to three weeks of imports.
Last week the IMF finally agreed a $7.6 billion loan, but only after Pakistan agreed to a programme of “economic reforms”.
These require the slashing of public spending so that the budget deficit is reduced to below 4 percent of gross domestic product – it is currently running at around 7 percent.
The high expectations that many Pakistanis had for the government that replaced General Musharraf’s dictatorship has given way to a huge anger at rising prices and the declining standard of living.
Many expect that state subsidies for food and fuel will be among expenditure targeted for cuts and predict a sharp rise in unemployment.
The government’s room to manoeuvre is extremely limited and its ability to privatise state assets to raise cash will be limited. An IMF loan package agreed in 2001 started a process whereby most of the country’s banking, telecom and steel industries were sold off.
One area of expenditure that is unlikely to suffer is the military, as Pakistan continues to play a key role in the “war on terror” and the war on Afghanistan.