Sanctions imposed may severely cripple Pakistan’s economy

Independent experts warned the economic and social cost of sanctions for Pakistan will be much greater than it is for India. “The consequences of conducting nuclear tests, and that too by a developing country like Pakistan, will be much more devastating for the national economy and the region as well,” commented Akmal Hussain, a leading economist.

Both the United States and Japan have frozen funds. The World Bank, which has to seek the approval of all its members, will stop aid to Pakistan, thatwill jeopardise a number of development projects that the Sharif government has launched. New foreign investments will be hard to come by and some of the foreign investors might actually pull out as they have done in India, Hussain warned.

With foreign exchange reserves sinking to a low one billion dollars, Pakistan is faced with a real danger of defaulting on payments the reason for President Tarrar’s surprise decision to impose a state of emergency in Pakistan.

In a related development, the government has frozen all foreign currency accounts to avoid flight of capital. According to the country’s finance minister, Sartaj Aziz, the foreign currency accounts will remain frozen till further orders and there will be no withdrawal of foreign currency.

However, the minister added the withdrawals could be made in Pakistani rupees. A freeze on foreign exchange deposits will continue but SBP has allowed deposit holders to draw their money in rupees at the rate of 46 rupees to the dollar, against an officialrate of 44.0500/44.4905. He told reporters that there will be no cut in the defence budget, instead it will be increased to meet the additional needs of the armed forces.

According to him, sanctions will not affect the 1.7 billion dollars foreign aid which is already cleared and in the pipeline. But the fresh aid of 1.3 billion dollars that the government had been expecting may be affected, the finance minister said.

The government will not face any major problem in the remaining period of the current fiscal year as it has enough resources to live without new multilateral and bilateral loans, the ministers claimed.

However, Imtiaz Alam, editor foreign affairs of `The News’ newspaper warned that the “Sharif government will be faced with the most difficult economic times. By taking the nuclear arms race to its next stage, the government has actually eroded the very purpose of its mandate economic revival.”

Within hours of Thursday’s five tests, SBP shut banks for public dealing and suspended thelicenses of foreign exchange dealers. It withdrew the orders on Friday, allowing money changers to resume business. Bankers dismissed reports of queues forming at counters to withdraw dollars as exaggerated.

"There was no panic. It was business as usual as it could be in the given conditions," a foreign banker said. The Pakistani rupee slumped 1.95 paisa to 48.25 to the dollar in dull trade by Saturday’s close of business.