Debt Fears Hit Pakistan Rupee and Threaten Jobs

According to the FT (3 April 2001) the Pakistani rupee fell this week to a record low, prompted mainly by concerns over future debt payments and the weakness of the economy. The rupee has fallen by about 17 per cent since the beginning of the Pakistani financial year in July last year.

Market analysts were surprised that the release of a new IMF loan, last Friday, did not stem the fall.

Earlier in the week Pakistan's military regime had promised to launch an ambitious plan to cut state spending and reduce the number of government employees by between 35,000 and 40,000 workers. In an interview with the Financial Times (2 April, 2001), Mr. Shaukat Aziz, Pakistan's finance minister said: "Clearly there would be a major effort to rationalise our government's delivery capability. Nobody will be fired immediately, but the surplus employees will be put in a pool so that they can retrain for other jobs". However, senior officials said up to 15 per cent of federal government employees, or roughly between 35,000 and 40,000 workers, could lose their jobs as part of the restructuring plan.

The IMF decided to release a trance of $133 million under a $596 standby loan agreed last December. According to the FT, it is one of the few times that the country, "which is notorious for having its IMF agreements suspended after the first disbursement, has qualified for a second tranche".

For further analysis of Pakistan's debt see Prof. Qais's article in Analysis.