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Pakistan announces plan to shore up sagging economy

In an attempt to bolster its sagging economy, Pakistan has unveiled a package that it hopes will curb imports, increase exports and encourage reluctant depositors to invest dollars in Pakistan.

''The easiest thing for us would have been to print more money, but that would only have fuelled inflation,'' Finance Minister Sartaj Aziz said in a televised news conference where he announced the new package.

The Pakistan government is blaming its economic woes on US-led economic sanctions imposed against Pakistan and India following their nuclear tests in May.

Aziz criticised international lending institutions for withholding loans because of sanctions and attacked previous Pakistani governments for spending foreign exchange to finance its Balance of Payments deficit.

Pakistan's foreign exchange stands at barely $ 600 million, which covers about four weeks of imports.

As a result, Aziz said restrictions on foreign exchange accounts imposed following the nuclear tests will remain.

''In the aftermath of sanctions, it is absolutely vital that we have the foreign exchange resources to finance all our essential imports,'' he said.

One example is edible oil, a staple in Pakistan and a costly $ 200 million monthly import bill.

Drastic increases in a staple like oil would surely cause widespread unrest in Pakistan, fear government officials.

Last week, Pakistan increased gas prices by 25 per cent, causing grumbling on the street.

Aziz said the government wants to try to keep the prices of imports like wheat, edible oil and pulses -- all staples in a poor Pakistani's diet -- down.

The list of essential imports that will not be restricted will include wheat, pulses, edible oil, fertilisers, pesticides and pharmaceuticals.

Non-essential imports, he said, will be severely restricted until the country's economy turns around.

Foreign currency accounts, which were frozen, will remain that way. New restrictions will be imposed on new foreign currency accounts, despite an earlier government promise not to restrict these accounts.

New account-holders will be allowed to withdraw only 50 per cent of their money in dollars, the rest in rupees at the official rate. Banks can no longer transfer more than $ 10,000 out of the country without getting prior permission from the State Bank of Pakistan.

Luxury vehicles will be hit with a large registration fee of up to $ 10,000.

Aziz said the Pakistan government will aggressively seek out tax defaulters, a big job in a country where barely one million people pay taxes. Most of the country's political leaders pay barely $ 100 to 200 a year in taxes.

The government will increase its tax base, collecting agricultural taxes and retail sales taxes.

Aziz criticised the industrial world for imposing sanctions equally on India and Pakistan and said it was India that began the nuclear race when it tested its devices on May 11.

''Pakistan's response was in essence a security compulsion,'' he said.

Several Islamic countries have assured financial assistance to Pakistan to beat off the sanctions, Aziz said.

Kuwait has promised $ 250 million and the Jeddah-based Islamic Development Bank has increased its credit line of $ 150 million to Pakistan to $ 400 million, he told a press conference in Islamabad.

Other donors did not wish to be identified, the minister said. He also announced a dollar bond scheme to ease the foreign currency crunch.

Aziz said the IDB had called a meeting of the Islamic financial institutions in Jeddah for July 27 to discuss assistance to Pakistan which, in the view of some analysts, faces an economic meltdown.

He said the dollar bonds of five, seven and 10-year maturity period would earn higher than normal interest which would be exempt from various taxes.

UNI