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June 3, 1998


Pak may declare moratorium on debt repayment

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Pakistan may have to declare a moratorium on repaying its debts as international sanctions bite into its reserves, say financial analysts.

The government may also devalue the Pakistani currency by three to five per cent to discourage imports that are further draining the economy, said a report by the Dutch Abn Amro Bank NV.

The grim outlook from one of Pakistan's top independent analytical groups was a result of a drop in the country's international credit rating following sanctions imposed after it exploded a series of nuclear tests last month.

A government reaction to the report, dated June 1, was not immediately available.

Pakistan declared a state of emergency on May 28, blocking foreign currency withdrawals for fear of a run on bank deposits of $ 13 billion. It also froze the exchange rate at 46 rupees to the dollar.

Standard and Poor, the international rating agency, downgraded Pakistan's long-term and short-term foreign currency issuer credit rating. That will make it tough for the treasury to borrow financing for its six-month oil import bill of $ 926 million, the report said.

''The possibility that Pakistan may have no option but to stop servicing some of its external debts becomes increasingly real,'' said the report.

A debt moratorium, it said, would do irrevocable damage to Pakistan's standing in the capital markets and its ability to compete globally.

Meanwhile, Pakistan ordered new austerity measures today, moving fast to protect its fragile economy from economic sanctions.

In a cabinet meeting a day earlier, the government sought to find ways to minimise the impact of sanctions, most notably from the United States and Japan.

The tests would cut government spending overall by 50 per cent, but the details will be worked out over the next 24 hours, said The News.

''Specific measures with respect to austerity and efficiency in missions abroad have also been approved,'' said an official announcement following the cabinet meeting.

Finance Minister Sartaz Aziz said the government has a three-pronged plan to counter sanctions -- increase exports, decrease imports and husband its revenues.

Prime Minister Nawaz Sharief is to address the nation on Thursday to give his countrymen the details of his austerity programme. He is expected to make another strong pitch for restraint and belt-tightening, something he did in his speech to the nation last Thursday.

In yesterday's cabinet the government decided to reduce imports of such items as tea, edible oil and milk -- all staples in the Pakistani diet.

Salaries of government employees will remain unchanged.

In its first show of restraint, the government moved out of the palatial 400-room prime minister's secretariat. The multi-million dollar marble building was commissioned by Sharief during his first term in power and elaborately finished by Benazir Bhutto in her last term in office.


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