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Pakistan printing cash as fast as it can

ISLAMABAD // Pakistan's massive financial problems threaten political stability in the country, as the Asian Development Bank (ADB) yesterday warned in a report that the economy is living on borrowed time.

Political insiders in Islamabad said the tottering economy could within months become a platform for a campaign, led behind the scenes by the country's powerful military, to weaken the government of Asif Ali Zardari, the president. There was more bad news as the United States said it would link its future financial aid to tax reform, including stricter tax collection from the wealthy. "This is one of my pet peeves: countries that will not tax their elites but expect us to come in and help them serve their people are just not going to get the kind of help from us that they have been getting," Hillary Clinton, the US secretary of state, said about Pakistan yesterday at a conference in New York.

The alarms rang by the ADB, Asia's equivalent to the World Bank, in its latest economic update were clear. It said the Pakistani government was borrowing from the central bank to fund its operations. It has been printing huge sums of extra cash to pay its bills, helping to fuel a resurgence of inflation over the past year to an annual rate of more than 12 per cent in June from about nine per cent in October 2009.

The government was printing the money because its revenues were insufficient to pay the interest on its massive debt and cover its defence spending, consumer subsidies and pensions, the ADB said. It said the cost of keeping afloat state corporations, whose total losses represented 1.6 of the country's gross domestic product (GDP) last year, was also distorting the government's finances. As well, Pakistan's three years of slower economic growth - induced by political instability and violence as well as the global economic uncertainties - has slashed government revenue. It totals nine per cent of GDP, which is the broad measure of a nation's economy, among the lowest rates in the world.

More recently, the massive cost of reconstruction after recent floods, which have affected 20 million people, only underscores the need for the government to create "fiscal space" by withdrawing remaining subsidies and raising taxes, the ADB said. The Pakistani government had privately hoped that international sympathy for the victims of the floods would persuade its creditors to either lend it more money, or reschedule payments on its foreign debt of US$50 billion (Dh184bn).

Instead, the International Monetary Fund (IMF), Pakistan's biggest creditor, last month told Hafeez Sheikh, the minister of finance, that payments from an $11bn emergency-loan programme would be frozen until something was done to fix Pakistan's tax collection system. Taxes are a growing issue for Washington. "There's got to be some reciprocity here. Because one of the things that is now happening in Pakistan is … you cannot have a tax rate of nine per cent of GDP when big landholders and all the other elites do not pay anything, or pay so little that it's laughable," Mrs Clinton said.

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Thanks for the bumps

This is a very important article to read. Pakistan will begin to change it's policy towards the U.S. because of this impending financial crisis, and show how they can use their influence to extort more billions in aid to pay for all the military spending and security that they have needed to do because of the U.S. actions with the drone attacks, which created the Pakistani Taliban. Now Pakistan has an insurgency, because of it's support for the U.S., which it cannot afford to fight.

Also, look into the politics of the situation Pakistan faces. The population supports the Afghani Taliban but is against the Pakistani Taliban, which targets their gov't. They are against the U.S. and the chaos it has brought to their country.

The only option the U.S. has is to keep paying off Pakistan with billions. Pakistan will go along but manuevering behind the "scenes". Always remember India when you talk about Pakistan. Pakistan wants more influence over Afghanistan. They will not target the Afghani Taliban at all.

The situation is complex but this information adds another "puzzle piece" to help understand the current situation and what will happen in the future.

"None are more hopelessly enslaved than those who falsely believe they are free." Johann Wolfgang von Goethe

Lamb of God - As the Palaces Burn

SteveMT's picture

You are welcome. Agree about the importance of this story.

This is Amerika's future/actually present. We are printing money like crazy also. All is this nonsense will be ending all too soon.

SteveMT's picture

They better print it even faster now...another 20 tanker attack.

Key Nato supply route hit again in Pakistan
Suspected militants attacked and set fire to around 20 tankers carrying oil for Nato and US troops in Afghanistan on Monday killing three people, the third such strike inside Pakistan in as many days, police said.
Published: 10:23PM BST 03 Oct 2010

The attack took place on a supply line that has been closed by Pakistani authorities in protest at a Nato helicopter attack that killed three Pakistan troops on the border last week.

It will raise the stakes in the closure, which has exacerbated tensions between Washington and Islamabad but has been welcomed by Islamist groups opposed to Pakistan's support of the US-led war in Afghanistan.


SteveMT's picture

The Pakistanis are being wiped-out by our drone attacks!!!

We are eroding Pakistan's tax base. In a sick sort of way, we are liberating their people from paying taxes.

Quote from your post:

"The government was printing the money because its revenues were insufficient to pay the interest on its massive debt and cover its defense spending,..."

The banksters are charged with crimes against humanity. Our government is complicit in this crime.

Thanks for post "RonPaulWillNeverDie." That's a great handle BTW!

US 'to increase drone attacks in Pakistan'
The Pentagon and CIA are stepping up America's secret war against the Taliban and al-Qaeda in Pakistan by secretly diverting aerial drones and missiles from Afghanistan.

By Toby Harnden in Washington
Published: 5:23PM BST 03 Oct 2010

Predator and Reaper drones have been lent by the US military to the CIA as part of a shift in strategy that underlines the Obama administration's view that Pakistan is unable or unwilling to target Islamist sanctuaries on its own soil.

Tensions between the US and Pakistan have flared after a key route used to supply American troops in Afghanistan was shut after three Pakistani soldiers were killed in an attack by a Nato helicopter gunship.

On Friday, insurgents attacked fuel tankers in Pakistan in another indication of the increasing vulnerability of Western supply routes.