Pakistan cannot afford to ignore US demands

By: Aamir Ashraf

KARACHI, Sept 14 (Reuters) - Pakistan, already hit by drought and slow growth, cannot afford the economic pressure that could follow a refusal to accept U.S. requests for assistance in the aftermath of the terror attacks on the United States, analysts said on Friday.

"Options for the government are very limited," a chief economist at a Karachi-based foreign Bank told Reuters, requesting anonymity.

"Either do or don't -- and if don't it means another set of sanctions...isolation which this country with 2.6 percent of economic growth, could not afford."

Cash-strapped Pakistan, buried under more than $80 billion in foreign and domestic debt, spends 83 percent of its annual revenues on debt servicing and defence.

Bankers said Pakistan's military ruler General Pervez Musharraf had very little room to manoeuvre between the U.S. demands for help in punishing those behind Tuesday's attacks and the domestic pressure from those opposed to what looks increasingly like an attack on Afghanistan.

Either decision could hit the already struggling economy.

"We are pushed to the wall in either case," said the economist. "We will face the music if we don't cooperate with the U.S. and we will face the music if we do cooperate...the retaliation within the country after U.S. strikes could equally be fatal."

"Indications are that Pakistan has agreed to cooperate with the U.S. and that would minimise the chances of a possible new set of sanctions...which are there otherwise," an economist in Karachi University's Applied Economic Department said.

Pakistan's gross domestic product in fiscal 2000/01 (July-June) was 2.6 percent -- the lowest in 20 years -- compared with a targeted growth rate of 4.5 percent and from 6.1 percent achieved in 1999/2000.

Last year's water shortages seriously damaged crops, with farm output -- which accounts for about 26 percent of the GDP -- down 2.5 percent.

Islamabad has also been unable to maintain its fiscal deficit at 5.3 percent of GDP during the 2000/01 fiscal year (June/July) as agreed with the International Monetary Fund in exchange for a $596 million standby loan.

"We need the U.S. support to win foreign assistance and there is no alternate to it," another analyst said.

Pakistan is currently under IMF standby adjustment facility, approved late last year and is also vying for funding under the IMF's three-year Poverty Reduction and Growth Facility (PRGF).

Analysts also said foreign investment in Pakistan could be hurt if the government refused to aid the U.S.

Foreign investment has dried to a trickle and international sanctions imposed since 1990 for various reasons, including a nuclear weapons test in 1998, have left the country scrambling for sources of hard currency.

13:21 09-14-01


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