Pakistan On The Radar

Earlier this year, the International Monetary Fund seemed on track to permanent downsizing, as emerging-market growth had left it without a client base of economically poor nations. But that may be changing. A recent report by Citigroup recommends Pakistan as the IMF's next big customer; the bank sees a big risk of sovereign-debt default next year thanks to a weak rupee (a legacy of flawed economic policies) and higher energy prices. "The balance-of-payment situation in energy-dependent countries like Pakistan has deteriorated," notes Citi economist Mushtaq Khan. "Oil has softened, but even if prices stay where they are, Pakistan will run a large deficit." Khan notes that IMF advice is needed more than money; proposed loans from Saudi Arabia could stabilize the currency, but other investors won't bite till they see a plan for structural reform. The commodity boom might just put the IMF back in business.

© 2008