Pakistan President Asif Ali Zardari is set to take over as president of a country with the world’s riskiest debt, the weakest currency in its history and a stock market so depressed that the exchange ordered a freeze on price declines.
“I mean business and will pull Pakistan out of its present state of affairs,” Zardari told the News newspaper after being elected September 6 by Parliament where his Pakistan Peoples Party has a majority. While Zardari has pledged to continue a decade of economic liberalisation, he has given no details.
Zardari’s swearing-in may end 18 months of government paralysis caused by his power struggles with former president Pervez Musharraf and ex-prime minister Nawaz Sharif, whose Pakistan Muslim League is the second-largest party. International investors have fled a stock exchange that has nearly halved in value this year, the worst performance in Asia after China, as subsidies for food and fuel and record military spending widened the budget deficit to a 10-year high.
“The fiscal issue is the weakest link in the policy mix” and “the depletion of foreign exchange reserves is fairly worrying,” said Sakib Sherani, Islamabad-based country economist for the Royal Bank of Scotland. Zardari, 52, “won't have the luxury of dealing with them one by one; he will have to deal with a lot of challenges simultaneously,” he said.
Interest Rates: Sharif met Zardari for the first time since their coalition split August 25 and declined his request to rejoin the government, said Sharif's spokesman, Ahsan Iqbal. Still, the leaders agreed to “work together in the spirit of democracy and as a show of mutual respect,” Iqbal said. A thaw in their relations may let the government shift its focus to Pakistan's crises.
While the economy grew 7 per cent annually over the previous five years, it slowed this year as the central bank raised interest rates to the highest in Asia to tackle inflation at a three-decade high. The rupee is down 20 per cent, snapping four years of gains, and is on course for it worst year since at least 1998, when tit-for-tat nuclear tests with India last pushed the government to the brink of default.
The Karachi Stock Exchange imposed emergency trading limits on August 28, preventing stocks from falling below their closing prices on August 27, to halt a drop in shares that has dragged the index down by 32 per cent this year. Those measures are scheduled to be reviewed tomorrow.