Fast-sinking rupee and debt woes push Pakistan towards bankruptcy

Islamabad: The risk that Pakistan could become the bankrupt state it was before a military coup nine years ago loomed larger yesterday as the rupee struck an all-time low and its debt was relegated deeper into junk bond territory.

The six-month-old civilian government led by President Asif Ali Zardari is engulfed with crises left behind by former army chief General Pervez Musharraf, who resigned as president in August.

On Monday, the rupee hit 78.65 per dollar. That took its loss this year to more than 21 per cent.

The central bank has just enough foreign currency to cover two months of imports, and a potential default on a sovereign loan is looming in February.

The fiscal and current account deficits are unsustainable. Inflation is over 25 per cent and rising. S&P cut the rating on the country's sovereign debt rating to CCC-plus, a few notches above default level.

S&P said Pakistan's worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt payments.

"The authorities now need to demonstrate that the financing gap in the balance of payments is capable of being bridged," said Tim Condon, economist at ING Bank.