The mood in Pakistan changed swiftly following the nuclear tests, from what was dubbed as "euphoria" into today´s uncertainty and fear, which have escalated as the extent of the economic crisis has become evident. Economists, who had long been warning of this day, found their predictions coming true rather earlier than expected, thanks to the Nawaz Sharif government´s decision to retaliate against India´s misguided show of brute nuclear strength.
The anxiety caused by the imposition of emergency and the freezing of foreign currency accounts has only exacerbated since. Ironically, it was the first Sharif government which had allowed the opening of foreign exchange accounts in local and multinational bank branches in Pakistan. Back then, the warnings of newspaper columnists and economists that this step would eventually backfire in the faces of those who fell for it went unheeded as the government assured potential forex depositors that their money would be safe.
The second coming of Nawaz Sharif has, unfortunately for those who trusted him, proved these warnings correct. But in Pakistan, it is always the big fish who manage to slip through the net, and so it was that those with huge dollar or pound sterling accounts were able to withdraw thousands of dollars through backdated transactions on the very eve of the accounts being frozen.
But freezing the private foreign accounts has not worked to make the economy solvent; after all, they totalled no more than a meagre USD 1.5 million. Meanwhile, the government magnanimously allowed the bank clients to withdraw money from their foreign currency accounts in rupees, at the official rate of USD 1 to PKR 46. And all the while, the dollar was climbing to unprecedented heights in the open market, selling for as much as PKR 65 on some days. Some bankers say privately that by the end of the year, a dollar can be expected to fetch PKR 100.
There´s worse. Economists report gloomily that 22 percent of the expenditure of the Government of Pakistan is now accounted for by debt servicing. The country apparently needs some USD 5 billion to climb out of its ditch of external and internal debt. A 25 percent increase in gasoline prices in late July dealt another severe blow to the middle-income and salaried classes. There are no signs of relief: the economic meltdown of Pakistan, warn economists, has started.