ISLAMABAD // Pakistan's economic crisis has pushed millions more into poverty and as a result, analysts fear, broadened the recruiting ground for extremists. The consequences of the financial debacle are profound for the country's fragile hold on democracy and its security, making it probable the international community will offer a rescue package.
The country is facing bankruptcy, as its foreign exchange reserves dwindle so much that it will default on external debt repayments in the next couple of months. The economic collapse hit just when democracy was restored. Meanwhile, inflation shot up 25 per cent, the government's budget is under severe strain and there is a huge shortage of electricity. Confidence is so poor that the Karachi Stock Exchange lobbied the government unsuccessfully to be allowed to close for two weeks - angry investors surrounded the bourse yesterday and the police had to be called.
"In South Asia, there are a huge proportion of people just above the poverty line. A slight shock in their income can push them below the poverty line. This is the kind of shock that would have pushed a huge number of people into the poverty trap," said Sadia Malik, the director of Mahbub ul Haq Human Development Centre in Islamabad. Basic food items, such as wheat, rice and milk have rocketed by 100 per cent over the past year. Before the full impact of the current economic crunch, it was independently estimated that one-third of the population, or about 56 million people, lived below the poverty line - measured by daily calorie intake. It is likely that millions more will have joined them now.
Any default would send prices soaring even further. The gap between the haves and have-nots has widened massively. Together with the loss of job opportunities, this has created a combustible situation, and a fertile breeding ground for extremism. "The canvass of terrorism is expanding by the minute," said Faisal Saleh Hayat, a member of parliament and a former interior minister under the regime of Pervez Musharraf.
"It's not only ideological motivation. Put that together with economic deprivation and you have a ready-made force of Taliban, al Qa'eda, whatever you want to call them." Mr Hayat said one direct impact is that the poor would have to rely increasingly on the free education offered by madrasas, where children are fed an exclusively religious diet. Islamic schools, some of which have been accused of brainwashing children with extremism, also offer free food and clothing. Even if most madrasas are not radical, they churn out pupils ill-equipped to join the labour force.
Faiyaz Ahmed, a taxi driver in Islamabad, is an example of the phenomenon. He said due to his sinking income, he had to remove his two youngest children from regular school and was now considering putting them in a madrasa. "We depend on God, not the government, not the president," said Mr Ahmed, who was once a supporter of the governing Pakistan People's Party, as he waited for a fare at a taxi stand in Islamabad's tiny Al Madina market.
"Only God can save us now from this mess." The past two years of the Musharraf regime tried to bolster its flagging appeal through largesse that the country could not afford, with huge subsidies for wheat, fuel and other items. The current government has announced its own spending commitments, although economists have said at least the subsidies are now being targeted more directly at the poor, through such schemes as the Benazir Bhutto Income Support Fund, which aims to help three million families. But poor economic management means that Pakistan has a difficult case to sell to the international community.
"If Pakistan had a good, solid macro stabilisation for the short term, and growth programme for the medium run, most donors, multilateral and bilateral agencies would buy into that," said Faisal Bari, a professor of economics at the Lahore University of Management. "There is a realisation that a stable Pakistan right now would be very important, not just for the region, but the war on terror." sshah@thenational.ae
