Paying the nuclear price

Outside the Karachi Stock Exchange

Pakistan's economy is currently in a poor state, and is likely to fall even shorter of rarely-achieved growth targets if wide-ranging economic sanctions take effect in response to the testing of nuclear weapons.

Following the nuclear tests, the government imposed a state of emergency, allowing it to introduce austerity measures, without legal challenges, to an economy already troubled by corruption, mismanagement and political and social instability.

Several countries imposed sanctions on India following its tests, and the Pakistani Foreign Minister, Gohar Ayub Khan, said the people of Pakistan were prepared for the effects of similar moves against Pakistan.

But Pakistan's economy is far more fragile than India's, and sanctions could hit the country hard.

Hard times ahead

The United States has already imposed sanctions against Pakistan, just as they had been imposed on India, under provisions in US law calling for sweeping economic measures against so-called non-nuclear countries testing nuclear weapons.

President Clinton's said he "deplored" the fact that the tests had gone ahead, despite his last-minute plea to the Pakistani Prime Minister Nawaz Sharif, and said the Pakistanis had lost a priceless opportunity to strengthen their political standing.

Japan - Pakistan's biggest aid donor - said it was suspending new loans and grants to Islamabad. Australia quickly withdrew an offer to double aid to Pakistan which had been conditional on Islamabad not going ahead with testing. France denounced the tests but said it was not ready to support sanctions. Germany called off talks on economic development aid for Pakistan.

Despite the condemnation, Pakistan has since carried out two further nuclear tests.

The debt grows

Despite Pakistan's poor record on improving performance in terms of manufacturing and revenues, the country spends 25% of its Gross National Product on defence, undermining fiscal stability.

According to figures released in June 1997, Pakistan has almost $3bn in debt payments due by December 1997, and a monthly trade deficit of around $300m. Pakistan's external debt reached a total of $28bn in 1996.

If grants from the International Monetary Fund and the World Bank were suspended, Pakistan's abilities to repay these foreign loans would be seriously affected.

Danger of unrest

Economists say that, as a proportion of gross domestic product, sanctions suspending government lending to Pakistan, will hit the country's economy two to five times harder than similar sanctions on India.

Pakistan's economy is far more dependent on foreign loans and grants than India, while India attracts more foreign direct investment and larger deposits from citizens living abroad.

If sanctions really begin to squeeze the Pakistani economy, social and political unrest could result.

Following India's tests, the international community did not impose sanctions at the level of those authorised, for example, by the United Nations on Iraq.

This comparative restraint may be a reflection of international concern that the tensions in South Asia are so heightened that the economic effect of sanctions should be balanced against their possible social and political consequences.