Security fears over Pakistan bankruptcy threat

Already nearly broke when the global financial crisis took hold, Pakistan now faces further woes that could take the nuclear-armed nation's security situation closer to the edge, experts said.

The country, a frontline ally in the US-led campaign against Al-Qaeda and Taliban militants, has been forced to seek 10 billion dollars from western backers to stave of the threat of going bankrupt as early as February 2009.

As the world financial system nears meltdown, the situation is perhaps the biggest challenge yet for Pakistan's new government as it tries to replace former president Pervez Musharraf's outdated economic and security policies.

The administration here denies that the country is facing a balance of payments crisis -- but admits that outside help is necessary to stabilise a crucial nexis of fears over Islamic extremism and atomic proliferation.

"We are not going to go bankrupt, no way," senior government minister Naveed Qamar told AFP.

"The present economic situation is a difficult challenge for us but we'll certainly overcome it soon," added Qamar, who was finance minister until Friday, when he was moved to the shipping and privatisation portfolios.

Qamar said the government had adopted a "multi-pronged strategy", adding that it was benefiting from the recent fall in oil prices and was also getting record remittances from Pakistanis living abroad.

"But Friends of Pakistan are also helping us," Qamar said, referring to a group of major donors who pledged development aid in September to stabilise the South Asian country, in particular its border with Afghanistan.

Pakistan's tribal regions along the frontier are a bolt-hole for Islamic extremists from across the world. A spate of US missile strikes in recent weeks have raised public anger.

In a bid to speed up any potential cash injection, Shaukat Tareen, the finance adviser to Prime Minister Yousuf Raza Gilani, and state bank governor Shamshad Akhtar have travelled to Washington to secure the 10 billion lifeline.

Pakistan's foreign exchange reserves are at the root of the problem.

Until recently buoyed with US aid to Musharraf, they fell to 8.135 billion dollars this month from 9.129 billion on September 4, putting Pakistan at risk of defaulting on foreign loans.