ISLAMABAD, PAKISTAN — Take a restive, nuclear-armed nation with an untested new government, an escalating Islamic insurgency, long-standing tensions with its neighbors and an economy in free fall for months.
Then add in a global financial crisis. Some analysts and diplomats fear Pakistan could come to exemplify a perilous new phenomenon: a strategic but unstable state at risk of being pushed to the breaking point by external economic factors.
Government officials insist that Pakistan's economic fundamentals, while weakened, are holding steady. But this politically volatile country of 165 million people, a crucial U.S. ally in the fight against the Taliban and Al Qaeda, can ill afford more upheaval.
Pakistan's creditworthiness rating is the second worst among nations ranked by Standard & Poor's, superior only to that of the Seychelles. Last week, the country's new president, Asif Ali Zardari, felt compelled to offer assurances that "Pakistan is not going bankrupt."
On Monday, armed police surrounded the Karachi stock exchange to prevent a recurrence of the stone-throwing rioting by investors that occurred in July.
"The global crisis has really added fuel to the fire," said market analyst Muhammad Suhail. "There was a time window earlier this year to address all this, and we missed it."
At the onset of the current mayhem in markets worldwide, Pakistan -- a relative economic success story for much of the last decade -- was already undergoing a punishing reversal of fortune.
In the last six months, its main stock exchange has lost more than half its value. The national currency, the rupee, stands at historic lows, even with propping up last week by the state bank, which also intervened to improve market liquidity. Foreign-exchange reserves are depleted, the budget deficit is at a 10-year high, inflation is running about 24% annually, and debt obligations are looming large.
From the poorest of the poor to the wealthy elite, Pakistanis are frightened. Some say the wretched state of the economy scares them more than the threat of terrorist attacks.
"You know, I can wake up any morning and say to myself, 'OK, God willing, I don't think a suicide bomber is going to find me or my family today,' " said Zeeshan Qadir, a merchant. "But I know for certain it is going to get harder that day to pay my bills."
