Pakistan%20in%20crisis

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Pakistan in crisis

• A case study on the response to Pakistans
  financial turmoil
• Part A
• CERIUM
• Montréal, July 4-10 2010

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Pakistan not too bad

• Low income country
• GDP/capita 9852 PPP (Current, 2007)
• New Asian Tiger?
• 6-8 growth since 2004
• Poverty decreased 10 since 2001
• 17 of the population living below the poverty
  line in 2008
• Strong increases in development/social spending
  by the government

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But

• War against terrorism
• Political instability
• Rising commodities prices
• Impact on the poorest
• High inflation
• Jumped form 8 in 2007 to 25 in 2008

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A quiet neighborhood
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Financial Crisis leaks into Pakistan

• Recently privatized state-owned banking system
• Scarce liquidity in the banking sector
• 32-40 overnight lending rates
• SBP injects liquidity to oil the system
• Government raises foreign borrowing by 100
• Deterioration of the government fiscal situation
• Downward pressure on the rupee
• Stock market halves

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and hits the real economy

• FDI halves
• Low Level of currency reserves
• Low of 6 weeks of imports/10 days of oil supplies
• Investors loose confidence in the value of the
  rupee
• Inflation is up
• Government asks the Central Bank to print money
  to finance its spending
• Depresses value of the rupee
• Downgrade of soverign debt
• Raises costs of new borrowing on international
  markets

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The RUPEE goes south
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Finance gets more expensive...
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Capital flows away...
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Poverty remains an issue

• At least 25 pop (169 million) is living with
  less than 1 a day
• Number of poor in the country had risen from 60
  to 77 million just because of food inflation
• Poorest 20 percent spent from 50 to 58 percent of
  their income on cereals

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Public spending struggles

• Pre crisis obective raise social spending from
  4.3 to 6.5 of GDP in 2010
• Education 2 to 4 of GDP
• Health 0.5 to 1 of GDP
• 2bn in aid annually (loans grants)
• 10 of the budget
• ¼ of tax receipts

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Friends of PakistanInternational Donor Conference

• Montréal, July 9-10 2010

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Delegations

• Heads of delegation (mission chiefs)
• Lead for opening/final speeches
• Counsellors
• Lead for negociations on various tables and
  support mission chief in plenary
• Secretaries
• Leads for final declarations

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Roles

• The Government of Pakistan
• The IMF
• The World Bank
• The OECD/donors
• China
• The European Union
• NATO
• The US State Department

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ProceedingsFriday, July 9th, 900-1200am

• 900-1100
• Opening speeches
• Plenary session (15-20 mins per delegation)
• 1100-1200
• Discussion on negotiation themes
• Team discussion on negotiation sub-themes (20
  mins)
• Meet with other parties in sub-groups (20 mins)
• 1 delegetate per group
• Establishment of tables of negotiation (20
  mins)
• In plenary
• Next steps
• 20 mins

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Deliverables Friday, July 9th

• Opening speech
• 20 minutes or 5 pages per team
• Negotiating briefs
• Team strategy and issue backgrounder for the
  entire simulation (5 pages)
• Team briefs should be produced for every
  sub-issue (2-3 pages)
• These instructions should be linked to teams
  overall strategy

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Final daySaturday, July 10th, 900am-400pm

• 900-1100
• End sub-group discussions
• 1030-1100
• Report to team
• 1100-1230
• Teams to draft final Declarations (20 minutes, 4
  pages)
• Should take into account progress made in
  negotiations during the simulation
• 200-300
• Teams to delegate members to draft a final
  communiqué (2-3 pages)
• 300-400
• Final communiqué
• Stock taking exercise

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Negociating brief

• 2-4 pages
• Background
• What is this meeting all about?
• Pre-meeting institutional positions
• What are the other parties starting positions?
• Desired outcomes?
• What are our minimal acceptable outcomes ?
• What are our maximal desired outcomes ?
• What do we think is achieveble realistically?
• What potential tradeoffs should you consider?
• What strategies should you use to achieve your
  optimal outcomes?
• Strategy for the big dayy

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Questions?

• Fboutindufresne_at_imf.org

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Pakistan in crisis

• Global response to Pakistans crisis
• Part B
• CERIUM
• July 2010

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Government of Pakistan

• Restore Credibility
• Reduce fiscal deficit
• Contain inflation at 12
• Build up foreign exchange to 12bn
• Rationalization of subsidies
• Protect the vulnerable
• Cash transfers to the poor (Benaznir Butto
  program)

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More measures...

• Raise productivity manufacturing/agriculture
• Re-affirm govt commitment to private sector-led
  growth
• Invest in infrastructure
• Increase spending in social sectors
• Increase availability of low cost housing

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WorldBank/ADB

• WB 500 million loan for poverty reduction
  programs (unofficial)
• ADB 1.5 billion of loans per year through 2011
  (4.5bn total)
• Sustain growth, reduce poverty and accelerate the
  transformation of the economy

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IMF

• 7.6bn structural adjustment loan (Stand By
  Arrangement)
• Support program to stabilize and rebuild the
  economy
• Expand its social safety net to protect the poor.

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IMF Conditionalities

• Fiscal deficit, excluding grants, will be brought
  to down from 7.4 percent of GDP in 2007/08 to 4.2
  percent in 2008/09
• The State Bank Of Pakistan (SBP) will
• build its international reserves,
• bring down inflation to 6 percent in 2010 and
• eliminate central bank financing of the
  government
• Expenditure on the social safety net will be
  increased to protect the poor
• cash transfers
• targeted electricity subsidies worth 0.3 percent
  of GDP

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US State Department/USAID

• Front loading of its grant program (1bn)

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Q and A

• April 17th, 2009 Tokyo Donor Conference
• Aid base of US2bn/year
• New US Administration and new foreign priorities
• Renewed interest in Pakistan in the war against
  terror

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Stock Taking

• Recent developments in Pakistan

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• UN

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• IMF

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• PAKISTAN

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• EUROPEAN
• UNION

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• USA

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• WORLD BANK
• GROUP

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• CHINA

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• NATO