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Pakistan in crisis

A case study on the response to Pakistan’s financial turmoil Part A CERIUM Montréal, July 4-10 2010. Pakistan in crisis. 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

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Pakistan in crisis

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  1. A case study on the response to Pakistan’sfinancialturmoil Part A CERIUM Montréal, July 4-10 2010 Pakistan in crisis

  2. 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

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

  4. A quiet neighborhood

  5. 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

  6. …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

  7. The RUPEE goessouth…

  8. Finance gets more expensive...

  9. Capital flows away...

  10. Povertyremains 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

  11. Public spendingstruggles • 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

  12. Montréal, July 9-10 2010 Friends of PakistanInternational DonorConference

  13. 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

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

  15. ProceedingsFriday, July 9th, 9:00-12:00am • 9:00-11:00 • Opening speeches • Plenary session (15-20 mins per delegation) • 11:00-12:00 • Discussion on negotiationthemes • Team discussion on negotiationsub-themes (20 mins) • Meetwithother parties in sub-groups (20 mins) • 1 delegetate per group • Establishment of ‘tables’ of negotiation (20 mins) • In plenary • Nextsteps • 20 mins

  16. DeliverablesFriday, 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

  17. Final daySaturday, July 10th, 9:00am-4:00pm • 9:00-11:00 • End sub-group discussions • 10:30-11:00 • Report to team • 11:00-12:30 • Teams to draft final Declarations (20 minutes, 4 pages) • Shouldtakeintoaccountprogress made in negotiationsduring the simulation • 2:00-3:00 • Teams to delegatemembers to draft a ‘final communiqué’ (2-3 pages) • 3:00-4:00 • Final communiqué • Stock takingexercise

  18. Negociating brief • 2-4 pages • Background • Whatisthis meeting all about? • Pre-meeting institutional positions • What are the other parties starting positions? • Desiredoutcomes? • What are our minimal acceptable outcomes ? • What are our maximal desiredoutcomes ? • What do wethinkisachieveblerealistically? • Whatpotentialtradeoffsshouldyouconsider? • Whatstrategiesshouldyou use to achieveyour optimal outcomes? • Strategy for the bigdayy

  19. Questions? • Fboutindufresne@imf.org

  20. Global response to Pakistan’scrisis Part B CERIUM July 2010 Pakistan in crisis

  21. 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)

  22. 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

  23. 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

  24. 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.

  25. IMF Conditionalities • Fiscal deficit, excludinggrants, willbebrought 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 • buildits international reserves, • bring down inflation to 6 percent in 2010; and • eliminate central bankfinancing of the government • Expenditure on the social safety net willbeincreased to protect the poor • cash transfers • targetedelectricity subsidies worth 0.3 percent of GDP

  26. US State Department/USAID • Front loading of its grant program (1bn$)

  27. Q and A • April 17th, 2009 Tokyo Donor Conference • Aid base of US$2bn/year • New US Administration and new foreign priorities • Renewed interest in Pakistan in the war against terror

  28. Stock Taking • Recent developments in Pakistan

  29. UN

  30. IMF

  31. PAKISTAN

  32. EUROPEAN UNION

  33. USA

  34. WORLD BANK GROUP

  35. CHINA

  36. NATO

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