IMF holds back cash to Pakistan: Asia Times

By Syed Fazl-e-Haider

KARACHI - The International Monetary Fund (IMF) has deferred for an indefinite period disbursement of the fifth, US$1.2 billion, installment of funds to be paid to Pakistan under their $11.3 billion standby agreement. This came after the government failed to meet the condition of tabling draft value-added tax (VAT) legislation in the four provincial assemblies.

Critics say the proposed VAT will increase inflation, erode consumers' purchasing power and dampen demand. The government has left the issue with legislators who will adopt, reject or amend the VAT bill. Local business communities have strongly opposed the imposition of VAT, saying it will harm every sector of the economy. However, the rupee "will come under pressure if the IMF money is delayed for more than a month", The News quoted Sayem Ali, an economist at Standard Chartered Bank, as saying. That would drive up the cost of imports.

The Washington-based IMF has postponed its scheduled March 31 executive board meeting, which was to review Pakistan's economy and approve payment of the fifth tranche.

The legislative bottleneck is the presentation of a draft law on VAT to the Punjab assembly, according to Dawn. The government has already submitted the draft law to the National Assembly and to the provincial assemblies of Sindh, North-West Frontier Province and Balochistan.

For more on this article, please click on the following link: IMF holds back cash to Pakistan: Asia Times

Pakistan receives 3rd tranche of IMF loan: Xinhuanet

ISLAMABAD, Aug. 12 (Xinhua) -- Pakistan has received 1.2 billion U.S. dollars from the International Monetary Fund (IMF), the third tranche of an emergency loan facility agreed last year, the central bank said Wednesday.
"We have received 1.2 billion U.S. dollars from the IMF," Syed Wasimuddin, spokesman of the State Bank of Pakistan, was quoted assaying by the private TV channel GEO.
Last week, the IMF increased its loan to Pakistan to 11.3 billion U.S. dollars under an economic program first agreed in Nov.2008, to avert a balance of payments crisis.

For more on this article, please click on the following link: Pakistan receives 3rd tranche of IMF loan: Xinhuanet

Pakistan May Cut Rate for Second Time This Year to Stoke Growth: Bloomberg

By Khalid Qayum and Farhan Sharif

Aug. 13 (Bloomberg) -- Pakistan’s central bank will probably lower its benchmark interest rate for the second time this year to help boost economic growth.

State Bank of Pakistan will cut its discount rate by between 1 and 2 percentage points from 14 percent, according a Bloomberg News survey of 12 economists. Governor Salim Raza is due to release the central bank’s quarterly monetary policy statement on Aug. 15 in Karachi, after the announcement was delayed from the previously scheduled date of July 25.

The case for reducing rates “has been strengthened by the sharp drop in inflation,” said Asad Farid, an economist at AKD Securities Ltd. in Karachi. “It is very critical that finance costs be lowered now. If they aren’t, industry, which is already facing huge problems, will not be competitive.”

The Pakistan Peoples Party-led government is betting lower interest rates will revive the confidence of investors, who have shied away from the country because of militancy in the northwest region and a crumbling economy. The International Monetary Fund agreed to increase a loan to Pakistan by $3.2 billion on Aug.8, after the country was forced to turn to the Washington-based lender for a $7.6 billion bailout in November.

Governor Raza in April cut the benchmark rate one percentage point to 14 percent from a decade high. Policy makers last raised borrowing costs by 2 percentage points on Nov. 12, the fourth increase in 2008, as part of conditions for the IMF loan and to curb inflation that reached a 30-year high.

Slowing Inflation

Consumer prices rose 11.17 percent in July from a year earlier, the slowest pace in 19 months. Large-scale manufacturing output fell 8.5 percent in the 11 months ended May 30, according to the statistics agency.

South Asia’s second-largest economy was forced to turn to the IMF for a rescue package to avoid defaulting on its debt, after the country’s foreign-exchange reserves shrunk 75 percent in a year to $3.5 billion and the current-account deficit widened to a record.

For more on this article, please click on the following link: Pakistan May Cut Rate for Second Time This Year to Stoke Growth: Bloomberg

The Debt Trap: IMF, World Bank and Pakistan: Economistan

14th August, a day we celebrate as our independence day is fast approaching amidst ever worsening financial condition and ever growing debt burden. The tradition of taking debt for stimulating growth in our economy was started in early years of Pakistan but these debts have today become a bane rather than a boon for our beloved homeland. As Pakistan entered 21st century, its Public debt exceeded 90% of its GDP, over 600% of its annual revenues, and debt servicing accounted for over half of current revenues. In 2001, Pakistan was the only country in South Asia to be classified as a severely indebted country by the World Bank.

Historically, the Government of Pakistan has faced budget deficit since 1947. Early debts were taken during Ayub regime for building dams and industrialization. It was only during this time that this money acquired from abroad was utilized correctly. However, situation changed after this era and with the loss of East Pakistan and much of our economy after 1971 the events took drastic turn. During the later era’s decisions to acquire debts and to increased budget deficit were influenced by political needs rather than economic priorities. Another huge problem that Pakistan faces even today is the continuation of policies especially positive economic reforms which are often reversed only because they were introduced by a political rival while Pakistan’s government expenditure has been increasing constantly in last four decades.

Such uncontrolled expenditures mainly started during Zia era when foreign aid started to flow in due to Afghan war. The 11 years era of General Zia can be considered worst era of Pakistan’s history not only due to it’s political and socio-cultural disasters it yielded which Pakistanis are still facing today but also due to it’s economic policies. During Zia era the total national debt grew at an average rate of 17.7%. The influx of foreign aid did little to help the debt situation as it soared to 630 billion rupees. In fact One contribution to this was the costly non bank borrowing, e.g. from national saving schemes, and the ratio of debt to GDP kept rising. Interest payments on debt also rocketed to about 28 percent of revenues....

For more on this article, please click on the following link: The Debt Trap: IMF, World Bank and Pakistan: Economistan

Debt to GDP ratio rises to 56.2% from 55.2%: Daily Times

By Sajid Chaudhry

ISLAMABAD: The ratio of debt to gross domestic product (GDP) has touched 56.2 percent of the GDP by the end of June 2008, up by 1.1 percent as against the target of reducing the debt to GDP ratio by 2.5 percent from 55.2 percent of GDP in 2006-07.

According to Debt Policy Statement 2008-09 on Monday, the year 2007-08 also witnessed the violation of two elements of the Fiscal Responsibility Debt Limitation Act (FRDL) 2005. Under the act, the government was required to achieve zero revenue deficit by the end of 2007-08. Instead of achieving this target, the revenue deficit jumped to a 10 year high, increasing to Rs 359 billion or 3.4 percent of the GDP. The act also required that the government would reduce public debt by at least 2.5 percentage points of GDP every year. The government could not meet this requirement as well. Public debt, instead of declining by 2.5 percentage points of GDP, has, in fact, increased by 1.1 percentage points. Revenue balance (total revenue minus current expenditure) not only breached the performance target but, in fact, deteriorated significantly during the fiscal year 2007-08.

During the outgoing fiscal year 2007-08, though Pakistan’s external debt and liabilities surged to $46.3 billion, as compared to $40.5 billion in the previous year, thereby showing an increase of $5.8 billion or 14 percent, it registered a further marginal decline of 0.5 percentage points to 27.6 percent of GDP.

For more on this article, please click on the following link: Debt to GDP ratio rises to 56.2% from 55.2%: Daily Times

Capitalism Freezes in Worldwide Winter of Discontent: Bloomberg

By James G. Neuger

Jan. 12 (Bloomberg) -- As capitalism staggers through its first globalized economic crisis, the costs won’t be measured only in dollars and cents.

From newly rich Russia to eternally impoverished sub- Saharan Africa, social strains are threatening the established political order, putting some countries’ very survival at risk.
In the past month, Nigerian rebels threatened renewed warfare against foreign oil producers, Russia sent riot police from Moscow to quell an anti-tax protest in Siberia and China’s communist leadership warned of social agitation as the 20th anniversary of the Tiananmen Square massacre looms.

The disillusionment and spillover effects of the global recession “are not only likely to spark existing conflicts in the world and fuel terrorism, but also jeopardize global security in general,” says Louis Michel, 61, the European Union’s development aid commissioner in Brussels.
Somewhere in the wreckage may lurk an unexpected test for U.S. President-elect Barack Obama, 47, one that upstages his international agenda just as Afghanistan’s backwardness and radicalism led to the Sept. 11 attacks that defined the era of George W. Bush only eight months into his term.

Among the possible outcomes: instability in Pakistan, a more aggressive if economically stricken Iran, a collapsing Somalia, civil disorder in copper-dependent Zambia, a strengthened, drug-financed insurgency in Colombia and a more warlike North Korea.

Cascading Into a Crisis

The U.S. housing slump that began in 2007 has cascaded into a worldwide crisis that forced central bankers to cut interest rates to near zero to unlock credit markets, pushed governments to bail out their biggest banks amid a $1 trillion of writedowns, and sent titans like General Motors Corp. and American International Group Inc. begging for bailouts.

The World Bank reckons trade will shrink for the first time in more than 25 years, deepening the economic hole for governments in developing nations, where higher food and fuel prices cost consumers an extra $680 billion last year and pushed as many as 155 million people into poverty.

Nuclear-armed Pakistan, once touted by Bush as the key U.S. ally in the war on terror, sits at the nexus between economic insecurity and extremism.

“Blood and tears” may be Pakistan’s fate, says Thaksin Shinawatra, 59, who as prime minister of Thailand fought rural poverty during a stormy five-year tenure until his ouster by a military coup in 2006. “That’s where I’m worried, and also about political stability, and the terrorist activities are there,” he said in an interview.

IMF Bailout

On Nov. 25, Pakistan clinched a $7.6 billion International Monetary Fund bailout to avert a debt default amid ebbing growth and an inflation rate of 25 percent in November that is ruining the livelihoods of its poor.

For more on this article, please click on the following link: Capitalism Freezes in Worldwide Winter of Discontent: Bloomberg

£480m support package for Pakistan: Press Association

Details of a £480 million support package for the Pakistani government have been revealed at a Scottish mosque.

Douglas Alexander, the UK international development secretary, said the money is intended to help increase security in border regions and focus on education and health.

For more on this article, please click on the following link: £480m support package for Pakistan: Press Association

ADB approves $300 mln loan to Pakistan: Reuters

ISLAMABAD, Dec 11 (Reuters) - The Asian Development Bank will extend $300 million in loans to help Pakistan implement programmes aimed at reducing poverty and improving the health of women and infants, the bank said in a statement on Thursday.

The ADB will provide $100 million each to three of Pakistan's provinces -- Punjab, Baluchistan and Sindh."The programme could potentially save the lives of up to 11,000 women and 235,000 infants by 2015 compared to a scenario without such support," said Rie Hiraoka, senior social sector specialist for ADB's Central and West Asia department.The statement did not say when the loans would be disbursed.Like many developing economies, Pakistan has been hit hard by rising fuel and food prices and inflation is at its highest since the 1970s.

For more on this article, please click on the following link: ADB approves $300 mln loan to Pakistan: Reuters

IMF tranche boosts Pakistan's reserves to $9.4 bln: Forbes

KARACHI, Dec 1 (Reuters) - Pakistan's foreign currency reserves stood at $9.4 billion by Nov. 26 after receiving the first tranche of $3.1 billion from the International Monetary Fund last week, the State Bank of Governor said on Monday.
Reserves had totalled $6.6 billion as of Nov. 22.



The IMF last week approved a $7.6 billion loan to avert a balance of payments crisis and prevent the government defaulting on its international debt obligations.



For more on this article, please click on the following link: IMF tranche boosts Pakistan's reserves to $9.4 bln: Forbes

Rupee firms: Dawn

Tuesday, November 25, 2008

KARACHI: The Pakistani rupee ended firmer on Monday on expectation the International Monetary Fund (IMF) will approve a $7.6 billion stand-by arrangement for the country, dealers said. IMF officials are due to meet in Washington on Monday to discuss a stand-by arrangement for Pakistan, according to the Fund’s Web site.

The rupee was quoted closing at 78.90/79.00 to the dollar compared with Saturday’s close of 79.06/16. “The rupee has been strengthening slowly for the past few days following the decision to enter an IMF programme,” said a currency dealer. The loan should help the rupee stabilise, at least in the short term, after a sharp depreciation this year as a balance of payments crisis developed, dealers said.

For more on this article, please click on the following link: Rupee firms: Dawn

Pakistan Raises Interest Rates Ahead of IMF Bailout: Bloomberg

By Khalid Qayum and Farhan Sharif

Nov. 12 (Bloomberg) -- Pakistan's central bank increased its benchmark interest rate by 2 percentage points, the most in more than a decade, as the government seeks a loan from the International Monetary Fund to avoid defaulting on its debt.

The State Bank of Pakistan raised the discount rate at which it lends to commercial banks to 15 percent, Governor Shamshad Akhtar said today in Karachi. The increase was part of conditions for an IMF loan, said Ahsan Iqbal, a spokesman for the Pakistan Muslim League-Nawaz party and former deputy chairman of the Finance Ministry's planning commission.
``It was the toughest decision of my life,'' Akhtar told reporters. ``The IMF program will be good for Pakistan as we need to be disciplined.''

Pakistan has been forced to seek funds from the IMF after its foreign reserves shrunk to $3.5 billion as of Nov. 1 from $14.2 billion a year ago, raising concern the country will not be able to pay the $3 billion in debt-servicing costs due in the next 12 months. Higher borrowing costs may also tame inflation, which accelerated to near a three-decade high in October.

For more on this article, please click on the following link: Pakistan Raises Interest Rates Ahead of IMF Bailout: Bloomberg

Pakistan can raise $5bn in 30 days: Dawn

By Yousuf Nazar

Given the current ‘political realities’, Pakistan seems to have little option but to go to the IMF. But the truth is Pakistan can raise $5 billion in the next 30 days if it wants to; even if Saudi Arabia does not extend oil credit facility.The United States wants Pakistan to work with the IMF and the government does not want to upset Washington. Otherwise why would it sit on proposals (like the exchangeable bonds and the securitisation of remittances) for months that could have raised a few billion dollars? The proposal from the Chinese to buy minority stake in the National Bank of Pakistan, likewise, was put in cold storage.Raising $5 billion will take Pakistan’s foreign exchange reserves to about $12 billion. This would represent a comfortable level of four months worth of next 12 months of imports as Pakistan’s annual import bill is likely to drop sharply to $33 billion from $40 billion in FY 2007-08 due to the collapse of the price of oil and these of other commodities such as edible oil. Four months of import cover is considered a reasonable level and the country can use this time to take steps, such as privatisation or joint ventures in strategic areas, to mobilise funds for its medium- term needs.Just consider the following four of the many ways the government can use to raise $5 billion for meeting the current crunch. These are not necessarily the most desirable options but are far better than carrying a begging bowl around the world.— Pakistan has about $1.8 billion in gold reserves. Borrowing or leasing against gold is a standard international practice. Pakistan can borrow for six months at the rate of around 2.1 per cent from the central bank of a friendly country such as the United Arab Emirates. India did this in 1991 for a short period.— Pakistan can borrow (not beg) at least US$1.5 billion from China on commercial terms by putting its shares in large government-owned corporations as collateral. China has, in the past year, extended loans to other countries (e.g. Congo) on the basis of proper collateral. The cost of loans secured against collateral can be significantly cheaper compared with other options.— Pakistan can get another $800 million in a few days if the US reimburses the remaining amount for 2008 it should pay under the Coalition Support Fund relating to expenditure incurred on combating terrorism. Pakistan has received only one instalment ($364.7 million in September 2008) for this year’s expenses. A senior military source told Internews that the amount for reimbursement was calculated on the basis of six-monthly reports. He said all bills related to the expenditure had been audited jointly by a team of Pakistani military officers and the US embassy.

For more on this article, please click on the following link: Pakistan can raise $5bn in 30 days: Dawn

Pakistan's Economy:Treacherous ground: Economist

Oct 30th 2008 | DELHI

From The Economist print edition

An earthquake adds to Pakistan’s woes

ON TOP of a bloody insurgency and a listing economy, Pakistan must now contend with a natural calamity. Before dawn on October 29th, an earthquake of magnitude 6.4 or greater struck the mountainous province of Baluchistan not far from its capital, Quetta. The death toll quickly exceeded 200.

It was the biggest earthquake since one in October 2005 that killed over 70,000 in Pakistan-controlled Kashmir. After that catastrophe, America spent almost $1 billion on relief operations, ferrying supplies to mountain villages by Chinook helicopter. According to one American official, cited by an independent working group on Pakistan policy, the goodwill America earned represents “the most successful strategic confrontation to date in the battle with the terrorists in South Asia.”

Even before the latest earthquake, Pakistan was again hoping its strategic position would persuade the world to rush to its aid. The ground is giving way beneath its economy. A distracted, overstretched government has allowed inflation to soar (see chart), the rupee to plummet and foreign-exchange reserves to seep away. On October 17th the central bank’s stash of hard currency was just over $4 billion, enough to cover just four to five weeks of imports.

Pakistan hoped for an infusion of cash from the “Friends of Pakistan”, an informal circle including China, America and Saudi Arabia. But to its dismay, only the IMF appears ready to offer the sums it needs as quickly as it needs them. The IMF is expected soon to approve a loan of up to $12 billion, probably spread over two years.

Pakistan and the IMF may not be “friends”; but nor are they strangers. Some of the politicians and civil servants now in power were “pretty traumatised” by the IMF programmes they endured during the 1990s, says Mohsin Khan of the fund. In those days, the IMF twisted their arms to make tough fiscal commitments they could not keep. In 2005 the military regime, having proudly turned down the last two instalments of its loan, declared that it had “broken the begging bowl forever”.

For more on this article, please click on the following link: Pakistan's Economy:Treacherous ground: Economist

WSJ slams IMF's prescriptions: Business Recorder

NEW YORK (October 30 2008): An influential US newspaper has criticised the prescriptions of the International Monetary Fund (IMF)--cuts in government expenditures, devaluation, and tax increases--for bailing Pakistan out of the financial crisis, saying that the measures would have opposite effect.

"Pakistan needs market-oriented reform along the Chilean and Irish models, not the IMF's austerity prescriptions," The Wall Street Journal said in an editorial, titled 'Does the IMF have no fresh ideas?' "Pakistan's economic wellbeing matters not only for its 165 million citizens but also because it's a key country in the world-wide war on terror," the editorial said.

The Journal said the IMF declined comment on a Pakistan Finance Ministry spokesman's statement last week that the Fund "wants Pakistan to reduce its government expenditures, maintain a 'flexible' exchange rate and 'increase' its tax-to-GDP ratio".

For more on this article, please click on the following link: WSJ slams IMF's prescriptions: Business Recorder

Pakistan Prefers Friends’ Aid to IMF Package: Khaleej Times

ntensive Pakistan-IMF consultations have been taking place in Dubai since Tuesday, for a bailout plan to avert possible debt default.

Pakistan has been trying to get International Monetary Fund endorsement for its current strategies for economic recovery that is imperative to persuade other multilateral lenders and friendly countries to come to its rescue.

Islamabad immediately needs 4 to 5 billion dollars to stabilise the economy and enhance confidence in its financial system — a pre-requisite to arrest ever-widening gap in balance of payments position amid rapidly depleting reserves and steep slide in rupee value. High inflation (25 per cent), unsustainable budget deficit, liquidity squeeze in the banking system due to government borrowing has multiplied economic woes.

It is apparent that both sides have agreed in principle on the need for help that was decided in their meetings in Washington in September. But Pakistan insists the IMF is only the last option and the current talks are a health-check and assessment of its financial restructuring plan, which does not include IMF funding at this stage. The plan is already underway to control expenditures side by doing away with subsidies on POL and electricity.

“It is not an extraordinary meeting but, yes, the circumstances have made it so”, says the Adviser Finance Shaukat Tareen. The IMF also confirms a formal request has yet to come but has been encouraging Islamabad to accept funding that may go up to $7 to 10 billion during next two years. The last time Pakistan came off an IMF programme was in December 2004, vowing it would never borrow from the agency again.

For more on this article, please click on the following link: Pakistan Prefers Friends’ Aid
to IMF Package: Khaleej Times

Bond spreads hit record high: bworldonline

HONG KONG — Asian bond spreads widened to record levels yesterday as fears about a balance of payments crisis in Pakistan and Argentina’s takeover of its private pension system rocked confidence in broader emerging markets.

Fears about Asian companies also deepened after S&P and Moody’s downgraded ratings on Chinese conglomerate CITIC Pacific , which this week revealed a potential $2 billion loss on unauthorized currency trades.

"There’s a scare going on in emerging markets overall. Yesterday there were jitters about Pakistan, and right now, adding to the pressure is the news from Argentina," said a Manila-based bond trader.

The iTRAXX investment-grade index widened by by about 40 basis points (bps) to 380.

The equivalent high-yield index jumped some 100 bps to as high as 1,200.

Both marked new records levels, a Hong Kong-based trader said.

The steep widening comes amid concerns about the deteriorating health of emerging markets. Pakistan is feared to be in critical condition as the central bank holds barely enough foreign currency to cover six weeks of imports and was expected to seek IMF help.

Shaukat Tarin, economic adviser to the prime minister of Pakistan, told Dawn News on Tuesday that the country required up to $15 billion of support from foreign lenders to avert a crisis.

Also on Tuesday, news that Argentina will take over its $30 billion private pension system in order to guarantee payments to retirees sent the country’s stocks and bonds tumbling.

For more on this article, please click on the following link: Bond spreads hit record high: bworldonline

IMF offers $6bn package: Dawn

By Anwar Iqbal
WASHINGTON, Oct 21: The United States has repeated its offer to help rescue Pakistan from the current financial crisis as diplomatic sources in Washington say the International Monetary Fund has agreed to provide $6 billion to the country to boost up its ailing economy.

�It�s hard for me to speculate,� said State Department�s deputy spokesman Robert Wood when asked if the IMF had agreed to offer a rescue package to Pakistan. But �we obviously will try to see what we can do to help Pakistan get through its financial crisis�.

Pakistan had �no choice but to seek help from the IMF,� said another State Department official. The official, who was not identified, was quoted in the US media as saying that Pakistani officials knew it would not be a popular decision in Pakistan but they had to go to the IMF.

�It won�t be popular with the public and it sends a lot of negative signals about Pakistan�s financial situation, its creditworthiness. But it�s a decision the Pakistanis are going to have to make,� he said.

The country�s inflation is running at around 25 per cent, and its foreign currency reserves are rapidly depleting, forcing the government to seek emergency cash advance from friendly countries and international financial institutions.

For more on this article, please click on the following link: IMF offers $6bn package: Dawn

Pakistan banks on other lenders saving it before IMF: Reuters

Pakistan - (Releads)

By Augustine Anthony

ISLAMABAD, Oct 18 (Reuters) - Pakistan might need to borrow from the International Monetary Fund if other multi-lateral lenders and friendly governments fail to help out in the next few weeks, the country's new troubleshooter said on Saturday.

A balance of payments crisis is expected to climax soon, but there was no danger of Pakistan defaulting on its international debt obligations, Shaukat Tarin said a day after returning from overseas visits to Washington and Beijing to drum up support.

"I am very confident that I have plans to make sure, whatever it takes, that we should build our reserves and that we do not default," said Tarin, appointed last week as adviser to the prime minister on economic affairs.

"Now, there is no danger," he told journalists after a news conference, but he said lenders were running out of time to come to Pakistan's rescue.

"We think we will be in very good shape ... within the next 30 to 60 days," Tarin said of the prospects of sewing up funds to cover a balance of payments financing gap that the IMF estimates at up to $4.5 billion, and Pakistan reckons at $3.0 billion for the fiscal year ending on June 30 next year.

For more on this article, please click on the following link: Pakistan banks on other lenders saving it before IMF: Reuters

Pakistan ranked 83 in 'Forbes best countries for business': Daily Times

ISLAMABAD: Pakistan has been ranked 83 in a global list of the best countries to do business in, improving from rank 93 of last year. While Pakistan has climbed 10 places, India is down thirteen notches to 64. In the new Forbes study that compared business climate from various angles in 121 countries, Denmark tops the list, having displaced the US, last year's leader, Ary ONE World TV reported. Ireland and Finland follow at No 2 and No 3 spots. The United States is at No 4 now, followed by United Kingdom. The Forbes report pointing out that Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, since 2001, IMF-approved reforms most notably, privatisation of the banking sector - bolstered by generous foreign assistance and renewed access to global markets, have generated macroeconomic recovery.

For more on this article, please click on the following link: Pakistan ranked 83 in 'Forbes best countries for business': Daily Times