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A case study on the response to Pakistan’s
financial turmoil
Part A
CERIUM
Montréal, July 4-10 2010
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Low income country
 GDP/capita : 9852$ PPP (Current, 2007)
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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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War against terrorism
 Political instability
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Rising commodities prices
 Impact on the poorest
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High inflation
 Jumped form 8% in 2007 to 25% in 2008
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Recently privatized state-owned banking system
Scarce liquidity in the banking sector
 32-40% overnight lending rates
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SBP injects liquidity to oil the system
Government raises foreign borrowing by 100%
 Deterioration of the government fiscal situation
 Downward pressure on the rupee
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Stock market halves
 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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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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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
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$2bn in aid annually (loans + grants)
 10% of the budget
 ¼ of tax receipts
Montréal, July 9-10 2010
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Heads of delegation (mission chiefs)
 Lead for opening/final speeches
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Counsellors
 Lead for negociations on various tables and
support mission chief in plenary
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Secretaries
 Leads for final declarations
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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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9:00-11:00
 Opening speeches
▪ Plenary session (15-20 mins per delegation)
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11:00-12:00
 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
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Next steps
 20 mins
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Opening speech
 20 minutes or 5 pages per team
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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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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)
 Should take into account progress made in negotiations
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during the simulation
2:00-3:00
 Teams to delegate members to draft a ‘final communiqué’
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(2-3 pages)
3:00-4:00
 Final communiqué
 Stock taking exercise
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2-4 pages
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Background
 What is this meeting all about?
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Pre-meeting institutional positions
 What are the other parties starting positions?
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Desired outcomes?
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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 day
y
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[email protected]
Global response to Pakistan’s crisis
Part B
CERIUM
July 2010
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Restore Credibility
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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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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
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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$7.6bn structural adjustment loan
(Stand By Arrangement)
 Support program to stabilize and rebuild
the economy
 Expand its social safety net to protect
the poor.
 Fiscal deficit, excluding grants, will be brought to
down from 7.4 percent of GDP in 2007/08 to 4.2
percent in 2008/09
 The State Bank Of Pakistan (SBP) will
▪ build its international reserves,
▪ bring down inflation to 6 percent in 2010; and
▪ eliminate central bank financing of the government
 Expenditure on the social safety net will be
increased to protect the poor
▪ cash transfers
▪ targeted electricity subsidies worth 0.3 percent of GDP
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Front loading of its grant program (1bn$)
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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
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Recent developments in Pakistan
UN
IMF
PAKISTAN
EUROPEAN
UNION
USA
WORLD BANK
GROUP
CHINA
NATO