Transcript of a Conference Call on the Completion of the First Review of Pakistan's Stand-By Arrangement

March 31, 2009

With Adnan Mazarei, Mission Chief for Pakistan
Washington, D.C., March 30, 2009

MS. KAMATA: I’m Yoshiko Kamata of Media Relations, the IMF, and here with me is Mr. Adnan Mazarei, Mission Chief for Pakistan. The Executive Board has just completed the first review of the Pakistan’s arrangement. Mr. Mazarei will start with short opening remarks, and then will take your questions.

MR. MAZAREI: Today, the Fund’s Executive Board concluded the 2009 Article IV consultations with Pakistan and completed the first review of the Pakistani authorities’ program with the Fund. And, accordingly, about $847 million will be available to the Pakistani authorities.

The IMF Board concluded that policy implementation has been good in Pakistan and the program remains on track. All quantitative performance criteria and the structural benchmarks for the first program review were met. I should note that the end-December fiscal deficit target was quite challenging and was achieved through a combination of revenue and expenditure measures.

Commercial banks in Pakistan have weathered the crisis well thus far, but should be monitored carefully. The deteriorating macroeconomic environment is affecting Pakistani banks’ assets quality and profitability.

The global economic and financial environment has deteriorated significantly since the start of the Pakistan program last fall. While oil prices are low, exports are falling and external financing is more difficult, as in many other emerging countries, and there are increasing risks to remittances, including from other countries in the Persian Gulf. And, also, as you know, the political situation has become more difficult.

The authorities would need to maintain their generally prudent policies. It would be particularly important to keep the policy interest rate on hold until inflation falls decisively. The authorities also need to move forward with regard to tax reform and the strengthening of the social safety net.

Pakistan needs additional external assistance to reduce risks and provide for greater development and social spending. The upcoming donor meeting in Tokyo on April 17 provides an important opportunity for mobilizing additional assistance for Pakistan.

Thank you very much. I will be available to take your questions.

QUESTIONER: Two quick questions. One is you guys note a waiver for intensification of exchange restrictions. I was wondering if you could describe what that means in more layman terms. And my second question is there’s mention in the release about a deteriorating outlook that you guys have maybe downgraded growth forecasts. I wonder if you could say what the new forecast is and what the previous forecast is.

MR. MAZAREI: On the intensification of exchange restrictions, under the program, the authorities had indicated that they would not intensify restrictions on imports. However, when reviewing the existing list, they had introduced a few items to the list. But they have now recognized this and will be eliminating those restrictions, which, in effect, make imports of those items, especially in the auto industry, more difficult, and they will remove them by June. And that’s why the Board found this issue to be temporary and that the authorities are committed to fixing it in short notice. And that’s why a waiver was granted.

As regards to the outlook, earlier on, we had projected that in fiscal year 2008-2009, which begins in June, growth would be 3.5 percent. More recently, we have revised the 2008-2009 growth projection to 2.5 [percent]. For 2009-2010, we had originally followed last year and envisaged a growth of 5 percent, and we have lowered this to 4 [percent], but the risks are considerable. And it is likely that the growth projection, using actual outcome for 2009-2010, may be lower.

QUESTIONER: The current security institution in Pakistan—how it is affecting the economic condition and growth? And, secondly, what do you expect from upcoming donor meeting in Tokyo on Pakistan?

MR. MAZAREI: The political events are certainly adding to the general uncertainty and insecurity, and it affects the economic climate, the investment climate, and also raises financial risks. As regards to Tokyo donor meeting, I don’t have any way to speculate about the outcome in terms of money, but it seems a number of donors and friends of Pakistan are very committed to attend and to raise the needed funds for Pakistan. They recognize that Pakistan needs more resources or development spending and social spending.

MS. KAMATA: I think we can conclude this conference call. Thank you very much for joining.


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