Press Release No. 05/228

Press Release: Statement by IMF Managing Director Rodrigo de Rato at the Conclusion of his Visit to Pakistan

October 17, 2005

"Above all, I offer my deepest sympathy and condolences for the loss of lives and the suffering caused by the massive earthquake on October 8. Today I met with President Musharraf and Prime Minister Aziz, as well as key Ministers, and I assured them that the International Monetary Fund stands ready to support Pakistan at this difficult time.

"I saw some of the tragic human cost of the disaster. At the children's wing of the Pakistan Institute of Medical Sciences in Islamabad, I was deeply moved to visit children injured in the earthquake and greatly impressed by the care they are receiving from dedicated medical staff and volunteers. I also met Abdul Sattar Edhi, the founder of Edhi Foundation, a local charity directly involved in helping earthquake victims.

"This was my first visit to Pakistan as Managing Director of the IMF and I would like to thank the authorities for their hospitality in these difficult times. This visit also provided me with an opportunity to commend the Pakistani authorities on the impressive economic gains that they have attained in recent years by persistently following reform policies.

"During my meetings, I recalled how the turnaround in Pakistan's economy had been made possible by the implementation of market-oriented structural reforms, supported by macro-economic stabilization. The IMF supported financially the authorities' program through 2004. The success of the program reflects not only the strength of policies, but also the strong commitment of the Pakistani government to the program. Fiscal consolidation and reform, banking system reform, privatization, and trade liberalization have fundamentally transformed the economic landscape in Pakistan. They have significantly improved private sector confidence, debt indicators, and Pakistan's ability to compete in the world economy. The fruits of these efforts have been a strong recovery in economic growth.

"Pakistan is confronting short-term economic challenges, including the need for emergency support and the need to rebuild in the area affected by the earthquake. The international community is providing welcome assistance, but some temporary widening of the budget deficit may be unavoidable. Meanwhile, the acceleration of economic growth has been accompanied by a pick up in inflation. The authorities' efforts to reduce the inflationary pressures, and their initial success, are welcome. Further tightening of monetary policy might, however, be necessary. Pakistan is also confronted with the sharp increase in international oil prices. The authorities have appropriately allowed a substantial pass-through of this increase into the domestic prices for petroleum products, to help safeguard the budgetary position.

"Over the medium term, the key challenge going forward for Pakistan is to sustain higher rates of economic growth and ensure that living standards are raised and poverty is reduced. This will require substantial increases in investment. Meeting this challenge requires consistent and sustainable macroeconomic policies and further improvement of the business environment. The strengthening of the delivery of public services to the poor is a particular need. It calls for the continuation of institutional reforms, and for additional domestic resource mobilization to meet higher expenditures in these areas. In this context, I urged the authorities to strengthen tax revenue collections, and to broaden the tax base.

"I also discussed the current state of relations between Pakistan and India. I appreciate the confidence building measures between the two countries, and the on-going work towards liberalizing trade between the two countries, which should tremendously benefit both Pakistan and India.

"I assured President Musharraf and Prime Minister Aziz that the IMF also stands ready to continue providing policy advice and technical assistance to Pakistan. I noted that Pakistan's economic future looks bright, despite the recent tragedy. My optimism is based on confidence that Pakistan's economic managers will persist in implementing sound policies and reforms."