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

2.  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.  War against terrorism  Political instability  Rising commodities prices  Impact on the poorest  High inflation  Jumped form 8% in 2007 to 25% in 2008

5.  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.  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

10.  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.  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

13.  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.  The Government of Pakistan  The IMF  The World Bank  The OECD/donors  China  The European Union  NATO  The US State Department

15.  9:00-11:00  Opening speeches ▪ Plenary session (15-20 mins per delegation)  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  Next steps  20 mins

16.  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.  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 during the simulation  2:00-3:00  Teams to delegate members to draft a ‘final communiqué’ (2-3 pages)  3:00-4:00  Final communiqué  Stock taking exercise

18.  2-4 pages  Background  What is this meeting all about?  Pre-meeting institutional positions  What are the other parties starting positions?  Desired outcomes?  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

19.  Fboutindufresne@imf.org

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

21.  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.  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.  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.  $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.  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

26.  Front loading of its grant program (1bn$)

27.  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.  Recent developments in Pakistan

29. UN

30. IMF

31. PAKISTAN

32. EUROPEAN UNION

33. USA

34. WORLD BANK GROUP

35. CHINA

36. NATO