PRIME MINISTER ADDRESSES ECONOMIC CHALLENGES IN SPEECH TO

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 002467 SIPDIS E.O. 12958: DECL: 07/22/2018 TAGS: ECON EFIN ETRD EAGR ENRG PREL PGOV PK SUBJECT: PRIME MINISTER ADDRESSES ECONOMIC CHALLENGES IN SPEECH TO THE NATION ¶1. (C) Summary: In his first live address to the nation on July 19, Prime Minister Yousaf Gilani provided an overview of economic problems facing the Government of Pakistan (GOP) and what steps the government is taking to mitigate the effects on the people of Pakistan. However, his halting 11:30 p.m. delivery - interrupted by a failure of the teleprompter - failed to inspire confidence. Media commentators termed it disappointing and the botched delivery a metaphor for the continuing inability of the coalition to govern effectively. Gilani explained that Pakistan faces food and energy shortages, deteriorating macroeconomic indicators, rising inflation and unemployment. The Prime Minister attributed the economic problems facing Pakistan to rising international commodity prices and the policy inaction of the previous government. The speech did not outline a new strategy to reverse Pakistan's economic downturn but reiterated relief measures included in the fiscal year 2008-09 budget, although with little information as to how the government would pay for the costly programs. End summary. ¶2. (SBU) Prime Minister Yousaf Gilani addressed the nation on Pakistan's economic challenges on July 19, the first such address of his three month tenure as Prime Minister. He described inflation as the biggest economic challenge facing Pakistan, blaming it on both global economic trends and the Government of Pakistan's (GOP) propensity to borrow heavily from the State Bank of Pakistan (SBP). Claiming that Pakistan's new-found "abundance of automobiles and mobile phones is not a yard-stick of progress," Gilani blamed the previous government for not supporting industrial development or export promotion. The previous government, he continued, is responsible for fostering dependence on imports and building a purely consumer economy. ¶3. (SBU) Outlining efforts to improve the economy, the Prime Minister reported that his government will emphasize increasing agricultural and industrial production as a means of countering rising inflation and financial deficits. Gilani appealed directly to investors, industrialists and merchants to "make a maximum investment in Pakistan." Hoping to allay investor concerns, the Prime Minister assured investors that capital investments would be protected. He also emphasized that any national reduction in fuel consumption would potentially save billions of dollars in foreign exchange reserves, reducing Pakistan's trade deficit and debt burden. ¶4. (SBU) Gilani also lamented on the fact that Pakistan, traditionally an agriculturally rich agrarian country, was facing mounting food shortages. He discussed steps the GOP has taken to improve the agricultural sector, including raising the wheat support price from Rs 475 (USD 6.78) per 40 kg to Rs 625 (8.9 USD) per 40 kg. The GOP will reportedly raise the minimum support price once again before next year's harvest. In addition, the GOP will import 2.5 million metric tons of wheat to meet domestic demand. Agriculture loans to farmers have been increased by Rs 30 billion (USD 428.6 million) and Rs 20.5 billion (USD 292.86 million) has been allocated for agricultural development programs. The GOP will increase fertilizer subsidies and support the importation of low-cost agricultural equipment. The GOP recently approved a crop loan insurance program and has pledged to expedite the construction of water reservoirs to meet agricultural demand. Under its much touted "White Revolution," the GOP will increase incentives for 10,000 dairy farmers to increase national milk production. ¶5. (SBU) Turning his attention to Pakistan's growing energy shortages, Gilani reported that no large-scale power projects have come on-line in the last eight years. Despite recent government neglect of the sector, Gilani reported that unnamed international energy firms have offered to make USD four billion in power sector investments. The proposals are reportedly being fast-tracked by the government. The GOP has also established the Thar Coal Authority to better utilize the Thar coal reserves. The Prime Minister also reported that he will chair a July 29 energy roundtable in Washington. ¶6. (SBU) The Prime Minister listed a number of initiatives targeted at Pakistan's poor. The Benazir Income Support Program will provide Rs 1,000 (USD 14.29) to the country's poorest 3.4 million families and will be expanded in the future. The program will be formally launched on August 14, providing special "Benazir cards" to eligible families. An additional 1,600 Government-owned utility stores will be established, providing subsidized agricultural products, including flour, cooking oil and lentils. The minimum wage has been increased ISLAMABAD 00002467 002 OF 002 from Rs 4,600 per month (USD 65.71) to Rs 6,000 (USD 85.71) per month. Government salaries have been increased by twenty percent and a Rs 2 billion (USD 28.57 million) housing fund will be established to provide subsidized housing for government employees. However, the Prime Minister made little mention of how the government intended to pay for the programs. ¶7. (SBU) Other measures include the Green Transport Scheme which aims to put 8,000 compressed natural gas (CNG) buses into circulation in the nation's ten largest metropolitan areas at a cost of Rs 40 billion (USD 571.43 million). The GOP also plans to add an additional 20,000 women to the Lady Health Workers Program, targeting women's health in rural areas. The number of health workers in Balochistan will be doubled. The GOP will also initiate an additional maternal and child health program at a cost of Rs 20 billion (USD 285.71 million),aiming to employ 20,000 additional community midwives. ¶8. (C) Comment: While the Prime Minister did mention specific GOP programs to provide relief to the people of Pakistan, he did not elaborate on his plan to arrest the economic slowdown or detail how agricultural and industrial production would be augmented. Most of his relief measures were already released in the fiscal year 2008-09 budget. Gilani reiterated the current government's complaint that all economic troubles are a direct result of the actions, or inactions, of the previous government. Media commentators were generally unimpressed by the Prime Minister's delivery, describing the teleprompter failure which interrupted the speech as a metaphor for the GOP's inability to get a handle on the deteriorating economy. Little mention was made of how the GOP, with a below target revenue base and mounting deficits across the board, intended to pay for its ambitious programs. In general, the speech lacked a coherent policy direction and in the face of mounting economic challenges, likely did little to allay the concerns of both average Pakistanis and investors alike. End Comment. PATTERSON