Identifier
Created
Classification
Origin
08ISLAMABAD3430
2008-10-30 12:15:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:  

TAREEN PRIMES SENATE FOR IMF PROGRAM AND REFORM

Tags:  ECON EFIN ETRD PREL PGOV PK 
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DE RUEHIL #3430 3041215
ZNR UUUUU ZZH
R 301215Z OCT 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 9548
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHML/AMEMBASSY MANILA 3059
RUEHBUL/AMEMBASSY KABUL 9326
RUEHNE/AMEMBASSY NEW DELHI 3959
RUEHLO/AMEMBASSY LONDON 8987
RUEHKP/AMCONSUL KARACHI 0537
RUEHLH/AMCONSUL LAHORE 6273
RUEHPW/AMCONSUL PESHAWAR 5113
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC
UNCLAS ISLAMABAD 003430 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: TAREEN PRIMES SENATE FOR IMF PROGRAM AND REFORM

Summary
UNCLAS ISLAMABAD 003430

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD PREL PGOV PK
SUBJECT: TAREEN PRIMES SENATE FOR IMF PROGRAM AND REFORM

Summary

1. (SBU) On October 29 Economic Advisor Shaukat Tareen tried to
convince Pakistan's Senate members that any IMF program would be on
terms favorable to Pakistan and presented an extensive economic
reform agenda. He also revealed that the fiscal deficit projection
of 7.4 percent of GDP is actually approaching 10 percent. The
Government of Pakistan's central bank reports the government and
government-owned public sector enterprises (PSE) have borrowed 330
billion rupees (USD 4.1 billion at 81.25 rupees per dollar) since
July, despite commitments to stop this inflationary practice. End
Summary.

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GOVERNMENT ROADMAP
--------------


2. (SBU) Economic Advisor Shaukat Tareen presented his "government
roadmap" to the Pakistan Senate for five hours on October 29,
outlining his plan for economic reform. His central message was
that Pakistan may agree to an IMF program but that it would be on
its own terms and conditions. (Comment: Manzoor A. Sheikh, Senior
Policy Advisor for Finance, confided that the GOP has very little
leverage to negotiate a wholly "home-grown strategy" and will have
to accept the IMF's priority policy adjustments. Ratings agencies,
such as Moody's, expect IMF vetting before reconsidering Pakistan's
deteriorating ratings. End comment.) Tareen highlighted the
importance of improving macroeconomic indicators, such as slowing
the inflation rate, which has reached 25 percent generally and 30
percent on food specifically. He revealed that the fiscal deficit
projection of 7.4 percent of GDP is actually approaching 10 percent.



3. (SBU) Despite the need for fiscal restraint, Tareen proposed four
priority social programs. He advocated doubling the number of
enrollees of the Benazir Income Support Programme from 3.5 million
to 7 million. Another program he supports is government funding for
technical training of 6-9 months for one child from each household.
He advocated providing health insurance for every poor family, which
he estimates will cost Rs 15,000-20,000 (USD 185-246) per family
annually. He also recommended local public-works programs.


4. (SBU) Tareen's comments also covered the need to reform the
agricultural sector, promote the use of public-private partnerships
to "reduce the burden on the government and also enhance efficiency
of various sectors," and increase the benefits of the financial
sector for the real economy. He also proposed extending banking to
rural areas and expanding agricultural credit.

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CENTRAL BANK ON LENDING SPREE
--------------


5. (SBU) The State Bank of Pakistan (SBP) - the central bank -
reported that since the beginning of the fiscal year three and half
months ago, the government and government-owned PSEs have borrowed
record amounts from SBP. The GOP borrowed - net of payments -
271.75 billion rupees (USD 3.34 billion at 81.25 rupees to USD),
compared to 10.9 billion rupees (USD 134 million) during the same
period last year. The PSEs borrowed 58.8 billion rupees (USD 724
million),equal to cumulative borrowing during the past three years.
(Comment: The GOP has been financing the twin fiscal and current
account deficits by borrowing from SBP, expanding the money supply
which causes high inflation and rapid depreciation of the currency.
The GOP recently committed to zero net borrowing from the SBP but
has not been able to honor that pledge. End comment.)

--------------
VOLATILE DEFAULT MARKET
--------------


6. (SBU) On October 29, Credit Default Swap spreads lowered from
their high of 5,106 basis points on October 28 to 3,720 as a result
of increased confidence that Pakistan will not default on its debt
during the medium-term. (Comment: The increase in confidence may
be caused by speculation or leaked information on the IMF program
negotiations. End comment.)

PATTERSON