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Monday, May 24, 2010

As if consumer prices were not enough....

Will Pakistan’ Central Bank keep borrowing costs unchanged, maintaining one of the world’s highest benchmark interest rates, in an economy pummeled by inflation, terrorism and falling foreign investment? But this may not happen unless inflation rate goes down. Inflation accelerated to a three-month high of 13.26 percent in April, according to the Federal Bureau of Statistics. Prices rose after Pakistan raised domestic gas prices by as much as 5.4 percent on April 1.
Highest Rate
Pakistan’s discount rate is the highest among the benchmark interest rates of 53 central banks tracked by Bloomberg. Lebanon’s repurchase rate is the second-highest at 12 percent, the data show.
Constrained by high borrowing costs, Pakistan is seeking aid from The Friends of Democratic Pakistan, a group of donors that includes the U.S., U.K., Japan and Saudi Arabia, to revive an economy that grew 2 percent in the year ended June 30, the least since 2001.
Delays in the release of a $5.3 billion grant pledged by the group in April 2009 have forced the government to tap funds from the central bank, stoking inflation. Government borrowings from the State Bank of Pakistan rose 14.5 percent to 365.9 billion rupees ($4.3 billion) in the 10 months to April from a year earlier, according to the central bank.
Consumer Prices
Increase in consumer prices may increase interest payments at major export industries, whose financial costs have already doubled in the two years to June 2009. Higher borrowing costs could undermine Pakistan’s $168 billion economy even as India, from which it was partitioned in 1947 following independence from British rule, grows at the fastest pace after China among the world’s major economies. India’s $1.2 trillion economy may expand about 8.5 percent in the year to March 31s.
Stocks, Currency
Pakistan’s Karachi Stock Exchange 100 Index fell 0.9 percent to 6,959.28 as of 10:45 a.m. local time, bringing the declines this month to 4.6 percent. The rupee lost 0.6 percent against the U.S. dollar since May 1 and traded at 84.54 today. The yield on the six-month Treasury bill was 12.09 percent in the auction on May 19, compared with 12.14 percent in the previous auction on May 6.
The South Asian economy needs to grow at an average annual pace of 6 percent to reduce poverty, according to the government.
Foreign direct investment in Pakistan dropped 53 percent to $1.32 billion in the first eight months of the fiscal year that started July 1, central bank data showed, as militants retaliated to the Pakistan army’s offensive against Taliban fighters in the country’s northwestern region.
Pakistan received a $7.6 billion loan from the International Monetary Fund in 2008 to avoid defaulting on its overseas debt. The credit agreement was increased to $11.3 billion last year.
Pakistan may turn to the IMF for a second loan to make up for a shortage of money with the government, the nation’s Finance Adviser Abdul Hafeez Shaikh said May 12.   [Courtesy: Businessweek]


  1. This analysis has been imported from a third source after moderation.

  2. u have three options above Funny,intresting and cool plz add another one tht is Scary.
    i have a question as a lay is Govt of Pakistan sleeping? or they canonot handle this Govt or they r too bz looting and making assests abroad?in all this scenario only poor people will suffer in upcoming budget.

  3. plz add another options besides intreting cool and funny and that is Scary..
    the whole country is in debt.i wonder what wud be the psychological condition of the common people? is Govt of pakistan sleeping? or they cannot handle this situation or they r too buying properties abroad for their children safer future?

  4. It is always poor who suffer after every budget. Budget is something like a non-natural calamity for poor. It is not the question of resources. It is the quality of governance or its absence.

  5. My suggesstion for u is please also post budget realted to Armed forces... As per my knowlege more than 80 % pakistan budget is for forces which is useless.. Thats why poverty rate in pakistan is very high.. Thats why kashmire problem is still pending coz ISI dosent want to solve this problem. All ISI and ARMY want money thats it

  6. I want to know the complete Role of World bank and IMF in all over the world and also is pakistan.

  7. The observation about defense budget is based on lack of information. Why don't you contribute an article on the role of WB and IMF?