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Document Type

Conference Paper

Publication Date

9-30-2004

Conference Name

Center for Strategic and International Studies

Conference Location

Washington D.C.

Conference Dates

September 30, 2004

Series

Faculty Research - Book Chapters and Conference Papers

First Page

1

Last Page

12

Keywords

Economy, Macroeconomic Stability, Structural Reforms, Tax Reforms, Economic Governance, Challenges

Abstract / Description

Pakistan’s new government which assumed office under President Musharraf in October 1999 was faced with four main challenges: heavy external and domestic indebtedness; high fiscal deficit and low revenue generation capacity; rising poverty and unemployment; weak balance of payments. In addition, Pakistan was perceived as a highly corrupt country with poor governance. A survey by Transparency International ranked Pakistan as the second most corrupt country in 1996. The situation was exacerbated by the initially hostile reaction of the international community to the military takeover of the government. Further, the lingering dispute with independent power producers – all foreign investors – had damaged the investor friendly image of Pakistan. The distrust engendered by the freezing of foreign currency deposits of non-resident Pakistanis had not been erased. Pakistan’s credibility was at its lowest ebb with international financial institutions since the track record of performance on agreements reached with them over the preceding ten years was dismally poor. There was little empathy for Pakistan among these institutions and bilateral creditor governments. At the same time, Pakistan was not in a position to service its external debt obligations without immediate rescheduling as it faced a serious liquidity shortfall. The reserves were barely sufficient to buy three weeks worth of imports and were inadequate to service even short-term debt obligations. Workers’ remittances were down by one-third, foreign investment flows had dwindled by almost 60 percent, official transfers had turned negative, exports had declined and Pakistan had no access to private capital markets.

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