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High Global Commodity Prices Impact Pakistan Economy

In Islamabad: Shahzad Sharjeel (92-51) 2279641
In Washington: Erik Nora (202) 458 4735

Islamabad, 27 March, 2008: Praful Patel, World Bank Vice President ended a three-day visit to Pakistan on Wednesday, noting that high international prices for petroleum and food commodities are creating challenges for the Pakistan economy.  Working with Government data, the World Bank has determined that rapid adjustments and reforms are necessary to avert an economic crisis.

There is not yet a crisis, but the economic picture for Pakistan is not good”, said Patel.  “International prices have continued to rise, but policies and administered prices have not kept pace in Pakistan.   During the past few years growth has been robust and there has been significant poverty reduction.  There is a good economic foundation, but the growth can only continue if Pakistan adjusts to the new global reality, which includes high prices for oil, commodities and foodstuffs such as wheat.  Countries around the globe – including the U.S., Japan and the EU are facing the same reality.”

 While foreign direct investment and remittances have maintained pace and the stock market has posted gains, the fiscal deficit, inflation, current account deficit and foreign exchange reserves will miss their target this year.   Patel met with the economic team, chaired by Finance Secretary Waqar Masood to discuss the economy and how to protect the poor as domestic prices are adjusted.  In meetings with Pakistan Peoples Party Co-chairman Asif Zardari and representatives of Prime Minister Yusuf Gilani’s advisory team, the World Bank team discussed appropriate adjustments – particularly on oil imports, tax policy reforms, prioritization of expenditures and safety nets to protect the poorest.  Mr. Patel offered World Bank technical assistance to build upon international best practice in responding to the current situation.

Any adjustment will be painful,” said Patel.  “But there must be an appropriate safety net for the poor.  The incoming team has requested our support, and we will help ensure there are smart subsidies to the poorest.  These must be well targeted and efficient programs, including cash transfers, where leakage is minimized.  We know this can be done because we saw the excellent response after the earthquake where affected families were provided relief and cash transfers quickly and effectively.”

During his visit Patel reconfirmed the World Bank’s ongoing commitment to Pakistan.  He noted that while there had been some political and security uncertainty over the past few months the World Bank’s programs in Pakistan are on track and will continue to be scaled up going forward – particularly those in infrastructure, education, local governance, and social protection.

In his meeting with the PML-N President and Parliamentary Leader in Punjab, Shahbaz Sharif, Patel echoed this commitment, noting the good results that have been achieved in the World Bank’s partnership specifically with Punjab.  But more needs to be done, he observed, to deepen and assure results and extend the partnership to other critical areas for growth and poverty reduction, including small scale private sector development.

Pakistan will need the international community’s support over the coming months,” said Patel.  “If action is not taken, the economy will start to falter, but with the right policies and strong support from multilateral and bilateral partners, we believe the high growth and poverty reduction path can be maintained in Pakistan.”  

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