Thursday, 22 November, 2012 KARACHI ISMAIL DILAWAR In a fresh setback to the country’s deplet- ing dollar reserves Pakistan Wednesday “successfully” repaid a seventh tranche of over $394 million to the International Monetary Fund (IMF). A central bank spokesman said Wednesday witnessed the repayment of SDr 258.4 million, which is equivalent to $394.3million, to the Fund under the 2008’s $ 11.3 billion Stand-By Arrangement (SBA) of which Pakistan has received only $ 8.3 billion. In 2008, Islamabad had sought a bailout package from the IMF to avoid a possible default on the Balance of Payment front. “Seventh installment under IMF/SBA facility amounting to SDr 258.4 million, equivalent of US$394.3 million, has been successfully made today,” said Syed Wasimuddin, chief spokesman of the State Bank of Pakistan. With this transfer Pakistan’s repay- ments to the IMF since February 2012 total at $ 2.522 billion. “With payment of 7th installment on 21 november 2012, Pakistan to-date has paid SDrs 1,644 mil- lion equivalent US$ 2,522 million to IMF since Feb-2012,” said the spokesman. The dollar-hungry Pakistan would be repaying the next, 8th, installment to its lenders in the IMF after some three months at the end of February next year. Such huge repayments have been a permanent drain on the foreign exchange reserves of the funds-starved Pakistan which is already breathing hard under heavy foreign debts which, according to official data, have swelled beyond $ 62 billion. What is alarming is the fact that the country’s dollar reserves have contracted to single digit, below $ 9 billion. The State Bank last Thursday re- ported that on november 9 the country’s holding of the greenback stood at $ 13.84 billion. Of this total, the central bank’s re- serves amount to $ 9.24 billion while that of the commercial banks stand at $ 4.60 billion. except worker remittances that are being received on average to the tune of $ 1 billion every month, all other indicators on Pakistan’s Balance of Payment list rest in the red zone. The analysts believe that negatives like poor inflows of foreign investment seem to be offsetting the positive impact of positives like a $258 million surplus in the country’s current account balance. This surplus, however, could only be achieved after the United States, Pak- istan’s non-nato ally in the War on Ter- ror, reimbursed $ 1.118 billion to Islamabad under the long-withheld Coali- tion Support Fund in early August this year. The economic observers believe that such short-term gains were far from being enough to put Pakistan’s troubled exter- nal sector back on track. The received CSF money, the analysts view, was Pakistan’s own money and was hardly enough to repay the IMF tranches due in the months ahead. PAKISTAN’S IMF DEBT BURDEN SHRINKS BY $2.522B WITH 7TH REPAYMENT ISLAMABAD STAFF REPORT C enTrAl banks of the De- veloping-8 countries Wednesday agreed on a “sustainable growth strat- egy” under which the mem- ber countries would lessen dependence on their traditional trade partners and focus on the regional blocs like the D-8. In a joint communiqué, the D-8 cen- tral banks decided that the member countries would confront mutual eco- nomic challenges through concerted measures ranging from the establishment of correspondent banking relationship and currency swap arrangements to pro- motion of Islamic finance models to deal with the emerging global economic chal- lenges. The governors of central banks of D- 8 countries held their second meeting here with Governor State Bank of Pak- istan Yaseen Anwar in the chair to achieve the objectives of increasing the block’s mutual understanding of various economic and financial sector related challenges facing them, and enhancing mutual co-operation to confront these challenges. The D-8 central banks’ governors are expected to again gather in 2014 in Turkey. Agenda of the meeting, the gov- ernors agreed Wednesday, would be the discussion on shadow banking and its re- lated risks amongst other financial sector issues. The communiqué issued by the SBP reads as follows: Since we last met in Abuja, nigeria in July 2010, the global economy continues to face a number of challenges. external, fiscal and financial imbalances still per- sist, creating challenges on economic growth and employment. Global growth is projected to drop in 2012 because of weak economic activity in the US and de- teriorating sovereign and banking sector developments in the euro area. As a re- sult, real GDP growth in the emerging and developing economies is going to fur- ther slowdown. Although the impacts and related challenges may be different from country to country, and region to region, we are all united in our resolve to achieve sus- tainable and inclusive growth in a collab- orative way. SpeCifiCally, we will: a. Formulate monetary and financial policies to support sustainable growth strategy in D-8 countries in the backdrop of an uncertain outlook for the global economy. b. Promote Innovative Financial In- clusion Policies. c. explore opportunities in Islamic Finance. d. establish information exchange and promote peer learning amongst D-8 central banks. SuStainable Growth StrateGy We must work together to formulate monetary and financial policies to sup- port sustainable growth strategy for D-8 countries in the backdrop of an uncertain outlook for the global economy. The D-8 economies face a diverse set of economic challenges. Some of these are structural; others may be cyclical in nature, while others a direct consequence of the global credit crunch of 2007-08 and the recent euro area crises. However, in formulating a growth strategy to deal with these issues – and to identify areas of potential cooperation between members – it is necessary to un- derstand these challenges better. In order to achieve this, we have agreed to collab- orate and focus on: a. Developing and using monetary and financial policy tools that can buffer the domestic economy against the global slowdown by striking a balance between nurturing sustainable domestic demand and an export-led growth model. b. reduce dependency on demand from traditional trade partners by rebal- ancing and diversifying the sources of economic growth in the domestic economies by focusing on opportunities for greater cooperation amongst regional blocs, such as the D-8. c. establish correspondent banking relationship and currency swap arrange- ments amongst D-8 countries to promote trade and capital flows. d. The need to bring the informal sec- tor into the mainstream economy, and hence into the tax net, by improving the efficiency of public institutions, in order to increase fiscal space and the effective- ness of monetary management processes. e. Developing the means (such as joint research projects and professional exchanges between the member countries for capacity-building) to better under- stand, and learn from member countries’ experiences, on the efforts undertaken to tackle challenges that are common to the D-8 e.g. enforcing better fiscal discipline; promoting investment in infrastructure; implementation of capital standards; in- centivizing banks to lend to the real sec- tor and sustaining low and moderate levels of inflation and contributing to fi- nancial stability. finanCial inCluSion Financial inclusion will remain a top priority as it alleviates financial con- straints on poor and low income house- holds, helps them to benefit from better economic opportunities, and creates em- ployment. We also note the effectiveness of ex- isting policy frameworks and institutions and progress made on various innovative new approaches to financial inclusion. We reaffirm our support to promote financial inclusion in D-8 countries. In this regard, we will take important meas- ures to advance the financial inclusion agenda. Specifically we will: a. reaffirm or formulate national fi- nancial inclusion strategies in our coun- tries and gather support from across our governments, financial sector and other key stakeholders to build broad-based ownership of the financial inclusion agenda. b. Study policy approaches for build- ing delivery channels and payments sys- tems such as agent-based banking, mobile phone banking, and post office networks. c. Form a D-8 Consultative Group on Financial Inclusion (CGFI) with repre- sentation from each central bank. The CGFI will have a series of knowledge ex- change exercises, consultations and pro- duce a comprehensive document by the next D-8 Summit. iSlamiC finanCe We reviewed the progress of Islamic Finance industry in D-8 countries that has enjoyed rapid growth over the past decade primarily due to global trends and local demand for Shariah-complaint fi- nancial services. Going forward, the cen- tral banks may discuss sustainable models to promote Islamic finance in D- 8 countries especially in the wake of chal- lenging global economic landscape. There is need for exploring sustainable models to promote Islamic finance in D-8 coun- tries especially in the wake of challenging global economic landscape. The cooperation will highlight strate- gies for ensuring growth trajectories for Islamic finance in D-8 countries, with emphasis on home grown demand and strategies in D-8 countries, primarily promoting Islamic finance to meet latent demand for financial services due to low level of financial inclusion and lack of Shariah compliant financial solutions. In this regard, the expert group identified three major areas of cooperation i.e. de- velopment of financial instruments & markets, improving perception and en- hancing awareness, and training & capac- ity building. establish Information exchange and Peer learning Finally, we have agreed that each of the D-8 members has their strengths in financial and monetary sector issues. In order for D-8 members to benefit from these strengths we will formalize our co- operation though the regular informa- tion exchange and work through peer learning model amongst D-8 central banks in such areas including monetary policy, banking regulations and supervi- sion, financial inclusion and Islamic fi- nance. We hope that the D-8 countries will join the proposed peer learning working groups and share their unique experiences. D-8 countries agree to focus on regional blocs ISLAMABAD STAFF REPORT Stressing the need for continued collabo- ration amongst the D-8 central banks, Governor State Bank of Pakistan (SBP) Yaseen Anwar Wednesday said the mem- ber countries need to explore ways to pro- mote Islamic financing in the wake of challenging global economic landscape. While opening and chairing the 2nd meeting of central bank governors of the D-8 countries in Islamabad, Anwar said there was aneed for exploring sustainable models to promote Islamic finance in the Developing-8 (D-8) economies. He said macroeconomic policies of D- 8 countries must be balanced to check overheating pressures from strong recov- ery, high credit growth, volatile capital flows, elevated commodity prices, and re- newed risk of inflation. “We must continue to rebalance our economies to sustain growth through mod- ulating domestic consumption, increase in trade and allow capital to flow freely be- tween emerging and developing economies in search of better returns as against in- vestment in debt ridden advanced economies”. He noted that a sudden drop in the growth rate in 2009 immediately after the 2008 crises was perhaps the principal rea- son why the D-8 central bank governors in their first meeting agreed to set this meet- ing agenda on strengthening monetary and financial cooperation. “The global growth is projected to fur- ther drop from 3.8 percent in 2011 to about 3.3 percent in 2012. As a result, the real GDP growth in the emerging and develop- ing economies is projected to be further slower from 6.3 percent in 2011 to 5.2 per- cent in 2012. Therefore, we need continued collaboration to further strengthen our economies,” he added. There was only one central bank in each country/monetary area, and there- fore, it was very logical for central banks to look beyond their national borders for ad- vice and collaboration, he said adding that in recent years, increasing globalization has further enhanced the need for central banks’ cooperation to tackle risks due to the cross border interdependencies and to make the most of emerging opportunities. The central banks’ cooperation had been facilitated through collaborative mul- tilateral forums such as the G20, the FSB and the meetings of the IMF, BIS and a number of bilateral and regional initiatives for cooperation. “The enhanced role of these forums also reflects the increasingly important role that the central banks of emerging and developing economies are playing at these international forums,” said the SBP governor. Stressing the need for strengthening cooperation amongst D-8 countries, Anwar said the D-8’s secretariat must be strengthened to collect and main- tain information on our economies and their interconnectedness. “This would serve the dual purpose as it would provide regular updates on the state of D-8 economies and would help us in reviewing and measuring progress of our economies on economic and financial cooperation,” he said. Anwar suggested that D-8 countries must collaborate and focus on the optimal use of monetary pol- icy tools which are at best the first line of defence against the global crisis. The D-8 countries must collaborate on how to re- balance its growth model from export-led growth to diversifying demand through structural changes in their economies that would enable sustainable future growth and make their economies less susceptible to volatility in other financial markets, par- ticularly by raising domestic demand and recycling more of the D-8 countries sav- ings into investments at home. Let’s explore Islamic finance models SBP urges D-8 central banks to explore Islamic finance models amid global economic challenges PRO 22-11-2012_Layout 1 11/21/2012 11:33 PM Page 1