Last chance for a new World Bank

Mohamed El-Erian

March 23, 2012

Last chance for a new World Bank

Years ago, a simple chant united millions of Latin Americans in their desire to move away from dictatorship: cambia, todo cambia or everything changes. Well, the monopolistic, feudal and entitlement-based approach to appointing the president of the World Bank appears to be finally giving way to a more open, competitive, transparent and merit-based system.


As we count down to the official deadline on Friday, three highly credible professionals are on the verge of being nominated as official candidates to replace former president Robert Zoellick, namely José Antonio Ocampo from Colombia, Ngozi Okonjo-Iweala from Nigeria and Jeff Sachs from the US.


All three have strong developmental qualifications. Their track records are both solid and of direct relevance to the position.


Mr Ocampo is a professor at Columbia University, a former UN under-secretary-general, and former finance minister of his native Colombia. Ms Okonjo-Iweala is Nigeria’s finance minister, a position that she excelled at earlier before a stint as a managing director at the World Bank. And Mr Sachs, a respected professor and practitioner of development economics, is the director of the Earth Institute at Columbia University and a special adviser to Ban Ki-moon, UN secretary-general. Crucially, all three have already secured the backing of some of the Bank’s member countries, as well as endorsements from knowledgeable and credible observers.


This constitutes by far the biggest challenge ever to the US government’s automatic entitlement to the presidency of the World Bank. Due to these individuals’ courage, this year could mark the end of the outdated and harmful tradition of selecting the leader of the world’s premier developmental institution based, not on merit and qualifications, but on nationality, internal politics and bureaucratic largesse. And, with that, the International Monetary Fund is sure to follow suit when Christine Lagarde eventually steps down, thereby relaxing Europe’s stronghold on that international institution.
Mr Sachs led the way by boldly launching a public campaign on March 1. He put forward credible proposals for strengthening an institution that can, and should, play an even larger role in alleviating poverty and in helping developing countries achieve their potential. And he argued forcefully why he is best placed to implement the required changes.


His move opened the way for other credible candidates to express interest or be encouraged to do so. Those likely to be nominated on Friday include two from the developing world, confirming what many already know: that neither America nor Europe hold a monopoly on talent, qualifications and experience for the top jobs at the international financial institutions.


The US is yet to announce its official nominee. And when it does, this person will, for the first time in almost 70 years, actually have to compete to secure the post.


This is not to say that the US administration will not get its way. It could well do so, especially if the Europeans provide overwhelming support. After all, they would have the votes needed . But in order for this to materialise, the US must first come up with a highly credible candidate given the quality of the other candidates.


Once the nomination period closes, the Bank’s executive board is committed to conducting a thorough assessment process. In delivering on this important pledge, they should have no hesitation in running appropriate background checks and collecting whatever information is needed for a proper and fair evaluation – again something that is essential for good governance and yet appeared to have been lacking in prior episodes.


The world has waited a very long time for a more suitable and defensible system for selecting the leaders of the two most important international financial institutions. It could well be on the verge of getting it due to the courage of talented individuals, and the perseverance of many advocates for this sensible and overdue change. It is now up to the Bank’s executive directors to step up to their responsibilities.


The writer is the chief executive and co-chief investment officer of Pimco

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Has Europe learnt from the mistakes made in Greek debt crisis?

Lorenzo Bini Smaghi

March 15, 2012

Has Europe learnt from the mistakes made in Greek debt crisis?

The markets seem to have coped relatively well with “the biggest sovereign restructuring ever” last week. But they are already focusing on the next possible victim: Portugal’s bond yields have soared to levels close to those on Greek bonds a few months ago.

European authorities have declared that Greece was unique and that there will be no more debt restructuring.
Undoubtedly, though, they will be tested in the coming months. Two strategies are possible.

One is to behave in the same way as in the past. This means helplessly observing the widening of credit default swap spreads on sovereign bonds until it becomes obvious that the country in question will not be able to refinance itself in the markets; then publicly denying that restructuring is even an option, but privately considering involving private creditors and even discussing the details with some market participants; finally, hastily putting in place an additional package and asking the various countries’ parliaments for approval, which they might be willing to consider… but only in exchange for debt restructuring.

Unless this approach is quickly abandoned, Greece will turn out not to be an exception after all. Markets would turn to the next prey, like in Agatha Christie’s Ten Little Indians. Who will be next? Ireland? Spain? Italy? Where would the process stop?

The alternative strategy is to immediately build a firewall that would ensure Greece is an exception. First, it should be recognised right away that Portugal may not be able to return to the markets next year and needs an additional bailout package. If it is unable to finance itself until 2016, it will need approximately €100bn. The European Financial Stability Facility has sufficient capability to provide these funds.

Second, the same could be done for Ireland, which requires an additional €80bn. The procedure to allocate these funds should be started right away by the national and European authorities. Third, the size of the EFSF and European Stability Mechanism should be further increased to allow them to provide additional funds to other countries. Fourth, the International Monetary Fund’s European shareholders should arrive at its spring meetings with sufficient support from other advanced economies, including the US, and from emerging markets to obtain an increase in the funds available to the IMF.

The problem with this strategy is avoiding moral hazard. How can it be ensured that countries receiving increased financial assistance, starting with Portugal, will implement the agreed adjustment programme and not become complacent, as happened with Greece?

One way is to agree that the rules and procedures foreseen by the proposed fiscal compact, including sanctions, become immediately enforceable, even before ratification. There must be stronger monitoring of whether budgetary adjustments are being implemented, to avoid a repeat of the embarrassing situation in Spain, where it was discovered on Monday morning that the budget deficit was 30 per cent higher than expected the previous Friday. Countries receiving upfront assistance should also be required to present privatisation programmes, involving their banking system, that would be automatically triggered if the country failed to meet the adjustment target.

Only by acting forcefully, in anticipation of what the markets will focus on next rather than under their pressure, can European authorities convince us that Greece was an exception and prove their commitment to do all that is needed to preserve the euro as a currency.

The writer is a visiting scholar at Harvard’s Weatherhead Center for International Studies and a former member of the ECB’s executive board

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Fears over debt diminish despite signs of another slump

Fears over debt diminish despite signs of another slump

Monday, March 26, 2012

European fund managers are growing less worried about sovereign debt and the head of the European Central Bank (ECB) claims the crisis is over. However, one economic indicator heralds a return to recession for the region.

This month's Bank of America Merrill Lynch (BofA ML) European Fund Manager Survey indicates European Union (EU) sovereign debt funding remains the biggest tail risk for asset allocators, with a net 38% citing this factor. However, this is a fall from the net 59% who expressed concern in February.

The Chinese real estate market and commodity price inflation, on the other hand, are becoming prominent risks for managers.
"It seems brutally Darwinian that in a month when Greece saw the largest sovereign restructuring in history ... panellists sharply cut their view on the tail risk presented by EU sovereign debt funding," the report says.
Global asset allocators report being a net 14% underweight to Europe in March, falling from the 20% underweight seen one month earlier. BofA ML predicts further easing in sovereign funding risk would help to reduce this underweight.

There was a slight increase in the number of fund managers expecting the eurozone to survive intact, with a net 40% saying they do not foresee any of the 17 members leaving the currency bloc.
A sharp fall was also seen in the number expecting one or more members to leave the bloc during the first or second quarter of the year. However, the proportion predicting departures after 2012 rose to a net 27%.
Sentiment was bolstered by Mario Draghi, the president of the ECB, who told Bild, a German newspaper: "The worst is over, but there are also still risks. The situation is stabilising.

"Investors are regaining their trust and the ECB has not had to provide support by buying government bonds for several weeks. It is up to the governments."
Despite confidence from asset allocators and policymakers on the sovereign debt front, data emerged last week that heightened concerns over the eurozone's economic health.
The Markit Flash Eurozone Purchasing Managers' Index fell to 48.7 points in March, down from the 49.3 in February and below the 50- point mark that indicates declining output.
Chris Williamson, the chief economist at Markit, suggests this means the region has fallen back into recession. Germany and France were able to avoid recession, he adds, but only by "very narrow margins".

(c) 2012 Fund Strategy. Provided by ProQuest LLC. All rights Reserved.

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Risks Associated with Investing in Bonds

Reading 54. Risks Associated with Investing in Bonds

Key Concepts

1. There are many types of risk associated with fixed income securities:
   • Interest rate risk is defined as the sensitivity of bond prices to changes in interest rates.
   • Call risk is the risk that a bond will be called (redeemed) prior to maturity under the terms of the call provision and that the funds must then be reinvested at the current (lower) yield.
   • Prepayment risk is the risk that the principal on amortizing securities will be repaid early and then must be reinvested at a lower (current) market yield.
   • Yield curve risk is the risk that changes in the shape of the yield curve will negatively impact bond values.
   • Credit risk includes both the risk of default and the risk of decreases in bond value due to a downgrade (reduction in the bond's credit rating).
   • Liquidity risk is the risk that an immediate sale will result in a price below fair value (the prevailing market price).
   • Exchange rate risk is the risk that the foreign exchange value of the currency that a foreign bond is denominated in will fall relative to the home currency of the investor.
   • Volatility risk is the risk that changes in interest rate volatility will affect the value of bonds with embedded options. More volatility decreases callable bond values and increases putable bond values.
   • Inflation risk is the risk that inflation will be higher than expected, eroding the purchasing power of the cash flows from a fixed income security.
   • Event risk is the risk of decreases in a security's value from disasters, corporate restructurings, or regulatory changes that negatively impact the firm.
   • Sovereign risk is the risk that governments may repudiate debt, prohibit debt repayment by private borrowers, or impose general restrictions on currency flows.
2. When a bond's yield is above(below) its coupon rate, it will trade at a discount(premium) to its par value.
3. The interest rate risk of a bond is positively related to its maturity, negatively related to the coupon rate, and is less for bonds with an embedded option (either puts or calls).
4. The price of a callable bond equals the price of an identical option-free bond minus the value of embedded call.
5. The higher the market yield, the lower the interest rate risk.
6. Floating-rate bonds have interest rate risk between reset dates and may also differ from par value due to changes in liquidity or in credit risk after they have been issued.
7. The duration of a bond is the approximate percentage price change for a 1% change in yield.
8. The percentage price change in a bond = – duration * yield change in percent.
9. When yield curve shifts are not parallel, the duration of a bond portfolio does not capture the true price effects because yields on the various bonds in the portfolio may change by different amounts.
10. A security has more reinvestment risk when it has a higher coupon, is callable, is an amortizing security, or has a prepayment option.
11. A prepayable amortizing security has greater reinvestment risk because of the probability of accelerated principal payments when interest rates (including reinvestment rates) fall.
12. Credit risk includes default risk (the probability of default), downgrade risk (the probability of a reduction in the bond rating), and credit spread risk (uncertainty about the bond's yield spread to Treasuries based on its bond
    rating).
13. Lack of liquidity can negatively impact periodic portfolio valuation and performance measures for a portfolio and thus can affect a manager even though sale of the bonds is not anticipated.
14. An investor who buys a bond with cash flows denominated in a foreign currency will see the value of the bond decrease if the exchange value of the foreign currency declines (the currency depreciates).
15. If inflation increases unexpectedly, the purchasing power of the cash flows is decreased and bond values fall.
16. Increases in yield volatility increase the value of put and call options embedded in bonds, decreasing the value of a callable bond (because the bondholder is short the call) and increasing the value of putable bonds.
17. Event risk encompasses events that can negatively affect the value of a security, including disasters that negatively impact earnings or diminish asset values, takeovers or restructurings that can negatively impact bondholder claims, and changes in regulation that can negatively affect earnings.

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Features of Debt Securities

Key Concepts

1. The obligations, rights, and any options the issuer or owner of a bond may have are contained in the bond indenture. The specific conditions of the obligation are covenants. Affirmative covenants specify acts that the borrower must perform, and negative covenants prohibit the borrower from performing certain acts.
2. Bonds have the following features:
   • Maturity — the term of the loan agreement.
   • Par value — the principal amount of the fixed income security that the borrower promises to pay the lender on or before the bond expires at maturity.
   • Coupon — the rate that determines the periodic interest to be paid on the principal amount. Interest can be paid annually or semiannually, depending on the terms. Coupons may be fixed or variable.
3. Types of fixed-income securities:
   • Zero-coupon bonds pay no periodic interest and are sold at a discount to par value.
   • Accrual bonds pay compounded interest, but the cash payment is deferred until maturity.
   • Step-up notes have a coupon rate that increases over time according to a specified schedule.
   • Deferred coupon bonds initially make no coupon payments (they are deferred for a period of time). At the end of the deferral period, the accrued (compound) interest is paid, and the bonds then make regular coupon payments.
4. A floating (variable) rate bond has a coupon formula that is based on a reference rate (usually LIBOR) and a quoted margin. Caps are a maximum on the coupon rate that the issuer must pay, and a floor is a minimum on the coupon rate that the bondholder will receive.
5. Accrued interest is the interest earned since the last coupon payment date and is paid by a bond buyer to a bond seller. Clean price is the quoted price of the bond without accrued interest, and full price refers to the quoted price plus any accrued interest.
6. Bond payoff provisions:
   • Amortizing securities make periodic payments that include both interest and principal payments so that the entire principal is paid off with the last payment unless prepayment occurs.
   • A prepayment provision is present in some amortizing loans and allows the borrower to payoff principal at any time prior to maturity, in whole or in part.
   • Sinking fund provisions require that a part of a bond issue be retired at specified dates, usually annually.
   • Call provisions enable the borrower to buy back the bonds from the investors (redeem them) at a price(s) specified in the bond indenture.
   • Callable but nonrefundable bonds can be called, but their redemption cannot be funded by the simultaneous issuance of lower coupon bonds.
7. Regular redemption prices refer to prices specified for calls; special redemption prices (usually par value) are prices for bonds that are redeemed to satisfy sinking fund provisions or other provisions for early retirement, such as the forced sale of firm assets.
8. Embedded options that benefit the issuer reduce the bond's value to a bond purchaser; examples are call provisions and accelerated sinking fund provisions.
9. Embedded options that benefit bondholders increase the bond's value to a bond purchaser; examples are conversion options (the option of bondholders to convert their bonds into a certain number of shares of the bond issuer's common stock) and put options (the option of bondholders to return their bonds to the issuer at a preset price).
10. Institutions can finance secondary market bond purchases by margin buying (borrowing some of the purchase price, using the securities as collateral) or, most commonly, by repurchase (repo) agreements (an arrangement in which an institution sells a security with a promise to buy it back at an agreed-upon higher price at a specified later date).

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Rescue creditors: Greece may miss debt target

Rescue creditors: Greece may miss debt target

Tuesday, March 20, 2012

By JUERGEN BAETZ

BERLIN - Greece's international creditors see "significant risks" that the country might fail to bring down its debt burden within targets, meaning it would require more rescue loans.
In a document seen by The Associated Press on Tuesday, they say Greece's program of austerity measures and structural reforms "could be accident prone."
"Authorities may not be able to implement reforms at the pace envisioned," said the report by the International Monetary Fund, the European Commission and the European Central Bank.

The Greek program expects to lower debt to 116.5 percent of GDP by 2020. The minimum target set by the bailout creditors is 120.5 percent by 2020.

On top of concerns that reforms are too slow, the Greek economy faces a grim outlook. It is in its fifth year of recession and would need to recover before debt reduction plans can have much effect.

Overall, the bailout creditors' report sees a risk that the program would bring debt down to only 145.5 percent of GDP by 2020, even after taking into account losses accepted by private creditors.

"Stress tests point to a number of sensitivities, with the balance of risks mostly tilted to the downside," said the report dated March, 11.

"Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalization may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays," it reads.

Moreover, Greece is heading toward a general election in late April or early May, likely causing further delays to reforms. A new government might take also seek to change the terms of the bailout program.

"On the policy side, it may take Greece much more time than assumed to identify and implement the necessary structural fiscal reforms," the document says. Revenue from selling state assets my also fall behind expectations "due to market-related constraints, encumbrances on assets, or political hurdles," it notes.

A service of YellowBrix, Inc.

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Fitness test for bank officials.

Fitness test for bank officials

Wednesday, March 21, 2012

By Issac John, Khaleej Times, Dubai, United Arab Emirates 

March 21--DUBAI -- The UAE Central Bank is currently preparing a 'fitness test' to determine the expertise and capability of senior executives in banks and other financial institutions in risk handling. 

The test is aimed at ensuring that senior bank officers "do have the required technical expertise, including expertise in risk assessment and risk management, which proved essential in the wake of the recent international financial crisis", Central Bank Governor Sultan bin Nasser Al Suwaidi said in a speech delivered at the third Abu Dhabi Corporate Governance Conference. The speech is posted on the bank's website. 

The Central Bank has ordered commercial banks to seek its prior written approval for nominations to boards of directors, he noted. 

"A sound board of directors governance would require the independence of the board of directors. This includes the absence of subordination of one member to another member, the absence of close family relationships between members and the absence of overlapping interest links," Al Suwaidi said. 

"The existence of such links is likely to create dissenting blocs within the board. Soon, this gives rise to disagreements that will leak out to the staff and create alliances to the blocs within the board, thereby undermining the decision-taking process and weakening the institution." 

Citing a Central Bank circular, the governor said the position of the bank chairman should be separated from the rest, "in such a way that the chairman chairs board meetings while the board determines the policies and strategies of the bank, and oversees the implementation through well established procedures. Membership of the board should not be combined with the position of the chief executive officer". 

He said the appointment of the chief executive officer and managers of departments in the UAE's national banks is subject to the Central Bank's approval, which seeks to ensure they have the required qualifications and experiences to assume such responsibilities. 

--issacjohn@khaleejtimes.com 

___ 

(c)2012 the Khaleej Times (Dubai, United Arab Emirates) 

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Global economy is on path to recovery -- IMF

Global economy is on path to recovery -- IMF

Tuesday, March 20, 2012

The global economy has stepped back from the brink of danger and signs of stabilisation are emerging from the eurozone and the United States, the IMF has said.

However, high debt levels in developed markets and rising oil prices are key risks to any sustained recovery.

"The global economy may be on a path to recovery, but there is not a great deal of room for manoeuvre and no room for policy mistakes," IMF managing director Christine Lagarde said in a speech in Beijing.

In a separate talk, Ms Lagarde said China's yuan could become a reserve currency in the future, adding that the country needed a road map for a stronger, more flexible exchange rate system.

She said signs of stabilisation were emerging to show that policy actions taken in the wake of the global financial crisis were paying off, that US economic indicators were looking a little more upbeat and that Europe had taken an important step forward in solving its crisis with the latest efforts on Greece.

"On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic.

"Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront," Ms Lagarde said.

The IMF chief cited still-fragile financial systems burdened by high public and private debt as the first of three major risks.

"Second, the rising price of oil is becoming a threat to global growth. And, third, there is a growing risk that activity in emerging economies will slow over the medium term," she said.

Ms Lagarde also said youth unemployment should be tackled and that all countries must persevere with their policy efforts if the progress made in stabilising the global economy was to pay off with better prospects ahead.

(c) 2012 Belfast Telegraph. Provided by ProQuest LLC. All rights Reserved.

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Risk Expert Warns of Melt-Downs to Come.

Thursday, March 15, 2012

MELBOURNE, March 15 Asia Pulse - The European debt contagion has started to reach Australia and capital preservation and income will be critical for investors wanting to survive the wild swings to come on global markets, says risk expert, commentator and author Satyajit Das. 

Greece was just the first cart of a doomed train and that Europe's debt crisis was much worse than most people acknowledge, Mr Das said. 

Europe is China's biggest trading partner and therefore the first line of contagion from the meltdown from Greece's default, he told AAP in an interview. 

"That's going to have some effect on the commodity prices here - it's inevitable. 

"If you look at the profitability for the last quarter in the mining sector you are starting to see signs of it." 

Earnings downgrades among miners were a feature of the corporate reporting season in February. 

Around 20 per cent of Australia's $A1 trillion (US$1.05 trillion) in superannuation funds is invested offshore and this would be hit by losses from Europe. 

Local investors need to have capital preservation and income as high priorities, including term deposits, bonds or high dividend-paying stocks, Mr Das said. 

"Then the question is how do you capture the melt-ups and the melt-downs because we're going to get a lot of them. 

"Professional investors will buy out of the money options and try and capture the big (market) movements." 

The concept of buying and holding investments was nonsense, and investment diversification was another myth that could be applied only when the world was normal - before 2007 (and the Global Financial Crisis), he said. 

Mr Das said the International Swaps and Derivatives Association (ISDA), the unofficial lobby group for a host of banks, including the big four Australian lenders, decided credit default swaps (CDS), a type of insurance, would be paid to holders of Greece bonds so they could curb their losses. 

However, Greece's issues are far from being settled, he said. 

"The real problem is you don't know who's bought and who's sold (the bonds). 

"Seventy per cent of Greek CDS are protected by collateral but we don't know what collateral it was or how good it was." 

Legal challenges to the default and restructuring were likely, Mr Das predicted. 

More worrying was the possibility of the debt contagion spreading beyond Portugal, Ireland, Spain and Italy and into Europe's core of Germany and France. 

Europe is "a body with cancer" and if its politicians make all the right decisions it has only a 25 per cent chance of muddling through with slow growth. 

"Basically they get stuck in the modern version of a Depression," Mr Das said. 

Despite the US Federal Reserve's more upbeat assessment of the US economy overnight, Mr Das says US economic growth will chug along at between zero and two per cent because of the absence of real (inflation-adjusted) wage growth. 

Low inflationary pressures mean more quantitative easing in the US was likely, but investors should beware the of certainty that credit markets would freeze again, he said. 

Mr Das spent over 30 years in financial services and was a banker with Citicorp Investment Bank and Merrill Lynch. 

AAP ry 15-03 0919

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S&P Maintains Stable Outlook for China's Banking Industry.

Thursday, March 15, 2012

BEIJING, March 15 Asia Pulse - Standard and Poor's (S&P) maintained a stable outlook on Tuesday for China's banking industry in a report, despite that the non-performing loans (NPLs) of the industry may rise due to the economic slowdown and tightening liquidity. 

S&P, one of the larges rating agencies, warned that exporters, especially small ones, would suffer from rising labor cost and decreasing export, and some borrowers in certain industries may default if their worsening liquidity could not be improved. 

Zeng Yijng, a credit analyst from S&P, said S&P had taken the volatile fluctuation of financial performance into consideration when analyzing the country risk, capital adequacy and risk exposure in China's banking industry. 

Meanwhile, the report also warned the possibility of credit downgrading if China's economy falls sharply and NPLs surge as a result of liquidity risk. 

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ASIAN NATIONS TO DOUBLE CURRENCY SWAP DEAL

19th March 2012

Japan and 12 other Asian countries will likely agree to double the amount of funds 

available under a regional currency swap pact amid uncertainty over the European debt crisis, a 

report said Sunday. 

Japan, China, South Korea and the 10 members of the Association of Southeast Asian Nations 

(ASEAN) are to agree to double the fund from the current $120 billion this month, Japan's 

Nikkei daily reported, citing unnamed sources. 

The currency swap deal, known as the Chiang Mai Initiative, is designed to prevent a financial 

crisis in countries with relatively small foreign exchange reserves by giving them a safety net 

against future liquidity shortages. 

Currently, up to 20 percent of the $120 billion in available funds can be used without linkage to 

loans by the International Monetary Fund. 

The so-called ASEAN+3 countries are also expected to agree to raise this percentage 

significantly to prevent the European debt crisis from causing major damage in Asia, the Nikkei 

said. 

The countries are expected to reach a broad agreement on strengthening the functions of the 

Chiang Mai Initiative at a meeting of senior finance officials in Cambodia at the end of this 

month, it said. 

The agreement is expected to be finalised in May at a meeting of finance ministers and central 

bank governors from the ASEAN+3 countries, it said.  

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UK's credit rating at risk as Fitch gives negative forecast

Thursday, March 15, 2012

By JOE CHURCHER 

Britain's triple-A credit rating is increasingly at risk, a leading agency has indicated. 

Fitch has downgraded the economy's outlook from stable to negative ahead of the budget. 

Chief Secretary to the Treasury Danny Alexander said the move by Fitch was a "salutary reminder" of the debt problems facing the country and the need for continued austerity measures. 

Fitch indicated that it felt it was more likely than not that Britain would lose its coveted top rating given its highly limited ability to absorb any further shocks from the EU crisis. 

It is the second of the major agencies to issue such a caution, following Moody's last month. 

Mr Alexander said: "This is a salutary reminder as to why Britain needs to deal with the enormous debts and deficits we inherited, and why we have got to stick to those plans. 

"It should be a wake-up call to anyone who thinks we can afford, as a country, to loosen the purse strings. We can't afford to do that and that's why there will be no unfunded giveaways in next week's Budget." 

Fitch said it considered the Government's deficit-reduction plans to be "credible" and on track and that it expected them to be sustained in the Budget. 

But it said that current projected levels of future debt were "at the limit of the level consistent with the UK retaining its 'AAA' status". 

Although eurozone markets had calmed over recent weeks, there was still a risk that the crisis could re-emerge, the analysis concluded, spelling potential problems for the UK. 

The agency stated: "The revision of the rating outlook to negative from stable reflects the very limited fiscal space to absorb further adverse economic shocks in light of such elevated debt levels and a potentially weaker than currently forecast economic recovery." 

If there are no major financial shocks the rating will be returned to stable in 2014, Fitch said. 

(c) 2012 Belfast Telegraph. Provided by ProQuest LLC. All rights Reserved.

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PR--Chambers, Associations Should Stop Giving Budget Proposals to Govt.

*Budget proposals a futile practice*
*Shifting economic priorities stressed*
*Unjust taxation keeping country backward*
*Private sector should stop presenting budget proposals *

Islamabad: [March 18]

The Pakistan Economy Watch (PEW) on Sunday termed budget proposals by different business chambers, and associations a futile ritual with no positive impact.

Budget proposals have never been accepted for the welfare of masses or the business community which is making country a bad place to live and a risky destination for investors, it said.

Enhancing tax revenues and protecting evaders seems to be the major concerns of the collectors despite knowing its disastrous impact on the society and country, said Dr. Murtaza Mughal, President PEW.

Taxation helps growth in developed nations while it has been chocking development in Pakistan since decades, he said.

Dr. Murtaza Mughal said that the trend of oppressive policies continues in absence of any sincere effort or serious study on its impact, he said. Challenging targets are fixed every year without measures to boost collections which lead to complaints by tax payers, delayed refunds, non-payments, defaults, corruption and frequent revision of the targets, he added.

He said that frequent deception by the tax authorities including fudging the figures is taken normally by those who matters, which scares investors and donors alike.

Stressing a shift in the economic priorities, he said that methods employed by the authorities are promoting poverty and instability in Pakistan.

He said that inequitable tax burden has not only created a shortage of cash for the productive sectors but it has diverted resources to sectors that matter least in the economy.

Banks also feel comfortable to invest in government securities while ignoring trade, commerce and industry, he said.

Trade and professional bodies can consider stopping forwarding budget proposals as they always fall on deaf years.

Dr. Murtaza Mughal said that government should make an acceptable taxation system and impose it after taking all stakeholders on board otherwise country will remain dependent of foreign loans.



--

Dr. Murtaza Mughal
Cell:  0321-5157671
President Pakistan Economy Watch
www.pakistaneconomywatch.com 

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