Pakistan achieves low overall compliance with international standards and codes, with a score of 36.7 out of 100 in our Standards Compliance Index. However, Pakistan is making progress in compliance with transparency standards. Its best areas of performance include the supervision of banks and securities markets, convergence with international auditing and accounting standards, and monetary transparency. Pakistan is working toward subscription to the more demanding data dissemination requirement of the International Monetary Fund. Pakistan lags far behind international standards in the areas of its insolvency framework and insurance supervision. Of most concern, however, is Pakistan's lack of compliance in the anti-money laundering area. Pakistan was in the process of introducing a real time gross settlement system in 2006.

Macroeconomic Policy and Data Transparency

Pakistan began participating in the International Monetary Fund's (IMF) General Data Dissemination System (GDDS) in November 2003. In its 2002 Article IV Consultation report, the IMF noted that Pakistan had intended to subscribe to SDDS by 2003 and in its 2004 Report on Observance of Standards and Codes (ROSC) the IMF noted that Pakistan would be able to meet the SDDS requirements by 2005. Furthermore, according to the IMF's 2005 Article IV Consultation report, the Pakistani authorities are strongly committed to adhering to internationally accepted standards and good practices. However, as of September 2006 Pakistan is not yet a subscriber to the SDDS. More »

According to the Financial System Stability Assessment (FSSA) carried out by a joint International Monetary Fund (IMF) - World Bank mission in 2004, the State Bank of Pakistan (SBP) observes most of the good practices on transparency in monetary policy recommended by the IMF. Oxford Analytica writes in its 2005 report on monetary policy transparency that the State Bank of Pakistan (SBP) has remained committed to monetary policy transparency. It continues to publish semi-annual statements on the decisions of the Central Board and has medium-term plans to transform one of its coordinating bodies into a decision-making body along the lines of a Monetary Policy Committee. There are still some remaining obstacles impeding monetary transparency, however. No changes have been made to clarify the SBP's main objectives beyond 'monetary stability', and there have been no efforts to put the SBP's autonomy from the government into law. Details are not published on the terms of the SBP's lending to the government. More »

A December 2004 update on the original 2000 Report on Observance of Standards and Codes (ROSC) by the IMF shows that Pakistan has taken steps to improve fiscal transparency. Under the Project for Improvement of Financial Reporting and Auditing (PIFRA), key steps to enhance fiscal reporting and monitoring had been taken. Oxford Analytica writes in its 2005 report on fiscal policy transparency in Pakistan that the country continues to implement measures to improve fiscal transparency but, despite the government's commitment to reform, visible progress is slow. The Fiscal Responsibility and Debt Limitation Ordinance was passed in 2005, targeting fiscal discipline, and the first stage of the PIFRA was completed. However, there are still inadequate auditing and internal control procedures. The New Accounting Model and Chart of Accounts (NAM-CoA) was implemented at both a federal and national level in 2005, but data could be improved by increasing capacity, especially at the provincial level. However, despite problems, there are many plans and projects currently underway to develop fiscal transparency and the outlook is generally optimistic. More »

Institutional and market infrastructure

The Companies Ordinance of 1984 contains bankruptcy provisions. Bankruptcy petitions involve corporations and businesses; personal bankruptcy is not currently a widespread concept. The overall legal environment in Pakistan continues to be biased in favor of the lenders. The Corporate Rehabilitation Act (CRA) was an attempt to restore balance between debtors and creditors rights and to develop an institutional framework, thereby creating a modern insolvency system. CRA aims to adopt a more forgiving approach towards business failure, particularly where the failure was caused by issues external to the business itself. This draft law was prepared by the Banking Laws Review Commission (BLRC) in 2003 after nearly two years of deliberations. The BLRC has adequate stakeholder representation from the relevant government departments (e.g., the State Bank of Pakistan, the Securities and Exchange Commission and the Ministries of Finance and Law). However, in spite of this, as of 2004, it appeared highly unlikely that the CRA will be presented to Parliament in the near future. More »

According to the assessment conducted by the World Bank in 2005, Pakistan has made progress in closing the gap between local requirements for corporate financial reporting and international standards by adopting International Financial Reporting Standards (IFRSs). Despite such achievements, there are still varying compliance gaps in accounting practices. The Institute of Chartered Accountants of Pakistan (ICAP) lacks fulltime qualified professionals for undertaking efforts in effectively facilitating the standards setting process. The Securities and Exchange Commission of Pakistan (SECP) also takes a long time to complete its official endorsement process after receiving inputs from the ICAP. These factors hinder timely adoption of new standards, including incorporating changes in existing standards in line with IASB pronouncements. As a result, full compliance with SECP-notified standards may not necessarily result in full compliance with IASB-issued accounting standards. Nevertheless, the ICAP demonstrates full commitment to complete compliance with IFRSs. More »

The 2005 Report on the Observance of Standards and Codes (ROSC) on Corporate Governance in Pakistan by the World Bank states that there have been significant reforms improving corporate governance, including the introduction of a Code of Corporate Governance and increased vigilance by regulators. The Code of Corporate Governance was introduced by the Securities and Exchange Commission of Pakistan (SECP) in early 2002 for the stated purpose of establishing a framework of good Corporate Governance, whereby a listed company can be managed in compliance with international best practices. The Code was prepared after a review of the leading international reports prescribing best practices for corporate governance and is broadly in line with Organization for Economic Co-operation and Development (OECD) Principles. It is the result of joint efforts of the SECP and Institute of Chartered Accountants Pakistan (ICAP). The Code has been adopted by all the stock exchanges of the country by way of its incorporation in their respective listing regulations. As a result all listed companies in Pakistan are now required to comply with the provisions of the Code. However, there remain some key obstacles. For example, highly concentrated control by significant shareholders has limited the objectivity of boards and reduced the impact of some of the recent reforms. More generally, many smaller and family-owned companies have a limited awareness of the potential benefits of improved corporate governance. Therefore, corporate governance reform needs to percolate throughout the corporate sector, including family-owned businesses. Further steps need to be taken to protect shareholder rights, including disclosure of beneficial ownership. Boards must become more effective, with stronger fiduciary duties, and more capable independent directors. More »

According to the assessment of accounting and auditing practices in Pakistan conducted in 2005 by the World Bank, Pakistan has adopted the International Standards on Auditing (ISAs) issued by the International Federation of Accountants (IFAC) without any modifications, except ISA 701 and ISA 720, which as of 2005, were in the process of adoption. Despite such achievements, there are still varying compliance gaps in auditing practice. These gaps are likely to stem from inadequate technical capacity of the regulators, absence of implementation guidance, lack of independent oversight of the auditing profession, and shortcomings in professional education and training. More »

According to a 2006 report by the U.S. Department of State, Pakistan does not have a comprehensive anti-money laundering law. Its current anti-money laundering (AML) regime is weak, outdated and based on a loose patchwork of laws and regulations. The National Accountability Bureau (NAB), the Anti-Narcotics Force (ANF), the Federal Investigative Agency (FIA), and the Customs authorities oversee Pakistan's AML law enforcement efforts. These agencies have had some success in investigating and prosecuting corruption, drug trafficking, and terrorism. While a range of terrorist financing risks and vulnerabilities continue to exist, Pakistan has taken significant steps to combat organizations used for terrorist financing and a number of groups have been proscribed as terrorist organizations under the Anti Terrorism Act of 1997. Since 2002, Pakistan's Ministry of Finance has been coordinating an inter-ministerial effort to draft AML and counterterrorism financing legislation, with the goal of bringing Pakistan into compliance with international norms. As of December 2005, draft AML legislation was approved by the cabinet and has been transferred to the National Assembly. The draft law provides for the establishment of a Financial Intelligence Unit (FIU). However, the draft legislation does not comport with international standards in several key respects, including its definition of money laundering, which is not consistent with the1988 UN Drug Convention or the UN Convention on Transnational Organized Crime or the FATF recommendations. More »

An automated checks clearing system (NIFT), established in collaboration with the private sector, has been operational since 1997. The State Bank of Pakistan (SBP) is in the process of establishing a Real Time Gross Settlement System (RTGS) to replace the current manual book-entry system for the settlement of interbank lending, net settlement of checks, and the settlement of the cash leg of government securities transactions. In 2005, the SBP drafted a Payment Systems and Electronic Funds Transfer Act. Since, in 2004, the RTGS had not yet been introduced, the 2004 Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) in Pakistan did not undertake a formal assessment of the Core Principles for Systemically Important Payment Systems (SIPS) for Pakistan. As of October 2006, the SBP was still in the process of introducing the RTGS system for large value payments in Pakistan. There is no other publicly available information as to Pakistan's compliance with the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems. More »

Financial Regulation and Supervision

According to an assessment conducted by the International Monetary Fund (IMF) in 2004, the State Bank of Pakistan (SBP) has made major strides in enhancing its supervisory capacity in recent years, bringing it broadly in line with international standards. The system has a high degree of compliance with Basel Core Principles (BCP) for Effective Banking Supervision. The 2004 IMF assessment also indicated that the SBP has an array of powers to control the risks assumed by banks, has issued appropriate prudential regulations, has adopted sound methods for on-site and off-site supervision, and has the power to require a wide range of remedial measures. Nevertheless, there are also areas of less than full compliance of supervisory standards that relate to certain legal provisions regarding the independence of the regulator, arrangements for consolidated supervision, and provisions for country risk. However, these do not pose a major risk to the stability of the financial system, since compliance is high, in particular, with the principles dealing with prudential regulation. According to the SBP, since the release of the IMF assessment, its compliance has increased further, as a result of activities including notifying all banks and Development Finance Institutions to apply a capital charge for their market risk related activities with effect from December 31, 2004, and issuing comprehensive guidelines on country risk. More »

According to the Financial Systems Stability Assessment (FSSA), conducted by the International Monetary Fund (IMF) in 2004, the Securities and Exchange Commission of Pakistan (SECP) is an active and energetic regulator. It has extensive powers to monitor market institutions and market practice and has achieved a high degree of compliance with the International Organization of Securities Commissions (IOSCO) principles. However, further challenges remain, including that the SECP must be assiduous in maintaining high degrees of transparency in all its operations to demonstrate that its decisions particularly those which affect the rights of citizens and corporations are backed by good communications on its policies on interpretation and implementation and are taken in a fair and open-minded way. A robust program of review of relevant law and practice is underway and the authorities are strongly committed to achieving and maintaining high regulatory standards. The stock market, after showing stellar gains in the last few years, underwent a major correction in early 2005. This fortunately did not have a significant impact on banks' health or on the economy in general, but it does point to the need for further strengthening of securities markets regulation and oversight. More »

According the Financial System Stability Assessment (FSSA) conducted by the International Monetary Fund (IMF) in 2004, the financial sector in Pakistan has undergone considerable reforms in recent years that have resulted in a sounder and more efficient financial system. However, the reform process does not appear to be equally advanced across all segments of the financial sector and the legal and regulatory authority for insurance and pensions is diffused and, in some respects, ineffective. The IMF concluded that there is a need for consolidation and liberalization of the insurance sector and strengthening of the related regulatory regime. The IMF recommended reviewing the roles of the state-owned insurers and placing the State Life Insurance Company (SLIC) on a pari passu basis with the rest of the life insurance sector. Also, clarification of the legal roles of Ministry of Commerce (MoC) and Securities Exchange Commission of Pakistan (SECP) in the insurance sector is needed and the SECP should be provided with on-site inspection capacity and powers to require prompt corrective action. More »

Legend:

Credit Ratings

Moody's B2/Stable

Fitch Not rated

Standard & Poor's B+/Negative

Macroeconomic Data

2007 GDP (Current Prices): 143.766 billion USD (IMF)

2007 GDP (Per Capita): 909 USD (IMF)

2008 GDP (Growth Forecast): 6% (IMF)

2008 Inflation (CPI): 8.5% (IMF)

2007 Unemployment: 7.5% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 4.273 billion USD (UNCTAD)

FDI (Outward): 0.107 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 2,147 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)