The 3-day meeting of the Pakistan Development Forum (PDF)
ended last week in Islamabad on a positive note with Pakistan putting across its
case for enhanced international economic support and the donors led by the World
Bank expressing their willingness to consider the request sympathetically.
The meeting was attended by 115 delegates from 17 countries
and 12 international agencies besides over 20 people from the private sector.
The participants were appreciative of the government efforts to reform the
economy and the cordial atmosphere which prevailed at the meeting betrayed the
fact, that after 2 difficult years since Pakistan went nuclear, the developed
countries and the donor agencies are regaining confidence in Pakistan's fiscal
Opening the three-day meeting of Pakistan Development Forum
(PDF), earlier known as aid to Pakistan consortium, Finance Minister Shaukat
Aziz selected the theme and contents of his statement very carefully, as
appropriate to the occasion. After briefly recounting the failures during the
decade of 1990s, he quickly turned to the multi-dimensional challenges now
facing the economy and the wide-ranging structural reforms being undertaken by
the present government which include tax survey and the documentation of the
economy, imposition of GST across the board, levy of agriculture income tax,
strengthening of tax administration and reform of income tax law, banking and
capital market reforms, initiating a multifaceted poverty alleviation programme,
linking expenditures with resource mobilization, accelerating the pace of
privatization and improving governance. In addition to these reform measures,
the government had succeeded in restoring relations with international financial
institutions and successfully resolved the IPP issue.
The Finance Minister then sought from donors a total package
of 10 billion dollars as exceptional financing on soft terms for 2001-2004
period to enable Pakistan to consolidate its economy. The PDF meeting was
basically a non-pledging session, but the government used this opportunity to
present Interim Poverty Reduction and Strategy Paper (IPRSP) and Debt Burden
Reduction Strategy, seeking help for stabilization of the vulnerable balance of
Meiko Nishimuzu, Vice President of the World Bank for South
Asia region, said that the donors would respond to this request after studying
the details of the programme. She said it was difficult to indicate a timeframe
at this stage. Meiko was addressing a joint press conference with Finance
Minister Shaukat Aziz at the conclusion of the three-day session.
Mr. Aziz said the government has made four requests to its
development partners. These include provision of new loans on soft-term basis;
technical assistance as grant, rather than loan speedy processing of the new
programme loans; and support only for the home-grown projects and programmes to
"Pakistan is caught in a vicious circle of high debt
payments, leading to stagnation in (human and physical capital) investment and
growth, and low growth in turn, limiting the capacity to service debt, and
reduce the debt burden. On this basis, the government has decided to pursue a
larger package from the multilateral and bilateral donors on a medium term
basis. The response of the donors' community was positive to the proposed reform
measures. However, they raised the issue of implementation of policies in a
consistent manner, and good governance.
"There was a strong desire to help the economic reform
programme and alleviate poverty, said Shaukat Aziz, expressing his satisfaction
over the outcome of this meeting.
He admitted that there were concerns about the continuation
of reform process after change of government in October 2002, and some delegates
also raised the issue of restoration of democracy in the country. We want to
have a responsible democratic set-up in place, according to the schedule set by
the Supreme Court," said the Minister.
The Finance Minister also dwelt at length on the strategy to
revive economic activity, restore macro-economic stability, reduce poverty and
improve governance and acknowledged that his was a daunting task. He also
dispelled some of the apprehensions of the participants by emphasizing that the
present government was fully committed to democracy where people are masters of
their own destiny. Realizing that the donor community was unhappy with rising
defence expenditures, he made it a point to mention that Pakistan would not
enter into an arms race with India by recklessly increasing its defence budget.
Instead, the government would like to spend its resources on primary education,
basic health and poverty reduction.
Elimination of Riba was also a hot topic within the country
and abroad because of its pervasive effect on the moblisation and utilisation of
financial resources. The Finance Minister, very wisely, did not take an extreme
position and explained that two task forces and a commission are drafting
proposals pursuant to the decision of the Supreme Court. The government, after
receiving the recommendations, would see what can be implemented. However all
the existing financial obligations, including those under any instrument or
financial commitment, will be honoured and international transactions will not
be affected. Towards the end, the Finance Minister informed the participants
about the existing shortage of irrigation water due to drought and its
implications for the economy. This reference was necessary in view of the likely
slippages in some of the key areas of the economy during the current year.
The general perception among the participants was that the
case of Pakistan was well presented and the Finance Minister took great pains to
alley the fear of the donor community about some element inherent in the
prevailing situation in the country. The participants were apprehensive of the
future of economic reforms currently underway specially in view of our poor
track record. The Finance Minister remarked in his speech that the government
was aware of this issue and was working on various alternatives for ensuring the
continuation of reform measures. He announced with the courage of conviction
that there would be "no looking back, no roll-back of any reform measure
initiated by this government record."
Pakistan submitted its Interim Poverty Reduction Strategy
Paper (IPRSP) to the Forum along with its debt retirement strategy appear and
expressed the hope that the IMF and the World Bank would complete the evaluation
of the IPRSP by end August so that decks are cleared for a 2 to 3 billion dollar
medium-term soft loan from the Fund's Poverty Reduction and Growth Facility (PRGF)
by September when the SBA would come to end. The PRGF is a new programme
replacing the Extended Structural Arrangement Facility (ESAF), a
750-million-dollar programme, which was abruptly suspended after the May 1998
nuclear tests. This is a tall order. Perhaps that is why the donors would like
to take their time to make an evaluation of Islamabad's IPRSP which would then
be followed by the process of finalization of PRSP.