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PDF meeting
Multidimensional challenges

The developed countries and the donor agencies are regaining confidence in Pakistan's fiscal policies

From Shamim Ahmed Rizvi,
Mar 26 - Apr 01, 2001

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 policies.

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 payments situation.

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 maximize ownership.

"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.