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WB/Donors' confidence on Pakistan

Pakistan was honoured because of its improved image mainly due to the economic reform policies

July 09 - 15 , 2001

President Gen. Pervez Musharraf, while addressing the 8th meeting of the Economic Advisory Board in Islamabad last month, had claimed that his government might not had been able to revive the economy but it had certainly succeeded in winning the confidence of the international financial institutions.

"The soundness of our economic policies has been endorsed by these institutions and this would certainly help in bringing a turn around in the economy, General had claimed. Many indications are available to support the claim of the Chief Executive.

The recent approval of $350 million interest free loan by the Board of Directors of World Bank aimed at supporting Pakistan's overall economic revival and structural adjustment programme may be seen as a strong evidence of our regaining the confidence of bank. It was disclosed by the Chairman Security & Exchange Commission of Pakistan (SECP) Mr. Khalid Mirza at a press conference that Pakistan has been selected by the International Organisation of Securities Commission (IOSCO) to host emerging market conference in Nov. Mirza said the decision was taken at the annual conference of (IOSCO) held in Stockholm. Pakistan was honoured because of its improved image mainly due to the economic reform policies and growing confidence of the IMF & World Bank in economic policies of the present government.

World Bank's latest gesture of goodwill is the most significant. Pakistan's development efforts have suffered a set-back due mainly to the economic sanctions imposed by most of the Western nations against the country since May 1998 following its nuclear test on May 28. Against this background, a highly encouraging aspect of this financial assistance from the World Bank is that in so far as terms and conditions are concerned, it is at par with the IDA mode of lending to the poorer developing nations. The loan assistance thus does not carry any interest charge but a 0.75 percent service charge per annum while the repayment period would be spread over the next 35 years in addition to a grace period as is usually allowed with such loans by the IDA which is an affiliate of the World Bank.

It may recalled here that this 1oan assistance was originally approved by the World Bank in January last but the terms and conditions followed the usual pattern of interest charges, as a medium term facility. Pakistan had, therefore, made a request to the World Bank for recasting the loan terms on the pattern of IDA's concessional loan assistance for the developing countries. It is undoubtedly a matter of great relief for Pakistan that the World Bank responded fabourably to Pakistan's request. The World Bank's gesture can be naturally interpreted as its approval of the present government's wide ranging measures designed to revive economic activity in the vital sectors and to attract foreign as well as domestic private investment in industry and other job generating avenues such as the development of infrastructure facilities in rural and urban areas of the country.

One of the important adjuncts of the structural programmes is the on-going initiative in the banking and the financial sector marked for privatization and transfer of management control to the private sector. One of the hurdles faced by the government in this direction is the size of accumulated non-performing loans in the balance sheets of the nationalised commercial banks. As a result these banks have not been able to operate on a reasonable rate of profits while a couple of them have been running in losses. One of the steps to improve the working of these banks is to cut down expenditure through downsizing of staff strength, in addition to closing of non-profitable branch offices. This process, which was begun about two years ago has once again been resumed in the form of voluntary separation package offered by Habib Bank and other banks. The implementation of this package would obviously involve large amounts of payments to employees opting for voluntarily retirement or separation. A part of the loan amount to be available from the World Bank may now be utilised by the government to complete the restructuring process in the stateowned banking sector. At the same time, the government may fulfil the demands for financial support from Pakistan International Airlines Corporation and other public sector institutions which have not been able to service their debts to the banking system. The government may thus be considerably relieved of the pressure it is facing on account of the public sector's financial problems, thanks to the timely sanction of the concessional loan by the World Bank. It may be added here that in the absence of assistance from the World Bank, the government would have been left with no option but to resort to borrowing from the banking system which would have led to substantial increase in the budget deficit contrary to the IMF's requirement to contain it at 4.5 per cent of GDP.

Winning over the confidence of international donor agencies has been possible only because the government has been following their recommendations faithfully some say even blindly and during the last 18 months has taken many unpopular decisions which an elected government could not dare to because of adverse public reaction. Repeated increase in the cost of utilities, large scale retrenchments through rightsizing exercises, and taxing items of daily use, has added to the miseries of common men and adversely affected the popularity graph of the present government. But these major operations are perhaps necessary to save the economy from its cancerous growth.

Assuring a better future for the people of Pakistan, the Chief Executive described the current lull in investment activity in important sectors like industry and services as one of the major problems on the economic front which his government could not tackle with positive results and exhorted the members of the business community to come forward with their investment plans in the corporate sector. He claimed that some friendly countries are coming with heavy investment in energy, communication, agriculture and infrastructure sector and that would certainly motivate and encourage other investors specially the Pakistani expatriates.