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$6 billion credit line facility for Pakistan

There is two track approach to fight poverty and economic growth

July 30 - Aug 05 , 2001

Pakistan is likely to receive the biggest ever interest free credit line of about 6 billion US dollars from the international donor agencies during the next 3 years under Poverty Alleviation and Growth Facility (PRGF) programme. A high powered delegation from Pakistan is currently visiting Washington to meet their counterparts in IMF Headquarters to give final touches to PRGF agenda for the meeting to be held in this regard in Islamabad in coming November/December.

IMF has already indicated to provide $2.5 billion under this programme while the remaining 3.5 billion dollars will be provided by other donor agencies once a formal agreement is signed with the IMF. This credit will be interest free as Pakistan will pay only half per cent markup as service charges on the total loan of $6 billion payable in 20 years. Pakistan will provide substantial amount, almost equivalent amount, from its own resources to supplement the funds for overcoming the massive task of poverty alleviation.

Finance Minister, Shaukat Aziz has already announced that all allocation for poverty alleviation, direct and indirect, spending will cross 40 billion in the current financial year. The budget allocation will increase in subsequent years. Creation of new jobs and poverty alleviation will be the 2 points on which the government will focus in all public sector development activities under its 3-year economic revival programme.

Talking to a delegation of World Bank on the issue the Financial Minister said that the government has adopted a two-track approach to fight poverty. On the first track the government is improving stabilisation of the overall economic situation and laying the foundation of a sustainable economic growth. This would create an enabling environment for the promotion of investment, which would lead to economic growth, job creation and consequent reduction in poverty.

He said while economic growth is critical to poverty alleviation, the trickle down affect may take a while to impact the masses. Hence through the second track the government has launched a series of programmes as direct interventions for reducing poverty. These reforms, the finance minister added included the Khushhal Pakistan Programme under which Rs. 30 billion is planned to be spent by the federal and provincial governments for the purpose of small public works schemes in both the urban and rural areas like farm to market roads, lining of water courses and improving the drainage system etc. These schemes have provided half a million temporary jobs across the country and augmented the income opportunities for the beneficiaries.

The second targetted programme is the Khushhali Bank, which has started operating in all the four provinces and will be operational in 30 districts by the end of this year. He added that the bank would extend micro credit rural and urban areas who had never had access to credit facilities before and would enable them to augment their income in order to improve their living standards. By the end of the year, the bank would extend credit to 50,000 borrowers in 30 districts of the country, with an overall credit size of almost Rs. 500 million. This will be a record in terms of faster expansion of micro credit operations in the region.

The third scheme of direct intervention is the Food Support Programme (FSP) whereby a cash subsidy of Rs. 2,000 per annum was provided to poorest of the poor. An allocation of Rs. 2.5 billion during the year was spent on this programme from the federal budget. The programme was implemented again at the district level through the help of district officials. Some 1.2 million households with an income of Rs. 2.200 per month or less were given this subsidy by crediting their accounts with the post offices.

The programme was essentially designed to mitigate the impact of increase in the support price of wheat, which would have adversely affected the poorest people. In the next fiscal year allocation for this programme will increase by Rs. 400 million to Rs. 2.9 billion.

The fact that every third family in Pakistan lives below poverty line as compared to every third in 1990 provides an idea of the velocity with which this monster is spreading in the national fabric and stresses the need for more meaningful engagement on the part of the government. Neither there is any text book-like solution to fight poverty, nor any other country's experience can be of any help in this regard, as the spread of poverty is so multifaceted and all encompassing that it requires a multi-dimensional approach with an appropriate set of policy mix to achieve a noble cause at any given point in time. The renewed consensus within the international development community to fight this pressing social evil is an outcome of the realisation that economic and social evil is an outcome of the realisation that economic and social problems are intertwined so closely that they can not and should not be seen in isolation.

The two-track approach to fight poverty, as the Finance Minister reportedly explained to the World Bank delegation, envisages stabilisation of the overall economic situation and provides an enabling environment for the promotion of investment, which would lead to economic growth, job creation and consequent reduction in poverty. Simultaneously, the efforts to tackle the poverty in a more direct way include Rs. 30 billion earmarked under Khushhal Pakistan Programme for small public works schemes like farm to market roads, lining of water courses and improving the drainage system. This effort is supplement further by Khushhali Bank, Food Support Programme, assistance through Bait-ul-Mall and Zakat Fund. Since the trickle down effect of growth takes time to be felt at the appropriate level, the rationale of attacking the poverty in a more direct way can hardly be disputed. Despite all noble intentions, the measures to fight poverty as outlined by the Finance Minister, seem to be too little to bring about any meaningful difference in the quality of life of the millions of Pakistanis living below the poverty line.

It is believed that despite all emotional commitment to improve social conditions of the poor in the country, the difference can be felt only through improvement in fundamentals supplemented by efforts to improve the distribution of income in the country.

Whereas, the Khushhali Bank and Khushhal Pakistan Programme provide the framework for better distribution of the income by involving more and more people in the development process, they fall abysmally short in resources when compared with the enormity of the task. In the first place they suffer from the lack of resources resulting from sluggish growth, while on the other hand the government has failed to improve the delivery system. Not only the public institutions have failed to halt declining performance, but they could not develop the capacity to reach the large segments of population in the rural areas or the urban slums. It is therefore advisable that the system be harnessed in a way as to ensure growth and revenues, so that the efforts to fight poverty could be meaningful and sustained by consistent increase in revenues.