The government was focusing on pro-poor policies aimed to create more jobs with ultimate objective of reduce poverty


May 26 - June 01, 2003 




Almost all aspects of Pakistan's economy came under intensive discussions during the three-day conference of Pakistan Development Forum (PDF) formerly Aid to Pakistan Club held in Islamabad last week. Senior representatives of all the important donors agencies, the World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), International Finance Corporations (IFC) and Islamic Development Bank (IDB) participated in the meetings besides a large Pakistani delegation headed by the Finance Minister. It was also addressed by the President and the Prime Minister of Pakistan.

The President and the Prime Minister of Pakistan addresses the main concerns of donor agencies that Pakistan was fully committed to reforms and the reform agenda will be strictly followed.

The PDF urged the government to carry forward reform process roubstly, with higher allocation of resources for poverty alleviation and development. The three-day meetings concluded with the consensus that the reform process should move ahead in a consist manner, with strong implementation, and that broad political ownership should be assured by presenting the draft Poverty Reduction Strategy Paper (PRSP) to the parliament.

On the conclusion of the three days' intensive discussions, Finance Minister Shaukat Aziz, World Bank Vice President Meiko Nishimizu and ADB Director General Yoshihiro Iwasaki gave their perspective of economic performance and goals.

The Finance Minister highlighted the issues of frank and wide-ranging discussions. After recognition of achieving macro-economic stability, PRSP is seen as major document for country's economic development. It is a totally homegrown policy document driven by economic needs, listing broad-based directions of economy and is not donors-driven. It is being designed and implemented with donors' consultation and support and participation of NGOs and civil society. There is no disagreement on direction of policies and goals.

A new dimension of this year's PDF was reforms in the provinces and district government under the devolution programme so that these reach the people at the all levels. ADB is discussing various reforms with the provinces and the district governments.

The minister added that a special area of concern was the management of scarce water resources because of natural phenomenon and desilting. Twenty-two per cent of development resources will go towards this problem. The country is looking for substantial support in meeting the challenge, he added. The Finance Minister said that the government was focusing on pro-poor policies aimed to create more jobs with ultimate objective of reduce poverty. He envisaged a cut in poverty to bring it down to 25 per cent from 33 per cent during the next 3 years as outlined in the Poverty Reduction Strategy Paper (PRSP) prepared by Pakistani team.

Meiko Nishimizu, Vice President of the World Bank, termed the reforms world class in nature. She, however, maintained that she would not be satisfied unless the fruits of these reforms benefit the common man. "Too many people have not enjoyed the fruits of structural reforms, and they spend every waking moment of a working day on how to keep themselves alive, Meiko said, in a joint press conference with Finance Minister Shaukat Aziz and Yoshihiro Iwasaki, Director General of the Asian Development Bank at the end of the PDF 2003 session.

The donors' community apprehended that resources envisaged in the PRSP to achieve ambitious poverty reduction and social uplift goals, like literacy rate, primary school enrollment, better health facilities, safe drinking water etc., were not enough to yield dividends. "The absolute level of spending foreseen does not match the outcomes sought," observed John Wall, country director of the World Bank. He, however, hoped that this mismatch would be removed in the final PRSP by expanding the spending levels.

The Medium-Term Budgetary Framework (MTBF) outlined in the PRSP indicates Rs.760.2 billion budgetary revenues and Rs.937.1 billion budgetary expenditures for the fiscal 2003-2004 with a budget deficit estimate of Rs.177.6 billion, or 4 per cent of GDP, the fiscal gap would be narrowed down to 3 per cent of GDP by the year 2005-06. The PRSP proposed increase in the pro-poor spending from Rs.161.5 billion of 2002-03 to Rs.187.6 billion in 2003-04 (4.23 per cent of GDP), Rs.215.1 per cent (4.42 per cent) in 2004-05, and Rs.246.5 billion (4.62 per cent of GDP) in 2004-05.



The draft paper had envisaged gradual increase in the development spending from Rs.133 billion of 2002-03 to Rs.155.4 billion in 2003-04, Rs.180.4 billion in 2004-05 and Rs.207 billion in 2005-06. The annual GDP had been projected to grow from 4.5 per cent to 5.2 per cent in 2003-04, 5.5 per cent in 2004-05 and 5.8 per cent in 2005-06.

The bank said that the PRSP was disappointing in the meager additional resources it finds for poverty reduction. "The increase could be twice the level indicated while still maintaining a very tight fiscal stance and a steep debt reduction path. Allocating two-third of whatever additional resources, the education and health programme was appropriate, but the absolute level of spending foreseen does not match the outcomes sought, the Bank maintained.

Klaus Enders of the International Monetary Fund proposed that growth rate needs to rise at least 5-6 per cent per annum on a sustainable basis, without endangering the hard-won stabilization gains. He stressed the need of governance reforms, including the fiscal responsibility law, antimony laundering law and a strategy to reduce the abuse of 'Benami' practice. He also talked about customs reforms to reduce corruption.

He observed that accountability at all levels would require clarity in expenditure assignments, as well as, appropriate own-source resources. IMF encouraged the speedy privatisation of major entities in the banking and energy sectors during 2003. The Fund expressed concerns over the weak cash flow position of the gas and power sector companies. The Fund also hoped that the government would implement the ambitious budgetary targets for the 2003-04 budget, including tax revenue and budget deficit reduction targets consistent with the goal to reduce debt to GDP ratio.

Dr. Ishrat Husain, Governor State Bank of Pakistan detailed the banking sector reforms, which were generally seen as a success story of past few years. He talked about restructuring, privatisation, improved capital adequacy ratios, better regulatory environment and enforcement of the corporate governance by strengthening the capacity of the Central Bank. On the issue of anti-money laundering law, he said it was ready to go to the cabinet for approval after vetting by the concerned committees. However, he said that it would take a while to go through the parliamentary committees, National Assembly and the Senate before its final enactment. Same was the case with Fiscal Responsibility Law (FRL) that would set limits on annual borrowing, budget deficit and the current account deficit in future.