PERFORMANCE OF THE ECONOMY

According to on estimate Pakistan will require an estimated three billion dollars annually for infrastructure development

From Mr. Shamim Ahmed Rizvi,
 Islamabad

Mar 29 - Apr 04, 2004

While generally appreciating the over all performance of Pakistan economy, the representatives of various countries and donor agencies who attended the 3-day conference of Pakistan Development Forum (PDF) drew attention to certain bleak areas specially the water and power sectors which may lead to ''blackouts and food shortages after a few years''. Pledging financial support, they urged the government to chalkout a mid-term and a long-term plans on top priority basis to avoid these substantial threats to Pakistan economy.

There has been a general appreciation of Pakistan's policies at the Pakistan Development Forum. However, the most generous has been the World Bank Vice President Praful Patel, who described Pakistan's achievement and its commitment to economic reforms by saying ''Pakistan is back in business". Many and varied were the reasons he explained for such a comment but the most striking perhaps was that ''Pakistan pursued good choices, good economic policies and staying powerfully with economic policies and powerfully with economic reforms''.

Some of the donors, however, made the critical observation that there was ''a threat of blackouts, power outages and food shortages'' as the country needs enormously high investment of $ 20 billion, to develop these sectors and there are virtually no concrete plans to address the mammoth challenge''.

The donors made this assessment at the exclusive sessions on water and power sectors recently. The ministers and senior officials made presentations on the development plans and infrastructure needs. The donors criticized the lack of planning and a medium-term strategy, but promised to provide resources once a satisfactory road map is charted out.

Aftab Ahmad Khan Sherpao, Minister for Water and Power, presented the power sector outlook in the opening session, and accepted the scary scenario of power shortages. He said the country faces a power deficit of 411 mega watts (MW) in 2006, which will grow to 5529 MW in 2010. The additional power generation will need an investment of $5 billion over the next five years.

The international donors community, including all major bilateral and multilateral donors, reckoned that the Water and Power Development Authority () suffering from 24-25 percent line losses, and would find it hard to attract private sector investment. "The power sector crisis could limit the growth potential of the economy", observed Dr. Hafiz Pasha, UN Assistant Secretary General and Director UNDP.

The World Bank estimates that high operating losses of the power sector consume more than 1.4 percent of GDP, which is 200 percent of the health budget and enough to pay for 2-3 million household connections, out of the total 7 million households that need electricity. The Bank observed high tariffs and low reliability hurts industrial competitiveness, with outages alone costing 6 percent of annual revenues.

The Bank estimated Rs. 400 billion investment needs for alone over the next five years. "The private sector can play an important role, but there will still be a funding gap this needs to be met through borrowing, privatization, price increases and/or taxation. For sector survival, the tariffs have to cover the costs, the Bank said, observing it is an inescapable reality. It maintained that high industrial and commercial tariff undermine competitiveness, and lifeline (50 units, category) is not well targeted. The Bank termed it a political economy challenge. Praful Patel, Vice President of the Bank promised to cover the full cost of first years investment plan, once a concrete plan is ready over the next 12 months or so.

The conference of Pakistan Development Forum, which replaces aid to Pakistan club, was a non-pledging session. Focusing on country's new infrastructure requirement with special reference to power, water and poverty reduction projects, the attending delegate gave stronger indication of their full support of donor agencies to Pakistan. Pakistan has been fortunate enough to win support in recent years, which helped a lot in proving the macro economic indicators. But growing unemployment and poverty level has made it doubtful for the masses. The popular perfection, which does not accept government's. Claims-may not hold the level of economic policies but continued to be deterring factor for sustainability of the economic system and cannot be ignored for long.

According to newspaper reports, in his replies to concerns voiced by the donors on conclusion of the debate of the PDF, in Islamabad, Finance Minister Shaukat Aziz assured them that the issues identified by them would be resolved in due course of time. As for the areas of their concern, it will be noted that what they said had nothing new about it as the enlightened sections of the population had been repeatedly warning the changing governments of these. For these encompassed not only lacunas in implementation of the devolution plan, but also live and living in the high-risk zone due to lack of basic facilities, environmental degradation and high defence spending, as undermining social spending and population growth rate. Of defence spending, the Minister said that these have declined from 7 per cent to 3.6 per cent over ten years and including the pensions defence sector employees it is 3.9 per cent. He assured the Forum that a balance has been struck between social and defence spending and it would be maintained, saying that the country's defence spending reflects its use as deterrence.

According to on estimate Pakistan will require an estimated three billion dollars annually for infrastructure development and this the public sector cannot finance alone. Such huge financing has to come largely from the private sector and the donor community. As the focus is on investment and growth, the need for accelerated infrastructure development has become all the more pressing. Seen in this background, the three-day meeting of Pakistan Development Forum heard a number of presentations on such sectors as power, water, transport and communications outlining future projections from the concerned ministries and departments. The occasion provided the donor community with an opportunity to assess these requirements. The perception is that infrastructure has to be added to the agenda of macroeconomic stability, good governance and human development. It was felt that any bottlenecks in infrastructure could hamper the process of growth leaving adverse impact on poverty reduction efforts.

Infrastructure needs have to be seen in the light of their backlog, present requirements and future projections. This sector had not received the needed amount in annual fund allocations due to financial constraints. However, during the last two years, the share of infrastructure has gone up due to enhanced development spending by the government. This will be further enlarged as additional fiscal space becomes available in years ahead. Meanwhile, it is necessary that losses incurred by power sector or other public sector corporations should be minimized. It is also necessary to ensure that infrastructure projects, which are quite often very big, are carefully designed and implemented without any delay at any stage. The implementation of Gwadar project, which is ahead of schedule, can serve as a good example. Such infrastructure projects, which may be in need of repairs or improvement, should be given high priority in next years' public sector development programme.