ECONOMY ON THE RIGHT TRACK
World Bank, donors reaffirmed their commitment to help Pakistan in achieving millennium development goals
From SHAMIM AHMED RIZVI,
May 09 - 15, 2005
Economic performance of last year and its future prospects were discussed at length during a two-day meeting of the Pakistan Development Forum (PDF) 2005. Over 200 delegates both local & foreign including representatives of donor countries, the World Bank and the International Monetary Fund (IMF) attended the meeting.
Generally speaking, the overall performance received appreciation especially the growth rate which expected to be around 7.5 percent, through increased exports and other strong economic indicators during current fiscal.
Representatives of donor agencies pointed out some gray areas of the economy in some sectors and sounded a note of caution for the economic managers to take immediate corrective measures.
Mounting inflation, rising poverty level, formidable shortage of water and power and inadequate infrastructure were the areas, which they especially mentioned and offered assistance to finance the plans to amicably meet challenges confronted to the economic growth.
The Pakistan Development Forums (PDF) meeting is an annual feature organized by Economic Affairs Division in coordination with the World Bank. This significant forum provides an opportunity to the government to share with its policies, reform agenda and initiatives in areas such as poverty alleviation, human resource development, governance and infrastructure development with the development partners.
Theme for current year was "sustainable growth to improve quality of life". The PDF forum offers an opportunity for free and frank discussion on economic issues with the objective to reduce poverty level and achieve the targets enshrined in the Millennium Development Goals.
In his inaugural address, Prime Minister Shaukat Aziz told the forum that Pakistan was all set to achieve 7-8 percent growth rate this year. We are making headway on poverty front as well, however, with a few years of economic growth and right policies cannot undo the follies of the decades.
Talking about more diversified and customized approach to redress poverty, he said the government policies are geared up towards high growth, infrastructure and private sector development, improvement in service delivery, and good governance aligned with the Millennium Development Goals (MDGs).
The government expects to achieve a 7 percent growth rate during current fiscal year, while focusing at 7.5-8 percent growth rate for the coming year. "We need to grow at this rate for the next couple of decades or more. We have to ensure that all segments of the society, across geography, gender, class, caste, religion, and any other divide were benefited of this growth.", the PM said in a firm tone.
The Prime Minister told the participants of the forum that the future growth strategy rests on five pillars; water security, energy security, infrastructure development, human capital development and second generation reforms. He also highlighted social sector targets, which he feels would be achieved on medium term basis. These include: universal primary education with 100 percent net primary enrolment ratio; reducing infant mortality rate to 50 percent, increasing fully immunized children to 90 percent; improving maternal mortality ration to 180; and access to safe water to 84 percent of the population by 2011-12. "We have set ambitious targets, but we have to ensure that we are on our way to achieve the MDGs".
He, however, said that the country was faced with tremendous challenges in the social and infrastructure sector. Inflation and looming shortage of water & power were also causing concern to the government, he added.
On the opening day of the conference, the representatives of the World Bank, International Monetary Fund and the Asian Development Bank addressed the forum. They usually acknowledged that Pakistan's economy had turned the corner and it had been put on the road to recovery and growth.
They, however, were of the view that infrastructure improvement, social sector development and control over inflation were the areas of critical importance. The interaction between representatives of the government and the donor community leads to creating awareness about the future economic strategy of the country and the need for resources for fully implementing it.
Praful Patel, Vice President of the World Bank for South Asia region said improving the quality of life for all citizens, begins with sustained growth of 7-8 percent a year; with continued macroeconomic stability; and with an improved investment climate. He maintained that during the high or low growth periods of 80s and 90s social indicators like literacy and school enrolment saw only small changes, and large gender disparities remained untouched. "It is how Pakistan's citizens at every level experience the impact of growth that can lead to feelings of exclusion and deprivation. This in turn undermines support for needed reforms. "He said Pakistan's strategy for sustaining growth must address three key challenges; Pakistan needs 21st century infrastructure, including reliable, affordable power, supplies, substantial investment in the water sector and a crack transport sector. He said money spent on inefficient power sector is money lost to social spending; secondly Pakistan needs to improve business environment by driving down trade protection, lowering the burden of bureaucracy and regulation particularly for SMEs, and improving labor markets and tax administration; thirdly, job creation to reduce poverty mainly by focusing on rural and agriculture sector development.
He said Pakistan needs to dramatically increase its investments in the people. "We celebrate the commitment to a substantial increase in poverty related expenditures, like education and health to 6.8 percent of GDP by fiscal year 2008." He said local governments must be empowered to deliver services like education, health, water and sanitation. Further devolution will ensure that the additional resources get into the hands of those responsible for delivering services.
The government's poverty reduction strategy envisions pro-poor expenditures rising to 5.2 percent of GDP (under the new base) from about 3.6 percent, by 2008. The strategy also expects reduction in the population growth rate to 1.85 percent, infant mortality rate to 63 per 1,000 births, literacy rate to 59.5 percent and lady health workers covering 85 percent of the population by 2005-06. The government has also indicated to increase pro-poor budget to 616.3 billion by 2009-10 from Rs278 billion now.
Liqun Jin, vice president of the Asian Development Bank (ADB) also made similar assessment by saying: The medium term growth prospect of 8 percent is achievable, but there are certain challenges like the recent rise in inflation. He said the bank was encouraged that the government and the central bank were taking steps to contain inflationary pressure on the economy that has been accentuated by the steep increase in international oil prices. Jin, however, announced strong support to the reform agenda of the country, and announced $3.6 billion lending program for Pakistan during 2006-08, including $2.7 billion for infrastructure development.
Jin expects the government to complete the devolution process. "The reassignment of responsibilities has not been fully achieved in some areas and this issue should be addressed."
ADB also expects the government to take a pro-active approach to address issues relating to expenditure transparency, accountability, governance and corruption. Jin said the bank (ADB) also plans direct province based support for social sector development, particularly focusing on the MDGs.
In an official presentation before the audience, it was admitted that Pakistan faces major gas, electricity and water shortage; hence it needed billions of dollar investment for building up new infrastructure to avoid blackouts and food shortages.
According to official projections, the country needs $12 billion investment within a span of 2005-2011 in the water sector alone to overcome 17 million acre feet (MAF) water shortages. It needs, at least, one trans border gas pipeline operational from one of the three options by 2010 to avoid massive energy shortfall and immediate upsurge in nuclear power to ensure sustained electricity supplies at affordable price.
"We are short of water," the official presentation said. The country where 64 percent of the population depends on agriculture, its first implication would be more poverty, it says. The water shortages in 2004 were estimated at 17 MAF, with requirements of 124 MAF and availability at farm gate of just 107 MAF. The per capita water availability is just 1,200 CM per year. By 2025, the shortages would swell massively to 39 MAF, with a small 800 CM per year per person water availability, rendering the country to the unfortunate group of extremely water short countries.
The plan aims to invest Rs378 billion on construction of new dams, Rs278 billion irrigation, Rs47 billion on drainage and Rs6 billion on flood control. It means $12 billion new investment during 2005-11, and a long-term projection of $33 billion new investment requirements under vision 2025.
In the power generation sector, the official projections show additional requirement of 7,880 MW by 2010 and a total of 20,120 MW by 2015, as against the current installed capacity of 19,540 MW. Major growth is being envisaged under nuclear, renewable, hydel and coal fired systems to reduce dependence on imported fuel oil.
"Pipeline gas should be available by 2010," the official forecast suggests, which projects a shortfall of 3.21 million tonnes of oil equivalent (MTOE) by that time, which would continue to rise in case there is no pipeline, out of the three being considered, including Iran, Turkmenistan and Qatar.
The most worrisome and scary feature, besides water shortages, appears to be the growing oil demand of the economy, which is rapidly rising from 16.8 MTOE in 2005 to 20.7 by 2015, against the limited indigenous supplies of 2.2 MTOE.
In the concluding session, World Bank and other international donors reaffirmed their commitment that they would remain strong and reliable partners of Pakistan to help in achieving millennium development goals (MDGs). The participants of Pakistan Development Forum 2005 gave loud and clear message at the concluding session that their countries and organizations would extend full cooperation to Pakistan for sustainable development in all key areas. They listed social development, poverty reduction, health and education, women empowerment, child and women rights which need more focus in the coming years.
After the forum meetings, the Advisor to Prime Minister on Finance Dr. Salman Shah along with Minister of State for Finance Omer Ayub Khan announced that the government will institute Khushal Pakistan Fund worth one billion dollars per annum for improving living standard of the people. He said the fund would be used for infrastructure development and promotion of health, education and provision of utility services in every district. It will also be used for construction of farm-to-market-roads and provision of clean drinking water. Under the program, three hundred thousand people would be trained in different skills to sustain our growth.
The Advisor said the donors have expressed their complete support for the fund. He said World Bank would also increase its assistance for Pakistan and would be providing 4.5 billion dollars during the next three years. He said as against nine hundred million dollars presently, it would provide 1.5 billion dollars annually and details of the projects and programs to be funded by the Bank would be finalized during the next few days. Similarly, he said Asian Development Bank has also agreed to increase its assistance from the existing eight hundred million dollars to 1.2 billion dollars per year. The Advisor on Finance said the government would double its social sector spending and it would be in addition to Khushal Pakistan Fund.