WHAT is Pakistan coming to have now is the largest ever external assistance package. The 9.5 billion dollars it is to receive from various sources over a three-year period is to be composite package for composite purposes. If it is truly well utilized it should place Pakistan on the path to a far higher economic growth and reduce the pervasive poverty.

In the 1980s when Pakistan was helping in the fight against the Russians in Afghanistan the largest aid giver was the U.S. and the three year package then was less than a third of the total package being offered now by the international coalition fighting terrorism.

It is true the IMF is offering only 1.3 billion dollars over a three-year period which is about a half of what was expected by Pakistan earlier. But the total package is to be contributed by the IMF, World Bank and Asian Development Bank among the international financial institutions, through bilateral assistance in the form largely of grants and through rescheduling a large part of the bilateral debt of 12.5 billion dollars by the Paris Club of donors. In addition, there is to be a swap of a considerable part of the bilateral debt by same countries led by Canada which have agreed to convert much of their loans into financial assistance for social sector development to which they attach a great deal of importance.

The significance of the IMF commitment of 1.3 billion dollars or quarterly tranche of 109.6 million dollars lies in not only the volume of money available, but also in the manner it has opened the doors for rescheduling the 12.5 billion dollars bilateral loans by the Paris Club. The IMF has become a kind of regulator of the international assistance programme. But for the deal with the IMF the rescheduling would not have been possible.

No less significant is the assurance that if all the targets listed in the Poverty Reduction and Growth Facility are met and the promised reforms are implemented earnestly the international financial institutions would be ready to come up with additional assistance. And if Pakistan spends more money than committed now on social sector development, like the Khushhal Pakistan programme, the IMF would permit the limit of the budgetary deficit to be raised from 5.4 per cent to 5.7 per cent.

The Pakistan initiated and IMF approved PRGF seeks sustained economic growth, reduction in poverty, social sector development, consolidation of micro, economic stability, along with distinct improvement in external balances, and larger revenues through extensive taxation reforms and reduced public spending in the non-development sector.

With the current IMF emphasis on recipients of aid owning up their programmes it had suggested to Pakistan to come up with its own PRGF programme. And Pakistan is well aware of the IMF expectations in various sectors of the economy to qualify for any kind of assistance. So it came up with its Interim Poverty Reduction strategy paper. And the targets, as accepted by the IMF, are realistic and not over-ambitious, and are the need of the hour for Pakistan. The targets are rather inter-related and failure in one sector can cause setbacks in other sectors and hold up the process.

Much of the aid package is not based on the aftermath of the September 11, terrorist attacks in the U.S. and the Afghan war. The scheduled assistance from the international financial institutions in particular is based on the success of the stand. By agreement with the IMF which saw all the targets being fulfilled except one. and that was regarded as a good achievement for a country which had until now the reputation of a “first tranche country”. The IMF, World Bank and Asian Development are now all praise for the economic reforms carried out by the military regime. The World bank describes that as a “solid strategy” which qualifies for larger assistance.

But the first year of the three year programme is also the election year in Pakistan or the year in which the country is to return to democracy after three years. It is the year of making a new constitution or radically revamping the submerged constitution, of presidential elections and national, provincial and Senate elections with all their uncertainties. The government may find it tough to come up with the economic reforms promised, particularly increasing the revenue collection or levying sales tax on the varied agricultural inputs, as has been agreed with the IMF now.

Hence while accepting Pakistan’s Poverty Reduction Paper the IMF has identified four risks faced by the programme. They are political opposition to the reforms, lack of continuity in implementation of the programme, insufficient institutional capacity and exogenous shocks, like the Afghan war which intervened this year.

The IMF assessment of the programme has also noted the absence of a number of vital details and lack of real emphasis on actual policy objectives. All that has led to the perception in some quarters in the country that Western governments may not push Gen. Musharraf to return to democracy this year or may not be too critical of the kind of democracy that he seeks. As far as the international financial institutions are concerned the economic reforms are far more important than the elections. And many Western governments are inclined to think that fighting terrorism, including within the country, is far more important than a return to a perfect political polity.

And the World Bank regards the Interim Povery Reduction Strategy Paper of Pakistan as a precursor to a “full poverty reduction strategy” which means aiming at an economic growth rate of 7 to 8 per cent for a period of ten years at least.

There is hardly an area of economic activity which is not covered by the PRGF. The targets are specific for each of the three years, and the IMF acknowledges the first year of the programme is very difficult because of the fallout of the September 11 tragedy and the expanding global recession. In fact the war in Afghanistan may not be doing as much damage to Pakistan’s economy as the global recession may do.

So the IMF has stressed that for the success of the programme “solid support from the domestic stakeholders is imperative and there should be clear allocation of responsibilities, a detailed devolution plan and accountability at all levels of the administration”.

The IMF also says Pakistan’s economic outlook is now clouded by considerable uncertainties in view of the September 11 events and the on-going slowdown in world demand which adversely affects prospects for exports and capital inflows. The IMF also talks of the possible shortfall in resources for financing the PRGF programme, including external resources despite the larger external assistance projected now.

The PRGF projects an economic growth of 3.7 per cent this year, 5 per cent next year and 5.2 per cent in the third year which is well below the 6 per cent growth of the 1980s. As a result the per capita income growth will remain 1.6 per cent this year, 2.7 per cent next year and 2.9 per cent in the third year. These are not reassuring figures for poverty reduction in a country in which over 40 per cent of the people are living below the poverty line of a dollar a day. But unless real economic growth picks up and crosses the six per cent margin, per capita income cannot increase substantially and poverty go down.

The IMF wants budgetary revenues (excluding grants) to remain at 16.5 per cent this year, rise 17.5 per cent next year and touch 17.6 per cent in the third year. And it wants the budgetary expenditure to fall from 21.9 per cent this year to 31.4 per cent next year and to 20.8 per cent in the third year. And that can result in the budgetary deficit coming down from 5.3 per cent this year to 4.1 per cent next year and 3.2 per cent in the third year.

The big question, as the IMF has posed, is: will the government be able to collect far more revenues, reduce its expenditure substantially and lower the deficit which it has not been able to do in recent years? The performance of the government will be scrutinised by the IMF not on an annual basis but on a quarterly basis, well before the tranche of 109.6 million dollars is released each quarter. And dissatisfaction on the part of the IMF will result in negative reaction from the World Bank and the Asian Development as well. And excellent performance can bring forth larger assistance from them, as they have promised.

The IMF wants the net public debt this year to remain at 92.4 per cent of the GDP after crossing the 100 per cent ceiling drop to 87.9 per cent next year and to 84.6 per cent in the third year. And that means that even if some of the external loans are re-scheduled for payment over a long period, the total debt burden remains the same. Hence the only way the net debt can be brought down is not to borrow far more while reducing some of the loans as from the IMF, World Bank and Asian Development Bank to whom we owe 15.4 billion dollars.

THE foreign donors, the US and other members of the international community seem keen to provide Pakistan with funding to keep a watch on madressahs. There are about ten thousand madressahs spread all over Pakistan, many of them allegedly fanning religious extremism and sectarian sentiments among the students.

These seemingly centres of learning are also known to be used by a number of religious parties for recruiting the youth for jihad in Afghanistan and other countries. What must be realized is that the problem may not be solved by initiating specific programmes operated by the bureaucratic machinery sitting in Islamabad or the provincial headquarters. After all, the present madressah system itself is a product of bureaucratic manoeuvring of years.

Moreover, the erroneous educational policies created an environment of discontent, a vacuum that the informal religious schools seemed to fill. Needless to say that it is vital for the funding organizations to have a clear idea of how the present madressah system expanded to such an extent that it became a threat to national and international security.

Contrary to the views that the madressahs represent an age-old indigenous educational culture, the present madressah system is indirectly a bureaucratic formulation, a system that evolved as a result of the policies