Priority agenda for talks with IMF: Poverty reduction strategy
By Jawaid Bokhari
KARACHI, Dec 17: The Jamali government’s first major agenda for talks with multilateral donors would be poverty reduction strategy, which, official sources say, would provide the basis for the IMF’s continued support through Poverty Reduction and Growth Facility.
Sources here said that Pakistan has committed to the IMF that the interim Poverty Reduction Strategy Paper, prepared by the military regime in August 2001, will be finalized by early 2003 by the elected government.
A variety of factors prompted IMF and authorities in Islamabad to let the elected government have a final say. The October elections provided an opportunity to involve political forces in formulation and implementation of the reform programme to counter widespread hostility to IMF programmes.
Officials say the reforms, formulated with the approval of the new government “would deepen programme ownership.” An effective implementation goes with the ownership of the reforms.
The economic management team that assisted the military regime, now part of the elected government, is of the view that “the reforms package commands broad consensus across the political spectrum” and “the momentum of reforms would continue.”
But, as would appear from the statements of the new government, it is likely to dovetail the mandate given by the electorate with the IMF programme.
Politicians have their own commitment to the constituency they represent. While subscribing to the general policy framework and directions, the new government may endeavour to take its own decisions on the speed, sequence and phasing out of the reforms to find the required fiscal space to carry out the mandate of the electorate. As it is, to quote technocrats, reforms take decades to give all round positive results and different countries adjust the reforms to their specific ground realities.
Prime Minister Jamali says that governments change but continuity in policies is the name of the game. Yet, he has taken decisions that appear to be deviations, at least in details from the previous policies. These include: Electricity prices cut by 12 paisa for all categories of consumers; Ministry of Health directed to submit proposals for reduction in prices of medicines; (can be explained by strong rupee and cheaper imports) remission of electricity bills for certain category of consumers; a sum of Rs10 million to be earmarked for development schemes formulated under guidance of each MNA. Jamali has also promised to slash prices of wheat, ghee and sugar and provide more relief to impoverished masses.
These decisions have prompted some speculation among technocrats that the independent decisions may end up souring relations between the government and the donor agencies though ground realities have changed radically from the days when Pakistan was nicknamed “one-tranche country.”
From the official pronouncements made so far, the new government has focused on three main issues: economic growth, investment and employment. None of key federal ministers have talked of macro-economic stability. In short, says a financial analyst, “now enter the politicians and we say good bye to the technocrats.”
Politicians have their own compulsions and would thus seek adjustments in the IMF programme. For example, the district governments will remain in place but MNAs and MPAs may also be provided fiscal space to serve their constituencies and their districts. Energy that fuels industrial growth may be made cheaper and its prices may not be kept hostage to inefficiency, corruption and theft in the utility companies. But, as the commerce minister said recently, the government would consult the IMF on these issues.
The elected government is fortunate that its bargaining position with the international lenders is much stronger than that of the technocrats when the military government took over in October 1999. The external sector of the economy has improved with sharp rise in the flow of home remittances and unprecedented foreign exchange reserves and a stable rupee, whose value has been kept low by State Bank intervention in the exchange market.
The elected government would be kept under constant pressure from the strongest ever opposition in the parliament to deliver or lose public support and suffer loss of image. It may translate into political instability. And the major shareholders of the IMF, essentially political animals, cannot ignore the compulsions of elected government that is supposed to be its key ally in the US war on terror.
For this reason, the IMF waivers have flowed easily when the outgoing government failed to keep to revenue and budget deficit targets.
Finally, the World Bank also recognizes that continuity of political and constitution process was vital to make public representatives accountable to the electorate , without which poverty alleviation programme and social progress would continue to suffer. For this, it necessary that elected representatives should carry out the pledges made to the electorate.
Three years’ of fiscal stability programme, has raised the tax revenue from Rs300 billion to Rs400 billion or by one third. Funds are being diverted to the state sector from the private sector when individual initiative is expected to serve as an engine of economic growth. The private sector needs a breather to invest. Taxation policy should now be growth-oriented and not revenue-oriented.
A key issue that needs to be re-negotiated in discussions the with IMF is budget deficit target. In a current global economic recession and low domestic growth, a three per cent budget deficit targeted by IMF is unrealistic. Even the European nations including Germany has failed to stick to three per cent target. There is some agreement among economists that 5-6 per cent deficit is sustainable, as experience of Malaysia and India has demonstrated, although every country has its own specifics and ground realities.
