March 11, 2003	Tuesday	Muharram 7, 1424

KARACHI, March 10: The IMF advised the Jamali government “to build a consensus within the coalition government and in the parliament” on economic reforms “that are threatened by well entrenched groups.”

Identifying the risks to fiscal stability, the Fund’s fourth review report under the PRFG facility expresses concern over what it describes “growing siren calls for relaxation of adjustment efforts.”

The risk has become more pronounced because the government “enjoys a small majority” in the context of “relatively comfortable macro-financial situation”. “The risk of slippages has clearly risen in the face of mounting political pressures to relax the adjustment effort,” says the mission report.

The IMF officials have stressed that a major challenge will be to maintain a consensus on fiscal consolidation and reform in a coalition government, seeking compromises with many different parties and viewpoints and with a possibility of even greater variety of views on economic policies among provincial governments.

However, the government plans to submit the draft fiscal responsibility law to the parliament by June 1, 2003, which would cap fiscal deficits.

In discussions with the authorities in Islamabad in November, the Fund staff focused on risks that could slow down reforms. “Among other factors, this could occur because of the need to build a consensus in the coalition government and for reforms requiring legislation within parliament, where the government enjoys only a small majority,” says the report.

In addition, the IMF maintains, the provincial governments might be tempted to take measures within their jurisdiction that are inconsistent with the reforms programme, including the ongoing devolution process.

The observations in the IMF report expose the divergence of views between the Fund and the elected representatives.

For example, the IMF mission has expressed concern that the involvement of members of the parliament in the selection of development programmes could constitute a setback for fiscal management and transparency.

After assumption of office, the elected government decided to earmark Rs5 million for projects selected on the recommendation of an assembly member during the current fiscal. The amount would be doubled next year. The project would, however, be executed by a government agency or even by the district governments. The MNAs/MPAs hold the view that they have been mandated by the voters to initiate the development schemes in the constituency they represent.

Prime Minister Zafarullah Jamali has advised the MNAs/ MPAs and the district governments to work strictly within their respective jurisdiction to avoid overlapping.

And the federal ministers, with standing in politics, have their own perception about the imperatives of economic development. They want zero rate of duty on import of machinery to stimulate investment and the lower energy and utility charges to reduce cost of industrial and agricultural production to make exports more competitive. However, the government has now committed to the Fund for allowing automatic rise in the power tariff in line with the fuel prices.

With a representative government in office, the domestic lobby has gained a voice and is trying to assert itself, though not with much success.

The IMF has noted: “The authorities deserve credit for further consolidating macro-economic stability, despite the populist pressures in the run up and following the October 2002 elections for the national and provincial assemblies.”

The Fund has stressed the need for a more open debate on “dangerous views” gaining momentum among the public with the return of civilian government.