Finance Minister Shaukat Aziz has been talking of the second generation economic reforms to come, following the varied success of the first set of reforms under the military umbrella for three years and liberal financial assistance from the IMF World Bank, the Asian Development Bank and other donors.

But he has not specified the nature of the reforms or indicated their targets. Nevertheless he has been speaking of the varied pre-conditions for the success of the new reforms, beginning with the political and regional and economic policy stability.

Are his goals the same as those he had listed at the Management Association of Pakistan (MAP) meeting when he addressed its members on the budgetary prospects or were they only a part of much larger canvas?

At the MAP meeting he had said he wanted a per capita income to rise to $625 in three years, and a steady economic growth of 6 per cent, which was the case until 1990s. He also said the government had a plan to reduce poverty from 31 to 25 per cent within five years but his assertion that poverty rate now is 31 per cent is being disputed. The annual rate of investment is also being raised from 15 to 18 per cent which is low for a high economic growth rate.

Similarly the target of increasing the annual development outlay to 4 per cent of the GDP is low if a high rate of growth is sought, more so in the key social sector. And if the ratio of public debt is pulled down from 90 per cent of the GDP to 75 per cent in five years that is not good enough as that would mean the debt burden would be heavy and the debt servicing cost high.

The governor of the State Bank of Pakistan, Dr Ishrat Husain, has come up with his own set of second generation reforms for 2003-5. he wants the new reforms to focus on Wapda and the KESC which this year got a subsidy of Rs51 billion from the government, and a thorough reform of the CBR to save about Rs200 billion misappropriated by its tax collecting officials.

He wants restructuring of the financial sector, extensive privatization, fiscal discipline, good governance, and reform in agricultural sector, social sector, social services, police and judicial system. He told all this to the two-day workshop for parliamentarians in Islamabad who are too busy squabbling with each other. He wants these reforms in the next three years out of which more than half a year has been wasted in the internecine strife. The question now is whether the country needs a three-year programme or a five-year programme, as the life of the parliament is five years? Judging by the manner the parliamentarians are conducting themselves nothing much may be achieved within three or two and a half years. Hence a five-year plan is necessary, particularly if effective agricultural reforms and adequate police and judicial reforms are to be sought and sustained.

In fact the financial teams led by Shaukat Aziz has to come up with clear objectives, and if necessary divided into two phases — three years first and then two years for consolidating what had been achieved. In some of these cases the reforms are integrated and failure of one reform may lead to setbacks in another. Hence the success of the whole package hangs together.

We are told by Shaukat Aziz that the social sector will get Rs 161 billion next year as compared to Rs135 billion this year. This is a sector where a stop-go approach will not do or bring about great waste. Instead an integrated and continuous approach is essential until the large project or network is completed and enabled to take-off. It is hence essential that the whole second generation package is drafted carefully and presented before the parliamentarians for detailed or in depth discussion before it is approved by the parliament and then implemented.

There has been a great deal of talk about globalization and the impact of the WTO on global trade in a free-for-all trading atmosphere. To prepare the people to meet the challenges of the future they have to be made literate and technically trained steadily. A Japanese investor in Karachi asks me what kind of work could be get out of an assembly line worker if he can’t read his work manual? That makes education and technical training very important and not only having some number of half baked IT professionals.

We have to achieve self-sufficiency in power production quick. Frequent load-shedding is no attraction for foreign investors to come up and invest in large projects. We can’t tell them invest in industry and also in power plants. Water shortage can also be a real problem. If we need good governance as a part of the second generation reforms, the judicial reforms and the police reforms must also be made a success. We can’t borrow large funds from the Asian Development Bank and then fail the reforms.

A check on population growth has also to receive due attention during the coming years. This again does not permit a stop-go approach, as in the past. Within the next five years the population growth should come down to 2 per cent. Otherwise we will not be able to afford the requisite number of schools and hospitals and the environment cannot be kept clean and safe.

The second generation reforms are meant to induce the private sector make large investment. Tax concessions are to be given to the investors. Prime Minister Zafarullah Jamali has already announced extension of the exemption from capital gains tax, which was to expire on June 30, 2004. And the Securities and Exchange Commission of Pakistan has suggested that double taxation of the corporate profits should be avoided and corporate profits in the hands of the shareholders should not be taxed a second time (10 per cent) after the corporate profits had been taxed first to the rate of 35 per cent. That is what the businessmen have all the time been clamouring for.

The three concessions should be extremely helpful to promote private sector investment, particularly when sales tax at 15 per cent is regarded as the future tax. This year it will yield Rs215 billion, the largest single sourse of revenue for the government.

After all these reforms have been introduced there should be an independent monitoring agency to monitor the efficacy of the reforms and the good they are doing to the people or the country. Otherwise it may be more water going down the drain and the certification of the World Bank and the Asian Development Bank may not be enough as past experience has demonstrated.