Right from the last mid-eighties a number of countries from Latin America, South East and Central Asia appeared on the spectrum of heavy debt ridden countries. Most of such countries were attributed to have centrally planned economies.
Among the various remedies available to them for early turn around, total transformation to market economy and augmenting share of private sector in gross domestic product (GDP) was found most appropriate strategy by funding agencies.
Hence the last decade of 20th century witnessed a global trend of dramatic transition from centrally / state controlled and planned economy to market economy through structural reforms and also vigorous privatization programme undertaken by these countries voluntarily and under compulsion from funding agencies and bindings of the WTO regime.
Pakistan having a stagnant economy and being on the verge of default in mid-nineties was made to realize the need of bringing in financial, fiscal and social sector reforms so as to arrest rapidly growing fiscal, trade and budgetary deficits and hyper - inflationary trend, for achieving sustainable economic growth rate.
Accordingly, the basic theme of reform agenda undertaken was to gradually transform regulated and centrally controlled economy into a market economy and to restructure and then privatize the state owned enterprises, financial institutions and utility services adding enormously to budget deficit every year.
Apparently main focus of the government's strategy in this regard was to achieve macro economic stability through strengthening financial sector and bringing in structural reforms in all state owned institutions to make them commercially viable and ensure their growth sustainability, and thereafter privatize them. Moreover major emphasis has been on expediting efforts for reducing internal debt burden through fiscal and monetary reforms.
No doubt, the country has gained grounds towards economic stabilization, but it entirely relates to external economy, which is the outcome of manifold increase in remittances from overseas Pakistanis and substantial reduction in volume of annual debt repayment due to rescheduling and in certain cases total waiver given by lending agencies after the incident of September, 11, 2001.
This in turn resulted in steep rise in foreign exchange reserves, almost 25 times of what were in 1999. Consequently after a long time rupee started appreciating in terms of major convertible currencies. However to guard the interest of exporters, the State Bank embarked on managed exchange rate policy.
The appreciation of rupee has been instrumental in lowering annual inflation rate from 14 to 3 1/2 per cent in two years time. However growth of internal economy remained much below expectations and poverty in the country has grown in all dimensions.
It is despite government's sincere efforts to boost up the economy through sizable allocations for public sector, for developing necessary infrastructure needed for growth of economy, thus creating employment opportunities.
The booming current account position is also responsible for bringing down inflation, yet its benefit has not trickled down to consumers. Due to unprecedented rise in unethical speculative trading and hoarding of essential items of consumption and those relating to housing industry witnessed lately, has thwarted the government efforts to curtail the inflationary pressure. Instead it has brought tremendous burden on general consumer. Further, frequent rise in cost of utilities has impacted adversely both consumers and entrepreneurs.
However efforts to make country's monetary policy more or less market based through total autonomy given to the State Bank have brought positive results. Financial sector reforms directed towards strictly implementing requirements regarding reserves, banks' paid-up capital according to Basel capital adequacy statement, government securities sale and purchase through auction, keeping directed credit at its minimum have resulted in containing inflationary pressure. Low interest rate regime resulting from market-based monetary policy and of course due to high liquidity with banks has to some extent stimulated private sector investment in all avenues of economy.
It is hoped that due to financial sector reforms and privatization of public sector entities gaining momentum in recent years and steps taken for trade liberalization within agreed trading unions (for the present under South Asia Free Trade Agreement) and with outside world, side by side protection provided to strategic industries, which form the very backbone of the country's export, both external and internal economies would get a boost.
Fiscal reforms undertaken envisage sizable increase in revenue by achieving efficiency in tax collection, eliminating subsidies and tax concessions to possible extent, and rationalizing allocations for public sector expenditures.
Fiscal reforms at the same time should have focus on reducing fiscal burden through lower direct taxes, putting in place a stable and transparent tax system and more outlays for public sector expenditures on development of physical and social infrastructure, in order to create more employment opportunities.
Construction of dams to be given priority to ensure regular and enhanced supply of water to all provinces and generation of electricity to meet increasing demand of domestic, industrial and commercial consumers.
Construction of roads and highways, and also development of utility services to a level where production process in all sectors of economy becomes cost effective and common man gets relief in terms of lower cost of living.
Apart from making education accessible to all, provision should be made for technical and skill development facilities to youth of the country, which are must for effective utilization of human resources. Above all fiscal policy should be aimed at attracting investment from private sector to accelerate economic activity.
In order to achieve desired rate of growth of agriculture sector, agriculture reforms are needed with focus on eliminating menace of absentee land owners, which is impeding desired growth in crop yield and success of market based pricing of agriculture products.
Big landlords care little for use of latest technology on farms because of their diversified business interest in urban areas to maximize their wealth. Subsidies provided through government intervention in marketing the agriculture products does not go much in favour of either small land owners or common consumer, instead brings heavy burden on country's budget. On the other hand by keeping agriculture out of tax net, achieving a realistic tax collection target will remain a distant dream.
In order to promote and strengthen market - based approach in all sectors of economy, it is essential to bring in political tranquillity and eliminate corruption from the system through total documentation of the economy. No doubt steps have been taken for reforming tax system, not only with regard to widening tax net, but also making the system based on social justice and preventing incidence of these taxes going to poor. But unfortunately tax reforms remain ineffective due to lack of monitoring and poor tax administration at lower level.
Government's sincere efforts to attract indigenous as well as foreign investment in industrial and financial sector have not been much fruitful due to poor law and order situation mainly on account of terrorist activities both within and across the borders. Apart from strict security measures taken on borders, there is need, to usher in political harmony in the country through sincere dialogue with opposition parties relating to all political issues.
For combating corruption and making tax reforms work in the interest of common man, legal system must also be reformed. Judiciary must be strengthened according to set international standards and less privileged should have easy access to court of law in case of need.
Good governance and transparency are also prerequisites for move towards market economy and its sustainability for all time to come. Regulatory reforms undertaken in all spheres of economy promise total transparency and it is a matter of satisfaction that funding agencies now are quite positive regarding transparency aspect of the government financial commitments and transactions.
