PAKISTAN has seen a dramatic turnaround in its macroeconomic indicators in the past four years. The growth rate is over six per cent, foreign exchange reserves are at $12.5 billion and the external debt servicing has fallen to a more manageable level. The budget deficits are at the lowest levels.
But major problem still remain. These are a high level of poverty, a high population growth rate, low human resource development, poor governance, a bad law and order situation, a dysfunctional judicial system, high pressure on the environment and natural resources, serious energy constraints, transportation bottlenecks and aging infrastructure. Technical constraints on agriculture and problems of poor education, health sanitation and water supply services persist.
These are longstanding problems and require effective solution on a broad front. But in view of time and resource constraints, we need to first focus on a few areas with the largest possible impact, with many linkages, or those amenable to early solutions.
While we have to continue to maintain and even improve our macroeconomic policies, we have to urgently address the many outstanding development problems, and prepare new plan documents. This is a good time to take a stock of the state of our economy, some of which is already being done in the context of plan preparation.
However, there is a need to go beyond our traditional plan exercise. Fifty years after the first five-year plan (FYP) was launched, we need to re-examine the essentials of our plans and see how we can improve them to meet the emerging challenges.
The failure of our past development policies and plans is evident from the number of people below the poverty line. Although some official estimates show that the poverty line is now declining, the number of the poor currently is more than the total population of West Pakistan in 1947.
In discussions with the planning authorities, we have underscored the need to focus on policies, institutions, and investments that remove bottlenecks, promote efficient and broad- based growth, and alleviate poverty and regional inequities. This, in turn, would require a host of sectoral and micro level improvements.
The personal article focuses primarily on one major issue that straddles the policy and institutional fronts: the nature of the new development plan and the role of the Planning Commission. These two hold a central place in our development process.
Since 1955, we have implemented, with varying degrees of success, eight FYPs. These, with minor differences, have remained similar in their approach and content. However, the economy and the challenges it faces are now very different. For example the early plans, given the rudimentary structure of the economy focused primarily on building basic social and physical infrastructure and promoting industrial and agricultural growth.
Programmes included in the plans were largely directed at achieving the relevant targets and went through only a cursory economic appraisal.
By the same token, the policy content of plans was relatively small. Although the plans improved in certain respects over time (for example in policy content) infrastructure, rigour in programme and project selection and implementation deteriorated (as did other parts of public administration), while linkages among targets, policy instruments, and inputs received minimal attention and remained weak.
At the same time, the economy which continued to grow by fits and starts, became more open, diversified, and complex. Therefore, the needs, as well as technical potential for a more sophisticated and analytical approach to planning have increased.
Furthermore, developments all around and quick transmission of global economic changes required an economy to be more robust (less vulnerable), competitive, and responsive to challenges and opportunities. The new WTO regime itself has posed many a formidable challenge.
In view of the changed conditions and needs, the new FYP needs to emphasize more sophisticated and contemporaneous analysis and policy steps (that is, quick “footwork”): well- focused and efficient investments in the public sector; and further regulatory reform, service provision. And reduction in unnecessary business costs to encourage private investment. The plan content should go much further in stating feasible objectives and targets.
It should be realistically based on the analysis of past trends and future probabilities (rather than laying down ambitious targets), state-specific policy instruments and investments to achieve specific objectives, provide a time-table of actions and human and financial resources that would be needed all explicitly inter-linked and consistent with each other.
The following paragraphs suggest more specific adjustments in our approach to the planning process under discussion:
We should consider replacing the traditional FYP with a multi- year strategic plan (MSP). The MSP should be based on detailed working papers (currently being finalized) but should be a compact document easily accessible to political representatives policy makers and implementing agencies.
It should provide a clear road map, rather than detailed sectoral descriptions, ambitious targets, or a statement of general policies. As such, its focus should be on.
(i) the overall development strategy, policies needed to implement it, and indicative investment priorities (and not specific projects and programmes which subject is discussed below); and (ii) sector-specific and / or cross-sectoral development strategies, policies, and priorities, clearly stating how these are interrelated, and when, how and by whom these would be implemented.
As at present, an annual public sector development programme (PSDP) should be the main instrument for implementing the MSP, having both policy and programme content: the former to make any needed adjustments in policies in the light of changed conditions, and the latter to show what would be implemented during the next one year (both new and ongoing programme / projects) in line with the MSP.
It should include an estimate of the ‘throw forward’ (both capital and recurrent) of projects / programmes, together with projected resource availability in each year (within a medium- term budgetary framework) to finance their scheduled implementation. Inclusion of any new project in the PSDP should be contingent on the adequacy of estimated resources available for the project in future years. There should be no funding gaps. Short of this, planning serves little purpose for yielding project benefits.
Projects and programmes that are included in the annual programme for implementation must meet certain minimum investment criteria, that is an adequate social / economic rate of return, however roughly it is calculated. Some projects are not amenable to such quantification. Their benefits and justification should be clearly demonstrated and carefully examined.
Without applying such criteria, we do not know if a project’s economic and social contribution would be sufficiently high to justify its use of resources, and whether the resources could be used elsewhere with greater benefit. The tighter is the resource constraint, the greater is the necessity of ensuring high returns from investments.
The main reason for our weak growth performance and a huge debt build-up has been poor and wasteful investments in the past.
A sufficiently high return on investments is a necessary condition of growth. If investments are made with borrowed resources, it is a condition of the serviceability of loans.
The huge build up of at least foreign debt and the past difficulties to service it were mainly due to poor utilization of resources received. This was due to:
(a) an investment selection process often driven by preconceptions (or just rules of thumb) about their usefulness or by political considerations, rather than by expected good returns on them PC-1 form, the vehicle for project approval, did not even require a calculation of any measure of economic returns);
(b) long implementation delays;
(c) wasteful expenditures during implementation and;
(d) serious leakages of funds.
The last three elements can turn even a good benefit-cost ratio into a poor one. In general, if debt is difficult to service, it means we have not used it well enough to generate sufficient income (or foreign exchange in the case of foreign debt) directly or indirectly.
So, adequate returns on investment are essential for growth and welfare; in the case of borrowed resources, a return higher than the cost of borrowing is essential for financial solvency. In principle, a loan can be serviced from activities other than in which it was used, but then we are taxing good investments to service bad ones, which ultimately leads to poor economic and revenue performance.
Commensurate with the modified approach to planning as discussed above, there need to be some adjustments in the planning and development institutions and their orientation, namely, in the Planning Commission (PC) and provincial planning and development departments (as well as related district institutions). The main objective should be to adjust its organizational aims and to upgrade and reorient its staff to meet the new challenges.
However, organizational changes are not a prerequisite for preparing the next MSP; the latter requires mainly a change in approach and focus.
