THE budget makers are on horns of dilemma: should they press forward with social and human development as its goal as pursued on the recipe given by international donor community to third world or adopt classical model of economic growth to stem the rising trend of poverty and unemployment?

The ‘working draft of Medium Term Development Framework’ (2005-10) released by the Planning Commission in March, 2005, is itself a victim of this dilemma. It declares that, “Pakistan is fully committed to the achievement of the ‘millennium development goals’ (MDGs). It provides the long-term perspective (2005-15) within which the strategies to achieve the social and human development objectives of the MTDF have been formulated. The PRSP targets, strategies, policies and programmes are subsumed in the MTDF and aligned with the MDGs”.

At the same time, it espouses that “the focus of MTDF is to attain high rate of economic growth with macro economic stability. The savings and investment will be increased and both domestic and external borrowings and inflation will be contained”. Consistent with this objective, an average growth rate of 7.4 per cent is projected during 2005-10.

The two objectives namely, alignment of the policy framework in the MTDF with the MDGs and fixation of a fairly ambitious target of an average annual growth rate of 7.4 per cent are contradictory. This is based on actual data of the trends of growth rates in developing countries including Pakistan which were made to direct policies and divert increasing resources to human development during past 15 years first by tying foreign assistance to expenditure on social development under the famous 20:20 Initiative and, then, institutionalizing the policy of social development in the declaration and commitments of social summit held in March,1995 which were later on sanctified in the MDGs, adopted in the summit at the UN in New York in September,2000.

The campaign against growth theory in favour of pro-people sustainable development in which social development takes a driving seat, has continued to rage on the world scene with active participation of all international actors ranging from the UNO and its specialized agencies, Bretton Woods institutions, bilateral donor and the world leaders.

In this campaign, academia and economists have remained equally engaged in extolling the benefits of an open economy with social development as the core objective of the domestic policy for eradicating ills from poverty to indebtedness of the third world countries.

The empirical truth is that much against vehement and consistent merits of a policy change, an increased investment on social development by the third world countries has decelerated rate of growth and increased poverty in most countries, partly due to diversion of investment from production and infrastructure sectors and partly due to opening up of their economies.

The point is well articulated by Joseph E Stiglitz – a Nobel Laurate in Economics, who observes that, “there are policies that in the long run enhance growth and reduce poverty, such as enhancing education opportunities for disadvantaged groups which allows countries to tap into vast reservoirs of under-used talent. But the returns to investments in pre-school education to-day will not manifest themselves for two decades or more—-not the kind of results that show up in typical econometric studies”

To reinforce his argument he cites the example of most successful countries in growth and poverty reduction namely, China and East Asian countries as also of Chile. According to him, these countries succeeded because they did not follow in letter and spirit the policies given by “Washington Consensus” but ran their economies rather independently.

Surely, lifting of 150 million people out of poverty by China was possible only through an incredible growth rate of nine per cent in 1990s and not the other way round by diverting most resources to social development and opening up of their economies in the fashion “the Washington Consensus” desired.

Resultantly, most third world countries which accepted the dictum readily have been experiencing a growth in poverty rather than growth in incomes. The Human Development Report 2003 of UNDP acknowledges this trend by stating that “of 67 countries with data, 37 saw poverty rates increase in 1990s”. Paradoxically, the countries cited in the report “achieving impressive reductions in poverty” are very those countries which had not readily transformed their economies on the dotted lines provided by the international community.

Pakistan was one of several countries in the third world which was in the forefront to quickly adopt and implement the new development theory. This was based on the advice of the World Bank Report No 14397-Pak titled Pakistan Poverty Assessment 1991 which emphasized that “evidence from the rapidly growing economies of the East Asia suggests that human development has been crucial to their economic success. This evidence is not lost on the government.

Without improving the health status of its population and enhancing the accumulation of human capital in the form of education and skills, Pakistan will not be able to achieve sustained improvements in labour productivity and standards of living”. At the same time, under the advice of “Washington Consensus”, Pakistan quickly embarked on a policy of deregulation, liberalization and privatization and removal of all restrictions on trade, investment and foreign exchange so as to integrate with global economy.

The policy was assiduously enforced by initiating ‘social action programme’ (SAP) in 1992-93 under which public expenditure on social development increased sharply at the expense of infrastructure development. The public expenditures on social sectors in GDP terms which stood at 2.2 per cent on education and 0.2 per cent on health in 1986 went up to 2.7 per cent on education and 0.7 per cent on health in 1998. Then came resource crunch due to falling growth rates and revenues and the government could not sustain incremental expenditure conditionality of the donors.

The SAP was officially abandoned in 2000-01 in the swirl and dust of controversy. However, besides other factors, a stepped up expenditure on social sectors forced the government to neglect commodity producing and infrastructure sectors. This policy took the toll of reducing the annual growth rate of 6.5 per cent in 1980s to 4.7 per cent in 1990s and down to 3.1 per cent in 2001-02.

A decline in growth rate took its toll in increasing poverty and unemployment. Poverty level measured on head count basis with calorie-based approach which stood at 17.32 per cent in 1987-88 shot up to 32.1 per cent in 200-01. At the same time, unemployment rate which was 3.13 per cent in 1988-89 accelerated to six per cent in 200-01. Of late, there is a realization in the government circles that in order to reduce poverty and generate employment a large portion of investment in social sectors cannot bring about a fundamental change in the life of common man. In fact, if the policy is pursued further, poverty and unemployment will increase to the extent that security of the state will be threatened.

A change in the policy has brought about a perceptible increase in growth rate during last two years with the rate peaking to over eight per cent during the current year. Upset with a change in the policy, the international donors vehemently pleaded in the session of Pakistan Development Forum held in April, 2005 that higher growth alone would not reduce poverty. This is in travesty of the finding of the World Bank in the World Development Report 2005.

The Report poignantly declares: “there are almost no examples of countries experiencing significant growth without reducing poverty. Growth in average incomes associated with broadly based growth has been found to account for up to 90 per cent of reduction in poverty”. If it is so, one wonders why the international community should be alarmed by our realization to step up rate of growth in order to reduce poverty.

As for social investment, its import in national development can hardly be denied but it cannot be made an “end” in itself as MDGs imply and, that too, when rich countries have miserably failed to honour their commitments for stepped up official development assistance, debt relief and opening up their economies to the poor countries.

It is hoped that the government will not surrender to the ‘advices’ and ‘pressures’ of international community and present a growth oriented budget on June 6, 2005 in order to join the camp of China, Malaysia and Chile.