July 03, 2006	Monday	Jumadi-ul-Sani 6, 1427

DESPITE the fast economic growth and the substantial increase in per capita income in the recent years, severe economic and social imbalances, particularly between the urban and rural sectors, continue to worry the planners.

Increasing inequality is depicted from much higher unemployment and poverty levels in rural sector, which, in turn, is the outcome of increasing number of landless population in rural areas.

Increasing migration of work force to urban areas has enhanced rural dependency on urban sector, raising relative poverty level. However, there has been sizable increase in Public Sector Development Programme in the last three years and now it is at Rs415 billion for fiscal 06-07.

Yet these funds are insufficient to develop infrastructure needs, particularly energy, water supply and transport related projects, which have to expand and revitalised for sustainable economic growth and for improving quality of life of the common citizen.

In view of severe fiscal constraints as evident from the very low tax-GDP ratio, ranging between 9—9.4 per cent in recent years and in the absence of quality fiscal measures, which ensure needed level of savings and investments, without adverse impact on current spending particularly social sector- related spending, make it impossible for further raising the PSDP for critical infrastructure needs.

Private sector involvement in infrastructure development has been substantial. Significant structural gaps have emerged that could interrupt the momentum of economic growth. Now the country finds itself at a cross road where it is to be decided to what extent private sector role can be entertained particularly for infrastructure development.

No doubt, public private partnership has immense scope for undertaking infrastructure, education and health projects, but that needs strict monitoring, good governance and a highly competitive environment ( leaving no chances of cartelization in any field of economic activity) for achieving maximum efficiency and giving cost effective services to consumers and the government.

In the present scenario when lack of monitoring and good governance are the main factor impeding effective implementation of all development projects, a total shift to public private arrangement is not advisable.

Instead, there is need for enhancing the role of public sector for undertaking maximum number of major infrastructural and social sector projects. All utility services related projects need to be under the umbrella of public sector. Privatisation of Karachi Electric Supply lately and miseries it has brought to Karachities through frequent load shedding these days is the result of mismanagement by new private owners.

Private hospitals and majority of privately run educational institutions are not accessible to even students from lower middle income families. The disadvantaged in big cities have access only to government hospitals and there too, on pretext of non-availability of life saving drugs, poor patients have to bear the cost of medicines and other special medical care services.

The magnitude of the need for physical infrastructure and social sectors justifies the increasing intervention of public sector even at the cost of enhanced external borrowings provided public investment will be productive and yield significant dividend. Public investment, apart from efficient utilisation of funds, needs to be accompanied by a prudent current spending and rationalisation of tax system to lessen the intensity of economic and social disparities.

For all the IMF and Asian Development Bank’s supported programmes, Pakistan needs to ensure macroeconomic stability, debt sustainability, promoting and protecting public investments by fiscal adjustments. This can be achieved if government pays more attention towards mobilisation of revenue, reducing current expenditures and most importantly maintain external debt – GDP ratio below or equal present level of 28.3 per cent of GDP ( according to figures released by Ministry of Finance ) through utilisation of borrowed funds only in highly productive and cost effective projects. For that, it is essential that evaluation of all projects is done comprehensively and these are monitored vigorously during the implementation stage.

In view of non-developmental expenditures, particularly defence expenditures rising substantially in recent years and Tax – GDP ratio touching a low level of nine per cent, fiscal deficit is likely to increase further.

A major share of current year’s public sector investment has gone into development of physical infrastructure and reconstruction activities including earthquake affected areas. Investment in social sector that is education and health care remains stagnant at 2.3 per cent and 1.7 per cent of GDP respectively.

However, PSDP budget at Rs415 billion brings hope of removing economic and social imbalances. Allocation of 44 per cent of the budget for development of physical infrastructure would create employment opportunities through mega projects like construction of planned big dams, energy projects, motorways and railways etc, culminating into improving quality of life for people.

For a long time to come, public sector intervention would be needed to bring visible change in all sectors of economy and social well being of the people.