ISLAMABAD, May 27: Former finance minister Sartaj Aziz on Tuesday said the IMF and the World Bank were not independent bodies and their policy prescriptions had political motivations as was evident from the stoppage of all assistance to Pakistan in the wake of sanctions imposed by the United States in 1998.
He said this while speaking on the final day of a workshop on budget-making process here.
In his stinging indictment of these IFIs, Sartaj Aziz noted that the government claimed to have reduced the fiscal deficit from 7 to 4.6 per cent. For such reduction, he added, the government had to raise Rs60 billion in three years by raising the cost of electricity, gas etc. at a pace faster than during the preceding 8 years, causing miseries to almost every household in Pakistan.
As finance minister, Aziz said, he had told an IMF managing director that Islamabad could reduce the fiscal deficit by only 0.50 per cent each year to the level of 5 per cent. And he had agreed. But the military government, he further said, drunk with the freedom from any political compulsion proceeded to burden the people.
Mr Aziz advised the legislators to examine the budget policy from the point of provincial and local problems, as well as its impact on the poor and long-term priorities of the country.
Tracing the history of the economic policy-making, Aziz said after pursuing a narrow growth policy based on investment during 1950’s and 1960’s, need was felt to make growth sustainable by striving for uplift of the developing world’s people, removal of poverty, education, health, food security etc. This movement was spearheaded by the UN system which, unlike IFIs, does not give loans but only technical assistance.
But following the economic crisis in Latin America, United States came out with “Washington Consensus”. This brought the World Bank and the IMF to the forefront which relegated the UN system to the secondary position.
Quoting an American economic expert, Aziz noted the IMF insisted only on reduction in budget deficit, oblivious of their impact on the people. Thus it never mentions land reforms, health, education or employment and incomes.
He conceded that the government, following the IMF/World Bank policy prescriptions had achieved macro-economic stability but asked, at what cost? The cost was slow-down of economic growth, increase in unemployment and in poverty. Likewise, these institutions insisted on privatisation but they remained unconcerned about the effects on employment and slowdown of industrial and agricultural growth.
“They lay stress on one thing - budget deficit - but remain silent on growth and investment. The result was that in Pakistan the development budget was reduced by 5 per cent in three years. This was equivalent to Rs300 billion. Had the old momentum of development spending been maintained, the development budget this year would have been Rs400 billion.”
Reduction in tariffs, affected to satisfy the IMF’s conditions, contributed immensely towards slowing down the industrial growth from 8 per cent to 4 per cent, he said. The biggest challenge facing Pakistan today was industrial revival, the former finance minister stated. The country needed a minimum growth rate of 8 per cent in manufacturing sector in order to achieve the GDP growth rate of 6 per cent for tackling poverty, he suggested.
Aziz also criticised the government for withdrawing subsidies on agricultural commodities. “Such subsidies continued to be paid to farmers in Europe and United States. The result was that Pakistan found it difficult to export its wheat even with its modest cost of production - $120 per ton.”
Earlier, Governor State Bank of Pakistan Dr Ishrat Husain dubbed the critics of the IFIs’ conditionalities “leftists” and espoused continuation of the current policies of the government.
Responding to the questions of the legislators, he suddenly lost his temper and started shouting when a number of MNAs criticised the import of railway bogies from China while there already existed the capacity to produce good quality bogies much more cheaply. At the top of his voice, he screamed it was necessary to import good quality bogies.