WHILE the expanding public sector investment requires institutional capacity building and the emerging market needs to be disciplined by strong regulators, the policy-makers are showing signs of reform exhaustion.

Handicapped by growing domestic compulsions, arising out of long neglected structural problems, some of which have mounted during its tenure, the government is too pre-occupied with day-to-day problems to stay on the reforms course. Some of the compulsions are prompting it to return to crony capitalism at the cost of competitive economy and to indulge in state sector trading to check price spiral.

For example, the Central Board of Revenue (CBR), the Central Directorate of National Savings (CDNS) and the Federal Bureau of Statistics (FBS) were to be converted into functionally autonomous institutions. The progress is not visible since long. The regulatory authorities are dysfunctional when it comes to either stabilisation of prices of goods, services or shares quoted on the stock exchanges.

In foreign trade, the role of Trading Corporation of Pakistan (TCP) has been expanded and in the domestic market, the number of utility stores is being enlarged. It is the reversal of recent trends towards strengthening of emerging market.

Over the next 4-5 years, the public sector investment would be enlarged from the current level of one-third to 40 per cent of the overall investment. And almost all the borrowings from the international financial institutions (IFIs) running into billions of dollars per annum is going into supporting the public sector spending on the much needed social and physical structure.

In the absence of an efficient delivery system, in the past such foreign loans were not used prudently and efficiently and the projects so financed were not able to service their debts. It led the country into a debt trap.

National Commission for Government Reforms (NCGR) chairman Dr Ishrat Husain says “Our policies are in a state of influx and transition and the anchor which provides support to these policies .i.e. the administrative machinery is also in a state of flux and transition.”

Institutions are conduit, the pipeline through which the policies are transmitted and implemented for the larger benefit of its citizens. If the pipeline is clogged or leaking, the policies do not get translated into intended benefits.

While the monetary policy has been tightened to curb credit and tame inflation, the fiscal expansion would continue, perhaps assisted by the central bank. When the fiscal policy was tight, the monetary policy was loosened to kick start the economy.

Perhaps, now the reverse is true, though government is once again trying to fall back on national saving scheme to bridge its fiscal gaps. The commercial banks have been allowed to sell once again the saving certificates on behalf of the CDNS.

While there is some logic in striking a balance between the role of government and the market, any movement in this direction must be accompanied by marked improvement in governance.

If public sector investment, as ratio of the GDP, is to be doubled in the next few years, it requires that every rupee on development spending is well spent. Besides, the policy-makers do acknowledge, economic governance is at the core of sustainable development.

It is a return to an enlarged role for the public sector, of course, with a difference. The Medium Term Development Framework (MTDF) 2005-10 says “an increasing PSDP will crowd in the private investment. By strengthening the public institutions, the PSDP will act as a catalyst for functioning markets”. The government will provide “appropriate infrastructure-intellectual, physical, technological, financial, legal and regulatory.”

The key issue in the second generation of reforms is much improved governance. No doubt, the NCGR has been set up as a permanent body, different from the previous commissions mandated to just make recommendations. The NCGR chairman enjoys the status of a federal minister.

The commission will “sift out practical and actionable solutions on specific issues, place them before the stakeholders for their views and then submit the consensus so achieved to the highest decision-makers for approval and implementation.

The commission will report every three months to a six-member steering committee co-chaired by the president and the prime minister and consisting of four chief ministers.

Rightly, the first priority of the commission headed Dr Ishrat Husain will “review and make clear, precise and implementable set of recommendations in respect of divisions of functions, responsibilities and accountabilities among the federal, provincial and local governments to avoid duplication, overlap and functional redundancy.

The Commission would look at the appropriate size of each tier of government including attached departments, autonomous bodies, public sector corporations and other entities in the light of the assignments and responsibilities and functions assigned to each.

But these issues are deeply linked with federal democracy without which no economic or administrative structure can be laid on sound foundations. Politics and economics need to be harmonised to manage things smoothly and efficiently.

To quote Dr Ishrat Husain, the poverty targeted interventions and improved governance “got stuck in the sand because the institutions of governance – the governmental machinery at the federal, provincial and local governments were largely dysfunctional”.

One of the major problems facing the governmental reforms is:“…We are good in identifying and diagnosing out problems but very poor in implementing the actions required.” The real test lies in the implementation of the reforms.