The IMF has released another instalment of $114 million as a result of the third review of the implementation of the PRGF facility. The release was, however, made possible, after grant of three specific waivers for non-compliance of agreed benchmarks, as on 30th June 2002, by the government of Pakistan.
The waivers relate to non-observance of the quarterly CBR revenue target for the period ending June 02; the requirement of bringing the KESC to the point of sale; and for the grant of new tax exemptions in the review period.
The IMF has also reckoned that repeated tariff increases in the energy sector have resulted in economic imbalances in Pakistan and further revenue requirements of the two utilities (Wapda and KESC) should be met strictly through efficiency and governance improvement.
The release of the instalment is indicative of the fact that our economic managers have generally followed the agreed reform agenda over the period, resulting in an improvement of the macro-economic indicators and stability of the economy. It also reflects the IFIs’ confidence in our efforts to put the economy back on rails.
But that is the end of it. The approval of the IMF also shows three major deficiencies in our financial management over the period: First, that Pakistan’s economic managers who were only accountable to an army high command within the country and to the IFIs outside the country, and for whom compliance with the PRGF matrix was of the highest priority, have not been able to meet all the important benchmarks, despite all their tall claims of having turned the economy.
Second, while the economic managers succeeded in controlling the budgetary deficit and containing the public debt, they were not able to meet the targets in two key areas: tax revenue collection and improving the finances of public sector enterprises especially of Wapda and the KESC; and Third, that the government in its new role as a regulator of services has failed to protect the interests of the consumer. All these aspersions on the efficiency and performance of the economic team need to be seriously looked into.
How can we improve the reporting of the financial results of the government performance? How can we know that what economic managers are claiming is true and fair? The only way to do this is by improving transparency. The government is required to report on its performance at the end of each quarter to the IMF and the World Bank, under the PRGF facility.
The agreed benchmarks are there and non-compliance has to be explained and justified. The donors and the people of this country, both, are the stakeholders in the economic management of Pakistan, for different reasons. If the IMF could have the access to information why should people of Pakistan be deprived of the same. It is, therefore, essential that in future, all compliance reports to the IMF are simultaneously made public. People have a right to know what the donors know.
The second issue relates to the non-performance of three institutions: the CBR, Wapda and the KESC. The poor performance of the three institutions has contributed a great deal to the budgetary deficit of the federal and provincial governments over last many years. The financial improvement plans of these institutions were initiated much before the October 1999 military takeover at the instance of IFIs. These were then prioritized by the new government.
Incidentally, the CBR was under the direct administrative control of the economic management team and Wapda and the KESC are working under direct army supervision. It is, therefore, strange that both the arms of government have failed to deliver in perhaps the most important sectors of public finance. The failure not only led to a waiver by the IMF, but also more importantly, made the people of this country pay heavily for the failure of the two key government agencies in terms of exorbitant electricity rates and higher taxes. It requires a thesis to compile the losses that their inefficiency has caused to the economy so far, but the extent of such losses is evident. People have a right to know how much they are paying for the inefficiency of these organizations and for how long this would continue.
The third equally important issue is that NEPRA, which was conceived and established to regulate the power industry with a mandate to ensure that their inefficiency cost is not passed on to the consumer, has failed to protect the consumer at the hands of the two monopolies, Wapda and the KESC. This is an alarming situation. Why did NEPRA fail? Was it not independent or strong enough to take the undue pressures of the army-led institutions? What was the justification of its continuance under the circumstances? What was basically wrong with such institutions? Why should the consumers pay for agencies that can not protect their interests? All these questions need an in-depth study of the new regulatory framework evolved at the instance of donor agencies.