PDF: useless exercise?

The Pakistan Development Forum (PDF) epitomised one facet of the current 100 plus ministers, ministers of state and sundry advisors: inadequate preparation and the relevant ministry failing to properly brief at least those cabinet colleagues, who were invited to make presentations at the Forum which, in turn, necessitated damage control.
The reference is to the inappropriate remarks by one minister, in this instance Minister of Interior Rehman Malik, who requested a 50 billion-dollar write off from Pakistan's external creditors. There was no possibility of Pakistan's external creditors even considering such an outlandish request. And contrary to Malik's expectations, his statement in all probability raised more red flags in the minds of Pakistan's external creditors hitherto focused on lack of transparency and corruption scandals. In other words, his statement augmented the risk of further damaging foreign and local confidence in our economy, which, in turn, would have led to increased cost of borrowing with repercussions on productivity, budget deficits and inflation.
The day subsequent to this statement Dr Hafeez Sheikh, whose policies to date reflect an increasing dependence on external assistance as opposed to raising resources internally through taxing the elite, held a press conference with Minister of Information Kaira. Their basic explanation was that Malik had made the statement in his personal capacity. Why would a long time party loyalist be allowed to air his personal views on a subject that he had no understanding of and which clearly would have had repercussions on the economy if he was properly briefed was neither asked nor explained?
However, it is relevant to look at the history of PDF to assess whether it was appropriate to hold it at this point in time? The PDF is defined as an international consortium that provides economic aid to Pakistan. It was first held in 2000, the year Pakistan became a pariah state after Musharraf dismissed the Sharif government in a coup d'etat, and, in effect, replaced Aid-to-Pakistan Consortium. Thus it was essentially a renaming. Like Aid-To-Pakistan consortium, the PDF was an annual feature of the Musharraf era and was held ahead of the federal budget, around May, and was used as an appropriate platform to present the performance of the economy to Pakistan's external donors, bilaterals as well as multilaterals, and essentially set the stage for funding arrangements. It was held every year from 2000 till 2007 - the Musharraf era.
Shaukat Tarin as the incumbent PPP government's longest serving Finance Minister did not consider holding a PDF necessary for probably two reasons. First and foremost President Zardari had done a Musharraf and renamed PDF as Friends of Democratic Pakistan (FoDP) which was launched in New York on 26 September 2008 on the sidelines of the United Nations General Assembly session. The initial meeting was co-chaired by United States, United Kingdom, United Arab Emirates and Pakistan. A year later, the FoDP meeting was co-chaired by President Obama, Prime Minister Gordon Brown and President Zardari.
While this considerably raised the profile of FoDP, yet assistance commitments remained pegged to intense monitoring of the Pakistan economy by the International Monetary Fund (IMF) under its Stand-By Arrangement (SBA). Thus Shaukat Tarin rightly did not deem it appropriate to hold a PDF concurrently with the FoDP meetings. And, second and equally importantly, being on the IMF programme, the budget deficit, revenue generation and expenditure priorities, as well as the performance of other critical macroeconomic indicators notable amongst which were full cost recovery of utility services as well as eliminating the inter-circular debt in the power sector had to be approved in principle by the IMF. There was thus little need to hold a PDF as Pakistan's major creditors, multilateral and bilateral, had indicated time and again that their disbursement of pledged assistance would be linked to IMF's assessment of the pace of government's economic reforms and its macroeconomic performance.
In this context, why did Dr Hafeez Sheikh decide to hold the PDF at all? The growing number of his critics may well claim that his decision to hold the PDF may be a hold-over from his days as a member of Musharraf's cabinet. Others may insist that this may have been a political decision designed to take the initiative away from two of the provinces, namely Punjab and Khyber Pakhtunkhwa (KP), which had already held provincial development forums. Be that as it may Dr Sheikh was recently engaged in talks with the IMF in which he failed to convince the Fund staff to recommend release of the next tranche of the SBA to its board of directors until and unless he implemented two critical IMF conditionalities, which were restated by the IMF Pakistan Resident Mission Head during the PDF: (i) implementation of the Value Added Tax (VAT), or as renamed by Dr Sheikh Reformed General Sales Tax; and (ii) eliminating the inter-circular power sector debt and raising utility rates to full cost recovery.
Those who argue that the government has little flexibility in terms of policies need to understand that the Fund is insisting on these conditions due to the lack of alternatives proposed by the government. Thus Dr Sheikh has been unable to: (i) impose a tax on the elite or propose a tax based on the ability to pay principle in an effort to raise tax-to-GDP ratio, (ii) slash current wasteful as well as development expenditure like all other governments in the world today, including Western governments, instead of merely focusing on reducing development expenditure, (iii) reduce large budgetary allocations on badly run and corruption-ridden state-owned entities, and (iv) reduce line losses and compel the government departments to pay their energy bills instead of raising utility charges.
Given this background, why did Dr Sheikh hold the PDF at this time? The only rationale that makes any sense is that a full scale budget, instead of a mini-budget, is on the cards in the aftermath of the recent devastating floods whereby the government would have to either reduce expenditure by 9.3 billion dollars or increase revenue (inclusive of foreign assistance) or, as is expected, an amalgam of the two. Public Sector Development Programme (with a budgetary outlay of 290 billion rupees) is to be slashed by 50 percent (145 billion rupees) according to the latest seeds of wisdom emanating form the Finance Ministry.
This would release 1.68 billion dollars. The taxation proposals that are likely to raise taxes on the already taxed have been tabled in parliament and both Punjab and KP have indicated their unwillingness to endorse these measures. With the PML (N), ANP and MQM, opposing these measures in the assembly, the bill is unlikely to be passed. And that is the sum of what has been proposed by Dr Sheikh that is doable. It is little wonder that donor response is neither appreciative nor indeed supportive - a feeling echoed by the people of this country.