Foreign funding for PSDP

As informed sources disclosed to Business Recorder, the government is proactively seeking foreign funding for its Public Sector Development Programme (PSDP). There is no doubt that the country remains severely deficient in physical and social infrastructure sectors even after more than half a century of independence: from energy, roads, ports to health and education demand continues to outstrip supply.
There are many who argue that the gap between supply and demand has widened due to the failure of successive Pakistani governments to invest adequate amounts in these vital sectors. That may be true, for with paucity of funds, and with fiscal problems encountered by successive governments due to corruption within the tax system, resources have been scarce.
In addition, allocations have traditionally been skewed in favour of non-development expenditure. To make matters worse, demand for these essential services has been growing rapidly because of a very high population growth rate.
In recent years it is noteworthy that the population rate has declined from 3.2% to 2.8%.
However, this growth rate is still too high and accounts for a steady rise in demand for these basic services. The present government has focused attention on developing the infrastructure sector, arguing that the benefits of this strategy would filter down to the poor for two associated reasons: First, increasing number of job opportunities, and second a buoyant economy fuelled by greater economic activity.
Unfortunately the resultant inflation has negated several gains that were envisaged with reference to poverty reduction. Inflation, so point out the economists, is on the rise because the government has been unable to increase productivity since infrastructure sectors create the environment to promote productivity, but do not by themselves increase it.
That productivity is resistant to a rise is attributed to two factors: one, external factors like unfavourable weather conditions, on which depends the supply of raw materials from the domestic market for our limited manufacturing base, as well as the rising international price of oil; second, the security situation remains dismal - security associated with terrorist attacks on our soil as well as other law and order problems attributed to ethnic and sectarian clashes.
In this situation there is a need for the government to not only focus on infrastructure sectors but also to give equal attention to the social sectors.
The World Bank and the Asian Development Bank have already indicated their commitment to various development schemes in the country that are perhaps part and parcel of the PSDP. That accounts for the decision of the government to focus on bilateral lenders in an effort to access additional funding, namely, the British DFID, the Japanese ODA and the USAID.
With such reliance come attached a set of conditions that range from economic to political policies. In terms of economic conditions, we would have to adopt a freer import policy that may impact negatively on our balance of payments position or hire expensive consultants from the country which gives us money at cheaper than the market rate. Many people believe that Musharraf's support for Bush's war on terror is part of the political conditionalities that have been imposed on Pakistan in return for concessional funding and sales of military hardware.
It is relevant to point out that a strategy aimed at procuring money from bilaterals also conflicts with claims by the government that it has broken the begging bowl. While the government may point out that it is borrowing to invest, something that all governments profess, the fact is that it is borrowing at concessional rates as these bilaterals do not usually extend funding at market rates, and access to such funding is only possible within a geopolitical context.
Once that context changes, as it did after the Soviets left Afghanistan, Pakistan may again be in a difficult situation with minimal access to foreign funding. To make the most of the money flowing currently, it may be advisable for the government to focus on poverty reduction and social sectors, particularly education, which may be able to take the country out of the vicious cycle of underdevelopment.