ADB's outlook

There was nothing new about the economy of Pakistan in the "Asian Development Outlook 2009" released by the Asian Development Bank (ADB) on 22nd September, 2009. The Outlook notes that inflationary pressures persisted in FY2009 despite economic slowdown, falling international commodity prices, a tight monetary policy and significantly reduced central bank financing of the fiscal deficit.
Overall consumer price inflation shot up to an average of 20.8 percent from 12 percent in the previous fiscal year and from only a single-digit in most of the earlier years. As for growth, its prospects continue to be stymied by a lingering power crisis which could only be addressed through a series of measures including improving governance, reducing leakages and losses, rationalising electricity tariffs to cover sector costs and eliminate subsidies and resolving the problem of "circular debt" which has drained the finances of power companies and forced cuts in their operations and investments.
Global recession, if prolonged, poses an obvious risk to Pakistan's economic recovery and stabilisation. It was also critical that the pledges made by donors in Tokyo are realised to finance the PSDP. Revival of higher growth was also predicated on improvement in domestic security situation which was important to foster both domestic and foreign investment.
After taking into account a combination of internal policies and global economic developments, ADB has projected a growth rate of about three percent for FY2010. As usual, the ADB has also proposed certain measures in key areas of the economy. It is very critical for the country to strengthen its fiscal position by bringing in improvements in revenue collection and reduction in non-development expenditures.
"Cutting development spending is not a desirable or sustainable way to reduce deficit. Pakistan has to ramp up such spending if it is to upgrade basic infrastructure and foster growth and investment." Fiscal sustainability requires critical measures to improve revenue mobilisation by broadening the tax base and removing exemptions, improving tax policy and administration, and quickly adopting a full-fledged value added tax (VAT).
Improvement in the current account through a contraction in imports was unsustainable. Current account will be fundamentally improved only when the government pushes through with effective measures to build a much larger export base that is sufficient to meet essential import requirements.
It is quite clear from the contents of the Outlook that it has simply rehashed the available material on the economy of Pakistan and proposed measures which are already very well known to most of the analysts in the country.
There could be two reasons for this ordinary effort. Firstly, the staff of the ADB is generally not regarded as competent as the IMF and its assessment and conclusions are usually based on the comprehensive reports released by the latter. Sometime, the resources of the two institutions are pooled to co-ordinate their strategy for the member countries. Secondly, it is very unfortunate that the problems of Pakistan have continued to remain the same, and, therefore, prognosis cannot be any different.
For instance, the inability of the country to raise enough resources for financing its current and development expenditures and bridge the gap in the external sector are some of the perennial issues which the authorities have been unable to resolve over the years. No wonder then that in a situation like this, multilateral institutions like the ADB would continue to come up with the same diagnosis and prescribe the same medicines.
The challenge for the Pakistani authorities is to confront these problems head on for a sustainable improvement in the economy of Pakistan. Multilateral institutions like the ADB could help but in a different way. According to some studies, a large part of their resources are either frittered away or utilised in a sub-optimal fashion. It would be a great help if a proper framework is developed to ensure that these resources are spent in a transparent manner and their effectiveness is increased to the maximum to enhance the repayment capacity and productive potential of the country.