While devising Millennium Developmental Goals (MDGs) and targets set in this regard emphasis was laid on global partnership for development through:
a) Non-discriminatory trading and financial system.
b) Addressing the special needs of least developed countries.
c) Funding agencies to focus comprehensively on debt problem of developing countries by taking measures on national and international level to make their debts sustainable in the long run.
d) Speeding up the economic growth rate of developing countries to enable them to make use of latest technologies particularly relating to information and communication by involving the private sector. However engines of growth identified under this strategy are facing hidden impediments on the road map to follow in this regard.
The condition of putting in place a non-discriminatory financial and trading system is being overlooked, despite the compulsions put forth by the WTO on developed/economically rich countries to eliminate subsidies allowed to their farming sector and allocate part of funds gained from trade liberation to the least developed countries to speed up their economic development, to enable them to achieve all the MDGs targets. Unfortunately all dialogue between the member countries as a follow up of the Doha Round, remained inconclusive and this basic requirement of WTO never got through.
Proliferation of preferential trade agreements, reached among different blocks of countries particularly in Asia, go against the policy of ensuring a non-discriminatory trading system. Economically rich countries need to adhere to policy guidelines given under WTO agenda, which emphatically requires that all tariffs and quotas on products from low income developing economies be removed and secondly, preferential trade benefits must go only to poorer economies. South Asian developing countries, particularly Pakistan's exports, are being hard hit due to differential treatment being extended to their counterparts in the same geographic region until recently. It is now recently that Pakistan's exports to European countries have been partly favoured by the removal of all tariffs on exports of textile made ups only.
Further under the preferential treatment approach, which is meant as a so-called special favour to the least developed countries, economically rich countries must minimise conditional ties attached to specific trade agreements entered with them. It is common with such trade agreements that developing countries are required to design special products with specific quality standards and special safeguards (in view of growing terrorism in the region), which add to the cost of production.
Trade and Financial flows from advanced countries are normally of little significance for the development of low income developing countries. Fortunately it was this reason that recent the global economic and financial crisis had little impact on economies of these countries. In case of Pakistan, Foreign investments in financial/banking sector were dramatically up during the period from 2005 to 2007. Foreign currency Bonds issue was successfully launched in economically rich countries, but lately due to growing uncertainties, slowing down of economic activity due to energy crisis, growing political conflicts and worsening law and order situation a trend has been noticed with foreign investors in the banking sector that they are offloading their investments by selling a share of their equity to other indigenous or foreign investors of private banks. However, financial flows in the form of private remittances of overseas Pakistanis continue to grow. The State Bank of Pakistan's recent report shows that remittances have crossed $5.2 billion figure during the six-month period from 1st July to 31st December 2010, which is 17% higher than last year.
As far as the fiscal position is concerned, things are getting worse. Fiscal deficit continues to hover around 6.3% of GDP, falsifying projections of arresting it at the level of 4% of GDP. No doubt, budget deficits have accelerated world-wide as a result of the global financial crisis, but some of the emerging/developing economies have overcome this problem because of their prudent economic policies, but Pakistan being an exception in the South Asia region due to difficult political and governance situation, accompanied by growing terrorism within the country and on borders, continue to show stagnated growth rate and budgets with heavy deficits during the last four years. Hence internal and external debt ratio to the GDP has crossed safe limits. A major chunk of revenues going for debt servicing is adversely impacting the fiscal deficit position. In this regard, the requirement of aid flows from economically rich countries to low income developing nations engulfed in economic quagmire as one of the ingredient of 8th MDG, no doubt has a positive medium-term impact on the economic growth of such countries. Where policy responses relating to all sectors of the economy were strictly adhered to, they could manage to upgrade themselves into high-growth rate economies. This if examined in the context of Pakistan, where inflow of economic and social sector was negligible as compared to funds made available for combating terrorism on the borders, due to poor policy response and bad governance made little contribution towards growth of the economy.
The aid received to meet the increasing defence expenditure due to growing terrorism on borders is much less than expenses incurred on this count. As such, this also added to the economic woes and the country continues to face heavy fiscal deficit and unbridled borrowings by the government from central bank, which ultimately resulted in raising the discount rate consistently on the issue of every quarterly monetary policy in recent years and hampering investment in all sectors of economy, which ultimately caused sharp decline in economic growth rate and raised poverty level to 45% in absolute terms. Thus obligation on the part economically rich countries and various international funding agencies remains unfulfilled.
Economically rich countries obligation towards debt management of heavily indebted countries also remains unmet in the present scenario. During the decade of the nineties, poor countries particularly south American and Sub-Saharan countries had received substantial debt relief under Heavily Indebted Poor Countries (HIPC) program initiated by IMF and World Bank in 1996 and 1999 respectively, which substantially reduced revenues going towards debt servicing and accelerated investments in all sectors of their economies and brought favourable impact on employment and economic growth rate.
In the case of Pakistan, no doubt, a part of the loans was rescheduled by the Paris Club and other funding agencies during early years of the current decade, but disaster caused by massive earthquake in 2005 and the recent devastating floods and never-ending spending for combating terrorism on the borders and most importantly the withholding of tranches of promised financial assistance by the IMF, for want of fulfilling conditional ties regarding implementation of suggested reforms in taxation system and removal of all subsidies, the country instead of getting benefit out of these debt concessions got further entangled into domestic and external debt to the extent that the debt ratio to GDP is nearing 65%. Accordingly increasing quantum of debt has brought the country into a debt overhang position, which implies a status where the country's ability to repay will not match expected debt service quantum, also that major portion of the return from investments in various domestic economy projects would be taken away by foreign creditors.
Unfortunately, in quest of attracting foreign direct investments the government has allowed investors to transfer their share of earnings to the country of origin. As such, it is making a big dent on our forex reserves also. In the present scenario, the country deserves all concessions, including debts write offs. In case the government is facing some hiccups regarding lodging a request for total write offs, then at least 50% of the liabilities need to be written off. In the past Latin American and sub-Saharan African countries were allowed total write-offs and also debts rescheduling of the nature that the beneficiary countries were able to achieve a sustainable debt level in the long run.
Further, to ease up present economic dead lock it is essential that withheld amount of loan be released by IMF at the earliest.
Foreign investment in information technology area has tremendously helped developing a service industry in Pakistan. The cell phone industry has flourished at an unbelievable fast speed. An upgraded communication system is essential for the economic growth of the country and is also a facilitator to achieve all the eight MDGs. Growth that generates income at lower levels of the society is much more effective in reducing poverty. This has been possible by making available affordable information technology (cell phones) even at the grassroot level.
No doubt, the achievement of MDGs depends on the wholehearted commitment of the countries towards this goal, but in case of low-income developing countries like Pakistan, there is need to follow policy of self-reliance, in other words, mobilisation of domestic resources for achieving the MDGs agenda. The country's fiscal deficit can be eliminated by widening the tax net, reforming the tax collection strategies and by cutting down non-development expenditures. At the same time, international agencies need to provide a supportive environment for achieving MDGs, in other words, official development assistance commitments are fulfilled within the specified period and most importantly the WTO rules, as envisaged in the Doha multilateral trade talks with a direct bearing on the external trade volume of developing countries, are followed in letter and spirit by economically rich countries.
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