Speaking at the Karachi Press Club recently, Federal Finance Minister Dr Hafeez Sheikh surprisingly maintained that there was no big change in US policies in relation to extending financial support to Pakistan and the 500 million dollars of economic assistance will continue. The main contributors to Pakistan's development, he added, are multilaterals like the International Monetary Fund (IMF), the World Bank, the Asian Development Bank (ADB) and the Islamic Development Bank; and not the US. However, the ground reality does not support the finance minister's assertion. First and foremost in the first week of November 2011, Business Recorder did an exclusive story which revealed that out of a total of 240.8 million dollars external assistance received in the first quarter of the current fiscal year, USAID remained the largest assistance provider by disbursing 82.31 million dollars. However, what is well-known is the fact that US policy has already visibly changed as indicated by the fact that the Kerry-Lugar bill, envisaging 1.5 billion dollars of annual assistance per year, has not yet been implemented despite its passage about two years ago. Repeated statements by several US lawmakers that disbursement of pledged assistance must be linked to Pakistan 'doing more' on the war on terror front lends further credence to the claim that implementation of the bill remains suspended. Second, the IMF suspended the 2008 Stand-By Arrangement (SBA) with Pakistan due to failure of the government to implement critical reforms, notably to broad-base the tax structure through ending exemptions as well as undertaking power sector reforms that would provide the necessary impetus to industrial growth. In this context, Dr Sheikh emphasised the need to undertake energy sector reforms and noted that the government treasury simply cannot sustain the one trillion rupees subsidy extended to the sector over the past four years. We fully support his statement on the need to implement energy sector reforms. The present government has been in office since March 2008 and has yet to implement reforms that it agreed to in November 2008 with the IMF. What has angered the public and remains the major impediment to the implementation of the reforms is the fact that despite an unprecedented rise in tariffs, loadshedding has not declined but has in fact increased. The government must link improved performance with escalating tariffs if the power sector reforms are to be acceptable to the general public. Be that as it may, it is relevant to note that in September this year, the ADB noted that the government would either have to provide a Letter of Comfort from the IMF indicating the Fund's satisfaction that the country remains on the approved reform path or else bring about macroeconomic stability through the implementation of reforms to be eligible for ADB support. The government's failure to meet either of these conditions led to suspension of programme lending by multilaterals, defined as budgetary support. This partly accounts for the decline in external debt and liabilities as a percentage of Gross Domestic Product from 31.6 percent in end June 2010 to 28.2 percent by end March 2011 - a decrease of 3.4 percent according to the Economic Survey 2010-11. However, this cannot and must not be viewed as a step in the right direction, considering that domestic debt rose by a whopping 803.9 billion rupees during the same period. The Economic Survey notes that the focus on deficit financing through internal sources is due to non-availability of external receipts. Be that as it may, it is generally known that the US did use its considerable influence at the IMF to ensure that the SBA was released to Pakistan, a fact that was noted by the then Information Minister and the newly-appointed Pakistan Ambassador to the US Sherry Rehman on a private television channel. In short, the US does have the capacity to choke funds from multilaterals. And finally, the assistance provided by the US is largely in the form of grants while bulk of the assistance extended by the multilaterals, is at the market rate, which is mainly responsible for the rise in the country's indebtedness. Thus bilateral assistance is more valuable as opposed to multilateral assistance. Given the justified public and government anger against the US for the killing of 24 army personnel in Mohmand, one would have hoped that our Finance Minister had taken the opportunity at the Karachi Press Club to propose indigenous economic reforms with the ability to meet some of our economic challenges. It is unfortunate that he confined himself to subjects that are unlikely to resolve issues emanating from the current dilemma that the country is facing. Copyright Business Recorder, 2011
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