Donors, international financial institutions and stakeholders in economy believe that the process of reforms started in the early part of the Musharraf's government has largely slowed down after elevation of Shaukat Aziz as Prime Minister. They believe that Shaukat Aziz's performance was better as Finance Minister than his current assignment, most probably due to his divided time among economic and political issues. The bureaucracy has also returned to its previous lethargic attitude, they opined.
The pace of reforms has slowed in the areas of land titling, capital and financial market, restructuring of EPB, preparation for WTO, industrial labour laws, tax reforms, infrastructure investment, social sector, energy sector reforms and uncontrollable inflation due to wheat prices.
"The process of reforms has really slowed down, especially in the land titling, though previous reforms were pulling the economy on a good pace", said an official from a donor agency.
A head of a public sector institution said, "Bureaucracy in Finance Ministry has resorted to its delaying tactics after Shaukat Aziz's departure from operations of the Ministry", and added that "earlier, we used to have our jobs done very quickly".
IMF counts energy sector and inflation the areas of real concern. Letter of Intent (LoI) given to IMF by the government during last June said that the draft 'Fiscal Responsibility Law', which had to be approved by parliament during 2004, has not yet been discussed.
The LoI also says that in the energy sector, an action plan for establishing a transparent regulatory framework for the setting of electricity tariffs was prepared by late October 2003, with a view to implementing these actions in the following months.
"However, the implementation of this plan has been delayed, and the petitions for the determination of structural tariffs for Wapda's successor entities, filed by end-June 2003 with the National Electric Power Regulatory Agency (Nepra), are all still pending for the distribution entities (the transmission and most of the generation petitions have now been finalised)", admits the government in the LoI.
Slow reforms in energy sector reduced the chances of investment, which had to come after tariff announcement from World Bank.
A few problems came from external shocks while others were of the internal weak control. ABN Amro Bank says, "Of recent, Pakistan's economy has hit a rough patch on account of surging world oil prices; domestic inflationary pressures, and a difficult water availability position. An unsettled situation with regard to internal stability is adding to the discomfort of investors and asset markets".
The stability of exchange rate has been threatened by a torrid pace of increase in imports which has been driven as much by capital goods as by higher payments for petroleum. As a result, and in response to inflationary pressures, interest rates have been rising in a more pronounced (but still "measured") manner since July", says the Bank in Quarterly Economic Monitor - October 2004.
The government has some serious flaws on policy making issue. A Merill Lynch report of 2004 'Pakistan Strategy Getting Better' indicates: "The biggest negative to us is that no single part of the government is willing to own the system, which has jointly been overridden by politicians, the military, and the civil establishment".
"The present political set-up and the continuation of the army/bureaucracy-led reforms are unlikely to break the 57-year-old deadlock on governance issues in the country. It would seem that most of the policies are promoting the continuation of the status quo", Merril Lynch experts believe.
The impact of the current decelerated reforms would appear at least a year on as the current economic growth came from the reforms initiated three years ago. Policy of household items lease, pushed both industrial and banking sector profits had greater potential because the salaried class was unable to raise household assets for last 15 years.
Though the much-celebrated CBR success is merely an outcome of overall economic growth but the process of easing taxation system is really appreciated by the taxpayers.
"We used to raise Rs 10,000 tax from a firm; it has now started submitting Rs 30,000 because its business has grown (business is growing in formal taxpaying sectors). We have not taken any extraordinary steps", said a tax collection official.
The steps to eradicate badla financing with margin financing has been delayed for at least six months. Integration and demutualization are also going with undue ease.
Abdul Razzak Dawood in an 'Industrial Policy' seminar said that he had almost finalised changes in labour laws in discussions with the industry to reduce costs and really benefit workers, but it could never see the light of the day after his departure.
Privatisation of PSO has been delayed, time and again. Restructuring of government institutions during this regime had been slow, which was an underlying objective of the Privatisation Ministry.
On textile exports, EU had raised its tariff up to 25 percent, which could throw Pakistan out of competition after textile-quota regime is over. Restructuring if Export Promotion Bureau is still a dream after years of announcements about it.
Merril Lynch opines: "Unlike other regional countries, Pakistan lacks a long-term vision to accelerate its growth. Apart from the deregulation of the agricultural sector, the country's economic managers do not appear to be looking at any avenue to fuel growth. Thus, we believe that in the WTO scenario, Pakistan will keep struggling with its relatively inefficient manufacturing base".
Two major initiatives announced by Shaukat Aziz, one linking universities with ministries for research support in policy making, and developing institutes to produce skilled labour by inviting retired technicians from Japan and Canada were never heard again after budget speeches.
Political Aspects
The other criticism in the Merril Lynch report was: "Despite the return of democracy in the country, the government is still deploying ex-military staffers in top civil posts. This has given rise to inefficiency in the system and resentment against the army". It also says that "army's limited view on long-term commercial interests has hampered several industries".
Global financial institutions have their reservations in views about the continuity of political system, "After Musharraf, we foresee a big leadership gap, which is unlikely to be filled by the political leaders of the present Parliament. We think professionals like Shaukat Aziz could make a big difference in the local environment; continuation of their existence in the current scenario is largely dependent upon the continuation of Musharraf himself", Merril Lynch says.
ABN Amro Bank says (Economic Forecasts Pakistan July 2004) that despite the impending elevation of Finance Minister Shaukat Aziz to the post of Prime Minister, which bodes well for medium term policy continuity, a degree of uncertainty clouds the political context for FY05.
Social Sector
In social sector, excepting higher education, conventional schooling is again out of key areas and in health nation does not seem to have more than two areas, HIV AIDS and population planning. The education benefits higher income classes getting more investment. Prices of medicines, basic health units, hospitals could never be addressed.
Some real problems were to be addressed in second generation of reforms which were largely placed in provinces. Donors were of the view that provincial reforms are at seeing structural changes, which would be giving results lately.
The process of devolving power at grass-roots, education and health sectors and irrigation systems like lining of water courses, canals and barrages are in the hands of provinces. Donors and provinces are working on it in provinces.
The World Bank is appreciative of the reforms executed in NWFP. "The province has seriously improved", said a World Bank official.