Prime Minister Shaukat Aziz, while addressing bilateral donors and multilateral lending institutions in Islamabad last week, stated that Pakistan needed 'partners in progress' which he implicitly defined as assistance for the government's 'special initiatives'. Critics of the government would no doubt label the speech as yet another contradiction between rhetoric and action and point to Shaukat Aziz's earlier statements that the government had broken the begging bowl as a direct contradiction to his most recent plea.
The Prime Minister would defend himself by defining the begging bowl as loans which are not used for purposes like infrastructure development which, in essence, is borrowing for physical capital accumulation which would have a positive rate of return over its lifetime.
In other words, while poverty reduction interventions may be viewed as part and parcel of the begging bowl, the government has no hesitation in viewing all other loans as commercial ventures requiring borrowing to enable them to proceed further - an element that is evident in such projects all over the world, including in Western countries.
It is for this reason that the government has emphasized the need for borrowing for infrastructure projects at market rates of return while insisting that social sectors as well as other poverty interventions will be financed only through concessional borrowing. Critics, of course, will reject this rationale as merely semantics and look at the total foreign borrowing to the country as our foreign debts which are not declining.
The rest of the Prime Minister's speech did not present any new arguments or provide for the possibility of a change in the thrust of his economic policies. His 'special initiatives' have often formed the bread and butter of his speeches, namely, money for Khushal Pakistan, one village one product - still at its conceptual stage in Pakistan with the Thais having made great advances as a direct consequence of this policy - megacity development designed to deal with inadequate infrastructure, both social and physical, clean drinking water, exploring alternate energy sources, and, of course, promoting Gross Domestic Product growth through infrastructure development.
It is significant that the donor community is assisting the government in all these 'special initiatives', which may not appear too special to those who have been reviewing Pakistan's economic initiatives for the past two decades. Nawaz Sharif and Benazir Bhutto both had initiated special programmes for the uplift of the poor and while their labels were different yet they were similar to the subsidisation of atta that was announced recently by the Prime Minister.
The focus of those two former Prime Ministers on privatisation, on decentralisation as well as on ensuring basic physical infrastructure to the people were part of their policy even though their access to foreign funding was limited in comparison to the present in the aftermath of 9/11. Khushal Pakistan scheme attempts to do the same. However the only new thrust taken by the present government has been the focus on one village one product which has still to take off the ground.
To argue that donor support for the present governments 'special initiatives' is an indication of their complete support for our government's reform agenda must be seen in the longer term context: donors, by and large, want to remain engaged with governments and it is extremely rare that a donor agency or bilateral donor would abandon a country for purely economic or bad governance reasons. The majority of such decisions have been taken for geo-political reasons. However, the donors do have two major concerns. The first concern is related to the rising rate of inflation, which is seen as increasing the rate of poverty in the country.
Unless checked through tightening of the monetary and fiscal policies, and not through subsidizing cheap items to the poor, it may remain unchecked. A contributory factor to inflation is the Prime Minister's heavy reliance on foreign funding to support his drive for infrastructure development. And secondly the balance of payments position still remains hostage to domestic weather, because of our high reliance on farm products for exports, and the oil price rise is further deteriorating the balance.
Governance too remains an issue. Where senior positions are headed by those who have experience with agencies that were not involved with such activity bad governance is the outcome. Discipline alone cannot move many of our moribund organisations forward. There is thus a need for the government to reassess its priorities instead of being complacent about the state of the economy.