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Donors to provide largescale aid in fiscal 2007

The assistance was indicated at the just-concluded annual session, in Islamabad, of the Pakistan Development Forum (PDF), the predecessor of the World Bank-sponsored Aid-to-Pakistan Consortium. The PDF theme this year was 'Drivers of growth: unleashing the potential of the private sector'.

The PDF, while upbeat on Pakistan's economic performance also flagged several areas of concern, including the lack of sufficient progress in eliminating poverty, insufficient action to ensure equity, growing trade deficit, and rising cost of living.

The delegates supported Pakistan’s growth strategy based on five pillars: water security, energy security, infrastructure development, human capital development, and second generation reforms.

Pakistan is looking beyond its borders, as it also wishes to turn itself into a multiple corridor for energy, trade and transportation for the Central Asia-South Asia region.

The IFIs will be expected to infuse funds in these areas. The size of this investment is estimated at $ 40 billion.

Among the multilateral donors, Jeddah-based Islamic Development Bank (IDB), World Bank, Asian Development Bank, and Japan Bank for International Development assured Islamabad of providing substantial financial and technical assistance to reduce poverty and spur economic growth.

Dr Ahmed Mohammad Ali, president of IDB, advised Pakistan to utilise home remittances sent by overseas Pakistanis, including those in the Gulf and North America for productive investment rather than speculation in stock market and real estate. The government should provide alternatives to encourage more of its overseas workers’ remittances to channel these into infrastructure and other development projects.

"The government of Pakistan faces challenges like the credible impact of macro-economic growth on the lives of common people and mobilising domestic savings for productive investment to spur growth," Dr Ali said. He attributed the 8.4 per cent GDP growth in fiscal 2005 that ended last June, which was the highest in IDB member countries, to " the government’s sound economic and fiscal polices". He hoped that more economic, business and government reforms, now being implemented, will sustain the economic momentum.

IDB will extend all assistance to Islamabad to spur development, focussing on key sectors that directly benefit the poor and promote economic growth. It will also help develop the private sector initiatives.

The donors pointed out the fact, that Pakistan’s economy has started showing signs of overheating, and an inequitable distribution of assets, depriving the common people from sharing in the benefits of rising growth. The home remittances are going into non-productive areas like overheated bourses, highly speculative real estate, and conspicuous consumption by the richer classes. This trend needs to be arrested, the donors said.

The lenders also asked the government to check the growing inequality, decentralise decision making, and ensure that the next elections — due in 2007— are free, fair and transparent .

Representatives of the private sector expressed concern over the growing trade deficit at $ 9.427 billion in the first ten months of the current fiscal 2006, up from $ 4.868 billion in the comparable period of 2005. It is projected to rise to $ 11 billion by June 30.

Critical shortages of skilled manpower to operate the expanding and sophisticated industry, low educational standards, worsening energy shortages, and higher cost of doing business, despite seven years of trade, regulatory and banking reforms are the factors hindering Pakistan’s export competitiveness in the global market place.

Pakistan also needs to vastly expand investment in infrastructure, including hydel, natural gas and coal energy projects, roads, telecom, ports, shipping, overland transportation, and railways, to cope with the expanding domestic economy and foreign trade. Industrialist Tariq Saigol identified widening trade deficit and looming energy crisis as challenges to growth.

Praful C Patel, World Bank Vice-President for South Asia said, "Implementation of economic reforms has led to growth rates that have been above 6.0 per cent over the past four years, exports have expanded strongly, and investment is now picking up."

Pakistan, he said, has a history of "boom—bust cycles," and now is the time to closely monitor the microeconomic situation. Pakistan has faced to two shocks — rising prices of imported oil and the devastating October 8 earthquake, besides overheating of the economy as imports are growing at a rate faster than exports.

"The root cause of the growing external imbalances needs to be addressed to sustain rapid growth not for a few years but for 10 to 20 years through a coordinated monetary and fiscal policy response to avoid the pain and disruption of a hard landing.

Juan Miranda, Director General, Asian Development Bank, was of the view that Pakistan is an emerging market in the region. It should provide a larger role to private sector in economic development through joint ventures and public-private partnerships, the areas in which it has a great scope. EU asked the government to focus on growing inequality as economic growth alone cannot reduce poverty.

Japan proposed to declare education as compulsory for all. But there is a critical shortage of trained teachers and school buildings. Unemployment of the educated class has been increasing over the past several years, said a representative of the International Labour Organisation.

Prime Minister Shaukat Aziz focussed on some of these questions at the PDF. He said, Pakistan’s per capita income is likely to move up to $800 by end-June on the back of enhanced economic activities. Poverty is down to 25.4 per cent from 32.1 per cent six years ago.

As a result of the creation of 5.5 million jobs in two years, unemployment has also declined. But, these claims have generated considerable controversy as independent economists question them.

Pakistan, he said, expects the highest ever foreign direct investment this year since its independence in 1947, despite the October 8 earthquake and oil shocks. He projects growth within the target of 6 to 8 per cent a year. Pakistan plans to construct, by 2016, five mega water reservoirs to sustain high agriculture growth, ensure water supply for drinking and commercial use and generate hydel power. The ground breaking of the first of these—-Diamir-Bhasha Dam—was performed in April.

Aziz highlighted the importance of private-public partnerships by saying, the government has ensured a level playing field, besides facilitating entrepreneurial activities, along side sustainable and consistent economic policies for business and development.

He asked manufacturers, industrialists and businessmen to improve the competitive environment to meet the global challenges through sustained investment in infrastructure, science and technology, education, healthcare and engineering.

It is also important to establish linkages between multinational corporations and local business to become more competitive in the global markets, increasing productivity, and enhancing earnings, thereby raising the standards of living. Discussing potential of South-Asia, Central Asia and the Gulf, Aziz said, Pakistan has developed Gwadar, close to Straits of Hormuz, as a transshipment port but also as an "energy port" by establishing mega refineries. It is also negotiating for laying transnational gas pipelines.

The government is placing its bets on the private sector to carry the cross of expanding the economy. This is despite the fact that while the private sector, aided by numerous tax incentives is helping the economy, there is growing criticism regarding its unchecked cartelisation, price manipulation and failure to provide consumers with essential goods ranging from sugar to cement. But, Dr Salman Shah, Adviser to the Prime Minister on Finance and Economic Affairs, spelled out still greater role for the private sector. An integral aspect of the government’s growth strategy is to place and facilitate the private sector as a key engine of economic growth.