World Bank and the 'Reform Minded Government'

"Pakistan appears to be at an important economic turning point and there are good prospects of sharply reversing the poor economic and social performance witnessed for more than a decade.
The comprehensive and forceful reform agenda, which the government has been pursuing during the last three years, and is reflected in its debt and poverty reduction strategies has already improved the financial position very considerably and has helped to revive growth.
For the first time in many years, there is no threat of a financial crisis hanging over Pakistan's head.
Looking ahead, the main challenges now are to increase economic growth from the current annual rate of about 5% to close to a sustainable growth rate of 6% or higher over the medium term, substantially reduce poverty incidence, and bringing to narrow Pakistan's social gap, while maintaining macro-economic stability."
These are not "tall" claims of Shaukat Aziz or Ishrat Hussain or for that matter Dr Ashfaq Khan, but a passage from the Executive Summary of World Bank Report (No.25665-PK) on Pakistan Public Sector Management Strategic Issues and Reform Agenda. Both the World Bank and the IMF are agog at the performance of the military regime.
They do not tire of eulogising its reform agenda or its implementation. Recently a big seminar was organised by Pakistan Institute of Development Economics in Marriott Hotel, Islamabad where a former country chief of IMF in Islamabad flew all the way from Washington to read a paper commending the performance of this "reform minded government."
The World Bank and IMF fail to see the increasing poverty into which more and more people are being pushed with each passing day.
The duo fails to see the total failure of its policies imposed on not too unwilling 'reform minded government', because there is no investment, neither foreign nor domestic.
Investor perception about political stability and quality of governance or delivery of public goods and services has not improved.
They also fail to acknowledge that the so-called stabilisation programme owes a great deal to accidents particularly 9/11, which forced expatriates to send their foreign earnings to Pakistan for safekeeping and thereby created a mountain of unnecessary foreign exchange.
Higher worker remittances and the reversal of capital flight have been two important elements for the outcome.
Without observing the irony, the report goes on to say that "with political stability, reduction in regional tensions, improved governance, and a continued forceful pursuit of the economic and social reform agenda," Pakistan would improve.
If all that could be achieved there won't be any need left for the World Bank or the IMF to meddle in our affairs or dictate to us.
The proposals on public expenditure management are almost childish in their self-assumed significance. For reduction in public debt the simple formula suggested, is to "contain the overall fiscal deficit to 3% of GDP on average during FY 04-07". Easier said than done.
The report is not totally devoid of some home truths. It goes on to say in the text of the report that relative neglect of social sectors and ineffective use of public spending resulting from both declining capacity of public institutions and governance problems are some of the dimensions of the crisis in public expenditure.
Pakistan under performs countries with similar per capita incomes in delivery of basic social goods.
The depth of crisis can be gauged from the fact that "consolidated public expenditures (excluding interest and defence) now average little over 10% of GDP in 1990s."
How does the Bank reconcile this strong indictment of the Government of Pakistan with the opening paragraph of the report quoted at the beginning of this Article?
Besides inadequate resources devoted to economic development, weak governance has led to low efficiency of public expenditure.
Over time, the role of government has become increasingly out of touch with reality. It has failed to meet the challenge of running a modern day government. There has been a continuous decline in the quality and authority of civil service.
The system of recruitment, placement and promotion, which got increasingly distant from merit, caused further damage to efficiency of civil service. This is at the heart of the problem.
As governance improves, we would learn to live within our means. It continued to devote a large part of its efforts and resources to direct provision of private goods and services.
The criticism could not be more severe or more to the point, and yet the bank shows a marked preference for this reform minded government. There is hypocrisy in plenty.
The report goes on to say that the growth of public expenditure in non-development sectors including defence was especially rapid.
The neglect of education in face of the rapidly growing population is the root cause of the social lag in Pakistan. Public sector's role is crucial to economic development of the country.
Expenditure on general administration doubled between 1991 and 1995-96. Spending on general administration and law and order was far higher than on social and economic services.
Development spending in real terms dropped by 40% over 1991-2001 and its share in total public spending dropped from 25% to 12.8% over the year. Spending on college, university and professional education declined by nearly 20% in real terms over 1988-89.
The report is critical of Lahore-Islamabad Motorway as being a low priority project but finds no cause of concern with a Thal Flood Canal and a host of other such mega image projects. Raising of Mangla Dam by 30 ft. to store more water, when there is not enough of it to store in the existing pond, is another example of wasteful expenditure and to place it in context, this adventure would cost a cool half a billion dollars or more.
The report brings out more poignantly the lopsided priorities of expenditure over a period of 14 years. Total non-interest, non-defence expenditure in 1987-88 was Rs 18 billion which increased to 401 billion in 2001-02, an increase of 246 percent or 16 percent per annum on an average.
Over the same period law and order registered an increase of 414 percent or 28 percent per annum from Rs 6.7 billion to Rs 34.5 billion.
Education expenditure increased from Rs 14.5 billion to Rs 66 billion, a 351 percent increase or 22.5 percent per annum.
Health increased from Rs 4.4 billion to Rs 19 billion - an increase of 339 percent or 22 percent per annum.
The squeeze in social and development spending during the 1990s had a negative impact on growth and poverty reduction.
In 1987-88 expenditure on law and order was 5 percent of the total national expenditure. This increased to 8.6 percent in 2001-02.
This unusual increase in expenditure on law and order does not get reflected in the delivery of service.
We have become a crime-infested society. Both official statistics and anecdotal evidence suggest that law and order has worsened considerably exposing a citizen to risk of life, limb and property.
He lives on borrowed time and relies on luck more than anything else for security of life and property.
More expenditure on law and order does not translate into better performance. What it leads to is a sad conclusion of failure of governance, which in mundane terms means that the quality of personnel posted to the police has gone down and so has its supervision.
The police have unbridled power both in law and fact and they have acquired proverbial powers of life and death over a citizen irrespective of his status or station.
Province wise expenditure on law and order indicates an interesting situation. In Punjab the expenditure increased from 2.2 billion to 10.3 billion - almost three times.
In Sindh, the expenditure increased from Rs 1.0 billion to 7 billion, a seven-fold increase. Looking on law and order situation in Sindh, which appears to be worse than Punjab the expenditure is entirely misplaced.
Either the money has been eaten up or has gone in areas like purchase of APCs and VIP security involving purchase of expensive cars. Control of the judiciary and magistrates over the police has disappeared and there is great reluctance on the part of reform minded government to allow District Nazims control over the police. Grass roots! That must be a sick joke.
In NWFP the expenditure on law and order increased from 0.6 billion to 2.7 billion - more than four-fold. Balochistan offers an interesting phenomena where only 5 percent of its vast area is controlled by the police and yet the expenditure increased from 0.4 billion to Rs 2 billion, a five-fold increase.
Reduction in poverty presupposes a holistic approach for it to succeed. It has been estimated that adequate expenditure on health and education can take the people out of poverty.
Education, which should receive the highest priority in any society, has received a short shrift although the expenditure on education increased in absolute terms from Rs 14.5 b to 66 b over the period under consideration and as a percentage of national expenditure it increased from 12.3 percent to 16.5 percent. The results on the ground are dismal.
The increase in expenditure has not kept pace with the rising population and as a result the number of illiterates in absolute terms has increased. There has been a marked decline in the quality of education and people who can afford even at the cost of borrowing like to send their children to the private schools at unaffordable fees.
The Government for its failure to increase expenditure on education as a percentage of the GDP seeks to hide behind rhetoric of public/private participation etc. In spite of mushroom growth of private institutions, most of them hankering after crass commercial interest, the percentage of students going to the private schools is very small as compared to the public funded schools.
The responsibility of the State to provide education to all does not cease with its desire to shift its responsibility to the private sector. Education is a fundamental right of every citizen and the State is guilty of massive failure in providing that fundamental right.
Health is another important component of the approach to reduction of poverty. As a percentage it constituted 3 percent of national expenditure in 1987-88, which increased to 4.8 percent in 2001-02.
The increase has to be considered in the light of expansion network of dispensaries, hospitals and basic health units (BHUs) and not the quality or delivery but the anecdotal evidence suggests that the quality of service has gone down considerably.
It is typical of a government dispensary or a BHU or a hospital to be without medicines or without doctors or both. As a result there has been an enormous increase in the level of poverty.
Reduction in fiscal deficit has been achieved during the last four years by the reform minded government at the cost of millions of voiceless citizens of this country to the loud applause of the World Bank and IMF.
One-third the population is living below the poverty line. It may be of interest to read a recent report of the World Bank.
In its review of Poverty Reduction Strategy, the Executive Board of the World Bank of Pakistan's Poverty Reduction Strategy Paper (PRSP), which was conducted by the staffs of the International Monetary Fund and the World Bank, it unanimously concurred with the staff that the PRSP provides a credible poverty reduction strategy and a sound basis for IDA's concessional assistance.
"The Poverty Reduction Strategy Paper tells the story of Pakistan's impressive turnaround," says John Wall, World Bank's Country Director for Pakistan. "Having taken a steep path out of the debt crisis and re-established its financial credibility, Pakistan is ready for a second round of reforms.
This PRSP is the core of this Government's economic revival programme. The Government's strong ownership of the strategy, its effective commitment to macroeconomic stability and significant progress in implementing structural reforms have set Pakistan on a course to significantly reduce poverty. We believe that the Poverty Reduction Strategy Paper is a good strategy for improving the lives of the poor people in Pakistan."
The presentation at the Board of the World Bank followed a similar review at the Executive Board of the IMF a few days earlier.
The PRSP was later highlighted at the Pakistan Development Forum. At the Forum, donors discussed steps to assist the Government of Pakistan in fulfilling its poverty reduction strategy. One of the areas the donors were to focus was the infrastructure, which includes additional investments in water and irrigation, power, transport, and telecommunications.
With so much going the World Bank/IMF way, there is not much hope for 148m people living in this country.