Second-Generation Reforms in Pakistan Require a Strong Political Will

Being the architect of economic reforms in progress for the last five years, Mr. Shaukat Aziz has had the responsibility to bail the economy out of crisis resulting from the devastating earthquake of October 8. Though the international financial institutions had been forecasting that the economic growth rate of Pakistan will not be affected, the pledges through the recent Donors’ Conference have really proved reassuring for him.

Pakistan has been lucky enough to find favours in the eyes of the international community regarding the rehabilitation of quake victims. It got more than its expectations. The entire cost of reconstruction, assessed by the government itself, is going to be paid by external resources. The premier has thanked the international community for its generosity and assured it of transparent utilisation of the funds. The country doesn’t need to delay the development projects underway in other parts of the country; the economic growth may sustain itself somewhere between 6-8 per cent.

For the last five years, not only have the economic indicators of the country improved, but also a serious effort has been made to retire foreign debts. The economy hit a record GDP growth rate of 8 per cent whereas foreign debt has reduced by $4 billion. The deregulation and privatisation drive accumulated huge funds, providing breathing space to the local and foreign business community.

The foreign direct investment (FDI) inflow is certainly rising as the government has put state-run businesses on sale. The country has earned Rs290 billion during the last two years through this exercise. The telecom sector is fetching foreign investments to the tune of one billion dollar a year, only the PTCL deal has become a headache for Sheikh Hafeez.
It has also been the policy of the government to tax the well-off little; to meet its growing expenses more taxpayers from the middle classes were brought into the net by increasing the volume of the general sales tax (GST). The government also stopped setting energy prices as a matter of policy and left the matter to oil firms. However, it kept on collecting the 20 per cent surcharge on oil and gas that it claimed to be paying back in the form of subsidies.

During the first-generation reforms, or the initial four years, restructuring of public institutions took place to bring efficiency and many raw hands were seen off. While interest rates were brought down to encourage investors, small savers were negatively affected. The cost of reforms fell heavily on the lower and middle-income strata.

Right before announcing the budget this year, the economic managers found it appropriate to announce launching the second phase of reforms. The statement of the premier hit front pages of national dailies that the country had achieved an unprecedented 8 per cent GDP growth rate. This phase of reforms had to focus at improving standards of living in Pakistan. Health, education and communication networks were declared priority areas. The government made a pledge to complete water conservation schemes while electricity, gas and clean water had to be provided to the whole population of the country by 2007.

The second-generation reforms also meant bringing transparency in the working of public institutions. Parliament, judiciary and political parties, have to pass through this process. Provision of speedy but fair justice makes an essential part of the second phase of the reformation process. What becomes evident from the objectives of second-generation reforms is that it involves politics more than the economy. Consolidating the gains of the first-phase reforms essentially means continuing with the policies of that era but it also means compensating those who have felt the axe of these reforms. A sovereign, not merely functional, parliament is necessary to complete the reformation process – improving standards of living being its objective.
The governor, State Bank of Pakistan (SBP), an important pillar of first generation reforms, is going to be retired; Hafeez Sheikh seems too much tired of the tricky PTCL affairs. Shaukat Aziz has been elevated to a political slot but it needs a fair time to change one’s attitudes and habits. The progress on second-generation reforms has been slow while the next general election is getting closer.

Coming back to the Donor’s moot, more than 60 per cent of pledges constitute soft loans that will have to be definitely returned back to their sources at the end of the day. Who will pay off this debt would have been a relevant question had there been a tradition of observing justice in the matter of finances.

The $4 billion the country has recently paid to foreign creditors was not necessarily utilised in the public interest but this amount has been paid off by increasing the size of indirect taxes and selling off state-owned businesses.

Why is Pakistan burdened with huge foreign loans? Where were these funds utilised? And, who is going to pay them off? These questions need to be answered to put economy on a stable course. The state needs to shake off many a parasite that has been sucking its blood since the times of the partition. They have a natural tendency to keep the state’s finances in shambles, politics in confusion, and people in abject poverty.

The state has to take care of its people to ensure their dignified survival in the global age. Consumers take the centre stage in any debate over economy. It does not make sense to patronise big businesses instead. Trade and industry have to stand on some solid-ground while development of domestic markets has been pending for over five decades. There is a need to break the nexus between monopolies in the agricultural and financial sectors.

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