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Selected News Articles on Political Economy

• DEVELOPMENT:  Aid for the Poor, Not for the Consultants

• The rural debt

• Development scenario in Sindh

• Poverty and the donors

• Flawed outlook on Poverty Reduction

• Role of NGOs in the Social Sector

• Thar Coal & Poverty reduction

• Is Poverty rising in Pakistan?

• Growing appetite for foreign loan

• 'Pakistan most urban country in S. Asia'

• 14 million souls live here

• A long, hot May in Karachi

• Understanding poverty in rural Sindh

• ADB-funded project in Sindh

• ADB: meaningful contribution missing

• Is the economic growth sustainable?

• Defence budget at record Rs 194 billion

• $800m offer for four cities

• Billions Spent on Wasteful, Harmful Asian Development Bank Projects

• Call to resist IMF, WB policies: NGOs stage demo

• Stress on Social Sector

• Towards Healthy Environment

• A Leapfrog Strategy

• Borrow to fight Poverty

• Defence outpaces development spending: report

• Public - Private Partnership (P-PP) is not the perfect panacea

• Masters of the failures; 70pc of $4.6bn ADB projects failed: Report

• Power, Politics and Poverty in Pakistan

• Selling survival shamelessly

• Anything for the Poor?

• Truth about Poverty

• Poverty Reduction: Chasing a Mirage

POWER, POLITICS AND POVERTY IN PAKISTAN

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Poverty is not just about money; it is about access to resources. In simple terms it is deprivation from leading a life that is wanted by all and enjoyed by few. Pakistan ranks as one of the least developed countries of the world using standard GDP per capita statistics, a situation which worsens further when we compare Pakistan with other countries using the broader human development index. However one looks at deprivation, whether it is in the more standard indicators of a head-count measure for poverty, or access to water and sanitation. Pakistan’s record even compared to other developing countries in the region, is poor. By all accounts, Pakistan ranks high on most deprivation indices.

According to the Human Development Report, Pakistan has a low level on HDI (Human Development Index and ranks 127 out of 162. the flip of HDI is the HPI (Human Poverty Index) and using it as a National Poverty Line, the percentage of poor is about 47 per cent or about 70 million Pakistanis. Of them, about 40 million Pakistanis are below the poverty line. The Official poverty line adopted by the Planning Commission in 1998-99 is Rs. 670 per capita per month and it is been estimated that one-third of the total population is below the poverty line (according to unofficial estimates, it is a little over 37 per cent). Of the total population, 64 per cent have no access to potable water.

At least 6 million children between the ages of 5 to 9 are out of school. Of the remaining 14 million children, quality education may be available to a small minority. About 40 per cent of the children under 5 are malnourished. 55 per cent of the 10 years plus population is illiterate under a criterion of literacy which is not even basic by UNSECO standards. Investment in Public Sector Development Projects (PSDP) is decreasing consistently. It has come down to 3.6 per cent in 2002 from 7 per cent in 1988. there has been a sharp decline in poverty related subsidies from Rs. 5.2 billion in 1991 to Rs. 284 million in 2001. at the same time the tax burden increased by 4 per cent for the lowest income group while in deceased by 21 per cent for the highest income group. In a country where the magnitude of inequality is such that 20 per cent of the population at the lowest economic stratum enjoys 7 per cent of the resources and 20 per cent at the highest economic level use up almost half the country’s resources, reduction, let alone eradication of poverty is an insumountable task.

All the statisties are from Pakistan Human Condition Report 2002

Trends in Poverty

It is assumed that overall economic grwoth has a direct bearing on poverty leveli n a country: however, Pakistan’s experience reflects a conflict between the two. For example, high growth period of 1960s is associated in decline in poverty only in urban areas, whereas the poverty situation worsened in the rural areas. Incidence of high poverty in the rural areas in 1960s was due to eviction of tenants and rise inlandlessness. New technology was a key factor that allowed large landowners to resume land previously rented out for self cultivation. Increased mechanization led to decrease in demand for labour, which was one of the key reasons of the pauperization of the evicted agrarian workers in 1960s. Similarly, GDP was lower in 1970s than the previous decade but he poverty level declined because of massive rise public sector expenditure and public sector employment. It was mainly due to political willingness of Z.A. Bhutto’s government that the issue of poverty and economic factors were prominent. In that period, share of social sector in development plans increased substantially and development expenditure in 1976-77 was an extra-ordinary 11 per cent. The relationship between power, politics and poverty is evident from the fact that  a number of important changes were enforced in economic and social structure of Pakistan with positive impact on poverty reduction. In 1980s, the migration of non-skilled and semi-skilled workers to the Middle East and their remittances were the single biggest factor which resulted in high growth rates for the economy and simultaneously, for poverty reduction.

The high growth rates of 1980s were also helped by an active and spendthrift public sector, but things began to change with the introduction of International Monetary Fund’s structural adjustrment programme (SAP) introduced at the end of 1980s and the beginning of 1990s. Since the initation of structural adjustment programme the overall growth rate has fallen well below the trend level. The real per capita income in the 1990s had been about 1.3 per cent, which failed to make any significant dent in poverty. In 1990s, as an obsession to cut fiscal deficit, public expenditure has been cut and developmetn expenditure, in particular, has borne the brunt. Remittances, which have played a very important role in 1970s and 80s in alleviating poverty also, declined. Every single indicator which has some poverty freducing impact such as economic growth, manufacturing, employment, public expenditure, development expenditure, remittances and subsidies has worsened since the government adopted SAP.

At the turn of new centurty, government signed new agreemtn with IMF as a result of which Pakistan was expected to cut its already trimmed down development expenditure. IMF policies were self-contradictory and ensured that they fail. Pakistan faced a massive problem of decentralization with high number of sick units. Despite thia, it cut down tariffs as agreed in the SAP, providing a risk of further de-industrialization. Tariff cut also mean loss in revenue, making the budget deficit hard to meet. The tariff cuts also raised imports, making it more difficult to meet the balance of trade deficit. Another conditionality was the consistent raise in gas and power rates a major blow to industrialization. In view of all the programme inconsistencies, failing to meet targets was almost inevitable.

DEFENCE SPENDING, DEVELOPMENT AND POVERTY

Pakistan’s military budget is round 6 per cent of GDP and military expenditure is the second largest component, after interest payments, of the budget each year. This spending on the military is more than twice the expenditure on health and education combines. Pakistan’s military budget in terms of a share of GDP is the eighth largest in the world, which doesn’t make any sense for country which has debts outstanding equivalent to around 98 per cent of the GDP and has had a growth rate over the last decade averaging barely 4.5 percent. Undoubtedly, the state of progress of the economy is bound to have an impact on the military and its budget.

The military as an institution, even when it is not overtly in power, is a major player in the economy through the long arms of its Foundations. More recently, and most visible, is the presence of the three forces in the urban housing sector. We all know that large tracts of extremely profitable urban land are owned by the military services, but the transformation of this land into housing schemes for their personnel, further highlights the huge advantages and benefits the military has an institution and the role that it plays in the economy. In addition, scores of serving and retired generals and senior officers are all palced in lucrative (civilian) positions.

POVERTY AND BONDED LABOUR

It seems that ‘bonded labor’ has been around in Pakistan for centuries, and is embedded and sanctified by traditional and cultural social and economic practices. In terms of severity and scale, it seems that landless sharecroppers, particularly in sourther Sindh and somewhat in southern Punjab, are the largest category and suffer the most, followed by agricultural wage workers in thse two regions, followed by brick kiln workers primarily in the Punjab and in NWFP. These categories robably makeup the major proportion of bonded labour.

The main feature of the bonded labour system is that a debt iw owed, which gives rise to an explotative and ‘bonded’ nature of relationship between the creditor ( in this case, presumably the employer rather than a third party), where the employer can restrict the movement of the debtor, restrict his right to work elsewhere, expropriate the emplo0yee’s output which the employer can sell in the open market, and can get forced labour out of him until that time the debt is repaid. The fact that the debt is seldom repaid and is passed on from one generation to the next, is an equally important aspect of this relationship.

A PILER study on bonded labour estimates between 1.8 / 6.8 million persons in bonded sharecropping families across Pakistan. Given the lack of statistics and adequate data, either about overall debt or its bonded nature, and large differences in definition, such huge discrepancies between different estimates are likely to arise. Nevertheless, if one was to consider even the lower end of the estiamte, regardless of severity of bondage, we would account for five per cent of the current 40 million below the poverty line in Pakistan.

The PILER Study argues that ‘conditions of bondage are both a result and sustenance of unequal economic and political power’. As a result of this extra-economic coercion, which is often overlooked, if not totally ingored, due to the attitude of the local level administration / police, justice, officialdom cases of the landlord or his employers resorting to violence and rape are not uncommon even when the original relationship may have been mainly one of a debt owed. Beatings and sexual abuse of women are often heard of and many such landlords maintain private jails so that the indebted haris do not flee. Issue of poverty, more generally need redressing, but equally importantly, do those of violence.

MACRO ECONOMIC FACTORS

POVERTY REDUCTION STRATEGY PAPER OF PAKISTAN

The summarized draft of PRSP repeatedly said that Government believes that it is not its business to be in business, but failed to recognize the fact that running a government is too serious a business to be left alone to market forces. The financial crisis that hit the East Asian countries in d1997 demonstrates clearly the need for stornger regulations of the domestic capital market and the banking sector. That crisis also triggered off a collapse of the real economy and led to the dramatic reversal of poverty.

The fundamental assertion is the growth is linked to stabilization, which is tto be achieved through tax reforms, expenditure management, prudent monetary policy, external adjustment, and debt management. Reducing the deficit continues to be the main indicator of how much the economy has stabilized, much like in sturctural adjustment programmes. Tax reform is cited as essential. The reforms suggested include a widening of the tax net, levying of General Sales Tax (GST), improvement of the revenue collection system and increasing the professionalism of the Central Board of Revenue (CBR). The ultimate goal is to increase the tax to GDP ratio. Levying of new GST on items out of the GST net at high percentage will further cripple the poor majority of people. The  new taxes imposed in last budget on food items did just that, 2003 budget imposed an additional 20 GST on imported edible oil seeds which will result in sharp increase in prices. There is an enormous adverse impact of reliance on indirect taxes, that not only result in excessive burdens on the poor, but also have the perverse result of subsidizing the non-poor, it is feared that the trend would continue and the poorer sections woul dbe further marginalized under the new tax system.

In Pakistan, it was the ministry of finance that led the PRSP process. Poverty is not a one or two dimensional phenomenon and it is definitely not just about numbers. It is a very complex human issue with various dynamics and other ministries such as human development, women development, labour and trade should have played a more proactive role.

Thinking that privatization alone is the panacea of all ills and that it will attract Foreign Direct Investment (FDI) flow without taking any other measures is rather naïve. In absence of political stability of the country and peace in the region, isolated effort of privatization will not bring the desired progress in foreign investment. It needs to be understood that public provision is not a bane and privatization is nto a cure-all remedy, it will only put more people out of jobs with the downsizing that follows or precedes the privatization process. It has also led to increase in poverty for two reasons; one is the absence of vigorous private investment for creating new employment opportunities for the displaced labour and second is the absence of adequate social safety nets.

The government failed to recognize downsizing as a managerial failure in the public sector, which makes scapegoats of workers. Instead of retrenehment, public investment is needed to make public sector workers more productive and offer more and better services. In any case, much of privatization is nothing more than a transfer of resources from corruption to windfall profits. As the privatization of service providing public sector enterprises, which only bill its consumers of service charges, is all set to go ahead, a steep increase in the prices of basic utilities is expected which will have an adverse impact on poverty reduciton.

The PRSP also details the decrease in oil prices as a poverty reduction measure, but that too is not true as the decrease in prices affects only the direct consumer of oil, the rich and middle-class owners of cars and motor cycles  and the people in transport business. Decreased oil prices have no direct impact in reducing poverty as the decision is nto backed by proper government mechanism to monitor that private transport service providers also decrease their services’ fee. Rural poor do not get benefit of the reduced rates to get their goods to the urban centres and for urban poor there has been no relief in public transport fares, hence no impact on poverty reduction.

Most shocking of all is the revelation that 90 percent of the revenue that the government will genrate by liquidation of the state owned enterprises, most of them quite profitable, will be spend on debt servicing and the rest will be spent on other sectors. This just goes to show how big a farce the independent PRSP process is. No government, no matter how fragile its commitmetn to its people is, would devise a policy that will not only result in absolute absence of any assets to fall back on but also a total lack of any sustainable development and income generation programme if it is formulated independent of foreign pressure.

Subsidies are being increasingly decreased on the pretext of fiscal stringency. But there is little evidence of substantive substitutes as targeted assistance, or serious attempts at blocking major leakages into elite coffers.

MULTIATERAL ORGANIZATION, GLOBALIZATION, TRADE LIBERALIZATION AND POVERTY

With international debt accumulated to around $35 billion, and with the IMF and World Bank watching and ordering Pakistan’s each and every economic and political move, the term ‘independence’ seems to have lost much significance in modern Pakistan. Adherence to structural adjustment packages simply to keep the economy afloat has meant that economic policy is made for us rater than by us. Whether it is privatization, the exchange rate of the rupee, power and utility tariffs, or the subsidy on wheat, everything is decided by advisors and international bureaucrats who refuse to acknowledge the impact of these deleterious policies.

As Pakistan’s exposure to these global organisations has grown since 1988, the economy has taken a nose-dive. Not only have standard and conventional indicators worsened, but there has been substantial worsening of the level and extent of poverty in Pakistan, which has more than doubled in only a decade. Moreover, the provision of large amounts of loans to the country, has not resulted in an improvement of the economy, but has also doubled the debt burden in a decade. While Pakistan’s managers are certainly responsible for a great deal of the misdoing regarding the economy, they share this responsibility with a critical component and instrument of globilisation, the IFIs.

STATE POLICIES AND LACK OF POLITICAL WILL TO ADDRESS POVERTY ISSUE

The new rise in poverty levels over the past decade and half is no coincidence and comes as a direct result of the global economic bluepring adopted by some governments and forced on others in the form of structural adjustment programmes by international donors such as the IMF and World Bank. Pakistan belongs to the latter category. This model of privatization and deregulation claimed that the benefits of economic growth would of their own accord ‘trickle down’ to the rest of society. Yet the policies of liberalization themselves ensured that this could not happen, leading to the massive gaps in income between rich and poor experienced across the world today. It has become part of conventional wisdom of development policy that reasonable progress in reducing poverty requires a political leadership committed to this as a goal. There is no substitute for a genuine commitment on the part of the decision-makers to use the resources efficiently and effectively for poverty reduction ends.

Last year, a letter of intent was sent by the Government of Pakistan to the Managing Director of the IMF. Once again, the letter indicated the readiness of the government ‘to take any additional measure appropriate’ for achieving reform objectives. The reform programme identified is not unusual and once again, includes in it many sensible features such as those requiring better accounting and once again, includes in it many sensible features such as those requiring better accounting and reporting. The Letter of Intent noes that the Government of Pakistan ‘will aprove elimination of the GST (general sales tax) exemptions on pharmaceuticals, effective from April 1, 2002, which will generate an estimated revenue gain of Rs 6 billion (on an annual basis)’. This policy is a good illustration that governments in Pakistan are either ignorant of what causes poverty or callously indifferent. Poverty is caused in no small measure by poverty insensitive economic policies such as fiscal policy, monetary policy and pricing policies. Thus, a poverty reduction strategy should include an account of how mainstream economic policies will be made poverty sensitive. However, evidence suggests that it is often the structural adjustment type Poverty Reduction Growth Facility (PRGF) conditionality agreed to by the government that generates the poverty.

There are several issues of importance here. It is unfortunate that the government is accountable to the IMF and not to its own citizens. Second, while fiscal discipline is important, flexibility is essential during an economic slowdown. Thus, this kind of blind fiscal discipline can be anti-growth depending on the timing, and is likely to enhance and not reduce poverty. Poverty reduction requires serious structural reforms such as land reform and not what is normally referred to as ‘structural’ reform. However, Pakistani government prefer the politically easier alternatives of poverty sensitivity and consistency when framing mainstream economic policies. The reason for that is whether we have elected democrarcy or military, the skewed distribution of land favours and people in power. Most of the people who do get elected belong to the landed elite and Pakistan army is one of the biggest land holder in the country, therefore, they are least interested in bri9nging about some change. Approximately 68,000 acres are under cultivation in the military farms at Okara alone where the tenants are facing worst form of state aggression because they asked for the land ownership rights. In fact, maintaining the status quo benefits their vested interests. The economic and political disparities are to be blamed for aggravating the problems of the agrarian worker.

In the budget for the fiscal year 2003-04, the PSDP has been increased to Rs 160 billion and the allocation of the poverty reduction related programmes have also increased but these measures will not bear any substantial gains if the mechanism of public works programmes in improved. Such is the level of corruption that almost 70 per cent of the budget gets lost between the government officials and their contractors and only 30 percent is actually spent on the projects and that too is usally so mismanaged that it fails to bring about the desired affect. Quite interestingly, of the 160 billion devoted to development, 113 billion will be spent by federal government and over 54 percent of this amount (61.3 billion) will go to ministries and divisions.

Another government policy that is against the interests of the poor people is the new labour policy. The most damning aspect of the policy is that the right of association is still conditional, which is contrary to ILO conventions. Associations can be formed in industrial outfits where 10 or more that 10 laborers work. Majority of workers work in informal sector and they are denied the right of association. Though some rights are stipulated for agricultural wokers working in corporate farms, the workers of agriculture sector other than those working for corporate farms are still not granted the right of association. It shows that the government does not recognize peasants and sharecroppers as worker and refuse to give them the right to organize. The seasonal workers are also excluded in this policy that forms a major chunk of agro-sector labour force. The right to minimum wages, which is a core labour right, remains highly restricted and no provisions are provided in relations to home based workers, informal and agriculture sector workers. Corporate agriculture is a sure way of increasing pauperization of the rural poor. Even if the federal government reverses its policy of exempting agriculture from labour laws, labour displacement is unavoidable in an emphasis upon intensive mechanization.

At the per capita poverty line of Rs.670 per month and a household size of 6.8 members, the house-hold poverty line is Rs.4560 per month. If there is one earner per household (HH) then that household would be making only 55 percent of the income required to stay above poverty line. For the income group between below Rs.1000 per month and Rs. 2500 per month the “Average number or earners per household is 1.48 (See Table2). That is, the HH income of minimum wage earners is about Rs.3700 per month. This is below the house-hole poverty line of Rs.4560 per month. If the minimum wage were to be increased to Rs.3081 per month (i.e. by 23 percent) then the above minimum wage HH will just exceed the poverty line. Similarly, the take home salary of a government servant in Grade-1 is Rs.2900 per month. For this income group the average number of earners per HH is about 1.70 (see insert table) and the household-income is likely to just above the poverty line. This group is in strong vulnerability zone and their take home pay may be linked formality to the evolving HH poverty line.

From the perspective of poverty reduction, there is need to raise the minimum wage to Rs.3081 per month i.e. to the house-hold poverty line of Rs.4560 per month. Further, since the legal domain of the current minimum wage legislations limited to a small subset of the formal sector, consideration should be given to extend its domain to the informal sector. This will have a significant poverty reduction affect for a large group of very poor wage earners. No employment generation policies would work for poverty reduction if they are not backed by the recommend increase and universalization of minimum wages and workers’ right of unionization and collective bargaining.

TRANSNATIONAL CORPORATIONS

Transnational Organizations are also playing their role in subjugation of the people of the third world countries. The biggest examples in this regard are the two multinational companies selling tea in Pakistan. As they have their tea gardens in Kenya, they import inferior quality of tea from Kenya at much higher price than what Indian or Indonesian tea, of much superior quality sells for. It is natural and very easy for them to make Pakistan a captive market. Secondly, the multinational companies that are running their operations in Paksitan import the basic chemicals used in preparation of pharmaceutical products are farm fertilizers from their sister concerns in Western countries and they too buy it at inflated prices to maximize their profit, both on the raw material as well as the finished product. The result is that only the consumer suffers, hence increase in the poverty of the consumer.

POWER RELATIONS IN PAKISTAN AND PRO-POOR POLICES

The concern for the pro poor policies is the consequence of a deep rooted disillusionment with the development paradigm which placed exclusive emphasis on pursuit of growth. It was claimed that foreign investment will result in rapid growth which in turn would lead to trickle down effect, through higher employment and real wages would alleviate poverty. But these so called progrowth initiatives, in absence of any pro-poor policies, failed to achieve the objective.

In this regard, political power structure within Pakistan and external pressures that lead to the policy formation needs to be examined. In Pakistn, political parties represent politics of patronage, where they get votes because of the favour of the tribal /clan/ family chief. The elected represented are not accountable to their voters but to the clan’s head, hence their apathy to the plight of people. Because of this lack of legitimacy and transparency in electoral process, these political parties give in to the foreign diktats when they are pressured from the external forces as happen when Pakistan faced sanctions under Pressler and Symington Amendments. Such tactics by the US, compounded by the eroded role of state and increase in the power of IFIs, clearly depict the lack of concern among the political parties to redress this issue. There is an ideological consensus among the power brokers that the people will remain at the periphery of the power centres. That is why in the much hyped local government system, the election of Nazim, who has some authority is elected indirectly so that only people with the money can get to be the Nazims. This acute alienation of masses from decision-making process, by all the political parties, has created a vacuum for the emergence of a grass root political group that will involve a greater number of people in decision making process.

The most obvious way to achieve poverty reduction is through export led growth through labour intensive technologies. We need to get rid of the policies that produce enclave economies where a few are prosperous and a vast majority of people remaining poor. The resources should be directed to the sector where majority of the population work and in pakistan agriculture is that sector. We also need ot orient the growth of economy where the most used means of production is the one that poop people posses. That is semi or non skilled labour.

Fulfilling rights to social justice is the central goal in whatever government does. This asks for substantive adherence to the national constitution and to international conventions and laws, which define development as sustained realization of an expanded range of rights. Hence poverty impacts should be mainstreamed rather than dealt with separately and, therefore, in danger of being sacrificed whenever convenient to (higher) or (broader) objectives of religion, security, integration, modernization, progress, development or whatever else. Poverty reduction requires both a reduction in specific aspects of deprivation as well as in the absolute number of poor citizens.

The analysis of poverty eradication should go forward from counting deficits of individuals and households towards reforming the social, economic and political systems that systemictically result in the acute deprivation of millions of citizens. In the face of gross inequity, counterveiling power should be provided by government so that the muscle of market and other Mafia can be countered politically and socially, in order that the poor gain from additional skills and other assets. PRSP shoud recognize that rapid growth would not solve the problem unless similar emphasis is placed upon redistribution of assets. Agrarian reforms are an example of required structural change. Government has an obligation to facilitate and nurture mobilization of the poor as enabling their own voices to be heard, and listened to, in design and implementation of all government programmes.

Government is correct in emphasizing expanding employment. But it is no less important to acknowledge the need for decent work. Hence universalization and enforcement  in all sectors and all forms of work  of minimum wages and social security is essential. Even child labour cannot be meaningfully addressed as long as adults, especially women, are denied decent incomes. Since the state continues to retract from subsidized public provision of basic services, wages and social security have become even more important to poverty reduction.

Forced labvour should be seen as a major obstacle to poverty reduction, through the abuse and exploitation of bonded haris in particular, because government will not even acknowledge it as a serious problem.

Institutional reforms will emphasize equity and priorities through local control over resources. Political devolution to communities is the requirement, which goes much beyond the administrative decentralization to local government. Such devolution will require secure and adequate fiscal base to local government.

CONCLUSION

The main themes which suggest why poverty continues to exist in Pakistan at the scale that it does, relate to the adherence to IMF and World Bank structural adjustment programmes which end up causing poverty; the militarization of the economy and of society; the position of women in society and in the legal system; the denial of access to assets particularly land; the deprivation of health and education opportunities particularly as cuts in development expenditure continue; and, the lack of democracy and of an environment which allows public participation.

If macroeconomic policy is one of the main cuases not just for continuing poverty, but for creating it as we argue, any government serious of alleviating poverty will need to follow economic policies very different from those that have become standard in Pakistan. Policeis which distance themselves from structural adjutment and required icnreased and effective development expenditure, for example, will have to be adopted. Advocacy NGOs and activists will need to continue their pressure on government highlighting anomalies which accrue from it aciton.

Militarization in Pakistan has not allowed democracy to take root in the country and has also made peace in the region hostage to military adverturism. While political society has to play a more mature role in the context of developments in Pakistan internally, along with other components of civil society, an attempt has to be made to have greater peace with India. At a time when countries are forming economic and political unions with their neighbours, South Asia continues to be the only large regional entitiy which is no where nearer to becoming a regional trading bloc. The gains from peace and from tarde between Paksitan and the other countries in SAARC, particularly India, ought to be high on the agenda of all countries if they have any serious desire to alleviate poverty and to evolve into mature societies, economies and nations,

In the context of Pakistan, unless women are put first when it comes to educate, development, the legal system or inpublic participation, the country is unlikely to develop in any significant manner. There is a need for government to review its strong gender biases and for men and women’s group to put pressure on government to make policy which shows affirmative action towards women.

If some poverty is created through the lack of access to assets and land, a programme of land distribution need sot be inititated. The distribution of already existing state land to landless farmers and sharecroppers is a zero-cost strategy. Not only will it bear no expense, it will be a politically popular move and will also, in all likelihood ensure far greater agriculture output once the landless become landowners, of even 4-8 acres. The sense of ownership and the freedom to make and implement decision ought to generate another Green Revolution dramatically reducing rural poverty and bonded labour. Of course, a land reform or land distribution programme needs to be supplemented with the provision of credit from formal and non formal sources. If things continue the way they are, there is likelihood that of a rapid increase in poverty in coming years, which could lead to a systematic breakdown of the state. Serious commitment on part of government and inclusion of masses and civil society in decision-making process is required to avert this disaster.

SELECTED BIBLOGRAPHY

Amjad, R. and AR Kemal, ‘Macroeconomic Policies and their Impact on Poverty Alleviation in Pakistan’, The Pakistan Development Review, Vol. 36, No. 1, Spring 1997

Centre for Research on Poverty Reduction and Income Distribution (CRPRID), Pakistan Human Condition Report 2002, CRPRID, Islamabad, 2002.

Gazdar, H, Review of Pakistan Poverty Data, Department of International Development, London, 6 April, 1998.

Mahbubul Haq Centre for Human Development, in collaboration with United Nations Development Programme, Pakistan (MHCHD/UNDP), A profile of Poverty in Pakistan, Islamabad, February 1999.

Paksitan institute of Labour Education and Research (PILER), Bonded Labour in Pakistan: an Overview, PILER, Karachi, october 2000.

Planning Commission, Government of Pakistan, Draft Chapter on Poverty Alleviation for the Ninth Five Year Plan (1998-2003), Islamabad, 1998.

Planning Commission, Governmetn of Pakistan, Three Year Poverty Reduction Programme 2001-04, Governmetn of Pakistan, Islamabad, February 26, 2001.

Social Policy and Development Centre, Social Development inPakistan: Annual Review, 1998, SPDC, Karachi, 1998.

Social Policy and Development Centre, Social Development in Pakistan: Annual Review, 2000 Towards Poverty Reduction, SPDC, Karachi,2000.

Social Policy and Development Centre, Social Development in Pakistan: Annual Review, 2001 Growth, Inequality and poverty, SPDC, Karachi, 2001.

World Bank, Pakistan Poverty Assessment, Report no. 14397-PAK, Washington, 1995.

World Bank, Pakistan Poverty Assessment, Poverty in Pakistan: Vulnerabilities, Social Gaps, and Rural Dyanmics, Report No. 24296,  Pak,Islamabad, 2002.

(By Arif Hasan, URC)

Selling survival shamelessly

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If all basic public services get privatised - essential public services that were once affordable and universally recognised as the state's duty to provide to all citizens - why should people be taxed to pay a redundant government for its keep? If a government cannot deliver in its most primary and vital duties, the way should be cleared for a government that can.

By Najma Sadeque

Touched by the suffering of people across the country, women's organisations have constantly been emerging to come to the rescue. Such altruism can be a double-edged sword. Their help is absolutely necessary; at the same time it enables government to increasingly repudiate its duties. All too often such organisations become trapped in becoming a piece of plaster for the government: they want to work in neglected, niche areas, not replace government duties, yet they are unable to abandon those in any kind of need.

No outside institutions have been more responsible for the deterioration of the conditions of the masses, especially women, as World Bank and IMF through their manipulative, anti-poor policies. Government collusion may be also to blame but that hardly exonerates a self-styled economic and financial authority. The more they fail and destroy, the more raucous becomes their empty jargon and hypocritical piety.

Even if our governments have failed in their duties to their citizens, the principle remains that it is the state's duty to run certain basic public services that no individual can provide for himself, especially the majority of modest means. These include electric, gas and water supply, public sanitation, public transport, basic health care and hospitals, school education, roads, and so on. These are known as public goods and their provision by the state has been the acknowledged practice all over the world. The exception in the area of health is perhaps America, while Scandinavia leads the world in public services. In fact, half of the peoples earnings are deducted towards these, but the citizens would have it no other way, because the quality of service is comprehensive and superior, and cheaper through taxes than private services.

The cost of providing and maintaining public goods is shared by taxpayers. None of these are supposed to be privately owned, because private operators only work for profit and they would sell such services only to those who could afford the high price.

In recent years the cost of these services in Pakistan have been soaring and have hit the poor especially hard so that they have to make do with the least possible. Suddenly a few years ago, the poor were being asked to pay the costs of all medical care - x-rays, blood and other tests and all medicines. The only thing they were not charged for was the examining doctor taking a look at them. Being illiterate or uninformed - since the state does not even bother to tell people about what concerns them most - the bewildered patients resigned themselves to praying they wouldn't die if the treatment was beyond their means.

Why had the government denied a basic right of people? The state had without consulting the public that pays for their keep, acceded to World Bank's demand for imposing 'user charges' on public services towards repaying ballooning loans -- which the people had never wanted or needed. While the government continues to run public health services, it seems about to change. Now the threat looms of having to pay even higher costs or go without healthcare at all.

But that's not all. Something even more basic than public goods is also being threatened -- known as the commons. The notion of the commons is really common sense and it arose independently in all parts of the world, and until recently it has never been disputed. There are certain things that are basic to survival, without which there can be no existence such as the water of the rivers and the seas, the forests that recycle the air and channelise water and provide all our essentials including food, fodder, medicines and construction materials.

If any individual or group takes control over all these and denies people access to them, they would simply die. Therefore all these were considered to be under common ownership. And people shared the responsibility of looking after the commons. Even under monarchies, although the emperor owned all territory, the use of the commons was always considered to be the right of the people.

For rural people, the commons are particularly important because open pastures are necessary for livestock to graze around the year.

Pastures are a source of rich manure for farm fields or fuel. It is also essential for people, because open spaces and watching nature at work undisturbed, is the essential source of knowledge and creativity, provides inspiration, and is needed for recreation as well as spiritual health.

As bearers of children, and carers of families and nature, no one gets hurt more by the snatching away of the commons and public goods than women, especially when she is not a wage-earner.

Most governments of agricultural developing countries have neglected the development of rural areas so that the commons is the only source of sustenance for the rural poor. The callousness falls on women as well although agricultural output would not be the same since women do anywhere between 60 to 80 per cent of agricultural work, largely as unpaid labour.

Although nature needs no help from people as such, if people make intensified use of it causing changes in its configuration, people will have to manage that part of nature so that it does not get over-exploited or polluted or diseased and die out. This is the care that has been increasingly lacking under industrialisation and urbanisation. After the colonisers' left, whatever part of the commons the authorities chose was arbitrarily reserved for themselves or contracted out for commercialisation. Consequently poor people who depend mostly on the commons for their sustenance suffer terrible deprivation.

It is bad enough that World-Bank and IMF - US-dictated commercial banks that shamelessly pretend to be development banks - compel debt-ridden governments to exact indirect taxes from the poor as well, because of loans and further loans to pay off interest. 

But the World Trade Organisation (WTO), born at the same time as World Bank and IMF in 1947 under a different name, and pushed into the wings by USA until the time was ripe to use it for American ends - is even worse. The astonishing part about the WTO is that, unlike the World Bank and IMF which are technically owned by governments, WTO is a creation of major US multinational corporations with the objective of a world that is run purely by private enterprise - essentially giant ones; where there are no welfare states or services, and the governments cannot tell them what they can or cannot do--. Governments are only supposed to ensure that corporations are not hindered in any way while they exploit labour, resources and markets to the hilt to squeeze out the maximum profit.

How did this happen? By deceit, in which developing countries had no say. Historical evidence bears out how WTO was illegally created. But it is equally disgraceful that most developing country governments did not fight back, and compromised themselves intead.

About a year and a half ago, three confidential documents from the WTO Secretariat were leaked out in UK. They revealed the secret ties between big business and government. Whether influenced or bought over, the concerned persons had been corrupted enough to share confidential negotiation documents and inside information with corporation leaders. These revealed the negotiation positions of the European Union, the USA and the developing countries. The multinationals had been feverishly making plans for almost two years to bulldoze drastic pro-business changes in the WTO over public objections.

Prior information about the stand being taken by the various blocs enabled the multinationals to arm themselves with pseudo-legal arguments or arm-twisting tactics against resisting governments. Earlier when NGO activists had sought the same information, they were refused or told that no such papers existed.

The corporations were in fact gunning for foreign direct investment in services to the extent of forcing governments to allow privatisation of public services, even water--. Which is why Southern governments are busy selling or leasing off both the commons and public goods. Already a number of countries have been forced into this with disastrous consequences. And that is why, in spite of industrialisation and overproduction all over the world, there is more inequality and poverty than ever before, far greater than during colonization.

WTO alone is not responsible. World Bank and IMF have after all been paving the way for Northern, particularly US, capital, to take over the economies of the world, by encouraging and speeding the so-called developing world into unrepayable debt. Renato Ruggeiro, the former WTO Director-General had put it very bluntly: "we are writing the constitution of a single global economy." That was the objective of the colonisers all along. That is the objective of WTO and Northern corporate interests.

Women, be warned. – These are serious violations of human, civil, cultural and religious rights.

(The News-YOU 1, 03/06/03)

Pakistan Federal Budget 2003 2004

Anything for the poor?

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After spending 86.4 per cent of all revenue collected on 'debt servicing', 'defence', 'grants' and 'civil government', the government will be left with just Rs. 85 billion, or Rs. 586 per person annually or Rs. 1.60 per person daily to spend on developing this country. With this money our politicians and bureaucrats assume they will solve the problems of the poor

By Majid SheikhThe Federal Budget 2002-2003 seems an innocent document on the face of it. There are no new taxes in an age of decreasing taxes and the deficit gaps have been narrowed as per IMF dictat. For such subservience the bureaucrats have given themselves a salary increase and the defence budget has been increased with no questions asked.

What does such a document hold for the common man? This is the question that should be uppermost in the mind of every person who seeks a better life in this 'God-gifted' land of ours. What does the macro picture mean at the micro level? For the common person, who does not read this newspaper, will life change, even marginally? In this brief piece let us look at the macros. Having done so to a reasonable extent, though such a look calls for a detailed study, it then makes eminent sense to study the micro phenomenon and to see how changes at the top will effect microscopic life, the little things that make living meaningful.

For starters the Rs. 805.2 billion rupee budget, or Rs 5,553 per person annually or Rs. 15.30 per person daily is what the government proposes to spend. It has estimated that it will collect Rs. 626.2 billion, or Rs. 4,319 per person annually or Rs. 11.83 per person daily in the form of taxes and other cesses. Now this means that they will have to find Rs. 179 billion, or Rs. 1,234 per person annually, or Rs. 3.38 per person daily from somewhere to meet their spending needs. This was the problem faced by those who planned the budget. In this age where interest rates are low, finding such money, in the immediate sense, would not be difficult, and so they are to finance this massive 28.58 per cent gap by more borrowing. This has implications that do not bother the planner, but certainly do the poor person in the street. My guarded view is that within this lies the seeds of future problems -- and I have reasons to say this. But first let us stick to the macros.

Let us slice the manner in which such spending will take place to examine how 'our rulers' propose to spend the money they take away from us. The largest chunk in the expenditure plate goes to 'debt servicing', which takes away Rs. 256 billion, or Rs. 1,766 per person annually or Rs. 4.83 per person daily. 'Debt servicing' is the price we pay for borrowing to bridge gaps in expenditure over income. So when we are to borrow a massive Rs. 179 billion in just one year, imagine what this sum will be next year and the year after that. This needs two basic comments. First, that within reasonable limits it is fine to borrow. In fact within the 15 per cent slab it is good to borrow, for that has a multiplier effect on growth, provided at least over 15 per cent of the money collected as taxes are spent on development work. Secondly, borrowing, no matter how you define it and what its source, is inflationary in nature. A borrowing level of over 28 per cent of revenues collected will, no matter how the 'experts' explain it, have the proponents of stoking inflationary trends. Life for the poor will get even worse.

The next component is the Rs. 160.3 billion for defence expenditures. This has been a rise of 9.6 per cent. Normally Budget debates avoid any discussion on this expenditure, but there is now a growing awareness that there should be more transparency about how this money is spent. With the defence services becoming more and more involved in plots and factories and other economic gains, there is also a growing awareness, and correctly so, that they are cornering the best of Pakistan for themselves. So with 'debt servicing' and 'defence', we have spent almost Rs. 416.3 billion or 66.5 per cent of the money collected and we have no say in the matter so far.

Next we come to the money our bureaucrats, or budget-makers, spend on themselves. This year they plan to give themselves a salary increase of 15 per cent and also spend Rs. 62.9 billion on civil government. The promises of cutting down on government have all been thrown to the wind and the size of bureaucracy just simply grows. So between 'debt servicing', 'defence' and 'civil government' a total of Rs. 479.2 billion will have been spent or 76.5 per cent of revenue collected will have gone.

But the tentacles of government are not that simple. They have stored away, in other 'heads', ways and means of extending the arms of government. Government is not a simple matter, it is complex by its very nature. To keep all the wheels and all the cogs in all the wheels well-oiled, it needs cash, lots of cash. All governments do this and name it 'grants'. Many call it 'keep your mouth shut fund'. The word itself invites a naughty comment or two, but let us assume it means serious business. This head will take away another Rs. 62 billion. So by now we have spent Rs. 541.2 billion or 86.4 per cent of the revenue collected. That this term 'grants' is also not transparent speaks volumes about the quality of government our poor 145 million people have, and the fun is they have no say in the matter. So this leaves the government of Pakistan with just Rs. 85 billion, or Rs. 586 per person annually or a miserable Rs. 1.60 per person daily to spend on developing this country. With this money, Rs. 1.60 per person daily, our politicians and bureaucrats assume they will solve the problems of the poor.

By now it will be reasonably clear that the macro picture as it translates at the micro level is beginning to gain sharper focus. At this level, as a budget reporter I was taught to forget the budget speech for it will be nothing but frills and thrills and whistles, go for the Finance Bill, for that is where the Taxation Proposals are. These proposals are what puts the macro into focus and shows just how the common person will fare. It is here that a kill or two is made.

The government says that taxes have not been raised. That is utter tripe, tripe a la supreme. The government had provided an undertaking that taxes will be lowered. It makes sense. The lower the taxes, the more will people be willing to pay, unless you assume that all Pakistanis are crooks. So not raising taxes is not the point. The point is that taxes have not been lowered. If duties on 'big cars' have been lowered, how does that benefit the common man. But then this is not a common man's budget. It is a banker's budget meant for his big clients. The government might argue that they have reduced the levy on cement by 25 per cent. This is a case of one left hand not knowing what the other left hand is doing. A week before the budget, the cement cartel increased prices without reason or warning. Imagine increasing prices in a recession. A week later the levy was cut. Cement prices are now back to where they were just a week ago. Who wins, the government or the big businessmen? My answer is that the banker will be most pleased, as will big businessmen.

Take another example. The 5 per cent abolition of Excise Duty on paper and board sounds as if the poor will get cheaper books. Utter balloony. With the same stroke our banker increased the Sales Tax slab from 15 to 20 per cent on such paper. So, de facto, the poor will get expensive books. The problem is that the poor have to eat, and in Pakistan whatever they eat is cooked in oil. On all sorts of oilseeds a 20 per cent Sales tax has been imposed. This alone will add almost 3.5 per cent to the cost of living in the poor man's meagre budget.

But how does the government hope to jump-start the economy? With textiles still not getting into the 'value-added' mode, and leather, the sector that adds the most value addition, also not being encouraged by government and banks (so much for an enabling environment), they have opted to go for construction. It sounds almost like what Hitler did when he launched his massive construction boom by building the autobahns. But his idea was to employ the unemployed, and get them ready for 'the greater glory of the motherland'. My suspicion is that no such thing will happen here. The banks have opted to provide money to those wishing to build houses. Good idea, for banks will be able to earn huge profits, and the security is a tangible one. But will the boost be large enough to have a massive demonstration effect? Will other sectors be pulled up and will this bring about a revival of the economy? Grave questions.

Now let us discuss the micro aspects of this macro picture. Will the poor get food at reasonable prices? Will they have a reasonable house to live in? Will they be able to find cheap transport to work? Will their children get a reasonable education? Will the government provide a minimum health cover to the poor? These are the questions that a genuine budget should address. Remember the budget is about people, not about soldiers and bureaucrats alone. The poor pay for everything, everything, that our soldiers and bureaucrats enjoy, and enjoy they certainly do. The poor pay taxes and sales taxes and cesses and other odd duties on everything, from milk to wheat to cigarettes and matches to a cinema show to just about everything. Almost 82 per cent of the revenues collected come, indirectly, from the pocket of the poor. This is one fact that we all love to ignore. Just what do we give them in return is the real story that needs to be told.

The budget promises to borrow Rs.179 billion and promises to spend it on the poor. This is one promise that in the past has always been broken. The 'foreign banker' Minister has claimed that this money will be spent through our elected members of the assemblies. Why does such a channel have to be chosen one does not know. Yes it makes sense for the elected to participate in the planning process. Beyond this is not their brief. If they are to handle money, then it is no surprise that poverty has increased in Pakistan. Given this budget and given past history, just one thing is sure to happen -- at the grassroots, a lot of grass will be cut.

Daily The News 14/6/03

By Sartaj Aziz

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At the recent meeting of the Pakistan Development Forum, representatives of the donor community, led by the World Bank, said: "Poverty in Pakistan is not simply a development issue but an issue of national security". They also urged Pakistan to devote more attention and resources to the objective of poverty reduction to create an environment that reduces tensions and provides jobs to the youth of the country.

The government of Pakistan has formulated a three-year poverty reduction strategy for the period of 2003-2006 as a follow-up to an Interim Poverty Reduction Strategy Paper (PRSP) prepared in November 2001 for the period of 2001-03 as a basis for financial assistance from the IMF under its Poverty Reduction and Growth Facility (PRGF) programme.

Surprisingly, the draft document on the full PRSP released in May 2003, does not give any specific target for poverty reduction. It does however admit that during the IPRSP period (2001-2003), poverty has actually increased. According to official estimates incorporated in the strategy document, the level of poverty under the basic needs approach, having remained almost stable at 29 per cent during 1986-98 (with a modest decline to 26.5 per cent in 1990-93), has now gone up to 32 per cent in 2002-2003. The increase in rural poverty has been even sharper, from 24.6 per cent in 1992-93 to 35 per cent in 2002-03.

The poverty reduction strategy is based on five main pillars: (i) accelerated growth and macroeconomic stability; (ii) investing in human capital; (iii) augmenting targeted interventions; (iv) expanding social safety nets and (v) improving governance. These, in turn, are supported by specific macro-economic and social targets in each sub-sector and include the following main targets for the three-period up to 2005-06:

(a) Real GDP to be accelerated from 4.5 per cent in 2002-03 to 5.2, 5.5 and 5.8 per cent respectively in the next three years, (b) Development expenditure will increase from Rs 130 billion to Rs 155, to Rs 180 and then to Rs 207 billion, (c) PRSP expenditure will increase from Rs 160 billion in 2002-03 to Rs 187, Rs 215 and Rs 246 billion (or from 4 to 4.6 per cent of GDP), (d) The literacy rate is expected to increase from 51 to 60 per cent,(e) The rate of population growth is estimated to decline from 2.07 per cent in 2002-03 to 1.87 per cent in 2005-06, (f) The rate of unemployment is likely to decline marginally from 7.82 per cent of the total labour force to 6.69 per cent.

These and other targets for education, health, housing and food support programmes are highly desirable and on the whole realistic. The PRSP document's conceptual attempt to combine economic growth and stabilization objectives and place the overall strategy in the context of human development is certainly commendable. However, the quantitative targets, embodied in the strategy are not bold enough to make a major difference and qualitatively, the strategy does not go far enough to address many of the real and structural causes of poverty in Pakistan.

In other words, even if all the macroeconomic and social targets given in the strategy can be achieved over the next three years, there will be only a marginal reduction in the level of poverty, probably to 28-29 per cent - the same as in 1986-87. This is a serious challenge not just for the government but for all stakeholders to explore more decisive policy options that could reduce poverty at a much faster rate.

The poverty reduction strategies being adopted by developing countries under the guidance of the World Bank / IMF primarily focus on stabilization policies, in the expectation that lower budget deficits and low inflation will automatically lead to higher investment and growth. There is some icing on the cake in the form of social safety nets or targeted interventions to counter any negative fallout of these strategies on the poor. But when fiscal space is squeezed by the adjustment process and the process of growth promotes inequality and more poverty, a separate poverty reduction programme, which only creates limited employment opportunities, can hardly reverse the overall trend.

Another major flaw in the present conceptual framework, based on the Washington Consensus, concerns the role of governments. Even if the superiority of the market system in determining resource allocation and prices is accepted, we cannot deny the important role which the state must play in protecting the rights of the weaker and poorer segments of the population and in meeting their basic needs.

The inherent inadequacies of the market are in fact fully understood in the more advanced societies. That is why they have created laws and institutions against monopolies to protect the consumer and the small businesses; they have developed an elaborate system of taxation and social security to protect the weak and assist the poor. But at the global level, they refuse to recognize the impact of inappropriate globalization policies on the poor and evolve similar compensating mechanisms and policies.

The rethinking that is required cannot just stop at marginal adjustments that will increase the residual resources, spared by the adjustment process, for social development or for education and health services. What is required is a new development paradigm:

* that recognizes the role of the state in safeguarding the wellbeing of the rural population against the adverse impact of globalization and agricultural subsidies and in protecting the rights of the weaker and poor segments of society;

* that accepts balanced social and human development as a basic and essential prerequisite for sustainable development that is meaningful for the large majority of the population; and

* that regards the poor as a part of the solution and not just as a part of the problem, by evolving pro-poor growth policies under which overall growth of the economy can be accelerated by raising the productivity and incomes of the poor.

The chronically poor are poor because they have no land or other income-generating assets. They have limited access to education and health services and are therefore unable to improve their skills or income earning capacity. These inherent causes of poverty are further compounded by man-made or policy-induced factors, such as discrimination on the basis of ethnicity, tribal affiliation or gender and economic policies that favour urban areas at the cost of the rural population and have a sustained bias against the agriculture sector.

In such an unfavourable environment, the poor are often caught in a vicious circle of adversity in which they do not receive a fair wage for their labour nor a fair price for the goods they may be able to sell. Landlords, artis, officials all play their part in accentuating poverty.

Inadequate access to health services in rural areas and in the slums of urban areas has become a major cause of increasing poverty. A recent survey has revealed that the breadwinner in poor families, on the average, loses 80 to 90 working days in a year because of illness. This means not only a 20 per cent reduction in the family's meagre income, but additional expenditure on treatment, often requiring sale of an animal or other assets the family may have.

A more meaningful poverty reduction strategy will have to bring about a paradigm shift in development policy to reverse the vicious circle of this unfavourable social and economic environment in which the poor are caught and, at the same time, alter the structure of growth in favour of the poor.

A pro-poor growth strategy has to be an essential element in any meaningful poverty reduction strategy. In the current socio-political environment, a major paradigm shift in Pakistan's development and environment policy may not be feasible, but in view of the emphasis on poverty reduction, many policies and priorities can be reoriented in favour of the poor. These priorities will have to include the following:

a) A major reorientation of the macro policy framework in favour of agriculture and within agriculture in favour of the small farmers. In the past 15 years, the agriculture sector achieved a satisfactory annual growth rate of 4.5 per cent because of favourable macro policies. But now under pressure from the IFIs, the agriculture sector is being left at the mercy of the market forces although agricultural markets are highly distorted by large subsidies in the developed countries.

Pro-poor macroeconomic policies are needed to (i) prevent a recurrent deterioration in the terms of trade for agriculture, as a result of large agricultural subsidies provided by developed countries, through a combination of price support measures and selective productivity enhancing subsidies; (ii) improve distribution of irrigation water, so that small farmers can receive their fair share of water; (iii) ensure doubling of agricultural credit from Rs 30 to 60 billion in the next three years, with at least 40 per cent, channelled to small farmers, particularly for value-added agriculture like horticulture, livestock and fisheries.

b) A programme of rural industrialization to create employment opportunities in rural areas on a large scale and to reduce rural-urban inequalities. This in turn will require substantial improvement in rural infrastructure.

c) Major improvements in the delivery of education and health services to the poor.The relevant standing committees of the National Assembly and the Senate should thoroughly dissect the proposed pro-poor expenditure of Rs 180 billion in the next budget to ensure that at least 50 per cent actually reaches the poor. According to reports, only 20 per cent might trickle down and the rest may go to higher education, cadet colleges, modern hospitals and other facilities for the rich and middle income groups.

d) A multi-dimensional process of empowering the poor must be initiated, so that as a minimum, they can organize themselves into viable community organizations to be able to compete in the labour and product markets on an equitable basis and eventually participate effectively in decisions that affect their lives.

Finally, without accelerating and sustaining the overall rate of GDP growth to six per cent, poverty reduction will be difficult to achieve. Correspondingly, the overall ratio of investment to GDP which has declined from 20 per cent in the early 1990s to less than 14 per cent in the period 2001-03, has to be taken back to the previous level of 20 per cent.

But the constraints and obstacles that stand in the way are essentially non-economic in nature, namely the law and order situation, tensions with India and the spillover effects of the war in Afghanistan, leading to large-scale closures of foreign banks and airlines and advisories to many foreign nationals not to visit Pakistan. A more tranquil regional security environment and a stable political situation at home will in the end be equally necessary for poverty reduction.

The writer is a former finance and foreign minister of Pakistan.

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The economic managers and advisors of this country are most concerned about poverty alleviation. On June 18, while approving the $123 million tranche from the Poverty Reduction and Growth Facility (PRGF) , the IMF staff expressed its satisfaction on the recent track record of Pakistan regarding poverty-related spending.

Earlier, donors in the Pakistan Development Forum meeting on 13 May 03 had urged the government to increase budgetary allocation in relation to poverty alleviation. Various experts view the rising emphasis of donors on poverty alleviation as a continuation of previous policies. In a situation where doctrines of market economy are universally imposed in all the contexts, the concurrently rising number of poor is viewed as a potential threat.

Since 1988 onwards, Pakistan has been shackled under the infamous economic policy frameworks imposed by the international donor agencies, mainly the IMF and the World Bank. This bench mark sadly coincided with the much needed political change which led to the creation of a democratic government after 11 years of an autocratic regime. The era of Structural Adjustment Programmes was ushered into the nation's history with a whole range of clandestine stakeholders, men in the khaki being the most prominent.

Times that followed displayed the lost struggles of at least four democratic governments to implement their manifestoes across the tightening noose of donor prescriptions. Finally, much to the pleasure of the donor community, an unmeditated coup in 1999 removed the democratic government to install a complying brand of regime which continued to faithfully bow to donor pressures even sacrificing fundamental well- being of the peoples. Among the most fashionable paradigms recently unveiled by the donors is the 'poverty reduction strategy' which is integrally tied up to the conventional working norms of the donors themselves.

The government bowed faithfully and prepared an Interim Poverty Reduction Strategy Paper (I-PRSP). Engendering growth, governance reforms, creating income generating opportunities, improving human development and reducing vulnerability to shocks were the five strategy components.

In order to fulfil the contractual obligation of conducting public consultations, some closed door events were held with a select brand of non-government organizations and opinion holders to seek their views for incorporating in the so- called proposed poverty reduction strategy. These consultations were remarkably similar to the type which were held by the World Bank to finalize its country assistance strategy a few years ago - which were met by fracas from among the common folks. It is most amusing to note that the nexus of the very agents that caused poverty are now talking about its reduction.

However, it must be clearly understood that the root cause of poverty in this country cannot be addressed by the donor tailored draft of PRSP and disbursement of loans. It requires an independent and honest assessment of the overall social and economic scenario thereafter leading to appropriate strategies. Few conceptual matters shall help understand the overall backdrop that led to the crippling of the socio-economic status of a wide majority of people.

According to the conventional definition, poverty is defined as a state of possessing extremely low or no income. Donor's bench mark of 1-2 US$ per day per household is an indicator in this reference. This perception regards poor as such people who are unable to purchase the essential items due to their acutely low buying power. Thus, they are reduced to the status of weak participants in the market economy practices. The proponents of globalization, on the contrary, wish to see a world which is full of financially capable individuals who could purchase and consume their products to the optimum. Thus, having a massive chunk of poor people not capable to purchase and consume obviously makes an undesirable existence! Hence all the uproar about poverty and its reduction.

It is a well-known fact that the prevailing poverty has been caused by the continuing implementation of donor influenced economic policies and procedures. Introduction of green revolution technologies without safeguarding the livelihoods of the landless peasants and artisans; over whelming emphasis on export oriented enterprises without reference to the domestic context that could generate employment in terms of goods and services; gradual reduction of import duties/controls that retarded the local production base; poor governance that encouraged massive smuggling of consumer items hitting the local manufacturing; absence of workable land reforms that reduced the possibilities of effective subsistence farming eventually leading to exodus to cities; reduction/removal of welfare support to the needy to help build up their livelihoods; mindless downsizing and retrenchment of staff, mostly lower grades from state and public controlled enterprises and exorbitant expenditure in defence heads at the cost of social sectors are only a few policy indicators that spiralled poverty on a continuous basis. It is also worth noting that most of these policy prescriptions are still applied with renewed vigour. It therefore sounds preposterous to expect any well intentioned relief for the poor who have been consciously reduced to poverty at such a massive scale.

A genuine cause of poverty is the breakdown of the socio-economic relationship that promoted subsistence to a wide segment of populationa. For instance, the agricultural production during the 1940s and 50s was mainly structured on a barter system of transactions. The peasants provided farming and allied services to the landlord; artisans supported the rural life through the skillful practice of their trades; landlords organized the distribution of the produce amongst all the stakeholders in kind while transported the surplus to the market to obtain cash. There were communal assets in the form of grazing grounds, community lands, water courses/bodies and access paths. The landlord allowed the peasants to live in settlements built on his land, often without any rent or charge.

Each member of the community valued the importance of these assets since they were a mean of subsistence to the peasant/artisans and a catalyst for profit that accrued to the landlords. Not that this system was perfect. It had several weaknesses that needed to be improved. But the capacity of this system to provide basic means of livelihood was well established. Once the modus operandi changed to mechanized production, the whole set of inter- relationships changed. Currency became the real determinant of any person to acquire a good or service. Thus with the departure of barter and arrival of cash economy, poverty amongst the subsistence seekers multiplied exponentially. There has been no safeguard means for the poorest and incapacitated individuals who lost the chances of a decent survival.

Creation of viable infrastructure that could directly affect the day- to- day performance of poor is essential. Conservative estimates show that about 48 per cent of the population is without access to safe drinking water while 63 per cent is not connected to any sewerage system. A sizable produce in agricultural areas perish on the way due to the absence or dilapidated conditions of farm- to- market roads. In cities, more than 70 per cent of the employment is generated in the domain of informal sector. Attempts are normally made to allocate finances for various development schemes prepared in the infrastructure sector.

However, the lion's share normally goes to the mega projects. Despite the fact that such projects hardly benefit the poor, incur high capital costs and have extended operation and maintenance overlays, they are assigned higher priorities. Preference given by donors/federal government, risk of losing overheads in kick backs and lobbying efforts by large scale contractors are few reasons for choosing mega projects. Poor people need small scale initiatives. Development of water standposts, secondary sewers to connect household/lane level sewers, secondary roads to inter-connect localities and basic power supply are few type of small scale projects that can improve living conditions and help eradicate poverty by increasing productive capacity of the people.

The government claims to support the poor by opening up some avenues to access relief. Funds from Zakat, Baitul Maal, marriage assistance and health support programmes are claimed to be accessible to the poor. However, the overall impact of these attempts is extremely minuscule compared to the magnitude of the problem. Poor targeting, insignificant amounts and lack of proper monitoring gives rise to a very limited coverage and impact of such programmes. It is often assumed that by doling out money, poverty can be stemmed!

Poverty reduction strategy focuses on governance. This happens to be among the most ironic of injunctions especially coming from such quarters who have done their best to destroy all forms and formats of basic civilian institutions. There are several examples to prove this fact. Planning Commission of the country was traditionally entrusted the task of analyzing the overall developmental needs in various sectors and prepare five- year development plans and perspective plans. These plans, which evolved from a reasonably sound institutional framework were meant to guide the government machinery in addressing their respective priorities in a coordinated manner.

Over the period of time, the Planning Commission had acquired the professional capabilities in various sectors to adequately address the planning and developmental issues. Without providing adequate time to germinate, the Commission was reduced to a non-entity. Its actions were replaced by a plethora of free standing institutions and programmes without any kind of people's control. Special funds for poverty alleviation were created to fight out poverty without any comprehension of the poverty phenomenon itself. Under self- appointed governments, the understanding about poverty became more than myopic.

A whole super structure of local institutions was created without having the slightest of understanding of the manner in which society is organized or functions. The result is obvious. Every where in the country, there is a tussle between the local and upper tiers of government.

Strategies to reduce poverty are framed in the same secretive manner which is the trade mark of self- appointed regimes. It is most amusing to note that strategies for poverty reduction are formulated without consulting the poor themselves. Similarly PRSP is not being discussed at the elected fora including local councils, provincial and national assemblies. Despite the fact that some quarters from the donors themselves have suggested an open debate on this issue in the parliament, no heed is paid to this sensible advice. The documents of poverty reduction are posted on web sites knowing too well that the real poor cannot access a computer and do not understand English. Only those select members of civil society, NGOs and professional groups are likely to be invited to this consultative process who are already baptized to the donor's agenda.

If the present regime is willing to prove at least its representative status, few fundamental steps need to be taken without delay.

One, an open debate about the overall causes and effects of poverty must be launched. All cross sections of the society should be allowed to contribute to it. Two, scores of researches and independent studies have been already undertaken by researchers and institutions about poverty and its spread. Findings and recommendations of these studies must be scientifically reviewed and assessed by a relevant institution, such as the Planning Commission.

Three, based on these inputs a working paper on the issues related to poverty and means to holistically address them may be floated at the elected fora, including the local councils, provincial assemblies and parliament.

On the basis of the national consensus evolved for addressing the poverty, negotiations and dialogue must be made with all interest groups, including donors. Four, policy instruments that affect the livelihoods of people must be immediately checked and revisited. This also accounts for providing protectionist cover to few sectors of enterprises that are in the state of infancy.

Five, direct assistance must be only targeted to those who are economically incapable in all respects. All others must be provided with catalytical assistance to help acquire a compatible earning opportunity. Once economically capable, the society can address almost all other issues by itself. And six, infrastructure development must be based upon the up-scaling of various pilot projects that now have a successful existence in this country and are being replicated on self- help.

(D-Eco&Rew-6, 14/07/03)

Masters of the failures
70pc of $4.6bn ADB projects failed: Report

By Arshad Sharif

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More than 70 per cent of the Asian Development Bank's failed projects in the country are potentially the equivalent of $4.6 billion that Pakistan owes to the bank out of a total debt of $6.5 billion, a report by US-based Environmental Defence distributed here on 18 December showed.

Speaking at a seminar organized by an NGO, international policy analyst of environmental defence Shannon Lawrence said the unsustainable ADB projects failed to produce lasting economic or social benefits for the country.

Sharing the findings of an analysis of project audit reports for Pakistan from a study titled 'The Asian Development Bank: In its own words', Ms Lawrence said the same mistakes were being repeated again and again in different ADB projects over the years at the expense of taxpayers who had to bear the ultimate consequences of badly executed policy initiatives and programmes.

According to the report, Indonesia and Pakistan are ADB's first and second largest cumulative borrowers having received more than one third of total funds disbursed during the 36-year history of the bank.

Since 1968, the report said, Pakistan had received more than $12.6billion in loans from the ADB making it the second largest cumulative borrower after Indonesia. At the end of 2001, the ADB funding for Pakistan increased by 148 per cent to $957 million.

In 2002, the country received more than $1 billion and also became the top client of ADB's concessional lending window, the report added. Interestingly enough, the report based on ADB documents identifies a disturbing pattern of systematic failure on the part of the bank.

"A striking number of the ADB-financed projects in Pakistan suffer from design flaws and lack of attention to thorough project preparation." In the execution of projects, the report noted a pattern of absence of Benefit Monitoring and Evaluation (BME) systems and baseline data, lack of consultation with prospective beneficiaries and user groups, lack of community participation, adverse impacts on social equity and income equality that have fostered ethnic instability in certain ADB projects.

Moreover, the report said, even projects considered 'successful' by the ADB auditors benefited large landholders at the expense of small farmers and terminated five years behind schedule like the South Rohri Fresh Groundwater Irrigation Project.

Similarly, the report said, the Balochistan Fisheries Development Project ignored local customs and preferences in project design while failing to account for environmental impacts.

In the Third Health and Population Project, the report said, the ADB failed to assess the impact of project or ensure that benefit monitoring and evaluation systems were implemented as required by loan convenants.

The report said in the Chashma Right Bank Irrigation Project, the ADB failed to conduct any comprehensive analysis of socio-economic and socio-cultural conditions in the nearly 30- year implementation time of various stages of the project.

According to recent estimates from organizations working with communities in the project area, more than 50,000 people have been or will be negatively impacted by the extensive irrigation project.

Daily Dawn 19 12 2003

Public - Private Partnership (P-PP) is not the perfect panacea

By Zofeen T. Ebrahim

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State has to protect its citizens from the profit-hungry private sector. For any public-private entity to be beneficial to society, competent public-sector institutions are a prerequisite,' says Arif Hasan.

While the future belongs to the concept of public-private partnership (P-PP), in Pakistan it is still in its infancy and there will be quite a few teething problems before the trend sets in, says Arif Hasan, architect/planner who has for long been associated with urban planning and development issues. For now, he says, it seems the concept has failed to benefit the poor in developing countries, such as ours, and despite a push for P-PP, poverty is on the increase.

Arif Hasan spoke to Dawn Magazine  recently. The following are excerpts from the interview:

Q. How would you define the concept of public-private partnership?

A. When a government institution or a consortium of government institutions and the private sector (including NGOs) come together to provide a service, do business and bring about development in an urban/rural/industrial setting, or even in the field of culture, for that matter, with each partner's role and responsibility clearly defined, then a public-private partnership is deemed to have taken place.

A contract is charted out and supported within the perimeter of existing legislation, or appropriate legislation is developed for it. The relationship between the sectors is influenced, to varying degrees, by forces both economic as well as political. An unequal relationship between the partners often renders the partnership ineffective, or the dominating actor takes on roles it is not supposed to take, and profits in the process.

When a government has little or no financial resources it always tries to get the communities or the private sector to invest. This has been the case in Pakistan, as political conflicts have never permitted it to stabilize. The byproduct of such an arrangement is a curtailment of government overheads, which also entails what in present day jargon is called downsizing.

Q. When did public-private partnerships actually started making inroads into our system?

A. It is really the result of the liberalization of economy in the late 1980s and the whole of 1990s that promoted the P-PP culture, with our government becoming a signatory to the World Trade Organization and the structural adjustment regimes. The role of the state was seen to be facilitative and protective of the international corporate sector as well as the local private sector. It came to surface after pressure was exerted by the World Bank and the International Monetary Fund.

Q. Was it easy for the state to adjust to the new scenario, from a welfare state to that of one where partnerships were beginning to take place?

A. No, it was not easy then and it is still not easy today. Many upper level government servants and most middle level state functionaries do not know or understand the repercussions of the changes that have taken place. It is difficult to relinquish power, and organizational cultures change over decades. Our bureaucrats have not been trained in the value systems of the new world order. However, in the new scenario, training, discussions and lectures on the importance of the new regimes have been initiated, and that may make a difference a few years down the line.

Q. Is P-PP the most successful model for running the state in present times?

A. Not really. The most successful models in the past have been the welfare state model and the socialist model. The former still operates in most Western European countries. Over there, in most cases, where there has been P-PP, the state institutions are effective enough to protect citizens from profit-hungry private-sector companies. For a P-PP to be beneficial, effective public sector institutions are a prerequisite.

Q. When is P-PP a failure?

A. Only when the state institutions are weak and cannot negotiate with the private sector on the basis of equity and when the interests of local stakeholders are ignored. Most of our institutions have been weakened due to ad-hocism that has been the result of political instability. This, in turn, has made a mockery of the law and the constitution. As a result, partnerships are invariably tilted in favour of the private sector. Also, local stakeholders are seldom, if ever, consulted in these matters.

Major cuts have been made in our social sectors and it is difficult to imagine how the poor will continue to receive basic health, education, water and sanitation if more privatization and more cuts take place. Most P-PP projects and programmes are in the urban sector because that is where large-scale profits can be made at present. In the rural areas, corporate farming, which is on the cards, will also yield large profits at the expense of local farmers.

Q. How can P-PPs be made effective?

A. P-PPs can be made more effective if there is transparency and a space for the interaction of various stakeholders can be created and institutionalized. This means that the project should be advertised and public hearings should be arranged around them. The financial arrangements should be clearly spelt out and accounts regularly published.

If the partnership is a project, then one person should be appointed to head the project from the beginning to the end, and he should be given the authority to run the project without political interference and he should be responsible for everything that is good or bad with it. In our country, every few months persons are transferred and there is no one who can be held directly responsible.

Q. What should be the role of the state in a public-private partnership?

A. It has to have a regulatory role and a more dominant one in planning. Whatever partnerships take place, they should be part of a larger development plan which must have been prepared by state institutions in keeping with the provisions of our constitution, which clearly states that the state is responsible for providing the necessities of life to its citizens. But then again, this can only happen if there are effective state institutions.

Q. What are the spheres in which partnerships can be fruitful?

A. Partnerships can work in the urban setup in areas like water supply, sewage, solid waste and even transport. In the rural areas, such partnerships can work in the paving of water channels to reducing water-logging and salinity.

Q. Have P-PPs always failed in our country?

A. Not always. It fails only when the government is financially weak and its institutions are badly staffed, underpaid, where nepotism and corruption have set in due to political interference and where the planning process is not in place. In such cases, P-PP really means control of the private sector and little or no benefit to citizens and the state itself.

However, there have been instances where partnerships between communities and the state have worked extremely well. The work of the Orangi Pilot Project and the Pakistan Wildlife Fund Programme are examples of this. Here, NGOs, communities and the government agencies have come together to address the issue of services, livelihoods and the environment.

The power of the communities is crucial in making this partnership effective and in favour of the communities rather than that of the NGOs and the government. The Karachi Public Transport Society (KPTS) is another example of an excellent partnership between the government and the private sector where the government has played a dominant role, set the rules and regulations, and conducts monitoring with support from a governing body composed of citizens and stakeholders.

Q. When have the P-PPs failed completely in our country?

A. In the solid waste management sphere in Karachi, all P-PP projects have failed. The reasons are diverse. The private-sector partners were financially weak for the task, and the state authorities were unable to give them the support that was required. In addition, the projects ignored some major socio-economic realities such as the recycling industry, whose interests were not taken into account when developing the partnership.

Q. What is the downside of P-PPs in our context?

A. Master plans have been replaced by un-coordinated mega projects on build-operate-and-transfer (BOT) basis. Companies are happy to deliver such projects, but these turn out to be much more expensive than the government-financed and built projects of a similar nature. Such projects are pushed by a nexus of powerful consultants, international companies and uneducated and unscrupulous politicians with disastrous results for the poor.

Most P-PP and privatization projects in service delivery in the Third World have failed to service the needs of the poorer sections of the population. An example of this is the Manila water privatization. In the First World, too, privatization has not always been successful. For example, after privatization the efficiency and state of the railways in the United Kingdom has progressively declined.

So when we talk of giving a new lease of life to the Karachi Circular Railway on BOT basis, perhaps it would be wise to learn a lesson or two from the mass transit systems in Manila and Bangkok. Their fare structures are far more expensive than the public buses, with the result that the poorer sections do not always use them.

(Daily Dawn, Magazine Page, 18/01/2004)

Defence outpaces development spending: report

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By Khaleeq Kiani

ISLAMABAD, Feb 29: Pakistan's defence expenditure, which amounted to 54.5 per cent of the total annual allocation, has outpaced development expenditure which stood at 35.5 per cent during first half (July-December) of the current fiscal year.

Latest statistics submitted to the International Monetary Fund (IMF) by the ministry of finance suggest that defence expenditure during the first six months of the current year has amounted to Rs87.319 billion against development expenditure of Rs56.8 billion. Both defence and development have been allocated Rs160 billion each for the full fiscal year.

"At this pace of spending, the government would hardly be able to utilize Rs110-120 billion by end of the fiscal year against a PSDP allocation of Rs160 billion while defence spending would end up in the vicinity of Rs180 billion instead of Rs160 billion budgetary allocation," said a senior government official.

The official requesting anonymity said the slow PSDP (Public Sector Development Programme) utilization during earlier part of the year would force the authorities to make hasty releases in the last quarter, thus, compromising the quality of project
implementation.

The public sector spending have remained slow despite the fact that principal accounting officers of the respective ministries and divisions have been authorised to draw up to 45 per cent of total allocation without prior approval to ensure maximum
utilization, quality implementation and timely completion of projects.

Official figures duly verified by the Auditor-General of Pakistan Revenue and the State Bank of Pakistan also suggest that total expenditure during the first six months stood at 9.4 per cent of the GDP and out-paced revenue collection which was recorded at 8.6 per cent of the GDP. The country's GDP is currently estimated at Rs4.42 trillion.

The total public sector expenditure during the first half of the year stood at Rs412.795 billion while current expenditure amounted to Rs352.5 billion against a full year target of Rs805 billion and Rs645 billion, respectively.

Of this, the federal expenditure amounted to Rs252.3 billion while provincial expenditure stood at Rs100 billion. As such, the total expenditure turned out to be 9.4 per cent of the GDP while current expenditure amounted to 8 per cent of the GDP.

Total revenue amounted to Rs379 billion, of which CBR revenue, surcharges and non-tax revenue amounted to Rs231 billion, Rs33 billion and Rs101.4 billion, respectively.

Total privatization proceeds amounted to Rs1.697 billion during the first half of the year which has declined from Rs1.999 billion in September 2003. Total interest payments during the July-December 2003 period amounted to Rs98.8 billion or 2.2 per cent of the GDP.

Thus, the budget deficit during the period July-December 2003 was recorded at Rs33.7 billion or 0.8 per cent of the GDP against a full year target of Rs179 billion.

This gap was bridged through a combination of external resources at Rs10 billion and domestic borrowing of Rs22 billion. The bank borrowing went into negative by Rs8.3 billion but non-bank borrowing increased to Rs30 billion.

Similarly, the four provinces collected a total of Rs126.5 billion. The provincial share in the federal taxes amounted to Rs90.5 billion while total provincial expenditure stood at Rs135 billion during the first half of the current fiscal year. Federal loans and transfers to the provinces amounted to Rs11 billion.

PUNJAB: The Punjab collected a total revenue of Rs60 billion and its total expenditure amounted to Rs74.5 billion. Of this, Rs44.5 billion share went to the federal revenue while its provincial taxes amounted to Rs7.9 billion.

The Punjab's current expenditure amounted to Rs59.9 billion, of which PSDP spending stood at Rs14.5 billion and overall budget deficit was recorded at Rs14.314 billion.

SINDH: Total revenue of the Sindh province amounted to Rs37.175 billion, of which Rs28.147 billion was provincial share to the federal government. Provincial taxes of the Sindh government stood at Rs4.75 billion.

Sindh's total expenditure was recorded at Rs31.382 billion. Its current expenditure amounted to Rs28.8 billion while development spending stood at Rs2.6 billion. As such, the province completed the first half of the year with a surplus of Rs5.7 billion.

NWFP: Total revenue of NWFP amounted to Rs18.298 billion, of which Rs10.3 billion was provincial share in the federal revenue. NWFP's provincial taxes amounted to Rs749 million.

The NWFP's total expenditure amounted to Rs16.7 billion at the end of first half of the fiscal year. Its current and development expenditure amounted to Rs14.757 billion and Rs1.817 billion, respectively. Its first half closed with a surplus of Rs1.725
billion.

BALOCHISTAN: Balochistan's total revenue during the first six months amounted to Rs10.95 billion, of which Rs7.5 billion went to the federal revenue. Provincial taxes amounted to Rs323 million.

Balochistan's total expenditure amounted to Rs12.745 billion, of which current expenditure was recorded at Rs10 billion. Development expenditure of the province amounted to Rs2.67 billion and its first half closed with a deficit of Rs1.795 billion.

(Daily Dawn 1 march 2004)

Borrow to fight poverty?

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By Sultan Ahmed

The very poor in Pakistan with no conventional collateral to borrow from bank seek micro-credit from the Khushhali Bank with its modest resources and rather exaggerated claims.

Pakistan seeks large loans from international financial institutions and donor states after partially mortgaging its sovereignty for the period of indebtedness. Both are common features of the developing countries in which the people and the government with very little savings are heavily indebted which hampers major financial initiatives.

The indebtedness of the people, particularly of the rural masses, has a long history with its varied abuses by the rich lenders, while the foreign borrowing of the state began almost 50 years ago with 1.2 million dollar aid from the US. Soon after that the Zeal-Pak Cement Factory was set up with a grant of just one million pound sterling from New Zealand. The Maple Leaf Cement factory with Canadian assistance followed with a larger capacity but it cost far more.

The million dollar aid over the years gave way cumulatively to a billion dollar aid a year and now the World Bank is reported to be offering 10 billion dollars over a period of time for major water projects.

President Musharraf is reported to have told the World Bank vice-president for South Asia that he would prefer 3.5 billion dollars for a short term but on the basis of the concessional aid of the IDA which charges only 0.7 per cent as service charge. Simultaneously Pakistan has decided to do away with the IMF credit after this year because of its harsh terms or humiliating conditions.

Initially we went to the financial institutions and bilateral donors for development assistance to the US and for defence assistance and distress aid from time to time. Lately we have been seeking such aid for poverty reduction. The more aid we get the more poor we seem to become, or the number of the very poor living below a dollar a day seems to increase. There is a clear disconnect here.

What has happened to our economic management over the years or decades --the more aid we get the more we need. The dependency syndrome is more like drug addiction. Ultimately the alarming stage was reached in the 1990s when the aid we were getting was being used to simply service the old debt, not so much to repay the principal but to pay the heavy interest on that.

One of the reasons for that has been the steady increase in population which exceeded three per cent and our tendency to consume more than what we produce, preferably through smuggling which deprived the state of its revenues, ranging from import duties to sales tax.

But now we are told by the secretary population planning that the population growth has come down to 1.96 per cent from 2.06 per cent and the allocation for population planning has been raised to Rs. 3.1 billion from Rs. 1.8 billion. Next year that will be Rs. 4 billion.

Since the campaign has been defedralized the provincial governments are making major headway. Even the tribal areas are in the lead, says the secretary population planning Shakil Durrani.

Let us hope these figures are correct and not the result of guess work or guesstimates.

In recent years we have been getting more and more aid from the World Bank and the Asian Development Bank which have promised annual assistance of a billion dollars each. At the same time we are not seeking short term credit from the IMF with its harsh conditionalities and imperious demands while the assistance is very small in monetary terms.

We have been relying more and more on the World Bank and Asian Development Bank for assistance in poverty reduction, while the current IMF programme is called Poverty Reduction and Growth Facility. But while the growth has improved and may exceed 5.3 per cent this year, poverty has also increased, according to varying estimates.

Can we really fight poverty relying on foreign aid loans even IDA credit given with a service charge of 0.7 per cent? Today the donors are said to suffer from aid fatigue or donor fatigue.

They have their own problems of large scale unemployment in their own countries which they are not able to combat. A country like Germany or France finds itself helpless in this regard. The periodic elections, including significant by-elections in their countries, make their political task tougher.

As a result the US external aid is around a dismal 0.2 per cent of its GDP. Compared to that the small Scandinavian states and the Netherlands contribute almost one per cent of their GNP as foreign aid.

Conscientious western leaders like Gordon Brown of Britain wants western aid to be increased in a big way but aid, others say, has no constituency in the western states during the elections.

Aid-receiving countries too provide valid reasons for such lack of enthusiasm for larger aid. The donors talk of excessive corruption in the developing countries which pulverises aid as well.

They talk of vast waste of aid. They talk of indecision on the part of the leaders of the developing countries on which they shelve aid. The Kalabagh Dam in Pakistan provides an example. Neither the large project is being abandoned nor executed. The donors do not like such an imroglio.

Prime Minister Zafarullah Jamali also says that corruption is the number one problem of Pakistan. But he would first concentrate on corruption at the higher levels than focus attention at the gross roots level.

But as for the people at the grass roots level they are more concerned with the corruption at their level or the officials they are dealing with, beginning with the cop and the court officials and even school teachers.

We have been told since the days of prime minister Nawaz Sharif that there is no corruption at the top. That is not a credible song as the people know better. The skeletons of the Nawaz Sharif regime prove that.

Before we seek external aid to combat poverty we should use our own resources in full to combat that. The government should come up with major infrastructure projects which provide employment to a large number of people. The honest and enlightened among the industrialists should be persuaded to invest more and more and financially assisted so that private sector employment avenues increase steadily.

And not only the Khushhali Bank but also other banks should be encouraged to lend to the poor instead of paying Rs 20 to Rs 30 lakhs as salaries to the top bankers to do conventional banking.

Some amount of money may be lost in the process. But the total of such losses will be small compared to the initial non-performing loans of Rs. 250 billion by lending to the very rich and the wilful defaulters who sent their money abroad.

The fact is that much of the aid, whether used in the urban or rural areas, has gone to the benefit of the rich and made the rich richer and the poor poorer. Investment on agricultural expansion has gone to enrich the rich farmers and not the small ones.

Who will benefit by the Rs. 70 billion to be spent in lining the canals? It will be the richer farmers and not the small land-holders who may still fight for their water from the landlords who control the mouth of the canals.

Former food minister Yusuf Talpur told a wheat conference convened by the World Bank in Islamabad; "Pakistan will become self-sufficient in food the day the tail-enders get water." That day may be far off because of the lasting dominance of the feudal lords.

The multilateral financial institutions say they will provide large aid or all the aid needed for the countries which truly carry on reforms in their economy. But in Pakistan the first significant thing which Mir Jamali said was that there would be no more land reforms. For that matter the feudal lords, who defeated the land reforms of Ayub Khan and Zulfikar Ali Bhutto would defeat the third round of reforms as well.

The famous Peruvian Economist Herneando De Soto talks of giving the titles of their land holdings to the poor and shanty town dwellers to create wealth and empower the poor. Will that help the poor and landless in Pakistan where most of the land is held by the feudal lords or the government or misappropriated by the middlemen?

If feudalism means some landlords owning large tracts of lands and employing some workers, that might not be so objectionable. But the feudal lords enjoy political dominance in their region and the local officials take their orders from them.

They prescribe the local social and cultural values. They hold large wedding and other ceremonies which are imitated by the poor peasants who become poorer in the process. And as a result of borrowing with heavy interest from their landlords they end up as bonded labour.

The feudal lords are opposed to educating their peasants or their children lest they become wiser and revolt. Their hold over their people is absolute and eternal.

Now instead of making the feudal lords elected from various areas serving their people, as they had promised before the elections, they are to be given large developments funds.

The elders of the family get development funds of Rs. 10 million if they are members of the National Assembly or Senate, and Rs. 5 million if they are members of the provincial assemblies. Not only the men of such families but also a large number of nominated women will get the funds.

In the name of development they can build roads leading to their farms or farm houses or to please other members of their families. Some build schools which later become guest houses or even cattle sheds.

Before such funds are released a study should be made as to how such development funds were used in the past. In the feudal lingo a school is something which is built in his rival's territory.

While we talk of the government spending more to create jobs, it is actually spending far less than it has publicly committed. The latest figures show that out of the official development outlay of Rs 160 billion for the current year the government has spent only 30 per cent during the first six months of the current year. That has happened in the past as well. Now that the same should be repeated when jobs have to be created urgently is too disappointing.

The donors are clear that if aid-recipients are to benefit by the aid, corruption should cease, the rule of laws should prevail and good governance become the norm. Along with that, administrative efficiency should increase and productivity of the economy rise steadily.

If these features do not become the norm, more aid will not help us fight poverty. Above all, aid will not reduce poverty if our own resources are not used in that direction instead of being wasted or put to less productive use.

Fighting poverty means more than providing food and shelter to the very poor. There should be social justice, rule of law and protection against the usual social injustice and infliction of pain on the poor.

(Daily Dawn, 26/02/2004)

A leapfrog strategy

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By Shahid Javed Burki

Having performed reasonably well over the last year and a half, could Pakistan increase its GDP growth rate by a notch or two over the next decade or so? Could the current rate of GDP increase, estimated at about 5.2 to 5.5 per cent over the last eighteen month period, increase to 7 to 8 per cent by the end of this decade? In other words, could Pakistan join the league of high performing countries in Asia?

This group includes not only the tiger economies of East Asia, some of which like Korea, Taiwan and Singapore have joined the ranks of the industrial countries in terms of the structure of their economies. The group also includes China - a country that has seen a rate of economic growth that can only be described as "breathless." And perhaps also India.

Since 1975, China's GDP has increased sixteen-fold - a rate of economic expansion that has no equal in human history. In 2003, its GDP increased by 9.1 per cent.

China today is an economic workhorse and, if the present trends continue, it is destined to become the world's largest economy over the next two decades. In terms of purchasing power parity, the size of the Chinese economy may outpace that of the United States by the year 2025.

With China galloping, the Indian economy has also begun to trot. Since about 1991 when the then administration of Prime Minister Narasimha Rao began to demolish what had come to be called the "licence raj," the Indian economy has built up a momentum of growth that is likely to be sustained well into the future.

Over the last dozen years, the India GDP has increased at an annual average rate of 5.5 per cent, about two and a half times the rate of increase in the country's population.

This means that an average Indian is about twice as well-off now as was the case in the early 1990s, the start of the current period of reforms. If this rate of growth is maintained for another two decades, India could become the world's third largest economy by 2025, behind the United States and China.

The question I want to address today is whether Pakistan could also become another rapidly growing Asian economy. My answer to this question is a simple one.

There is absolutely no reason why Pakistan should not, once again, be a high growth economy as it was in the 1960s and the 1980s. In those two decades, Pakistan's GDP increased at the annual rate of 6.7 and 6.3 per cent respectively, much higher than the growth rates in India during the same periods.

Those growth rates in Pakistan could not be sustained since they were based on exogenous factors, in particular the availability of enormous amounts of external capital. In other words, the process of growth was not internalized as was done by East Asia and China and is now being done by India.

It is only with the adoption of a clearly articulated strategy of growth and by finding domestic resources for sustaining it that Pakistan will be able to achieve its potential - which, I believe, is a GDP growth rate of 7 to 8 per cent a year. What should be the nature and content of this strategy?

Pakistan could follow one of the three models that have been tried successfully by the various Asian countries. The first of these is the model that produced the "miracle economies" of East Asia.

Also called "tigers" and "cubs," these economies essentially tapped the large export markets available in the industrial world. This strategy essentially duplicated what Japan had done in the 1950s and 1960s.

In following export led strategies, the industrial sectors in the miracle countries were guided by the state which identified areas into which they could expand. The industries that were being helped were almost always privately owned.

Nonetheless, the state not only helped industries identify markets abroad, it also got the financial sector to lend large amounts of money to the chosen industries at below market rates.

In the parlance of economics this was called "directed credit" - credit provided by banks to industries at the direction of the state. This connection between industry and finance proved remarkably successful but it also led to the financial crisis of 1997-98.

What came to be called "crony capitalism" worked for a while but had to be adjusted once the financial crisis exposed its weaknesses. This has been done successfully and the East Asians are back on the high growth trajectory - something few analysts expected at the peak of the crisis.

The other model that Pakistan could follow was pursued by China. It focused on developing the human resource by providing all people - boys and girls, men and women, and residents in all parts of the country - with free education and health.

This human resource development occurred in an environment of authoritarian management of the economy and of the political system. Either by design or purely because of pragmatism, the Chinese, starting in the 1970s, released the enormous energies of this well-educated and healthy labour by gradually loosening political and social controls they had placed on them.

First agriculture and then small scale and privately owned industries responded to these incentives. The rest, as they say, is history.

Then there is the Indian model. What is today known as the "Indian way" was not a well thought out strategy initially. In fact, the explicit Indian strategy for development adopted by the country's first generation of leaders achieved a result exactly the opposite to the one intended.

It constrained growth rather than accelerate it. In the period between the mid-fifties and the mid-eighties the Indian economy chugged along at what came to be called the "Hindu rate of growth" - a growth rate of some 3 to 3.5 per cent a year. The model being followed now is the product of a series of accidents and ad hoc decisions.

It has at its foundation Prime Minister Jawaharlal Nehru's decision taken in the 1950s to set up half a dozen institutes of technology. When these institutes began to produce thousands of engineers and science graduates, there were very few employment opportunities available within the state dominated, moribund, highly inefficient and stagnant industries.

A large number of graduates of the now famous IITs had to look outside India for jobs and they found thousands of them in the telecommunications, information and communication technology (ICT) industry in the West.

When, in the late 1990s and the era of dotcom explosion, the US industry ran into serious skill shortages, a significant part of this was met by labour imports from India.

Thus was created the Indian diaspora which in the 1980s and 1990s not only acquired great wealth but also considerable experience and expertise. Once the non-resident Indian community had become viable in terms of size, wealth, income, and expertise, it was able to help with the development of the ICT industry back in the homeland. Consequently, India's IT sector became one of the most vibrant in the world.

What we see in India today is an economy that is being pushed forward by skilled people and knowledge-intensive industries. India's policymakers are now confident that based on the recent transformation of the economy they will be able to get their country to climb onto the same growth trajectory on which China has been moving for a while. This, in sum, is the much applauded Indian model of economic success.

Looking at the future, but also looking back at the experience of the various successful Asian countries, what strategy should Pakistan follow? Islamabad has a menu of options available.

It could use private industry to aggressively enter the export sector, exploiting the abundant financial resources now available within the reformed financial sector.

This would mean going on the track previously travelled by the miracle economies of East Asia. But, unfortunately for Pakistan, there is not much synergy between the structure of Pakistan's industrial sector and the nature of demand in the world's large markets. Pakistan will not be able to duplicate the experience of East Asia.

Or, alternatively, Pakistan could invest massively in developing its large human resource by providing it with education, health and opportunities for skill development and knowledge accumulation.

Such a strategy could work if Pakistan had the resources but more importantly the political will. When China went on that track it saved about 42 per cent of its gross national income, a proportion about three times Pakistan's abysmally low saving rate of today.

China's human resource oriented strategy produced results after two generations - or at least a generation and a half - had been sacrificed for the sake of the future. Pakistan neither has the luxury of time nor the political will on the part of its leaders to take the country through such a grind.

Finally, Pakistan could follow the Indian approach of concentrating on the accumulation of skills and knowledge by one segment of the population. A small - small relatively to the size of the population but still numbering in the millions - highly skilled workforce could enter the growth niches available in the global markets.

This is the strategy adopted by the first administration of President Pervez Musharraf. It was championed with great energy by the then minister of science and technology, Dr. Atta ur Rahman. Unfortunately, it did not produce the promised results.

I would advocate, instead, an approach that draws a bit on the Indian experience but then moves onto an altogether different track. This two-pronged approach would still emphasize knowledge and skill development as India has done so successfully.

Based on a well equipped workforce, Pakistan could either export its abundant workforce or take part in the rapidly evolving "outsourcing" opportunities that are changing the global production system.

On the other track, Pakistan could become the hub of north-south and east-west commerce. The north-south track could link Central Asia, including Afghanistan with India and points beyond.

The east-west track could connect the western parts of China with the Arabian Sea through the ports of Karachi and Gwadur. These two tracks will cross in Pakistan and bring enormous benefits to the country.

For Pakistan to follow such a strategy, it will have to undertake large investments in improving physical infrastructure - roads, railways, ports and airports.

It will also need to develop its economy to supply this transit trade with the services it needs including insurance, finance, warehousing, processing, transshipment, etc. Modernization of the service sector that such a strategy would mean focusing on creating appropriate levels of skills within the country in a number of diverse areas.

What I have spelt out above is a strategy for sustained growth and development suitable for a country in Pakistan's situation. Pakistan could successfully exploit its large and young people to do work for the skill-short sectors in the western economies.

It could, at the same time, use its geography as a point of transit for two routes - new versions of the old Silk Route - that would allow commerce to flow from different parts of the world.

Following this two-pronged approach, Pakistan could leapfrog into the future without going through the paces of development followed by other Asian countries. But a great deal of thought and planning will need to be done to develop and implement this novel strategy. Is the Musharraf/Jamali government ready to do that?

(Daily Dawn, 17/02/2004)

Towards healthy environment

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By Dr Parvez Hassan

Newspaper headlines are replete with stories of critical environmental degradation of water, air and other life support systems. The enormity of our environmental degradation has reached every part of Pakistan.

Our forest cover, a lifeline to a healthy environment, is a dismal four per cent according to official claims, although even this figure seems exaggerated. Our rivers and canals are full of toxic chemicals and wastes discharged wantonly by our industries and municipalities. And, as these public waters reach our agricultural fields, the toxicity of the wastes enters the food chain.

The MV Tasman Spirit disaster was a grim reminder of the neglect of our marine environment and mangroves and our unpreparedness for the contingency of an oil spill.

Our population continues to increase exponentially, further burdening a depleting natural resource base. The vanishing wildlife habitats and pollution have challenged our important legacy of the nation's wildlife wealth. The indiscriminate fertilizer and pesticide use and their unregulated transportation and storage have also threatened our ecosystem.

The lack of the access to potable water to the majority of our population has proliferated water-borne diseases. Our urban metropolises are pitiable spectacles of air pollution, solid waste, squalor and poverty.

Even noise is beginning to be a major source of urban pollution. The result has been that environmental degradation affects every household, community, town and village in Pakistan.

How did we get to this abominable result? The answer is not simple but its genesis can be traced to unplanned economic growth and insensitivity to environmental factors in national priorities.

Thus, while nations have to industrialize to increase production and to provide economic activity for the benefit of its citizens, all this could be done with due regard to environmental factors.

Many societies have for long developed a mechanism of structuring their economic development on the foundational basis of an Environmental Impact Assessment (EIA).

This way, the harmful effects of a proposed project are pre-determined at the very initial stage of the project life cycle and this advance information can be factored to eliminate or reduce the harmful effects of economic and industrial activity through deploying technological innovations in the fields of pollution abatement equipment and treatment works.

While the Pakistan Environmental Protection Act of 1997 and the preceding Pakistan Environmental Protection Ordinance of 1983 provided for the requirement of filing an EIA before the establishment of projects in Pakistan, these provisions were never enforced because of lack of political will.

Lacking also was the professional and technical ability to conduct and evaluate such assessments owing to the non-availability of formal education in the field of environment.

Setting environmental quality standards for industrial emissions and effluents can make a difference only if the Environmental Protection Agencies (EPAs) have the laboratories and equipment and technical administrators to regulate such standards.

This can only be possible when there are proper educational opportunities for acquiring environment-specific skills in the sciences and other disciplines including management, law, economics and engineering.

Capacity building, through education, is Pakistan's foremost challenge in the growing environmental crisis.

Since the early 1990s, in order to develop an environmental mindset and to encourage environmental education in Pakistan, various efforts, though modest, have been made by the public and private educational institutions to start environmental education in higher, secondary and primary levels. But it is at the graduate and postgraduate levels in the universities that some initiatives are noteworthy.

The Pakistani alumni of the Asia-Pacific Centre of Environmental Law has catalyzed the development of environmental law in the country by starting post-graduate diploma classes in Punjab University Law College, Lahore, the Islamic International University, Islamabad, and the Peshawar University Law College, Peshawar.

Further, the Dr. Parvez Hassan Environmental Law Centre was established in 2003 at Punjab University to provide qualitative graduate and post-graduate environmental legal education. Kinnaird College for Women, Lahore, has also pioneered with post-graduate studies in environmental sciences.

The second equally compelling reason for our increasing environmental desolation is the lack of awareness of the importance of environmental protection.

It is crucial for the people of a country to be aware of the importance of a clean environment and, even if the national planners ordain a vision of sustainable development, this must be nurtured and facilitated for implementation through mass awareness.

The people must understand and support the importance of clean air, clean water and a healthy food chain. It is for this reason that it is imperative that environmental education is included in school and academic syllabi right from the beginning.

Starting from nursery to primary, middle and high schools, environmental education must also receive focus during university, graduate, and post-graduate education.

In the quest for environmental protection I have been involved since 1977. At that time, it was a lonely effort as there were no allies. However, over a period of time, one involved the media through the Pakistan Forum of Environmental Journalists.

In this lonely journey, I also sought the support of civil society. Over a period of time, this constituency has also proved responsive and we today see a lot of NGOs and other civil groups prioritizing environmental protection and sharing with the government responsibility on environmental issues and assisting in the implementation of environmental programmes at the grassroots level.

The next ally that I sought was the judiciary. Both the executive and the legislature have been largely unresponsive to environmental protection and I turned to the judiciary.

We achieved this in the Shehla Zia vs. Wapda case when, in 1994, the Supreme Court of Pakistan, in a direct petition against the construction of a high voltage grid station that could cause harm to the health of the residents of Islamabad, held that environmental rights are a part of the fundamental rights guaranteed by the Constitution. This judicial activism has been a great boon to our efforts and has spawned welcome environmental litigation all over the country.

While there may have been some successes with the media, civil society, and with the judiciary, where we have failed is in the matter of attracting the youth and the women of our country to support this great cause.

The progress of other developing countries, in fact of developed countries also, shows that no cause or movement can be successful unless it has the full support of the youth and women.

We must change our mindset to utilize our natural resources "in trust" for future generations and only with this new paradigm will we create the appropriate capacity to meet today the challenges of tomorrow.

(Daily Dawn 11 - 03 - 04)

Stress on social sector

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By Sultan Ahmed

The World Bank and the International Monetary Fund have asked Pakistan to spend far more on its development budget from next year. The current year's development outlay is Rs. 160 billion, while the actual spending, as usual, is not fast enough.

The international aid agencies are right in making such a demand as Pakistan is a developing country with 150 million people. Forty per cent of them live below the poverty line of one dollar a day, and prolonged unemployment is a major problem for them. Most of those who are newly employed are paid poorly as there is a large surplus of job-seekers.

When private sector's investment has been small for about ten years and foreign investment is smaller, such enhanced public sector investment is imperative. But the two agencies are wrong in demanding that the additional resources needed should be raised through new taxes.

There is already a loud outcry in the country against heavy taxation on some of the key sectors. Some of the taxes may not be too heavy but the overall number of taxes is very large.

And the major industries have been protesting against the over 40 taxes - federal, provincial and local - on them, and the vexatious procedures to pay them.

Finance Minister Shaukat Aziz had promised when he assumed office that the number of federal taxes would be reduced to three - income tax, customs duties and sales tax.

The informal or unorganized sector is paying too little taxes or evading too much. That sector needs to be taxed far more, and far larger revenues collected from the big fish in that flourishing sector.

The people do not see effective steps in that direction, and hence the big tax-evaders are able to flaunt their ill-gotten wealth and make a spectacular success of that to the fury of the have-nots.

While the government talks of its macro-economic stabilization achievements and its success in the external sector, the people are complaining bitterly of not being able to benefit from this success.

Contrary to that, unemployment is increasing, inflation is on the rise, beginning with the prices of basic food items. So, instead of getting any relief, the people are being subjected to additional taxation. But their protest will become sharper and they may resist the new taxes violently.

When the government came up with the 15 per cent sales tax on most of the goods and services it was billed as a kind of cure-all for the familiar tax evasion.

So soon after the GST was raised to 15 per cent the revenues from that source began exceeding the revenues from income tax in a big way. This year the revenues from the GST are to be Rs 223 billion while the revenues from income tax is estimated at Rs 154 billion.

Next year the target for the GST may be Rs 250 billion to Rs 300 billion as more goods and services are to be brought under the GST net. Surely if the government does not agree to the new taxes suggested by the aid agencies, they may press for a larger coverage for the GST by bringing more goods and services under that sweeping tax net.

The latest protest against heavy taxation is from the hotel industry which complains of 20 taxes on it - federal, provincial and local - even when the tourist arrivals are very low.

And while the government has given hoteliering the status of an industry, it is a 'C' class industry, and is denied the concessional rates given by the utilities to the industry, which makes hotel management too costly.

The automobile-makers have also been arguing they would be able to lower car prices if the heavy taxation on the industry is reduced. And that is a valid argument.

To make matters far worse, the salaries of the prime minister and ministers have been raised by 15 per cent, and that too with effect from July 1, 2003. Earlier the salaries of the president, the prime minister and the ministers were doubled.

The present enhancement in the ministers' emoluments would accrue to an increase of Rs 25,000 to Rs 35,000 per month as a result of the doubling of the house rent as well. Now even parliamentary secretaries with hardly any work load get a salary of Rs. 38,000 in all and are better off than former ministers. Financially the ministers have every reason to be merry, particularly when most of their expenses are met by the government.

This is the class of whom the late Dr. Mahbubul Haq had said that they are protected from taxation to the extent of 90 per cent and from inflation to the extent of 80 per cent for these emoluments plus additional perquisites we should be able to get hard-working ministers, but not if they are feudal lords as many of them are.

The judges of the Supreme Court and the high courts too benefit in the same manner so that they remain an integral part of the super-privileged class. The World Bank argues that the government could afford to spend far more on development as the budget deficit has come down to four per cent of the GDP - from 9 to 10 per cent in the earlier years. And the deficit would go down to 3.5 per cent from next year.

The aid agencies could also add that since the rates of interest in the country have come down sharply it could afford to borrow more and invest more on development, particularly on the much needed infrastructure.

But the first option for the government may not be borrowing far more for development, but collecting larger revenues by plugging the large revenue leaks. That is what the aid agencies and other donors had been stressing until recently, and coming up with the necessary financial assistance to organize revenue collection far better.

The World Bank came up with a Tax Administration Reform Project which is to cost 225 million dollars and the Bank is to provide 196 million dollars out of the total IDA credit of 225 million dollars at the concessional rate of 0.7 per cent as service charge for that purpose.

A task force was set up under the former vice-president of the World Bank Shahid Husain to suggest the means to collect full taxes. He said that 40 to 50 per cent of the tax dues of the government were evaded, and that should be and could be collected by the Central Board of Revenue.

But enough efforts are not being made in that direction. Instead the World Bank now suggests new taxes in addition to full collection of taxes.

While the government is too ready to double or treble the emoluments of the top persons in office, including the judges, why is it not taking adequate steps to check tax evasion and get hold of the derelict officials in the CBR ?

Is the government not acting adequately in that area as the tax-evaders are too powerful or the CBR officials are not resourceful enough and do not want to annoy the powers that be? For that matter, more taxes may means more avenues for the tax-evaders and more opportunities for the taxation officials to benefit by them?

Usually the higher the taxation, the larger the evasion and more widespread the corruption. That is all the more so in a country in which people do not get real returns from the government for the taxes they pay or even the deliveries from the utility agencies whom they pay under compulsion. Already the economic activities in the country have been reduced by the heavy sales tax of 15 per cent.

As consumption goes down in a low income country because of the high sales tax, production also goes down. It is true that consumer banking is on the increase and plenty of bank credit is available for that purpose. But that is more for the affluent class and not for the common man who finds the sales tax burden too heavy.

The World Bank can call for new taxes if all those in the government were paying full taxes. They do not pay it except tax on their basic salary. The perquisites which are costly like cars with free petrol and drivers are free of taxes. They have to pay for their food if they eat at home and for their clothes when they do not get them as gifts.

Such a ruling class which fattens its emoluments from time to time cannot levy heavy taxes on the people or impose new taxes from time to time. The enhanced emoluments which the ruling class has given to itself is not justified by the low official inflation of four per cent for this year and even low levels or inflation claimed earlier.

So either the inflation in reality is too high compared to the official claim or the persons in authority are giving themselves too much at the expense of the people, which is totally unwarranted.

Additional taxes are not advisable at a time when the government is exhorting the industrialists to invest more and telling the foreign investors to do likewise. They may discourage foreign participation in the privatization of larger projects to be placed on the auction block.

Earlier it was reported that the World Bank had offered ten billion dollars over a period of ten years for water and power sectors. The government has rejected that and said it would prefer a loan of 3.5 billion dollars as a short term deal and the assistance should be on the IDA term of a 0.7 per cent service charge with no interest payment to be made.

That, indeed, is proper. If the World Bank does not want Pakistan to add to its debt burden, such assistance should be forthcoming on the concessional IDA terms.

The government has done well to spurn World Bank's suggestion to levy new taxes. It knows very well that the people will not accept new taxes when the rulers themselves will be paying hardly any of those taxes.

But even if more resources are to be raised as loans on IDA's heavily concessional terms the assistance should be well used and the projects, except those in the social sector, should be able to raise enough returns from their incomes so as to repay the loans instead of taxing the people more and more for that purpose.

It is the worst form of economic management that the country has been under for decades that instead of the investment made using foreign loans generating surplus funds to repay the loans, the people have to be taxed heavily year after year to repay the loans, or often only to service the loans. That pattern has not changed over the years, and must change now.

World Bank loans, or for that matter the Asian Development Bank loans, should be treated more like commercial loans sought by businessmen who must earn by investing them to repay the loans.

As for the tax burden of the people, the rulers will be forced to realize that only if they, including the members of parliament and the judges, are paid clean salaries and taxed like anyone else, that may mean higher salaries, but that is far better than the present arrangement under which the rulers are largely exempt from taxation and greatly shielded from inflation.

P.S. The latest report by CBR chief Riaz Malik says revenue collection for the first eight months of this fiscal year ending February was 14.8 per cent higher than what it was in the same period last year.

And last year itself had marked a record collection of Rs. 460 billion. It was the first year in which the budgeted revenue was collected in full and the target was not scaled down again and again as in the past. Evidently such a bright fiscal picture bars the need for new taxes and newer complications and public protests. 

(Daily Dawn, 10-03-04)

ISLAMABAD, April 26: The World Bank and the Asian Development Bank (ADB) will jointly offer $800 million to Pakistan to help undertake a five-year 'Mega City Renewal Programme' to rehabilitate four main cities of the country.

"Karachi, Lahore, Rawalpindi and Peshawar are decaying and the World Bank and the ADB have agreed to help stop the running down of these important cities by extending roughly $700 million to $800 million," said ADB Country Director Mr Marshuk Ali Shah.
Talking to Dawn on Monday, he said as a first step Karachi and Lahore will be given importance for their early rehabilitation. He regretted that the infrastructure of these four cities was in a bad shape which needed to be urgently restored. "But Peshawar is in worst shape," he observed.

He said that both the donor agencies would soon be holding high level talks with the government officials to first finalize an 'action plan' for the rehabilitation of the four cities.
He did not rule out the possibility of extending financial assistance by donor agencies to also help rehabilitate other cities of Pakistan. Mr Shah said the action plan would aim at removing air pollution and rehabilitating roads and important buildings.

Likewise, he said, new building codes would be framed for these cities so that their decaying pace could be decelerated. "The whole system is breaking apart in cities and that is why we would also be finalizing details with the federal and provincial authorities on how to help improve water supply, sewerage, sanitation and solid waste management of these four cities," the ADB country director said.

Responding to a question, he said that preparations for the rehabilitation of Karachi, Lahore, Rawalpindi and Peshawar will start from next year and that physical work was also expected to be started from 2005. He said the federal and the provincial governments would have to show their commitment and ownership for the mega city rehabilitation programme.

(Daily Dawn 27/04/04)

Environmental Defense and ADBwatch today released a study estimating at least 70% of Asian Development Bank (ADB) funded projects in Indonesia, Pakistan, and Sri Lanka fail to produce lasting economic or social benefits. The report, The Asian Development Bank: In Its Own Words (available at www.environmentaldefense.org/go/adb), is based on publicly available ADB Operations Evaluation Department (OED) audit documents, and comes as NGO (non-governmental organization) representatives from around the world gather in Manila this week for the annual meeting of the NGO Forum on the ADB. NGOs have called for urgent and far-reaching reforms of the Bank, including "the full and unconditional cancellation of illegitimate debts."

"Without drastic reform measures, it is clear that the ADB will continue to be an engine for economic failure, environmental destruction, and growing social and political instability throughout the Asia-Pacific region," said Environmental Defense senior scientist Stephanie Fried, one of the co-authors of the study. "Donors have a responsibility to hold the institution to account for this disturbing record," said co-author and Environmental Defense policy analyst Shannon Lawrence.

For Details: www.environmentaldefense.org

ADB-funded project in Sindh

Sarah Siddiqi
Creed, Karachi

The Sindh government has yet again agreed to get into hundreds of millions of more debt with the Asian Development Bank. Had the government been more active in organizing public debate and discussions, perhaps it would have been convinced that there is no need of external debt, and that such debts are not cost-effective, promote corruption, and hence add to the burden of the citizens.

The government still has an opportunity to reject the loan by not complying with the conditions (as it did with regard to the dubious Korangi Wastewater Project some years ago).

One hopes that the government will give this suggestion serious consideration. Since the Sindh government may have little discretion in the face of pressure from Islamabad and Manila, making the best of a bad situation could be to ensure minimal use of the loan funds and to use the funds effectively.

We, the Citizens Alliance in Reforms for Equitable and Efficient Development (Creed), have had a first look at some aspects of the DSSP loan taken from the Asian Development Bank.

Our impression is that the loan permits substantial unjustifiable expenditure such as luxury vehicles for government officials and donors, inflated salaries for civil servants and massive consultancies to bribe the civil society and pamper international friends of donors. There is also confusion about the responsibilities of the finance department, special project units and their internal and public accountability.

Public representatives in general and senior political leadership in particular need to nurture informed debate to prevent foreign loans from becoming another burden on the poor.

(Daily Dawn 09/07/2004)

By Noman Ahmed

The multilateral Asian Development Bank (ADB) has offered several attractive packages for different development sectors.

In addition, it announced a three-year (2005-2007) Rs. 12.6 billion funding programme for Pakistan to help improve the country's ageing infrastructure and assistance to few social sectors in dire straits.

On the face of it, this approach of addressing development issues seem to be very attractive. However this is not the first time that the ADB has decided to support the country. Many a programmes and projects of high funding have been undertaken in the past.

And unfortunately very few have been able to contribute in any meaningful manner to the sector or area in question. According to a recent research study conducted by two research organizations, Environmental Defence and ADB Watch, the results do not match with the project/programme plans. Most of these outcomes are verified through ADB's own records.

Pakistan has been one of the biggest borrower from the ADB, second only to Indonesia. Due to its current geo-political status granted by the US, the donors are all too happy to extend a high volume of credit.

Thus the ADB has earmarked $ 2.4 billion to be released between 2003 and 2005. This aspect must be considered that Pakistan is not yet totally out of debt trap, as is casually potrayed by the regime. In 2002, Pakistan had $ 32 billion as the overall external debt.

Of this value, $ 8 billion were owed to the World Bank while $ 6.5 billion to the ADB. If one goes by the findings of internal auditors of the ADB who claim to find 40 percent of the projects as completely unsuccessful, then $ 2.6 billion went down the drain. This figure corresponds to the ADB lending only. What happened to other donors funded projects including the World Bank may be any body's guess.

According to the data released by the Operations and Evaluation Department of the ADB, Pakistan received 217 loans for projects in different sectors. Some of these projects were rated as successful.

For instance in the case of 'Second On-Farm Management Project', the bank auditors reported success despite a few flaws that were observed. This project was focused to increase the overall productivity, employment opportunities and income level of various locations in southern Punjab such as Rajanpur, Muzzaffargarh and DG Khan.

It successfully dealt with the issues of water logging and salinity which had caused a great deal of harm to the local communities. Out of an allocated $ 28.5 million, it utilized $ 27.6 million.

Some other success ratings included South Rohri Fresh Ground Water Irrigation Project and Balochistan Fisheries Development Project. Unsuccessful project included Faisalabad Water Supply and Sewerage Project and Karachi Urban Development Project.

In the views of the auditors, the project planning did not involve the potential beneficiaries of these projects. Several design flaws were also apparent such as lack of proper sewerage treatment options in KUDP and incongruent volume calculations in the case of Faisalabad project.

Sustainability remained a constrained parameter especially in the laying of locality scale infrastructure. The ADB invested in many development sectors including agriculture, education, health, urban development, water supply and sanitation and finance.

While education and health care may be considered as partly successful, water and sanitation as well as urban development were reported to be unsuccessful. Project design shortcomings, absence of stakeholders' participation, cost overruns, time losses and negative environmental impacts were some reasons outlined through studies.

Lack of a scientific performance indicators also cause ambiguities. It may also be noted that these studies have been done by the banks department through their own procedures.

There may be many independent researches done by various organizations from different perspectives. It will be worth while to analyse feedback from each of such studies to obtain a balanced conclusion.

Support by donor agencies, both through their own programmes or through requests and submissions of proposals, need to be assessed very carefully. There are several ground realities in the development sectors which can not be denied.

One, the magnitude and number of development projects that require to be undertaken on a priority basis are sizeable. They are not at all commensurate to the locally/nationally allocated development funds.

Two, non-availability of adequate funds is not the whole issue. In many cases, institutional capacity, technical and managerial resources are also not locally available.

In such a situation, only money cannot bring about the desired results. Dollars can surely create a good fishing net for skilled fisherman - not the fisherman himself!

Three, donor agencies are the organizations that function independent of the recipient countries. Their ultimate target is to have an impressive record or annual report fulfilling their own criteria. It is not necessary that their objectives and approach would always match with the countries in need of development finances.

Four, donor agencies are controlled by the lone super power and the industrialized countries that lend the capital for disbursement. It is obvious that they shall have the right to prevail under most situations, if not all. And five, the administrations and governments that negotiate with such agencies have their own ulterior motives. In most situations, the concerned officials are aware about impending failure of a project or programme funded by a donor.

Yet they still go ahead for reasons of their own. Personal gains, obtaining a few cheap stints to seek popularity and clandestine linkages with donor agencies for future sojourns sometime evolve into incestuous relationships. Episode of a privatization attempt involving a public water utility in 1995-96 is an example.

A rational approach towards the multitude of developmental problems can evolve through considering few pre-requisites. Foremost issue to be tackled is about institutional strengthening through local means.

This implies that different tiers of administrations must become technically competent and sound in management practices towards their routine working. Basic tasks such as need analysis, organizing and analyzing baseline information, planning and project design are few areas where human resources need to be mobilized.

Secondly, the potential affectees of every project must be involved with the process at every stage of work. Theoretically, with a three tier governmental system, this is achievable.

It must be understood that stakeholders' involvement is a political process. It must be allowed to take root positively. And thirdly, lessons learnt from the past experiences must be considered before making the next move. It shall amount to a most unfortunate situation if a failed project or programme is repeated without any modification in its design and procedure application.

(Daily Dawn 12/07/2004)

(The writer is a staff member The News, 14 June 2004, imtiazalampak@yahoo.com)

By Sher Baz Khan

Pakistan is the most urban country in South Asia as 32 per cent of its rural population has so far moved to urban areas, posing daunting challenges of housing, environment and employment and putting extra burden on urban infrastructure and social services, reveals a UN report.

The report, which has been prepared by the United Nations Population Fund (UNFPA), presents a situation analysis of Pakistan's current demographic and socio-economic environment and the recent efforts of the government towards structured adjustment in various sectors.

The report shows that 24 per cent of urban growth in Pakistan can be attributed to migration including international migration with influx of Bangladeshis, two to three million other illegal entrants and as many as three million Afghan refugees. While the overall natural increase in urban areas remains 2.6 per cent. Pakistan's population is likely to reach 220 million by the year 2020.

As 33 per cent of the country's population is living in urban areas, the urban population has registered a higher growth rate of 3.5 per cent with an increasing demand for basic civil and social amenities. About 50 per cent of the total population lives in one-room houses, with inadequate access to sanitation and sewerage facilities, according to the report.

Urban population, the report says, has grown over seven times from about 6 million in 1951 to about 34 million in 1998. However, the provision of basic amenities in urban areas has not kept pace with the growing urban population, adding to a host of problems through the increasing slums in cities and townships.

Urban poverty exists and itself is a breeding ground for many social problems including drug and child abuses, HIV/AIDS and sexually transmitted infections (STIs). According to the report, the rise in urban population, as a result of population growth and rural-to-urban migration, has increased pressure on urban infrastructure and social services.

Besides, overcrowding and air pollution has increased markedly as a result of vehicular emissions and industrial pollution. Pakistan, the report says, is also confronting the deforestation issue as only 5 per cent of its total land area is under forest.

Similarly, the adverse effects of unplanned urban growth, lack of implementation of quality standards for industrial pollution and lack of defined property rights are contributing to environmental degradation in the country.

The report has also highlighted the three main aspects of migration in Pakistan including inter-provincial, rural-to-urban and international. About internal migration, the report reveals that the number of persons who migrated during the ten years preceding the 1998 Census was estimated at 4 million, over two third of those "recent" migrants settled in urban areas, where they constitute 6.3 per cent of the population. Urban areas of all the four provinces combined had 5 to 6 per cent of their population classified as "recent migrants".

In the rural areas of Punjab, the percentage of recent migrants was about twice that of the other three provinces, which suggests that in Punjab rural-to-rural migration is more prevalent.

Since 1950s, Sindh has been receiving migrants who have mainly originated in Punjab and NWFP provinces. Over 70 per cent of the migrants in Sindh had originated outside the province whereas about 60 per cent of the migrants who originated in the Punjab and the NWFP migrated within the provinces.

The report also highlights uneven distribution of population among the provinces. Balochistan, which contains about 44 per cent of the land mass, has only five per cent of the country's population and has a density of 19 persons per square kilometre. Punjab, on the other hand, contains 55 per cent of the total population, with only one fourth of the total land area of the country.

(Daily Dawn, 11 October 2004)

Frustrated with what state offers in a violence-plagued city, Karachiites have started coming up with solutions of their own. For most others, survival remains the only concern

By Ammara Durrani

By Azfar-ul-Ashfaque

By Meer Muhammad Parhiar

Dependence on agriculture of rural people could not make any improvement in their economy. On the contrary shortage of water, dry spell cycle, decrease in cultivable area due to soil deterioration, extension of towns and villages , contraction of infrastructure, rising cost of inputs, non-availability of high yield quality varieties seeds to small farmers, un-checked population growth, etc, have together adversely affected the lives of rural people.

The people in such situation seek way of survival in other occupations or move to cities where there is already saturation. Industrialization in the interior could have absorbed the unemployed.

But the damage caused by nationalization and bad law and order shall take time to restore confidence of the investors to establish new units. The pressure could have been relieved had small scale, cottage and agro-based industries received adequate attention.

For such industries the foremost requirement is imparting of skills and availability of resources. Vocational and technical training centres and such other institutions have either been closed or their performance no more attracts parents to send their children to such institutions.

Industrial estates in each district headquarters and industrial parks in selected taluka headquarters were established with much publicity and promises but very few estates eventually took off and those too could not utilize the available capacity. Thus, the efforts of the governments to create employment opportunities at local level failed to bear fruits.

In the mid-80's, the government launched a programme for the uplift of the arid zone. In Sindh, the Sindh Arid Zone Development Authority (SAZDA) was created with regional offices at Sehwan, Mithi and Khairpur.

Social services and development activities were brought under one roof to ensure effective coordinatory and supervisory role. But it was hijacked by vested groups and now it is virtually dead due to administrative and financial mismanagement.

The population growth may be one of the reason for low level of living standards. Population registers growth rate due to declining death rate which has further added to the miseries to sick and their families due to inadequate or expensive medical cover, which the common man cannot afford, the victims have become social and financial liability for the family.

The fact that billions of rupees have been pumped into the rural sector by various governments, but ground realities are bitterly disappointing when compared with the quantum of funds spent. The concept project performance evaluation specially in mega projects seems to have been ignored. The trend of over-estimation is the normal phenomena.

In the recent past a committee formed by Muhammadmain Soomro, the then Governor of Sindh, in one of the mega projects in rural road sector reviewed the rates incorporated in the PC-1 by the project engineers and detected overestimation of two billion rupees, in addition to two billion rupees saving at the stage of rechecking of PC-1 prior to submitting to P&D Department.

Thus rupees four billion would have gone down the drain, had the then governor not played his timely role. Whether consensus decision of the committee would be incorporated by way of modification in PC-I is an other issue.

This is just the tip of the iceberg, in one case of analysis where the game of technicalities and inflated rates by the consultant and project engineers has come on surface.

The aggravation of law and order situation in the interior of Sindh in early eighties gave free passage to the functionaries at local level to play havoc with development projects as could be seen from bad quality of works and full payment of incomplete works.

Similarly, remote monitoring on the pretext of fear of decoits, which in may areas did not exist, caused irreparable loss to quality of services and destruction of forests.

The mental and moral grooming of an individual is possible with education of standard. Unfortunately, rural children have rare access to this facility. The poor level of education has produced educated illiterates.

On the other hand studies have shown that of the two sons, the uneducated has proved to be an asset for the parents who does any kind of job to support the family, whereas the educated youth has turned out to be a liability as he refuses to work in the field or do any manual job for the fear of changing the texture of his soft hands.

The frustration and sense of deprivations through which our so-called educated rural youth is passing has given rise to psychological and social problems. Rising trend of suicide in youth, addiction to drugs and involvement in crime and other social evils are the living examples.

Rural women folk do all kinds of work. Wemen,s day begins at predawn with crunching, if the family is lucky to have cattle and end up by taking leftover bites of bread of bowl of porridge.

Their traditional role of housekeeping has extended to collect fire wood, fodder work on farms. The social taboos ignorance, financial constraints, inadequate education facilities and non-availability of lady teachers in rural girls schools have not opened the doors of literacy for them.

Like males the treatment of ailments which may be apparent symptoms of chronic diseases is found in taking cheap pain relieving tables and if pocket allows, administration of drip is considered to be panacea for any illness.

The apathy of the inhabitants of rural population may partly be attributed to the centuries-old system. But the planners, technocrats, executives and monitors cannot claim exclusivity.

They are required to play the role of critical examination of any project concept with regard to feasibility and viability of the project, analysis, design and estimates, quality of work and better services. The issues which are required to be addressed are summarized as follows:-

The scope of SAZDA be limited to agriculture, afforest-ration (especially drought resisting breading indigenous plants or successfully experimented in other regions of the same soil texture and climate, water and cattle health services. The emphasis should be on research and demonstration plots and training.

The closed vocational and technical training centres should be revived with the facility of computer training. Similarly the performance of technical training institutes and close monitoring to ensure discipline and quality education is required.

The small scale industrial sector, which requires less fixed capital investment uses indigenous technology and raw material but generate more employment opportunities, thus helps to reduce migration to cities, should be encouraged.

The scarcity of skilled people in rural areas and whatever skill they have are of poor quality and hardly suited to market demands. Hence there is need to start crash training programmes. The ignored huge training complex in mining occupation at Lakhra need to be activated. The human resource development programmes should be given top priority.

The concept of accountability be initiated at the stage of preparation of PC-I by committees comprising officials with sound technical and comparatively good reputation in respective department, qualified men from public and private sector e.g. engineering universities, Pakistan engineering council, institute of engineers be associated in the committees, which should also monitor quality of works.

Population control should be top priority. It requires special attention because the factors which contribute to birth control, such as education among women folk, employment outside home, opportunities for enjoying leisure, greater social mobility are comparatively few.

The gigantic task can not be achieved through electronic or print media, sign boards and posters at public places alone because the population to whom this message is addressed is either illiterate or does not have access to electronic media and rarely visits towns.

The disease of hepatitis and TB are on the rise amongst the poor. Polio has not been fully eradicated despite large expenditure. Daily intake of calories is inadequate. Majority are deprived of clean water facility.

Treatment of hepatitis and TB, if not detected at early stage, is costly as well as of long duration which common man cannot afford. Resultantly a victim becomes a source of spreading this disease to other members in the family.

The performance of the officials of the EPI and other health projects require detailed review in order to learnand improvement. Review is required of big projects in education, agriculture, irrigation, forestry, fisheries, coastal development, social services and infrastructure sector.

The role of NGOs in women enlightenment and empowerment issues has not extended beyond cities and suburbs. In certain cases they may have been able to reach selected villages, but practically it will be difficult for them to cover the whole country.

The concerned government agencies have, therefore, to play their role effectively. Every year billions of rupees are allocated for social services but what share of these reaches the poor is the main issue.

Percentage of funds earmarked for construction or maintenance actually spent on site and quality of works will not be achieved without breaking the nexus of consultants engineers and contractors who are the real beneficiaries. Here lies a challenge for mentors, managers and monitors.

(Daily Dawn, 26/04/04)

(The writer is the Secretary, Food, Sindh Government.)

With forex reserves of over $12 billion, Pakistan would not need balance of payments support after the current three-year IMF Poverty Reduction and Growth Facility programme ends next month.

Officials are firm that they would not seek any new loan from the Fund though the shining external sector of the economy is losing some of its gloss. Instead economic managers are looking for enhanced volume of soft developmental loans from other international financial institutions and stepped up bilateral official assistance from industrialized states.

Even, the new multilateral and bilateral loans created in fiscal 2003-04 for building badly needed infrastructure are more than double the private foreign investment officially put at $950 million.

Efforts are being made to improve governance to ensure that foreign aid is absorbed quickly and investments yield enough returns to repay loans and avoid pitfalls that earlier led Pakistan to a debt trap. The capacity building of the administration is being enhanced and training of civil servants is being undertaken with the World Bank's assistance.

Presently, there is a big time lag in pledge, commitment, disbursements and actual utilization of foreign loans. Projects funded by external debt take more time to be implemented than those locally financed.

The delay leads to cost over-runs including payments of commitment charges to the lenders on non- utilized money. Hence, all commercial contracts under the World Bank loans have a provision for adjustments in inflation-adjusted costs.

Despite so much rhetorics about transparency, the huge commitment charges for loans and credits in the pipeline and the premium that is paid to the lenders on pre-payments of loans is not disclosed.

Credit for whatever transparency is evident on the domestic economic scene goes to the international lending agencies. It is time for the World Bank and the Asian Development Bank to take the initiative to reveal the commitment charges they receive from the government on non-utilized funds so as to build pressure for early execution of projects.

Addressing the 2004 annual meetings of the World Bank and the IMF last week in Washington, Dr Salman Shah, Advisor to the Prime Minister on Finance and Economic Affairs sought "substantially much bigger envelope" from the World Bank group including the IDA, the IFC and the MIGA to "sustain the momentum going into the second generation of reforms."

The government is seeking $872 million project assistance from the World Bank for fiscal 2004-2005 but Dr Salman Shah wants the WB group to" mobilize substantial incremental resources".

The State Bank figures show that disbursement of foreign economic assistance during July-April 2004 declined by 25.7 per cent to $719 million mainly because of sharp contraction of assistance including project aid from the World Bank and the Asian Development Bank.

Incidentally, the World Bank has just announced $300 million Poverty Reduction and Support Credit for improving governance and investing in human capital development; to empower the vulnerable/marginalized and to bring them in the mainstream of economic development.

The PM's advisor on finance also laments the negative transfer of official resources from the multilateral development financial institutions to their borrowers. Net disbursements have turned negative in case of the World Bank group in the last two years at a time when there are enormous needs for infrastructure finance and other capital investments in their client countries.

Official figures show that during 2000-04 the total debt, principal and interest payments, by Pakistan exceeded by over a billion dollars disbursement of all official grants and loans (public and publicly guaranteed loans).

Pakistan is seeking water project funding from the World Bank. Press reports indicate that a proposal of $5 billion loan for a period 7-8 years may soon crystallize. Economic managers were recently seeking loans ranging between $20-25 billion.

However, the Asian Development Bank has raised lending by a quarter billion dollars to $1.96 billion for infrastructure development for two years 2005 and 2006. It follows the pre- payment of $1.17 billion debt in January this year to ADB under the official policy to retire expensive debts.

Dr Salman Shah is also not satisfied with the level of official development assistance (ODA) by industrialized states. As the developing countries continue to strengthen their macro- economic framework and deepen the process of painful structural reforms, he regrets that "ODA levels have increased only marginally" and are stuck around $50 billion.

The ODA target of 0.7 per cent of the GNP of developed countries, set 34 years ago, has not been met. The current financial gap estimated at $50 billion in meeting the Millennium Development Goals by 2015 remains unbridged.

Pakistan's external debts, though still high, has declined appreciably as a proportion of GDP as a result of debt re-profiling, low interest rates and repayment of some of the expensive public and private sector debts.

In fiscal 2003, $1 billion of debt was written off by the United States. Officials say that this has enhanced their capacity to borrow. It also indicates a growing appetite for foreign loans.

Yet, the Standard and Poor sees Pakistan's debt/GDP ratio as among the worst for all rated sovereigns. As on March 2004, the public and publicly guaranteed debt was $30.185 billion against $28.3 billion at the end of June 1999.

Social Policy and Development Centre estimates that a new debt of at least over $2 billion was created in fiscal 2003-04 as is evident from the rise in public sector borrowings/government guaranteed loans by $0.95 billion over the year despite early payment of $1.17 billion debt to the ADB.

The debt office in the ministry of finance plans to retire $4.5 billion of expensive debt to the World Bank, the IMF and the Asian Development Bank: another $1.5 billion in FY2005 and $2 billion in FY 2006.

The WB has also asked Pakistan to improve its debt management by setting up an independent and separate debt office for timely risk assessment and risk management. Pakistan is one of the 12 countries which has been selected by the WB to a detailed evaluation of debt management practices and institutional arrangements.

The World Bank decision follows a number of risks to Pakistan's external sector which is emerging from global economic and fiscal developments. The movement towards the higher interest rate means costlier loans. It has also implications for the private capital flows to the periphery countries like Pakistan.

Among the medium-term risks, Dr Salman Shah told the IMF/WB annual meeting, perhaps the most significant is the perverse direction of official capital flows, in the form of accumulating dollar reserves, that is the counterpart of growing US external and fiscal imbalances.

The large and persistent payments imbalances in major industrialized countries create risks of disorderly exchange rate and interest rate movements; together these factors generate a high degree of uncertainty that is inimical to the prospects for investment revival in several regions of the world.

No less important for the private sector led sustainable growth and poverty reduction in the developing world is the issue of market access. Unless the developed world allows market access and reduces significantly trade-distorting subsidies, developing countries would continue to be vulnerable to debt crisis.

Dr Salman Shah laments that the needed level of official development assistance is not forthcoming. Market access is denied. Much of the promises which the developed world makes to the developing countries remain unfulfilled. It is rhetoric par excellence.

(Daily Dawn, 11/10/04)

The answer is no. All the circumstantial evidence shows that it must not be rising any more and even perhaps falling. It is widely believed that economic growth measured in terms of GDP growth is directly related to poverty reduction.

In other words, higher growth of GDP, more often than not, helps to lessen poverty. GDP growth, therefore, has in general a strong relationship with poverty level in any country.

However, in case of Pakistan, if we look at its economic history, GDP growth is neither necessary nor sufficient condition to combat poverty. We will turn to this point later in the discussion in more detail.

A quick look at the studies conducted in the recent past on the level and pattern of poverty in Pakistan carried out by the government, its development partners, or by independent research institutes and individuals indicates that there is a general consensus on one point and that is that poverty has risen between 1998/99 and 2001/02.

The main reason cited for this rise in poverty is the falling GDP growth rates during this period. The driving factor behind declining GDP growth was the negative growth in the agriculture sector in 2000-01.

Agriculture accounts for a third of the economy, the fall in agriculture sector growth in turn was caused mainly by severe droughts in the country during that period. Now if the GDP growth rate is following a rising trend ever since 2000-01 and it has crossed 6 percentage points in 2003-04 from 2.2 percent in 2000-01 then it is quite likely that the poverty must have gone down following the argument that GDP growth has direct bearing on poverty reduction.

Economic development in Pakistan, though external assistance driven, had a promising start right from the early 1950s. Pakistan was among the world's largest recipients of official development assistance from the very early years (1950s).

The growth in per capita income was slightly over 2 percent on average, which tripled per capita income between 1950 and 1999, thereby causing substantial decline in poverty.

Compared to many similar economies this was quite an achievement but compared to many other countries such as those in South East Asia, which were at the same level of development as Pakistan was in 1950s, it is much below than what they have achieved. More importantly, it is much below the actual potential of the country.

A number of things went the way they shouldn't have gone. More seriously perhaps, pervasive and deep problems of governance, growing public spending on defense and other unproductive programmes, and insufficient focus on human development eroded the country's institutions, weakened economic management and created an increasingly unfavourable investment climate.

Continuous interventions by the political governments in the military rule also hampered the achievement of full potential of the country in economic development.

In the 1990s high degree of political uncertainty, external shocks and exogenous factors compounded these problems. However, the level of poverty in the country did not appreciably changed in the ten years preceding 1999, despite having fallen in the previous ten years.

If we compare the living standard of some sections of our society with their counterparts in countries at similar level of development we find that the educated and well off urban population of Pakistan lives not so differently from their counterparts in other countries of similar income range.

In fact in many cases they are better off and look more affluent. Poverty, therefore, is predominantly a rural issue in Pakistan. The rural poor are left behind. Internal differences in poverty and human development have not only persisted over time, but have widened among regions, between rural and urban areas and between men and woman.

This is shown by many social indicators, since bulk of the population in Pakistan (about 70 percent) lives is rural areas and is associated with agriculture sector. Unless these indicators are sharply improved Pakistan will fall further below other countries.

Pakistan's social indicators are ranked among the lowest in the world, be it infant mortality, life expectancy, female primary and secondary enrollment, or access to clean drinking water and sanitation etc.

A major effort to address these issues was initiated in the 1990s and attention was paid to improve public sector social service provision through a long-term (eight years) Social Action Program (the SAP). But this programme miserably failed and was not able to achieve its targets on a number of focus areas mainly due to bad governance, poor monitoring, and no or very little evaluation.

During the last 4-5 years, the government embarked upon a wide-ranging structural reforms programme to spur economic growth, which has brought about macroeconomic stability.

Arguably, the most important example of restructuring is the devolution initiative, which, if and when successfully implemented, holds promise for improved access to critical public services for the poor.

In addition the Poverty Reduction Strategy Paper (PRSP) prepared by the government highlights needed improvements in education, health, and water sources.

The other welcome steps taken by the government include two major initiatives - Khushal Pakistan, a comprehensive poverty intervention, and Khushali Bank (a micro credit bank) - as nation wide efforts to address poverty and vulnerability. Social inclusion and ownership of the efforts to combat poverty can play a very vital role in eradicating poverty from the country.

These reforms have helped in transforming the Pakistani economy from highly regulated to a more open, market oriented economy. This has created an energetic private sector which had expended its role to finance, power sector, social sector, and to improve the country's macroeconomic fundamentals.

Despite a series of domestic and external shocks such as unprecedented drought, the events of 9/11, regional tension etc. these efforts have yielded impressive results. The economy of the country has taken a strategic turn around and the real GDP after hovering around 3 percent for quite some time grew by 5.1 percent in 2002-03 and by more than 6 percent in 2003-04.

This high growth in GDP is not dependent on only one or two sector's better performance but it is based on wide ranging and diversified corrective measures taken by the government during this period.

As shown in the table, industrial production grew by almost 9 percent as against an average of 3 percent in the 1990s; agriculture sector grew by 4.1 percent against around 2 percent in the same period; inflation was 3.1 percent against more than 10 percent on average during the 1990s; etc. (see table).

More importantly, external debt as percentage of foreign exchange earnings has declined sharply from as high as 335 percent in 1998-99 to 170 percent in 2002-03. In the absence of any comprehensive household survey, like the PIHS, for recent years it is difficult to ascertain whether the poverty has risen or not during the last 3-4 years. However, all the macroeconomic factors that can be used as a proxy, indicate that poverty situation must have improved during this period.

Although, we have examples of periods in the economic history of Pakistan when internationally believed phenomenon that GDP growth has direct bearing on poverty reduction did not hold.

For example in the 1960s even with higher GDP growth rates the poverty was on the rise. On the other hand in the 1970s when the country was facing devastating floods year after the year and the resultant growth in the GDP was very low the poverty index witnessed a declining trend.

This was made possible by more focused and better distribution of limited resources and more importantly by creating more employment. The experience of these two decades clearly points to the fact that by looking just at the GDP growth rates it is difficult to conclude which way the poverty may go, in case of Pakistan.

One has to go beyond the GDP growth rates and analyze the composition and distribution of incremental resources, whether they are concentrated in few hands, like in the 1960s or they are widely spread across various sections of the society.

One thing which, however, is clear is that the political will plays an important role in addressing the issue of poverty. It could be both necessary as well as sufficient condition to address poverty problem.

If the political will is there then even with the poor economic growth and natural calamity, just with mere better distribution of available resources and more focused approach, the menace of poverty can be successfully challenged and reduced. Political will, however, is inversely related to the size of the government and the cabinet as governance becomes the overriding factor.

(Daily Dawn, 11/10/04)

Thar coal and poverty reduction

By Dr Mustaghis-ur-Rahman

Socio-economic development society is the prime duty of the state in resource-constrained countries like Pakistan, Bangladesh, India, Nepal and Bhutan. This can be achieved by participation of all segments of the society. The limited capabilities of the governments have made it difficult to respond effectively to the growing needs of population at grass roots level.

Although, the Saarc's platform is a priority, the social scenario of the region has rarely changed during the last five/six years. It is difficult for both-,people and governments- to catch up with the rest of the world. Not only does the Saarc lag behind in per capita income and growth, but also in its social and Human Development (HD) indicators, particularly in respect of those relating to gender equity.

'India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and the Maldives continue to lag behind in meeting basic needs like education, health, and access to safe water, food security and elimination of gender disparity.'

A comparison of the socio-economic indicators of South Asia with the developing world in the table-1 endorses the above expressed grimness by the extracts from the two Human Development reports published at an interval of six years.

The HD Report 2003 focussed on employment challenges, maintains that the donor-driven economic reforms may have spurred the growth in the seven South Asian nations that host 22 per cent of the world's population, but they have failed to reduce poverty and increase employment. This reflects the declining performance of these states. There may be numerous reasons for the grim socio-economic scene but there must also be made some very serious efforts not only to halt the declining standard of living but to improve the scenario.

The question is what other measures should be adopted besides, the good governance. A practical approach is to develop partnership with NGOs. In this regard about one million NGOs working in the South Asia can play a vital role in achieving the social objectives.

The NGOs are growing quickly in numbers and areas, but their potentials Have remained unutilized because of the scepticism towards their role. These are becoming vital players in rural development and poverty alleviation through their microfinancing programmes, while playing important roles in lobbying in the field of environment and developmental policy-making.

The NGOs are of varying types such as cmmunity-based organizations, intermediaries and support/international NGOs. They have basically, the same agenda of helping people to come out with self-sustainable socio-economic programmes with the difference of levels at which they work. Similarly, in Pakistan, the Rural Support Programmes(RSPs) and other NGO contributions in the Northern Areas and in all the four provinces are visible.

Hence, these NGOs at their own levels, without state's open-arm policies are playing important roles in achieving social targets, though at micro level. Grass roots organizations and intermediary NGOs are making numerous contributions to the sustainable development. They are mobilizing local people and resources to support projects with a motive to enable people to improve quality of life.

As a result, people may link all the elements of sustainable development including ecology, economics, politics and culture, and enable individuals to cope with change. The NGOs of all levels are playing a role in uplift of society in general and poorest of the poor in particular. Especially, the intermediary NGOs have the agenda of providing help in resolving the economic and cultural differences among local people, at the grass roots.

They bridge the gap between local and technical knowledge in the efforts to find long-term solutions, which are widely accepted by target groups. In this way new approaches are being applied in solving problems and disseminating knowledge to other organizations through connecting them with local organizations by way of joining networks or building links with international organizations.

The NGOs serve as international lobbyist to tackle the policies of governments, corporations and multilateral institutions. International NGOs also link up disconnected global communities, share similar problems and increase awareness of global issues, such as deforestation, loss of bio-diversity and global warning. NGOs are thus the product of the perceived and demonstrated inadequacies of the state-tied traditional model of development partnership.

The need for NGOs and the potential they have in mitigating the problem arising from this inadequacy is evident, yet the NGOs have emerged as a better alternative in tackling some of the basic issues facing human kind today.

Another vital question is, although the NGOs have proved their effectiveness throughout the region in implementing donor-driven small projects as isolated development actor, whether they will be able to make significant contributions in poverty alleviation and changing social indicators at national level in collaboration with the other two sectors; state, and business? The answer to this strategic question can be found in the performance of the existing model NGOs in the region. We can refer to the BRAC, the Grameen Bank; the State-NGO partnership model, Gono Shastha Kendra (GK), SARVODAYA, SEWA, and the AKRSP.

In Pakistan hundreds of local NGOs are doing well, just to put an example, by many measures, the Aga Khan Rural Support Program (AKRSP) is a highly successful NGO-run rural development programme. It reaches some 900,000 people in about 1,100 villages in the Northern Areas and Chitral District of Pakistan, near the Afghanistan border.

It engages itself in strengthening of Panchayati Raj institutions and municipalities, promoting environmental and occupational health, facilitating a network of strong civil society organizations, promoting citizen leadership, monitoring policies and programmes of bilateral, multilateral and government agencies, to achieve an agenda of 'governance where people matter.'

These NGOs are having impact of interventions on national level in their respective countries, albeit by donor funding. Being foreign funded, the NGOs in South Asia are widely condemned. The donor dependence of the NGOs for local development cannot be appreciated, but, still the states in the region are responsible for this state of affairs of the NGOs. Since, the state is primarily responsible for social development it has funds and development plan, which can be shared with the other two sectors.

The NGOs can be involved at planning and implementation levels, which is still lacking for which, the governments in the region carries greater responsibility. However, it seems, the issue of donor dependence has been exaggerated in media as the research on indigenous philanthropy conducted by the Pakistan Centre of Philanthropy (PCP) in 1998 did not verify the impression of donor dependence for the sector. The research revealed that in Pakistan individuals gave estimated Rs70 billion in cash and goods while, foreign aid for 1997-98 made up for Rs6 billion in grants.

Comparing indigenous grants to foreign grants, Pakistanis gave 30 billion in money alone, more than 5 times of foreign aid. Although the figures for indigenous philanthropy in other countries of South Asia is not available but the magnitude of this will not be much different in the other countries of the region because of the faith-based social structure across the region.

The road map for working of the two sectors together can be touching the following factors:

1. Choosing right projects: There is no shortage of potential projects for working together. The key is to choose the right project; one that meets the criteria set out earlier, and has real commitment from the two sectors to make it a success.

2. Committing the best: Ideally in fact, every project needs commitments from the sectors involved. High-level local political commitment is particularly important. For example, the progress achieved by the Grameen Bank in Bangladesh owes much to the fact that it had a high-profile commitment shown by the Grameen Trust.

3. Identifying local support: This is extremely important to the success of a project. The local NGOs have great potentials in leading on the ground by advising on local priorities, contributing contacts, and offering a link to government and the local NGOs. The collaboration with the NGOs have proved particularly fruitful for the people of rural Malir, Karachi, Pakistan when Darsano Channo Union Council, Malir, and HANDS; an intermediary NGO, built partnership to run the Jamkando Hospital.

4. Small packages: Small or medium-sized projects need to be packaged to attract investor interest. Larger projects have their own dynamism. Smaller ones have disproportionately higher transaction costs and political risks.

5. A balance between process and result: There are no short cuts to a government-NGO partnership project. The public sector administration culture, being procedure/process driven and the NGOs' voluntary culture, being missionary zeal driven, are fundamentally different. Therefore, the culture and working style of the two sectors should be reconciled in the greater benefits of masses 6-Mutual trust: The government and NGOs have little experience of working together except they have the reference of regulators and regulated. Partnership having the basis of shared ownership, as well as responsibility makes a project successful.

The state and the NGOs have immense potentialities in their respective fields in South Asia, however, due to some inbuilt weaknesses, the masses of the region are still waiting to get their expectations fulfilled by them. The NGOs have special ability to reach the poor; they facilitate local resource mobilization, and have programmes of local participation in development. Besides, service delivery at low cost and innovative solutions to intricate social problems is some of their strengths.

The NGOs are also not without weaknesses: they have limited ability to scale up successful projects to achieving national or regional impact without government's support. On the other hand, the state or public sector is extremely important legally, financially, and functionally, both in the value of the public goods and the services that it provides. It has legitimacy to supervise and monitor the public and private organizations' course of action, free to choose action plan, possesses huge structure and have national and international resources.

However, the state has some weaknesses, such as, often it has ambiguity in its thought and actions, and it has administrative culture - believes in process, virtually enjoys limited penetration in masses and suffers political instability which is true in the majority of the South Asian countries. Their collaboration for social development can be built on the both - their strengths and weaknesses they have. Their weaknesses provide a reason for them to come together in enhancing their effectiveness, while their strengths provide meaningful collaborative opportunities to the two sectors for social development.

As state can provide enabling environment for the NGOs and the NGOs can implement the development agenda of governments more economically and efficiently by applying flexible and innovative methods at the grassroots levels. The above discussions and suggested points in this article can be viewed as building blocks for working together, further there is a need to develop a shared vision to promote the formulae of being a supplementing force to each other in order to have socially secured society in South Asia.
Daily Dawn 8 November 2004

Flawed outlook on poverty reduction

By Afshan Subohi

The government claimed in the year 2000 that its economic revival strategy has been embedded within the themes of poverty reduction. Five years later in 2005 the poverty has yet to show clear signs of receding despite achieving fabulous average growth rates.

In absolute terms number of citizens living a sub-human life, denied of even very basic human amenities have increased over the last five years. What does this indicate? Was it an inevitable affliction at the current stage of the country's development? Is it weak management and failure of delivery system? Or the very policy and the government's outlook were flawed?

The economic experts of all shades have interpreted the issue from different perspectives. The Social Policy Development Center (SPDC), a reputable research outfit in Karachi in a report titled 'Social development in Pakistan, Combating poverty: Is growth sufficient?", released recently analyzed threadbare the poverty reduction strategy of the government.

The study tries to prove that the strategy that has been focused on GDP growth is a "disjointed collection of measures". Such a policy cannot deliver pro poor development.

The report quotes from the foreword of the paper: "The development challenges for Pakistan include achieving accelerated and sustained broad-based economic growth" (PRSP: i). And again: "... growth is a precondition for sustained poverty reduction" (PRSP:27).

The report states: "Accelerating economic growth is premised upon five elements: macroeconomic framework, monetary and fiscal policy, financial sector reform, capital market development and trade liberalization.

That the acceleration of economic growth is perceived almost exclusively through the prism of stabilization measures emerges rather clearly. More seriously, there appears to be a rather explicit assumption that getting financial statistics right will inevitably lead towards accelerated growth, and by virtue of the trickle-down effect, towards employment and poverty reduction".

The SPDC believes that PRSP ignores national and international evidence of jobless growth and employment in high wage brackets only. And the fact is that the presence of high wealth and income inequality is likely to cause the bulk of the benefits of growth to be appropriated by upper income groups, leaving the poor out in the cold.

It sees what it calls "two glaring omissions in the PRSP". First, there is no reference to a commitment to promote equity through redistribution of assets. An unequal distribution of assets would lead to an unequal distribution of income.

Fiscal policy offers a means to alleviate the inequality in the flow of income through imposing burden of taxation largely on the rich and directing public expenditure towards areas that are more beneficial to the poor. The research reports reconfirms that the tax system in Pakistan is biased against poor where share of direct tax is still barely 27 per cent.

Second, there is no specification as to where the revenue will flow from for financing Pillar 3&4 of the poverty reduction strategy that promised provision of health cover, drinking water and sanitation, education and youth development and provision of safety nets. In short: In the words of the study, "PRSP constitutes a disjointed collection of measures devoid of a clear central theme and lacks a coordinated approach".

To give an equal space to the government to argue its case, the advisor to PM on economic affairs Dr Ashfaque Hasan Khan was approached to comment on the findings of the SPDC report. The Advisor at the outset expressed doubts over the credibility of the afore- mentioned institute and its patrons. "In Islamabad we do not hear much about it. "

Dr Khan defended the Government's poverty reduction policy and termed it comprehensive. "I am satisfied with the direction of our policy", he said, and claimed that it had dented the poverty more than statistics reveal.

Regarding the regressive fiscal regime he said that the gradual enhancement of the share of direct taxes was implicit in government fiscal policy so it did not matter if it was not explicitly mentioned in the PRSP.

As for redistribution of agricultural land through land reforms, the Advisor felt that the issue was not as crucial as some quarters projected it to be. Dr Khan stated that fragmentation of landholding in rural Pakistan over the last fifty years had taken care of the issue by itself. "Land reforms were relevant thirty years back but not a significant issue anymore", argued the Advisor.

The debate on the issues and policies that have direct bearing on lives of people_ the most active agent of development anywhere_ is certainly relevant. May be, it is useful to anchor the discussion on the government's PRSP.

However, the compulsions that led to the formulation of poverty reduction strategy paper and the haste with which it was prepared are relevant to form an opinion on its success or otherwise.

Could it really be just a coincidence that the government drafted the poverty reduction strategy in the year 2001, just about the time when the World Bank initiated a new line of credit (PRGF) for countries that were equipped with such a strategy?

In the year 2000, the hierarchy of the World Bank and IMF acknowledged that extended structural adjustment facility (ESAF) had led to aggravation of economic woes of struggling developing nations.

Instead of resolving problems the facility led to net transfer of resources from less developed nations to developed countries. Whether or not this public acceptance of responsibility for aggravating problems in developing countries actually led to a real shift in policies of twin sisters is debatable.

The Bank and the Fund, however, changed the language and terminology of their prescriptions for the ailing economies of the world. In January 2000 it launched the strategy for alleviation of poverty. The World Bank President Wolfenson publicly advised the Third World leaders to use poverty reduction strategy papers as anchor for securing fresh economic support.

To judge whether or not the government of PM Shaukat Aziz wants to improve the lot of poorest of the poor in Pakistan on the basis of the merits of the strategy paper would perhaps be an exercise in futility.

The PRSP was designed more to qualify for a certain concessionary loan (PRGF). The paper did achieve its purpose and Pakistan did qualify by meeting the pre-condition for the facility. To put too much meaning to a paper that targeted something very specific is neither wise nor appropriate.

"It is unfortunate that a section of people are so obsessed with some notions that they are not ready to accept even what is clearly present before their eyes", commented Dr Ashfaque. "We are doing better than what even the government itself projected.

The current unemployment figures show that the unemployment rates have come down from 8.3 to 7.7 per cent which indicates that poverty rate is also coming down. "It is not fair not to give credit where it is due", he complained.

For a majority of the people, the strengths of Musharraf-Shaukat Aziz government may outweigh its weaknesses. However, the concerns about how, and in whose interest the government was running were likely to grow.

The improved GDP growth rates had in fact, made the contrast between socially powerful privileged classes and not so vocal underprivileged people and backward regions more stark.

In no way will this situation facilitate governance of the country or ensure travelling of the economy on a linear growth path. Incidents of sabotage in Balochistan, could be an indicator to show how things might turn, in spite of achieving a 7% plus GDP growth rate.

For Pakistan to realize its true potential a well rounded policy package that serves the interests of majority, encompassing all elements of macro policy areas and not some fancy paper full of rhetorics to set things right is urgently needed.

People are trying for decent economic survival and at the same time waiting for opportunities promised to them. The architects of the country's economic policy may do well to give another thought and review the impact of its policies on the poorest of the urban and rural poor.
(Daily Dawn, 22 Feb 2005)

POVERTY alleviation has become the buzzword attracting a lot of attention at domestic and international levels. Mass poverty in the country is universally recognized. Poverty is more acute in rural than urban areas. Within the rural areas, there is a striking region-wise difference in the rate.

Absolute poverty is generally measured in terms of per capita income per day. This would be misleading, if, for any reason apart from direct taxes, a good part of nominal income is pre- empted, and, as a result, the disposable income is reduced to only a fraction of nominal income.

What really matters from the welfare point of view is the disposable income, as this determines the actual ability to meet the basic needs of an individual and his family. This is an attempt to highlight an area, which has a tremendous direct impact on disposable incomes in rural areas, which has been a case of benign neglect, if not a deliberate policy of the power that be. This is rural indebtedness, which, if not tackled in right earnest, can potentially frustrate all other efforts for poverty alleviation in rural areas.

Rural indebtedness has a long history in the sub-continent. Before the creation of Pakistan Muslims were known traditional borrowers from the informal sources of credit and most of them were indebted to non-Muslim money lenders up to their neck.

The mass exodus of non-Muslims from Pakistan in 1947 wiped out the massive debt. This only proved a temporary relief and gradually and steadily rural indebtedness has assumed serious proportions to pose a serious threat not only to the rural economy, but also the national economy.

In terms of overall magnitude, this may be less than the urban debt in Pakistan. What is perhaps far more crucial is the number of persons affected, the source of credit and the terms thereof. The urban debt in Pakistan is mostly business related, mainly that of government and the corporate sector, from the banking system and at nominal terms.

In sharp contrast, rural debt is personal debt involving a large segment of population, from non- institutional informal sources and at rather inhuman terms. As a result, as the system rightly goes, in rural areas, a person is generally born in debt, lives in debt, dies in debt and bequeaths debt for the coming generation.

According to a study by International Food Policy Research Institute (Washington DC), more than 80 per cent of loans taken by the low-income households are spent on consumption, food and non-food combined. These loans are mostly from the informal sector like friends, neighbours and moneylenders.

A significant proportion of the poor, who do not apply for loan, are discouraged from applying by the strict collateral requirements and high transaction costs frequently involved in doing business with formal institutions. On the other hand, the formal institutions feel reluctant to extend micro finance services to the poor due to their low paying capacity, expensive delivery, seasonal nature of demand and lack of skills required for the basic accounting (table 1).

According to the Agricultural Census 2000, there were 18.1 million rural households, of which 10 per cent were indebted. The number of farm households was 6.7 million, of which 18 per cent were under debt. Most of them were small farmers, the share of non-institutional credit was inversely related to the size of holdings. The smallest farm practically had no access to institutional credit (table 2).

According to a study by the Pakistan Institute of Development Economics (PIDE), entitled, “The Structure of Informal Credit in Pakistan” (1998), the share of non-institutional loans, which had declined from 90.2 per cent in 1973 to 41.2 per cent in 1985, was 76 per cent in 1990 and 78 per cent in 1997. The relative share of various lenders was: commission agents, 12 per cent, input dealers, 11 per cent landlord\farm machinery suppliers, 36 per cent, professional moneylenders, three per cent processing units, two per cent; shopkeepers 16 per cent, and others 11 per cent. The ratios varied according to the region. For instance, in Sindh the share of landlords\machinery suppliers was 44 per cent.

The terms at which loans are obtain from informal sources are simply atrocious and no wonder a borrowing small farmer can never hope, nay dream, to get out of it. It has been recently reported (Dawn) that rate interest charged by informal lenders in Sindh, where the traditional villain, Mahajan, continues to be very much present, is as high as six per cent per month. With this monthly rate, the simple rate per annum works out to no less than 72 per cent.

Compounded for a year or a couple of years, the rate becomes astronomical beyond the capacity of any one on honest and permissible income, not to speak of poor small farmers whose profit or net income after meeting the genuine cost of production has been eroded by increased cost of inputs. Hence the unsavoury phenomenon of perpetual indebtedness.

It was hoped that with development of banking facilities in general and the establishment of Agricultural Development Bank of Pakistan, now called Zari Taraqiati Bank Ltd., would provide some relief to small farmer by reducing his dependence on informal sources of credit. However, this has not happened.

While the ADBP\ZTBL was high jacked by the landlords, commercial banks have scrupulously avoided the small farmer. The bias is amply reflected in the amount of loans and the rate charged from the small borrowers in the agricultural sector. The position of scheduled banks, as of end-June 2003, is fully depicted in the following table. The preference to big borrowers is obvious in the rate of interest charged and the amount advanced by the banks is quite obvious to be commented upon.

The position of ZBTL has been all the more disturbing for totally ignoring the small farmer. It had lent at 14 per cent a sum of Rs7.9 billion to the top bracket of Rs500 million, but its lending, at that rate, to loans up to Rs10 thousand was only Rs42 million, for loans from Rs10 thousand to less than Rs25 thousand, it was Rs289 million (table 3).

The State Bank has recently initiated an active policy of stepping up bank credit to agriculture and, as a result, bank advances to agriculture moved up from Rs113 billion in June 2003 to Rs113.5 billion in June 2004 and was expected to touch Rs200 billion in 2005. Will this benefit the small farmers? It must be remembered that agriculture is not a monolithic sector but a dualist one with marked deference in the character of the two main stake holders.

There are landlords, in the operational sense and not in legal terms, who mostly reside in major towns, have diversified economic activity to include commerce and industry. To top it, there is the most lucrative business of politics. They constitute a powerful lobby to have their representative in every government of any hue in all its tiers.

At the other end are the poor, illiterate, dumb masses of small farmers. The real problem is of this category constituting a major portion of the total population. It would be stating the obvious that the benefit will never trickle down to the downtrodden small farmers.

The reduction in the interest rate charged by ZTBL from 14 per cent to nine per cent is undoubtedly for the big borrowers, if at all they are pleased to pay and do not get the loan ultimately written off.

The trickle down process will only work, if the small farmer has access to institutional credit. This pre-supposes not only the policy and procedures of lending to this special group, but also the convenient location of a bank office for availing the facility without undue cost in money and time.

To begin with, there were not many bank offices in rural areas to meet this criterion. This has been further reduced as a matter policy totally denuding the rural areas of banking facilities which is detrimental not only to availability of institutional credit, but also mobilization of rural saving.

More than 40 per cent of bank branches in small towns with a population of 10 thousand have been closed since 1999 at the directive of the central bank, which, in turn, is attributed to the demand by IMF. The plea is that they were loss making branches. This is barking the wrong tree. The truth is that they were loss making, not for any operational inefficiency on their part, but because they were not lending in rural areas and thus deliberately denying themselves of a sure source of income.

The small rural borrower is more credit worthy and has an excellent repayment record all over the world. What is needed is the early reversal of this ill-conceived policy of closing branches in small towns and rural areas. Villages on the periphery of towns with banks some how manage to get some credit from these branches. The crux of the problem is the hinterland, serving as the preying ground for informal lenders, and banking facilities must be taken there.

This calls for exclusively rural banks. Big farmers have no problem of access to institutional credit and it would not be a bad idea if the ZTBL is converted into a Rural Bank, pushed out of towns into rural areas and a ceiling put on individual loans to ensure small lending.

The traditional practice of collateral based lending will have to be looked into. Among other things, it seems worthwhile to try collective guarantee, which has proved quite successful in Bangladesh for the Grameen Bank lending.

A paper with tremendous potential to serve as collateral but not yet considered is the receipt or Chit issued by ginning factories and sugar mills for delivery of the commodities to them. At present, the factories and the mills inordinately delay payment, sometime spread over years, and the farmer is forced to sell the Chit in the market at a deep discount. Commercial bank can and should very well accept the Chit as collateral without any undue risk. Given the genuine will to help the small farmer, the sky is the limit for innovations.

The basic causes of rural indebtedness must be also addressed for a more durable solution. It is well known that small farmers mostly live beyond their means and some of their expenses are avoidable. The expenditure on religious and social functions, just to vie with one another, is disproportionate to the means of the small farmer and this necessitates borrowing.

Litigation, often continuing for generations, is another serous drain on the small farmer. This mostly pertains to dispute about landownership. For this, to a very large extent, the existing Patwari culture is to be blamed. While the Patwari or Tapedar is under the thumb of the landlord, he is a real nuisance to the hapless small farmer and many litigation cases are born from manipulation of land ownership record.

Computerization of land record is often talked about by government but not implemented because of powerful vested interests. Proper maintenance of land record and quicker disposal of property disputes by courts can go a long way in reducing the unnecessary burden of the farmer and, in return, spare him from leaning on the informal credit.

Education in rural areas, observance of Islamic values like austerity and strict compliance with the Quranic prohibition of acquiring other people’s wealth by devious manipulation through officials (2:189) in the Islamic Republic of Pakistan can help a lot.

Reducing the need for borrowing and replacing the informal credit by institutional credit, the latter enhancing the disposable income in a very big way, have the potential for effective meaningful poverty alleviation in rural areas. This would be an easy task as it will impinge on the power structure and there are very powerful vested interests ready to defend the status quo.

Apart from the well-known elements, there is now a new phenomenon of informal lenders not using their personal capital but serving as middlemen and earning a living thereby. The PIDE study reveals that informal lenders use their own resources up to 52 per cent and the balance is borrowed, 33 per cent from formal institutional sources and 15 per cent from informal sources. This inter-linking of formal and informal sources of rural credit is a watershed for credit management.

In conclusion, it may be observed that reducing rural indebtedness and replacing informal sources of credit by institutional credit can change the lot of rural society in a very short time. In the present circumstances, the problem can not be effectively addressed in a perfunctory manner as replacing the non-institutional with institutional credit involves displacing a person, rather an age old institution, which provides credit at the door step of the borrower in confidence, round the clock and without any fuss about the collateral, even though his terms are very onerous and method of recovery at times quite cruel. This requires a strong missionary zeal and devotion. Who would provide that critical element?

(By Dr Abdul Karim, Dawn, Economics & Business Review, P-1, 12/09/2005)

DEVELOPMENT:    Aid for the Poor, Not for the Consultants

Moyiga Nduru

JOHANNESBURG, Jul 5 (IPS) - No less than a quarter of annual development aid -- about 20 billion dollars -- is being used by donor countries to fund technical assistance of sometimes dubious worth, says ActionAid International in a new report.

The study, titled 'Real Aid 2', was launched Wednesday by the Johannesburg-based non-governmental organisation (NGO). As with last year's 'Real Aid', it examines how development funding is spent.

The term "technical assistance" refers to research, training, and the services rendered by consultants -- some of whom command fees that ActionAid finds excessive.

According to the report, based on 2004 data, it typically costs about 200,000 dollars a year to keep an expatriate consultant on staff. School fees and child allowances account for more than a third of this expense, which could be reduced with greater use of local advisors.

"Money is being spent on consultants who are earning up to 1,000 dollars a day," Caroline Sande Mukulira, South Africa country director for ActionAid International, told IPS Wednesday.

Notes the report, "High salaries paid to expatriate advisors…can also cause significant resentment among counterparts and the public in the south."

"In the Ghana education service headquarters, government officials receive about 300 dollars a month, what a relatively inexperienced Ghanaian consultant could expect to earn in a day, and a foreign consultant in a few hours," it adds.

The report also mentions a former UK-funded consultant's claim that their daily take-home pay in Sierra Leone was the same as the monthly salary of the auditor general.

Perhaps more alarmingly, however, these high-priced advisors may fail to deliver lasting benefits.

'Real Aid 2' cites the case of the Bagamoyo irrigation project undertaken in Tanzania with Japanese support, where farmers were trained in the use of pumps supplied by the Japanese, in the 1990s. As a result of the rising cost of diesel and the lack of local expertise to maintain the machinery, the project's success has been limited.

In addition, says ActionAid, technical assistance is often far less neutral than the term would imply.

"They (donors) continue to use technical assistance…to police and direct the policy agendas of developing country governments, or to create ownership of the kinds of reforms donors deem suitable," notes the report.

"Donor funded advisors have even been brought in to draft supposedly 'country owned' poverty reduction strategies."

Technical assistance that is too expensive, or ineffective, amounts to "phantom aid," observes ActionAid -- as opposed to the "real aid" of the report's title, which leads to discernible
improvements in poor nations.

The report also identifies other trends that turn real aid into phantom aid; these include counting debt cancellation as aid, requiring aid to be spent on goods and services from donor countries irrespective of whether these offer the best value for money -- and poor donor co-ordination of aid.

"Between 2005 and 2006 80 percent of all contracts awarded by DfID (Britain's Department for International Development) went to UK (United Kingdom)-based firms. In their rhetoric, they
will say the money went to aid. In reality, the money remained in the UK,'' said Mukulira, who also took issue with refugee-related domestic costs that certain rich countries catalogue as aid.

"Switzerland and Austria are particularly notorious. When you see figures from their aid budget, 15 percent of it is spent on refugees living in their countries."

All in all, ActionAid estimates just under half of all aid to be phantom aid.

According to 'Real Aid 2', the inefficiency of technical assistance is "an open secret within the development community."

Still, says Moreblessings Chidaushe of the Harare-based African Forum & Network on Debt & Development, an NGO, poor nations are struggling to change the way funding is administered.

"It is difficult for poor countries to negotiate the type of aid they get; it's lack of resources. Either you take it or you leave it. If you take it, you take it with conditions. If you don't, you end up with nothing," she told IPS Wednesday.

ActionAid proposes a number of solutions for this situation, notably that developing nations make their own determinations of what technical assistance they need.

Recommendations to donors include a call for them to make as much use as possible of the resources in poor countries targeted for assistance, rather than looking abroad.

As the report's author, Romilly Greenhill, notes in a statement, "Aid needs to help the poorest, not line the pockets of western consultants."

"Too much aid continues to be…designed and managed by donors. It is tied to their countries' own firms, is poorly coordinated and is based on a set of assumptions about expatriate
expertise and recipient ignorance." (FIN/2006)