Global Policy Forum

Editorial

Pakistan has once again become the favourite of the donors. Knowing the economic hardship the country is facing as a result of the terrorism-related crisis, both multilateral and bilateral donors have shown an interest in mitigating the distress in different ways. Some of them are meeting the finance minister in Islamabad while some others have invited him over to their own capitals to discuss the immediate and long-term economic needs of Pakistan and arriving at a mutually agreed proposals for badly needed assistance.

Pakistan on its part has estimated that in the short run, it will suffer a loss of about 1.5 billion to 2.5 billion dollars during the current financial year as a consequence of the on-going war on international terrorism. To make good this loss, Islamabad is requesting the donors for immediate budgetary support in the range of about 1.5 billion dollars.

So far about 800 million dollars, including 700 million dollars from the US, have been committed by the donors on this account. For the longer term Pakistan is requesting the donors a four-pronged bail-out package in terms of resumption and enhancement of concessional assistance, help in getting IFI programmes on softer conditionalities, meaningful debt relief and market access. The donors seem to have agreed with this strategy. Canada has already turned its past loans into development assistance.

Britain has actually written off part of its loans and made commitments for more concessional assistance for the social sectors. The Europeans have provided Pakistan with enhanced market access. Japan has invited our finance minister to Tokyo for detailed discussions, besides announcing 25 million dollars in emergency assistance. The visiting US under-secretary for economic, business and agricultural affairs, Alan Larson, has promised help ranging from budgetary support to market access and investment.

The generous foreign assistance which came our way in the fifties and sixties and again in the eighties was used mostly to finance our security needs rather than in improving the economic fundamentals and expanding our social and physical infrastructural capacities.

The wheat received under PL-480 and other commodity assistance, while providing the government with the much needed budgetary support through their sales proceeds in the domestic market, had the effect of killing the incentive to grow food domestically, thus seriously damaging our agriculture and enhancing our dependence on foreign aid for food.

This we could overcome only after the so-called free-lunch was stopped in the 1990s. And since the budgetary support was coming the easy way, the successive governments carefully avoided applying themselves hard to the difficult task of collecting revenues, thus prolonging and enhancing the country's dependence on aid and assistance.

The approach also prevented the growth of a healthy tax culture in the country. Tied loans destroyed our shipping industry and undermined significantly our ability to establish a vibrant value-added export sector. So, while negotiating the new packages our economic managers should keep the mistakes and blunders committed in the past in mind.

We must also insist on assistance for programmes and projects which form the priorities of our own economy and not entirely the preferred choice of the donors. Debt write-off should be the logical expectation in the given context. Short of that, we should try to get the past debts converted into development assistance for social sectors, as Canada has done. This would mean that future social sector development programmes would be financed with the money that is needed to service the past debts.

Even Japan whose constitution does not permit write-offs would not perhaps have any objection to this kind of arrangement. The focus, however, should be on obtaining as much market access as possible and, at the same time, on getting an accelerated flow of investment and know-how.

The second part is as much essential because in these times of recession simple market access would not mean much. However, if foreign investment and know-how flow in and, using local infrastructure, goods in demand in the rich markets are produced in sufficient quantities and of the right standard, it will be mutually beneficial. Rich consumers, discouraged by recession, would be tempted by cheaper goods to resume spending. In the process, Pakistan would earn much needed foreign exchange as well as create greater employment opportunities in the country.

While attracting investment, we should guard against inflows that do not earn any export dollars but make only repatriable profits. And finally the local entrepreneurs should also learn from their past mistakes and try to take advantage of the emerging opportunity by playing fair all around - with their employees, their bankers, the tax collector and the consumers of their goods and services.

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