Pakistan’s budget 2003-04: The economics of hypocrisy

Pakistan's government releases a budget addressing the concerns of its core constituency – the World Bank and the IMF.

Pakistan's finance minister, Shaukat Aziz, when presenting the new fiscal year budget in June, made tall claims about the country's improved economic outlook. This budget, Aziz's fourth since being appointed finance minister by General Pervez Musharraf in 1999, is the first he has presented under the military-led civilian government of Prime Minister Mir Zafarullah Khan Jamali. Yet, despite the arrival of an elected civilian government since Aziz released last year's budget, essentially nothing has changed in his economic planning. The budget for 2003-04 is merely a continuation of economic policies aimed at achieving targets set by the World Bank and the International Monetary Fund (IMF).

In his 7 June budget speech, Aziz offered an ambiguous appraisal of Pakistan's fiscal health, on the one hand describing a rosy recovery process, and on the other enumerating five major challenges that appeared to contradict his claims of sound economic growth and poverty reduction. These challenges are: accelerating economic growth in sectors with job creation capacity, a step deemed essential for poverty reduction; making larger investments in human development, an objective that has received increased budget support; recovering losses in public sector corporations, which would increase the capacity to invest in human capital and development; making improvements in physical infrastructure such as water storage, canals, roads and ports in order to more fully realise the economy's potential; and attracting greater private sector investment, a point on which some limited success has already been achieved.

Judging by the finance minister's five points, the ostensible cornerstones of the government's economic improvement plan are increasing growth and employment and furthering human and infrastructure development. If this does not materialise, then Aziz's claims in his budget speech will prove falsely hopeful. Sadly, there is good reason to doubt that the finance minister's optimistic words will translate into real-life improvements for the people of Pakistan. First, the new budget essentially continues policies of the past several years, in which period the poverty rate of Pakistan touched 32 percent, according to official data, and nearly 40 percent according to independent sources and international agencies. This is up from a 1993-94 World Bank poverty estimate of 29 percent. Second, the budget no longer even reflects the interests of Pakistanis, howsoever defined by the government. Policy planners have, with the curiously titled Poverty Reduction Strategy Paper (PRSP), settled on a new strategy to placate international lenders.

Debt bondage

Trapped in debt by the World Bank and the IMF, along with other lending countries and institutions, Pakistan appears fated to accept whatever conditions the overseas institutions chooses to impose. The country is currently making use of USD two billion in World Bank money for poverty reduction and simultaneously accepting funds from an IMF programme, the Poverty Reduction and Growth Facility (PRGF), to the tune of USD 1.4 billion. Ironically, by the much-touted terms of good governance, Pakistan should not receive these funds, as the country's politics hardly conforms to international standards of competent and fair administration. Even so, these lending bodies now require Pakistan to draw upon their policy guidelines to prepare and implement a poverty reduction strategy with long-term objectives.

Launched globally in 2000, PRSPs are (supposedly) developed by national governments in cooperation with the World Bank, the IMF and local interest groups to "describe a country's macroeconomic, structural and social policies and programs to promote growth and reduce poverty, as well as associated external financing needs". To date, 26 counties, mostly from Africa, have published PRSPs, and another 45, including Pakistan, have Interim Poverty Reduction Strategy Papers (I-PRSPs). Sri Lanka, which presented its PRSP on 23 April 2003, is the only South Asian country to have done so, with Pakistan expected to follow suit with its final plan later this year. The purpose of the plan is to establish a framework for long-term planning, and to "provide the crucial link between national public actions, donor support, and the development outcomes needed to meet the MDGs [Millenium Development Goals]".

Some analysts argue that structural adjustment policies and, more specifically, sectoral adjustment loans, have been the single most important policy-influencing tool of bilateral and multilateral donors in the post-war era. Contained in such documents as PRSPs, they have come to dominate the economic policy contexts of a large majority of poor countries, and are likely to continue to do so as the debt trap intensifies. In most PRSPs, 10 basic conditions are placed on prospective countries for them to gain access to loans, three of the most important being sound sectoral policy, deregulation and good governance.

Aasim Sajjad Akhtar, a civil society analyst, says that the problem with structural adjustment policies is their history of destructive effects in countries where they have been introduced. The primary thrust of these policies is reducing subsidies and budget deficits, increasing revenues and privatisation, and encouraging trade liberalisation. To meet these terms, governments, instead of increasing revenues by taxing high-income individuals and industries, place the financial burden on the common man, increasing the incidence of poverty. In Pakistan, particularly since Musharraf came to power in 1999, direct and indirect taxation and price increases have adversely affected Pakistan's lower-middle and poorer classes. PRSP policies are also an indirect threat to food security in that they reduce government support for the food supply. Yet, despite the clearly harmful effects of these policies, and their detachment from realistic assessments of countries' situations, international financial institutions have continued to advance them. At the policy level, this results in severely misguided and counter-productive strategies.

The PRSP process began in Pakistan three years ago. The Interim Poverty Reduction Strategy Paper (I-PRSP), which Islamabad adopted in November 2001, contains goals similar to those presented in Aziz's 7 June budget speech. In May 2003, a PRSP draft was completed, with final approval expected by year's end. No doubt, the stated aims of the PRSP – economic growth, reduced poverty, improved administration – are worthy goals, but the methods prescribed by the plan are unlikely to achieve them. The government has not devised a practical, time-bound programme to increase economic growth or to raise standards of living. To do so would first require a plan to improve the lives of the country's agricultural labourers, who, at 48 percent of the workforce, represent the largest section of the employed population. An increase in agricultural sector prosperity would, for instance, do much to roll back poverty, given that the sector represents one-quarter of the country's GDP and sustains two-thirds of its people. But despite its importance, agriculture has continuously received little government support, a trend continued in this year's budget.

A multidimensional condition

Under the PRSP guidelines, the government has committed itself to raise pro-poor budgetary allocations by at least 0.2 percent of the GDP per annum. Based on these projections, by fiscal year 2005-06 the allocation for poverty reduction will reach PKR 246.5 billion (USD 4.42 billion). The government claims that the PRSP will broaden and deepen development by facilitating high rates of economic growth, thereby improving employment prospects and strengthening the social safety net.

The 2003-04 budget proposes PKR 185 billion (USD 3.3 billion) for poverty reduction, as compared to PKR 161 billion (USD 2.9 billion) for the outgoing year, a net increase of almost 15 percent, at least on paper. Ideally, this money will be used to improve the education, health care, population planning, water supply and sanitation, rural development and housing sectors. An allocation of this size for poverty reduction is actually quite substantial for a country with an economy and growth rate described as modest, at best. Even so, the impressive figures found in glossy budget documents may prove to be hollow numbers.

In evaluating this year's poverty reduction budget, it deserves mention that, of the PKR 161 billion earmarked last year, 60 percent of the assigned funds went unspent. Doubts have even been raised about whether the money committed on paper actually existed in the first place, and concerns naturally follow about whether a 15 percent increase in this year's budget will translate into an actual increase in spending. The government, apparently in an attempt to convince people that poverty will be aggressively targeted, has re-christened the Public Sector Development Programme as the Poverty Reduction Programme. But, leaving aside name changes and theoretical budgetary allocations for improving citizens' welfare, it is clear that Pakistanis are falling deeper into the poverty trap of diminished social services.

Poverty is defined as a multidimensional condition coupling low or non-existent income with lack of access to basic services such as education, health care and employment opportunities. But measurements of poverty are faulty in that they usually take into consideration only income levels, according to Dr Mushtaq A Khan of the Centre for Research on Poverty Reduction and Income Distribution of the Planning Commission of Pakistan. So, even while economic growth may lift the mean income level, large income differentials can simultaneously increase inequality, and both processes affect conditions of poverty. "In the case of Pakistan, it seems that poverty is more sensitive to the inequality. With increases in the GDP growth rate, the average nominal income increases in the economy, which has a positive impact on poverty. But this positive impact is washed out due to the negative impact of worsening income inequality and vice versa", explains Dr Khan.

Statistical measures of physical well-being offer a grim picture of poverty in Pakistan. According to official data, over 70 million people, more than half of all Pakistanis, do not have access to health facilities. The doctor-population ratio is 1:2000, while that for nurses is 1:4000 and that for hospital beds is 1:1500. There are only 455 rural health centres, despite the fact that two-thirds of all Pakistanis live in rural areas. Mortality rates for infants, children and mothers are high by South Asian and world standards. The gender ratio of newborns, at 108 males to 100 females, is disturbing, and roughly 40 percent of all under-five children are malnourished. Unsafe drinking water and air pollution contribute to health problems, and an estimated six million children aged between five and nine are out of school. For the remaining 14 million who do attend classes, the quality of education is poor, with about 55 percent of children above the age of 10 illiterate. Only 63 percent of people have access to water supply, the safety of which in any event is not regulated. Only two in five people have access to sanitation facilities, and air pollution levels in Lahore and Karachi are 20 times the World Health Organisation's standards.

Plight of the worker

Pakistan's growth rate, touted in the I-PRSP as a strong pillar of the country's economy, is actually lower today than it was in the last decade. Following an average growth rate of four percent in the 1990s, the nearly four years of Musharraf's tenure have witnessed a decline to 3.6 percent, owing to low levels of investment and savings. Because of connections between investment and employment, a decline in these categories worsens poverty, which, in turn, is directly linked to human rights, labour rights and environmental standards, none of which have demonstrated significant improvements despite the adoption of the five-pillar I-PRSP.

The country's generally bleak economic planning is exacerbated by disastrous shifts in employment trends and policies. Unemployment in Pakistan has continued to increase, with the official rate now standing at 7.8, and, according to the 'Economic Survey 2002-03', about 3.3 million people are out of work. Such conditions have resulted in increases in related social maladies, including crime and suicide. Moreover, the situation of those employed or underemployed is worsening due to the introduction of a contract labour system and regressive labour laws promulgated by the Musharraf government and ratified by Prime Minister Jamali's.

Among the most notable of the recent changes in labour law is the Industrial Relations Ordinance (IRO) of 2002, which replaced an IRO dating from 1969, and has effectively snatched away basic protections from workers and contravened International Labour Organisation (ILO) conventions that Pakistan has ratified. In the new IRO, agricultural workers, representing half of the Pakistani labour force, have lost the right to form trade unions, the very institutions meant to protect and advance workers' rights. Taken together with the large portion of the labour force employed in the informal sector, where trade unions do not exist in any event, nearly the entire labour force is no longer allowed to organise. Altogether, only three percent of Pakistan's labour force is currently unionised.

Experience from around the world shows that labour unions are among the most important of civil society groups helping to create rights-based conditions, though their prospects in Pakistan are not encouraging. The lack of organising rights in agriculture becomes all the more serious when one considers government plans to introduce corporate farming in the country, even though this flies in the face of PRSP goals of improving workers' conditions. The effect of these policies is a two-fold attack on agricultural workers, at once corporatising the livelihoods of nearly 30 million people and simultaneously stripping them of their right to organise in the face of liberalisation.

Another regressive provision in the IRO 2002 is the abolishment of National Industrial Relations Commission (NIRC) relief to sacked/retrenched workers. Until now, such workers could file a case with the NIRC and remain in the job until adjudication of their claims. Now, workers' rights have been all but eliminated, as employers can fire at will without worry about NIRC action. And, despite false claims that government labour courts were strengthened in the tripartite conference of July 2001, in reality the situation has worsened, especially with the recent elimination of labour appellate tribunals.

All of these measures are pro-employer and anti-worker. They are harmful to the interests of the working classes, and distort the spirit of Pakistan's constitution and all ILO conventions. Instead of pursuing a policy of threatening citizens' livelihoods and increasing poverty, the government should facilitate an employment structure promoting opportunities for employment and social protection for workers.

Participatory dictatorship

While the government claims to have proceeded through the PRSP process in a consultative manner, obvious shortcomings and condemnation from civil society contradict this position. Fury over the PRSP process has extended to parliament, where, after a briefing by civil society groups on 23 June, opposition parliamentarians objected to the inclusion of certain components of the I-PRSP in the new budget without debate in or approval by parliament. Casting doubts on the government's entire poverty reduction scheme, they demanded a transparent evaluation of all PRSP policies and implementation proposals.

Understandably, the large donor institutions take a different view of Pakistan's PRSP process. World Bank country director in Pakistan, John W Wall, a leading supporter of the PRSP process, attended the 23 June meeting and stated, "The core principles of PRSP should be country driven, result oriented, participatory, comprehensive and long term in perspective". In addition to these vague commitments, Wall also recommended taking the three key steps of "understanding poverty and factors that determine it, choosing public actions impacting poverty, and identifying indicators of progress and monitoring in a participatory manner".

It is, of course, hypocrisy on the part of the World Bank and other donors to speak in terms of participatory and transparent approaches even as they cut deals with a military government that does not 'consult with stakeholders', at least if stakeholders are defined as the people it governs. In clear contravention of Wall's sermon, the government has consistently refused to bring PRSP policies up for parliamentary debate. Moreover, the opposition and treasury benches were not consulted during the development of the I-PRSP or its final version, exposing the claim that people's representatives have been taken into confidence. Donors peddling such policies always prefer dealing with dictators in Pakistan instead of democratic governments. And, as they dictate to a dictator, they bestow on him internationally credibility he may not have in the country.

The secretive manner in which the government conducted PRSP negotiations with donors, and the fact that its contents have not been brought up for debate in parliament, much less before the general public, suggest that the Musharraf-Jamali regime is pursuing economic policies that it knows will not survive scrutiny. Reviews of Pakistan's PRSP strategy, or its policy components, unambiguously demonstrate that the people's interests have been subverted to the whims and power-point guidelines of international lenders. Pakistan's experiment with participatory dictatorship, far from improving the lives of its people, has proven to be a bankrupt experience.

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