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Economic notes

May 29, 2018

Economic reforms: Part-XXIII


May 29, 2018

The Social Action Programme (SAP) remained in operation until the close of the last millennium. The Asian financial crisis of the late 1990s and the protests in Seattle to push back globalisation had a profound impact on the thinking of the Bretton Woods Institutions. They responded by fashioning a more pronounced commitment toward poverty reduction.

The emphasis on human development was broadened to include more dimensions affecting the welfare of the poor. The new instrument devised for the purpose was called the Poverty Reduction Strategy Paper (PRSP). This was to be prepared by national authorities with the involvement of all tiers of the government and the civil society, in consultation with development partners. The PRSP was to be jointly reviewed by the IMF and World Bank and was made a prior condition for the country-lending programmes.

While transitioning from the Stand-by Arrangement (SBA) programme to a full-fledged three year programme, the military government started working on Pakistan’s PRSP. The paper was a major consultative exercise and covered the entire set of reforms planned by the government to revive a sagging economy. Participation of all tiers of the government and consultation with the civil society and development partners was also ensured. The Aid-to-Pakistan Consortium was abolished and a new forum called the Pakistan Development Forum (PDF) was established. Pakistan’s interim paper, called I-PRSP, was completed in November 2001 and was unveiled during the first PDF meeting in early 2002. The paper was rated as one of the best produced by a country seeking development assistance within the new PRSP framework.

The PRSP, at the outset, reviewed the state of poverty in the country within a broader context of macroeconomic stability and social vulnerability. The paper noted that the tumultuous events of the 1990s – decline of average growth to four percent compared to six percent of the 1980s, persistent political instability, poor governance and institutional decay – had adversely affected the state of poverty in the country. The incidence of poverty, measured on the basis of the World Bank’s methodology of basic needs, rose from 25.6 percent in 1993-94, to 32.6 percent in 1998-99. Absence of economic growth was considered the primary reason for this rise in poverty. But other factors were also responsible, such as bad governance, corruption, institutional decay and declining investments and spending in social sectors.

The poverty reduction strategy was effectively a statement of the government’s economic and social sector policies. The idea was that every aspect of planning should accord primary concern to poverty reduction. Therefore, all policies were to be formulated keeping in view their impact on the welfare of the poor.

The strategy paper outlined an action plan for restoration of economic stability, resumption of growth, strict maintenance of fiscal and financial disciplines, sustainable external account, dedicated debt management, creating an enabling environment for investments in agriculture, manufacturing (SME), financial sector and capital markets. The PRSP’s action plan also included launching a privatisation programme based on competitive auctioning, large-scale upgrading and addition to infrastructure in key sub-sectors (communication, energy, roads and highways and Information and Communication Technology (ICT).

On the governance side, devolution and decentralisation of power, civil services reforms and access to justice were envisaged. Plans for directly reducing poverty included low-cost housing, land for the poor and access to microfinance. Human development was accorded high priority with investments in education, health, population welfare, nutrition and water supply and sanitation.

For protecting vulnerable sections, women, disabled people and child labourers were isolated for direct interventions. Environment was also a focus in view of the disproportionate impact its degradation has on the poor. Finally, the strategy also focused on strengthening the social safety net programmes, which included Zakat, Food Support Programme and the Khushaal Pakistan Programme (small development schemes providing quick income generating work opportunities).

This vast programme of action was painstakingly granulated by setting specific targets over a three-year period, 2002-2004, with the year 2000-01 serving as the baseline. A policy matrix outlined the policy actions to be adopted at relevant levels of the government. A PRSP secretariat was established in the ministry of finance – which spearheaded the PRSP’s work in close coordination with the poverty centre established in the planning commission with the help of the UNDP. The secretariat was made responsible for tracking the PRSP’s performance during implementation. It was also envisaged that the PRSP secretariats would also be established in the provincial capitals to keep track of the provincial and district level commitments.

Three further developments gave credence to the PRSP’s work. First, the IMF programme explicitly built the PRSP’s targets within the programme’s design and sought reports on a quarterly basis to report back to its executive board as part of the programme’s reviews. The Millennium Development Goals (MDGs) of the UN had most of its indicators covered within the PRSP framework and progress was, therefore, required for Pakistan’s commitment under the MDGs.

Finally, it was felt that even though a fairly extensive framework had been evolved under the PRSP, its progress could not be judged from within the existing sources of information, especially the social sector indicators. Accordingly, two major surveys – the Pakistan Social and Living Standards Measurement (PSLM) Survey and Pakistan Integrated Household Survey (PIHS) – were planned to provide definitive information on the state of poverty and living standards. These surveys are now a regular feature of Pakistan’s statistical databases.

The most significant measure designed for tracking the PRSP’s efforts was to see the trends in its expenditures. These expenditures were selected from various budgetary allocations on the presumption that the poor benefit more from such expenditures. They included expenditures on education, health, population welfare, food subsidies, social security, irrigation, land reclamation, rural development and roads and bridges. A baseline was constructed that showed that from 4.91 percent of GDP in 1995-96, such expenditures had declined to 3.44 percent.

Therefore, the first major target of the PRSP was to raise the level of expenditures to four percent by the year 2003-04. In the next part we will discuss how far this and other PRSP targets were achieved.

To be continued

The writer is a former finance secretary. Email: [email protected]

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