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May 31, 2019

Planning vs finance

Opinion

May 31, 2019

Institutional turfs in the government are contested all over the world. However, sometimes with the gradual changes in economic management and accommodation of the external structural influences, the entire organizational character of economic management changes.

This has happened in Pakistan with the shift of balance of power from the Planning Commission to the Ministry of Finance and there is a need to tilt it back in the favour of the former for the sake of long-term strategic planning and implementation. This article refers to some literature (mainly Sherani 2017, and also Planning Commission Annual Plan 2015-16, Hasan 2015) to illustrate the discussion.

The Planning Commission’s role and mandate needs to be strengthened both in its role in formulating the development plans for the country, as well as in overseeing their implementation. We discuss the larger role of the Planning Commission a bit further into this article. However, to highlight the weak implementation, the Planning Commission in one of its own documents (cited above) highlighted issues on the basis of results-based monitoring (RBM). It took up certain critical issues with the development projects’ executing agencies: poor project planning and design, poor management capacity, introducing changes in the scope of designated work (midway), procurement delays, flawed technical appraisal, changing the mechanism for funding (midway), poor performance of the line ministries’ planning and monitoring cells, amongst others.

Sherani (2017) chronicles in detail how the “center of gravity” has shifted from the Planning Commission to the Ministry of Finance since the late 1980s due to the economy being dominated by the frequent IMF programmes. Before this period, when the state pursued fully or partially more planned and interventionist economic management, the Planning Commission played a central role. However, since 1988, Pakistan has accessed 12 IMF loan programmes, with the 13th one in the pipeline now. IMF loans are balance of payments support and they are not ‘developmental’; therefore the Ministry of Finance is the main government of Pakistan counterpart to negotiate and liaise with the IMF, rather than the Planning Commission that has been largely relegated to a secondary role.

The Ministry of Finance provides the relevant economic data to the IMF. The reason behind the central role of the Ministry of Finance is due to the inherent nature of the IMF programmes. The aim of the loan programmes is to achieve stabilization at the macroeconomic level. The IMF attaches conditionalities with its programmes requiring quarterly progress reports on ‘indicative targets’, ‘structural benchmarks’, and ‘performance criteria’.

Earlier, the Planning Commission and other governmental economic machinery used to be centred around the five-year plans. The leapfrog from a five-year planning cycle to a three-month quarterly cycle under the IMF programmes has had a detrimental impact on the country’s economy; as has the change of leadership from the long-term orientation of the Planning Commission to the Ministry of Finance that functions only on the basis of the one-year budget cycle.

Sherani further illustrates, “Pakistan’s strategic planning horizon has been reduced to three months from half a decade; economic growth is a ‘residual’ target under IMF programs, subservient to the fiscal deficit target; and, the primary objective (to the exclusion of all other developmental objectives) is to undertake short-run revenue measures and expenditure cutbacks that undermine long run developmental goals”.

One way to gauge the impact of this short-term economic cycle is that the Planning Commission has stopped the publication of ‘national poverty and income inequality statistics’ since 2008. The majority of the country, the poor and the vulnerable, are to some degree being systematically excluded from the government’s official economic measurements and narrative as a result of this.

The literature recommends redefining the role of the Planning Commission and its vertical coordination with the provincial departments. The commission needs to become a ‘leaner’ institution and do away with some of the functions it has now that are not relevant to the core planning cycle. The commission needs to be revitalized as the premier economic body in line with its past traditions.

While the prime minister is the formal chairman of the commission, the deputy chairman should be given the rank of a sitting federal minister and be made the ‘core’ cabinet member. The commission should not function under the finance minister’s portfolio which assigns it a secondary status, and should become a ‘fully autonomous’ key economic institution. Only an ‘independent’ commission can spearhead effective and long-term economic planning in the country.

The main objective to empower the commission is to transform it into the ‘sole’ face of ‘long-term socio-economic planning’. It should have the powers to coordinate policy outcomes with other key stakeholders including the provincial departments and the private sector. It should singularly be responsible for economic and social development ‘project formulation, approval, implementation, monitoring and evaluation’.

After the 18th Amendment – which guarantees provincial autonomy and has provision for the sub-national government’s mandate ranging from debt-raising, public services expenditure, to tax collection – the role of the Planning Commission to consult the provincial governments as a central economic institution to formulate planning at the strategic level as well as coordination at the policy implementation level is even more crucial.

Therefore, there is a need to restructure the role of the Planning Commission and to shift the balance of power from the Ministry of Finance to the commission; so that it can become more responsive to the long-term strategic planning challenges. The focus of economic management needs to transform from short-term fire-fighting to long time horizons and planned intervention is needed to spurt socio-economic development.

The writer is an Islamabad-based social scientist.

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