ARTICLE (April 20 2009): Too much has been, and continues to be, written on President Zardari's failure to keep his promises in the political arena. However his promises in the economic arena, many claim, have largely been met even though he had to pay a heavy political price as a consequence. The extent of this price can be gleaned from the harsh conditions accepted by the government as a prerequisite to get approval for the 7.6 billion dollar International Monetary Fund (IMF) stand by arrangement.
That the PPP was fully cognisant of the political costs of the IMF programme prior to agreeing to its conditions was amply reflected in statements, on record, of federal ministers last year; including Advisor to the Prime Minister on Finance who labelled reliance on IMF assistance as the least feasible Option C. It was only after the failure of PPP led government's aggressive diplomatic efforts to generate assistance from non-IMF sources that left it with Option C.
Option C is now effective in the country and constitutes a range of anti-poor policies designed to shore up our weak macroeconomic fundamentals.
Some of these policies with an anti-poor bias are: (i) lower budget deficit that would in the long run reduce inflation but in the short term - and Pakistan is still in the short term with only four months having passed since we opted to go on the IMF programme. This entailed gradual reduction and eventual elimination of subsidies on oil and electricity, decisions that have eroded the disposable income especially of the poor, thereby severely compromising their ability to make ends meet; (ii) reduction of development expenditure by one percentage of GDP that will impact on the availability of physical and social infrastructure for the poor; (iii) and high interest rates to deter the government from borrowing from State Bank but which have impacted on credit to the private sector thereby reducing productivity, and, together with the continuing energy crisis has led to a dramatic rise in unemployment.
The government's plan to overcome this clear anti-poor bias in its macroeconomic policies was to develop a more comprehensive and targeted social safety net, through the Benazir Income Support Programme (still not effective eight months after the budgetary allocation was made) and Baitul Mal to mitigate the impact of these policies on the poor.
A more astute politician and economist than President Zardari would perhaps have desisted from taking credit at the present time for the economic performance of the government when the rate of inflation stubbornly remains higher than 20 percent, GDP growth rate has been scaled downward from the earlier estimates of 3.5 to 2.5 percent with obvious repercussions on employment levels and major cartels in the country namely wheat, sugar, cement are keeping prices artificially high with a toothless Competition Commission of Pakistan powerless to take effective measures. Be that as it may the President referred to 7 accomplishments in the economic arena in his speech to the joint sitting of parliament.
First he claimed that inflation has declined from a little over 25 percent to 21 percent. Not even a week after the President's speech the mid year review of the Economic situation (July-December 2008) released by the Economic Advisor's Wing gave some disturbing statistics: food inflation was estimated at 31.2 percent and non-food inflation at 19.2 percent against 11.6 percent and 5.4 percent in the corresponding period last year clearly revealing the disturbing fact that the situation worsened last year.
In addition, in December 2008, when the PPP-led government was in control the CPI had risen to 25 percent.
To claim a reduction of 4 percent in three months is unlikely to convince a populace burdened with high food costs, a Petroleum Development Levy that is keeping price of oil high even though there has been a reduction in its price in the international market as well as loadshedding that matters have improved. This is not to challenge the necessity of adhering to the harsh reform policies that are being undertaken by the government but to highlight the fact that talking about the government's policies paying dividends at a time when unemployment is rising as is inflation of food items is simply not politic.
Second, the President noted the special measures that were announced by the government to address problems in Balochistan. He noted that the government had agreed to pay 17 billion rupees that Balochistan government owed to the State Bank of Pakistan and another 47 billion rupees would be injected for development. Given that this announcement in the joint sitting of parliament came a day after he had announced this very same package on his maiden visit to the Baloch capital as President was considered 'old news' by many.
What would have been new news and therefore highlighted by the media would have been an announcement by the President that Gwadar port would be operational under the Baloch assembly or the government would double efforts to account for all the 'disappeared'. Sadly, the President remained silent on these issues.
Benazir Income Support Programme (BISP), a major social safety net initiative of the present government was also cited by the President as a major achievement of the government. He noted that 34 billion rupees had already been earmarked for it. It is unfortunate that the President decided to take credit for a programme that has yet to start.
The President added that, "the international organisations have acknowledged that the programme is transparent and free of political influence." The situation is quite the contrary as the World Bank team has expressed reservations over the transparency of the eligibility process of BISP and some ministers, including Sardar Asseff Ahmed Ali, Deputy Chairman of the Planning Commission, have already expressed support for these reservations. The President, therefore, was misinformed.
Fourth, the President stated that the policy of public-private partnerships has been adopted. Here too, it would have been effective, if instead of making a statement, he would have strengthened his claim by citing concrete examples. His failure to do so has left many wondering if this policy is merely a fad if not a ploy and likely to remain so given the high rates of interest in the country, the law and order problems and the global recession.
Fifth, the President focused on the cause of the severe energy crisis that the people continue to witness a year after the PPP-led government came to power: the former government bestowed a power shortage of 3500mw on the present government. He expressed appreciation over the way the crisis had been handled by the government - a stance with not too many takers outside the dwindling Zardari loyalist camp - as the circular debt continued to plague the energy sector resulting in the failure of the generating companies to supply energy as they did not have the cash (owed from others within the chain) to purchase their critical inputs. Last week, Raja Pervez Ashraf announced the release of the Term Finance Certificates which are at Kibor plus 1.75 percent, insisting that even though the rate is the same as that being charged due to the circular debt yet this does not constitute a debt.
Be that as it may, the President provided no details of an immediate increase in supply. In his words, "the private sector has been encouraged to come forward and they have come forward in a big way." However Raja Pervez Ashraf, Minister of Water and Power has noted that rental projects are going to be commissioned soon that include one from Turkey. The President also noted that Neelum-Jhelum hydel project in AJK and Bhasha dam would be constructed soon.
It is worth noting that India is building Kishanganga dam, and differences are likely to emerge over the utilisation of the waters of the Kishanganga (Neelum in Pakistan). The case may go into expensive arbitration as in the case of Baghlihar. Bhasha dam project was inaugurated by Musharraf a few years ago, though, Raja Pervez Ashraf maintains no visible work was carried out on the project by the former government.
Sixth, the President noted that the government had increased the procurement price of wheat to ensure that there is no shortage of the product. This policy has been effective however the price of wheat for the consumers would rise as a consequence. Crop insurance scheme is also not yet implemented.
Seventh, the President referred to 'another international assistance initiative' titled 'Friends of Democratic Pakistan'. It is mind boggling that this initiative has been highlighted in the President's speech as it reflects heavy reliance on foreign financing to meet the country's economic, social and security needs. While Pakistan does need assistance yet to proudly proclaim it as an 'initiative' and as an achievement, is a bit hard to swallow even for die-hard PPP loyalists.
All in all, the President would have been better advised to note in his speech to the joint sitting of parliament that even though people were facing hardships yet policies to minimise the burden on the poor were being implemented but would take some time to pay dividends and that the country was going towards breaking the begging bowl, not strengthening it.
(This is the first of a two part series analysing the President's speech to the joint sitting of Parliament with respect to the President's claim of economic achievements of the PPP-led government.)
