World Bank's timely offer
Pakistan hopes to sustain and build its economy with the help of the World Bank's concessional as well as non-concessional windows after the conclusion of the current three-year IMF programme amounting to 1.3 billion dollars from its Poverty Reduction and Growth Facility (PRGF).
The prime minister's adviser on finance, Shaukat Aziz, is said to have informed Mr. Zafarullah Khan Jamali that after the conclusion of the PRGF programme in 2004-05, Pakistan will not be needing any more assistance from the Fund but will still require generous and concessional funding from the World Bank and the Asian Development Bank for some time to cover the anticipated gaps in external financing which in the next three years alone is estimated to go up to about six billion dollars.
The World Bank has indicated its readiness to offer 1.8 billion dollars during the next three years to cover part of this gap. About $600 million of this amount is expected to be offered on IDA terms which are highly concessional. The rest will be offered on the normal terms but the mix would perhaps carry an average of about 07 to 1 per cent mark-up.
Assistance from the WB would carry not only relatively lower mark-up but its conditionalities too will not be as harsh and as intrusive as those of the Fund.
In fact, the WB would not be as concerned about Pakistan's budgetary deficits and public sector expenditures as the Fund has been all these years. Because of the latter, while we have achieved a modicum of macroeconomic stability in recent months, the overall economy has only stagnated, unemployment has gone up and poverty has increased.
The Bank will certainly have its own conditionalities and will insist that we reform our civil services, including pay and pensions structures, eliminate staff redundancy in provincial departments and autonomous and semi-autonomous bodies through right-sizing, deepen banking sector reforms and strengthen regulatory and supervisory role of the State Bank of Pakistan. However, these reforms are not as stifling for the economy as those of the IMF. If implemented judiciously and with proper spacing, they may actually generate more economic activity all around and add to the growth while alleviating poverty.
Pakistan has missed a number of chances in the past to get rid of the harsh and stifling IMF conditionalities because when it had the financial space to do it, it wasted it by squandering resources on uneconomic activities. Now there is one more opportunity to withdraw from the Fund's unhelpful conditionalities because of a favourable turn in economic circumstances in the wake of 9/11, including a generous debt rescheduling round from the Paris Club and a record accumulation of foreign exchange reserves.
The strategy adopted by the economic managers to get out of the Fund's clutches for good by entering into WB programmes appears to be wise and realistic. The Poverty Reduction Strategy Paper(PRSP) which is being finalized these days has very correctly noted that a weak, ill-organized and inadequate public service delivery system has neutralized the best of some of the past plans and huge resources. Therefore, the issue of improving governance is central to fighting poverty.
The World Bank will not only be actively engaged in helping Pakistan in improving the delivery system at the grassroots level, but will also be providing concessional resources to cover the gaps that will result from expected dislocations while the process of building the grassroots institutions takes place.