It is clear that Musharraf’s economic team has failed to recognize the policy shift of these international agencies. Their policy recommendation is that Pakistan perks up revenue generation by further broadening the tax base of the country. This very proposal has been rejected by Finance Ministry of Pakistan despite a significant presence of an informal or unorganized sector, which is paying too little taxes, or the presence of the pool of those big fish, whose ill gotten wealth is yet to be brought in the tax net. Since producers of the products coming under GST are transferring the tax burden onto the common man by inflating the prices, such a method of revenue generation is increasing poverty in Pakistan and is unsustainable.

With the inception of new millennium, the focus of World Bank and IMF has switched from structural adjustment plans (SAP) to Poverty Reduction Strategies (PRS). The difference between the two is of a subtle nature. SAPs were associated with drastic liberalization of goods markets as well as financial markets in developing countries. The idea was that developing countries have inefficient and repressed markets because of long practiced autarky. Since 1980s and 1990s were the decades when the world was obsessed with growth - such repressed markets were deemed as the biggest obstacle for achieving high growth - which was then thought to trickle down in order to alleviate poverty and achieve convergence between less-developed and developed countries. Thus with the assistance of these IFIs, many developing countries implemented SAP, whereby they opened up and liberalize their economies. However the results in most cases came out to be quite opposite.

For example, in 1990s Pakistan undertook intensive reform process. Ironically, the same decade is also associated with deep plunge in growth and a rapid increase in poverty in Pakistan. It was as if anything; SAP worsened the macroeconomic situation of the country: Budget deficits increased, saving and investment plummet, Debt problem worsened, and foreign reserves dried up. Later World bank and IMF accepted the devastating results of SAPs and since then the emphasis has been switched to social development and poverty alleviation. Now, the loans forwarded to developing countries come with conditionalities which are meant to check the commitment of any government towards the social sector of the economy. It can be safely suggested that IMF and World Bank have not only recognized their policy failures of the last decades but they are also willing to repent it.

However the recent rejection of the IMF and World Bank’s suggestion to improve development expenditure in the fiscal budget 2004-05 by Pakistan’s Official Economic Contrivance tells that the Pakistani government has not learnt much from the last decade. Important point to mention here is that no body is differing with the government’s position that recent increase in foreign reserves, fall in inflation, improvement in GDP growth and a reduction in budget deficit indicates Pakistani economy is moving in a right direction. But the fact remains that all the mentioned concepts are mere statistical indicators and don’t mean much if they cannot be translated into an improved social setup. Secondly, the improvement in many of the indicators is suspected to have exogenous reasons and not much to do with government policies. For example, it can be debated that foreign reserves have been improved because of the inflow of remittances after September 11nth; Inflation is low because of the slowing down of world economy - infact low inflation and low interest rates make a perfect case for the lows of global business cycles; whereas, low budget deficits and debt reduction can be attributable to rescheduling of loans by Paris club as Pakistan became the main stake holder in American War on Terror. In short, any critique can argue that what ever achievements, the Musharraf government claims to accrue on the economic front, is actually more to do with global outcomes than to do with their policies. But yes if Pakistan can improve plight of a common Pakistani and translate these economic gains into social welfare, Musharraf and his team can take the due credit for bringing forth the long sought after relief in country’s economic front.

However, it is feared that the government is engulfed with the nostalgia of SAP and it is giving too much weight to statistical indicators. The very reason given by the government officials to the media for not increasing development budget for next year forces us to fear the former. One official while talking to the DAWN dated March 4th, 2004, justifies the position of the government by saying that since, World bank and IMF pressured the country to reduce its fiscal deficits in the 1990’s in order to lower the debt burden, the recent emphasis on a significant increase in the development budget by these agencies contradicts their earlier stance and force Pakistan to incur high budget deficit and a subsequent increase in the debt burden. The official went on to put it as a conspiracy against Pakistan: “It is a conspiracy to ask Pakistan to go back to the regime of unsustainable debt.”

My brief discussion above quite amicably exposes the fallacy of the above accusation. It is clear that Musharraf’s economic team has failed to recognize the policy shift of these international agencies. No doubt in the 1990s the main emphasis of World Bank and IMF had been to curtail budget deficits as a prerequisite conditionality for loan disbursement or debt rescheduling - which was not at all a bad policy recommendation in itself - but since the subsequent governments in the last decade had been trying to discipline their fiscal budgets by squeezing development expenditures or by imposing indirect taxes, the end result always came out to be biased against the common man in Pakistan, whereas the government officials had been getting away from their poor economic policies by putting the blame on the Fund and World Bank. Now, when they are asking Pakistan to render good economic outlook into a better development strategy, the Musharraf government is showing rigidity even though these IFIs have not directly asked for an increase in budget deficit. Their policy recommendation is that Pakistan perks up revenue generation by further broadening the tax base of the country. This very proposal has been rejected by Finance Ministry of Pakistan despite a significant presence of an informal or unorganized sector, which is paying too little taxes, or the presence of the pool of those big fish, whose ill gotten wealth is yet to be brought in the tax net. The worse part is that CBR is still resorting to indirect taxes as a major source of revenue generation. Only this year the revenues from the GST are estimated to be Rs. 223 billion while the revenue from income tax stands at only Rs. 154 billion. For next year, government is expecting the revenues from GST to exceed Rs 250 billion mark as more goods and services are to be brought under the GST. Since producers of the products coming under GST are transferring the tax burden onto the common man by inflating the prices, such a method of revenue generation is increasing poverty in Pakistan and is unsustainable.

Under this context, World Bank and IMF have rightly pressed Pakistan to improve its earnings from income tax because it is a fairer means of revenue generation. Nevertheless, even if we accept that the government cannot immediately increase the tax base of the country because bringing deep rooted informal sector into tax net is a long and intricate process – the government cannot defend its decision for not increasing development expenditures because if anything the Musharraf government is guilty of spending money from the public exchequer where it is least needed. For example, with an effect from July, 2003 the salaries of the prime minister and ministers have been raised by 15 percent, where as earlier they were doubled. The judges of the High Courts and Supreme Court also witnessed a steep raise in their monthly emoluments plus additional perquisites. It is the Pakistani populace who is worthy of the major share in this exclusive revelry by Musharraf government. If anybody deserves a relief, it is indeed a common Pakistani, who, Musharraf acclaims, also makes up for his silent majority. The case for them becomes stronger if one glances at the fiscal position of the government: Budget deficit has come down to 4 percent of GDP – from 9 to 10 percent in earlier years and is expected to plummet to 3.5 percent next year.

The only rationale, which can be presented for not increasing development budget by incurring higher budget deficit, is that the government is giving too much leverage to macroeconomic indicators, while at the same time failing to recognize that growth is never the sufficient condition for poverty alleviation. A simultaneous incorporation of an adequate development strategy is pre-requisite to ensure that the results of growth be pro-poor. Pakistan, with 150 million people on board, forty percent of which live below poverty line, needs a significant increase in development expenditures in order to bring the economic gains to the door step of the common man. The raise in development spending to Rs 160 billion is still short of the minimum amount of Rs 200 billion, estimated by some independent sources, to provide much needed physical and social infrastructure.

Contrary to the claims of General Musharraf, it seems either his economic team has put plight of the common man very low in their priority list or the man who leads the team, Shaukat Aziz, a commercial banker by profession, has failed to understand the difference between the balance sheet of a country and a bank. My personal liking for President Musharraf forces me to consider least bad scenario, which would definitely be the later one. If so, our finance minister cum commercial banker should know that a deficit in the balance sheet of the economy is not always a bad omen, because unlike a good banking policy, the end objective of a good economic policy is welfare generation not revenue generation.

One also wonders what State bank Governor Dr. Ishrat Husain really meant when he recently claimed that the economic policy is shifting from macro-economic stabilization to an accelerated pro-poor growth, where by social well-being of the population will move from secondary to primary position and the national targets will be set in terms of social targets, particularly in the field of education, health, nutrition, drinking water, pensions and social safety nets. Can any body ask him how exactly the government plans to implement such a pro-poor economic policy when it is not even ready to put adequate resources in the development sector for the fear of worsening budget deficit?

In short, for the sake of poor of this country Shaukat Aziz and his acolytes better give heed to what the Bank and the Fund is saying. Other wise every economic gain to-date claimed by the government is meaningless, if Islamabad finds itself handicapped against social welfare and poverty alleviation.