Historical data compiled by leading economist Dr Kaiser Bengali shows that Pakistan has obtained $28 billion in programme loans from the World Bank and Asian Development Bank (ADB) in the name of undertaking structural reforms. The number is staggering. These loans were acquired for implementing 301 programmes in the economic and social sectors.
Project loans that are taken for building infrastructure are in addition to the borrowing made for introducing reforms.
Between 1990 and 2014, the World Bank gave 107 programme loans worth $11.6 billion while the ADB offered 127 programme loans amounting to $14.2 billion.
The size of the credit suggests that the country must have implemented reforms by now across the targeted sectors and the goals would have been achieved. But unfortunately, after spending that much, the country is still standing in the middle of the road without knowing the direction it is headed. Economists point to a fundamental flaw in the strategy of pressing on with reforms by borrowing money.
They say reforms cannot be undertaken by seeking external advice that is always attached with the loans. Reforms are always home-grown, indigenous and come through institutional building. At the end of the day, it is the political will that helps implement the plans.
Foreign loans are only productive when these are utilised for asset building as this provides a source of earnings to return the loans, says Bengali.
He argues that statistics suggest that with a shift in focus from project to programme loans, the country’s infrastructure is completely ignored and it has started collapsing.
A bad idea
Introducing reforms by taking foreign loans is always a bad idea, says Bengali, adding as long as the rate of return is at least 1% higher than the cost of borrowing, foreign debt does not create trouble in debt management.
However, it seems that even after consuming $28 billion the country has not learnt the lesson. In its fresh efforts, the federal government is seeking to reform the power sector, improve governance and privatise state-owned enterprises by borrowing $20 million from the Asian Development Bank.
As much as 75% of the loan will be spent on paying salaries to consultants. The reforms programme has been given the name of “Public Sector Enterprises Reforms Project”.
The repeat of past mistakes by the bureaucrats will bring a bad name to the prime minister, who after 16 months in power, is looking serious about introducing reforms, thanks to prolonged sit-ins by the Pakistan Tehreek-e-Insaf and Pakistan Awami Tehreek.
Beneficiaries
Bureaucrats will be the main beneficiaries of the project and not the country. Someone will get a car from the borrowed money, another will be able to place his relative as a consultant and yet another influential may go to a foreign trip to learn new ideas about how to reform the power sector.
The ADB – a willing partner in the new reform project – also gave $300 million under the Access to Justice Programme in the last decade. The purpose was to improve the justice system in Pakistan.
“With Access to Justice loan, the then chief justice of Pakistan visited every corner of the world, along with his wife, to learn about judicial reforms,” says Dr Ashfaque Hasan Khan, a key former government official who has knowledge of the programme.
“We painted courtrooms and built public toilets in the name of reforms by using foreign loans,” says Bengali.
The World Bank gave a loan for institutional capacity building, managed by the Ministry of Finance. But the money was used by bureaucrats to visit foreign countries. Same was the fate of the Tax Administration Reforms Programme where the loan was used to buy cars, computers and, of course, on foreign trips.
Results
According to statistics compiled by Bengali, the World Bank has provided various programme loans amounting to $3.2 billion for introducing reforms in the education sector.
In 2005, a test was conducted in 104 schools in six districts of Punjab to know the impact of reforms through foreign loans. In the results, 76% students failed in mathematics and 42% in Urdu. In 2003, a performance test was carried out in Sindh schools. Eighty-one per cent failed in mathematics, 96% in physics, 92% in chemistry and 67% in biology.
Economists argue that empirical data suggests that reforms can never be implemented with the help of foreign consultants. “You do not need to hire expensive consultants to improve collection of electricity bills and stop theft. What is required is political will,” an economist suggests.
THE WRITER IS A STAFF CORRESPONDENT
Published in The Express Tribune, October 27th, 2014.
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The critical issue in Pakistan is absence of institutional capacity to optimally utilize funds and when required this process is taken up from money given as loans. We have never taken up our indigenous resources to undertake the reforms due to our styled governance since independence, which is now run by politicized bureaucracy. The concept of governance is broad in scope and requires well thought strategic reorientation and resources. All governments in Pakistan have ignored initiation of meaningful reforms due to their vested interests. To proceed further Pakistan needs to take up the issue of good governance and it can no longer be left strategically indefinable to be centered on depoliticized bureaucracy.
A very good piece and really informative. However we do need to look at the commitments made by Pakistan to the donors and why it failed to deliver, Did the lending Agency monitor the use of money or were they only part of a big game.
Secondly, the role Paris & london club played in further escalating the situation. We do need to start looking at the possibility of debt cancellation from the lenders as we have paid more then what we had accquired as loans. This does mean a very strict budgetary implications but also will help the country straighten its act.
The money that we set aside to pay off the markup can be channelized to bring in innovative yet efficient utilization mechanism for the uplift of our social sector.
I look forward to a piece by your self not only on the Debt and its developmental impacts but also what we can achieve if we proceed with the cancellation of debt and how efficient we can get with our resources.
So true.See what happened to Tax Administration Reform Programme of FBR where over $123 Million was spent. FBR today is dysfunctional and tax collection machinery is in slumber
All this money has simply gone down the drain, and yet nothing will change, as this Country can only provide lip service as when it requires more funds, unfortunately that gravy train has come to halt and lenders are lot more aware as to actions and implementation of any reforms or changes are unlikely, hence its going to be very tough to get any more funds on that basis. Time to wake and face reality check.