Lecture # 13 Pakistan Economic Aid & Debt

The Asian Development Bank will provide close to $ 6 billion development assistance to Pakistan during

The World Bank

The World Bank unveiled a lending program of up to $6.5 billion for Pakistan under a new four-year, ,

aid strategy showing a significant increase in funding aimed largely at beefing up the country's infrastructure. Japan will provide $500 million annual economic aid to Pakistan.

The major causes of poverty in Pakistan

1.Lack of employment opportunities, which in the rural setting is caused by the absence of rural-urban linkages.

2. A slowdown in the pace of economic growth in the 1990s

Key challenges facing the Government of Pakistan

1. Restoring economic growth- constrained further by a drought- affected agriculture sector.

2. Managing the large debt burden with international financial institutions.

3. Promoting domestic and foreign investors' confidence

4. Increasing exports to generate foreign exchange,

5. Maintaining a level of social development spending to stem the deteriorating social indicators.

6. Law and Order, or Terrorism

Future Prospects for Pakistan's Economy

How Pakistan’s economy can grow

Pakistan's long term prospects will depend upon the interplay of evolution in political and social developments, economic policies to be pursued, the quality of governance and institutions, and most important investment in the human capital. It has become quite obvious from

both Pakistan's own history and the experience of the developing countries that sustained economic growth and poverty reduction cannot take place merely on the strength of economic policies. Political stability, social cohesion, supporting institutions, and

good governance are equally important ingredients coupled with both external environments for achieving economic success.

Macroeconomic Stability

Pakistan must strive to maintain its present level of macroeconomic stability. The most important thing needed is the will power of the ruling elite and the continuity of structural reforms undertaken by the military government. The country is now on the path to macroeconomic stability and

is less vulnerable to external shocks than it was a decade ago. There has been improvement in all of the major macroeconomic indicators. The growth rate of the economy, which was under 4 percent during the 1990s, has shown considerable improvement.

Strengthening Institutions

Recent empirical evidence suggests that sound economic policies cannot make any difference in the lives of the common citizens if the country does not have strong institutions to implement such policies. Pakistan inherited a strong civil service, judiciary, and police, which satisfied the demands of millions of people.

But as its population expanded, the nature of governance became more complex and the capacity of these institutions did not keep pace with the emerging demands of the economy. These institutions were weakened by a succession of non- professional peoples.

Finally, there is a need to improve the institutions of inter-provincial harmony to help in eradicating inter- provincial competition and jealousy. The Council of Common Interest, National Economic Council, and National Finance Commission are three institutions that

are concerned with the distribution of the resources among the provinces. If these institutions were strengthened, policies that favor one province over another would not be adopted, which has been quite common in the past.