Address to the Pakistan Development Forum

By
Praful Patel
Vice President, South Asia Region
The World Bank Group
Islamabad, Pakistan, March 17, 2004

Ladies and Gentlemen, I am sure the dates for this important meeting were chosen with utmost care. For further comment on matters of cricket I remain scrupulously neutral. I offer only that the World Bank has absolutely no comparative advantage in this regard. And that should be a great relief to all of you, I'm sure.

This is my third visit to Islamabad in just six months and I am growing fond of this comfortable city. But also deeply impatient to get far away from it. I want to see so much more of Pakistan; meet Pakistan's citizens far and wide; from north to south.

The first years of our new millennium have really seen Pakistan finding its way ; emerging from the lost decade of the 1990s, turning the corner. Remember just four years ago, the nation was on the brink of default on its external payments. Today, there is talk of a Pakistan "back in business". Today, we can really anticipate and plan for a future of rapidly falling poverty; of rising human development indicators; an economy growing at over 6% a year; consumer prices and exchange rates stabilizing; little inflation; domestic energy meeting leaping domestic demand;

And all of this with low interest rates, sound banking institutions, good governance; respect for the rule of law. This is a future – achievable, sustainable – and within reach of Pakistan's citizens.

These happy prospects have arisen in this our new millennium not solely thanks to Lady Luck. As always, she has been both good and bad. Pakistan has reached today because of good choices, good economic policies and staying power with those policies.

GDP growth was a paltry 3% a year in the 1990s. Last year it was over 5%. The fiscal deficit fell from 6 to 4% of GDP. And with tax revenues rising, interest expenses falling, for the first time in over a decade, there was space enough for a significant rise in public investment.

Let's look at interest rates: from a range of 16 to 18%, you're now at 6 to 8% a year. And foreign debt: from way above levels for a ticket to HIPC, you've fallen rapidly. Pakistan's access to foreign market borrowing was tested only a few weeks ago: a $500 million Eurobond purchase at very competitive rates.

Deep in the engine rooms where all this must come together if Pakistan's path ahead is to be sustainable, far-reaching structural reforms have been initiated. An aggressive privatization program; a substantial deregulation – and let me note here that prices of key inputs and agricultural commodities are by and large market determined, all sectors are open to private participation.

And more, import tariff rates have been slashed; the financial sector has been restructured and privatized. The bottom up appearance of elected governments is beginning to strengthen governance; decentralization to local governments is building greater public accountability. And this is backed up by programs to strengthen financial management, the civil service, tax administration and financial sector oversight.

As we celebrate the measurable advances of the past four years that I have just listed, surely every partner and well-wisher to Pakistan's development must pause too. More than one third of this nation's population is poor. Social indicators lag behind those of countries with similar per capita incomes. And moreover, the people of Pakistan have legitimate hopes for a better future, for their children surely. And even for themselves. Government needs to respond to these hopes.

I thought about the scope of this challenge – a Pakistan back in business from north to south, from village to town – and wondered whether it couldn't best be expressed through the following priorities.

My first choice was infrastructure. Investing in infrastructure is one key to sustain growth and increase the delivery of essential services to the poor. Access to water, electricity, sanitation and transport will all need a real increase in infrastructure. And by this I mean building new infrastructure yes, but also institutional and policy reform. Think of the water sector: investment needs are huge from the national to the farm level to be sure. But there is just as much need to improve the productivity of water. This means accountable and transparent services to consumers and farmers.

So with power: reform of this sector is a key priority for growth because it means reducing the sector's huge burden on the budget and freeing up resources for poverty expenditures. I must commend the Government here as I know it has been preparing a Sector Recovery Plan.

Thinking again of priorities, I thought of regional and international integration. Pakistan is already one of the most open countries in South Asia. It can push for deeper regional integration, both within the recently signed South Asia Free Trade Area, and in accordance with WTO principles and multilateralism.

Participation in the global economy can spur growth over a sustained period if associated with domestic policies to raise investment levels and improve its productivity. What is needed is what makes sense domestically: lower the costs of doing business and keep them low; bring taxes down to a uniform level; remove restrictive regulations; bust bureaucratic hassles; and, most importantly, create the environment that allows an ordinary Pakistani family to prosper by making and selling goods and services. And allow that same family to keep those profits so that they in turn will finance further growth and plough back their prosperity.

Turning again to my list of priorities I thought of any nation's most important asset, its people. Pakistan's legacy is one of little attention to human and social development. You all know the list of basic government services: education, health, gender equality, law and justice, access to water. If growth is to be sustained in the long run, this list is non-negotiable. And there are exciting challenges in finding ways to build a new consensus for change in societies used to doing things in old ways.

This will also require a substantial increase in both external resources – particularly concessional funding and grants – as well as in the share of domestic resources to social expenditures. The PRSP already projects strong increases in the share of priority budget allocations to pro-poor expenditures: you've planned to go from 5.4 percent of GDP in FY 2004 to 6.8 percent in FY 2008. Further increases will do even more, through the National Finance Commission Award; through the Provincial Finance Commission mechanism.

And yet, public spending alone won't do it. New levels of local accountability will only be delivered with new ideas, breaking with the old ways of doing things. New ideas harnessing private sector efficiencies will be needed to meet the human development goals.

I am honored to be here today at this my very first Pakistan Development Forum. I am honored too to be in a country that has taken ownership of these important annual gatherings and made them your meetings to deliver Pakistan's agenda, in Islamabad, where such deliberations should indeed be held.

My hope is that next year perhaps we can take an element of this important meeting out of Islamabad. Let's take it closer to the people of Pakistan, let's take it to the roads and villages and take the pulse of business in Pakistan. If we meet some of the goals we are committing to here, we should indeed be able to travel some of those dusty byways and feel that "Pakistan is back in business" there too.