ishrat husain : why do perceptions about the pakistani economy differ? address by dr ishrat husain, governor of the state bank of pakistan, to the english speaking union in karachi, 5 july 2001. * * * an extremely important question has been raised by several commentators and observers of pakistan economy : why is it that the external donors believe that pakistani economy is doing well while the public and press in pakistan think otherwise? this question needs to be analysed carefully and dispassionately in order to identify the factors responsible for such differing perceptions. i have dwelt on this subject earlier also but i thought i should deal with it at some length once again. we should begin by specifying the initial expectations of the two groups. the external donors had concluded that successive pakistani governments had entered into agreements during the last 10 years with promises of serious structural reforms but failed to deliver on most of these promises. in their view pakistan suffered from a serious credibility gap and, until and unless, the present government demonstrated a strong commitment and delivered most of those unfulfilled promises upfront, there was no way pakistan could qualify for any medium - term assistance. pakistan, therefore, was asked to prove its seriousness by first completing all those actions the previous governments had promised but not fulfilled. these actions covered the entire range of economic activities and sectors and affected every segment of the population. there were many actions which were required to be taken and i have spelled them out elsewhere and will therefore not repeat them here. it is not implied that these actions did not make any economic sense or were not justified in pakistan ’ s own economic interests but the important point to note is that all these actions had to be completed within a period of 12 - 15 months in order to qualify for the stand - by - arrangements ( sba ), balance of payments support loans from adb and world bank and rescheduling of external debt owed to bilateral creditors. the timing, sequencing and phasing of these reforms were not necessarily those which the pakistani authorities would have preferred had they complete say in the matter. the government of pakistan has either completed or is implementing most of the above actions. this has established a favorable track record and restored the country ’ s credibility among the international financial community and bilateral donors. imf has already released two tranches under the sba and the third tranche is likely to be released by mid - july. the world bank has released the structural adjustment credit which

. how can the perceptions of these two groups be ever reconciled or would they continue to differ? no government – civilian or military – can afford to ignore the genuine aspirations of its domestic constituents. but there is a transition period before which the new goal of shared and equitable growth can be achieved. in a society where sifarish, connections and exchange of favors have propelled the governance of the country for such long time it is very difficult to change the mind set or the prevailing value system. equally difficult is to convince that any ruling class can take decisions which are not based on their personal interests. for the next three to five years, pakistan has to stay the course, continue on the reform path it has set for itself steadfastly and bring about fundamental structural changes in our governance and institutional structure. this hard struggle is the only sure way to reduce our vulnerabilities and dependence on the imf. why can ’ t this be done now or earlier? because the resource generation capacity of the economy is still and will remain below the debt servicing obligations for several years. once we have attained the stage where our fiscal and external accounts are no longer in such a state of chronic imbalances as they are today we will be able to attain our economic sovereignty. this will provide the government ample fiscal space for increasing development expenditures, expanding infrastructure facilities and thus enabling the private sector to reduce its cost of production and distribution, and most importantly allow public sector to invest in technology, skill development, training and other aspects of high level manpower upgradation which will help our competitiveness in global market place. at the same time, the rules of game for the private sector have to be changed where privileges, protection and pampering of a chosen few should give way to a level playing field for all where work ethic, enterprising behavior and productivity enhancement are rewarded. the community and non - government organizations should also engage along with the local governments in promoting primary education, basic health services, potable water supply and sanitation to the vast majority of the population. this public - private - community partnership will lead pakistan into the era of self - reliance, economic growth and social stability and poverty alleviation. there are those who argue that alternative solutions which gives primacy to growth should have been adopted. as an economist i am not quite sure as to how this can be done on a sustainable basis. economic management involves trade offs and choices among various competing demands. government can, of course, in