Appendix-I
Policy Initiatives During FY00

Over a long period of time, the government spent more than its resources permitted. As a result, both internal and external debt grew rapidly resulting in a high debt-servicing ratio. Rising debt servicing along with stagnant tax GDP ratio resulted in reduction in development expenditures to reduce the budget deficit, which has adversely affected growth as well as living standard of the poor in Pakistan in recent years. These developments have virtually shaped the Economic Revival Program announced by the government on 15th December 1999. The program focuses on the development of a self-reliant economy and became the main statement of economic policy of the government for the next three years.

The Framework of Economic Revival Program
The program is aimed at stabilization and revival of the economy through reinvigorating productive and institutional capacity. The program is designed to address the medium to long term structural issues alongside institutional and social-sector concerns. The broad framework of the program is as follows:

Taking the country out of the debt trap and achieving self-reliance by gradually eliminating borrowings for non-development purposes and retiring debt through privatization proceeds.

Tax reforms designed for the complete documentation of the economy, minimizing the number of taxes, broadening tax base with a reduction in their rates, simplification of assessment procedures, and an efficient system of dispute resolution.

Growth initiatives in neglected areas such as agriculture, small and medium enterprises, oil and gas sector and information technology.

Launching a proactive program to attack rising poverty.

Grass-root reforms on the principles of merit, efficiency and service in all public sector institutions.

Within the above framework of the Economic Revival Program, the government formulated the following structural reforms in all major sectors of the economy.

1. Fiscal Reforms
Reducing the burden of public debt to a sustainable level through a combination of fiscal deficit reduction and debt retirement.

Reforming the tax system at the grass-roots level and elimination of all loopholes and exemptions. Extension of GST to the retail stage (Appendix VII).

Conducting a major survey to expand the tax base. Introduction of a tax amnesty scheme for voluntary declaration of hidden assets and income. On disclosure of all tax-evaded assets, a payment of only 10 percent as tax to bring them on to their books (Appendix VII).

Rationalization of interest rates on government savings schemes to reduce the cost of non-bank borrowing and minimize the crowding out of private investment.

2. Growth Initiatives
a) Agriculture sector
Increase of wheat and oil seeds production to conserve on imports and leaving agricultural prices to market mechanisms (Appendix IV).

Increasing effectiveness of ADBP to reach out to the small farmers and augmenting credit for agriculture (Appendix IV).

Conservation of water both in terms of rehabilitation of irrigation systems and the revitalization of the on-farms water management projects.

Promotion of fisheries through sustainable exploitation of marine exclusive Economic Zones of the Sindh and Balochistan coast-lines and providing institutional support for value-added exports and the provision of credit in this area.

Allotment of large tracts of evacuee agricultural land to poor landless farmers in the Tharparkar area of Sindh.

Ensuring tax on agricultural incomes.

b) Small and medium enterprises
Giving the highest priority to small and medium industry and facilitating more credit and advisory support for their establishment.

Reviving industrial finance through a restructuring of the banking and financial sector and by lowering the cost of funds.

Establishment of the Corporate and Industrial Restructuring Corporation to revive sick industrial units (Appendix II).

Ensuring an enabling environment and provision of infrastructural and institutional support. Laws relating to trademarks, intellectual property rights, industrial relations, workers' compensation, bonded labor and work conditions will be reviewed and improved.

Making Tariff Commission autonomous and eliminating the misuse of SROs based on nepotism and corruption (Appendix Ix).

c) Energy Sector
Acceleration and development of oil and gas exploration as well as encouraging foreign investment in this sector.

Establishment of regulatory authorities for the development of the oil and gas sectors and encouraging the conversion of power plants from furnace oil to gas.

Development of upstream infrastructure including pipelines for efficient transportation of imports and discovered resources.

Deregulation of the petroleum sector and speeding up the privatization process for retirement of public debt.

Rationalization of margins of oil marketing companies to enable them to invest in storage and other infrastructure.

Deregulation of LPG prices and encouraging the use of CNG.

d) Information Technology and Software Industry
Creation of a new information technology division in the Ministry of Science and Technology to facilitate growth in this sector.

Granting charters liberally for IT based universities to develop a large pool of professionals. IT and software industry will be eligible for export finance.

Expansion of tile use of Internet through reduction in the PTCL tariff structure for data communication.

3. Poverty Alleviation
In contrast to tile approaches adopted in past where poverty reduction was considered as a by-product of the growth process, the government took a major policy shift to bring it at the centre stage of economic policy making. Under this approach, direct anti-poverty programs will be integrated in the macroeconomic framework. The government announced the following specific program towards this end:

Allocating Rs 15 to Rs 20 billion through budgetary re-adjustment for small public works in the poorest urban and rural areas.

Revitalization of food stamps program by making special allocation from the receipt of GST.

Comprehensive reappraisal of the entire Zakat and Ushr system to ensure its utilization by the poor.

Establishment of a Micro-Finance Bank for enhancing the access of the poor to credit (Appendix III).

Small public work initiatives in the poorest and low-income urban and rural areas are expected to have a greater impact on poverty. In the poorest of rural areas the program includes development of farm to market roads, de-silting of canals, lining of water courses, construction of ponds and soil conservation. In the poorest urban areas schemes of water supply and sewerage and garbage collection and disposal will be included. This program will generate significant employment for the poor and will have a positive effect on their income and living standard. The government allocated Rs 2.5 billion for food support program in the current fiscal year, which is five times the size of the earlier program. Under this program 1.26 million poor households having income less than Rs 2000 per month will be given Rs 2000 per annum to buy wheat flour.

Finally, enhancing the access of the poor to credit through Micro-Finance Bank will be beneficial for income generation and employment promotion for the poor. The Bank will do business with established community based organizations (CBOs) and non-governmental organizations (NGOs) involved in micro credit. The Bank will promote the process of establishing community organizations, which can sustain credit operations and promote savings among the poor. The Bank will also finance small infrastructure projects.