DO WORLD BANK AND IMF POLICIES WORK?

DO WORLD BANK AND IMF POLICIES WORK?

Also by Shahrukh Rafi Khan HANDING BACK RURAL WATER SUPPLY SCHEMES TO COMMUNITIES: A Case for Collective Action JUST DEVELOPMENT: Beyond Adjustment with a Human Face FIFTY YEARS OF PAKISTAN'S ECONOMY: Traditional Issues and New Concerns

Do World Bank and IMF Policies Work? Shahrukh Rafi Khan Executive Director Sustainable Development Policy Institute Islamabad Pakistan

First published in Great Britain 1999 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world A catalogue record for this book is available from the British Library. ISBN 978-1-349-40745-3 DOI 10.1057/9780230373259 ISBN 978-0-230-37325-9 (ebook) First published in the United States of America 1999 by ST. MARTIN'S PRESS, INC., Scholarly and Reference Division. 175 Fifth Avenue, New York. N.Y. 10010 Library of Congress Cataloging-in-Publication Data Khan, Shahrukh Rafi. Do World Bank and IMF policies work') I Shahrukh Rafi Khan. p. em. Includes bibliographical references and index. ISBN 978-0-312-21704-4 (cloth) I. World Bank. 2. International Monetary Fund. 3. Banks and banking, International. I. Title. HG3881.5.W57K48 1998 332.1 '5-dc21 Shahrukh Rafi Khan 1999 Soticover reprint of the hardcover 1st edition 1999 978-0-333-73361-5 98-27631 CIP All rights reserved. No reproduction, copy or transmission of this publication may he made without written permission. No paragraph of this publication may he reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road. London WIP 9HE. Any person who does any unauthorised act in relation to this publication may he liable to criminal prosecution and civil claims for damages. The author has asserted his right to he identified as the author of this work in accordance with the Copyright. Designs and Patents Act 1988. This hook is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 08 07 06 05 ISBN 978-0-312-21704-4 6 5 4 3 04 03 02 01 2 I 00 99

For Stephanie, Sophia and Lila

Contents List of Tables Vlll Introduction Part I Testing Hypotheses Structural Adjustment, Aid, Debt and Growth 2 Devaluation and the Balance of Trade 3 4 5 Financial Sector Reform Comparative Privatization Experience: Employee and Private Ownership Structural Adjustment, Industrialization and Export Promotion Part II Assessing Impact 6 Structural Adjustment, Labour and the Poor 7 Gender and Structural Adjustment 8 Structural Adjustment and Health 9 Trade Liberalization and the Environment 10 Structural Adjustment and Food Security Summary and Conclusion 13 15 32 48 64 85 Ill 113 124 138!54 169 190 Index 195

List of Tables l.l Terms of debt 16 1.2 Debt ratios and debt indicators 17 1.3 Granger causality test results 21 1.4 Sensitivity analysis to assess the negative growth-aid association 22 1.5 Granger causality between aid and growth 30 2.1 Aggregate export and import demand functions 37 2.2 Export demand functions using the IV method 38 2.3 Estimates of the currency tax 46 3.1 Association of the saving rate with the real interest rate 49 3.2 Association of financial deepening with real interest rates 50 3.3 Association of inverse ICOR with the real interest rate 51 3.4 Association of the growth rate with the real interest rate 52 3.5 Percentage distribution of bank advances 53 3.6 Association of the budget deficit with the yield on government securities 54 3.7 Profit-asset ratios of commercial banks 62 3.8 Commercial banks' deposit growth rates 62 3.9 Loan recovery in major commercial banks 63 3.10 Non-performing loans as a proportion of total loans disbursed 63 4.1 Performance of Sind Alkalis before and after privatization 69 4.2 Comparative performance indicators for the tractor industry 72 4.3 Comparative performance indicators for the ghee industry 78 5.1 Weighted average mark-ups on imported goods 86 5.2 Sources of industrial growth 90 5.3 Size and annual average growth rates of industry, manufacturing and export ratios 92 5.4 Pakistan's industry, manufacturing and export ratios compared to that of low income countries 93 5.5 The extent to which the actual size of industry and export GDP ratios differ from potential 95 5.6 Cross-country regression to identify potential size of industry and exports 104 5.7 Growth equations: externality and productivity effect of the industry and manufacturing sectors 105 5.8 Exports 106

List of Tables IX 5.9 Import substitution 107 5.10 Domestic demand 108 6.1 Changes in household monthly real income I 14 6.2 Share of public sector employment cost in public expenditure and GOP 115 6.3 Unemployment rates by occupational categories 116 6.4 Nominal daily wage of skilled and unskilled workers deflated by the food price index 117 6.5 Inequality and absolute poverty 117 6.6 Proportion of total government spending on subsidies, social sectors, interest payments and defence 119 6.7 Subsidies on wheat, sugar and edible oil as a percentage of current subsidies 119 6.8 Expenditure on wheat and fuel as a proportion of total household expenditure 120 7.1 Labour force participation rates by age and gender 126 7.2 Selected labour force statistics by gender 127 7.3 Annual percentage change in the sensitive and general consumer price index 127 7.4 Average retail price level of wheat and wheat flour 128 7.5 Percentage under 70 per cent of RDA of calories by gender 129 7.6 Expenditure on education and health as a percentage of GOP 130 7.7 School participation rates by level and gender 131 7.8 Childhood mortality rates by gender 132 8.1 Time series development and recurring health expenditure 143 8.2 Access to health facilities and personnel 144 8.3 Child survival and other health indicators 147 8.4 Determinants of the infant mortality rate 148 8.5 Provincial government receipts from health services 150 9.1 Pesticide tariff, import and domestic production 158 9.2 Estimated value of major crop saving from pesticide use 159 9.3 Import, production and subsidy on fertilizers 161 9.4 Benefits of fertilizer use 162 10.1 Major food imports as a percentage of total domestic production 171 10.2 Percentage daily expenditure, caloric and protein intake from major food items for the lower income group 172 10.3 Area under major crop categories as a percentage of total area under cultivation 173 10.4 Production under major crop categories 174

X List of Tables 10.5 Per capita availability of major foods 176 10.6 Inflation rates for food, non-food and wheat 179 10.7 Change in land ownership and cultivated area by farm size 181 10.8 Cobb-Douglas agricultural production functions 187 10.9 Daily per capita caloric intake by income group 188 10.10 Daily per capita protein intake by income group 189