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  #11  
Old Friday, February 18, 2011
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@Xaara: I hav read this pasted stuff about New great game. I am unable to understand these two tools of NGG i.e Geopolitics and petroleum politics. i tried to search on google too but found out that unho na b yahi sb chaapa howa hai, aap k notes wala :P (wikipedia)
Tell me hav u understood these two?

Also if anyone can provide some diagram or pictorial representation of this new great game, then it will be really helpful.
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  #12  
Old Friday, February 18, 2011
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Originally Posted by usmanamjad877 View Post
@Xaara: I hav read this pasted stuff about New great game. I am unable to understand these two tools of NGG i.e Geopolitics and petroleum politics. i tried to search on google too but found out that unho na b yahi sb chaapa howa hai, aap k notes wala :P (wikipedia)
Tell me hav u understood these two?

Also if anyone can provide some diagram or pictorial representation of this new great game, then it will be really helpful.
A PIPELINE THROUGH A TROUBLED LAND: AFGHANISTAN, CANADA, AND THE NEW GREAT ENERGY GAME

A glance at a map and a little knowledge of the region suggest that the real reasons for Western military involvement may be largely hidden.

Afghanistan is adjacent to Middle Eastern countries that are rich in oil and natural gas. And though Afghanistan may have little petroleum itself, it borders both Iran and Turkmenistan, countries with the second and third largest natural gas reserves in the world. (Russia is first.)

Turkmenistan is the country nobody talks about. Its huge reserves of natural gas can only get to market through pipelines. Until 1991, it was part of the Soviet Union and its gas flowed only north through Soviet pipelines. Now the Russians plan a new pipeline north. The Chinese are building a new pipeline east. The U.S. is pushing for "multiple oil and gas export routes." High-level Russian, Chinese and American delegations visit Turkmenistan frequently to discuss energy. The U.S. even has a special envoy for Eurasian energy diplomacy.

Rivalry for pipeline routes and energy resources reflects competition for power and control in the region. Pipelines are important today in the same way that railway building was important in the 19th century. They connect trading partners and influence the regional balance of power. Afghanistan is a strategic piece of real estate in the geopolitical struggle for power and dominance in the region.

Since the 1990s, Washington has promoted a natural gas pipeline south through Afghanistan. The route would pass through Kandahar province. In 2007, Richard Boucher, U.S. assistant secretary of state, said: "One of our goals is to stabilize Afghanistan," and to link South and Central Asia "so that energy can flow to the south." Oil and gas have motivated U.S. involvement in the Middle East for decades. Unwittingly or willingly, Canadian forces are supporting American goals.

The proposed pipeline is called TAPI, after the initials of the four participating countries (Turkmenistan, Afghanistan, Pakistan and India). Eleven high-level planning meetings have been held during the past seven years, with Asian Development Bank sponsorship and multilateral support (including Canada's). Construction is planned to start next year.

The pipeline project was documented at three donor conferences on Afghanistan in the past three years and is referenced in the 2008 Afghan Development Plan. Canada was represented at these conferences at the ministerial level. Thus, our leaders must know. Yet they avoid discussion of the planned pipeline through Afghanistan.

The 2008 Manley Report, a foundation for extending the Canadian mission to 2011, ignored energy issues. It talked about Afghanistan as if it were an island, albeit with a porous Pakistani border. Prime Minister Stephen Harper says he "will withdraw the bulk of the military forces" in 2011. The remaining troops will focus mostly on "reconstruction and development." Does that include the pipeline?

Pipeline rivalry is slightly more visible in Europe. Ukraine is the main gateway for gas from Russia to Europe. The United States has pushed for alternate pipelines and encouraged European countries to diversify their sources of supply. Recently built pipelines for oil and gas originate in Azerbaijan and extend through Georgia to Turkey. They are the jewels in the crown of U.S. strategy to bypass Russia and Iran.

The rivalry continues with plans for new gas pipelines to Europe from Russia and the Caspian region. The Russians plan South Stream – a pipeline under the Black Sea to Bulgaria. The European Union and U.S. are backing a pipeline called Nabucco that would supply gas to Europe via Turkey. Nabucco would get some gas from Azerbaijan, but that country doesn't have enough. Additional supply could come from Turkmenistan, but Russia is blocking a link across the Caspian Sea. Iran offers another source, but the U.S. is blocking the use of Iranian gas.

Meanwhile, Iran is planning a pipeline to deliver gas east to Pakistan and India. Pakistan has agreed in principle, but India has yet to do so. It's an alternative to the long-planned, U.S.-supported pipeline from Turkmenistan through Afghanistan to Pakistan and India.

A very big game is underway, with geopolitics intruding everywhere. U.S. journalist Steven LeVine describes American policy in the region as "pipeline-driven." Other countries are pushing for pipeline routes, too. The energy game remains largely hidden; the focus is on humanitarian, development and national security concerns. In Canada, Afghanistan has been avoided in the past two elections.

With the U.S. surge underway and the British ambassador to Washington predicting a decades-long commitment, it's reasonable to ask: Why are the U.S. and NATO in Afghanistan? Could the motivation be power, a permanent military bridgehead, access to energy resources?

Militarizing energy has a high price in dollars, lives and morality. There are long-term consequences for everyone. Canadian voters want to know: Why is Afghanistan so important?

John Foster is an energy economist and author of "A Pipeline Through A Troubled Land – Afghanistan, Canada, and the New Great Energy Game," published by the Canadian Centre for Policy Alternatives. It is avaialble online at http://www.policyalternatives.ca/doc...ubled_Land.pdf

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  #13  
Old Friday, February 18, 2011
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Default Pakistan and the central asian states

Introduction

The Central Asian States (CAS), i.e., Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, with a total population of over 60 millions spread over an area of about four million square kilometers, are located on historical Silk Route. The region has adjoining borders with South Asia, West Asia, China and Russia and is of great geo-strategic and politico-economic importance. Its potential is attracting the attention of extra regional powers.

Pakistan-Central Asia relations are based on geographical proximity, common history, religion, culture, traditions, values and destiny. Pakistan and these states can work together in matters of security, stability and development of the region.

They can collaborate in numerous areas, such as scientific and technical fields, banking, insurance, information technology, pharmaceutical industry, tourism and media. The economies of CAS and Pakistan are complementary to each other. There is cooperation in several spheres, notably, war against terrorism, combating religious extremism and drug trafficking.

CURRENT SCENARIO OF RELATIONS BETWEEN PAKISTAN AND
CENTRAL ASIAN STATES


1. ECO, PAKISTAN & Central Asian States

• Pakistan and Central Asian States are also the members of Economic Cooperation Organization; it provides a good opportunity for the Heads of State and Government to meet. Bilateral meetings on the sidelines offer a closer focus on bilateral relations

2. Common Security Policy

• There is a desire in Pakistan that the Economic Cooperation Organization (ECO) of the Central Asian States, which is basically an economic grouping, should try to assume a political role and in due course of time also aspire to the possibility of geopolitical and geo-economic role.

• ECO may help in adopting a common security policy on similar grounds as pursued by EU in the European States combating religious extremism and Terrorism.

3. Trade and Economic Cooperation

Pakistan should concentrate on the economic and trade ties with CA States.

• An important agreement has been concluded with Germany for a rail-road from Hamburg to Shanghai, through Eastern Europe, Moscow, Tashkent, Kabul, Lahore, Delhi and Shanghai. This would open the rich mineral deposits of Uzbekistan and Kazhakistan for exploration and export byPakistan and through the Arabian Sea again, with a new railway road from the Khyber Pass to the Russian land.

4. Investing in Untapped Natural Resources of CA States

• Although Central Asian States are land-locked and dependent on other regional partners for export purposes but still all eyes are set on central Asian States. The Caspian Sea inCentral Asia contains the world’s largest untapped oil and gas resources. All countries in the region are getting close to Central Asian States and they geared up their trade.
• Pakistan’s loans of $ 10 to 30 million to each of the CA States and its commitment to cooperate in the building of $500 million hydel power station in Tajikstan are some of the many indicators of its keen wish to assist them in their economic development.

5. Direct Air Link

• The expansion of PIA’s air network to Tashkent in Uzbekistan and Alma Ata in Kazakstan is a major step forward in cementing ties with these two states. The PIA is has finalized plans for air services to the capitals of the other three Central Asian States

6. Cooperation in Admission to OIC

• Pakistan cooperated with the CA States in their admission to the Organization of the Islamic Conference (OIC).

7. Communication Network and Media exchanges

• Radio Pakistan is working on projects to strengthen its service for the Central Asian region so that the people there can be informed and educated aboutPakistan in their own native languages.
• An expansion of Pakistan Television’s transmission facilities in Peshawar can enable it to beam its TV programmes to the entire Central Asian region, covering all of Afghanistan as well.
• Media exchanges between Pakistan and the Central Asian States are at present skimpy and their canvas must be expanded rapidly.

8. Establishment of Joint Economic Commission

• Pakistan developed institutionalized arrangement to promote cooperation in the economic and commercial fields. For this purpose Joint Economic Commissions (JECs) have been established with all the Central Asian States.

9. Technical Assistance Programme

• Under Technical Assistance Program initiated in 1992-3 Pakistan provided training facilities, which are fully funded. The Program includes courses ranging from English language, banking and accountancy to diplomacy. These have contributed to better understanding and closer cooperation.Pakistan wishes to keep up the momentum

MEASURES TO IMPROVE THE RELATIONS WITH CA STATES


Following measures and implementations will improve the ties between Pakistan and Central Asian states.

1. Pakistan-An attraction of Shortest Land Route

• Pakistan would enjoy the role of middle man between the SAARC, ECO and EEC and the attraction of the shortest land route to the Arabian Sea, Persian Gulf and the Black Sea would clearly give discomfort to Russia.

2. Encourage Mutual Trade

• The Government of Pakistan, despite its economic difficulties, should provided more credit facilities to the Central Asian States to encourage mutual trade and the setting up of stable banking channels.

3. Better Port Facilities for Handling the Transit Trade

• Despite their ethnic bonds with Turkey. Iran and Afghanistan, the CA States can benefit more from Pakistan’s port facilities, trade and commerce with the countries in tire Southern Hemisphere.
• The ports of Abadan and Bander Abbas in Iran and the Karachi port in Pakistan can handle this transit trade by expanding their facilities rapidly. The Tajik capital of Dushanbe is about 3000 kilometers from Bander Abbas in Iran and about 2200 kilometers from Karachi while the Black Sea port of Odessa for access to the Mediterranean is about 4200 kilometers away

4. Speedy Implementation of Projects

• Bilaterally and through the ECO, many schemes and projects for intra-regional cooperation in trade and travel, industrial enterprises as joint ventures, banking and exchange of technology and technical know-how are rapidly emerging, whose speedy implementation would be to their mutual advantage.

5. Expertise in Banking system to be shared

• A strong, modern banking system capable of operating internationally without dependence on or control by Moscow, is a dire need of all Central Asian States andPakistan has the expertise and the infrastructure to assist them in this direction.

6. Joint Shipping Company to be established

• The landlocked Central Asian states can even set up a joint shipping company with Pakistan under the aegis of the EC.O to handle a large part of their transit trade.

7. Gwadar Port- An Asset for Pakistan and the Central Asian States

• If Pakistan speeds up the development of the Gawadar port on the Baluchistan coast into a large-size modern port, it can be an asset for this province as well as for the CA States.

8. Trade via the Land Route

• Kazakstan’s ruling leaders, who are energetically improving their relation with Beijing, have shown interest in building rail and road links with Urumchi, capital of the Chinese province of Xinjiang, and thus using the Karakorum Highway betweenPakistan and China for trade via the land route.

9. Cheap Air Cargo Service

• A cheap and regular air cargo service between Pakistan and the CA states is the need of the hour.

10. Dynamic Railway Network

• The Pakistan railway network, which runs Zahidan in Iran, should he linked via Iran with Turkmenistan, Pakistan and China are now working on the expansion of the Sino-Pakistan and Karakorum Highway in such a way that it will be extended to Tajikistan, Kyrgistan and Kazakstan will give a boost to intra-regional trade among these states.

11. Pakistan to invite senior editors of newspapers of CA States

• Pakistan should invite senior editors of newspapers of the Central Asian States to Pakistan and provide them with ample opportunities to know facts for themselves and to study Pakistan’s economic development, especially its industrialization, in the past 48 years of its independence

12. Business Encouragement backed by the Governments of Pakistan in CA States

• With Governmental encouragements, Pakistani entrepreneurs can set up industrial units in Uzbekistan, Kazakstan and other CA states, especially for footwear, textiles, building materials, agro-processing, cold storage, petro-chemicals, garments and pharmaceuticals.

13. Cooperation Between the Universities

• There is immense scope for cooperation between the Universities of Pakistan and those in the CA States. Pakistan, which has a low literacy rate of 30 per cent, can learn a great deal from the CA States which have made nearly 95 per cent of their population literate. It would have a salubrious effect on their relations with Pakistan for their mutual benefit.

14. Improved Regional Security is to be improved

• Pakistan’s relations with the Central Asian Republics have made good progress during the past few years.
• With improved regional security after the fall of the Taliban, Afghanistan, Turkmenistan and Pakistan have decided to push ahead with plans for the ambitious 1,500-kilometre-long gas pipeline. The leaders of the three countries have signed a framework agreement (The Trans Afghanistan Pipeline).
• The Trans-Afghanistan pipeline would export Turkmen gas (from Dualtabad gas field) via Afghanistan to Pakistan, from where it could reach world markets. Proponents of the project see it as a modern continuation of the Silk Road.
• The Asian Development Bank is the leading coordinating financial and technical partner.

CONCLUSION

The stabilization and steady expansion of these relations may take time and would require deft, patient and wise handling on the part of the States concerned. A time may come, perhaps sooner than expected, when Turkey, Pakistan, Iran, Afghanistan and the six West and Central Asian States; having a population of nearly 300 million and an area larger than that of the SAARC region, may form a Common Market.

In the meantime, Central Asia and Pakistan must keep on vigorously pursing the peace option in Afghanistan. Mutual Pak-Afghan trade is expected to reach Rs one billion in this year.

In the final analysis, it is the “Afghan corridor” that is still blocking Pakistan’s physical access to the CARs, and, vice versa, only its unblocking will materialize the connectivity with South and Southeast Asia. Unfortunately, the war-tossed Afghanistan remains a major stumbling block. Yet it holds the ultimate key for Pakistan to gain access to the CARs. Therefore, all efforts need to be focused to pry open this passage to gain access to the ex-Soviet republics.

While regional and international circumstances have no doubt conspired against Pakistan, the latter should leave no stone unturned in combating international terrorism, building a sound infrastructure along Pakistan-Afghan border and cleansing its own fractious tribal belt of foreign militants. At the same time, there is a dire need in setting its political house in order by co-opting major political parties and regaining the trust and goodwill of Afghans through trade, assistance and policy of non-interference.
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  #14  
Old Saturday, February 19, 2011
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Originally Posted by xaara~hussain View Post
NFC Awards


Controversy on Sales Tax:
A peep into revenue distribution history of the sub continent reveals that sales tax was in exclusive domain of provincial governments before 1947. It was partly federalized to the extent of 50 per cent in 1948-49 budget, the first of independent Pakistan, to meet the impact of massive refugee influx in Karachi which was then the federal capital.
it was in 1974 NFC award that sales tax was completely federalized and the noises made in Karachi were ignored. It declared population as the only criterion for distribution of revenue.

Constitutional trick « Technology News, Free Wallpapers, Download Icons, News, NewsPapers, Inspiration, Jung, Ummat, Dawn, Jazba, Nawa e Waqt, Jasarat

Check out 8th peragraph pf this link which i pasted above. According to it in year 52-53 this sales tax was permanently made federal matter. Now which one is correct
Can anybody help??


@Xaara: Wikipedia is not a trust able site. So please try to avoid it in using for notes etc.
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Old Saturday, February 19, 2011
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Originally Posted by usmanamjad877 View Post
Constitutional trick « Technology News, Free Wallpapers, Download Icons, News, NewsPapers, Inspiration, Jung, Ummat, Dawn, Jazba, Nawa e Waqt, Jasarat

Check out 8th peragraph pf this link which i pasted above. According to it in year 52-53 this sales tax was permanently made federal matter. Now which one is correct
Can anybody help??


@Xaara: Wikipedia is not a trust able site. So please try to avoid it in using for notes etc.
Dear its not about being reliable its about the timing especially in current affairs.so, data may change likewise.

I personally prefer wikipedia as it is systematic and has proper introduction and covers every aspect of topic. and BTW not all notes are from wikipedia. I have dig in a lot of sources. data wghaira har jaga available hota hai.

coming to ur problem,COMPLETELY and PERMANENTLY main bohot farq hai. agar ap NFC theek se smjhain ge to u will get the point,is main aisi conflict wali koi baat nahi..53 main it was to stay with centre, but not'completely'.In 74, it was COMPLETELY federalized
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Old Sunday, February 20, 2011
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Default The U.S.-India Nuclear Deal

The U.S.-India Nuclear Deal

Introduction
 The joint statement released by President Bush and Indian Prime Minister Manmohan Singh on July 18, 2005, the deal provides U.S. assistance to India's civilian nuclear energy program, and expands U.S.-India cooperation in energy and satellite technology.
 This deal reverses nonproliferation efforts, undermines attempts to prevent states like Iran and North Korea from acquiring nuclear weapons, and potentially contributes to a nuclear arms race in Asia.
 In July 2009, New Delhi designated two sites for U.S. companies to build nuclear reactors in India.

What are the terms of the deal?
 As already mentioned, India has achieved unique status. It has ended 34 years of nuclear isolation for India after Pokhran tests of 1974. Moreover, India has achieved this without signing NPT or CTBT.
 Now India can carry out nuclear trade, gets options for nuclear power and access to sensitive hi-tech that will boost up Indian industries like IT, space, power, defense and manufacturing.
 India has come closer to developed nations like US, UK, France, Germany, Russia, Japan, Australia.
 India would be eligible to buy U.S. dual-use nuclear technology, including materials and equipment that could be used to enrich uranium or reprocess plutonium, potentially creating the material for nuclear bombs. It would also receive imported fuel for its nuclear reactors.
 The deal does not require India to cap or limit its fissile material production.
 With the help of this deal, India can improve its productivity at nuclear plants as now fuel flows will be better. India can now meet its nuclear energy target by 2020.
 India agrees to continue its moratorium on nuclear weapons testing.
 India commits to strengthening the security of its nuclear arsenals.
 India works toward negotiating a Fissile Material Cutoff Treaty (FMCT) with the United States banning the production of fissile material for weapons purposes.
 India would be eligible to buy U.S. dual-use nuclear technology, including materials and equipment that could be used to enrich uranium or reprocess plutonium, potentially creating the material for nuclear bombs. It would also receive imported fuel for its nuclear reactors.

What are the objections to the agreement?
 Critics say that it will prevent New Delhi from continuing to produce nuclear weapons.
 "We are going to be sending, or allowing others to send, fresh fuel to India-including yellowcake and lightly enriched uraniumt-that will free up Indian domestic sources of fuel to be solely dedicated to making many more bombs than they would otherwise have been able to make," says Henry Sokolski.
 India could use the imported nuclear fuel to feed its civilian energy program while diverting its own nuclear fuel to weapons production.
 A Congressional Research Service report (PDF) on the agreement states, "There are no measures in this global partnership to restrain India's nuclear weapons program."
 The deal does not require India to restrict the number of nuclear weapons it plans to produce.

What effect will the U.S.-India deal have on the NPT?
 Article I of the NPT says nations that possess nuclear weapons agree not to help states that do not possess weapons to acquire them.
 David Albright, president of the Institute for Science and International Security, says "this deal could pose serious risks to the security of the United States" by potentially allowing Indian companies to proliferate banned nuclear technology around the world.
 It could lead other suppliers-including Russia and China-to bend the international rules so they can sell their own nuclear technology to other countries, some of them hostile to the United States.

What role does China play in the U.S.-Indian nuclear deal?
 "The United States is trying to cement its relationship with the world's largest democracy in order to counterbalance China,"
 Some experts say the growing economic relationship between China and India is so critical to New Delhi that its interests in China cannot be threatened or replaced by any agreement with the United States.
 Other experts worry U.S. nuclear aid to India could foster a dangerous nuclear rivalry between India and China.

What effect will the deal have on U.S. and Indian relations with Pakistan?
 This apparent U.S. favoritism toward India could increase the nuclear rivalry between the intensely competitive nations, and potentially raise tensions in the already dangerous region.
 Some experts worry the U.S.-India deal could prompt Pakistan to go elsewhere, for instance to China, for similar terms.
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Default Rgst

The Reformed General Sales Tax (RGST) Bill has become the latest ground for political games. While the Pakistan People’s Party (PPP) calls it a necessity, almost all parties are in strong opposition. Amidst the political rhetoric, economic experts are siding with the proposed taxation system and the public is flinching at the thought of yet another price hike.

What is the RGST? Why is it suddenly so important? Is it really as evil as they say?

Here are a few answers.

What is the RGST?

The RGST is actually plain old Value Added Tax (VAT) with a new name. Since the VAT has already had its fill of bad publicity, the government decided it would be a smart move to rename and repackage the new taxation system.

The RGST is a taxation system that operates by an addition of 15 per cent tax on each and every value addition on taxable products.

Who is involved?

The key players behind the proposed RGST are the International Monetary Fund (IMF), the World Bank, United States Mission to the European Union (USEU) and other assorted donors who are tired of paying their taxpayers money to cover up for the leaks in our taxation system. But this is not to say that we do not need reforms in our taxation system. The International Monetary Organisations might be the catalysts towards the reforms just now, but in all reality, tax reforms have been long overdue.

Those who will be affected in one way or other are the suppliers, the manufacturers and the retailers who will all have to maintain and disclose proper sales and production records and would thus find tax evasion pretty difficult. Of course, the real victims are the consumers who would bear the burden of higher costs.

Why implement the RGST?

The government is trying its best to impose the RGST mostly because there is no way out of it this time.

The imposition of more taxes is a condition to which the IMF had agreed to give a monetary injection to the failing economy of the country. Add flood related damage to the economy and conditions of the donor countries, and the imposition of the new tax has become a must.

Although the RGST is being imposed under pressure, economic experts say that Pakistan was in dire need of it. The new system of taxes will not only raise our revenue but also help in documenting the economic growth.

When will RGST be implemented?

The originally proposed VAT was supposed to come in effect back in July, but due to massive public and political backlash, the government was forced to delay the imposition.

Now, the RGST Bill has been passed by the Senate. Eventually, it will be discussed in the Parliament and will be passed unless rejected through a vote. The government needs just a simple majority to pass the Bill. As soon as is passed by the Parliament, the RGST will be imposed.

How will it impact you?

The new tax does have a wider reach than the old GST. When the RGST is imposed, everyone from the suppliers to the middleman in small and large businesses will be brought within the tax net.

Unlike the old GST, the RGST will not be imposed just on the final price of a product; rather, a certain amount of tax will be added at each stage of production.

For example if a supplier sells raw material worth Rs100 to a manufacturer, he would charge Rs115 instead of Rs100, and remit the extra Rs15 as tax.

After manufacturing the product, the manufacturer, for example, adds a profit of Rs2o. The product now costs Rs135, but instead of selling it to the retailer at Rs135, the manufacturer will add another 15 per cent to the value addition of Rs20 which will bring up the cost to Rs138. The extra Rs3 will be remitted as tax.

Finally, the retailer will add his profit. Assuming that is another Rs20, the price of the product is now up to Rs158 again. Instead of selling it at Rs158, the retailer will add yet another 15 per cent of the value addition and the final cost will be Rs161. The retailer will then pay the added tax back to the treasury.

There are exemptions and conditions, but so far the glitches are being worked out. According to economic experts, this system of taxation will help bring more people into the tax net. Not just that, tax evasion will become more and more difficult. Since everyone will be documenting and paying the tax at each level, any attempt at tax evasion will automatically be highlighted





The Need for RGST: Pakistan desperately needs to increase its tax revenues by adopting a more wide-ranging, modern sales tax on products and services. The Sales Tax Act of 1990 was based on established value added taxation principles but due to revenue exigencies and political compromises, it became increasingly narrow-based and distorted, with ever-growing list of exemptions, multiplicity of rates, special regimes and a number of other deviations from the best international practices and concepts, making it more ineffective over time. Consequently, not only has the tax base of income and sales taxes been crumbling but insufficient data on the national economy has also proved to be a substantial obstacle in the implementation of a sound tax policy. The PPP government has already stated that reforms in General Sales Tax has become inevitable in the post flood conditions. Apart from helping the government achieve the annual revenue target it has set for 2010-11, RGST would also generate resources for flood victims. The government had set a tax collection goal of 1667 billion rupees for the current fiscal year; however, following the devastating floods, it is believed that it would only be able to collect 1604 billion dollars. To cover the shortfalls during the period of January 1, to June 30, 2011, according to an estimate reported in the media, rupees 30 billion were to be collected through the imposition of RGST, 40 billion from Flood Income Tax Surcharge, while Special Excise Duty was to produce around 12 billion.

If approved, the RGST will be implemented on commission-based agents, doctors, lawyers, engineers, financial services, courier services, advertisement services, customs, construction, edible products and other general goods. The new tax system is expected to generate 100 billion rupees in revenue. It is believed that a failure to adopt the RGST will lead to a record budget deficit of 1.2 trillion rupees, which may force the government to borrow more than one trillion rupees from the domestic market to finance the deficit. In that case, the Central Bank of Pakistan may have to raise the interest rates by up to 2% in order to counterbalance the inflationary impact. The government has already borrowed 200 billion rupees from the central bank for financing the budget deficit. Meanwhile, revenue collection during the first five months of the current financial year is already lagging behind the target by 76 billion rupees. "The increasing gap between income and spending will shift almost the entire burden of financing on domestic sources," a source said. The State Bank has admitted that the government borrowing to finance the budget deficit is fuelling inflation, causing interest rates to rise. Officials of the Ministry of Finance claim that if the government fails to get the RGST approved from the National Assembly, it will result in the discontinuation of foreign aid including payments of the US Coalition Support Fund and funding from IMF that Pakistan desperately needs. The IMF's suspended bailout program for Pakistan still has two installments left that are worth 3.4 billion dollars. In face of the political challenges, IMF recently agreed to give Pakistan more time to carry out reforms.

Positions Of Different Political Parties On RGST: The Reformed General Sales Tax (RGST) was approved by Pakistan's Senate Assembly on 26th November under controversial circumstances. In the post flood scenario, RGST has widened the rifts with in the Pakistan Peoples Party (PPP) alliance. PPP is totally supportive of RGST and wants it to be approved at any cost. Opposition parties, public and civil societies, on the other hand, are against the bill, as they believe that RGST will almost double burden of ever-growing inflation rates on the poor. Opposition, as well as some of the key alliance partners of the PPP-led government, opposed the imposition of the tax, while Pakistan Muslim League-Q members walked out of the House. The GST Reforms Bill was expected to be tabled in the National Assembly on 20th December for final approval but has been delayed due to parting previously of Jamiate Ulema-e-Islam-F, and now Muttahida Qaumi Movement (MQM), from the PPP led ruling coalition. Recent negotiations between PPP and its key ally MQM over the implementation of RGST failed. MQM desires direct taxes to be imposed on the agricultural sector- a move that according to them can broaden the nation's tax base, which currently stands at just 1.8 million or 1% of the total population. "We will not support RGST even if we are killed" said Senator Abdul Khaliq Pirzada of MQM, indicating how serious the party is in attempts to block the imposition of RGST. The other key allies of the PPP led government-Awami National Party (ANP) and JUI-F have also opposed the enforcement of RGST. According to JUI-F's Maulana Muhammad Khan Sheerani, the implementation of RGST would create new opportunities for corruption, multiply the problems faced by the public and push the country in the direction of anarchy. ANP's Haji Adeel stated that his party would continue to oppose the bill until the government accepts their suggestions. PML-N, Pakistan's main opposition party, has claimed that it would oppose the RGST in the National Assembly. "The PML-N will strongly oppose the RGST in the National Assembly and it has also decided to contact the other political parties in this regard," head of PML-N Nawaz Sharif stated at a meeting of his party's Central Organizing Committee. According to him, the implementation of RGST is likely to cause price inflation and would directly affect the ordinary people.

The Future of Tax Collection, Extremism and Floods: Given strong resistance from prominent political parties and the general public, RGST is unlikely to gain approval of the masses or the National Assembly. In the post flood environment, tax reform carry deep implications for the state of Pakistan. The economy was crippling even before the floods, as extremist activity dramatically reduced domestic and foreign investment. In the absence of law and order across the country, it is unrealistic to expect the business and economic activity to improve. Furthermore, in the aftermath of the floods, a debate has emerged regarding where the resources for flood rehabilitation would come from. Million of rural citizens have lost their sources of livelihood and critical infrastructure also needs to be reconstructed. The discussion is also linked to matters of equity with in the tax system. The international community is one source of support, but even the friends of Pakistan have linked assistance to tax reform and generating significant funds from with in the country. A general perception has prevailed that the affluent class of the society is paying very little in tax. An effective tax policy is linked to the ability of an average citizen to make a decent living. It assumes a reasonable balance between the tax obligation of an ordinary citizen and resources needed to maintain a decent living. Additionally, there should be some semblance of proportion between the prices of everyday items and the ability of people to purchase them. However, these balance do not exist in Pakistan, and this naturally has led to the increasing rate of corruptions. In addition to levying taxes, one of the states other primary function is to ensure law and order and provision of a business environment conducive for its citizens to prosper. The above-mentioned imbalance has been complicated by another factor. The people who pay taxes are being taxed more, but the pool of tax payees is not growing. Additionally, politicians and the cream of the country are paying no or nominal taxes, as compared to their assets. This further erodes the credibility of the state to levy and collect taxes, and sets up a negative incentive for citizens fulfilling their tax obligations diligently. Thus, who pays taxes and how much, is not only connected with the earning potential of an average citizen but also to how much it takes to make a decent living. To increase the revenues, the government cannot keep taxing the same people more or to repeatedly hike the prices of commonly used items, which disproportionately hits the lower strata income groups. The government would also have to consider cutting its own expenses and improving the taxpayer's ability to pay more, and bringing more people into taxpaying bracket. Extremism and floods have caused the above disequilibrium to spread from an individual level to inter-provincial scale. It has started to create tensions between different ethnicities and has complicated the politics of the federation. Or in other words, ones income level and assets are no longer the sole determinant of how much one should pay, provincial affiliation and race are becoming equally important. Consider the case of Khyber Pakhtunkhwa province, whose industry and infrastructure has suffered disproportionately due to extremism, military operations, and recent flooding. In these circumstances, the citizens of the province cannot be reasonably expected to pay more taxes. This, in one way or the other, is going to complicate the politics of Awami National Party (ANP), or any political representation from the province. On the other hand, Sind province is the economic center of Pakistan and it presents another scenario. The main constituents of the MQM political party hail from the city of Karachi, and they are primarily involved in the service oriented, manufacturing and trading businesses. However, PPP is popular in rural Sind, whose inhabitants are largely dependent on the agriculture sector to earn their living. So when MQM calls for imposing taxes on agriculture produce, it knows this would hurt the Zamindars of Sind and Punjab more than its own electorate. Similarly, when PPP led government decides to raise the price of fuel, it hurts the transporters and the urban dwellers as oppose to the landlords. Ultimately, what this is leading to is a collision course between the agriculture based landlords and Zamindars, versus the elites originating from the urban Industrial and Servicing sector. While the rural populations feel cheated by landlords, the urban settlers are equally disillusioned at the hands of business class leadership and politicians.As a result of the floods, the rural populations, which are dependent on agriculture sectors, have been harmed disproportionately more as compared to urban populations. On the other hand, extremism hurts the urban citizens and populations more than the rural one. The above dynamics would make the job of any politician extremely hard. It makes the question of: who should pay more to compensate for an economy suffering from extremism, and the people impacted by the devastating floods, an extremely challenging one.
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State of economy
By PROFESSOR DR KHAWAJA AMJAD SAEED

The success story of a country depends upon accomplishments on four fronts namely, Political (strong democratic set up for the well-being of the people of the country), economic (socio-economic development with prosperity across the board), social (elimination of social evils and ensuring social stabilisation with peace and harmony in the country) and technology (institutional framework through a breakthrough with innovation and invention as logistical support to all-round development of the country).

However, this piece looks at the broad framework focusing on economy of Pakistan. Recently, the Annual Report of State Bank of Pakistan for 2009-10 has been released. It presents a forthright analysis of the state of affairs of the economy of Pakistan. It generates food for thought and provides insights for forward thinking.

Along with the Annual Federal Budget, the Government of Pakistan publishes Pakistan Economy Survey on an annual basis. Since the annual budget is announced in the month of June, the data included in it is generally released nine months ending March 2010. However, the Annual Report of State Bank of Pakistan is generally released in the month of October and contains data upto 30th June of every year. It is a matter of great pleasure to note that the above report has recently been released in two volumes. The first volume contains descriptive material and the second volume contains statistical data. In the light of information released in the above report and based on other sources, this piece has been developed with a view to evaluating the economy of Pakistan in respect of various accomplishments during the year 2009-2010 and the challenges which Pakistan faces on the economic front in the future.

GDP REVIEW As against the GDP growth of 1.2% during the Fiscal Year (FY) 2009, GDP growth during 2009-10 was recorded at 4.1%. However, the target for GDP growth for 2010-11 was hopefully forecasted at 4.5%. To our misfortune, colossal losses resulted from the unprecedented floods which hit Pakistan with effect from July 26, 2010. By now, the devastating floods are over. In this backdrop, all kinds of estimates are being released. Some economists think that GDP growth during the said year is likely to be around 2%. Some have optimistic views and their opinion is that it can range from 0 - 2%. However, the State Bank of Pakistan in the above report has an optimistic view of GDP growth in a range of 2 - 3%. If concerted efforts are undertaken by the Government of Pakistan in particular and by all stakeholders in general, the above forecasted GDP growth may be possible. With commitment and dedication, full efforts need to be initiated and unleashed to achieve this coveted goal.

TARGETS FOR THREE YEARS MEDIUM-TERM PLAN As a broad guideline, the Government of Pakistan released the following indicators along with the annual Federal Budget FY 2010:

AGRICULTURE SECTOR Due to water shortages, decline in the availability of certified seeds and uncertain outlook of rice and sugarcane, unfortunately, the agriculture sector only recorded a growth of 2% during the fiscal year 2010. Fortunately, livestock, which constitutes 50% weight in agriculture, recorded positive growth but there was a marginally negative growth in crops. Consequently, the full potential of agriculture sector, which hopefully is upto 9-10% could not be achieved. During the fiscal year 2011, there will be a decline in cotton and sugar-cane and therefore, the probability is that agriculture is not likely to register a significant growth as a contribution to GDP, which would be a negative factor affecting the increase in GDP during Fiscal Year 2011. However, minor crops eg fruits, vegetables, spices and food items registered high increase in prices due to consequential effects of floods. It is humbly suggested that agro-based industries should be established for tomato paste, onion syrup bottling and other items of daily use so that the inter-season shortages can be reduced to the most minimum.

INDUSTRIAL SECTOR As against decline in LSM growth during the fiscal year 2009, it recorded a positive growth of 4.9% during the fiscal year 2010. This was possibly due to relatively lower inflation, improved prospects of economy and supportive macro-economic policies. Concurrent to this, SMEs also recorded a positive growth of 7.8% during the above year. The need of the hour is to divert greater flow of funds to SMEs as they can greatly contribute as employment driver in the country. This has recorded sustainable growth in the past, notwithstanding economic shocks.

Fortunately, construction as component of industrial sector recorded an increase of 15.3% in FY 2010 as compared to a contraction of 11.2% in FY 2009. This was instrumental due to some supportive efforts of the Government in terms of reduction of duty on cement sales, decline in the global prices of coal, iron and wood. Happily, the private sector made a good contribution in this area.

The golden chapter of Pakistan lies in the high performance of mining and quarrying, which unfortunately registered a decline of 0.2% in FY 2010. This mainly contributed to lower production of crude oil and coal. However, it is suggested that the democratic Government of Pakistan should pay special attention to mining and quarrying sector as all the four provinces of Pakistan, including Azad Kashmir has tremendous hidden resources which need to be exploited for ensuring rising prosperity of the country. In this respect, it suggested that a Mineral Policy be announced.

SERVICES SECTOR The services sector constitutes 52% of the GDP of Pakistan. During FY 2010, it registered a growth of 4.6%. The growth was observed due to technical and skill-basis services eg telecommunication, software development and in accounting and finance.

Considerable finances are needed to accelerate the developments of infrastructure in the country through construction of small and big dams, development of farm to the main roads for avoiding the wastage of vegetables, strengthening old bridges, ensuring breakthrough in the insurance sector as an employment driver, a significant decrease in non-performing loans in the financial sector, allocating greater funds to social sector (education and health) and extending logistical support for laying a sound foundation for institutional development of invention, R&D and innovation.

All stakeholders, at home and abroad, may be approached to channelize their funds to strengthen the foregoing logistical support to help develop laying sound foundation of infrastructure. Economists believe that if infrastructure is strengthened, economic development follows and therefore the future augurs well for a prosperous Pakistan.

PRICES Inflation is a big monster. It eats into the vital of the wage basket of lower strata of economy and fixed salaried group. The present democratic government deserves appreciation for protecting the wage basket of salaried class for having announced increase in the salaries through three instalments aggregating to 80%. However, so far during democratic set-up, total inflation has been 44%. The basic reason for inflation is considered as an area of improvement in governance so that the artificial shortages are reduced to most minimum, smuggling is contained at zero level, various malpractices such as hoarding etc are eliminated and full attention is focused on increasing the supply side of goods and services to ensure greater flow of goods particularly food supply in the market.

It is humbly suggested that Sensitive Price Index (SPI), introduced during late Z.A. Bhutto's time be given a special attention so that the downtrodden, poverty-stricken and all those who belong to lower income group are given special and focused attention. This will enable them to meet their basic needs and stay away from the consequential disastrous effects of inflation that causes and upsets the kitchen economics.

PUBLIC FINANCE The crying need of today is to accelerate the base of domestic resource mobilisation efforts in Pakistan. There is a tremendous potential and the democratic government must inspire the people of Pakistan by providing leading role in terms of persuading patriotic citizens of Pakistan to respond to their responsibilities of paying due and appropriate taxes (direct and indirect) as tremendous potential exists in the country.

We need to ensure a breakthrough success in this dimension so that our reliance on foreign loans is reduced, our economic sovereignty is properly restored and our self-reliance as a guiding inflexible rule is implemented to the advantage of the country.

For this, the political will needs to be demonstrated by reducing rebates, discounts, allowances, reliefs etc allowable in the Second Schedule of the Income Tax Ordinance, 2001 so that as against 2.3 million people to file Income Tax Return during 2010, the untapped potential of around ten (10) million and above be brought into the net of the income tax.

If this goal is achieved, public finances will be strengthened, reliance on foreign assistance and domestic loans will be reduced substantially and a new era of self-reliance will dawn in Pakistan to the bouncing pleasure of the masses of the country.

EXTERNAL SECTOR The prosperity chapter of Pakistan can be seen as a lesson from Far Eastern countries, which successfully followed export-led growth. As against a total population of 185 million, we have still to cross the threshold of annual exports to the extent of US $20 billion. Potential exists in the country in setting our house in order.

A breakthrough approach is suggested whereby export processing zones may be established in every divisional headquarter in all the four provinces and expatriates of Pakistan are motivated and encouraged to come back to Pakistan and establish industries for exports in the above Special Export Processing Zones.

All hurdles and roadblocks in this respect should be immediately removed and a courageous effort by the Government of Pakistan should accept this challenge and Pakistan will see a major increase in the export of our country and this will also help in reducing the pressure on the foreign exchange rate, which is now around Rs 87 to one US dollar as compared to Rs 61 per one US Dollar in January 2008.

CONCLUSION It is our earnest desire to see a new economic dawn of Pakistan where basic needs of the people are met, prosperity era ushers in across-the-board and the purpose for which Pakistan was born on August 14, 1947 is accomplished by evolving socio-economic system based on Quran and Sunnah to strengthen the Islamic ideological front of the country. This will enable to earn high degree of respect in the comity of the nations. No doubt, challenges are big but we ought to accept these challenges and achieve the goals.

==============================================
Forecasts: Selected Macro Economic Indicators
==============================================
A: Quantitative Focus
==============================================
Indicator FY-2010 FY-2011 FY-2012
% % %
==============================================
1) GDP 4.5 5.0 5.5
2) Inflation 9.5 8.0 7.0
3) Fiscal Deficit 4.0 3.7 3.7
==============================================
B: Qualitative Thrust
==============================================
Declining trends in all the above three years:

1) Public Debt.

2) Fiscal Deficit.

3) Current Expenditure.

The economic managers of our country are urged to monitor the accomplishment of above targets.
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Default Inflation and government strategy

Inflation and government strategy
By ANJUM IBRAHIM

Inflation remains in double digits three years after the demise of the Musharraf regime; and yet blame continues to be laid at his doorstep. Initially, the two major political parties that emerged victorious after the February 2008 elections - PPP and their then allies PML (N) at the Centre - were legitimately convinced that the flawed policies of the Musharraf era accounted for double digit inflation in 2008; especially his decision to maintain the domestic price of oil and products in 2007/February 2008, a time when they rose to the unprecedented level of over 140 dollars per barrel internationally.

MQM and JUI (F), the government's erstwhile partners in the Centre, did not openly blame Musharraf era policies for inflationary pressures. However, these two parties are now openly blaming the PPP-led government for the rise in inflation today: a legitimate accusation against a government that has been in power for two months short of three years. The PPP is, therefore, increasingly isolated in its stance that Musharraf era policies are the main contributory factor to high inflation at the present moment in time.

One major reason for inflation as far as basic economic theory is concerned is a burgeoning budget deficit. In other words, when the government spends more than it earns, it is compelled to borrow from the banking sector, which crowds out private sector borrowing, considered the engine of growth in terms of propelling the Gross Domestic Product growth rate as well as value-added tax revenue. Additionally, the Pakistan government opted to reduce development as opposed to non-development expenditure, not associated with productivity, which further fuelled inflation as too few goods/output are chasing too much money.

In November of 2008, the PPP government opted to go on the International Monetary Fund (IMF) Programme. A major objective of the programme as acknowledged by the government in the letter of intent (LoI) it submitted to the IMF board as a prerequisite for the approval of the release of the first tranche was to reduce the budget deficit from 7.4 percent to 4.2 percent by 2008-09. The methodology was also agreed and the LoI noted that the deficit target would be achieved by the government through increasing "tax revenue by 0.6 percentage points of GDP, and reducing non-interest current expenditure by about 1.5 percentage points of GDP mainly through elimination of oil subsidies by December 2008 and electricity subsidies by June 2009. At the same time domestically financed development spending will be reduced by about one percentage point of GDP through better project prioritisation." The question is what has the government achieved with respect to these specific performance criteria agreed with the IMF?

Tax revenue remains hostage to four negative elements that have repeatedly been identified by several former Finance Ministers including Shaukat Tarin: (i) the inability of the government, be it led by a dictator or a democratically elected President or the Prime Minister, to end exemptions on the income of rich landlords, (ii) inability to bring other wealthy non-income tax payees into the tax net whether they bank/own assets in this country or abroad, (iii) heavier reliance on value-added tax as a source of revenue which would, definitely, be compromised during recession, and last but not least (iv) heavy leakage from the Federal Board of Revenue due to corruption estimated at over 500 billion rupees per annum. It is no wonder that tax as a percentage of GDP did not rise during the past three years.

However, the government did remove subsidies substantially, the pain of which, as expected, is being felt more by the lower income groups. Thus oil and electricity subsidies, though not yet eliminated as agreed initially with the IMF, are on the decline and the government has committed to increasing electricity tariffs by 2 percent each month till the end of the current fiscal year at least. Increased electricity rates have raised prices across the board as the price of a critical factor of production has risen; increasing price of oil and products in line with the international price (which incidentally does not take account of the Rs 20 to 30 tax that the government collects on each litre sold) has led to skyrocketing transport prices further eroding the value of each rupee earned.

Two factors have compromised the government's commitment to slash subsidies and needless to add will continue to compromise it. First, the government's rather generous though misguided policy of raising support prices of key farm products coupled with its even more ill advised policy of purchasing quantities in excess of domestic demand. For example, wheat support price was raised, which led to an output in excess of domestic demand; wheat procurement by the government, federal and provincial, led to surplus purchase of 2 million tons - an excess that was not exported at a time when domestic price, the price at which the government procured the wheat, was lower than the international price. Today a large portion of the surplus wheat has been destroyed due to the rains/floods and the rest is lying unused as the government grapples with a dilemma of its own making: to export at a price which would not imply a loss of revenue before the next crop comes into the market in two months time.

Secondly, the government's decision to reverse the increase in the oil prices would reduce its revenue collection, which without a commensurate decline in expenditure would further fuel the deficit and consequently inflation would rise.

Interest expenditure has risen dramatically this year due to heavy reliance on borrowing, however, eliminating non-interest current expenditure by 1.5 percentage points of GDP, as committed to the IMF, did not take effect either. General public services budgetary outlay increased from 11.4 billion rupees in 2009-10 to 58.4 billion rupees in 2010-11 budget largely due to 50 percent rise in government salaries.

The only commitment that the present government made to the IMF that it has fulfilled is slashing domestically financed development expenditure. In the current year, the Finance Ministry directed the Panning Commission to reduce development expenditure earmarked in the budget by 50 percent and there are reports that the ministry has now indicated that a decline of 75 percent is required.

Inflation is, of course, also a function of smuggling activity across our eastern and western borders, the cartelization even with respect to essential commodities like sugar, and failure to check prices in the retail and wholesale markets that account for periodic hoarding and windfall profits.

This article does not explore these factors for the simple reason that given that the present government opted for the IMF programme with its associated conditions, combating inflation was to be mainly through reducing the fiscal deficit. That unfortunately has clearly not happened.

To conclude, the solution out of the current economic impasse and rising prices is available - the issue, as always, is one of government commitment and ability.
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Default Salvaging The 7th NFC Award

Salvaging The 7th NFC Award
By Dr Ashfaque H Khan

In the recently concluded Annual Conference of the Pakistan Society of Development Economists, experts deliberated extensively on the issues of the NFC Award and fiscal decentralisation. The general consensus that emerged was that the 7th NFC Award was a political, and not economic, measure; was concluded in haste with little homework done on its macroeconomic consequences; and more work would be required urgently to salvage the Award. This consensus was in line with my argument (Oct 5, 2010) that the 7th NFC Award was one of the ten economic blunders of the present government.
Pakistan’s macroeconomic management had remained centralised until 2009-10. However, the 7th NFC Award and the 18th Amendment contributed to its decentralisation. Pakistan’s is passing through the most difficult phase of its economic history. The large budget deficit, rising debt-servicing, unsustainable debt burden, crowding out of the private sector, declining investment, slower economic growth, rising unemployment and poverty, and double-digit inflation are some of the key challenges that Pakistan is confronted with. The root cause of these challenges is the persistence of a large fiscal deficit, which has averaged 6.3 per cent of the GDP in the last three years. A deficit of this magnitude is “the mother of economic problems.”
It is commonly argued that a government which succeeds in maintaining financial discipline by keeping budget deficit low is bound to be a successful government. It will have ample resources to invest in people (health and education) and infrastructure. Unfortunately, governments in developing countries like ours are inherently “deficit biased.” They love to spend but hate to collect resources through taxation, and as such see their budget deficits rising, which in turn, gives birth to macroeconomic crises. Such a policy is bound to create economic instability which, in turn, promotes political instability. Political instability, in its turn, causes economic instability. This is exactly what we are observing in Pakistan today.
The only way we can take the economy out of the current crisis is to maintain financial discipline. Financial discipline is the sine qua non for economic prosperity. Can any government succeed in maintaining financial discipline in the post-7th NFC Award situation and following the 18th Amendment? Will we be more fiscally responsible in the decentralised setup? These questions are vital for Pakistan’s future macroeconomic management.
Pakistan’s macroeconomic stability will depend crucially on the financial discipline of the provincial governments going forward. Under the 7th NFC Award, 56 per cent of tax resources will be transferred to the provinces this year and 57.5 per cent in the remaining years of the Award. Including other transfers, almost 60 per cent of the resources will be transferred to provinces, which have little financial discipline and capacity to spend prudently.
Did we analyse the macroeconomic consequences of this Award before finalising it? The massive transfer of resources to provinces is taking place at a time when the federal government’s legitimate expenditure is growing rapidly. For example, interest payments were more than doubled in the past three years (from Rs365 billion to over Rs800 billion this year), surging security-related expenditure on account of geo-strategic developments and the war on terror, power-sector subsidies reaching over Rs175 billion, and rotten public-sector enterprises draining over Rs250 billion per annum from the federal exchequer. Have we taken into account these rapidly increasing expenditures of the federal government? Have we left sufficient resources for the federal government to meet its growing legitimate expenditure? The answer is obviously no. It is in this perspective that experts believe that the 7th NFC Award was political, devoid of economic foundation.
The deficits of both the federal and provincial governments together provide overall or consolidated fiscal deficit for Pakistan. Historically, the federal government’s budget has always been in large deficit. Provincial governments used to generate cash balance surplus to arrive at a targeted consolidated budget deficit. For example, in Budget 2010-11 (the first budget under the new NFC Award), the budget deficit of the federal government was targeted at 5 per cent of the GDP and provincial governments together were expected to generate 1.0 per cent of GDP surplus to arrive at a consolidated deficit of 4.0 per cent of GDP.
The provincial governments, instead of presenting surplus budgets, presented deficit budgets, despite the fact that additional resources of over Rs500 billion were to be transferred to them. As a result, Budget 2010-11 never saw the light of the new fiscal year and died prematurely. Presenting deficit budgets in the midst of massive transfer of resources was the height of fiscal indiscipline on the part of the provincial governments.
What will be the consequences of such an undisciplined attitude of the provincial governments? Setting a consolidated budget deficit target by the ministry of finance has become meaningless. Can the federal government deliver on the budget deficit target agreed with the IMF? The answer is no. Pakistan’s future fiscal deficit will be determined by provincial governments. In other words, Pakistan’s macroeconomic management, economic stability, growth and development have now been shifted to the provinces, where financial indiscipline reigns.
Pakistan can come out of the present economic crisis only if it maintains financial discipline by keeping the budget deficit low. In its present form of resource transfer under the NFC Award, this is next to impossible. Unless some hard constraints are put in place, in the form of binding the provincial governments to deliver required surpluses to meet the consolidated budget deficit target, Pakistan’s economic conditions will continue to deteriorate. The federal and provincial governments must sit down, for the sake of Pakistan, to devise binding constraints and get them approved by the National Economic Council. The sooner we move, the better it is for the country.
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