CSS Forums

CSS Forums (http://www.cssforum.com.pk/)
-   News & Articles (http://www.cssforum.com.pk/general/news-articles/)
-   -   Business and Economic Affairs (http://www.cssforum.com.pk/general/news-articles/14591-business-economic-affairs.html)

Kaleem ullah shah Tuesday, November 29, 2005 05:24 PM

Business and Economic Affairs
 
[B][U][CENTER][SIZE="6"][COLOR="Blue"]Business and Economic Affairs[/COLOR][/SIZE][/CENTER][/U][/B]

[QUOTE][I]Hello worthy members,

[B]Note : [/B]This place is exlusively reserved for Articles on Business and Economic Affairs. Un-official estimates, Criticism, Irrelevent posts and any kind of appreciation will be deleted under this thread in order to limit this fruitful thread.

Members are requested to add yearly budgets, monthly economic reports, relevant articles on Inflation, Poverty, Population, Economic disasters ....etc. under this thread.


Your co-operation will be highly appreciated

Thank u very much[/I]

[I]Regards,

Suresh k. lasi[/I]
[/QUOTE]


[B][I]Explore the following link for the Business News :

[url]www.brecorder.com[/url][/I][/B]



Editorial THE BUSINESS RECORDER

[B][U]Global Economic Prospects [/U][/B]

According to Global Economic Prospects (GEP), an annual publication of the World Bank, GDP growth in South Asia was estimated at 6.9 percent in 2005, up from 6.8 percent in 2004. In 2006, it is expected to slow down to 6.4 percent.

The recent strong performance of the developing countries suggests that the reforms undertaken over the past decades have had a positive impact on growth trends. "Long-term growth in South Asia is forecasted to average around 5.5 percent during 2007-2015, reflecting a rising contribution to growth from the private sector. Trade reforms, banking sector liberalisation, privatisation and infrastructure development are all expected to improve the investment climate, productivity growth, and ultimately incomes."

Discussing the situation in Pakistan, the World Bank report says that while the October 2005 earthquake had catastrophic human consequences, its overall impact was expected to be smaller.

The GDP growth during FY06 was now expected to be 6.6 percent as against the earlier projections of 7.0 percent. In India, growth rate was recorded at 7.0 percent. Healthy growth rates in both the countries were attributed to increased consumption, investment, exports and industrial production.

The GEP's main theme this year was migration and remittances. It concludes that migration "offers potentially huge economic gains" and presents evidence that an increase in migrants that would raise the work force in high-income countries by three percent by 2025 could increase global real income by 0.6 percent, or $356 billion.

Such an increase in migrant stock would be in line with the trend observed during the past three decades. Besides, the relative gains are much higher for developing-country households than rich-country households. Out of $356 billion, $162 billion will be going to new migrants, $143 billion to people living in developing countries, and $51 billion to people living in high-income countries.

The steady stream of foreign exchange that remittances deliver can improve developing countries' balance of payments and creditworthiness. The World Bank has also strongly favoured easy and cheaper access by poor migrants and their families to formal financial services for sending and receiving remittances.

This could be done by encouraging the expansion of banking networks, allowing domestic banks in origin countries to operate overseas and providing recognised identification cards to migrants. The report cites experiences of reduction in remittance transfer fees in India, the Philippines and the US-Mexico corridor, as examples for others to follow.

The World Bank's projection that South Asia would continue to experience a strong growth rate is a good news for Pakistan and the region as a whole. Trapped in poverty for a long time, South Asia now looks set to usher in a new era of rising incomes and better standards of living for majority of its population.

Since growth rates of developed countries are expected to be lower than that of South Asia, the wide disparity of incomes and wealth between the haves and have-nots would now gradually be narrowed over time.

A relatively richer South Asia can provide Pakistan the opportunity to expand its exports within the region and accelerate its growth rate. In our view, the World Bank has done a service by reminding the Pakistani policy planners that the recent earthquake, contrary to their public pronouncements, would have a negative effect on the country's economy.

At the macro-economic level, the most significant impact of the earthquake is expected to be on the fiscal deficit. In the absence of any offsetting revenue increases and expenditure reductions, the earthquake may increase the budget deficit by about 0.6 percent of GDP.

The earthquake may also cause an increase, albeit limited, in imports of fuel, food and construction materials and this could aggravate pressures on the balance of payments.

We would advise the policy makers to come to terms with the new environment as early as possible and not continue to insist that the impact on the economy will be very insignificant, if any. Such a stance would help the country to adjust to the new situation in a shorter period of time.
The World Bank's observations about the benefits of migration to both the developed and developing countries and the advice about facilitating remittances should prove to be very timely and beneficial.

The report clearly demonstrates, in quantitative terms, the gains of migration to various countries and suggests indirectly that encouragement of migration would be in the interest of all the countries of the world.

The advice by the World Bank to increase the flow of remittances through official channels by adopting suitable measures is particularly welcome for our country. Our banking system still remains bureaucratic in character and takes much larger time to deliver the money to the recipients than the informal channels with the result that Pakistani expatriates prefer to send their remittances through hundi or other means.

Of course, there is no harm in learning from the experiences of other countries in this regard. It is true that the menace of money laundering and financing of terrorism needs to be checked but expatriates sending genuine remittances should not be harassed or put to unnecessary inconvenience.

Muskan Ghuman Friday, June 09, 2006 02:27 AM

Pakistan’s likely shape in 2020
 
[B][CENTER][SIZE="3"]Pakistan’s likely shape in 2020[/SIZE][/CENTER][/B]


By Javid Husain


THE hallmark of great nations is that they learn from their past experience to become wiser in conducting their current and future affairs. Another distinctive feature of such nations is that they try to understand the emerging long-term trends to identify new challenges, and plan for the future so as to take maximum advantage of the opportunities and avoid the pitfalls that may lie ahead.

On the other hand, the nations on the trajectory of decay and ultimate oblivion neither learn from the past nor have the inclination to look ahead into the future to plan for their security, progress and welfare.

Let us see how different studies view the world of 2020. The intention here is not to present a comprehensive summary of those studies, which in any case would be an impossible task in the brief space of this article, but to merely highlight some of the likely salient features of the world of 2020 and to draw policy conclusions for Pakistan.

There is a general consensus among political thinkers and economists that based on existing trends, China and India will emerge as the new major world powers by 2020. According to some studies,[U] [B]China [/B]by 2020 will have a population of 1.4 billion, the second largest GDP in dollar terms ($7 trillion dollars) after the US ($17 trillion) and the largest economy in purchasing power parity terms ($29.6 trillion), followed by the US ($28.8 trillion). Its demand for oil would be almost equal to that of the US and its defence expenditure would amount to $150 billion in 2020 assuming a medium rate of growth, as against $439 billion proposed by President Bush for the fiscal year 2007.[/U]

[U][B]India [/B]will emerge as a rival of China on the Asian mainland by 2020 with a population of 1.3 trillion and the third largest GDP in the world in purchasing power parity terms ($13.3 trillion) as against its current fourth position.[/U]

[B]Japan,[/B] [U]which has the second largest economy in the world currently in dollar terms, will decline to the third position with a GDP of five trillion dollars by 2020. In purchasing power parity terms, its economy will go down from the third position currently to fourth position.[/U]

The process of globalisation marked by instantaneous communications, real time coverage by mass media, fast means of transportation, growing reach of multinational corporations, lowering of trade barriers, easy movement of capital across national borders, and the growing role of foreign direct investment and outsourcing will become irreversible.

Growth in the world economy will generate rapid increase in demand for energy. [U]Despite the growing emphasis on renewable sources of energy, fossil fuels will continue to dominate the energy scene in 2020. Oil will meet approximately 40 per cent of the world energy needs in that year. The corresponding figures for natural gas, coal, nuclear and renewable sources of energy would be 24 per cent, 22.5 per cent, six per cent and eight per cent respectively, according to the report of the US National Intelligence Council’s 2020 project.[/U]

[U]The world population will increase to 7.8 billion in 2020 according to the report mentioned above, with 56 per cent of the world population in Asia, 16 per cent in Africa, 13 per cent in North America, seven per cent in Eastern Europe and the former Soviet Union, five per cent in Western Europe, and three per cent in the Middle East[/U].

The foregoing projections establish beyond any shadow of doubt that the world centre of gravity will definitely shift to Asia by 2020 which would have the two largest populous countries of the world, the first, the third and the fourth largest economies, the fast growing economies of South Korea and Asean, and the world’s largest reserves of oil and gas if one includes the Persian Gulf region, Central Asia and Siberia in Asia.

The US, militarily, economically and politically, will still remain by far the most powerful nation in 2020. But we would have a multipolar world with several centres of power including the US, China, Japan, the European Union, Russia, India, Brazil and Asean.

Within Asia, a new equilibrium will be established among the four giants, that is, China, India, Japan and Russia. It seems likely that China and Russia will continue to gravitate towards each other to counter the US tendency towards unilateralism and its military presence in Central Asia. This is clearly borne out by the Russo-Chinese summit communique and the Shanghai Cooperation Organisation declaration of 2005.

The US will be engaged more and more deeply in Asian affairs to protect its security and economic interests and to contain China, which will be viewed by the US as posing a challenge to its power and influence in Asia despite fast-growing US-China economic relations. The US declaration to help India become a major world power in the 21st century, its agreements of cooperation with India in the nuclear and defence fields, and the more recent US-Japanese agreement to streamline security ties between the two countries and enable Japan to play a more active role in security issues in the region and the world, need to be seen against the background of the growing US concern about the expansion of Chinese power and influence. India will take advantage of US concerns about China’s growing power, to build up its economic and military strength. However, it will retain its freedom of action by simultaneously boosting relations with Russia and China. It will be China’s effort to keep India engaged and to avoid taking any steps which would push India deeper into the lap of the US.

[B]What will be the shape of Pakistan in 2020?[/B] There are two possible scenarios: one based on the continuation of past and present trends, on the painful assumption that we as a nation will fail to learn from the past and become wiser the other, and more optimistic, scenario assumes that we would draw appropriate lessons from the past, identify the emerging challenges and take advantage of the opportunities waiting to be exploited while avoiding the pitfalls in the way of our progress.

The former scenario would hold the prospect of a rather dark future for our country marked by repeated political crises and instability caused by the ineptitude of our politicians and the continued involvement of the army in politics. The long-term prospects of economic development will remain bleak because of low levels of national savings and investment, excessive military spending and the neglect of human resource development particularly education, science and technology.

The second and more optimistic scenario assumes that the nation has learnt from its past mistakes and has become wiser for dealing with future challenges. What the country needs is a national concord on political framework based on recognised democratic principles of the supremacy of representative institutions, the independence of the judiciary, and fair and transparent elections. The army must keep away from politics and concentrate on its professional duties. Only such a political framework by strengthening the various institutions of state and upholding the Constitution and the law can provide political stability to the country.

The government must adopt plans for the rapid economic development of the country so as to take the GDP growth rate to eight per cent or above per annum on a sustainable basis. After all, even India has been recording GDP growth rates of seven to eight per cent over the past several years. This would require, on the one hand, that we save and invest around 30 per cent of our GDP on a sustained basis, and, on the other, that we concentrate on human resource development by increasing sharply the allocation of resources to education, the sciences, technology and research. The proposed high rates of saving and investment, however, will not be possible unless our elite classes learn to lead simple lives and avoid conspicuous consumption. We will also have to exercise strict control over military expenditure. Further, it is imperative in the interest of social harmony and political stability that the benefits of economic growth are passed on to the common man rather than being restricted to the privileged few as is the case now.

We must also modify our diplomatic approach in dealing with foreign policy issues to lower the risk of armed conflicts as the Chinese did under Deng Xiaoping towards the end of the 1970s when they adopted development at home through reforms and peace abroad as their supreme national objectives. There are compelling strategic reasons in the likely shape of the world in 2020 for us to strengthen our relations and cooperation with China.

Our friendship with the US should be complemented by a coherent regional policy aimed at strengthening relations with Iran, Afghanistan, the Central Asian republics and Russia, and defusing tensions in relations with India. The need for the promotion of close ties with the Islamic countries particularly the countries in the Gulf region, the EU, Japan and other East Asian countries is too obvious to need any special justification.

[B]In short, our destiny is in our hands.[/B] If we as a nation persist in our past practices which have caused political instability, prevented us from realising our full potential in the field of economic growth and development, weakened our institutions, subverted the constitution, lowered respect for law and merit, increased inequalities of income and wealth, and aggravated provincial disharmony, we would be heading for trouble. In that case, we will become a perennial problem state in the international community by 2020 or even earlier.

If, however, through conscious decisions taken within a democratic framework we are able to change course for the better as suggested above, a bright and prosperous future would await us leading to an honourable and dignified place for Pakistan internationally. It remains to be seen whether we have the ability to rise up to the occasion and seize the opportunity that is within our grasp.

The writer is a former ambassador.

Chilli Monday, July 17, 2006 03:36 AM

Modern world economics and Pakistan
 
All countries have mutual relationship in modern world economics. However developing countries are dependent on modern world economics instead of coexistence whereas developed countries are in a position to dictate world economics. This situation is applicable to Pakistan as well. However, salient features of modern economics are listed below prior to writing about economy of Pakistan.

(a) Capital is the most important aspect of the modern world economics system. Therefore capital formation is the basis of the system. There are many institutions which exist in the world for this purpose like banking or insurance system or stock exchanges etc. Old world economic system had commodity as most important aspect. Therefore its basis was not capital formation inspite of existence of currency.

(b) The need for capital has germinated the necessity of loan. Loan is not only needed by industry or agriculture for its establishment or for labour or for input like raw material etc. it is needed even by individuals for building house or for purchase of house or for purchase of other amenities of life.

(c) Loan has enhanced the concept of interest to such an extent that it has gained importance in economics equivalent to capital itself.

(d) Another important aspect of modern world economics is industrialisation which is dependent upon sale for the sake of its survival as well as for the sake of further development. Therefore export is an important factor for developed as well as developing countries.

(e) The factor of export has granted great importance to the currency which has resulted in establishment of international currency market. This has resulted in two things namely economic disparity in the world indicated by the developed and developing countries or north and south etc. The second thing is trend in extensive circulation of currency both in internal market of a country as well as in international markets. This has ended up in constant price rise of all types of commodities due to easy availability of currency through many means thus price rise has caused economic instability in the world.

(f) Efforts have been made to find solution to this problem like creation of economic blocks e.g. European common market or Asian etc. However, this too has not proved satisfactory despite creation of IMF or World Bank or Euro etc. This fact is evident from recent expression by finance ministers of G8 in Italy that world economy is subject to recession.

(g) The basic reason for recession is:

(1) to increase production constantly in industry to enhance its capital potential in order to meet price rise effect in its production cost due to fact listed in (e) above as well as to increase income of owner to meet the effect of price rise on his personal expenditure.

(2) The internal markets get saturated quickly due to continuous rise in production.

(3) This necessitates increase in export. However, export is restrained due to economic disparity in the world. That is the reason of expression by G8 finance ministers about economic recession.

Pakistan's economy is subject to recession due to its dependence on world economic system. Therefore most important point for economy or Pakistan is to adopt the policy of coexistence instead of dependance. Measures which will be necessary for this purpose are listed in subsequent paragraphs.

Western teachings about economics will have to be amended to the extent that industrialisation is the primary means to reduce unemployment. Industry is the main economic factor in the west because countries there remain covered by snow for six months and hence they cannot cocenterate on agriculture development. This is the reason for such teaching of the west. The fact of existence of unemployment allowance in those countries is a proof that industerialisation cannot eliminate unemployment.

Another point about industerialisation in Pakistan is that this country cannot establish heavy industries due to lack of financial resources. Small industries cannot prosper in the absence of heavy industries because heavy industry is the primary consumer of production of small industries. Medium size industries in Pakistan are faced with tough competition in the world markets. All the developing countries of the world are possessing only medium size industries due to lack of fiscal resources and it causes tough competition.

Economy of Pakistan must be run in accordance with the economic principals to achieve good results. However, Pakistan's economy has been governed by politics and political considerations. The reason is that country inherited poor economy at the termination of colonisation. Therefore, it germinated a desire of development amongst people which gave an opportunity to the politicians to exploit this factor for political support of majority. They utilised many means for this purpose. In fact, bifurcation of Pakistan has been due to this reason. Even now claim about ethnicity or regionalism etc. is cause for obstruction to development of economy according to correct economic principals.

Political parties as well as media, both print and electronic, which is also a form of politics use concept of poverty to pressurise any existing government since many years due to existence of poor economy. They term lack of modern amenities. The real problem in Pakistan is disparity which is due to capital oriented economic system -- not poverty. There is no one in Pakistan who sleeps hungry and trend of suicide or killing of children or family is due to greed -- not hunger.

The concept of greed has been germinated in people due to desire for capital i.e., money which is the prominent feature of economic system of the world as well as of Pakistan. Modern amenities are the basic elements which germinate the desire for capital i.e. money in every mind and hence generate greed. Various measures like winning of prizes through draw and advertisements for this purpose etc. in order to build capital cause generation of greed in public as well as it enhances steps which spoil society e.g., increase in abduction for money or dacoity or cheating etc. The fact of orientation of mind to capital is evident from the fact that even sports are used to accumulate capital. Orientation of human mind towards capital creates desire to seek capital i.e. money and thus germinates greed which ends up in disparity in the society and this is the real problem of economic system of Pakistan.

Another fact which needs attention is that definition of strong and good economy to be prescribed correctly. Developed countries define it as budgeting without deficit. This is so because it helps them to establish superiority of their currency in international currency market and thus earn through high cost of export of their industrial production as well as earn through interest by granting loans. Whereas media and politics of Pakistan define it as elimination of poverty and unemployment.

The correct definition of strong and good economy is the one which progresses in a manner that it ensures its own progress at a pace in consonant with its capability and ensures correct utilisation of its own resources both fiscal generated by itself as well as natural national resources developed by economic itself.

The fundamental economic error committed by leadership of Pakistan has been that economy of the country was and still is agrarian and it was essential to undertake rural development first instead of urban development which has not been done due to political considerations. This is so because rural development could not gain political support due to the fact that rural population is spread in wide area and any type of development project in rural area would have benefitted small numbers at a time causing small political support whereas lack of developmental attention in urban areas due to major attention to rural areas could generate political agitation causing problem to politicians in power and hence great attention was paid to urban areas. This has resulted in shifting of rural population to urban aras resulting in provision of basis for political instability which is the basic cause of still failure to take correct economic decisions to ensure strong and good economy.

The above noted mistakes in economic sphere of Pakistan have been listed to induce thinking in public to suggest measures how to remove the effects of these mistakes. This is one aspect of improvement in economic system of Pakistan. There is another aspect also which is framing new design of economic system which can coexist with world economic system instead of being dependant on it. There can be many suggestions for this. However, some are listed below.

Capital orientation

Present economic system should be redesigned so that its orientation is not dependent on capital only. Its orientation should be based on capital and commodity jointly. This objective can be achieved by following measures:

(a) to introduce trade in internal market on commodity exchange basis or partly capital i.e. money and partly commodity exchange basis. This will be possible by charging tax on capital transaction only.

(b) to introduce partial commodity exchange system by inducing Pakistani importers to make deal on the basis that the exporter will be willing to purchase either some type of commodity produced in Pakistan or import some quantity produced by importers from raw material imported by Pakistani importers on the basis of partial capital and partial commodity prior to import.

(c) to introduce joint venture between agriculture and industry in the country. There can be many ways to achieve this which can not be listed here for the sake of brevity. However, government can encourage it by granting tax exemption to the industry already existing and not to new venture, when existing industry adopts joint venture for its first year. Then impose tax in second year at small scale and enhance it on yearly basis on its income production basis by monitoring it. Also agriculturist may be granted revenue exemption for first year.

Price rise

This is one of the byproduct of present economic system. An increase in sale enables price rise due to rise in demand. Price rise enhances expensiveness which is vicious circle and it is not possible to get out of it. Thus it ends up in economic recession. Major element which leads to price rise is stock exchange because survival of stock exchange is dependant upon price rise only. This institution has been introduced by the west in order to achieve capital formation for industrial development which is main source of survival of their economy. However, economy of Pakistan is agrarian and its development will depend upon system operating upon joint capital and commodity. The stock exchange in fact is an institution for betting and sale of shares is possible only on the hope or earning by the purchaser and this hope fulfills often which ends up in price rise of commodity. Stock exchange is an institution of capital formation which lures every government to encourage it in order to achieve rise in investment and thus enable government to achieve an increase in its financial income through tax apart from political support of traders. However, it harms economy, instead of benefit, through recession after a period. The claim by stock exchange operators that price rise or increase in sale of shares is an indicator of economic development is wrong. Therefore, stock exchanges should be closed. This will help to introduce an economic system based on commodity and capital jointly which is prominent feature of new economic system as proposed above.

Loan

This is a most prominent mean of capital formation through interest by financial institutions. Agriculture of Pakistan carries heavy burden of loan. Therefore, its progress suffers from this impediment. Measures should be adopted to relieve the agrarian economy from this burden so that it achieves self-reliance and progresses at good pace. An agriculturist of Pakistan depended on loan even prior to end of colonisation and he obtained loan from 'hindu bania' where as he has been replaced by banks. Every government supported this to ensure political support instead of adopting measures to eliminate burden of loan on agrarian economy by pleading that progress is sought in agrarian economy which is not the fact as evident from past history of more than fifty years. The progress in agrarian economy is possible only through rural development e.g., increase in water supply or roads from field to market etc. as well as relief of this economy from burden of loan. Rural development policy has been adopted but it should be augmented by this decision also. There can be many measures to achieve it but are not listed in view of brevity.

Investment

This is dependent upon capital formation to a great extent. However, it is possible only on assurance of earning which is dependent upon price rise which can cause recession occassionaly. Therefore, correct policy for Pakistan will be to lay equal emphasis on local investment in transit trade in addition to agriculture. Foreign investment will be possible only on its chance to earn more than its earning in own country. Therefore, they will prefer decrease in value of Pakistan currency in international currency market. It is pointed out that transit trade was only mean of economy of state of Madina during period of holy Prophet and its adoption will be Sunnah.

Interest

It has importance equal to capital in modern economic system. However, Supreme Court appellant bench has termed it as riba which is forbidden by Allah. Holy Quran terms riba as a battle with Allah. Battle with Allah does not mean that Allah comes out with sword or gun etc. against human beings. Allah has stated in Holy Quran that one form of punishment by Him is that He induces difference of opinion and thus cause conflict in human beings to kill each other. Presence of terrorism in Pakistan is a proof of this. Therefore, interest should be eliminated from economic system. Privatisation of banks will not make it possible. Joint system of capital and commodity in economics will make it possible. Details of methods to do it are not listed for the sake of brevity.

Muskan Ghuman Wednesday, September 13, 2006 11:01 PM

Poverty: actions, not words
 
[B][CENTER][SIZE="3"]
Poverty: actions, not words[/SIZE][/CENTER][/B]

By Zubeida Mustafa


POVERTY is the buzzword in development economics and policymaking in Third World countries today. The problem with the strategies that are being mooted to eradicate this blight from people’s life is that planners tend to focus on the monetary aspect of poverty.

It is widely — but erroneously — believed that if a person has a comfortable income to enable him to purchase the good things in life he has pulled himself out of poverty. That is why the emphasis is on employment generation and schemes to enable people to earn a livelihood.

What is often overlooked is that a dent can be made in poverty by addressing other factors as well — not necessarily financial — that will create an impact on the poverty level of a society. It is a pity that no empirical study of its kind has been done to determine what effect interventions in the social sectors will have on poverty. A person’s economic income may be given a boost not by directly doling out cash or jobs to him.

Raising his educational level and improving his health status while providing him positive and inspirational leadership could lift him out of poverty by giving him the incentive and motivation to better his living standards. The basic difference between the poor and the rich is that the former have few choices in life while the latter have far too many. Reducing poverty, in effect, is all about creating choices for everybody.

In an excellent background paper titled, “The poverty-health relationship in Pakistan”, prepared for the Asian Development Bank, Akbar Zaidi, a senior economist and consultant, has correctly pointed out the close nexus between poverty and ill- health. “The poverty health relationship in developing countries is often an interlocking relationship, with each round of poverty having an impact on ill health, and the further deterioration of health having a subsequent impact on the level and nature of poverty at the individual and household level,” he writes.

It is strange, as Zaidi points out, that not much notice has been taken of this interrelationship that is so obvious. Thus it is not surprising that the national health survey of Pakistan found 65 per cent of the extremely poor ill at the time of the survey. Moreover, nearly two-thirds of the deaths in Pakistan are caused by communicable diseases (mainly infectious, viral and malarial). These can be easily controlled by better hygiene and sanitation. It is generally the poor who fall victim to typhoid, diarrhoea, tuberculosis, etc because they are affected more profoundly by the government’s apathy, ineptitude, inefficiency and corruption — all of which are the primary cause for the creation of conditions that lead to these illnesses.

But what needs to be noted is that it is not just health and poverty that are so closely interlinked. Education, water supply, housing, sanitation and environment also have a direct impact on one another as well as on health and poverty. Hence the need for a holistic approach to all these sectors of national life.

One doesn’t even need a survey to be told that the majority of the extremely poor are also illiterate and uneducated. Going further, it is the poverty-stricken that are denied access to potable water supply. The rich go and purchase bottled water. Those living in dismally unhygienic conditions are also the poor.

An empirical study on how the deficiency in one area of life affects the other aspects of people’s life would be instructive and also shake policymakers out of their stupor. It is no revelation that a child who is ill cannot attend school and his high rate of absenteeism makes him likely to drop out and thus become a candidate for illiteracy. This in turn would ensure his lack of awareness of how insanitation and impure water affect health. This vicious cycle would serve to perpetuate his poverty.

Hence it is essential to focus on all aspects of life of the poor if poverty has to be eradicated. Unfortunately, this is not being done. Had there even been an iota of awareness of the linkages between the various social sectors and poverty, the government’s blatant thrust towards the private sector would not have existed. The private sector does not cater to the needs of the poor. The shrinking role of the public sector in education, health, population welfare and housing point to a policy of marginalisation of the poor.

It is time our policymakers were more honest in their poverty eradication policy. Their loud talk about doing away with poverty and their concern for the poor are no more than a subterfuge to win support from the aid givers. Only a fraction of the funds that flow in for the purpose of eliminating poverty actually go to the poor.

Thus the government claims that its poverty reduction strategy consists of five elements: accelerating economic growth, investing in human capital, augmenting targeted interventions, expanding social safety nets and improving governance.

But that doesn’t convince one that the policy is sincerely directed against poverty. Thus investment in human capital by itself is not enough. It must be channelled towards the poor. The Pakistan Economic Survey 2005-06 boasts of poverty related expenditures amounting to Rs378 billion in 2005-06 that include community services, human development, rural development, safety nets and governance. But in the absence of any breakup, one cannot be certain how much of this amount helped the rich. The Economic Survey itself admits that consumption inequality in Pakistan has increased with consumption having increased faster for the top 20 per cent of the population as compared to the growth rate of the bottom 20 per cent. The Gini Coefficient went up from 0.2752 in 2001-02 to 0.2976 in 2004-05. (The higher the figure the greater is the inequality.)

Had the government been focusing on poverty reduction, its education policy would also have been oriented towards establishing schools in the public sector to provide high grade education to the children of those living below the poverty line.

Rather than setting up expensive tertiary hospitals, the government would have focused on preventive medicine such as immunisation, sanitation, environmental protection, clean water supply, safe maternal health and population planning. The fact, however, is, as pointed out by Akbar Zaidi, “The market-driven private, for-profit sector, for the most part, is not involved in preventive measures.” It may be added here that the government has not done enough either.

Emphasis on preventive medicine would automatically reduce the need for interventions of a curative nature which mostly benefit the private sector — be it the physician charging Rs1,500 for a visit and a prescription for high cost medicines or the quack who charges Rs50 for dispensing medicines the contents of which he himself doesn’t know.

I M Possible Sunday, January 14, 2007 12:58 PM

Poverty
 
[B][CENTER]Why poverty refuses to fade away[/CENTER][/B]




By Izzud-Din Pal

THE issue of poverty has been receiving considerable attention in the media for several years, especially since the policy for macroeconomic stabilisation was implemented by the government. While the emphasis on poverty reduction through growth is still the official policy, neither of the two objectives seems to be showing any progress.

On the question of poverty reduction, there is a serious gap between what the officials claim has been accomplished and the perception and experience of the majority of people about it. The recently released provisional poverty estimates, for example, which claim to show a notable reduction in the number of the poor in the country illustrates my point.

Why should this be the case has been examined extensively in recent commentaries on this subject. The issue does not seem to go away and the official position seems to be to stay the course. There is, therefore, scope for further discussion and examination of the question albeit in a broader perspective. This would underline the challenge that the government is faced with concerning poverty reduction.

The global focus on national poverty is really a new phenomenon. Until recently the poor received attention mainly as a problem of disparity among nations. A direct focus was badly needed, therefore, because, as Michael Harrington, the author of “Other America” often observed in the 1960s, there were poor people in rich countries as there were rich people in poor countries.

The UNDP has done pioneering work in highlighting this phenomenon by producing data on the availability of the basic amenities of life to people in the developing countries. The watershed in the fight against poverty was the Millennium Declaration signed by 189 countries in September 2000. It highlighted the reality of absolute poverty with reference to the developing countries, by using a threshold of minimum income of one dollar a day.

In discussions on international disparities, the focus has been necessarily on relative poverty, perhaps because the developed countries are not faced with a serious problem of people living below the poverty line. It is an important issue but does not properly explore the facts about the state of life of people at the lowest rung of the ladder in income distribution, neither in the developed countries nor the developing ones. In the latter countries it has been associated with the pattern of a traditional society. In many developed countries, especially in North America, the emphasis has been placed on the culture of poverty in the urban areas.

Oscar Lewis, the author of “Five Families” could assure, for example, his readers that poverty was not merely a lack of adequate income, but rather a way life handed down from generation to generation.

In contrast to the culture of poverty, the economists, such as Keith Griffin, emphasise, especially with reference to South Asia, that poverty is a product of some social and economic processes which are intrinsic to the social systems in the developing countries. These economists give considerable attention to the historical facts in which the interests of various classes are often in conflict. The issue, therefore, can be resolved only through structural changes in society.

Whether it is a matter of “culture” of poverty or of unequal access to assets, in a society where both kinds of poverties are a reality, a comparative view of both is necessary in order to draw a meaningful picture about them. They are in a symbiotic relationship, like two blades of scissors. Therefore, to define absolute poverty just in terms of calorie count is an insult to the poor as human beings.

Another aspect of poverty that impinges on our discussion of the concepts of relative and absolute poverty and adds an angle to the question of income distribution is the existence of what is called the working poor. Their portrait is more easily available with reference to the developed countries than the developing countries. In the 19th Century, Charles Dickens described their plight in post-Industrial Revolution England. More recently, Barbara Ehrenreich describes their low-wage existence in the United States in her 2001 bestseller “Nickel and Dimed”. For Pulitzer Prize winning US reporter David R. Shipler, poverty is an interlocking problem, as he describes it in his “The Working Poor”.

In a developing country such as Pakistan, there are the ‘chowkidars’, ‘chaprasis’, the chauffeurs and drivers, and the domestic servants, not to speak of the network of clerks churning out red-tape in their endeavours to keep the “bosses” happy — all fitting into tightly-defined social hierarchies.

This demonstrates that poverty is a very complex issue. It is not just about minimum required money income or measurement of subsistence. It is a matter of poverty of opportunity. One wonders, for example, how many of the working poor end up in their present station in life because they never had an opportunity to develop in accordance with their potential talents.

With its many facets, the issue calls for a comprehensive approach for reduction of poverty. Concerning absolute poverty, it is a difficult challenge to define what average level of income would meet the basic needs of an individual or a household. The basket of goods and services for minimum sustenance may be measured by a common denominator of a dollar a day or some other unit adjusted with national or local norms. But other related issues still need to be kept in view for a full understanding of the situation such as purchasing power as determined by the price level of essential goods.

In this regard, the data about inflationary pressures may be received with reservations if their message does not correspond with the general experience. They may also become out of date because of the time lag between their tabulation and publication.

The concept of relative poverty, as I have mentioned above, underlines the gap between the rich and the poor. Generally, information about the various income groups in a country is divided into the quartiles or deciles in a descending order and inequality among people is measured by means of statistical devices such as Gini Coefficient. There may be variation, however, within the income groups which are covered by their averages. In a country such as Pakistan, for example, it should be of interest to have the average income of the top five per cent available in order to measure the true gap between the rich and the poor.

All the above considerations assume their respective places in the formulation of public policy on this matter. As is well known, the focus of this policy in Pakistan is, in the words of the World Bank, “poverty reduction and growth”. The approach to poverty which has now assumed a hegemonic position in development thinking is a variant of neo-classical position promoted by the World Bank. According to this approach, only the market-led development would reduce poverty in a country. As observed by K.T. Silva and K. Athukorala, the “safety nets for the poor” have only a limited role in this process as long as they do not inhibit the market mechanism (Poverty: a Global View, edited by Else Oyen, S.M. Miller and Abdus Samad, Oslo, 1996).

The conventional wisdom shared by policy makers in Pakistan is that growth is necessary for poverty reduction. It is a vague statement and is open to interpretation. When the time element is added to it, for example, then growth becomes the main target of the policy objective, with distribution playing its role only after growth has reached a certain critical minimum level.

In this formulation, the statement becomes a controversial issue. There is a strong body of opinion among economists that challenges the view that growth should be given priority over redistribution. I have dealt with this issue in my “Economic Growth and Social Choice” (Dawn, Encounter, February 11), and do not wish to repeat my argument here except to emphasise one point: it would make eminent sense that a proper development strategy for a developing country such as Pakistan should focus on both ends of the process of growth. Growth with equity should be the main objective of the state.

The sequential approach to growth was developed in the 1950s with a focus on the role of capital formation in propelling an economy to “unlimited” growth with high mass consumption. For the economy to become self-sustaining, according to the argument, it was necessary to reinvest the surplus in order to expand the potential output. For both capitalists and workers had more to gain by focusing on increase in output, because the latter group would gain from increased material production through the “trickle-down” effect. Kuznet’s analysis of relation between income distribution and growth (the Kuznet’s Curve) provided support for this point of view.

This model was developed against the background of reconstruction of post-Second World War European economy where the challenge was to rebuild with the help of the resources, including entrepreneurship and a large reservoir of skilled labour which were easily accessible within the economy. Such is not the case with a developing country which would need a multifaceted approach to its economy. It takes time to produce educated and skilled manpower and it can only be done by allocating resources simultaneously to this sector, along with other development plans.

The importance of social choice has received further attention as a result of the renewal of interest in the concept of the welfare state. It has a new dimension added to it, that of the relationship between ethics and economics. There is a revival of interest in the contributions of economists such as A.C. Pigou, one of disciples of Alfred Marshall. The starting point of economics, according to this approach, is poverty rather than sophisticated nature of efficiency. The goal of economics should be to relieve human beings from poverty and then to pursue the objective of excellence.

Neither the discipline itself nor the policy makers may be ready to embark upon such a drastic shift in their plans. But the new ideas certainly should encourage us to pause and think about the present state of economic life.

The latest thinking also debunks the assertion that pursuing growth with equitable distribution would unnecessarily slow its pace and might even frustrate both objectives. In light of the above discussion, the following remarks are aimed at the specific situation in Pakistan concerning poverty reduction:

1. In order to devise a meaningful policy, the first important step is to have a system in which an autonomous federal bureau of statistics would make available at regular intervals the results of the household surveys, along with definition of concepts and methodology used. Also, information about income distribution in the country, based on income tax and other related data, would be published regularly.

2. Agriculture, being the largest single sector of the economy, deserves special consideration. In 2002 and 2003, two reports were published which put emphasis on the question of rural poverty in the country. The first report entitled “Pakistan Poverty Assessment: Poverty in Pakistan: Vulnerabilities, Social Gaps and Rural Dynamics” was from the World Bank. The second report was published on behalf of the UNDP and was entitled “Pakistan: National Human Development Report 2003”.

Both reports focus on the important question of poverty reduction, but the differences between the two are striking. Unlike the World Bank report, the UNDP report advocates a deliberate public policy to strengthen the rights of tenants and farmers, to allow them to break out of the nexus of unequal access to assets. In other words, for the market mechanism to work, it is necessary to establish “the safety nets for the poor” through a deliberate public policy.

To the best of my knowledge, the report seems to have assumed the status of an archival material, placed on a shelf along with other such “historical” documents.

3. Taking a broader view of the access to assets for the farmers, a greater recognition of some of the minor crops would present a potential for growth and help the poorer farmers. The Pakistan Poverty Reduction Strategy Paper seems to suggest production of milk as a pro-poor policy, however. There may be good prospects for this kind of endeavour for a prosperous investor but not for the poor whose meagre resources cannot allow them to own enough dairy cattle to become entrepreneurs in milk production.

4. A sound agricultural policy is the backbone of the economy and that includes land reform. It is simply not justified to have more than half of agricultural land owned by less than 5 per cent of the landowners, plus the newly emerging commercial farmers from the military sector. A comprehensive review of agriculture in Pakistan is, therefore, necessary for an agrarian reform in the context of modern time. This point has been emphasised by a vast majority of commentaries on the subject and it can bear repetition. The ruling groups are likely to resist these reforms. What prospects then are there in the near future? Perhaps not very bright.


Reference: 13 May, 2006. Encounter, DAWN.

I M Possible Sunday, January 14, 2007 01:11 PM

[center][B]The fate of the pro-poor schemes[/B][/center]




By Ashfak Bokhari

THE great sugar scam which catapulted this essential commodity’s price as high as Rs70 per kg, in some areas at one point of time early this year and contributed to distortions in the price structure of many other commodities making them inaccessible for the common man saw the regime’s confidence in the free market shaken for a while. Reason: the profiteers had exceeded the limits of acceptable manipulation.

The regime’s instant reaction was to fall back on the state-run supply paradigm, which the state has been gradually withdrawing from over the years, to neutralise people’s widespread anger by meeting their immediate needs at affordable prices and to prevent the recurrence of a critical crisis which could hurt its legitimacy to govern the country and also damage the IMF-designed neo-liberal order.

This is so for among those who had upset the free market apple cart many belonged to the ruling coalition and some sat in the cabinet, making the incumbent regime an accomplice in their act of market abuse in the eyes of hapless consumers.

The state-run welfare arrangement, currently in place since 1971, is an effort to answer, though unconvincingly, the allegation that the state has gradually drifted to pro-rich and anti-poor strategy in devising its long-term policies. The arrangement consists of a network of utility stores, about 560 so far, serving many but not all cities.

Being added to it is now “sasta ration” scheme which was to be launched by the Punjab government from August 1 but has been delayed. This scheme, which could inspire other provinces as well, is a pleasant echo of the food rationing system the British established in undivided India for the urban population in the early 1940s to meet wartime exigencies.

The British system remained in vogue after the war and even after the birth of Pakistan for long time. It was used as a family (household) ration for grains, sugar and cooking oil at lower-than-market prices and was a boon to disadvantaged families. This system was abolished in the mid-1980s.

Its major beneficiaries were low-income government employees, owners of flour mills, traders and processors. It, however, discriminated against rural population. Gradually, on the pressure of pro-market lobbies, governments reduced the general subsidy on food items and then virtually abandoned it.

Later on the advice of the IMF, subsidies available to the consumers in the prices of utilities were also withdrawn. Since the concept of subsidies is strongly despised by the IMF and World Bank, it was done away with in toto. Instead, the free market forces were encouraged to meet the day-to-day needs of all segments of the population in at competitive prices.

This is despite the fact that free trade is hardly a fair trade as the great sugar scam, which has now been skillfully put on the back burner, had convincingly proved.

The scam, which came as a great shock to the power wielders in Islamabad, compelled the latter to revive the bygone system of subsidies and rationing of food commodities as the free market operators could not be wholly relied upon for doing the sensitive task in a fair manner.

On June 14, the Economic Coordination Committee of the cabinet decided to pay within a week an amount of Rs233.50 million to the Utility Stores Corporation as grant-in-aid for immediate opening of another 100 stores, 16 warehouses to sell essential food commodities at subsidized rates.

The purpose was to do it on a much vast scale as the corporation is already engaged in subsidising food prices. In all, another 440 stores are to be added to the existing network in a phased manner, taking the total number to 1,000.

A hyper media campaign ran for several weeks in June-July period to build an impression that the discarded food rationing system was being brought back to help the people living below poverty line. At many stores, sugar, which had triggered the crisis, was offered at much reduced price and beeline queues were formed in front of them. Similarly, pulses of all varieties, which were disappearing from the open market, were made available at the stores at below market rates.

However, utility stores are not frequently visited by a majority of the urban middle-class for various reasons, including quality and distance factors. Nor are they a boon for all low-income groups, for they cover less than 200 out of 6,000 union councils (82 tehsils out of 380 tehsils). The absolute poor, nearly 30 per cent of the population, remain irrelevant in any pro-poor scheme.

Punjab’s “sasta ration” scheme is at its nascent stage and many of its details remain to be worked out. One million poor families, under this scheme, are to get 10kg flour bags at the rate of Rs100 each, two kg each of two pulses at Rs10 per kg cheaper than market rates, through coupons.

The subsidy, the chief minister says, amounts to Rs2 billion The nazims are to draw up lists of the beneficiaries. Is it a genuine effort to rescue the poor from starvation or simply another device to hoodwink under-hand distribution of money and favours among the cronies of the incumbent regime, remains to be seen.

In general, the pro-poor schemes in Pakistan have been a failure for various reasons, the foremost being rampant corruption in sections of bureaucracy responsible for their execution. Poverty reduction, a buzzword in today’s lexicon of pro-establishment economists and statesmen, has not specifically been a goal of Pakistan’s long-term development plans, nor can it be necessarily achieved if the country registers a higher growth rate.

To confuse the aware citizens, the neo-liberal philosophy describes every free market activity, be it investment or trade, leading to reduction in poverty simply because such an activity could and would offer employment to some poor or semi-poor citizens. This is done by corporate sector to win favour of anti-capitalism activists who happen to enjoy social approval.

In Pakistan, although less than 50 per cent of the population was deemed as poor in 1970, the poverty level was slow to fall until the late 1980s. During the 1990s, poverty increased from 22 per cent in 1990 to 34 per cent in 1999 and now it is claimed to be 24 per cent which is not accepted by all the economists.

The first nation-wide safety net was established in 1983 after the promulgation of Zakat and Ushr Ordinance in 1980. The purpose was to collect a fixed portion of the personal wealth and agricultural output of Sunni Muslims at the end of the year and then distribute it among the needy co-religionists. The annual collections since 1998 have been Rs4 billion and by 2000 the total collection had reached a sum of Rs20 billion.

About 2.4 million needy Muslims were claimed to have benefited from this pro-poor scheme. But this institution’s performance in alleviating poverty has always been unconvincing and its effectiveness held in doubt for lack of transparency, substantial waste, misuse of funds, leakages and cumbersome procedures.

In 1992, the government established the Pakistan Bait-ul-Maal as a safety net for those not covered by the Zakat system. It provides assistance to the poor in cash and wheat subsidy. It gets funds from Islamabad and Central Zakat Fund but failed to perform during 1996-1999 period for slow supply of funds but was revitalised in 2000 and now gets funds from general sales tax collection.

The successive governments (according to IMF working paper No. WP/02/5 of 2002)undertook several rural development programmes in the past which were aimed at providing physical infrastructure and employment to the landless peasants but a common feature of these programmes has been the domination of bureaucracy, with almost no involvement of the targeted rural population.

The rural elite and the government officials were the major participants, activists and beneficiaries in these programmes, notable among them being Village Aid Programme, Rural Works Programme (later People’s Works Programme) and Integrated Rural Development Programme. An evaluation of these programmes shows that they had left little impact on the rural poor.

In 1990s, the elected governments undertook several programmes claiming the rural and urban poor as their targets. These included People’s Programme, Youth Investment Promotion Society, People’s Tractor Scheme, Tameer-i-Watan Programme and Self-employment Scheme.

All these schemes initiated in the name of the poor and disadvantaged segments of the population had ended up in enriching the already rich. There was gross misuse of money and plunder of allocated funds. Most of the pro-poor schemes had been distinct for their effective role in creating a new class of parasites fed on easy money.


Reference: 14 August, 2006. EBR DAWN

I M Possible Sunday, January 14, 2007 01:30 PM

[center][B]It is starvation line, not the poverty line[/B][/center]




By Izzud-Din Pal

THERE is an imperative need to redefine poverty. The currently used poverty line should be called starvation line because that is what it is. Anybody who counts his calories for his survival lives on the brink of this critical line.

When the Millennium Declaration was signed in 2000 by 189 countries, its purpose was simply to highlight the reality of absolute poverty with reference to the developing countries. A threshold of a minimum requirement for living was set at one dollar a day. The objective never seems to have been to turn this amount into a narrow focus of policy, contrary to what it has become: an end in itself to the exclusion of other related factors.

Several countries including Pakistan have developed an index in local currencies, being equivalent to the requirement of minimum of calories in the context of their local conditions. It does reduce the sharp edge of the originally designed index in dollars. Whether in fact it still represents the intended value is a difficult question to answer.

In any case, it is simply unacceptable to call it a poverty reduction programme for a variety of reasons, whether the calorie count is in dollars or a local currency. The index, for example, does not and cannot account for a proper balance of nutritional requirements, with reference to age, gender, and style of life. The crude averages which are in vogue in data collection cannot properly reflect the differences. Also, a realistic poverty line must recognise that a person does not live by bread alone.

His basic needs extend to non-food expenditures in areas such as those defined by the UNDP which include shelter, clean water, sanitation, health, and education. A household survey which may include questions about expenditures on some of these items, nevertheless, fails the test as soon as it turns its results into a calories-count.

When we take into consideration all the factors which have been developed by UNDP, we realise how mutually reinforcing they are for maintaining a critical balance in the minimum well-being of a person. Any setback to health, for example, would push the person to below the line, no matter how it is defined.

The calorie-based index to measure poverty is totally inadequate to reflect the real situation. And whether or not this kind of index has improved by a certain percentage points makes it a fatuous exercise. Then why is it so entrenched in the official economic policy of the country is an important question.

It would be useful to refresh our memory about the background of this approach. The focus on a dollar a day was devised as a means to highlight the problem of poverty, as mentioned above. It became a convenient target as part of the neo-liberal approach to the issue under the structural adjustment programme.

It is a well-known fact that in the 1980s, the IMF started using conditionality in its assistance plans to developing countries, which was traditionally demand-constraining. It gradually expanded considerably in the public sector reform, with the World Bank (WB) becoming an important partner in implementing the policy. The focus was on stabilisation, but it had a cost for the recipient countries. This has been critically examined by many economists including the Nobel Prize recipient, Joseph Stiglitz.

My objective here is to point out that the World Bank (WB) as the major exponent of conditionality started with its structural adjustment strategy, leading up to the Poverty Reduction Strategy Paper (PRSP). The PRSP was “formally” to be country-driven and owned, based on broad participatory process. In fact it was a take-it-or-leave-it proposition, with little time for consultation. The IMF and the Bank made no secret of the fact that they wanted this paper done quickly. What about conditionality? Well, that is a different interesting story as summed up by Killick in his “Donors as Paper Tigers.”

For Pakistan, as for many other developing countries, the PRSP is a hastily drawn up paper with no input from the segments of society which have a direct stake in the matter.

It is of interest to recall that in 2002, the structural adjustment was reviewed by Structural Adjustment Participatory Review International Network (SAPRIN) which included a group of civil society organisations. It gave a very mixed opinion about the programme, and the World Bank increasingly has distanced itself from the findings of the Network.

The fundamental contradiction is, in fact, inherent in the very title of the programme known as Poverty Reduction and Growth Facility to which the PRSP is attached. The underlying assumption is confirmation and reconfirmation of the trickle-down process for reduction of poverty. This process has not succeeded in any other country, and is not likely to succeed in Pakistan. It remains an important aspect of its neo-liberal approach to economic policy. And the calorie-based index serves as a convenient instrument of this policy.

There are many aspects of the government policy which give us a reason to ponder with serious misgivings. Privatisation, for example, is presented as a cherished goal. The headlines inform us how much the compensations received from the sale of publicly owned enterprises are adding to national treasury. The flip side of this operation, the effects on employment through rationalisation and retrenchment remains unknown. Similarly, the effects of deregulation, liberalisation and adjustment to globalisation in both rural and urban areas of economic activities can only be guessed.

In the rural sector, which accommodates the largest chunk of population, absence of a meaningful land policy keeps many workers under pressure of poverty. In an earlier article on the subject, I had suggested that a sound agricultural policy is the backbone of the economy and that includes land reform. This point can bear repetition. It is simply not justified to have more than half of the agricultural land owned by less than 5 per cent of the landowners, plus the newly emerging commercial farmers from the military sector.

One usually talks about social safety nets for the poor in the context of a policy of fair distribution of national income. Their supply is very meagre in Pakistan. It is commonly understood that welfare schemes which are established to benefit the poor never seem to reach their intended goal. Their distinct feature has been to create a new class of parasites fed on easy money (See “The fate of the pro-poor schemes”, Dawn, August 14, 2006). There is no framework to streamline the system. And the IMF/WB preference for ‘free market’ solutions would discourage any action in this regard.

On the reverse side of the picture, attractive perks abound for the well-to-do. There are many grades for the bureaucrats plus opportunities for international positions. There are land grants waiting for the military personnel on retirement, not to speak of lucrative jobs and subsidised housing. Those who have them shall be given more.

Income inequality is not the issue, however. The problem is that the gap between the haves and have-nots is widening. It has serious political implications. But essentially it is an ethical question. It reminds us that poverty is an ethical issue. It is related to the fact that development consists of removing various types of `unfreedoms’ that leave people with little choice, as emphasised by Amartya Sen. One of the first important steps in resolving the problem is to improve our knowledge about it. No sensible and sustainable policy can be drawn up to cope with this state of affairs unless there are reliable and comprehensive data available about it. From this point of view, it is of paramount importance for Pakistan to establish an autonomous statistical office with powers to collect, interpret and report its findings for public information, on a regular basis.

The neo-liberal paradigm is in operation in the country, all the same, and it has its impact on various segments of society. The classical economists who invented liberalism, toyed with “subsistence” low wages to establish a stable economic system, but discarded it as soon as they discovered the social implications of the concept (one can read J.S. Mill to refresh one’s memory).

In any case, the factory legislation made it a dead issue. They remained fond of rewards for the rich nevertheless. The rich, who formed the entrepreneurial class, were known to be ‘notoriously’ parsimonious – the ones imbued with Protestant Ethic as the Sociologist Max Weber called them. The rentiers had to be accommodated as well, however. After all one needed them as patrons of the arts.

This is the picture of a society which was promoting the first great industrial revolution in the world. For a transitional society such as Pakistan , with the landed aristocracy, bureaucracy, and the military all together saddled on top of the middle and lower classes, the neo-liberal framework of government policy seems to suit admirably. It is inherently an unstable system, and the long-run implications are not very encouraging.

P.S. First part of this essay was published in Encounter on May 13, 2006.

Reference: 13 January 2007. Encounter, DAWN.

Sureshlasi Wednesday, March 07, 2007 01:21 AM

Rs 1.315 trillion budget announced: 15-20 percent raise in pensions
 
[B]Rs 1.315 trillion budget announced: 15-20 percent raise in pensions
ARIF RANA/MUSHTAQ GHUMMAN
ISLAMABAD (June 06 2006): The Minister for State for Finance, Omer Ayub Khan, on Monday announced over Rs 1.315 trillion budget for the fiscal year 2006-07. The allocation for defence has been increased to Rs 250 billion against revised target of Rs 241 billion. Of this, Rs 1.949 billion would be for defence administration, against Rs 486 million, and Rs 248.2 billion for defence services, against Rs 240 billion.

The budget deficit-to-GDP ratio has been estimated at 4.2 percent, and if the earthquake damages were excluded it would stand at 3.7 percent of GDP, claimed Omer Ayub.

The revenue target for CBR has been fixed at Rs 835 billion, showing an increase over previous year's target.

The provinces' share in taxes has also been enhanced to Rs 378 billion.

Many new areas have been brought into tax net. Various sectors would get concession in duty and taxes.

Property business has also been brought into tax net. The buyers and sellers of property will have to pay 2 percent CVT on the sale value. CVT on shares' sale and purchase has also been increased from 0.01 to 0.02 percent.

The public sector development programme (PSDP) has been increased to Rs 435 billion (inclusive of operational shortfall of Rs 20 billion). This shows 50.9 percent increase over 2005-06 development programme.

The current PSDP included Rs 50 billion for rehabilitation and reconstruction of earthquake-hit areas and the provinces' share of Rs 115 billion, Rs 47 billion more than last year.

Privatisation proceeds' target for the next fiscal year has been fixed at Rs 75 billion.

The government will get Rs 140 billion from banks and Rs 239 from external resources to plug the gap in revenue and income.

Defence budget has been increased to Rs 250 billion for 2006-07.

According to State Minister for Finance, the government has estimated Rs 704 billion from revenue receipts, and Rs 16.3 billion from capital receipts. The provinces will generate Rs 85.6 billion income from their indigenous resources.

Property and enterprise would contribute Rs 115 billion in tax collection. The current expenditure has been estimated at Rs 878 billion. Its major share, of Rs 504 billion, will go for debt servicing, which makes 57.3 percent of current expenditure.

The government has granted 15 percent dearness allowance for government employees, 20 percent increase for those pensioners who retired in or before 1977, and 15 percent for those who retired after 1977.

The employees falling in BPS Grades 1-16 would get 50 percent increase in conveyance charges. The overtime charges for drivers, dispatch riders have also been increased by 50 percent. Government employees and pensioners will get the increase from July 1. The industrial workers' profit share has doubled. The minimum wage limit has been increased from Rs 3000 to Rs 4000 pm. Special tax concession has been proposed for women taxpayers.

The profit for the national savings schemes and prize bonds has been increased by 0.5 percent to 1.5 percent.

Tariff for cars import remains unchanged. The deletion programme for local car manufacturers has been replaced with tariff-based system. Duty on CKD and CBU has been cut down from 20 percent to 10 percent and from 60 percent to 30 percent, respectively.

Duty on tractors import has been abolished. Duty on shoes, chemicals, marble, granite and pharmaceuticals has been withdrawn. Duty for aluminium processing, boilers manufacturing, chemicals, CNG dispensers plastic, iron and steel and engineering industry has been lowered to make them competitive in the global market.

Rs 1 billion has been allocated for community development, and Rs 4.73 billion for health related programme.

Excise duty at 15 percent has been imposed on international air tickets. Haj fare/tickets have been exempted from duty. The duty on retail sale of cigarettes has been increased.

Money changers, exchange companies and brokerage of foreign exchange dealers will pay 5 percent excise duty. Cable operators will pay Rs 25 per month per connection. The duty for insurance services has been increased from 3 percent to 5 percent. Financial service providers will pay 5 percent duty.

Duty on import of pesticides has been reduced to 30 percent. Non-chemical fertiliser import has been allowed at zero-rated sales tax. Aircraft of all kinds exempted from sales tax; duty on reclaimed oil reduced. Its importers will pay a uniform duty of Rs 2000. Duty on trains travel withdrawn. Duty-free import of trucks and dumpers of five tons and above allowed. Duty-free import of pulses allowed to bring down prices of these items in the local market for immediate relief.

Many kitchen items have been covered under Prime Minister's relief package.

Rs 2.5 billion subsidy will be give on pulses, Rs 7 billion for sugar. Utility Stores Corporation will expand its network outreach to maximum number of people. District governments will appoint magistrates to check price hike.

A special package has been announced for self-employment. The government will provide loans for the package at concessional rates.

Tax limited on cash withdrawal has been doubled.

[/B]

Sureshlasi Thursday, March 29, 2007 08:12 PM

Sticky: Business Reports
 
[SIZE="5"][B][FONT="Comic Sans MS"][COLOR="DarkOliveGreen"]South Asia's Growth to Remain Strong in 2007-2008, Says ADB[/COLOR][/FONT][/B][/SIZE]


TOKYO, JAPAN - South Asia’s economic growth is expected to moderate to 7.7% in 2007 and rise slightly to 8% in 2008. Tight monetary policy measures taken by several countries in the region in 2006 are expected to dampen consumption while investment and growth in developed countries ease, according to a major ADB report released today.

The services sector is expected to drive economic growth in South Asia, supported by accelerated growth in manufacturing, according to ADB’s flagship annual economic publication, Asian Development Outlook (ADO).

South Asia’s economy expanded by 8.7% in 2006, supported by growth in consumption and investment. The region has averaged more than 7.5% growth since 2003, allowing it to reduce poverty levels in India, Pakistan, and Bangladesh. Every economy in the region posted growth of more than 6% in 2006, except Nepal, which suffered in the wake of political unrest.

India clocked the highest growth of 9.2% among the large economies and Maldives grew at 18.2%, fastest among the small economies.

Tight monetary policies taken by several countries in 2006 and improved fiscal balances will help the region rein in inflation at about 5% in 2007 and 2008. High growth rates in the region with elevated interest rates will continue to attract large capital inflows.

“South Asia’s recent economic performance shows it has emerged as a new growth pole in Asia”, says Ifzal Ali, Chief Economist of the Manila-based multilateral bank. “The region can match East Asia’s exemplary growth rates, albeit from a lower base.”

ADO 2007 forecasts overall growth for the 43 countries of developing Asia at 7.6% in 2007 and 7.7% in 2008.

Afghanistan’s growth rate slowed to 8% in 2006 from 14% in 2005 as the drought dragged down agricultural growth, which accounts for about one-third of the country’s economy. Inflows of foreign aid continue to support the country’s rapid growth with construction and services being the main drivers.

Pakistan and Bangladesh are projected to post a growth rate of about 6.5% to 7% in 2007 and 2008.

Economic expansion in Bangladesh has been underpinned by private consumption and investment, spurred by substantial workers’ remittances from abroad. While it is still early to pass judgment on Bangladesh’s economic performance, conditions for doing business could improve if the anticorruption and reform initiatives taken by the caretaker government continue.

Pakistan’s growth rate slowed in 2006 to a still brisk 6.6% from an average of 8% in the preceding two years as adverse weather conditions hit key agro-industries and dragged down the growth of the agriculture sector. The robust expansion of the services sector failed to offset the sluggish performance of the agriculture and manufacturing sectors.

India’s economic growth is expected to moderate to 8% in 2007 and rise marginally to 8.3% in 2008. Domestic inflationary pressures are expected to wane as the impact of credit tightening measures implemented by the central bank takes hold. ADO 2007 cautions that the pace of economic reforms in India is slowing.

Nepal’s economy turned in a sluggish performance, growing at 2.3% in 2005 and 2006. The insurgency adversely affected manufacturing, transport, communication and tourism while inclement weather depressed agricultural performance. The rate of inflation increased to 8% in 2006. The central bank took steps to curb inflation, but the impact has not yet been felt.

The Sri Lankan economy grew at 7.2% in 2006, lifted by the agriculture sector that was spurred by post-tsunami recovery of the fisheries sub-sector and sturdy growth in the service and industrial sectors. But higher government spending, partly due to post-tsunami reconstruction, pushed up the budget deficit to 8.7% of GDP. Demand pressures and rising food and fuel prices pushed the Colombo consumer price inflation rate up to 13.7% in 2006.

Political uncertainty and security concerns in many countries in the region continue to cast a shadow on the outlook and resolution of these critical issues remains key for the region’s economic success.

ADO 2007 says the structural policy reforms undertaken by governments in the region that spurred private sector led growth should continue with focus on reducing barriers to employment growth that would reduce poverty.

A pick-up in agricultural productivity, improvement in business climate and infrastructure are key to keeping South Asia on the high growth track. While prescriptions need to be country specific, fiscal prudence, reform of the financial sector, second generation reforms aimed at developing markets and institutions that may be missing or incomplete, and sound energy policies, are key to sustaining accelerated growth in the region, ADO 2007 says.

As India accounts for about 80% of South Asia’s GDP, its rapid growth can benefit the region by policies to integrate regional economies. Expansion of intraregional trade and cooperation can help in sustaining fast growth and reducing poverty.

ref : [url]http://www.adb.org/Media/Articles/2007/11669-south-asian-developments-outlooks/[/url]

Yasser28 Tuesday, April 10, 2007 11:21 AM

Political Economy Model,Instability
 
POLITICAL ECONOMY MODEL,INSTABILITY


By Yousuf Nazar

THE lawyers’ community has shown a remarkable unity in rising against the unprecedented actions against the Chief Justice of Pakistan. The political parties are calling it an assault on the judiciary while the government has maintained that the opposition is politicising, what it calls, a ‘constitutional matter’. This characterisation is an oxymoron because politics, by definition, concerns all matters concerning governance and the three branches of government including the judiciary. The media has been outspoken in its coverage. Prominent former judges have termed this crisis as a defining moment in the history of Pakistan.

Some analysts have described it as a pre-emptive strike by General Musharraf to continue to don the uniform and tighten his grip on power in the backdrop of growing unease in the West over his failure to stop the Taliban insurgency but more importantly the perception that his support in Washington may be waning.

This article argues that military rule, by systematically damaging the rule of law, has imperilled Pakistan’s development prospects and the current crisis needs to be debated in that broader and fuller context. It is old news that the Pakistan’s military rulers have always operated above the law and have never been accountable to the courts despite pretensions to the contrary. The conquest of the judiciary will remove even that pretence and will destroy whatever is left of that institution.

The business community seems to be watching from the sidelines hoping that this crisis will somehow get resolved and it will be `business as usual’. Pakistan’s successive ruling establishments, business elites and many former World Bank trained economists have been admirers of the economic growth achieved during different military regimes and point to the higher levels of aid flows, in particular the aid from the United Stated, as an important element of “better” economic performance.

The role of economic aid has been exaggerated and is not supported by facts. From 1980 to 2007, remittances from Pakistanis abroad accounted for a much greater share of external financing requirement than foreign aid and borrowings from all sources combined. For example, while the US aid package for General Zia’s regime was $3.2 billion during 1982-1987, remittances were five times as high at $15.2 billion during this period. Further more, it must not be forgotten that the remittances during the five years post 9/11 reached an aggregate of $22 billion compared to just $5.3 billion during the five-year period before 9/11.

While it is true that since 9/11, US military aid alone totalled almost $4.75 billion from October 2001 to August 2006 in addition to the $3 billion five-year economic assistance package, one cannot build a model of political and economic development that involves a continuous state of external conflict be it the “jihad” against the Soviets in the 1980s or the “war on terror” since 2001.

It can be argued that costs of the conflict, that is, the breakdown of the rule of law, criminalisation of society due to drugs and arms trafficking, and the decline of the state power due to the rise of powerful non-state actors such as violent extremist groups, have far outweighed the economic benefits that may accrue from such ‘aid’. Equally importantly, the ‘aid addiction’ has encouraged the governments not to undertake critical economic reforms. For example, Pakistan will hardly need any external aid if it could increase its tax-to-GDP ratio from a lowly 10 to 15 per cent.

Going beyond the issue of aid, the question that has not received the level of in-depth attention it deserves is whether the model of the political economy of a security state that Pakistan has followed since the late 1950s, except through a brief interlude during 1972-1977, can survive in the 21st century?

The role of the government, super power or not, is shrinking and the private capital has emerged as a powerful driver of economic change in an increasingly globalised economy with international competitiveness emerging as a measure of a nation’s strength and not its military prowess. The net aid flows to the developing countries account for just 10 per cent of private capital flows.

The power of the World Bank and the IMF is on the decline, the future of multilateral institutions like the Asian Development Bank is being questioned, and the United States has resorted to the use of military power, in part, because its economic power has declined over the past two decades. The spectacular growth of China and India has been underpinned by stable political systems and skilled human resources and not by arbitrary governance, aid, or nuclear weapons.

For those who believe that Pakistan can progress under a military or quasi-military rule supported by the US, the supremacy of the Constitution and the rule of law have been largely academic questions. This school of thought believes that so long as the military can maintain law and order - a euphemism for an autocratic rule - and allow the private sector to do business and make money, Pakistan can do without the ‘luxuries’ like a sovereign parliament, an independent judiciary and the rule of law. Hence, it has never objected to the gradual and systematic emasculation of the judiciary. A top industrialist remarked that he is not concerned about this crisis and only thing that matters is that uncertainty is removed as soon as possible otherwise the economic growth may suffer. But GDP growth is not the most meaningful measure of progress and development.

Pakistan’s average GDP growth rate was 6.66 per cent during the five-year period from 1963 to 1968. The GDP growth rate was 9.79 per cent in the fiscal year 1969-70, the highest ever in the last 50 years. Within the next two and half years, neither the ‘record GDP growth’ nor the military or the famous tilt of President Richard Nixon towards Pakistan could save the country from dismemberment and a complete collapse.

Thirty seven years later, some of us do not appear to have learned that the military and the support of a super power cannot ensure the survival let alone success of a state. In the absence of a truly representative and sovereign parliament, an accountable executive, an independent judiciary and a genuinely free media there can be no hope of building a sustainable politico-economic system that can compete in today’s highly competitive global markets.

The Global Competitiveness Report (2006-2007) published by the World Economic Forum-- the elite club of World’s political and economic leaders-- states that while factors underlying competitiveness of nations are as diverse as they are numerous, the presence of macroeconomic stability is not enough. The report argues that equally important is “the institutional environment within which economic actors operate, including the protection of property rights, the quality of judicial system, even-handedness in the political process, and the reining in of corruption.”

The report lists the institutional environment as among the most basic and critical pillars of development for poor countries like Pakistan; even more important than business sophistication and innovation. Pakistan is ranked 93rd out of 122 countries on the basic requirements while the report lists government instability/coups, corruption and policy instability as the top three most problematic factors for doing business in Pakistan.

Why then Pakistan has received a record amount of foreign investments in the last few years? The answer is not that difficult. The period since 2000 has seen the highest ever level of global liquidity accompanied by an all time high global GDP growth since the 19th century industrial revolution. But even during this period of extraordinary benign global economic environment, foreign investment flows into Pakistan have remained concentrated in three sectors (telecommunications, financial sector, and oil and gas) and have largely come from oil-rich states.

These investment flows together with the US aid seem to have convinced the current establishment that Pakistan does not really need a real democracy and the rule of law. This is a short-sighted and dangerous view and suggests that those who so fondly remember Ayub Khan’s economic performance have not learned the lesson that growth without development of the people but more importantly growth without building strong democratic institutions and establishing the rule of law could not be sustained and failed to stop the precipitation of the crisis that had been brewing under the Field Marshall for a decade and ultimately led to Pakistan’s dismemberment soon after he left the stage.

Source: Dawn, April 9,2007 Economic & Business Review.

Yasser28 Wednesday, April 11, 2007 12:50 PM

[B]This business of water[/B]




By [I]Shahid Javed Burki[/I]


THERE are moments in a nation’s history when those who occupy policymaking positions must have the courage to take difficult decisions. They are difficult since their benefits are not immediately apparent but the cost of postponing them can be very great.

My reference here is to the question of water and how best Pakistan can marshal this resource, conserve it for use over a period of time, make an efficient use of what is currently available and distribute it in a way that no segment of society is deprived of this essential need.

Since the subject of water and its appropriate use is a very complex one and since it is of critical importance for the economic, social and political future of the country, I will write a series of articles to provide an analysis of the approaches taken in the past and to suggest that the policymakers must adopt a somewhat different stance to tackle the problem the country confronts.

In the article today, I will argue that policymakers in Pakistan have traditionally used the technological approach to deal with the business of water. This approach served to solve whatever problem was faced by policy makers over the short term. However, over the long term the approach always left the country with serious long-term consequences.

Let me set the stage for discussing Pakistan’s water problem by what we know about the situation in the world, particularly in the developing countries. Water remains a plentiful resource; it runs through the many rivers that flow all over the world, connecting mountains with oceans, or taking water from lakes into the seas. Water falls as rain; and is available in large underground reservoirs. Vast quantities of it are available in the seas.

The use of sea water for human consumption is expensive since it involves desalination and that, in spite of some major developments in technology in recent years, remains a costly business. It is only done on an extensive scale in the oil rich countries of the Middle East that have a great deal of surplus energy to use for this purpose.

The Aral Sea in Central Asia is the most vivid example of the misuse of an important water resource. It has shrunk by as much as two-thirds of its original size as water was drawn during the Soviet era from the rivers that feed it. The tapped water was used for growing cotton in the area. Since cotton needs a lot of fertiliser, insecticides and pesticides, the chemicals used on the land ran into the rivers that flowed into the Aral Sea. Consequently the water that is left in the sea is over-salinated and polluted.

While the assault on the Aral Sea is the most egregious example of water’s misuse, the wasteful use of this precious resource happens all the time. The amount of water used in agriculture; as an industrial input; for everyday activities such as cooking, bathing, and maintaining lawns would be considerably less if it was properly priced. I will take up the subject of appropriate pricing of water in a later article.

There are many examples of misuse of water in Pakistan as well. The consequence of this is that Pakistan today is considered as one of the “water stressed” countries in the world where the per capita availability of water will outstrip its demand. The situation is likely to worsen quickly as global warming begins to take its toll and as the climate begins to change.

The most serious result of this will be that the amount of snows that fall on the Himalayas and other mountain ranges that feed the country’s many rivers will significantly decline. This will diminish by significant amounts the availability of water in the country’s rivers. Since the supply of water is inelastic — it cannot be increased beyond what nature is prepared to provide – public policy will have to step in with policies to conserve whatever is available.

The use of technology for solving a problem is usually an easier option compared to adopting policies that change the way people look at a particular resource. The most recent example of this is global warming where the American government in particular is very reluctant to use pricing as a way of curtailing the demand for energy. It is relying on the use of technologies. The current favourite is the production of bio-fuels.

However, the most effective way of dealing with this subject is through the pricing mechanism and the use of fiscal policies. This needs political will which Washington at this time does not seem able to muster.

Much of what has happened to Pakistan’s abundant water resource can be traced to the use of technology without reflecting on the secondary effect of this approach. The use of technology to exploit the abundant water resources of what is Pakistan today began during the British rule of India. Britain, having been alarmed by the large toll on human and animal life during recurrent famines in the densely populated provinces in the northeast, decided to bring water from the Indus River system to the uncultivated but potentially rich lands of the Punjab and Sindh.

The idea was to increase the domestic output of food grains to feed the people who faced famines almost every decade. A complicated system of canals was constructed that took stored water from the Indus and its many tributaries to the parched but fertile lands in India’s northwest.

However, land logging and salinity came with irrigation. These developments could have been avoided had the government taught the new farmers the correct use of water for irrigation. This was not done. The British — like all colonial masters — had a short time horizon. They were not concerned with the long-term development of their domain.

As the immediate problem was resolved by bringing virgin land available in Punjab and Sindh under the production of food grains, the British administration was not much concerned with the long term consequences of the investments they had made in developing irrigation.

Developing and applying the science of irrigation would have taken expenditure of resources and expense of time; the British were not prepared to spend either. Pakistan was left with the problem once the British departed.

That the problem had become acute was something Pakistani governments and scientists began to recognise in the 1950s. But the country was too preoccupied with politics to turn its attention to these kinds of issues.

The twin problems of water logging and salinity received government attention only after President Ayub Khan put a development minded administration in office. Deeply concerned about what was happening to the soil cover in many parts of the country, he appealed to the United States for help. During a meeting with President John Kennedy in Washington in 1961, he explained the problem to the American president who offered to help.

The American help came in the form of advice by Roger Ravelle, a Harvard University scientist with considerable repute and a vast amount of experience in the area. Ravelle assembled a team of experts in soil management and irrigation systems to develop a programme for Pakistan.

I will return to this technological solution to a problem created by the misuse of irrigation water a little later. Before returning to it, I will refer to another water problem and another technical solution for resolving it that left a deep mark on the country. This was the problem created by the messy division of Punjab that left the province’s large and integrated irrigation system divided in two parts. India laid claim to some of the waters of the Indus River system, particularly the water that flowed into the irrigation system from the head works that were now on the Indian side of the border. Diversion of this water would have created havoc on the Pakistani side.

There is growing evidence that the British administration headed in New Delhi by Lord Louis Mountbatten went out of its way to draw the Punjab border in favour of India, particularly to make it easier for it to access water from the irrigation works that were in place.

This is one of the themes in Stanley Wolpert’s latest book on the Indian partition. He uses government papers from that period to show how Mountbatten agreed to make last minute changes in the Punjab boundary line proposed by Sir Cyril Radcliffe to accommodate India.

At one point, Prime Minister Liaquat Ali Khan, fully aware that games were being played by the administration of Jawaharlal Nehru to cripple Pakistan economically, threatened to go to war if India tinkered with the irrigation system.

A technical solution was found to the problem during the tenure of President Ayub Khan when the two countries signed the Indus Water Treaty which apportioned three rivers of the system (the Indus, the Jhelum and the Chenab) to Pakistan and the remaining three (the Ravi, the Beas and the Sutlej) to India. In addition a multi-billion dollar scheme for building replacement works in Pakistan was agreed to by the two sides. To be implemented under the supervision of the World Bank, the vast programme envisaged the construction of link canals to transport water from the western to the eastern rivers. This meant cutting across the natural flow of water and contributed to the aggravation of the water-logging problem that was by then already very severe.

Tubewell technology arrived in the country in the early sixties in part to deal with the salinity and water logging problems. In the middle of that decade, Pakistan inaugurated the Salinity Control and Reclamation Project developed by Roger Revelle.The concept behind the project was a simple one. Large-bore tubewells were sunk in the saline areas and water brought out by them was thrown into the canals thus diluting its salinity. This helped to lower the water table and reduced soil-salinity. The farming community eagerly adopted this technology for their own use, augmenting with subsoil water the water that was available through the extensive system of canals. This eased the water constraint in many areas and also helped to place a check on the spread of salinity.

However, before the project could be declared a success, its ill effects began to be noted. Among them was the depletion of the aquifers formed over millions of years. Some of the water is “fossil water” that has accumulated underground for thousands of years, sometimes over half a million years, well before the end of the last ice age. Extracting this water at a rate which is greater than its natural replenishment eventually destroys the aquifers, with unimaginable consequences.

The excessive pumping of water by the use of technology not only did harm in Pakistan’s countryside, it also had negative consequences in the urban areas. By adopting what is essentially an ad hoc approach to meeting the rapidly increasing need for water by the people living in the large cities, governments in various parts of the country may have addressed the immediate problem but they also brought long-term headaches.

The situation in Lahore illustrates this well. Large tubewells were sunk by the authorities in the city to meet the demand for water. These wells lowered the water table to the extent that there is some danger that large sink holes may appear in the city if ameliorative action is not taken.

The problem of water scarcity, therefore, needs to be dealt with comprehensively, not just by the use of technology. What are the various instruments of public policy available to address the issue in a way that in solving one problem new ones don’t get created? I will take up this question in the next article on water in this space.

Source:[url]http://www.dawn.com/2007/04/10/op.htm#1[/url]

Wounded Healer Friday, April 13, 2007 07:14 PM

GDP growth to sustain at 7.5-6.8% in 2007-08: report
 
[B][SIZE="5"]GDP growth to sustain at 7.5-6.8% in 2007-08: report[/SIZE][/B]



Staff Report

KARACHI: The government in the forthcoming budget 2007-08 is likely to reduce the burden on the corporate sector through reduction in taxes to 32 percent (from 35 percent) for public-listed companies, said Merrill Lynch and Company report on Pakistan’s economy.

[B]The report said the GDP growth would sustain at 7.0-7.5% and 6.8% in 2007-2008, respectively, owing to robust consumption growth, supported by higher remittances from workers (up 21% YoY) and foreign investments (up 147%).[/B]
“Unlike the last budget, we expect the next budget (expected to be announced in June 2007), to be pro-market and pro-investments,” the report said.

The report said: “The budget would also make efforts to boost investment in the country. [B]The government’s overwhelming confidence on the corporate sector can be gauged through direct tax collections, which grew 61.9 percent year to date.”[/B]
The report said the government would further reduce its public sector holding to promote investments and bring about depth in the stock market. It will continue to reduce its holding in public sector companies through GDRs, these being United Bank Limited, National Bank Limited, Habib Bank Limited and KAPCO. This should set the precedent for the private sector and encourage listings.

[B]The report said despite adversities in domestic politics, foreign private investment has risen 147 percent on a year-on-year and continues to be a dominant feature over the last three months. This reflects investors’ confidence on Pakistan’s future economic growth prospects.[/B]The SBP is expected to follow the wait and watch approach over the next few months, so as to sterilize excessive foreign flows but continue to accommodate private credit growth demand, the report said. Through tight monetary policy, the SBP has successfully contained core inflation, private sector credit growth, and money supply.

However, the SBP’s struggle to control monetary base growth is evident in the last few months.

The SBP has released its half-yearly review of 2006-07 and expressed optimism on the Pakistan economy. The SBP has pointed out sustained GDP growth, openness of the economy, and stability in exchange rate, as the three factors that would drive foreign investments. These foreign inflows should help manage macro imbalances and sustain high growth

Yasser28 Saturday, April 14, 2007 11:23 AM

[COLOR="DarkOrchid"][B]Widening Trade Deficit[/B][/COLOR]

ACCORDING to trade figures for the first nine months of the current year, the trade imbalance is not only persisting but widening with the policymakers taking care of the current account deficit, so created, by import-oriented foreign investment and by creating foreign debts. With exports at $12.4 billion and imports at $22.4 billion, the trade deficit has shot up to $10 billion, up from the corresponding figure of $8.67 billion last year. Imports continue to outstrip the pace of export rise in spite of rates of growth in both areas slowing down. The yawning trade deficit will also impact on the volume of foreign capital and financial inflows in the medium-to-long-term as these are ultimately determined by the country’s own capacity of foreign exchange earnings. The export growth, slowing since January 2006, has touched a four-year low while the imports are estimated at a record high of $30 billion for this year. It is a wake-up call for both the export-oriented industry and the government.

Partially affected by the withdrawal of Generalised System of Preferences and the 5.8 per cent anti-dumping duty on bed linen, textiles that contribute around 60 per cent of the total export earnings rose by a mere 4.1 per cent in the first seven months of this year. The volume of sales of fabrics and bed wear declined because of the high price of the genetically modified American cotton — a critical input for producing quality goods. The government has so far not been able to persuade the EU to provide an even playing field to the Pakistani exporters. The export of items identified as “other manufactures”, including sports goods, leather manufactures, chemicals, pharmaceuticals and carpets, plummeted by 17.1 per cent as a result of “industry-specific issues”. They are needed to be tackled by joint efforts of the industry and the government. A common complaint is the rising cost of inputs such as a hike in fuel prices, utility charges and interest rates. A high rate of inflation is raising the cost of production and making the exchange rate uncompetitive. Foreign sales of primary commodities have also declined by 9.1 per cent because of lower harvest of rice, cotton and fruits. An impression is gaining ground that exports have reached a saturation point because there are not enough production surpluses for export and the government has not accorded the required priority over the years to the commodity producing sectors, particularly manufacturing. To quote the State Bank of Pakistan, the broad slowing down of exports is puzzling and needs to be investigated in order to evolve concrete measures for reversing the current trend.

The case for a high export-growth cannot be overstated. The government needs to develop special packages for reducing cost of business for products that are unable to stand international competition. The export strategy should also focus on product and quality improvement by upgrading management and workers' skills and opting for the latest international marketing trends, for which the primary responsibility rests with the producers. While boosting exports, an effective policy of import substitution needs to be evolved and implemented in areas of competitive advantage to reduce the trade deficit. The $30 billion imports, the bulk of which are for domestic consumption, offer opportunities for fast-track industrialisation. For example, imports of food products have touched two billion dollars per annum and are rising. They offer a good potential for import substitution.

[url]http://www.dawn.com/2007/04/13/ed.htm#1[/url]

Yasser28 Tuesday, April 17, 2007 12:17 PM

[COLOR="Purple"][B]A Rosy Vision for the Poor?[/B][/COLOR]
There is widespread corruption. Government revenues and loan amounts are squandered and embezzled. Most of the development funds go into wrong pockets.

The total public debt increased by Rs1.465 trillion to Rs4.411 trillion over the last seven years, showing a rise of almost 50 per cent from Rs2.946 trillion in 1999 (Dawn, March 5). Outstanding foreign debts on June 30 last was $37.26 billion and further new foreign loan contracted during 2006 is over $3 billion (Editorial, March 7).

By the way where have the billions of rupees (loan amounts) gone? Had these sums were sincerely invested/utilised, the ground realities would have been quite different. There would have been no poverty.

The army-feudal (rural + urban) nexus is ruling the country. The people assembled around the general-president to provide a democratic facade to an autocratic rule are mostly opportunists. They are exploiting the poor masses. Cartels and mafias have emerged and have consolidated their power during these seven years of dispensation. They would remain in power for another five years through election–2007.

The poor masses are not in a position to revolt against the system, as did the Nepalese poor who have done away with the monarchy. Pakistan’s poor are mostly illiterate and ignorant Muslims. They know Islam as given them to understand by an equally ignorant maulvi, and other vested interests, who impel them to believe that they are poor because it is God’s will and to question God’s will is a sin. They should always remain thankful to God in all circumstances.

Therefore, the first thing to be done is to destroy all the fortresses of exploitation to achieve the Planning Commission’s vision to make Pakistan an economic power by 2030. This can only be done by a truly democratic government.
[url]http://www.dawn.com/2007/04/16/letted.htm[/url]

Yasser28 Tuesday, April 17, 2007 12:21 PM

[COLOR="DarkOrchid"][B]Political Economy Model of a Security State[/B][/COLOR]
By [I]Yousuf Nazar[/I]
The most critical question that merits further and deeper discussion is whether the political economy model of a security state that Pakistan has practiced - and one that can rightly be termed as a failure - can survive in the 21st century. Before one explores that question further, it may be useful to discuss some salient features of that model in the context of Pakistan’s recent history.

The focal point of this security state has been the threat - both real and exaggerated - from India and the stated need for a large standing Army and its need for military hardware and money. The Army governed with the help of two principal alliances until the 1980s. Externally, by aligning its foreign policy with the global and regional interests of the United States and internally by forming partnership with the economic interests of the feudal aristocracy and big business. The external alliance provided weapons and money that benefited the military and provided the ‘aid’ that was used to finance fiscal and current account deficits.

The development issues such as land reforms, the need to broaden the tax net and develop export-oriented industries were put on the back burner. A combination of aid, subsidised loans, protectionist trade policies and a lax tax regime benefited the civil and military bureaucracy, inefficient industries and tax evading business magnets. This bought the military their support at the expense of the vital economic reforms that should have been undertaken to prepare Pakistan for the 21st century.

While China, Korea, Taiwan and the rest of East Asian countries adopted policies for exports-led growth, the trade regime in 1988 [at the end of Zia ul-Haq’s rule], according to a World Bank report, “still seems to be biased in favour of import substituting production. Domestic markets are insulated from foreign competition through non-tariff barriers and high tariffs.”

In 1988, Pakistan’s nominal tariff rates (around 66 per cent) for manufacturing industries were among the highest and Pakistan’s tax-to-GDP (13.6 per cent) was among the lowest in the developing countries. These policies were instrumental in promoting the robber baron culture under a patronage-driven protectionist economy that was incapable of standing on its feet in increasingly competitive international markets where skilled and educated workforce and not the size of its army became a measure of a country’s potential.

The average expenditure on education as a percentage of GNP was criminally low at 0.8 per cent in the 1980s as General Zia and his corrupt cronies (who made fortunes) boasted of defeating the Soviets. While Afghan war, nuclear programme, Islamisation, non-party elections, ethnic and sectarian conflicts and other such issues dominated the headlines, the real ‘political economy’ or the game was mostly about protecting the security state apparatus that provided the maximum benefits to key stake holders, that is, the army, big business and landed elites.

In 1985, Mohammed Khan Junejo appointed Mahbub ul-Haq as finance minister. Haq called for the vigorous collection of revenues through taxation to generate economic growth from domestic resources. His reformist agenda drew loud protests from these vested interests. The protests led to his removal as finance minister in January 1986, after less than a year in office.

Junejo wanted a quick end to the Afghan war, which had provided a steady source of billions in income for the military establishment’s supporters through arms and drugs trafficking. Junejo met the fate of his finance minister and was dismissed in May 1988.

In the backdrop of Zia’s death, the end of Afghan war, and the stoppage of aid from the United States, the economy was in a bad shape with the fiscal deficit reaching seven to eight per cent of the GDP. Zia left Pakistan close to $22 billion in external debt (50 per cent of the GDP) that had climbed from $8.7 billion in 1978.

During his tenure, overall debt, including domestic and external debt, increased to around 80 per cent of the GDP, while defence expenditure rose annually by 9.2 per cent, with public spending on social development a mere 3.2 per cent per annum, or negative in real terms. By the time of his death, the army had become quite unpopular and the establishment decided wisely that it was time to share power with the politicians (although real power stayed with the military) because that was “the need of the hour.”

During the 1980s, the military-business-feudal alliance was expanded to officially co-opt the extremist religious forces. The militants were given a virtual license to carry on all kinds of illicit trade to finance themselves, make illegal encroachments to build mosques and madarassas, to receive money from abroad, etc.

The Afghan war involved the biggest covert operation ever undertaken by the American CIA, which provided nearly $700 million in secret funds to the military [during 1982-1987] to finance the jihadis. This gave birth to a Frankenstein that was going to do irreparable damage to the rule of law, criminalise the society and haunt the masters of the political economy of aid and patronage for decades to come.

The Afghan war ended but the political economy of a security state needed another conflict to sustain itself. Abandoned by the United States and eager to flex its muscle like a spoiled brat, the establishment decided to start the jihad in Kashmir forgetting conveniently that it had all but officially abandoned that ‘cause’. The establishment clashed with both Benazir Bhutto and Nawaz Sharif, who wanted to make peace with India and disengage from Pakistan from adventurous and costly pursuits. The jihadis’ cross-border operations reached to a point that Pakistan came quite close to being declared a terrorist state.

The adventures culminated in Pakistan exploding the nuclear device in 1998 although the wisdom of doing so was highly questionable because as long as Pakistan had the nuclear weapons capability, it did not really matter whether it announced this with a bang or not.

This led to the first ever default of its foreign currency deposits’ obligations and sanctions from the United States. The 9/11 provided a godsend opportunity to end Pakistan’s international isolation and repair historically close relations with the United States.

Since then, the economy has done well by traditional measures (so it did in GDP growth terms during Zia’s regime) following an injection of large doze of US aid and $22 billion in remittances. But more crucially, the biggest casualty of “easy money’ has been the reforms agenda that General Musharraf undertook to implement when he took power.

The economy remains largely undocumented, the tax-to-GDP ratio has fallen to a level even below that of 1988, stories of mega corruption abound, and no land reforms have been introduced although the establishment and its supporters have never stopped criticising Bhutto even 28 years after his death for not doing enough.

The underground economy continues to flourish with tax and money laundering havens in real estate and stock trading while Pakistan’s external debt-to-GDP ratio remains worse than even that of Sub-Saharan African countries. Yet, some Pakistanis mistake the presence of BMWs on roads as a sign of progress.

If a nuclear-armed Pakistan, with claims of one of the fastest growing economies in Asia, is as strong as the government leaders would have us believe, why it is that just some articles in the New York Times and press briefings of the US state department can cause tremors in the corridors of powers in Islamabad?

Until and unless Pakistan’s establishment and the political parties are prepared to undertake critical economic reforms to mobilise domestic resources to produce economic growth and reduce dependence on sporadic flows of ‘aid money’, it would be naive to expect any real change.

Pakistan does not need “aid money” any way if the military wants to make peace with India as most of the aid goes to buy military hardware that may never be used. Unless of course, the establishment has found a new nemesis in Afghanistan’s Karzai or a bogeyman in Lal Masjid to continue to justify its insatiable appetite for aid and arms to keep its hold on power at the expense of a stable, democratic and well-governed Pakistan.

[url]http://www.dawn.com/2007/04/16/ebr13.htm[/url]

Yasser28 Tuesday, April 17, 2007 12:23 PM

[COLOR="darkorchid"][B]Sale of National Assets[/B][/COLOR]
By [I]Masood H. Kizilbash[/I]
THERE is an obsession with governments to use indicators of growth in the national income as their success story. This is precisely what our government keeps on trumpeting.

But nobody tells us whether or not, this growth is sustainable in the long run when privatisation of our national assets to foreign private investors is in progress, in a typical global economic order.

• In a national economy, assets consist of agricultural produce from land resources beneath or over the land, fauna and flora, industries, infrastructure, financial institutions, dwellings/buildings, human capital etc. These assets when put to use produce goods and services which when valued in money terms are called `gross domestic income’. Any addition from year to year to this income is called growth. This growth accrues from either more efficient use of existing assets or through creation of new assets during the year. The effort of a state is to create more assets either from domestic resources or from foreign resources.

• The indicators of growth rate in the GDP/GNI in the new economic global order has become less significant on account of unleashing of market forces not only at the domestic but also at the international level, allowing unencumbered flow of trade and capital across the borders and shrinking of the role of the government in production, distribution and management of the economy.

The global model working under the framework, is well defined by Joseph Stiglitz in his book, "Making Globalization Work". "There was a large set of dos and don'ts: do privatise everything from factories to social security; don't have the government involved in promoting particular industries; do strengthen property rights; don't be corrupt. Minimising government meant lowering taxes but keeping budgets in balance."

• The havoc the model of development has caused in the developing world in the shape of growing poverty and unemployment is already subject to world wide discourse, aimed at reversing or drastically modifying it. This discourse, besides other features of the model, seriously questions the soundness of across the board privatisation, ranging from publicly owned enterprises in the production sector to financial sector. Yet, we in Pakistan continue to offer at top speed our domestic assets not only to domestic private investors but also to foreign investors.

• The privatisation of public enterprises started in the year 1990-91 in Pakistan. According to the Report of the Privatisation Commission, 2005, total sale proceeds realised from these assets aggregate Rs534.2 billion between 1990 91 and 2005 06 (July- December) as per table.

• As will be seen from the Table, the share of foreign investors/ companies stands at Rs236.9 billion or 44.4 per cent. From 1990 -91 to 1999 2000, the assets privatised fetched Rs74.8 billion in which the share of foreign private investors/companies was just Rs1.9 billion or 2.5 per cent. This compared with assets privatised of the value of Rs459.4 billion and the share of foreign private investors/companies as high as Rs235 billion or 51.2 per cent.

• A spurt in foreign direct investment would have been beneficial for our economy had it been creating new assets. However, the data shows that as against an aggregate foreign direct investment of Rs432.5 billion most of it to the tune of Rs234.6 billion or 54.2 per cent went in acquisition of existing national assets by foreign investors between 2001- 2002 and 2005- 2006.

• The question is, whether under the circumstances when we are transferring ownership of our national assets, the growth in the GDP has any significance. For, as the foreign investors acquire more and more national assets, most profits accruing from them would be transferred overseas, thereby reducing the net domestic income of those within the country.

It is for this reason that Joseph Stiglitz poignantly remarks that "a country with a high GDP may actually be getting poorer and poorer" and goes on to suggest that "countries need to create capital accounts that look at both assets and liabilities and make especial note of situations where asset sales (including sales of natural resources and privatisations) are misleadingly being used to make deficits look lower than they otherwise would be.

Countries can reduce their deficits by cutting down forests, selling national assets, giving away their natural resources at a fraction of the full value." Unfortunately, this is precisely what we are doing and this is leading to a situation where we would have GDP growth in the economy with most income from the assets going overseas and a little left from the income for those who live in the country and no assets left to sell for meeting the deficit. Cannot we be more prudent as some other countries have come to be?
[url]http://www.dawn.com/2007/04/16/ebr9.htm[/url]

Yasser28 Tuesday, April 17, 2007 12:26 PM

[COLOR="darkorchid"][B]How Critical is US Assistance?[/B][/COLOR]
By [I]Dr Ishrat Husain[/I]
A SPATE of editorials, articles, columns and reports emanating from the United States in the last few months have argued that the US assistance to Pakistan should be made conditional upon the progress in the achievement of US’s strategic goals in the region. These assertions echoed in the national media and the popular discourse in the country. This article tests the validity of these assertions with the help of empirical evidence and attempts to disentangle the myths from the reality.

The US economic and military assistance to Pakistan since September 11, 2001 has come in four main forms (a) debt relief (b) military assistance (c) economic assistance (d) emergency relief assistance. In addition, the US . has been reimbursing in dollars the expenditures incurred by Pakistan in supplying logistics services to US troops in Afghanistan.

Although normally this reimbursement should not be considered part of any aid package, it has been so included in this analysis for the sake of comprehensiveness. If this broader definition of US assistance is accepted, then the next step is to calculate the quantum of this assistance.

In FY 2002, the US provided debt relief of $600 million and in FY 2003 used Economic Support Fund of $186 million to retire bilateral US debt of $1 billion. Between FY 2004-2007, the US has provided budgetary support of $800 million under Economic Support Fund. In addition it also funded (a) development assistance (b) Child Survival and Health Programme and (c) PL 480 Title II in the amount of $530 million. The US is committed to further $600 million in FY 08 and FY 09 under economic assistance.

Under Earthquake relief and reconstruction the US has provided $105 million and has committed to allocate an additional amount of $200 million for reconstruction in the AJK and NWFP.

The military assistance that has been received so far is approximately $900 million with further commitment of$600 million in the coming two years. Finally, the US has been reimbursing Pakistan at $80 million a month for the logistic services provided to the US troops in Afghanistan since 2002. This amount aggregates to $4.8 billion in all and is shown under the services account in the current account balance. This amount is in actual fact, payment for expenditures that Pakistan has been incurring out of its own resources in rupees and is not included in any standard definition of “aid”. But we have included the reimbursements as aid in order to address the arguments raised by the proponents of “Pakistan dependent upon US” theory.

Table-1 presents an aggregate total picture of all these four types of US assistance since September 2001. The annual inflows during the last six years amount to approximately $1.75 billion from all types of US assistance - military, economic, and reimbursements for logistics support. Of these flows, the aid – military and economic accounts for $ 787 million etc annuallyIn order to examine the importance of these flows to Pakistan’s economy and evaluate the dependence of our economy on US four key indicators are selected (a) US assistance as per cent total budgetary expenditure (b) US assistance as per cent of total foreign exchange receipts (c) US assistance as per cent of total current account receipts and (d) US assistance as per cent of total value of imports.. These indicators have been carefully chosen to see as to how much damage will accrue to our balance of payments and fiscal accounts if the US for one reason or the other abruptly decides to withdraw its assistance of all types.

The results of this analysis shown in Table II indicate that even under the worst case scenario of zero aid flows and no reimbursements for logistics services rendered to the US troops, the diminution in foreign exchange receipts or budgetary resources would be insignificant — varying between 4.5 per cent of total foreign exchange receipts to 7.2 per cent of total budgetary expenditures. The other two indicators i.e. the proportions of total value of imports and current account receipts financed by U.S. assistance account for 6.4 per cent and 5.8 per cent respectively — not worrisome amounts.

Some observers would argue that the World Bank and ADB assistance to Pakistan would also be reduced if the US takes action to suspend its financial aid. Although this assumption is open to question and debate but even if it is accepted at its face value, the total gross flows of foreign aid from all official bilateral and multilateral sources (excluding reimbursement for services) amount to 8.5 per cent of the country’s foreign exchange receipts. in 2006-07 and 10.8 per cent if the re-imbursement for services is included.

As a proportion of GDP, these gross flows from all sources work out to only three per cent. Using a more appropriate indicator i.e. net transfers on

account of all foreign assistance, the impact is even more negligible — only 1.1 per cent of GDP. Should these amounts raise any alarm bells when the country has already weathered much worse shocks of greater magnitudes in the past seven years.

This worst possible case scenario ,although possible but not probable, will have a consequence in form of immediate drawdown of our foreign exchange reserves from $13.5 billion to $9.5 billion assuming that all current expenditures in foreign exchange are protected. In case this scenario materializes the policy makers will have to make necessary adjustment in our imports and other foreign exchange expenditures, take measures to attract larger volume of remittances and foreign direct investment and will access the international capital markets. We can be assured on the basis of the above “What if:” kind of analysis that under the highly improbable worst case scenario where the US along with all multilateral development banks withdraw its assistance of all types in one go, Pakistan’s economy is unlikely to face any serious risk.

It is also less well known that the U.K Government provides much larger volume of economic assistance to Pakistan than the U.S does. The Department for International Development (DFID) of UK has raised its annual grant aid to Pakistan from £240 million ($480 million) to £480 million ($960 million). Most of this aid is targeted at education, health, social development i.e largely on the development of the people.

Despite such hefty amounts involved - more than the entire U.S economic and military assistance - there are very little noises from the British Parliament or think tanks or even the influential media that Pakistan should be penalised “as it is not doing enough to help meet the British objectives in Afghanistan”. There is a sense of maturity in the U.K that recognises that these kinds of tactics in fact end up alienating and antagonising public opinion in the recipient countries rather than alter their behaviour. Ill will rather than goodwill is created against the donors if they continue to flaunt the stick they possess. A better way is to engage in dialogue, listen to and understand the perspectives and limitations of the recipient countries as to why there is divergence in the views of the two sides and what can be done to set things right.

There is no doubt that the government and the people of Pakistan do very much appreciate the financial and moral support demonstrated by the US government at the critical moment of Pakistan’s economy. Several other collateral benefits accrued to the economy as a result of the U.S bilateral debt forgiveness, strict scrutiny of remittances through informal channels, the US EXIM Bank and OPIC’s highly positive initiatives and the withdrawal of all different types of economic sanctions. U.S Administration played a helpful role in ensuring larger volume of concessional assistance to Pakistan through the IMF, World Bank and Asian Development Bank. The prompt and generous response to the Earthquake of October 2005 by the US government, private sector and non-governmental organisations left a very favorable impressions in the minds of Pakistanis.

US is an important trading and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this analysis is not to show that we care little for our friendly relations or do not cherish friendship with the government or the people of the United States. As a matter of fact we should expand our relations with the United States in the areas of higher education, science and technology transfer, trade, investment and labour flows. We should also seek duty free market access for the products exported from the Reconstruction opportunity Zones (ROZs) in the tribal areas as part of our joint strategy to provide economic benefits to the three million population living on the porous border with Afghanistan. But the main argument of this analysis is that the pundits in the US who believe that they can use the leverage of US official aid to paralyze Pakistan’s economy are sadly mistaken as they have an exaggerated sense of the importance of these official flows. Any attempt to impose conditions that impinge upon the sovereignty of Pakistan or conflict with our own national interests can be resisted without creating a serious dislocation to our macro economic stability or growth prospects.

This analysis explodes the popularly held myth that Pakistan is so dependent on foreign assistance for its economic survival that pulling the plug would force it to yield under this pressure. These sages and their followers in Pakistan are well advised to seriously reconsider their basic premise. Successive governments in Pakistan since 1974 – whether military, democratically elected or interim- had successfully resisted all kinds of pressures placed upon them for discontinuing the nuclear programme under worse economic conditions than prevail today. The present and the future governments of any political persuasion would be able to meet the highly unlikely event i.e abrupt withdrawal of U.S economic and military assistance of all types and forms with courage and fortitude because the capacity of the country to respond to this and other exogenous shocks has become much resilient in the recent years. During the last seven years Pakistan has successfully withstood the internal and external shocks of severe and prolonged drought, mobilization of Indian troops on the borders, terrorist attacks on foreign nationals, the war against terrorism in Afghanistan, and the oil price hike. None of these shocks, some of which are more severe than $750 million provided by the US has hurt the macroeconomic stability or growth. Oil import bill that went up by almost $2 billion in a single year was more devastating in nature but the economy grew at 6.6 per cent despite this shock.
[url]http://www.dawn.com/2007/04/16/ebr3.htm[/url]

Yasser28 Wednesday, April 18, 2007 12:45 PM

[COLOR="DarkOrchid"]Fixing the Price of Water[/COLOR]
[I]By Shahid Javed Burki[/I]

For some time now economists as well as water management experts have believed that they had fairly definitive answers to the questions I posed above. For instance, in 1995, Ismail Seragelddin, then my colleague at the World Bank and then considered to be one of the most informed authorities on the subject of water, worked strenuously to get the institution both of us worked for to focus on water. He wanted some of the World Bank’s formidable financial and analytical resources to be committed to developing water resources and to increasing the understanding about its efficient use.

In order to draw the attention of the Bank’s senior management towards the issue of water, he made a dour prediction that “the wars of the next century will be about water”.

That prediction mercifully did not come true. Research shows that most conflicts about water happened within countries, not between them. The World Business Council for Sustainable Development in its recently released report, ‘Business in the World of Water,’ says that in the past half century only 37 disputes concerning water involved violence. Of these 30 were between Israel and one of its several Arab neighbours. However, there were several serious disputes within countries. Among these the disputes involving Pakistan’s provinces figure prominently.

Inter-provincial quarrels about the distribution of water have kept serious state investments from taking place in Pakistan. They have also made it difficult for the country’s political masters to make provinces somewhat more autonomous in the areas that are their responsibility under the Constitution. Water disputes, in other words, have not only prevented the policymakers from addressing the problem with the analytical clarity it deserves, they have affected the quality of relations among governments at different levels.

Most experts agree that Pakistan needs a well thought-out strategy to save itself from a serious water crisis. This strategy must have several elements that nicely complement one another. It should deal not only with the important question of storing water that currently runs into the sea unused. It must also devise policies aimed at the better utilisation of water that is available from the current storage. Such a comprehensive approach has been endorsed by a number of multinational agencies now occupied with the question of water.

In its second ‘Water Development Report,’ the United Nations says that insufficiency in the availability of water is primarily caused by inefficient supply – mismanagement, prevalence of corruption, lack of institutions, bureaucratic inertia, inappropriate pricing policies or low investment – rather than actual shortages. The problem would not be solved by simply making large investments in dealing with the issue of supply.

For a decade or so – from the mid-eighties to the late nineties – the favoured approach towards managing the water crisis in developing countries was to place trust in private institutions. This approach was tried extensively in Latin America when, following the decision to privatise the assets owned by the state, a number of water utilities were acquired by European companies.

I visited one of these companies in the Spanish city of Barcelona in 1996 where I saw an impressive display of management tools that could be used to cut down on waste and thus increase the amount of water available in large municipal systems. The company had developed a business model that relied more on management than on new investments to make it possible for even the poorest segments of the population to gain access to good quality water. I saw a computer programme that could detect leakages in any part of the system thus preventing a great deal of waste.

The company believed that it could save the Latin American cities a great deal of financial burden that would result from large investments in increasing supply by introducing such modern management practices. The company put this belief into practice by successfully bidding for some public utilities when they became available under the various programmes of privatisation launched in the continent in the 1980s.

It soon discovered that what worked in the cities of the developed world could not be easily implemented in developing nations. This was mostly because of the unwillingness on the part of political authorities to put appropriate pricing policies in place. As a recent review of this experience puts it, “faced with significant political and economic risks, multinationals such as Suez, Thames Water and Veolia pulled back from big investments in Asia, Africa and Latin America in recent years.”

If the expertise needed for better management of water supplies cannot be imported through privatisation, what other options are available to policymakers in the developing world? I don’t believe developing countries’ societies are quite ready to entrust the supply of water to private companies who have to keep the bottom line in front of them in managing any part of their business.

In the case of water, as the experience in Latin America shows, making water a profitable business for the private sector means increasing tariffs to the point where it becomes a serious public issue.

If the full price of water cannot be charged then there must be some element of subsidy included in the structure of tariffs. However, that imposes a burden on cash-strapped governments such as those in Pakistan. To keep subsidies within limits, it is important to first educate the public about the important issue of pricing of water. Water is seldom priced as a scarce resource; it is usually treated as an infinitely available commodity. Like all free or cheap commodities, it is used mercilessly and wastefully. For a long time people thought that this resource could not possibly get exhausted. But then the evidence of misuse began to become visible.

As one observer puts it: “But the paradox is that poor people in slums pay much more for their water than the rich in the spacious air-conditioned villas of the same cities. The water sellers of Nairobi can charge between two and 20 Kenyan shillings for up to 20 litres of water. Rich people in developing countries, by contrast, have water services subsidised by the government.”

Nairobi is not unique in this respect. Exactly the same situation exists in Karachi where the poor pay multiple times more for water purchased from vendors compared to what is charged from the rich by the public utility company. The most effective way of dealing with this situation is to entrust the accountability of public utility to the people’s elected representatives. This should be done by the local governments who should then let the question of prices and subsidies be decided by commissions set up for this purpose that have citizens represented on them.

The question of pricing of water and appropriate subsidies extends beyond the urban areas and should include the countryside. It should also take into consideration the use of water that goes beyond drinking to other uses. Water scarcity also results in increasing social costs, paid by the most vulnerable segments of the population. In most rural societies, women are responsible for fetching water; as it becomes scarce, the distance they must cover and the time they must spend increase.

This has an effect on their health and the well-being of their families. In more difficult situations, women fetching water take their daughters with them thus keeping them out of school. Bringing the supply of water closer to the points of consumption saves women time they can spend on improving the welfare of their families.

“Water accounting” for deciding on the pattern of agricultural production as well as the products produced by the manufacturing sector is a relatively new undertaking. It reveals some surprising findings. For instance, some analysts argue that the pattern of exports from many developing to developed countries is, in effect, the export of water from water-short countries to those that have an abundant supply of water.

A few examples will help to underscore this important point. About 13 litres of water go into the production of a tomato, 70 litres into the growing of an apple. Cotton requires vast amounts of water – according to one estimate “about 11,000 litres of water go into making a single pair of jeans”. This kind of analysis leads to some obvious questions for a water-stressed country such as Pakistan. What should it produce and what should it export in order not to strain the situation of water?

That state should not mandate. It should leave the choices of production to individual producers after correcting the price of water. With the farmers and manufacturers charged appropriately to reflect the scarcity value of water – not the full price, perhaps, but one that is sufficiently high to make the producers think seriously about water as an input and not as a free good – we will see a dramatic change in the pattern of production in both agriculture and industry. The shift by the producers towards less water-intensive lines of production will help enormously in saving a great deal of investment that must otherwise be made.

As with so many other areas of public policy, the record of performance by the Pakistan government – not just by the one that is currently in office but also those that preceded it – shows that it is not well equipped to handle the water problem in a comprehensive way. One possible solution may be to appoint a “blue ribbon” commission that has the representatives of the people from the four provinces as well as experts to come up with a long-term strategy for the country to follow to save it from a serious water crisis.
[url]http://www.dawn.com/2007/04/17/op.htm#1[/url]

Yasser28 Wednesday, April 18, 2007 12:47 PM

[COLOR="DarkOrchid"][B]Coping with Record Trade Deficit[/B][/COLOR]

By [I]Sultan Ahmad[/I]

PAKISTAN has incurred a deficit of $10 billion in its external trade in the first nine months of the financial year — an average deficit of over a billion dollars a month.

That has happened as imports during the period rose to $22.42 billion while exports just increased to $12.345 billion -- a nominal increase of 3.5 per cent against the federal budget projection of 12 to 14 per cent rise.

The situation began deteriorating from September last after the year began well and improved marginally last month, but there is no assurance of improvement being sustained during the last quarter of the financial year. After the first nine months exports recorded a deficit of $9.985 billion. The fear is that the total deficit for the year may reach $12 to $13 billion by June, close to the foreign reserve.

Commerce minister Humayun Akhtar says the situation is not that bad as the exports this year are still larger than last year, but the fact is that the deficit has increased by 15.1 per cent from $8.687 billion this time last year.

The export performance is far less than what the country desperately needs. The scope for exports is far larger if approached the right way. Anyway Pakistan cannot afford to lose its markets to China, India and Bangladesh.

The large trade deficit which has also created a record current account deficit is now covered by the inflow of home remittances from Pakistanis overseas, foreign investment and privatisation funds. But this year the grace period extended by the group of 26 Paris Consortium after 9/11 comes to an end and the lenders expect us to resume the scheduled repayments. That will exercise pressure on the balance of payments of the country and the World Bank has reminded Pakistan of that now.

Meanwhile, the rise in trade deficit is caused by the high price of oil, which may cost $7 billion this year and the rising international prices of many essential imports, including all metals led by steel and major food items like powder milk and vegetable oil, particularly palm oil.

In the area of exports, after the European Union has cancelled fish imports from Pakistan due to unhygienic conditions at the fish harbour and diverting its fish imports to India and Bangladesh, we are losing poultry exports as well because of bird flu. Already 47,500 birds have been culled in Karachi alone to avoid bird flu.

Now while Pakistan is seeking FTA agreements with China, US and other countries, we are thinking only of the larger opportunities for exports to their markets and not of the possibility of tax-free or reduced tariff goods from those countries flooding our markets. That is happening already in respect of Chinese goods in Pakistan and Pakistan has been forced to levy heavy anti-dumping duties against two kinds of very cheaply sold tiles.

We have to be ready for protective measures against cheap imports as well and have to reduce our cost of production and sale of goods so that we can withstand imported competition as well while competing with foreign goods abroad successfully. Our businessmen have to learn to accept moderate rates of profits instead of opting for high profits all the time.

Meanwhile, there are rejoicings in Malaysia over the non-conclusion of negotiations for the FTA before the US deadline for reaching the agreement expired. And there are widespread protests in South Korea over the FTA agreement which has concluded by its powerful trade unions for fear of massive loss of jobs. The agreement is concluded but is not ratified by the parliament of the two countries.

In Pakistan there is utter complacency or lack of understanding over the full implications of FTA agreements with developed countries. The FTA is a sharp double- edged sword. It offers as many opportunities for larger exports as it offers to the other parties for exporting tax-free or reduced tariff items to Pakistan in plenty.

At the same time, we have made a mess of our fish exports risking $80 million export earnings because of our cussedness and the belief that anything can pass despite stern earnings from the European Union. We have now placed the responsibility for managing the fisheries on the provinces. Let us hope they will do better than under the divided management.

We are also hoping to export wheat to India after an interval of 50 years. Our wheat production is expected to rise to 23 million tones with two million tones surplus while the Indian deficit is five million tones. It is hoped that a good use of the situation would be made. We are also trying to export cement to India after the first consignment ran in to some difficulties.

If we have to achieve our export target of $18.6 billion we have to try far harder and rationally than we have been doing and try to limit our imports to the ceiling of $28 billion.

We do not know at the moment how far the Chinese industrial estates, which are to come up in Pakistan in collaboration with Pakistani businessmen, will be helpful in increasing our exports particularly to China. It depends on the kind of industries on which the Chinese invest and develop competitively.

While the import budget at $28 billion is very large, the government does not want to reduce it as apart from oil, it consists of industrial machinery, electrical equipment, raw material for industries and automobiles which bring large revenues to the state. Reducing imports would also mean a drop in the revenues which the government does not like but also the reduction in the import of machinery and raw materials will affect economic growth and increase unemployment which the government cannot risk.

But it is wrong to say that the key players in the government do not know the reasons for the small exports and its creeping increase and the commerce officials have kept the government in the dark regarding the real reasons. The newspapers are full of the reasons why the exports are poor. And the top officials are told the reasons at numerous seminars workshops they attend which include the high cost of production in Pakistan and the heavy price of doing business.

The international financial institutions have spot lighted the reasons for the poor exports and have offered financial help to implement the necessary reforms. The fact is that while there is so much talk about reforms, first generation reforms and second generation reforms, there is a reluctance to change, to break away from old habits and bureaucratic traditions. There is a reluctance to trust non-officials despite massive privatisation programme of the government and the new public-private partnership.

A report on the state of commerce in Pakistan, largely in respect of the private sector, has been on the table of the commerce minister for two years he says, but since decisions have not been taken on the report, it has been gathering dust although it may be the first official study of the domestic commerce which needs detailed scrutiny now.

Radical changes are essential in the commercial sector, both on the part of the government and the private sector. The earlier such changes occur the better, in a highly competitive international market world where the weak and the vacillating are left far behind.
[url]http://www.dawn.com/2007/04/16/ebr11.htm[/url]

Yasser28 Wednesday, April 18, 2007 12:48 PM

[COLOR="darkorchid"][B]Sale of National Assets[/B][/COLOR]

By [I]Masood H. Kizilbash[/I]

THERE is an obsession with governments to use indicators of growth in the national income as their success story. This is precisely what our government keeps on trumpeting.

But nobody tells us whether or not, this growth is sustainable in the long run when privatisation of our national assets to foreign private investors is in progress, in a typical global economic order.

• In a national economy, assets consist of agricultural produce from land resources beneath or over the land, fauna and flora, industries, infrastructure, financial institutions, dwellings/buildings, human capital etc. These assets when put to use produce goods and services which when valued in money terms are called `gross domestic income’. Any addition from year to year to this income is called growth. This growth accrues from either more efficient use of existing assets or through creation of new assets during the year. The effort of a state is to create more assets either from domestic resources or from foreign resources.

• The indicators of growth rate in the GDP/GNI in the new economic global order has become less significant on account of unleashing of market forces not only at the domestic but also at the international level, allowing unencumbered flow of trade and capital across the borders and shrinking of the role of the government in production, distribution and management of the economy.

The global model working under the framework, is well defined by Joseph Stiglitz in his book, "Making Globalization Work". "There was a large set of dos and don'ts: do privatise everything from factories to social security; don't have the government involved in promoting particular industries; do strengthen property rights; don't be corrupt. Minimising government meant lowering taxes but keeping budgets in balance."

• The havoc the model of development has caused in the developing world in the shape of growing poverty and unemployment is already subject to world wide discourse, aimed at reversing or drastically modifying it. This discourse, besides other features of the model, seriously questions the soundness of across the board privatisation, ranging from publicly owned enterprises in the production sector to financial sector. Yet, we in Pakistan continue to offer at top speed our domestic assets not only to domestic private investors but also to foreign investors.

• The privatisation of public enterprises started in the year 1990-91 in Pakistan. According to the Report of the Privatisation Commission, 2005, total sale proceeds realised from these assets aggregate Rs534.2 billion between 1990 91 and 2005 06 (July- December) as per table.

• As will be seen from the Table, the share of foreign investors/ companies stands at Rs236.9 billion or 44.4 per cent. From 1990 -91 to 1999 2000, the assets privatised fetched Rs74.8 billion in which the share of foreign private investors/companies was just Rs1.9 billion or 2.5 per cent. This compared with assets privatised of the value of Rs459.4 billion and the share of foreign private investors/companies as high as Rs235 billion or 51.2 per cent.

• A spurt in foreign direct investment would have been beneficial for our economy had it been creating new assets. However, the data shows that as against an aggregate foreign direct investment of Rs432.5 billion most of it to the tune of Rs234.6 billion or 54.2 per cent went in acquisition of existing national assets by foreign investors between 2001- 2002 and 2005- 2006.

• The question is, whether under the circumstances when we are transferring ownership of our national assets, the growth in the GDP has any significance. For, as the foreign investors acquire more and more national assets, most profits accruing from them would be transferred overseas, thereby reducing the net domestic income of those within the country.

It is for this reason that Joseph Stiglitz poignantly remarks that "a country with a high GDP may actually be getting poorer and poorer" and goes on to suggest that "countries need to create capital accounts that look at both assets and liabilities and make especial note of situations where asset sales (including sales of natural resources and privatisations) are misleadingly being used to make deficits look lower than they otherwise would be.

Countries can reduce their deficits by cutting down forests, selling national assets, giving away their natural resources at a fraction of the full value." Unfortunately, this is precisely what we are doing and this is leading to a situation where we would have GDP growth in the economy with most income from the assets going overseas and a little left from the income for those who live in the country and no assets left to sell for meeting the deficit. Cannot we be more prudent as some other countries have come to be?
[url]http://www.dawn.com/2007/04/16/ebr9.htm[/url]

Sureshlasi Wednesday, May 02, 2007 03:58 AM

Asian development bank overview
 
[COLOR="DarkSlateGray"][B][SIZE="5"][FONT="Comic Sans MS"]South Asia's Growth to Remain Strong in 2007-2008, Says ADB[/FONT][/SIZE][/B][/COLOR]

TOKYO, JAPAN - South Asia’s economic growth is expected to moderate to 7.7% in 2007 and rise slightly to 8% in 2008. Tight monetary policy measures taken by several countries in the region in 2006 are expected to dampen consumption while investment and growth in developed countries ease, according to a major ADB report released today.

The services sector is expected to drive economic growth in South Asia, supported by accelerated growth in manufacturing, according to ADB’s flagship annual economic publication, Asian Development Outlook (ADO).

South Asia’s economy expanded by 8.7% in 2006, supported by growth in consumption and investment. The region has averaged more than 7.5% growth since 2003, allowing it to reduce poverty levels in India, Pakistan, and Bangladesh. Every economy in the region posted growth of more than 6% in 2006, except Nepal, which suffered in the wake of political unrest.

India clocked the highest growth of 9.2% among the large economies and Maldives grew at 18.2%, fastest among the small economies.

Tight monetary policies taken by several countries in 2006 and improved fiscal balances will help the region rein in inflation at about 5% in 2007 and 2008. High growth rates in the region with elevated interest rates will continue to attract large capital inflows.

“South Asia’s recent economic performance shows it has emerged as a new growth pole in Asia”, says Ifzal Ali, Chief Economist of the Manila-based multilateral bank. “The region can match East Asia’s exemplary growth rates, albeit from a lower base.”

ADO 2007 forecasts overall growth for the 43 countries of developing Asia at 7.6% in 2007 and 7.7% in 2008.

Afghanistan’s growth rate slowed to 8% in 2006 from 14% in 2005 as the drought dragged down agricultural growth, which accounts for about one-third of the country’s economy. Inflows of foreign aid continue to support the country’s rapid growth with construction and services being the main drivers.

Pakistan and Bangladesh are projected to post a growth rate of about 6.5% to 7% in 2007 and 2008.

Economic expansion in Bangladesh has been underpinned by private consumption and investment, spurred by substantial workers’ remittances from abroad. While it is still early to pass judgment on Bangladesh’s economic performance, conditions for doing business could improve if the anticorruption and reform initiatives taken by the caretaker government continue.

Pakistan’s growth rate slowed in 2006 to a still brisk 6.6% from an average of 8% in the preceding two years as adverse weather conditions hit key agro-industries and dragged down the growth of the agriculture sector. The robust expansion of the services sector failed to offset the sluggish performance of the agriculture and manufacturing sectors.

India’s economic growth is expected to moderate to 8% in 2007 and rise marginally to 8.3% in 2008. Domestic inflationary pressures are expected to wane as the impact of credit tightening measures implemented by the central bank takes hold. ADO 2007 cautions that the pace of economic reforms in India is slowing.

Nepal’s economy turned in a sluggish performance, growing at 2.3% in 2005 and 2006. The insurgency adversely affected manufacturing, transport, communication and tourism while inclement weather depressed agricultural performance. The rate of inflation increased to 8% in 2006. The central bank took steps to curb inflation, but the impact has not yet been felt.

The Sri Lankan economy grew at 7.2% in 2006, lifted by the agriculture sector that was spurred by post-tsunami recovery of the fisheries sub-sector and sturdy growth in the service and industrial sectors. But higher government spending, partly due to post-tsunami reconstruction, pushed up the budget deficit to 8.7% of GDP. Demand pressures and rising food and fuel prices pushed the Colombo consumer price inflation rate up to 13.7% in 2006.

Political uncertainty and security concerns in many countries in the region continue to cast a shadow on the outlook and resolution of these critical issues remains key for the region’s economic success.

ADO 2007 says the structural policy reforms undertaken by governments in the region that spurred private sector led growth should continue with focus on reducing barriers to employment growth that would reduce poverty.

A pick-up in agricultural productivity, improvement in business climate and infrastructure are key to keeping South Asia on the high growth track. While prescriptions need to be country specific, fiscal prudence, reform of the financial sector, second generation reforms aimed at developing markets and institutions that may be missing or incomplete, and sound energy policies, are key to sustaining accelerated growth in the region, ADO 2007 says.

As India accounts for about 80% of South Asia’s GDP, its rapid growth can benefit the region by policies to integrate regional economies. Expansion of intraregional trade and cooperation can help in sustaining fast growth and reducing poverty.

ref : [url]http://www.adb.org/Media/Articles/20...ents-outlooks/[/url]

Wounded Healer Sunday, May 06, 2007 02:48 AM

Pakistan to be leading economic power by 2050’
 
[SIZE="4"]‘Pakistan to be leading economic power by 2050’[/SIZE]

By Sajid Chaudhry

ISLAMABAD: Advisor to Ministry of Finance, Dr Ashfaque Hassan Khan, has said a latest research by a UK based international firm has indicated that Pakistan along with other three economies would become leading economic power well before 2050.

[B]Speaking at weekly briefing at the Ministry of Finance Dr Ashfaque said Gold Man Sachs had earlier included Pakistan in next 11 emerging economies with a projection that the country would be an economic power by 2050. [/B]

[B]In a latest projection released by Grant Thorton, a British Accounting Firm indicates that Pakistan, Turkey , Indonesia and Mexico would become economic powers earlier to the projected date of 2050. [/B]

He called this development as success of the economic policies and economic managers of the country who are trying hard to convert the current growth trend into a sustainable economic growth.

He said Pakistan to hold road shows in different parts of the world for flotation of its next bond issue in the month of May. Bond having category of 144-A would be for whole world including Europe, America, and onshore US in-vestors would also be able to hold these bonds.

He mentioned that selection of lead managers had already been completed and City Group, HSBC and Douche Bank, the lead managers, were completing the documentation process for floatation of bond.

He said the size of the bond issue would be decided on last day of the road shows.

Replying to a question on next GDR, he told the media that they have successfully completed the GDR of the OGDCL and preparation for the GDR of the UBL was at an advanced stage. “We are trying to complete UBL’s GDR before the end of this fiscal year 2006-7,” he added.

[B]He told that Pakistan would participate in 40th annual meeting of the Asian Development Bank scheduled at Kyoto, Japan during 4-7 May, 2007.[/B]

Pakistan’s three member delegation to be headed by Omer Ayub Khan, Minister of State for Finance, and Secretary Economic Affairs and Advisor to Ministry of Finance would also be the part of delegation.

[B]The 21st century is seen as Asian century and the ADB meeting would discuss the economic growth and challenges faced by Asian economies[/B].

At the ADB annual meeting, Pakistan, Vietnam, Philippines and India would give presentation on their state of economies and challenges faced by them. Pakistan had earlier held presentation on its economy in the year 2000, Dr Khan added.

Giving a brief overview of the economy, he said during 1st March to 30th April Pakistan’s stock market recorded increase of 1162 points in its index.

Aggregate market capitalisation of Pakistan’s stocks market increased by Rs 545 billion or 9 billion dollars during the said period, the overall aggregate market capitalisation which stood at 50.4 billion dollars at the start of March increased to 59.4 billion dollars by the end of April 2007.

He mentioned that Pakistan’s foreign exchange reserves increased by 390 million dollars during this period as at the end of April these reserves were 13.752 billion dollars.

He said exchange rate was also stable, at the start of March 2007 it was Rs 60.7 and at the end of April 2007 it continued to stand at Rs 60.7 per US dollar.

Last Island Tuesday, May 08, 2007 04:17 AM

Faces of poverty
 
DR FAISAL BARI

The man is relatively old, blind and not able to work. His wife is also quite old and has never worked outside of the house in her life. They have two young daughters, but they are almost illiterate and they too have not worked outside of their house in their life. Not that there is any work for them to do in the village anyway.

This is a real household in a small village in a relatively developed part of rural Punjab. The household has always been poor, but their current condition is nothing less than critical. They survive on the help that they receive from neighbours and some of the richer households in the village. But this help is barely enough to keep them out of complete starvation. It does not prevent major health issues, malnutrition issues and even issues regarding having decent clothing and so on.

When the old man could work, he used to be a muzdoor. He would work in the fields or would go to the nearby city to work as a labourer in construction industry. Even then the household was living in rather constrained conditions. But since he has gone blind, he has seen levels of poverty and deprivation that are hard to even write about. It is difficult to believe that a household can survive in such conditions.

It goes without saying that the state apparatus does not even know that such a household exists. No Zakat, Bait ul Maal, Prime Minister or Chief Minister programme has ever reached them. And his ability to go look for these programmes is very limited: limited by his lack of resources, his lack of literacy and his lack of ability to move around.

The old man comes from a caste whose members are, on average, also not very well off. Most of the people in this caste, spread over rural Punjab, are poor, lack skills, lack education and though most of them are connected to agriculture, do not own land and most of the time do not even own their homes.

But the story is much worse. Some of the research shows that most of the people from this and similar castes have not even been able to break the circle of poverty and deprivation over generations as well. Their fathers and grandfathers were as poor as they are and they expect that their children will be as poor, as deprived and as powerless as they are (interestingly, the only bright spot in their lives, from the perspective of some hope, was Bhutto's rule of the 1970s, but that is another story for another article). So, the story is not of poverty alone, it is a story of denial of rights, denial of inclusion, and denial of effective enfranchisement.

Current generation is poor as it has no education, no skills, no fixed assets (land or other holdings), no savings and very limited ability to raise credit. He/she is forced to live as a daily wage worker, or as a unskilled worker on the fields of the landlords or in the households of the richer village people. But this gives her barely enough to feed her children. She cannot afford to send her children to private schools of course.

The state has been unable to provide quality education and health services in the village and so her children cannot get education or decent health care. But even if there is a decent public school available in the area, her children are usually excluded from being able to avail the services of that school.

This exclusion, from state provided services, for some castes, has not been studied a lot, but it has been pointed out in some other research work too. It points to a very significant failure of the state. State institutions are unable to treat citizens equally and fairly: they are unable to extend the same quality of services to all irrespective of their caste, creed, religion and level of income.

There is an even more important failure here. If the state knows that certain sections of the society, castes and creeds are not being able to access state provided services, are being excluded and to the extent that they cannot even have a decent though basic life (and how can the state not know this about these castes from across Pakistan), the state should have focused their energies on bringing these castes into the mainstream and it should have made extra efforts to ensure that the excluded groups are given their fair share and more in the resources of the state, that they are able to access state provided services and are able to break the vicious circles of poverty and deprivation that they are locked into.

The failure gets more exasperating and even more exclusionary when the other organs of the state reinforce the initial failure. The local administration, the canal water official, the patwari, the local policeman, the local tax official and even the local judicial officer all support the local notables and major land holders. They feel that they would be more successful in their job and careers if they have good working relationships with the local notables.

The notables reciprocate the feeling. So the local state institutions get aligned with the interests of the local notables and landlords and the excluded castes become even more excluded. A better state would make sure that its local representatives would try to go in the opposite direction. It would try to ensure that all people, landed or not, are treated fairly and equally, and if any are being discriminated against, it would ensure that the state institutions bend backwards to ensure that any initial inequality is redressed.

But the opposite actually happens. In a village I know fairly well, a girl from a poor household and from one of the excluded castes was raped by the landlord's son and then burnt alive. Before she died she even identified the culprit. But the local police, the local administration, and the local setup made the life of the parents so difficult that they had to settle with the landlord out of court. At that time, this happened quite a few years back, the parents were forced to accept something like Rs 10,000 and shut up for good. So much for state institutions trying to level the playing field.

To address the above, the state has to ensure that its service delivery mechanisms and local level institutions are able to divorce themselves from local politics and are able to extend the same level of services to all, irrespective of their caste and income. The state has to ensure that its local representatives are able to ensure effective participation from the excluded castes and people. But this is not going to be easy for an elitist and non-representative setup to achieve.

One possible and relatively easy way to address this type of exclusion and inequality would be through giving rights over land to the excluded classes. This would give them assets to break the poverty cycle with, it would guarantee certain level of income for them, and it would give them some power vis a vis the local landed elites. It would give them some power and respectability in the eyes of local state representatives as well.

It is important to note here that I am not arguing for land reform from the perspective of raising agricultural productivity: the traditional reason for talking about land reform. But it is to allow some balance in how power is distributed in rural areas and to allow excluded people and castes to re-enter the mainstream that I am arguing for land re-distribution. This is again a larger topic and one that deserves detailed thinking and arguing. We will come back to this issue in a later article.

Poverty can be perpetuated in many different ways. And it can be killing, quite literally. Some of its faces are given above. The state has a responsibility to eradicate poverty, but its current efforts are limited and sometimes even counterproductive, and with significant consequences for many. How we handle this issue will determine the fate of millions of people existing today and many millions who will be born in the years to come.

(The Nation: May 7, 2007)

mtgondal Friday, May 18, 2007 10:13 AM

[B]Hope for the poor [/B] [I]S RAHMAN [/I]

ARTICLE (May 18 2007): Poverty is a curse. Yet a bigger curse is a government's apathy towards this curse. Blessed are the nations whose governments focus more on material development aimed at socio-economic uplift of the masses. One should pity those nations whose governments have no agenda other than mere reliance on self-projecting, luring slogans and impracticable programmes.

Pakistan is lucky to have made strides in the area of socio-economic development that has improved the common man's lot in reality. Not only that, things seems to be moving with such a pace and in such a direction that one can easily predict the eradication of poverty from the country within the foreseeable future. And the foreseeable future means within the next one to two decades, not beyond that.

The credit certainly goes to the Shaukat Aziz government, as much as to the President, General Pervez Musharraf, for having embarked on a mission to rid the Pakistani nation of the curse called poverty, with exceptional speed, so as to achieve this target close to the 2015 deadline of Millennium Development Goals (MDGs).

It is the year 2016, officially declared as the year of the fulfilment of the present regime's Vision, meaning the Vision of Prosperity and Optimal Development. Candidly speaking, although the country would be given a 'Visions' off and on, by many top political leaders, the Vision that is in currency nowadays is backed up by ingeniously planned, effective back-up efforts. The stress on implementation and follow-up is tremendous and that is making things work optimally.

The question certainly is not of pace or direction alone, but that of concrete figures - relevant to material progress made - that substantiate the sitting government's claims of endeavouring to bring prosperity in Pakistan.

Even a cursory look at the poverty statistics suffices to suggest that the government's poverty reduction efforts have met much success. The success has mainly come in the wake of a high growth rate, reduction in unemployment and direct transfers, all these factors collectively contributing towards a 10.6 percent decline in absolute poverty.

The poverty head count, which was 34.4 percent in 2001, came down to 23.9 percent in 2005. Rural poverty, in particular, declined at a higher pace than urban poverty. As against a 7.8 percentage point reduction in urban poverty during 2001-05, rural poverty declined by 11.2 percent.

The number of people living below the poverty line declined from about 49 million in 2000-01 to 36 million in 2004-05, or 13 million people moved out of poverty trap, of which 10 million people were in the rural areas (Table 1). During this period the total population, however, increased by about 12 million.

TABLE-1: POVERTY HEADCOUNT RATIO

================================================================================
2000-01 2004-05 -
Total Urban Rural Total Urban Rural
--------------------------------------------------------------------------------
Population (mill) 142.86 47.50 95.36 152.53 52.41 101.50
Poverty HC (%) 34.46 22.69 39.26 23.90 14.90 28.10
No of Poor (mill) 49.23 10.78 37.44 36.45 7.81 28.52
Population out of 12.77 2.85 9.92
================================================================================

POVERTY TRAP (MILL) For sure, these figures speak volumes of the government's sincerity of purpose and determination to do away with poverty. The fact is that ever since the present government took over, it first preference has been to deal a blow to poverty, which increased in the nineteen nineties.

One look at the figures and one will arrive at the conclusion that during the last seven years, the country has witnessed remarkable progress in the reversal of the poverty trend. This accomplishment owes much to the underlying strategy of Poverty Reduction Strategy Paper (PRSP).

More importantly, poverty reduction continues to be the all-embracing vision of the Medium Term Development Framework (MTDF) 2005-10 and MDGs 2015. Credit also goes to the government's practical approach and the steps taken thereof with fixed, reasonable deadlines to reduce poverty.

And wondrous results are expected from the government's move towards a knowledge-based economy, aimed at developing human resources to fill the growing demand for a skilled labour force. Pakistan is fortunate enough to be blessed with a sizeable human resources.

Out of its total population of 160 million, more than 100 million are of youth in their early twenties. Prime Minister Shaukat Aziz made specific mention of this positive economic indicator during his recent visit to China.

It is additionally encouraging to note that during 2001-02 to 2005-06, the country has spent approximately Rs 1,400 billion on the social sector and poverty-related programmes (Rs 760 billion on social sector development). The number of new public sector projects launched during this period by the government have increased manifold from 197 in 2002-03 to 799 in 2006-07.

The new projects initiated by the provinces and the FATA and Northern Areas during this period have also increased, from 86 in 2002-03 to 432 in 2005-06.

The government is also resolute about the effective implementation of a pro-poor growth strategy for which purpose it has taken serious initiatives. First and foremost is the agriculture sector, where most of the poor are engaged. The sector is being provided loans, better seeds, better agricultural marketing facilities and higher allocations for research and development.

Micro-enterprises, which are labour-intensive and have positive implications for income distribution, have also been taken on a top priority basis and have been provided support, particularly through provision of credit. And in order to make this sector competitive, it has been opened to specialised institutions both in the private and public sectors.

Above all, the government has paid full attention to the creation of assets. The government is fully alive to the fact that lack of physical assets such as land, livestock, housing, financial resources and rehabilitation arrangements are both a cause and an outcome of poverty.

Similarly, lack of access to social assets in terms of deficient skills, scant access to basic services - education, health, nutrition, reproductive health, water supply and sanitation and social exclusion is major constraint to reducing poverty in Pakistan.

With these specific inadequacies in view, the government has extended vehement support to initiatives to redistribute resources, especially in services that create assets, such as education, health, and infrastructure; and by implementing policy and institutional reforms to ensure effective delivery of services.

A participatory process engaging poor households and poor communities in decisions on choice, operation, monitoring, and evaluation of programmes and services that build their assets, is an integral part of the strategy.

And as for the pro-poor expenditures, as percentage of GDP, the aggregate pro-poor expenses increased from 3.8 percent in 2001-02 to 5.6 percent in 2005-06. In monetary terms, these expenditures have increased from Rs 167 billion in 2001-02 to Rs 435 billion in 2005-06, showing an average annual growth of 27 percent.

The development expenditures, during this period have increased at a much faster rate from Rs 37.6 billion (0.9% of GDP) to Rs 170.8 billion (2.2% of GDP) or 46 percent on the annual average. Current expenditures during this period increased from Rs 129.7 billion (2.9% of GDP) in 2001-02 to Rs 263.8 billion (3.4% of GDP) in 2005-06 or 19.4 percent annually (Table 2).

TABLE - 2: PRO-POOR EXPENDITURE AS PERCENT OF GDP

===================================================
Year EXPENDITURE Percent of
Development Current Total GDP
(Billion Rupees)
---------------------------------------------------
2001-02 37.6 129.7 167.3 3.8
2002-03 44.2 164.3 208.5 4.3
2003-04 79.0 182.3 261.3 4.6
2004-05 112.6 203.6 316.2 4.8
2005-06 170.8 263.8 434.6 5.6
===================================================
In all, the government's concentration on ameliorating the masses' lot, not only through the formulation of workable policies, but through the continuation of prudent macroeconomic and sectoral policies is most likely to bring about further reduction in unemployment and poverty.

Much better, positive results are expected from investments in development projects, particularly irrigation, power, agriculture and livestock that the government has launched with the idea of developing the infrastructure and creating millions of new jobs and income opportunities for the poor.

mtgondal Saturday, May 19, 2007 09:27 AM

[B][U]Pains of rising inflation[/U][/B]

GIVEN that the government’s annual forecasts are based more on guesswork than sustained research, it is not surprising that the inflation target for the current year does not reflect the situation on the ground. It is believed that inflation in 2006-07 could be as high as 7.5 per cent, well in excess of the 6.5 per cent target. What is particularly worrying is the massive growth in food inflation. While everyone in the commercial food chain — growers, livestock owners, wholesaler and retailers — can adjust to inflationary pressures by raising prices, no such option or mechanism is available to the poor and those in fixed-income groups. With the benefits of economic growth failing to trickle down to the most needy, the situation is becoming bleaker by the day. In the first ten months of 2006-07, the prices of perishable food items shot up by 17.6 per cent as opposed to 5.1 per cent in the corresponding period the previous year. Non-perishable food items also became nine per cent more costly. On the other hand, non-food inflation in the last ten months was significantly lower than what it was during the same period in 2005-06, falling from 8.8 per cent to 6.2 per cent. This decline is attributed to a tighter monetary policy which has managed to put the brakes on credit growth.

Food production is subject to the vagaries of nature but this unpredictability only reinforces the need for proper planning. Instead of building strategic reserves of items such as rice, wheat and sugar, the current ad-hoc approach is to export at a time of surplus and import during shortages. The lack of proper storage facilities and other logistical problems cannot be an excuse. At the same time, there are few checks on hoarders and cartels that corner markets, create artificial shortages and manipulate prices in the name of free enterprise. The Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance 1970 is an anachronism in an unregulated economy and must be brought up to date. A more sophisticated and effective monitoring mechanism is needed to check unfair trade practices, particularly those that hit the poor the hardest.

mtgondal Saturday, May 19, 2007 09:39 AM

[B][U]Taming the dragon[/U][/B]

CAPITALISM with Chinese characteristics is how Beijing's high command describes its economy. Which must make its stock market a bubble with Chinese idiosyncrasies. The bubble part is familiar enough.

The market locals invest in keeps charging into uncharted territory, last week vaulting over the 4,000-point level for the first time. After a 130 per cent gain in 2006, the Shanghai index is already 50 per cent up this year. Stupendous gains mean silly prices: bog-standard manufacturers are on dotcom valuations.

What makes this bubble distinctive is its newness. Many millions are encountering shareholder capitalism for the first time - and they want in on it. A million share-dealing accounts were opened on April 30 alone, according to F&C fund managers, more than the whole of 2005. The problem of employees trading in work time is such that businesses have been forced to introduce fines.

A national headache to be sure but, like nearly everything else made in China, it can be exported.

In February, a mere hint from Beijing that it might try to rein in markets knocked 9 per cent off Shanghai stocks -- and panicked Wall Street into its biggest one-day slide since 9/11. The link is more than psychological. As traditionally happens in bull runs, investors are putting more money into exotic places.

The same thing preceded the Asian financial crisis, which began 10 years ago this summer. That was sparked by hot money, domestic and foreign, flooding into relatively primitive markets and causing wasteful over-investment. Only Dr Pangloss would see no similarity between then and now.

This is not to say the bubble will burst soon. After all, China's economy is still growing at an extraordinary 11 per cent a year. And policy-makers would hardly want a market meltdown to precede the Beijing Olympics next year.

––The Guardian, London

mtgondal Monday, May 21, 2007 01:42 PM

[B][U]Poverty alleviation through resource conservation[/U][/B] By Mohammad Niaz

[I]Poverty alleviation is one of the greatest challenges facing the communities and governments of developing nations, and the donor agencies working in those countries[/I]


The need for conservation of natural resources has emerged as an urgent discipline in light of the current environmental trends by integrating the concept of co-management for sustainability of resources and financial implications. Wildlife and forests are the renewable resources but can be easily exploited that render the utilisation index reaches to an extreme.

In Pakistan the rural poverty constituting about 36.3 percent is significantly higher than the 22.6 percent urban poverty. Mostly, poverty is associated with the rural set up of an area due to lack of developmental means and facilities that otherwise serves as a wheel for giving momentum to boost up the rural economy at large. In an attempt to bring the living standard up, many people leave the rural areas with a quest to find jobs in the urban areas, that has twofold effect on the rural economy; firstly, the manpower creates a vacuum in the rural economy, secondly, the manpower going out to urban areas bring good financial prospects and opportunities to earn money and utilise them in the rural set up by establishing some sort of the small scale business. The latter scenario puts up shackles onto the better prospects of all others as well in terms of sanitation, health and medical facilities.

Pakistan’s total population is estimated at over 156 million, which places it as the sixth most populous country in the world, and this population is going to be twofold by 2040 with a growth rate of 1.9 per cent per annum. With increasing households in the rural areas, the general picture of poverty gets more prominent. In order to improve the rural economy, it’s vital to boost up the economic conditions of the people by plugging their mass flow to urban areas through provision of developmental means at the threshold. Besides the rural population being 65 per cent is huge task to be provided with the basic amenities and needs.

Pakistan is bestowed with large diversity of natural resources in its different geographical regions whose weight can be gauged from the fact that these areas attract many donor agencies for the uplift of the poor rural local people in general and the environmental resources in particular. Towards the last two decades of the 20th century, adequate attention to environmental concerns at the preliminary stages has contributed significantly to pave way for the ‘sustainable growth’ i.e. by sustaining the resource base of the biosphere through community participation in different componential aspects. Poverty alleviation is one of the greatest challenges facing the communities and governments of developing nations, and the donor agencies working in those countries. Generally, most national policy to fight unemployment and generate economic growth is focused at the community level. Community engagement is indeed crucial to the success of income generation programmes focused on poverty alleviation.

Natural resources provide important platform to promote economic activities and subsequent benefits for many local rural communities. In developing countries, harvesting of natural resource products offers significant opportunity to improve the livelihoods of local communities living in rural areas. Sustainable management strategies of these natural resources are therefore the next most essential steps. Effective strategies that integrate sustainable natural resource management, micro and small enterprise for livelihoods of community will enhance both economic benefits for local people and conservation of different components of natural ecosystems.

In this grave social scenario, management of natural resources play a pivotal role in poverty alleviation in target regions both to some extent in urban and to a greater degree in the rural areas having huge potential of natural resources, through active participation of the local communities who are more dependent on these resources for subsistence. In rain-fed and upland zones, poverty forces people to exploit natural resources with short-term gain. Increase in population and fewer crops yield result in lower per capita income that worsens poverty and food security. More often they resort to only one consumptive use of the resources at the cost of depletion of resources with an unsustainable utilisation approach without any economic output and benefits in the long run.

However, to halt this degradation trend in resource utilisation more specifically in the hilly and ecologically fragile areas of the region, several projects have been implemented to ensure economic growth through incentives and developmental interventions to earn support of local people and achieve the sustainability target in resource conservation. Many projects and sectors and non-government organisations are helping the local communities in basic water supply schemes, basic infrastructures and others to improve their socio-economic condition. Local people are also hired as porters in different resource surveys that serve as a means of income generation. In many areas like Chitral and Swat the local people are facilitated to grow orchards of walnuts and apple with technical assistance and incentives to improve their earning capacity, marketable skills and expose them to better marketing techniques. Provision of small and medium sized enterprises, besides financial returns, help the local people through local level employment generation, Improved seed quality and agricultural practices help them get more crop yield and income.

International Union for Conservation of Nature (IUCN) has also promoted relevant projects for improved environmental and Natural Resource Management. It helped the local communities to explore market opportunities for local business enterprises, based on the observation of environmentally sound production methods. According to its report environmental parametres like forestry, agriculture, wildlife, fisheries, natural resource based manufacturing industries etc. has contributed 45 per cent to the national economy, 75 per cent foreign exchange earnings and 60 per cent employment of the country.

The initiatives aim at increasing and diversifying income while observing the basic sustainability elements. They also highlight the existing linkages between food security, livelihoods and sustainable management of natural resources. A number of potential business areas were identified including apiculture and other non-timber forest products (e.g. handicraft using seeds, dry fruits, burnt poles, etc.), wildlife, consortium between cash crops business and natural resource use as ensured means of income generation.

In some countries the governments actively develop community based wildlife management utilisation schemes where benefits and revenues from natural resources like wildlife may accrue directly to several communities. In NWFP (Chitral), the Markhor and Ibex (wild goats) trophy hunting programme initiated by the NWFP wildlife department for benefiting the local communities has helped the communities significantly that fetch more than US$50,000 for one trophy of Markhor and $3000 per Ibex trophy, 80 per cent of which goes to the community in wake of their support of the species conservation in the community and private owned game reserves in the area. This co-management has created a sense of resource management on sustainable basis, with a major financial outcome to benefit the community as whole through conservation initiatives as an income generation activity.

Better prospects of income generation through awareness and developmental interventions have increased the capacity of local people to earn more income as compared to the orthodox and unsound techniques. The poverty struck areas are ecologically very rich in natural resources like Non-Timber Forest Products (NTFPs) that are value added products. There are instances that the projects like Palas Conservation and Development Project and its subsequent projects in district Kohistan of the North-West Frontier Province have rendered the economic growth in the area through several income generation activities and facilitation.

The much-ignored sector of NTFPs has been focused to fetch more income to the local people through improved techniques and capacity building. Alone from the NTFPs, like Chalghoza the financial return was increased from 0.5 million which was based on crude means to 1.4 million during 2004-05 due to imparting technical support and input. Mushroom, the most important NTFP has greater contribution of Rs8 million per year in the economic growth of the area at large.

Traditionally, the extracted honey usually earned the local people less amount (Rs500/kg) as compared to the sound techniques (Rs700/kg) through better apiculture techniques that increased per hive production. Similarly, Chalghoza nut was sold earlier at Rs300/kg, which increased to Rs500/kg. Walnut, another important NTFP earned them Rs2000/40 mond, Mushkbala Rs4000/40 mond and Moral Rs6000/40 mond through improved techniques and awareness regarding production, harvesting, storing and marketing.

Development of recreational resources and facilities based on the concept of non-consumptive uses that attract tourists from far and near and boost up the local economic conditions by enabling people to establish means of income generation like restaurants, shops, hiring of tourists guides, sale of handicrafts etc. For a very small investment, rural communities can earn significant income. There are several projects like the Natural Resource Conservation Project in Galliat (1997-2003) NWFP, where local tourists guides were hired and trained to facilitate tourists by promoting the concept of ecotourism. This was a promising prospect for the people to tap recreational resources. Similarly, in the Northern Areas of Pakistan, the concept of community guesthouses had a great potential to provide financial opportunities of earning money to the local people by establishing management codes.

Over the country, other important projects like Environmental Rehabilitation in NWFP and Punjab, Kalam Integrated Development Project, Agha Khan Rural Support Programme, Malakand Social Forestry Project, Forestry Sector Project, Indus For All, Pakistan Wetlands Project, IUCN and WWF besides provincial government departments through their projects have contributed to the environmental rehabilitation with contribution to the rural economy at large in form of different sectoral interventions.

Need of the day is to achieve sustainable development through equitable distribution of benefits, encouraging community based natural resource conservation and integrating of environmental issues into socio-economic development planning.

mtgondal Monday, May 21, 2007 01:48 PM

Millennium development goals
 
[B]Millennium development goals: where are we now?[/B]By Zafar-ul-Hassan Almas

When UN Millennium Declaration was unanimously adopted by 189 nations and signed by 149 heads of state in September 2000, Pakistan was already committed to bring a sizeable number of populous above poverty line in the early 2000. Pakistan’s targets were even more ambitious than all developing countries at large. The Developed world had committed resources to support low income countries to achieve Millennium Development Goals (MDGs) by its target date 2015. The Millennium Declaration reaffirmed international community’s commitment to the right of everyone to reap fruits of development, peace, security and gender equality, and multidimensional nature of the poverty and its direct bearing on the whole development process brought it to the forefront of all objectives of overall sustainable development. The MDGs are intended for the member countries to further their efforts in the fight against poverty, illiteracy, hunger, lack of education, gender inequality, infant and maternal mortality, disease and environmental degradation. The Millennium declaration adopted 8 development goals, 18 time-bound targets and 48 indicators for developing countries. The development targets include:

(a) Eradicate extreme poverty and hunger

(b) Achieve universal primary education

(c) Promote gender equality and empower women

(d) Reduce child mortality

(e) Improve maternal health

(f) Combat HIV/AIDS, malaria and other diseases

(g) Ensure environmental sustainability

(h) Develop a global partnership for development

The country report on the MDGs released recently by the Planning Commission with the help of United Nation Development Program (UNDP) captures Pakistan’s achievements, challenges and policies with reference to the goals and targets and reveals that there have been substantial improvements in the lives of people of Pakistan in particular and that of developing countries in general. The remarkable success in moving forward is partly credited to the government for its role in implementing wide range of programs and policies amidst enormous and complex structural problems.

Pakistan has made significant progress in all critical areas since the year 2000. The commitment of the Government to the MDGs was first reflected earlier in its policy document Interim Poverty Reduction Strategy Paper (IPRSP-I) in 2001. It was reinforced and reaffirmed in the final Poverty Reduction Strategy Paper (PRSP) in December 2003. The Medium Term Development Framework (MTDF) (2005-2010) has especially been aligned with the Millennium Development Goals which is indicative of unflinching resolve of the Government to scale up efforts towards realising these goals by 2015.

To achieve the Goal of eradicating extreme poverty and hunger, Pakistan must reduce by 2015 the proportion of people below poverty line from nearly 34.0 percent in 1990 to about 17.0 percent. As on 1999-2000, the poverty headcount ratio was 34.5 percent with poverty gap ratio of 4.8 percent, share of poorest quintile in national consumption is 12.6 percent for rural sector and 4.8 percent for urban sector. This precarious condition of poverty demands two pronged strategy direct approach and indirect approach. The government is following both approaches. Subsistence allowance through dissemination of Zakat, food stamps and grants are part of the direct approach. Indirect approach is comprised of supporting the poor through empowerment by imparting skills and providing access to micro-credit, supporting economic growth to be more inclusive. President’s rozgar scheme is also a positive step to reduce the poverty ratio further. The target is not far away because the incidence of poverty has already been reduced by as much as 10.6 percentage points in five years and it is to be reduced by other 8 percentages points in next eight years. The encouragement for the government is coming from the fact that there is a strong concentration around the poverty line in Pakistan. A small increase in income and two or three years of higher growth may do miracles with poverty situation in Pakistan.

To achieve universal primary education under Goal-2, Pakistan should increase the primary school enrolment rate to 100 percent and wipe out the high drop-outs by 2015. The Gross Enrollment Rate (GER) for primary schools (age 5-9) has increased from 72 percent in 2001-02 to 86 percent in 2004-05. However, Net Enrollment Rate (NER) has increased from 42 percent to 52 percent in this period. It shows that the drop-out rate for primary education during 2004-05 is 34 percent which is higher than 30 percent in 2001-02. The gross enrolment ratio in primary education has tended to remain near 100 percent for boys and recorded an increase of nearly 20 percentage points in the ten years period from 1995 to 2005 for girls (93 percent). The adult literacy rate (10 years and above) has increased from 45.0 percent in 2001-02 to 54.0 percent in 2004-05. The tremendous rise in the female literacy rate is admirable both in rural and urban areas.

Regarding Goal 3, the gender dimension of current economic development is marvelous. The women rights are more protected in Pakistan today than ever before or any other developing country. Women are given a sizeable representation in the National legislature as well as in other walks of life. The government’s efforts in promoting gender equality and empowering women is commendable. In government policy making now the man seems to be ignored which is extraordinary by the level of developing countries. There are structural and cultural challenges which are hindering progress on this count, and a strong political commitment is needed to counter the challenges.

Regarding Goal 4, Reduce child Mortality by two thirds, between 1990 and 2015: the indicators to measure progress toward this MDG include under five mortality rate; infant mortality rate (IMR) and proportion of one year old children immunised against Measles (Pakistan’s target is to reduce IMR to 40 per 1000 live births and to increase measles immunisation rate to greater than 90 per cent by 2015). Child mortality has improved as a result of growing immunisation with the help of international donors. However, still facilities in far-flung areas are lacking and the government has done very little to improve health facilities.

Goal 5: Improve maternal health by reducing the maternal mortality ratio (MMR) by three quarters, between 1990 and 2015: The indicators to measure progress toward these MDGs include maternal mortality ratio and the proportion of births attended by skilled health personnel. Pakistan’s target is to reduce MMR to 140 or less and to increase skilled birth attendance to 90 per cent by 2015. The availability of health advisory services through lady health visitor has definitely increased but monitoring of extent of coverage is lacking.

To realise MDG goals the Health plan in the MTDF (Medium Term Development Framework) identifies policies and suggest allocation of resources to address Health issues. Immunisation coverage has shown remarkable progress during 2001 and 2005. Percentage of children aged 12-23 months fully immunised increased sharply from 53 per cent in 2001 to 80 per cent in 2005 depicting a substantial gain of 27 percentage points. There is no denial of the fact that access to basic facilities has definitely improved between 2001 and 2005. However, the rates are still low and poor benefit less from access to basic facilities.

In so far as Goal-6 is concerned, though Pakistan has a low prevalence of HIV as compared to other developing countries especially those are in Africa, yet the prevalence rate has slightly increased. The number of reported cases testing positive HIV/AIDS has increased from 1886 in year 2001 to 2431 cases reported until end December 2004. Similarly the number of full-blown cases has increased from 222 to 310 cases in the same time period. This increasing trend needs to be reversed to achieve MDG 6. The prevalence and death rates associated with malaria are consistently coming down. The major prevention strategies of the Malaria Control Program include the use of integrated vector control approaches in high risk districts, distribution of bed nets to pregnant mothers and children under 5 in selected RBM in 24 districts along with public awareness campaign for Malaria control. The program for controlling TB is also effective one and the death rate associated with TB has come down substantially in the country. The proportion of TB patients successfully treated has also risen from 25 per cent in 2000 to 45 per cent in 2005.

Goal-7 aims at ensuring environmental sustainability. As per assessment made in 2005, total land area covered under different forests has been less than 5 per cent instead of tall claims by the Government for its persistent efforts to preserve the natural resources. According to the UN standard the reserved and protected forests together should account for 20 per cent of the total land area to maintain biological diversity. The energy intensity has improved and clean fuel accounted for more than two-third of energy consumption. The proportion of population without sustainable access to safe drinking water and sanitation is to be halved by 2015 and Pakistan is only slightly off-track to achieve this target.

Goal-8 is basically a reminder to developed countries regarding their obligation to establish a fruitful global partnership for development. Developed Countries are required to provide development assistance to developing countries for the betterment of the environment. It is an irony that a huge gap still exists for developing countries between the development assistance required to meet the MDGs and what has been pledged by the developed countries so far.

Developing countries has too often has asked the developed countries that additional resources for implementing the development agenda should be channelised through the existing multilateral agencies. Moreover, allocations must be based on pre-defined and transparent criteria. Our own development experience clearly indicates that, ultimately, it is the availability of untied additional resources for use in accordance with national development strategies, which is most beneficial for recipient countries.

Aarwaa Tuesday, May 22, 2007 07:07 AM

A Report on Pakistan in Economist Magazine
 
[B]A general state of disarray[/B]
May 17th 2007 | ISLAMABAD, KARACHI AND LAHORE


[I]A slaughter in Karachi, and a vengeful judge, are signs that Pervez Musharraf is struggling to remain in power[/I]

ON MAY 12th the port mega-city of Karachi, a great and seething Asian bazaar, returned to the violence that has scarred its modern history. Around 40 people were killed and scores injured in two days of gun battles. Corpses were dragged from shot-up cars and displayed on the tarmac. Along Shahrah-e-Faisal, the main thoroughfare, shop-fronts were smashed and set ablaze. As the carnage spread, 15,000 police and paramilitary troops stood by, unwilling or unable to intervene.

Many reports suggest the violence was perpetrated by Karachi's ruling party, the Muttahida Qaumi Movement (MQM), an ethnically-based mafia allied with Pakistan's president and army chief, General Pervez Musharraf. Its target was an anti-government rally planned for Karachi on May 12th, at which thousands of lawyers and opposition supporters were to protest against General Musharraf's efforts to remove the head of Pakistan's Supreme Court, Iftikhar Chaudhry. Mr Chaudhry was due to address the rally.

If the MQM meant to deter General Musharraf's opponents with violence, it failed. On May 14th opposition parties called a national strike to condemn the slaughter. They included the parties of two exiled former prime ministers, Benazir Bhutto and Nawaz Sharif, and a coalition of Islamists, the Muttahida Majlis-e-Amal (MMA). The MMA once backed the general, as Islamists in Pakistan usually have; but not any more. With an election due this year, Pakistani democracy is stirring from the coma it slipped into eight years ago, when General Musharraf seized power.

Its awakening, if that is what it is, may be traced to March 9th and a previously unimaginable event. In the presence of six other uniformed generals, at his army headquarters in Rawalpindi, General Musharraf ordered Mr Chaudhry to resign. The judge—eccentric, vain, some say incompetent—had upset his colleagues on the bench, and had given populist rulings against the government. More audaciously, he had demanded investigations into several of an alleged 400 cases where people have disappeared, mostly from his native Baluchistan, where an insurgency is flickering. These were probably the work of the powerful military intelligence agency, whose boss was one of the generals present.

Indeed, wherever Mr Chaudhry heard so much as a rumour of injustice—for example, in the reports of kidnapping and rape that fill the margins of Pakistani newspapers—he summoned officials and demanded investigations. Yet few seem to have loved Mr Chaudhry, until he refused General Musharraf's order to resign.

This was an unprecedented event in Pakistan: a civilian telling a bullying general where to get off. General Musharraf, who has no power to sack judges, has filed a complaint against Mr Chaudhry to the Supreme Court. He alleges that the judge has abused his office, for example by currying favours for his policeman son. Meanwhile, Mr Chaudhry has been reborn as a hero of Pakistan's long-dejected democracy. Egged on by black-jacketed lawyers, who were never so glamorous, he has criss-crossed the country, giving speeches on the sanctity of judicial independence. In a quadrangle of Lahore's elegant British-built high courts, beside a soothing fountain and surrounded by red-brick colonnades, some of these lawyers are on hunger-strike—or, more accurately, skipping lunch.

Ordinary Pakistanis, too, have been flocking to Mr Chaudhry. On May 5th tens of thousands mobbed his car as it crawled 300km (190 miles) from Islamabad to a rally in Lahore. In the middle of Punjab, the army's heartland, this was the first significant popular protest against General Musharraf. It was also the first by secular citizens, as opposed to Pakistan's ever-livid Muslim zealots A week later, the repercussions were felt in Karachi.

[B]A chronology of violence[/B]

Mr Chaudhry's plane landed at noon on May 12th, and the violence began. Club-wielding hooligans charged a crowd of lawyers gathered at Karachi's high courts. One suffered a broken leg, another a broken jaw, a third had his teeth smashed in. As crowds of opposition supporters, mostly from Ms Bhutto's Pakistan People's Party (PPP), marched towards the courthouse, they were fired on with automatic weapons from rooftops and road-blocks.

Supporters of the Awami National Party, which represents Pushtuns, the people of north-western Pakistan, were also attacked. This sparked gun battles across Karachi between Pushtuns and Mohajirs—the MQM's community, comprising those, like General Musharraf, who relocated to Pakistan from other parts of British India. Most of the dead were Pushtun. Despite a curfew, this ethnic conflict continued into the next day, raising fears of a return to the tribal war that raged in Karachi in the late 1980s.

As bloodied corpses arrived at the city's main hospital, the MQM held a rally of its own. Ten thousand supporters gathered in Muhammad Ali Jinnah Street, named after Pakistan's refined founding father, to hear Altaf Hussain, the party's leader. Not that Mr Hussain was there. He has lived in London for 15 years, evading allegations of multiple murders. But his telephoned harangue was broadcast live. In the words of Farooq Sattar, Mr Hussain's top representative in the city, “The opposition wants to show that Karachi does not belong to the MQM. We have accepted the challenge.”

At the airport, Mr Chaudhry was manhandled by the police and his retinue of lawyers was ordered to leave Karachi. He returned to Islamabad, where General Musharraf was also addressing a rally. Around 10,000 alleged supporters of the ruling Pakistan Muslim League-Quaid (PML-Q) party gathered in front of Parliament House; some told journalists that they had been made to attend against their will by local officials. After praising his ally, the MQM, General Musharraf said his “heart was bleeding” for Karachi. His hometown's troubles, he said from behind a bullet-proof screen, were caused by Mr Chaudhry and his supporters. “Do not challenge us,” the former commando warned them, to general applause. “We are not cowards like you, we have the power of the people.”

General Musharraf, who has survived at least two assassination attempts, is certainly no coward. But his hold on power is increasingly open to question. Pakistan's media, united in horror at the killings in Karachi, mostly blame him, and even before the recent events his popularity was slipping. According to a poll in February for the International Republican Institute, 54.2% of respondents said they approved of how General Musharraf was doing his job; 26% disapproved. When asked which leader they thought could handle their problems best, 32% picked General Musharraf and 25% Ms Bhutto.AP

In another poll, taken around the same time and circulated privately, the general fared worse. Asked which politician they most agreed with, 29% of respondents picked Ms Bhutto and 21.6% General Musharraf. Some analysts say both polls overstate the general's popularity, since Pakistanis are afraid to speak ill of their uniformed ruler to an unknown questioner. And he is certainly less popular now than when the polls were taken.

But polls are of limited use in predicting his future. General Musharraf does not rule by the will of the people, but dictatorially within a hobbled democratic system. He ostensibly restored democracy in 2002, but meanwhile claimed huge powers for his office. As president, he can dissolve parliament on a whim. As army chief, he controls security policy—from a nasty war against Islamist militants in the northern tribal areas, to the orientation of Pakistan's nuclear arsenal.

This arrangement is cumbersome to manage. It requires a supplicant ruling party to vote through his diktats as handed down by a loyal prime minister, Shaukat Aziz (or “Short Cut”, as Pakistanis know him). And it requires sympathetic Supreme Court judges to head off any constitutional challenges that may arise. Before inviting the Supreme Court to legitimise his coup, General Musharraf felt compelled to sack half its members. Mr Chaudhry was elevated, in 2000, to fill one of the gaps.

In the coming months the judges will have other weighty business to decide. General Musharraf means to get re-elected as president by the current parliament. If he succeeds, he may then ask the next parliament to let him remain army chief, an office he is constitutionally obliged to quit at the end of this year. Long-winded challenges in the Supreme Court are assured. This is why the general's failure to rid himself of a troublesome judge is so serious.

If Mr Chaudhry is dismissed, the clamour against General Musharraf will grow. (On May 14th a Supreme Court judge withdrew from the case against his colleague, and a senior court official who was close to Mr Chaudhry was murdered.) Then again, if Mr Chaudhry keeps his job, the general can hope for no love from the Supreme Court in any constitutional battle ahead. Either way, he will have been weakened.

[B]How to tip an election[/B]

Even with a sympathetic judiciary, the forthcoming election represents a challenge for General Musharraf. On the last occasion he was hard-pressed to ensure that a supportive government emerged. The election was manipulated in the PML-Q's favour, yet the PPP won the most votes. General Musharraf's supporters persuaded ten PPP MPs to cross the floor; but the general was still short of the two-thirds majority he needed to change the constitution, until the MMA provided its support.

General Musharraf would struggle to repeat this performance. The popularity of the PML-Q—a rabble of renegades and opportunists recruited from Mr Sharif's party—is falling with the general's own numbers. Meanwhile, the PPP is growing stronger. According to the private poll conducted in February, 22.8% of respondents said they would vote for the “king's party”, as the PML-Q is known; 31.7% chose the PPP. On May 5th, the day Mr Chaudhry's caravan came to Lahore, the PML-Q had to cancel a rival rally for lack of support.

Neither can General Musharraf count on the mullahs. His campaign in the tribal areas, which border the MMA's heartland of North-West Frontier Province, is bloody and hugely unpopular. More broadly, so is the general's pro-America stance. In the private poll, Pakistanis rated India a more trusted ally than America, though America has given Pakistan an estimated $10 billion in aid, much of it military, since 2001. This puts the mullahs in a bind. The MMA's bearded leader, Fazlur Rehman, is a lifelong accomplice of the army, a man whose alleged corrupt enjoyment of government contracts has earned him the name “Maulana Diesel”. Yet he is now turning up at rallies for Mr Chaudhry to defy dictatorship and defend democracy with the best of them.

After Karachi, the political situation is unstable and hard to predict. Some pundits predict General Musharraf will be forced to step aside, perhaps by the army itself. Failing this, he faces some distasteful choices. He can rig the election, as he did a 2002 referendum on his rule, though this would be more difficult against a pepped-up opposition. It might also annoy America, where support for him is flagging. According to Gary Ackerman, a Democrat who heads a congressional panel on South Asia, “The truth is, for our goals to be achieved in Pakistan, there should be more than one phone number there to dial.”

Alternatively, the general can amend his political system in one of two ways. He can make it more dictatorial. On May 5th Mr Aziz reminded journalists that the government could declare a state of emergency. (The Karachi stockmarket reacted by dropping 3%.) Or the general can expand his coalition, and so become a trifle more democratic.

He has been negotiating with Ms Bhutto about this for some time. She wants General Musharraf to rid her of the corruption charges, brought by Mr Sharif, that have kept her in exile. She would also like him to scrap the two-term limit that he has imposed on the office of prime minister; Ms Bhutto and Mr Sharif have each held the office twice. For his part, General Musharraf wants the PPP to support his policies as a loyal opposition.

The potential benefits of their co-operation are clear. Pakistan's military ruler and its most liberal party have a shared vision of a more tolerant society. The king's party, whose leaders are as conservative as many mullahs, does not. PML-Q has refused to back General Musharraf's more liberal initiatives, including at first his effort last year to overturn sexist laws of evidence that have ensured that over 80% of women prisoners in Pakistan are convicted of fornication, though many of them have been raped. With the PPP's support, this law was partially repealed.

Ms Bhutto, despite much noisy bluster about the sanctity of democracy, would have no principled objection to forming a partnership with General Musharraf. Another irony of Pakistani politics is that, under her leadership, the country's most anti-establishment party has been compliant towards the military establishment. On Ms Bhutto's watch, Pakistan backed the Taliban in Afghanistan and sold nuclear secrets to Iran and North Korea. Mr Sharif, by contrast, the favourite politician of a former army dictator, Zia ul-Haq, proved stickier for the generals. He drove one army chief to resign and tried to sack another, General Musharraf—at which point, the general launched his coup.

In short, if the tide has not turned against General Musharraf, a marriage between the lady and the general looks convenient. But there is a tiny snag. They loathe each other. And they would have ample opportunities for a quick divorce. If, for example, Ms Bhutto unexpectedly swept the election, she might dump the general. And he could press the charges against her at any time. A deal between the pair would perhaps be more of a dalliance, conditional and undeclared.

But how would Pakistan fare under such an arrangement? It would at least be better than if General Musharraf grabbed power, as he might. According to one of his confidants, the general has developed the usual dictator's tic of thinking himself indispensable. An alliance of convenience between him and Ms Bhutto might also be preferable to restoring the democracy Pakistanis enjoyed in the 1990s, when Ms Bhutto and Mr Sharif conspired against each other and the army conspired against them both. After a decade of the instability and misrule that resulted, many Pakistanis welcomed General Musharraf's coup.

[B]The turn of the wheel[/B]

Such has been the political cycle in Pakistan: bad democratic government, yielding to unpopular military government and then to democratic messiness again. It is unclear whether the wheel is about to turn on General Musharraf's rule. But it is a good moment to judge it.

Many of the general's prescriptions have been excellent. In the management of the economy he has trusted sensible technocrats, including Mr Aziz. They have been blessed with an inheritance of liberal reforms and, above all, by booming capital inflows, not only from America. Yet they can take credit for strong economic growth, predicted to be 7% this year.

In foreign relations, too, right-minded policies have borne fruit. In the past three years Pakistan's relations with India have been transformed from semi-war to almost-peace. A final settlement of the two countries' problems, and above all the divided region of Kashmir, remains elusive; the rivals' demands are simply incompatible. Yet General Musharraf has perhaps done more than any leader in either country to nudge them into line.

In both cases he made progress because those most directly affected by his policies, investors and the army, supported him. Where, more often, he has had little support for his policies, they have usually failed. In Baluchistan, Pakistan's biggest and poorest province, where legitimate and longstanding local grievances are stoking an insurgency, General Musharraf's solution has been to bomb the place. In the tribal areas, where chronic banditry and Islamist militancy are now complicated by drug money from Afghanistan and global jihad, his heavy-handed intervention has fuelled terrorism across Pakistan. On April 28th the interior minister, Aftab Khan Sherpao, was lucky to survive a suicide bomb in North-West Frontier Province that killed 29 people.

Even with more enlightened policies, solving such problems will take time—almost certainly, more time than the general has. Politics cannot be banished indefinitely, as those corpses in Karachi suggest. And neither, perhaps, can Ms Bhutto.


[url]http://www.economist.com/world/PrinterFriendly.cfm?story_id=9189311[/url]

mtgondal Tuesday, May 22, 2007 09:34 AM

Reviving the farm sector
 
[B][U]Reviving the farm sector[/U][/B] By Shahid Javed Burki


PUNJAB’S agricultural endowment must be put to full use for obtaining a high and sustainable rate of growth in the provincial GDP (PGDP). Not only can agriculture provide a bounce to the provincial economy, it also has the potential to significantly reduce the incidence of poverty and improve income distribution.

There are several other benefits as well. For instance, by increasing agricultural output and productivity of the sector, the province should be able to reduce the explosive growth of its large cities. A buoyant agricultural sector should help to direct rural to urban migration towards cities and towns more closely connected with the countryside. This should release demographic pressures on such cities as Lahore and Rawalpindi.

All this can be realised by the adoption of public policies that are explicitly directed towards putting to economic and social use the enormously rich endowment with which the province started its life as the most important economic region in the state of Pakistan. This, with two exceptions, did not happen.

The exceptions were the two “green revolutions”, one in the late 1960s and the early 1970s and the other in the 1980s. In the first, Punjab saw an impressive increase in the output of wheat and rice; in the second the province increased the output and productivity of the land devoted to the production of cotton. In both cases the environment for increasing output was created by those responsible for making public policy.

The circumstances that launched the first green revolution are well known but need to be briefly recalled in order to set the stage for a discussion of what motivates policymakers.

In the 1960s agricultural scientists working in the institutions that belonged to the network managed by the Consultative Group for Irrigation and Agriculture Research, the CGIAR, were doing intensive research in several parts of the world on high-yielding seed varieties. Impressive results were produced by those working on wheat in Mexico and by those at the Philippines doing research on rice.

The government of General Ayub Khan — in fact the president himself — was impressed with the research results and decided to import the high yielding seed varieties from these research centres.

This was a good moment for bringing about change in the country’s agriculture but the high-yielding seeds needed large doses of fertiliser and greater application of water. It was not known then in Islamabad that the farming community had invested heavily in sinking tubewells in the more fertile areas of Punjab.

The technology used for the wells had come to the attention of the farmers in Punjab when the government launched its massive Salinity Control and Reclamation Programme, the SCARP. This was a fortuitous development since the tubewells eased the water constraint and persuaded the farmers that they could take the risk for switching to a new variety of seeds.

As the farmers introduced this change the government did a great deal of hand holding by using the new system of local of government, the “Basic Democracies”, to provide them with all manner of public services.

Although the Basic Democracies system became the special target of attacks by those who opposed Ayub Khan and eventually caused him to vacate his office, it played an important role in bringing change to agriculture, in particular to agriculture in Punjab. The system brought the community of farmers closer to the centres of policymaking.

The government’s interest in reviving agriculture was influenced in part by Ayub Khan’s economic and social background. He came from a middle class family with interest in land.

The army over which he presided had strong representation at the lower levels of people close to the soil. He and the constituency that supported him were less urbanised in their economic interests and social outlook than the policymakers who were replaced by the military’s takeover. Under Ayub Khan, the federal government was ready to once again to turn its attention towards the sector of agriculture.

The second green revolution took place in the 1980s and this time it affected the cotton growing areas of south Punjab and upper Sindh. This time it was the maturation of the fertiliser industry that proved to be the agent of change.

The government under Zulfikar Ali Bhutto had made large investments in the industry after nationalising it. It is hard to tell whether the reason for that was to help the cotton growers who were by far the largest consumers of this product, but that turned out to be its effect once the new capacity created came into production in the early 1980s.

Not counting these two episodes of change in agricultural policies and practices, little was done to benefit from the rich endowments that were available to the sector at the time of Pakistan’s birth. To understand why Punjab neglected its rich agricultural inheritance, we should seek help from what economists call the theory of public choice.

In 1962, James Buchanan and Gordon Tullock published ‘The Calculus of Consent’, a book that went on to revolutionise thinking about how policymakers work in economic systems and how their work is influenced by those who are likely to benefit from their decisions. They abandoned the long held belief that all individuals, no matter what their station in life, are welfare maximisers; they work to further their own interests.

Collectively, however, they manage to achieve what is good for the society at large. The revolution wrought by this line of thinking — for it was a revolution and it resulted in Buchanan winning the Nobel Prize for economics in 1986 — brought the concept of public choice into economics.

Economists now began to pay heed to the workings of special interest groups and social groups within economic systems and how they were able to influence policymaking. As a result of Buchanan’s thinking, institutions, norms or culture, or all of these, came to stand at the centre of development economics.

Buchanan’s book had an enormous impact on the thinking of social scientists who had begun to work on the role governments and institutions play in economics. His work was reinforced by that of Mancur Olson, another economist who published ‘The Logic of Collective Action’, three years after the appearance of Buchanan’s work.

Like Buchanan, Olson claimed the territory of political science for the tools of economics. He argued that policy decisions could be explained by looking at politics as a competition between the private interests of specific groups, rather than a process of delivering public goods in a neutral and disinterested way.

In other words, public policy has deep roots in narrow political and social concerns and is not necessarily the result of a careful review of larger public interest.

Equipped with this line of thinking we can begin to make some sense of why agriculture was neglected for so long by Punjab’s policymakers. In some earlier works — as well as in the earlier articles in this series — I have discussed the enormous change that came about in the structure of Punjab’s society as a result of the partition of the province in 1947 and its incorporation into the new state of Pakistan.

For almost two decades the province’s partition politically eclipsed the large landlords who, with a few notable exceptions, had opposed the creation of Pakistan as an independent state. Those who pushed back this once powerful group to the margins of political society were the members of the refugee community that came into the new country in two streams.

The one that originated in the Muslim minority provinces of eastern and central India went to Karachi and several other urban centres of the province of Sindh. The other came from Punjab’s eastern part that was separated and incorporated as a state in India.

Both groups had actively campaigned for the idea of Pakistan and both became important policy players in Pakistan’s early days. Both were more urban in their social, cultural and economic backgrounds than was the case with the group — the large landlords — who had the most influence on public policymaking during the British period.

The new state of Pakistan, therefore, spent more time, energy and resources on settling the refugees and industrialising the new country than on building on the rich agricultural endowment of the Punjab and upper Sindh. The result was the neglect of the sector of agriculture.

This neglect caused a near total transformation of Punjab’s agriculture. It lost the dynamism that was infused into it by the British who had worked hard and invested heavily into turning the province into the granary of their food-deficit empire.Nothing illustrates this change more than the fact that by the mid-1950s — in less than a decade after independence — Pakistan was unable to feed its population and became heavily dependent on food imports from the United States.

There was some change under President Ayub Khan when he created space for the landed community in his political system. This probably contributed to the launch of a series of public initiatives that brought Pakistan its first green revolution.

It is my belief that the political system and the make-up of the Punjabi society in recent times has created an environment conducive for bringing agriculture back as a major player in the economy and for using it to produce economic and social change in the province.

For the first time in the province’s history, many operating in agriculture have developed economic interests in the urban economy and many urban economic and social groups have developed stakes in the province’s agriculture. Public choice theory tells us that such a confluence of interests should lead to the formulation and implementation of policies that will further these developments.

There are many social and economic changes now in place that have brought together entrepreneurial activities in some parts of urban and agricultural economies. Among them perhaps the most significant is the rapid increase in the number of people who belong to the upper income classes — not just the very rich and the rich but also the upper middle class.

These people have patterns of consumption, supported by rapid increases in disposable incomes, that needs to be satisfied by the development of agro-processing industries. These industries now account for the most rapidly increasing industrial outputs in the country. They are also bringing in foreign direct investment into the sector once neglected by foreign entrepreneurs.

While the environment is now there to increase the output, productivity and the level of sophistication of this sector of the economy, this will happen more rapidly if the government were to lend a helping hand.

Public policy could now help the sector of agriculture to regain the place it once occupied in the economy but for that to happen the government must first understand what is required by the agents of change operating in this area. Strengthening the system of local government has to be an important part to play in this enterprise. I will turn to this subject next week.

mtgondal Tuesday, May 22, 2007 10:12 AM

Direct tax policy principles: a review-I
 
[B][U]Direct tax policy principles: a review-I [/U][/B] By MOHAMMED ASHRAF

[U]ARTICLE (May 22 2007): TAXES - a source of Public Finance: [/U]Taxes are essential to finance public services, but there are good and bad ways to collect them. The design of the tax system can have a significant economic impact and can influence the residents of a country and multinationals in deciding where to invest.

Tax collection has long been a despised activity. But taxes are essential. Without them there would be no money to build schools, hospitals, courts, roads, airports or other public infrastructure that helps business and society to be more productive and better off.

TAX REGIMES:
There are two types of tax regimes - complex and simple as there is no third type.

[U]COMPLEX TAX REGIMES:[/U] Tax regimes, with relatively high marginal rates and which include a number of exemptions and allowances, tend to be less economically efficient in relation to encouraging employment, saving and investment. Such regimes generally also impose higher tax compliance and administration costs which is evident from the Income Tax Ordinance, 2001.

We have experienced Acts of 1918 and 1922, which have lead to the basis of the creation of the Income Tax Ordinance, 1979, however, the Income Tax Ordinance, 2001 was created to make things simple. We know from our experiences about acts and ordinances, burdensome tax systems served as a deterrent and normally lead to tax evasion. According to a World Bank survey, Companies in 90% of surveyed countries [175 countries including Pakistan] rank tax administration among the top five obstacles to doing business.

[U]THE MAIN FACTORS CONTRIBUTING TO THIS ARE: [/U]

1. The large number of business taxes to pay

2. Lengthy and complex tax administration

3. Complex tax legislation

4. High tax rates

[U]SIMPLE TAX REGIMES:[/U] Evidence suggest that simpler tax systems promote economic growth and can help achieve a win:win for the government and industry. To help with paying taxes and implementing reforms, the government and CBR need to consider all aspects of the tax system. All taxes borne and collected by businesses should be recognised, alongwith the related tax compliance costs not just federal taxes.

[U]IMPACT OF TAX RATE OVER COMPLIANCE:[/U] In the ongoing reforms, tax administration and compliance, being significant an obstacle to businesses, needs to be considered as part of the decision on reform. One should not loose sight of the fact that the government imposes taxes to finance public services, but taxes must first be collected and high tax rates do not always lead to high tax revenues. However, the larger the share of informal business activity before reform, the higher the revenue growth after, and it is evident in Pakistan.

On average, Middle Eastern and East Asian countries make paying taxes the easiest. OECD countries impose the smallest administrative burdens and charge moderate tax bills. According to a World Bank study, between 1982 and 1999, the average corporate income tax rate world-wide fell from 46% to 33% while corporate income tax collection rose from 2.1% to 2.4% of national income [Hines (2005)].

This outcome was achieved because more businesses entered the formal economy and because tax exemptions and other tax incentives were reduced or eliminated.

Developed countries tend to have lower business taxes and less complex tax administration processes. Simple moderate taxes and a fast, cheap administration mean less hassle for businesses - as well as higher revenues.

In contrast, Developing countries tend to use business as a collection point, charging higher business taxes. Latin American and South Asian countries impose the heaviest burdens, mainly because of high compliance costs. Africa follows, largely because of high taxes.

As stated earlier, Developing countries try to levy the highest amount of tax on businesses on the premise that these high taxes are needed to fund public services and correct fiscal deficits. However, the evidence suggest otherwise. Higher rates typically do not lead to higher revenues in developing countries. Instead, they push businesses into the informal economy. As a result, the tax base shrinks and less revenue is collected.

Lower rates work best when their administration is simple. Growing evidence shows that tax reforms creates more vibrant businesses and this is evident in Pakistan. A smaller tax burden encourages firms to invest. However, they are undermined by exemptions that the shrink tax base. I would like to share an adverse experience, tax revenues has fallen in Uzbekistan, where the enthusiasm for income tax cuts was not matched by efforts to improve tax administration and expand the tax base.

RECENT REFORMERS TAX RATE CUT AND HIGHER REVENUE TARGET:

=========================================================
Ghana Exceeded its mid-year revenue targets
Despite significant cuts in Corporate
tax rates in the last two years
Albania Corporate tax revenue rose 21%
after the rate was cut
Moldova Corporate tax revenue rose 28%
after the rate was cut
Latvia Corporate tax revenue rose 37%
after the rate was cut
Romania Corporate tax revenue rose 8% in real
Terms after cut in tax rate In 2004
=========================================================

Economic growth in these countries is a factor in the increased revenue but compliance is also up [Source: World Bank (2006)]. Overall growth is also higher with lower taxes and better collection [Lee and Gordon (2004)].

Overall growth is also higher with lower taxes and better collection. And with tax incentives aligned to encouraging work, more firms and more jobs are created. One study shows a cut of one percentage point in corporate tax rate is associated with up to a 3.7% increase in the number of firms and up to 1.1% higher employment [Goolsbee (2002)]. Tax reforms inspire political debate and can be hotly contested. But both businesses and government benefit when taxes are simple and fair and set incentives for growth.

TRANSPARENCY and CORRUPTION: Transparency is the key - Governments need to be accountable for how taxes are spent. Businesses will potentially be more willing to pay taxes if they can see the benefits of improved public services and infrastructure.

Businesses are more willing to pay taxes if they see that the money is used to improve public services. Yet many developing countries with high tax rates fail to improved business infrastructure or education and training - two things that employers care about.

Across countries, higher taxes payable are not associated with better social outcomes, even allowing for country income levels. They do not increase government spending on health and education, raise literacy or life expectancy or lower child mortality, nor are they associated with better infrastructure and other public services.

Burdensome taxes do, however, generate other undesirable outcomes. They are associated with more informality, as entrepreneurs often choose to avoid the formal system altogether and operate underground. They also breed corruption as every point of contact between a bureaucrat and an entrepreneur could present a danger of bribery and confusion on voluminous, often contradictory, rules, which may create room for discretion.

Simplifying the tax regime by reducing tax rates and eliminating exemptions is the main way to reducing corruption in the tax administration. According to a World Bank survey, Georgia introduced major reductions in tax rates and simplifications to the tax system in 2004 - and has seen a drastic fall in perceived corruption of tax officials. Georgia showed the sharpest drop in perceived corruption among 27 transition economies.

RECENT REFORMERS - TAX RATE CUT AND CORRUPTION:

=========================================================
Georgia - Previous level 44% Current level 11%
Romania - Previous level 14% Current level 8%
Slovakia - Previous level 11% Current level 5%
=========================================================

[Source: World Bank (2006)]

All the above referred factors, tax rate cut and corruption, tax rate cut and transparency, tax rate cut and increased compliance etc present a good case for reduction in corporate tax rate.

[U]TAX COMPLIANCE COST:[/U] Businesses need to understand and communicate their total tax contribution, so that they are more able to manage and control it and demonstrate the full extent of their contribution made to public finances. I would suggest using indirect tax expense and taxing compliance cost as a separate head of expense in the profit and loss account instead of rent, rate and taxes.

A better way to meet revenue targets is to encourage tax compliance by keeping rates moderate. Russia's large tax cuts in 2001 did exactly that. Corporate tax rates fell from 35% to 24% and a simplified tax scheme lowered rates for small business. Yet tax revenue increases - by an annual average of 14% over the next three years. One study showed that the new revenue was due to increased compliance [Ivanova, Keen and Klemm (2005)].

It is not just businesses that gain from reforms. Streamlining taxes also brings savings for the government. A complicated tax system costs a lot of money to run - funds that could be better spent on education, health care and infrastructure. In Denmark, one Kroner spent on tax administration generates 113 Kroner of tax revenue. In Hungary, one forint produces only 77 and in Mexico one peso produces only 33. Such data is missing from performance measurement and must include the loans and grants received.

[U]COMPLEXITY AND ITO, 2001:[/U] A particularly worrying consequence is that with the sheer volume of tax legislation, no one individual can possibly read all of it. So the days of a tax director being confident of spanning all the relevant parts of the tax code seem to have all but disappeared. Embodying all previous SRO's of section 50 of Income Tax Ordinance, 1979 by virtue of section 239 (10) did the rest.

Similarly, at least as regards advising large to medium size corporate bodies, the ability of a single tax advisor to span all the relevant tax legislation is circumscribed, hence, increased relevance of specialists and sub-specialists.

This leads to an at least two tier market - those who can afford the necessary advice, and those for whom such advice may be of only marginal benefit, on a cost/benefit analysis. It is also leading to a situation where the primary tax legislation is being read by fewer and fewer people.

The boldest reform is to simplify tax law so that every business faces the same tax burden - with no exemptions, tax holidays or special treatment for large or foreign businesses. Income Tax Ordinance, 2001 has also started in that way! But when hard times come and government needs revenue, tax rates are froze at the current level.

This is unpopular, and large or well-connected businesses usually obtain special treatment. Soon the tax law becomes riddled with exceptions, generally at the expense of small businesses, which have the least ability to lobby.

Often they are pushed into the informal sector. Few reformers dare eliminate exemptions, like Egypt - 3000 Exemptions.

To conclude, the Central Board of Revenue needs to reflect on the likely deterrent effect of the ever increasing complexity of the Income Tax Ordinance, 2001 and the resulting probable reduction in their international competitiveness. Ultimately, when tax legislation becomes too voluminous, compliance drops more through ignorance than deliberate evasion.

SIMPLER TAX REGIME with CONSOLIDATED TAXES:

=========================================================
Number
---------------------------------------------------------
Corporate Income Tax Payments 5
Labor Tax Payments 25
Other Tax Payments 17
Total Tax Payments 47
Hours
Compliance Time - Corporate Income Tax 40
Compliance Time - Labor Tax 40
Compliance Time - Consumption Tax 480
Total Compliance Time 560
Corporate Income Tax - Average 27%
Statutory Corporate Income Tax 37%
Labor Taxes - Average 14.6%
Other Taxes 1.8%
Total Tax Rate 43.4%
=========================================================

Consolidating taxes is also a worthwhile reform.

For instance, Pakistan has more than one labour tax, yet such taxes are typically based on gross salaries, why not unify them? Tax offices can then distribute the revenues among government agencies Slovakia did just that.

A practical problem arose in many countries where social security agencies here reluctant to part with their powers - especially if there was a chance that tax offices won't give them their share of revenue.

To gain their trust, an automatic separation of revenue can be introduced so that there is no room for discretion through codes on tax payment receipt. Moreover, stamp duty needs to be collected by the Central Board of Revenue along with CVT on tax payment receipt.

=========================================================
Recent Reformers - Cut in number of Taxes
---------------------------------------------------------
Georgia [2004] - Number of taxes from 21 to 9
Russia [2001] - Number of taxes from 20 to 15
Iran [Recently] - Number of taxes from 3 to 1
=========================================================
[Source: Georgia Business Council Interview and FIAS (2004)]

Reforms should also target minor taxes like stamp duties - which cost money to administer but do not raise much revenue - or particularly distorting taxes. Small businesses have a particularly hard time dealing with multiple tax payments. Why not help them by making their interactions with the tax agency simpler? The Central Board of Revenue Chief should work with the federal and provincial ministries in this regard.

(To be continued)

mtgondal Tuesday, May 22, 2007 01:49 PM

Road To Economic Progress
 
[B]Road To Economic Progress [/B]

[I]Amrit P. Shrestha Tuesday May 22, 2007
Source : GORKHAPATRA [/I]

What the modern industry needs is better infrastructure. Traditionally, infrastructure services across the world were provided by governments in limited areas like airports, electricity and roads. Today infrastructure must improve in all parameters, which requires immense financing through external and internal channels. Without basic infrastructure development, no sector can achieve any sort of target.

To keep the wheels of the economy running, countries must make enormous progress in attracting private investment in the infrastructure sector, as the government alone cannot invest huge amounts in it. In order to send the right signal to international investors, there is a burgeoning need to create sophisticated infrastructure in selected key cities and projects as seen in Beijing, Shanghai and Kuala Lumpur, which have emerged as the investor's choice in the last three decades.

Infrastructure needs three key inputs - large amounts of money, skilled manpower and selected projects. Governments must realise that the only way to become the nation's doorway to economic zoom is to give new thrust to infrastructure development. Thus, the Essential Facility Doctrine has been recognised by most of the developed and developing countries. Australia, Singapore, South Korea and India have been adopting the doctrine.

Investment requires long-term funds with a long payback profit period. More importantly, Public-Private Partnership (PPP) is a signal to investors in general that the policy framework is sound and environment conducive for investment. Such models have to be initiated in key sectors like roads, airports, power and tourism.

Nepal lacks the necessary physical infrastructure to qualify as an international investment centre. Investments must have easy access, and there should be well-developed infrastructure within acceptable parameters. At present, we must have suitable strategies to convert challenges into opportunities. Better infrastructure helps in alleviating poverty and expanding the industrial base because accessibility to services improves as a result of it.

Currently, GDP's contribution to infrastructure development is less than 4 per cent, which is less than the share of our neighbouring countries. Actions must be accelerated on the following track, to help build trunk infrastructures in the country. First, Modernisation or industrialisation require massive expansion of national highways, airports, electrification and telephones linking every village with the urban areas. Ground water exploration, minor irrigation, water supply and sanitation are other priorities.

Highways form the economic backbone of the country. Likewise, rain water harvesting and human resources management must be developed, which is sorely lacking in the country. Given the size of the country, air travel has become the swiftest mode of transport. Hence, Nepal should take bold steps to expand and upgrade its airport infrastructure.

Second, among the bottlenecks to achieving growth in the country is electricity supply. Power and its allied sector play a crucial role in economic development. Electricity is the lifeline of our lives as its use ranges from mundane applications to complex tasks and operations. Our productivity is affected because of this.

Third, the tourism industry could gather momentum if the government plans innovative promotions. Tourism should introduce new products such as monsoon tourism, helicopter tourism and the like. Such programmes will attract visitors, especially from India and Europe. With Nepal becoming a business hub especially for tourism, regional disparity can be minimised upto a certain extent. Likewise, growth of tourism will help enrich the lives of traditional workers and artistes. Unfortunately, lack of roads, accommodation, safety measures, well established communication systems and hospitality management centres are some of the hurdles in its promotion.

Fourth, building IT Parks in important cities can offer a unique confluence of advantages - robust physical infrastructure, power and data connectivity and trained technical manpower. All this will effectively reduce the operational cost.

Fifth, there is a need to hand over the entire infrastructure development to the private sector with no political interference. There should be no bureaucratic controls over enterprises. They should not be asked to get approval for minor decisions.

Sixth, an act to form an independent Infrastructure Authority, similar to the National Highways Authority in India, Afghanistan, Laos and the Philippines, has to be announced without delay. Meanwhile, a vision paper with priorities and national consensus must be flashed, emphasising on infrastructure development to attract investors and also to make the entire cycle of investment, productivity and wealth creation sustainable.

Seventh, special packages of tax incentives must be introduced as a tool to encouraging private enterprises or an undertaking engaged in the development of infrastructure facilities. This is particularly important for infrastructure developing companies.

[U]Human development[/U]
Most importantly, the overall environment needs to be free from prevailing corruption and petty-mindedness. For the common man, good economics is all that he cares. The government should accelerate the process of human development by delivering services in electricity, transport, water and sanitation that the poor need in order to live and participate in economic growth.

A leader of outstanding merits, efficient bureaucrats and a graft-free culture are the invisible infrastructure to race with the modern world. Let us start from a good today to a better tomorrow.
([I]Shrestha is ex-director of the Department of VAT and a financial management and VAT expert deputed in Tanzania by UNDP)
[/I]

Yasser28 Tuesday, May 22, 2007 11:05 PM

[B][COLOR="DarkOrchid"]Public-private Partnership[/COLOR][/B]

[I]By Dr Noman Ahmed[/I]

IN the second week of this month, the deputy chairman of the Planning Commission announced several measures under consideration by the government to facilitate the role of the private sector under partnership arrangements. The proposed sectors included energy, roads and highways, aviation and airports, ports and shipping as well as water and sewerage.

The emphasis on such a development management structure has evolved owing to several reasons. The capacity of public sector institutions has declined sharply, even in such domains where they were the sole players. Under the overwhelming influence of corporate and venture capitalists, the government has been forced to open up those sectors for entrepreneurship which were traditionally the spheres of public sector operation.

Above all, there is a drastic paradigm shift in the organisation and working of the state. It is reducing its role from a provider and custodian to that of a facilitator. The rules of the game obviously cannot be determined by the government alone. The rising influence of the private sector has led the country to reappraise the entire state structure. Many issues have become crucial in this respect.

The context and background of public-private partnerships has to be properly understood. A public-private partnership is an institutional concept introduced by international donor agencies as an alternative to public service provision. It exists in various forms depending upon the objectives of the project/programme, socio-economic conditions, and institutional capacities.

Public-private partnership, in a conventional sense, can be defined as a contractual arrangement between an agency or unit of the public sector and a private organisation for a defined scope of services.

There are several pre-conditions that can lead to public-private partnership as the choice for service delivery or enterprise development. One, it requires recognition at the macro level for it to be useful in service delivery. Two, it is normally effective in contexts where free market practices have an acceptable background. Three, it requires an aware clientele that considers the provision of an urban service to be a chargeable product depending upon the nature of production. Four, it needs a clientele that is socially and economically stable enough to pay for the services. Finally, it needs a capable private sector that has the capacity to efficiently provide and sustain the contracted part of the service to the identified clientele.

There are several pre-requisites to be considered before a public-private partnership approach can be adopted. Experts say that a favourable economic environment is a basic criterion. Low inflation rates, high GDP growth, rising real incomes and limited value of unemployment and inequality are the usual parameters.

But economists and experts from other domains also point out that stakeholders can twist and turn the value of these variables to suit their working agenda. Evidence from independent economic analysis has often validated this objection.

What is more objectionable is the manner of economic decision-making. Public-private partnerships can be successfully created, and function where the right institutions are involved in determining priorities and choices after obtaining inputs from the concerned stakeholders. However, when decisions are taken on a personalised basis that bypasses institutions, partnerships are not likely to be sustained.

At present, an extremely centralised and non-transparent decision-making process is involved where neither the institutional viewpoints are incorporated nor any recourse to the concerned laws taken.

A potential investor seeks a direct appointment with the prime minister. He arranges an attractive computer presentation for his proposed venture. If the prime minister or his representatives are satisfied, they send the investor/venture capitalist to the presidency. Once presidential approval is obtained, the decision is communicated to the concerned institutions, ministries and authorities to extend full cooperation to the approved venture in the shortest possible time.

Merit, transparency, rules and regulations are all mutilated in the name of investment and progress. While the entire country is flooded with projects approved in this manner, Karachi has borne the brunt of these products of short-sightedness and corruption.

Public-private partnerships require corresponding inputs from several interest groups to make them sustainable ventures. The foremost among them are public sector institutions. As a norm, partnerships are created in a bid to hand over certain roles, responsibilities, services and opportunities controlled by public institutions to private groups.

Institutional culture and psyche in our context is such that every public body wishes to acquire more and more control on various domains, even those that fall beyond their rational jurisdiction. We find port authorities making roads and underpasses, air force chiefs supervising and controlling the game of squash, housing authorities initiating desalination and power plants and the armed forces launching institutions of higher learning.

It becomes very painful for these institutions (and their heads) to part with control and authority. Whenever they are forced to do so, it is done with reluctance. Thus the spirit of partnership is violated.

As observed, the offers of partnerships emanate from aggressive venture firms with little association with the local private sector. The sustainability of these ventures is greatly questionable because after the foreign groups leave, the eventual responsibility to run the affairs automatically falls on the local private sector.

The rising interest shown by investors from Dubai, Malaysia and Singapore shows that they intend to exploit the most lucrative avenues with the maximum of state guarantees. The potential affectees in the process are not consulted in these decision-making exercises. Public criticism is on the rise with regard to almost all such deals and contractual arrangements. In other words, these partnerships are finalised as clandestine marriages of convenience rather than equal opportunity enterprises.

It is generally believed that by instituting a regulatory body at the national scale, a level playing field can be created for the participating stakeholders. This assumption has very little validity. The regulatory environment can be effective if it is a logical continuation of an integrated institutional set-up. There is little that a regulatory authority can do when the basic decisions are taken arbitrarily without involving the concerned institutions.

For instance, it is the mandate of the Planning Commission to review and recommend development proposals. As is routine, it is asked to rubber-stamp the recommendations of the prime minister or president without objective assessments. Most regulatory bodies are located and function in the capital. Projects and programmes are being undertaken all around the country. Thus, it is impossible for the common people and even certain stakeholders to visit and participate in the proceedings.

The true spirit of public-private partnerships can only be achieved when investment opportunities are worked out openly, decision-making is undertaken through public institutions, economic, social and environmental impacts are outlined clearly to identify the beneficiaries and those affected and the participants are made to accommodate the legitimate concerns of stakeholders.

The government may consider using the partnership approach in a strategic manner. The input of the private sector can be effective if applied to stimulate activity in dormant sectors. It can also be useful in creating solutions for non-conventional sectors such as housing for low-income groups. Merit in business and open competition are two attributes which can be made the virtues of public-private partnerships. Whenever any contractual arrangement has to be finalised, it must be done through the open invitation of proposals. This helps build up the trust of stakeholders, and breaks cartels and monopolies. It also strengthens the trust of ordinary private sector operators and leads to the scaling up of local entrepreneurs.

If the capacity and robustness of the local private sector is achieved, it would be a significant achievement of the partnership approach. The government may be convinced to use this mechanism for achieving long-term visions in need of innovative input. If handled appropriately, a worthwhile outcome can become a reality.
[url]http://www.dawn.com/2007/04/28/ed.htm#4[/url]

Yasser28 Tuesday, May 22, 2007 11:10 PM

[B][COLOR="DarkOrchid"]Punjab’s Rich Inheritance[/COLOR][/B]

[I]By Shahid Javed Burki[/I]

IN the first article of what I would like to call “the provincial series”, I suggested that the next big move in the development of the Pakistani economy must come from the provinces. For this to happen, Islamabad must grant greater autonomy in economic decision making to the provincial capitals, and the provinces, in turn, must permit greater space to the newly created local administrations.

These moves are needed to bring the government closer to the people and make it more accountable to the citizenry. No new laws and rules are required. The Constitution has provided for a reasonable amount of provincial autonomy and the Local Government Act of 2001 has provisions for transferring authority to local bodies to raise resources for economic development. What is missing is the political will to carry out the intent behind these constitutional and legal provisions.

Change is always difficult, especially in societies that have weak institutional foundations. It is resisted by those who see advantages for themselves in the maintenance of the status quo.
What I found particularly impressive was the move the administration has made from managing finance and development in a passive way to defining medium-term frameworks for development and fitting finance into it. This allows the provincial government to look at some of its financial liabilities in the context of development needs and plan for dealing with them.

Among those the administration is actively dealing with are pension and GP fund liabilities. The approach it is adopting will not only reduce the burden the government currently carries but it will also deepen the financial markets by creating new instruments of finance.

I have ideas for the 13-year period between now and 2020 which is the end point for the government’s programme. My vision factors in the province’s inheritance, its history since the partition of the province in 1947, and its endowments to a greater extent than the official approach. I will begin by discussing the province’s rich inheritance.

History is important not only to understand the past but also to prepare for the future. In focusing on some aspects of Punjab’s history — recent history, not history of the distant past — I will highlight only those aspects that have relevance for the present and are pertinent for discussing the future.

Several of these are important. They include the province’s demographic inheritance, skill endowments of some of its people, its irrigation system and the agriculture it supports, its system of governance, and the trading ties it once had with areas that are now part of India. Since these legacies will have a significant impact on the future development of the province, it is my suggestion that in designing public policy those responsible for taking decisions should remain fully cognisant of them.

The first of these legacies is concerned with demography — the movement of people into the province and from the province into many parts of the world. Punjab was formed by many waves of migration. These movements of people have a great deal to do with the character of the people who are now the citizens of the province; in particular with the way they view economic and social opportunities.

The two migrations that matter the most for today’s Punjab occurred at the mid-point of the British rule of the province and at the very end of the century-long colonial domination of the province. The first brought tens of thousands of small farmers from the eastern part of the provinces — the parts that are now the Indian states of Punjab and Haryana — to “colonise” the land the British had prepared for cultivation by bringing water for irrigation from the Indus River system.

One consequence of this wave of migration was to juxtapose small and medium scale farming with the large farms that were then common in the province. This positioning of small and medium farms alongside large farms is both a reason for the underdevelopment of the important sector of agriculture as well as the reason for hope for the future. I will return to this point later in this series of articles.

The second wave of migration was much larger and much more significant than the one before. It brought, by my estimate, millions of refugees from east Punjab to west Punjab after the British decided to leave their Indian empire in the hands of the successor states of India and Pakistan. It is possible to estimate the number of people involved in this wave of migration by using censuses for 1941 and 1951 for the various provinces of India and Pakistan.

I estimate that while five million people left Pakistan for India, about the same number of people came to Pakistan’s Punjab from India. In the late 1940s, more than one-quarter of Punjab’s population of about 19 million was made up of refugees. These refugees were settled in both the urban areas and the countryside. They brought with them skill sets and social and cultural outlook that were different from those that were prevalent in the province before it became a part of Pakistan.

While the question of the influence this migration had on Punjab’s social and cultural development is a subject for sociologists and anthropologists, it has also relevance for economists and for the economy. Much of the economic dynamism that has become the defining part of Punjab’s urban landscape — in particular of the dozens of small towns that straddle the roads connecting Lahore with Gujarat in one direction and Lahore with Faisalabad and Sahiwal in the other — is largely the consequence of the enterprise of the people who came from the eastern parts of the province and settled in these towns.

They were given the businesses, lands and houses the Hindus and Sikhs had left behind. They could have made greater contribution to the economy’s growth and to the direction of social change had the policymakers better understood their potential. The province’s second legacy, therefore, is the direct outcome of the wave of migration that accompanied the partition of Punjab in 1947.

In an article published several years ago in “Asian Survey”, a journal of the University of California, I suggested that the green revolution that brought considerable prosperity to some parts of the Punjab would not have been possible had it not been supported by the remarkable engineering skills on display in the province’s many small towns.

These towns supported the development of the tubewell technology and the mechanisation of agriculture, two of the many developments associated with the green revolution that brought profound economic and social change to Punjab’s countryside. It was these skills that were behind the remarkable development of the electric fan industry in the towns of Gujranwala and Gujarat. This industry later became the foundation of the electric appliances industry in the area which flourished before it was hit by competition from China.

A senior official from Islamabad, while speaking at the Punjab Development Forum the other day, told his audience that the Chinese had agreed to set up an industrial zone near Lahore of the type that energised China’s east coast and made it the work horse of the world’s industrial production system. Much of the consumer electronic goods sold in the West these days are made in the industrial zones strung along the eastern coast of China from the city of Dalian in the north to Shenzen in the south.

He said that that was the first time the Chinese were setting up such a zone outside their country and if the one in the vicinity of Lahore succeeds, they may repeat the experiment in other parts of the world, possibly also in Pakistan. He did not reveal what kind of industries will be established in this estate.

If the agreement with China allows Pakistan and the province of Punjab to influence what kind of enterprises get located in this zone, then it would be useful to build on the skills already available and the experience gained by the industries that are already operating in the area. The engineering skills that are available to the province need to be more fully exploited as a resource.

By focusing on two of Punjab’s legacies — the fact that this province was formed by people constantly on the move and that one set of the citizenry when it came to this province brought extraordinary engineering skills with it — the provincial government could accelerate the rate of economic growth and social change.

I have tried to illustrate how good knowledge of inheritance can make a difference to the content of public policy by suggesting that the engineering skills possessed by a segment of the population could underpin the development of a vibrant manufacturing sector.

Edited version from Dawn by Yasser

Yasser28 Tuesday, May 22, 2007 11:13 PM

[B][COLOR="DarkOrchid"]How Critical is American Assistance?[/COLOR][/B]

I WELCOME your editorial (April 23) on my article (April 16) as it triggers a debate on this important subject. Let me make three submissions. First, my article was an analytical research piece and not intended as advocacy for policy change. I am no longer a policymaker but a humble student of economic development, who believes that we should inform and educate the public at large about the facts and analysis rather than confuse them with subjective opinions.

Our intelligentsia has the perception that we owe everything to the US largesse and the moment it is withdrawn we would be in deep trouble. I wanted to disabuse them of this widely-held notion with the help of objective facts and analysis. I realise that policy formulation is a more complex process that takes into account many factors and interests into consideration but the data and analysis are the staples for this process. I am not for the moment advocating any change in our policy but presenting the costs and benefits of this policy.

Second, there are many countries in the world which have excellent economic and political relationship with the US without receiving any official assistance that is tied to the narrow political interests of the US. I believe that we should decouple our official assistance and strengthen other economic relationships with the US on the pattern of these countries.

I argue that we should intensify our trade, investment and technology transfer with this superpower without being constantly threatened by the editorial writers, think tanks and congressmen. I am a great believer that we can benefit from this kind of relationship. The US administration and the people have been more than helpful to us and we should continue to reciprocate with warmth and friendship.

Third, I do not foresee any downgrading of our credit rating or any other adverse impact if we decide at any point of time that we would unilaterally, respectfully and politely forgo the $750 million of Congressionally-appropriated aid. The international financial markets and domestic investors would consider this as a sign of strength of the economy as the uncertainty and unpredictability associated with this aid will no longer be an issue in their minds.

Our external debt ratios are projected to come down further despite the trade and current account deficits (these are by no means worst: we had much larger deficits in the 1970s, 1980s and 1990s) and the Gulf states have excess liquidity looking for higher returns. There are very few countries that can provide 20-25 per cent annual returns with four-year payback period. If the economy continues to be stable and growing, the foreign direct investment flows and international financial market access will not be much of a problem. I hope that this letter will help to further advance the debate on the issue.

DR ISHRAT HUSSAIN
Former Governor, State Bank of Pakistan, Karachi
[url]http://www.dawn.com/2007/04/27/letted.htm#1[/url]

Yasser28 Tuesday, May 22, 2007 11:14 PM

[B][COLOR="DarkOrchid"]International Political Economy[/COLOR][/B]


YOUR editorial (‘How critical is American assistance?’, April 22) concludes that “whether one likes or not, the overwhelming financial clout the US wields at present in this globalised world is a fact of life. It would, therefore, be advisable for our economic policy makers to think twice before taking a leap in the dark.”

Nothing could be farther from the reality of the international political economy today. As some one who worked for the world’s biggest bank (an American bank) for nearly 20 years and managed its over $1 billion emerging markets equity portfolio across the developing world, I cannot but strongly disagree with both your conclusion and the merits of the argument you have made. To be brutally frank, the conclusion displays lack of in-depth analysis of Pakistan’s situation and knowledge of the changing dynamics of international political economy.

Let me first address the point of international political economy. In a global context, the greatest change in the dynamics of international capital flows and their importance to the developing countries since the early 1990s is the fact the global private investors (companies, funds, etc.) have replaced the US/other G5 countries, the World Bank and other multilateral institutions as the largest and dominant source of financing their growth and development. Yet, many analysts here, in the government as well as in the media, appear to be living in the 1980s.

The occompanying data illustrates this point (See table).

In summary, while the emerging economies no longer are net recipients of ‘aid’ from multilateral institutions and western governments, they managed to earn a current account surplus of $317 billion in 2006 while receiving $501 billion in investment capital from international private companies, funds and banks. At the same time, they repaid $25.7 billion in the so-called “aid and loans” to the US, western governments and multilateral institutions.

This has been the case across all the developing economies from Asia to Eastern Europe to Latin America. Today, due to massive repayments from the developing world, the IMF (a proxy for the US) loan book has shrunk, with Turkey accounting for nearly 40 per cent of its total loan portfolio as most other countries have got rid of its loans by financing their needs through international private capital markets. Even Ghana and Congo are able to raise private capital today due to a huge change in the nature of the world’s financial flows.

As regards the comments about Pakistan’s current and fiscal deficits, it is simply wrong to look at the absolute numbers as a measure of anything. Both current account and fiscal deficit are not at their highest in terms of their percentage to the GDP. Most of the American assistance goes to the military and its impact on the economic development is highly questionable due to reasons I have articulated in various articles written for Dawn’s EBR weekly during the last couple of months.

Actually, it may even be better for the development and reforms process if we reduce the inflow of ‘aid’ and mobilise domestic and international private capital as many other Latin American and Asian countries have successfully done since the early 1990s. A mere five-point increase in tax-to-GDP ratio from 10 to 15 per cent would eliminate any need for official (US or not) aid, would bolster confidence in our debt repayment capacity (hence credit ratings) and mobilise resources for sorely needed ‘real’ development expenditure (i.e., infrastructure and education) and not military hardware.

YOUSUF NAZAR
Former Head of Emerging Markets, Citigroup
Karachi

Sources of Emerging Market Economies’ External Financing

(billions of U.S. dollars)

2004 2005 2006

Current account balance 150.2 257.8 317.0

External financing, net:

Private flows, net 348.8 509.3 501.8

Foreign Direct investment, net 156.0 198.7 185.3

Portfolio investment, net 39.1 55.8 69.7

Commercial banks, net 60.8 141.8 143.3

Non-banks, net 92.9 112.9 103.4

Multilateral institutions -15.0 -40.4 -25.7

Governments -2.3 -18.1 -22.5
[url]http://www.dawn.com/2007/04/28/letted.htm#1[/url]

mtgondal Wednesday, May 23, 2007 08:58 AM

[B]ADB's struggle with success[/B]

The Asian Development Bank was founded four decades ago to help lift Asia out of poverty. At the time, per capita GDP in the region was less than $170; the 31 founding countries sought to create an institution that would help them gain access to scarce capital and speed their development.

Today, average income is six times that level, the region is an engine of the global economy, and the ADB's roster has more than doubled to include 67 countries. Asia's changing profile obliges the ADB to change as well. But as it adapts to new economic realities, it is vital that the institution not lose sight of its core mission -- reducing the number of Asians who continue to live in poverty. The bank must balance the needs of its poorest constituents with those of its more affluent members.

Asia is best characterised by its diversity. It has some of the richest and most dynamic economies in the world -- Japan is one of the world's most affluent nations, while South Korea and the other "tigers" and "dragons" of East and Southeast Asia are setting the pace for economic growth -- and simultaneously is home to some 1.9 billion people living on $2 a day. It produces some of the most advanced technologies in the world, while including some nations whose agricultural sectors have not changed for centuries. Its countries include some of the largest in the world -- India and China -- and some of the smallest (Singapore). While the ADB was formed to help its members acquire capital for development, today the region holds an estimated $3.1 trillion in currency reserves and even provides financing in some developed nations.

That diversity creates entirely new challenges for the bank, as the problems of middle-income countries are very different from those of poor and undeveloped nations. Moreover, the ADB estimates that extreme poverty -- people living on less than $1 a day -- in the region will be eradicated in 15 years. Thus, the bank spent its 40th annual meeting, held earlier this month in Kyoto, debating the appropriate mission and policy mix for the institution.

A panel of experts has devised a plan for a "new ADB" that will shift its focus from poverty reduction to environmentally sustainable growth, regional integration, and technology and knowledge management. In addition, the panel recommended paying more attention to infrastructure development as well as financial sector improvement to better use those growing currency reserves.

While some ABD members and supporters applaud the attempt to adapt to the evolution under way in the region, others are concerned that shifting priorities will unduly harm the millions of Asians who continue to live in dire poverty. With countries like East Timor, Laos, Cambodia and Afghanistan still grappling with the very issues that inspired the creation of the ADB, the prospect of a shift in strategy risks their continuing marginalisation.

ADB officials insist that will not happen. President Haruhiko Kuroda told members that the proposal "does not mean the bank can dilute its devotion to poverty reduction." Key shareholders, such as Japan and the United States, agree. Even reformers acknowledge that widening inequality within the region is dangerous.

As Mr Kuroda pointed out, large income disparities within the region "threaten social cohesion and puts at risk the process of growth itself." While political integration has been slow, the economies of the region are deeply intertwined and one of the most important lessons of the last decade is that problems in one state can quickly spill over into others -- and not only neighbours. All countries ignore the poor and the disadvantaged at their peril.

Of course, reform is not an either-or proposition. Infrastructure development is needed in all Asian countries, even economic powerhouses like Japan and South Korea. By one estimate, Asia needs more than $3 trillion in infrastructure spending over the next decade. Given growing trade and production networks within the region, the regional gain from national investments is hard to miss. Investments in education will always pay off, as will more attention to health care and clean governance. Similarly, emphasis on sustainable development will benefit all ADB member countries; breakneck growth only postpones the day of environmental reckoning and is sure to incur greater costs over time.

Japan has agreed to set up two funds at the ADB to help fight global warming and to facilitate investment in the region. Tokyo will provide $100 million to the bank and two billion yen in loans over the next five years to jumpstart these efforts. The money is useful, but more important is a strategy that ensures that it is put to good use.

The Japan Times
May 22

mtgondal Wednesday, May 23, 2007 09:03 AM

[B][U]Direct tax policy principles: a review-II [/U][/B] By MOHAMMED ASHRAF

ARTICLE (May 23 2007): WHT AGENT RISK:Withholding Tax agents' costs have three folds - taxes borne, taxes collected/deducted and tax administration. The question arises whether Withholding Tax agents are properly focused on managing these significant tax costs. Bear in mind that risks in the tax arena generally come in many guises and Withholding Tax risks are no different.

==================================================================
Operational Risk - The possibility of processing errors
Which because of volume involved could
lead to significant additional costs
in the shape of additional tax.
Compliance Risk - The possibility of late submission with
consequent penalties
Reputation Risk - Making errors in the employment tax
arena is unlikely to Lead to adverse
external publicity, but it could impact
on staff relations
==================================================================

Some might argue that these risks have always been present. However, it is apparent that tax authorities see the Withholding Tax compliance arena as a fruitful area for their efforts. It is suggested that companies and governments alike need to consider them and make sure that they factor them properly into planning. The important issue is transparency through WHT Audit and that they are properly reported.

The recent mechanism of filing of Withholding Tax forms does not seem an effective system as accountants are normally busy in management reporting during the first 10 days of the month and this includes monthly closings, apart from the preparation of monthly profit and loss accounts.

It is suggested that the filing date of the 15th of every month needs to be extended to the 25th of every month, quarterly statements needs to be submitted after one month and annual statements after three months, instead of the current two months. However, these statements need to be submitted branch-wise without any need of consolidation, alongwith the Cash/bank ledger of every branch and a summary of adjustments of payments involving the deduction of tax.

Concept of adjustment needs to be specifically incorporated into the Withholding Tax sections of the Income Tax Ordinance, 2001. However; this needs to be reflected in the Foreign Exchange Manual of Pakistan. Any amendment in this regard needs to be made after close consultation with the State Bank of Pakistan. This will also provide ease to the local and multinational businesses. However, transaction involving foreign exchange needs to be reported to Central Board of Revenue and SBP.

RECONCILING PRINCIPLES FINANCIAL ACCOUNTING AND TAX ACCOUNTING The IASB is developing a financial reporting matrix, whereby the various components of a company's result are split broadly into two categories - Operating income which comprise of cash or near-cash items and valuation adjustments, leading to a total performance column described as comprehensive income. This future format of the profit and loss account needs to be incorporated into section 34 of the Income Tax Ordinance, 2001.

I believe that items falling into operating income should form a reasonable basis for tax reporting and assessment. Items included as valuation adjustments need to be considered in more detail. They may include items such as provisions for doubtful debts and obsolete stock etc, they may form a normal part of taxable income according to the provisions of the Income Tax Ordinance, 2001 and various precedence.

However, valuation adjustments are of more subjective and volatile nature and do not therefore posses the features which have traditionally been seen necessary of costs having been incurred or income having been realised, or certainty as to the amount appropriate to be utilised for tax purposes.

There needs to be a detailed review of the items falling into the valuation adjustment category and principles must be developed in the common rules chapter of the Income Tax Ordinance, 2001, for dealing with these items and any other items that may arise in the future.

The main principles should revolve around the distinction between assets readily convertible into cash, where adjustments would be taxed or allowed, and other assets which would be dealt with on a realisation basis for tax purposes. Moreover, the plethora of precedence relating to principles of capital and revenue expenditure/income and realised and unrealised income needs to be immediately considered in the common rules chapter of Income Tax Ordinance, 2001.

COHERENT STRATEGY OF ACCOUNTING AND RECORD KEEPING: Section 32 to 36 of the Income Tax Ordinance, 2001 and Chapter VII - Records and Book-keeping must be aligned with the organisational hierarchy of the tax department and needs to be aligned with the indirect tax laws. A suggestive structure is as follows.

SUGGESTIVE STRUCTURE:

==================================================================
Category Tax Policy Record Type Legal
Organisational
Structure
------------------------------------------------------------------
Large Tax according IAS/IFRS Incorporated/
to normal Fourth Schedule Unincorporated
accounting Of Companies'
practice Ordinance, 1984 -
SME Medium Tax according Fourth Schedule Incorporated/
to normal Of Companies' Unincorporated
accounting Ordinance, 1984 -
practice -
SME micro Tax according Fourth Schedule Incorporated/
to normal of Companies' Unincorporated
accounting ordinance, 1984 -
practice -
or -
------------------------------------------------------------------
Category Tax Policy Record Type Legal
Organisational
Structure
------------------------------------------------------------------
Final Tax Record Keeping -
Regime Postulates prescribed -
in Income Tax Rules, -
2002 - Chapter VII -
SME small Final Tax Suggestive record Unincorporated
Regime format to be -
prescribed in -
Schedule of Income -
Tax Rules, 2002 -
==================================================================

Following is a suggestive structure which may be used in conjunction with existing threshold for LTU, MTU and RTO.

==================================================================
Category Sub-category Quantitative Monetary limit of
Criterion Quantitative
Criterion
------------------------------------------------------------------
Large 1. listed companies Nil Nil
2. Susidiary of a -
listed company -
3. PE or -
Non-Resident -
Company -
4. Monetary Turnover -
Criterion of Staff -
LTU Capital -
SME Medium 1. Non-Listed Nil Nil
2. Private Limited Nil Nil
company -
3. Manufacturing Turnover 2 Billion
Staff 500
Capital 500 million
4. Trading Turnover 900 Million
Staff 200
Capital 200 million
------------------------------------------------------------------
Category Sub-category Quantitative Monetary limit
Criterion of Quantitative
Criterion
------------------------------------------------------------------
5. Service Turnover 500 Million
Staff 200
Capital 200 million
SME Micro 1. Single Member Nil Nil
Private Limted -
Company -
2. Manufacturing Turnover 500 Million
Staff 250
Capital 50 Million
3. Trading Turnover 90 Million
Staff 100
Capital 10 million
4. Service Turnover 50 Million
Staff 50
Capital 10 million
SME Small 1. Manufacturing Turnover 50 Million
Staff 50
Capital 5 Million
3. Trading Turnover 10 Million
Staff 10
Capital 1 million
4. Service Turnover 50 Million
Staff 50
Capital 0.5 million
==================================================================
ACCOUNTING QUALIFICATION'S: The ACCA syllabus is a benchmark for the whole world according to the United Nations Pakistan's students have the option to choose Pakistan's tax and corporate as part of their studies for appearance in exams. A level playing field with a conducive environment needs to be provided.

This will also help the Central Board of Revenue in interacting with various accounting bodies like the ACCA, ICAP and ICMAP which will enable them to draw the conclusion on the opinions of these public accountants. Moreover, this will also bring healthier competition which will end in quality improvement.

AUDIT: A section is not enough and a chapter needs to be devoted to Audit. Moreover, the existing audit section needs to be rephrased under one chapter which may include audit management, taxpayers' obligation, authorised representative obligation, modus operandi of audit, modus operandi of audit decision, postulates of an audit order and time frame to conduct and complete the audit.

STANDARDIZATION OF ORDERS: There seems to be a dire need to finalise a standard format of orders for assessment, amendment in orders, revision, appeal effect and audit.

Moreover, a standard format of order is also required for CIT Appeals and ITAT, however, when I use the word standard, this means that basic principle based postulates needs to be prescribed, for instance for appellate forms of transaction nature, sections applied, sections not considered, beneficial circulars, accounting and tax principles applicable, department's argument, taxpayer's argument, precedence available, reasons for not considering any of the aforementioned points, argument or precedence and finally the decision itself.

A good speaking order normally reflects this but we must strive to make all orders speaking! Moreover I would request honourable chairman to please specify a time limit for appeal effect orders.

TRANSFER PRICING: Internationally, the horizon is much bigger than the pharmaceuticals and time has come to bring certainty to the businesses. I would suggest that Chapter VI - Transfer Pricing needs to include what the State Administration of Taxation of China has done in line with the OECD guidelines.

THEY HAVE INCLUDED A PRINCIPLE SET OF DOCUMENTATION WHICH INCLUDE:

1. Business and Industry Analysis, that is, description of the industry in which the company operates.

2. Functional Analysis, that is, description of the functions carried out, the assets used and the risks borne by the company in question.

3. Identification and quantification of the related party transactions.

4. Selection of the most appropriate transfer pricing methodology to analyse at arm's length the nature of the related party transactions and;

5. Application of the most appropriate methodology, with conclusions at arm's length of the nature of the pricing of the related party transaction.

This documentation should be prepared before the tax return for the year in question is submitted. There will be no need to submit the report to the Income Tax at the time of return just facing a box. However, no time will be given when the report is required to be submitted through a special notice.

APA is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria for the determination of the transfer pricing for those transactions over a fixed period of time.

An APA is formally initiated by a taxpayer and requires negotiations between taxpayer, one or more associated enterprises and one or more tax administrations, hence, can be unilateral, bilateral and multilateral.

TAKAFUL INSURANCE AND REINSURANCE: There is need for the introduction of a new schedule for re-insurance and the provision of special exemptions or deductions to the payers. This will not only help in the development of a new industry, but will also save the outflow of foreign exchange.

SHARIAH COMPLIANT FINANCIAL PRODUCTS: It is high time that a framework needs to be incorporated in the Income Tax Ordinance, 2001, whereby Shariah compliant products are taxed in a way that is neither more nor less advantageous than equivalent banking products. The intended effect must be to allow providers to offer Shariah compliant products, without facing commercial disadvantage, and to enable customers to take up these products without encountering uncertainty or disadvantage over tax treatment.

MURABAHA: The most common problem of Shariah compliant financial products is the involvement of series of a transaction which falls within the ambit of minimum tax, capital gain and fair market value-related provisions which is not the case under conventional financial products.

Section 113 needs to be amended to exclude the sale transaction of a Shariah compliant financial product from the definition of turnover. Moreover, section 153 also needs to be suitably amended to exclude deduction of tax from the instalments by the customer instead of exemption certificate approach.

In furtherance, section 37, 68, 75, 77 and 78 needs to be amended in such a manner that transactions, involving capital gain, entered into by a Shariah compliant financial product provider, should not be taxed under any provision of the Income Tax Ordinance, 2001 in the hands of the Shariah Compliant financial product provider.

IJARA, IJARA WA IQTINA AND DIMINISHING MUSHARAKA: Section 18 needs to be suitably amended to incorporate the concept of Ijara and Ijara wa Iqtina. In the absence of a suitable amendment, the Ijara wa Iqtina relating to a house will fall under section 15 and would put the Shariah compliant product provider at a disadvantage over the conventional bank. The core basis of such an amendment is based on the fact that it involves the payment of rent and principal with rent.

WAKALA - AGENCY: It is suggested that such an income needs to be considered in line with section 151 in the hands of the customer.

(To be concluded)

mtgondal Thursday, May 24, 2007 09:05 AM

Inflation
 
[B]In the jaws of inflation[/B]

By Sultan Ahmed


INFLATION, which is plague for the poor and a curse for low-income groups, is expected to exceed the official target of 6.5 per cent as the financial year ends on June 30. Optimists expect the figure to be 7 to 7.5 per cent. Food inflation has risen by 17.6 per cent in the last ten months of the year, with the prices of 18 key items shooting up and staying high.

The State Bank of Pakistan on its part has tried to restrain inflation through its tight monetary policy but private sector credit expansion has touched its peak in the first ten months of the year instead of the full year and as the weather gets hotter, the vegetable prices are soaring further.

The tight monetary policy is a partial success in restraining inflation, but it is only one of the many instruments for checking inflation which includes the supply side abundance, effective administrative measures against hoarding and profiteering and social pressure against high prices and real competition in the market. Sufficient attention is not given to combating inflation through by other means as it is a very complex problem.

In India an inflation rate of five per cent was promised by the Manmohan Singh government in the new financial year beginning April 1 but now it is 5.4 per cent which is a disturbing trend and the government is looking for diverse remedies and acting promptly.

We are told that the core inflation is low and it exceeds food and energy prices which are very important in a developing country like Pakistan with a third of the people living below the poverty line. The energy prices are important as workers have to spend a good deal of money to reach their places of work and to return home and in a country with large families depending on a lone wage earner to feed so many mouths, food inflation is an important issue. In fact it becomes the core of the inflation for the poor and the low income groups.

The fact is that the tight monetary policy is neutralised by the inflow of money from many other sources. Record home remittances of overseas Pakistanis of $4.450 billion in 10 months against $3.629 billion in the same period last year, foreign investment of about six billion dollars, foreign borrowing which has raised the external debt to $39 billion or significant factors in increasing the money supply. In addition, the informal economy is very strong and tax evaded money moves faster.

Even in the area of tightening of the monetary policy the picture is not too bright. Within the first ten months of the financial year, the private sector credit meant for the whole year has been distributed. How much more will be lent during the remaining next two months has to be seen. But the private sector credit of Rs273.8 billion is far less than the credit of Rs345.6 billion provided in the same period last year.

In addition, the government borrowing for budgetary support is too heavy this year. It has borrowed Rs196 billion so far compared to Rs64 billion during the same period last year and that money is flooding the market through the currency notes printed by the State Bank of Pakistan for the government.

All that along with the inflow of six billion dollars as foreign investment, including portfolio investment and the record home remittances of overseas Pakistanis of $4.45 billion have increased greatly the money in circulation. In such circumstances it is not easy to achieve the level of 6.5 per cent inflation promised for the current year without far larger supplies than available. So the inflation figure is likely to be far above 7 or 7.5 per cent expected by the spokesman of the finance ministry Dr Ashfaq Hasan Khan. It is likely to be between 8 and 8.5 in reality. Even wheat flour prices are seen rising following the decision to export the surplus wheat. The Sindh government has objected to the export and the centre has rejected that objection. What will happen to onion prices now as onion export is to be resumed because of its abundance?

In such a situation the right remedy to increase the supply level of essential or sensitive goods through a far better supply chain than the traditional system we have with the middlemen having the best of the consumers and the growers. In India the government has promised an inflation rate of five per cent and is disturbed by the rise of inflation to 5.44 per cent and it is looking for far better supply chains particularly in the retail sector which is undergoing radical change. India is trying to overcome the supply system handicaps. At present only four per cent of the retail trade is in the organised sector. It wants to raise that to 20 per cent of the retail trade so it is encouraging industrialists to set up supply chains. New entrants to this sector include the Aditya Birla group which is investing $1.7 to 1.9 billion, the Reliance industries, the Bharti group and the Pantaloon.

They will buy from the growers and manufacturers and sell to the consumers for which they see a tremendous scope. But what we are doing in Pakistan is setting up supply chains to sell to the wholesalers or wholesale buyers as Makro is doing in Karachi.This is not what the country needs now. It needs a supply chain which buys it from the growers and sells to the buyers direct and cuts out the exploitative middlemen or Artis who some time stores the fruits and vegetables in cold storages for a long period to multiply the prices. We need consumer resistance to profiteering, poor quality and gross adulteration. It has to be done through organised resistance which will not put up with the anti-consumer abuses any longer.

If the rich countries of the world with their organised trade can have proper consumer resistance assisted by the government the poor countries need that much more and the earlier that comes through the better.

The people should not rely on the government to solve all their problems or help them effectively but the district governments can certainly come to their help and not merely talk of highways and byways and underpasses. In a low wage and high priced economy the masses should get a fair deal. In last week’s Algerian parliamentary elections the voter turnout was only 35 per cent. The workers argued the election offered them no solution to their everyday problems and hence stayed away from the elections, disillusioned by the process. The same is the case in Pakistan. Elections come and go but the people’s basic problems remain unsolved. But a democratic form of government in Pakistan has not delivered either.

So the people have to take the responsibility for changing the system and find day-to-day solutions to their problems instead of looking towards the government for everything. You cannot debunk the officers as corrupt and inefficient and then expect good governance and proper economic administration from them. The people must assert themselves and prevail.

As the world price of palm oil continues to rise, its impact is felt deeply in Pakistan and there is a demand for the reduction of heavy import duty on it. But the government has been resisting the demand which India had met a long time ago.

“There is no question of reduction of import duty on palm oil. Don’t talk about it” says the advisor on finance to the prime minister Dr Salman Shah and the minister for industries Jahangir Tareen says any tax concession given by the government to the vanaspati ghee industry would not be passed on to the consumers and so there is no duty reduction.

The Malaysian government wants Pakistan to reduce the import duty. But the government is firm on its refusal. All this is happening in an election year when all kinds of hints are given about the coming tax relief. Making the inflation far worse is the report of the Asian Development Bank which says unemployment is increasing in Pakistan particularly in Balochistan and the Frontier province.

Regardless of that our GNP this year would be 150 billion dollars and per capita income dollars 950, says the government. That can attract more foreign investment and open more Makro and Metro stores. But the poor have to find their niche amidst such gathering affluence with the rich getting richer.

Wounded Healer Thursday, May 24, 2007 10:50 PM

Less than 2% on Research
 
[B][SIZE="5"]Pakistan spending less than two percent of budget on research[/SIZE][/B]

KARACHI (May 24 2007): [COLOR="Red"]Pakistan is among 162 countries in the world for contributing less than two percent of the budget on research, which is the major reason for deterioration in economics and technology.[/COLOR]

Academia in the country has failed to develop linkages with the industry and presently there are no sign of creativity of knowledge to enhance industrial and trade activities, Dr Ayub Mehar, Head of Research Department, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) told Business Recorder on Wednesday.

Dr Mehar identified three missing links in the system of higher education and said that these gaps should be bridged on priority basis for country's economic growth in the arena of free trade. [COLOR="red"]"First missing link is between the strategy for promotion of research culture and the curriculum. The policy for the development of academic research and the system of examinations work in opposite direction," he said.[/COLOR]

This system stresses on the memorisation of texts and mechanical use of the concepts and formulas, he said and added that this problem was created because of the stereotyped lectures and the extensive use of the study guides and short notes.

[COLOR="red"]The second missing link is the disconnection of research degrees with knowledge creation. This system has checked only the ritual requirements and unable to verify the objectivity, originality and acceptability of research work, Dr Mehar said.[/COLOR]

[COLOR="red"]The third missing link is between the academic research and economic development, he said and added that universities have failed to convert knowledge into economic development, which leads the industrial growth.[/COLOR]

FPCCI research head said that country's trade bodies have to enhance research activities and have to play important and non-traditional role. He said that industries in the country are contributing in the employment generation, participating in national revenue, building of foreign exchange reserves and addition in the GDP. But they have also to become the part of economic planning and decision making.

"During the recent years the responsibility of economic development has shifted to corporate sector from government agencies and in the age of globalisation, the role of trade bodies have become more important," he said.

[COLOR="red"]He said that FPCCI is going through restructuring and enhancing phase of research activities. Several types of research work including applied and policy research in the areas of business competitiveness, fiscal and monetary policies and the globalisation related issues were being carried, simultaneously.[/COLOR]

The apex trade body was also establishing links with the institutions of higher education. While, two research projects were assigned to the Applied Economics Research Centre, University of Karachi for the study on the Industrial Competitiveness and Protection in Free Trade Regime.

[COLOR="DarkGreen"]http://www.brecorder.com/index.php?id=568161&currPageNo=1&query=&search=&term=&supDate=[/COLOR]


04:48 PM (GMT +5)

vBulletin, Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.