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Global Economic Prospects
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.
Pakistan’s likely shape in 2020
Pakistan’s likely shape in 2020
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, China 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.
India 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.
Japan, 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.
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. 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.
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.
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.
What will be the shape of Pakistan in 2020? 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.
In short, our destiny is in our hands. 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.
My ALLAH it is enough for my respect that I m "Your" person & it is enough for my pride that "You" are my GOD."You" are exactly the way I desire.Thus please mould me the way "You" desire.
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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.
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.
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.
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.
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.
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.
Poverty: actions, not words
Poverty: actions, not words
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.
My ALLAH it is enough for my respect that I m "Your" person & it is enough for my pride that "You" are my GOD."You" are exactly the way I desire.Thus please mould me the way "You" desire.
Why poverty refuses to fade away
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.
The world is my oyster!
Last edited by I M Possible; Sunday, January 14, 2007 at 02:31 PM.
The fate of the pro-poor schemes
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
The world is my oyster!
Last edited by I M Possible; Sunday, January 14, 2007 at 02:15 PM.
It is starvation line, not the poverty line
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.
The world is my oyster!
Rs 1.315 trillion budget announced: 15-20 percent raise in pensions
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.
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Sticky: Business Reports
South Asia's Growth to Remain Strong in 2007-2008, Says ADB
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 : http://www.adb.org/Media/Articles/20...ents-outlooks/
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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.
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