April 16, 2012
By Dr Akmal Hussain

This may be a watershed moment in the post independence history of Pakistan and India. Four features define this moment which if grasped can help build a better future for their peoples: (a) Pakistan is in the process of establishing democracy as India is trying to deepen it; (b) a broad consensus has emerged amongst mainstream political parties and rational elements in civil society in both countries, that peace is a necessary condition for the democratic endeavour as well as for development; (c) a seismic shift is taking place in the centre of gravity of the global economy for the first time in three centuries from the West to the region in which India and Pakistan are located. If these two countries can cooperate, they can help create in their region the greatest economic powerhouse in human history: an economically integrated South Asia could become the second largest economy in the world after China over the next three decades; (d) amidst this great economic opportunity has emerged the grave threat of climate change, which could undermine the ecological life support systems of South Asia, unless mitigation and adaptation measures are urgently undertaken within a framework of cooperation. Let us briefly outline the political economy of this moment.

The recent historic decisions taken by the Pakistan government towards free trade with India in consonance with the earlier South Asian Free Trade Area agreement are: granting in principle, MFN status to India; converting the earlier positive list which restricted trade to a few specified items, into a negative list which allows trade in all items except those in the negative list, together with a commitment to reduce even this negative list to a minimum by the end of this year; collaboration to reduce non tariff barriers by both sides within a specified time frame. These major decisions reflect a change in the balance of power in favour of elected civil authority within the informal power structure that underlies the formal institutional structure of democracy in Pakistan and shapes the governmental decision-making process. Democratic functioning has also drawn strength from the passage of the Eighteenth, Nineteenth and Twentieth Constitutional Amendments, an independent judiciary and a parliament united in its effort to protect democracy. The overthrow of an elected government by a military adventurer has become much more difficult.

Sustaining democracy in both Pakistan and India requires giving a stake in citizenship to all of the people rather than only a few, in terms of participating in the growth process, as well as governance. This requires institutional changes within the two countries to make both economic and political processes inclusive. Such inclusiveness in the institutional structures of the economy and polity would sustain and give meaning to the process of economic growth. Vital to such an undertaking is the establishment of intrastate peace. However, combating militant extremism which threatens this peace requires interstate peace and cooperation.

Cooperation has now become a matter of survival, given the threat to the life support systems of the region’s integrated ecology. The latest evidence suggests that three kinds of stresses on the economies and societies are likely to occur as a result of climate change over the next three decades: firstly, water stress. The minimum per-person water requirement per year is 1,700 cubic meters. As against this the water availability for Pakistan being 1,329 cubic meters per person per year is already at the water stress level; India is expected to reach water stress levels by 2025, with water availability reaching 1,140 cubic metres per person per year. Secondly, rising average temperatures are expected to result in a 30 per cent decline in yields per acre of food grains in South Asia in the next four decades according to a UN Report. Thirdly, rising sea levels will cause salinisation of low elevation coastal agriculture zones resulting in loss of livelihoods and displacement of over 125 million people in South Asia. Thus, adaptation and mitigation measures through regional cooperation are necessary not only to sustain growth but to survive.

The Express Tribune

April 17, 2012
Dr Ashfaque H Khan

Dr Shoaib Suddle, the federal tax ombudsman (FTO) has taken suo motu notice against the attempt to overstate tax collection number for the year 2010-11 by the Federal Board of Revenue (FBR). This act of mis-statement of facts by the FBR not only embarrassed the government but also tarnished the image of the country in the eyes of the international community and financial institutions. Taking suo motu notice by the FTO is a courageous step and must be appreciated by all those who have love for their country.

To appreciate the action taken by the FTO, it is essential that I put the facts before the readers. The readers are reminded that around midnight of June 30, 2011, the then chairman FBR announced at a hastily convened press conference that the revised revenue collection target of Rs1,588 billion for the year 2010-11 has not only been achieved but surpassed to Rs1,590 billion.

The surpassing of the target surprised everyone including myself. The general consensus among the economists has been that the FBR may collect Rs1,530-1,540 billion with some serious efforts. However, it did not take long before the media exposed the claim of the FBR. Hanif Khalid – one of the senior journalists of the country was the first one to report the mis-statement followed by two seasoned economic journalists, namely Shahbaz Rana and Mehtab Haider who published investigative story about overstating tax collection by the FBR.

According to the notice, the overstatement of the tax number was an attempt by the FBR. They “borrowed” Rs43.5 billion from large taxpayers, and the amounts were deposited in the branches of the National Bank of Pakistan (NBP) in the far-flung areas. The FBR withheld Rs143.9 billion of the taxpayers’ refund/drawback in June to jack up the tax collection number.

These two facts need elaboration. Firstly, the FBR coerced and cajoled the large taxpayers, mainly banks and energy sectors, to deposit Rs43.5 billion in the first week of July 2011 in the NBP of Tando Allah Yar and Fateh Jang branches. It may be pointed out that this practice of “borrowing” (pakar dhakar) has been in practice for decades. Efforts were made in the past to discourage this practice, but unfortunately it has returned with full vengeance and sophistication. The State Bank of Pakistan (SBP) was forced by the government to enter this “deposit” as back dated (June 30) tax collection. It is generally said that the governor SBP refused to do so and preferred to submit his resignation, which was later accepted by the government.

Secondly, the notice revealed that the FBR withheld almost Rs144 billion on June 30, 2011. It may be pointed out that some amount will always remain withheld as ‘stock in trade’ because refund of taxes passes through various process of clearance. But, in recent years, the held amount grew exponentially. For example, as reported in the notice, the held refund/rebate stood at Rs53 billion by end-June 2009, increased to Rs79 billion in 2010 and surged to Rs144 billion by 2011. Such an exponential growth cannot be treated as normal. Hence, some degree of deliberate attempt on the part of the FBR to hold back refund/rebate to show ‘extraordinary achievement’ cannot be ruled out.

It is to be noted that in the recent past the government had adopted the no duty no drawback (NDND) regime on the one hand and zero-rated export sectors to minimise the incident of holding back refund/rebate. The present government has abolished NDND regime and also brought export under tax net. In other words, taxes are being collected from export sectors first and then refunds are given to exporters. Since the size of the trade has increased, the refund amount has increased as well. Such a large refund/rebate is not easy to handle in a timely manner, and therefore is prone to misuse and corruption. There is a need to rethink the usefulness of the existing policy.

Why did the economic team indulge in the exercise? There appears to be at least three reasons. Firstly, their aim was to disprove all the experts who had estimated that the tax collection to be in the range of Rs.1530 – 1540 billion. Secondly, to revive the stalled IMF programme. The economic team was of the opinion that by achieving the revised target of Rs1588 billion, it could convince the IMF to send a review mission to revive the stalled programme. Thirdly, to get appreciation from the political leadership for achieving an ‘ambitious’ tax collection target in a difficult economic environment.

Sadly, no one was held accountable for this misdeed which widened the ‘trust deficit’. The current economic team lost its credibility but continued to work in their respective positions. No heads were rolled; no one took the responsibility or resigned.

It may surprise the reader that one of the staff of the FBR, who was actively involved in overstating tax numbers, according to the insider, left the FBR and joined an international organisation, but claims to be working as special advisor to the finance minister. How could the finance minister reward someone who was an active accomplice of the team that conducted such a ‘high-tech’ operation? How can staff of an international organisation work as special advisor to the finance minister?

The timing of the suo motu notice is important. Why did the FTO take suo motu notice ten months after the occurrence of this unfortunate event? Did he feel that such an ‘operation’ may be undertaken this year too? By taking suo motu notice, it appears that the FTO has attempted to prevent the recurrence of such overstatement of tax collection.

The writer is principal & dean at NUST Business School (NBS), Islamabad. Email: ahkhan @nbs.edu.pk
-The News

April 20, 2012
By: Dr Sania Chaudhry

The recent surge in fuel prices has once again tested the patience of the Pakistani people. As if their problems were less severe, another bomb has been hurled on them. The prices of basic food and household items are constantly increasing and possibly surpass the rates of comparable items in the most expensive, developed countries like the UK.

Anyway, the petrol prices have crossed Rs100 per litre mark for the first time in the history of Pakistan. This not only highlights the intentions of the current rulers about providing welfare and relief to the masses, but also indicating the tough economic times that lie ahead for the people. The latest strategy adopted to generate revenue is by increasing the price of petrol and other fuel products by a substantial amount and charge this premium from the entire population across-the-board, regardless of the purchasing power of the people. However, no such action can hide the repeated failure of the government to collect revenues from the rich. It is pointless to expect from the government, which has a strong lobby comprising feudals in Parliament, to collect revenues from the agricultural sector. This can only happen if Parliament consists of truly democratically-elected representatives that do not belong to the elite class. The question, however, remains: Will this ever happen in our country?

Pakistan is a highly resilient country, which has slowly and steadily battled through difficult times, such as military engagements with its neighbours; domestic insurgencies; soaring inflation and consequent economic hardships; corrupt civilian rules and military dictatorships; periodic food shortages; lack of health facilities; a deteriorating and discriminatory system of education; lack of development infrastructure; electricity and gas loadshedding that are proving to be a major cause of rising unemployment within the existing employment market; law and order situation; extreme security situations due to terrorist attacks and rising sectarian violence; failure to protect the rights of women and children; mass production of spurious drugs; estranged relations with our strategic neighbours; the unpredictable nature of our relationship with the US in the so-called war of terror; failure of the tax collection authorities to collect levies; and the sluggish nature of the judicial process to bring to task all those who have in one way or the other caused harm to the nation.

Hasn’t our nation been hit hard enough or is there yet more to come before it will shake off its slumber, replicating the Arab Spring phenomenon and rise against the ruthless treatment of the aristocratic governments? The indifference, incapacity and incompetence of the concerned departments is visible on the streets as more and more people of the working class are protesting against their decisions.

Also, it is noteworthy that the nature of these demonstrations is changing, since they are not only increasing in number, but also becoming more violent and uncontrollable. The damage to public and private property is escalating alongside.

Each time a new government comes into power or a budget is passed, it is always the common man who suffers. How patient can Pakistanis be with these repetitive price hikes before they finally decide to fight for their survival? This election year will be decisive in the history of our country. Just wait and watch!

n The writer is an ex-assistant commissioner Income Tax, IT and Change Management consultant and a Public Sector Management analyst.

Email: drsaniachaudhry@gmail.com
-The Nation

Tahira Mansoor

Rent seekers dominate economic planning in Pakistan. Most of the decisions taken by the government are aimed at benefiting a particular individual, or group of people without bothering about the impact of the decision on the economy.

When the government allowed the import of 5-year old cars it was not to benefit the consumers but to provide a group of importers to fleece them. They imported all type of junk in the country without bothering to arrange spare parts for hundreds of models and brands that are not produced in Pakistan. Whenever any of these old cars need repair the consumers are forced to look for alternatives through alteration in the system.

This because the original spare parts of five year old vehicles are neither available in the local market nor are available for most of the brands in the global market. As a rule of thumb, the models of the cars are changed every five years and the spares of discontinued models fade out in six to seven years.

The permission to import used cars was given by the government with the stated aim of providing low end consumers with cheaper cars. In reality, the permission was granted for all types of luxurious cars as well. Import records of past 18 months reveal that the number of 800 and 1000 cc used cars imported in the country is less than 1,300 cc and higher power cars, including some very expensive luxury vehicles.

Another interesting point in this regard is that the prices of five-year old cars charged by the importers are almost the same as prices charged for brand new cars produced in Pakistan. This is despite the fact that the government provides 60 per cent duty concession on the import of used cars. It would have been much better had the government lowered the duties on brand new cars to give tough competition to the local manufacturers.

Last year the government imposed ban on the export of yarn in order to benefit the value added apparel manufacturers. The yarn prices never declined in the local market because of this decision but resulted in decline in the cotton rates that benefited the industry at the expense of farmers. Yarn exports have never picked up after that decision by the government. The real force behind this illogical decision was the then Textiles Minister who hailed from Faisalabad.

Since his constituency was dominated by power loom owners he imposed the ban to appease his constituency. The power looms were unable to procure yarn at lower rates but the reason they remained closed for most of the time was the massive loadshedding without any schedule in urban Faisalbad. The 27000 power looms were mostly located in the residential areas of that city in pairs of two or four. That decision cost him the ministerial job though he has again been inducted last week as the federal minister.

Time has proved that the rental power projects were permitted to make quick money. Mobilization advance for setting up these projects was provided to the sponsors of these projects in advance. Out of over 1,500 MW rental power sanctioned and provided 14 per cent mobilization advance the country was able to obtain only 100 MW from rental power three years after these were sanctioned. The Asian Development Bank since long-termed the rental power projects as dubious and now the Supreme Court has also declared them as illegal ordering the sponsors to return back the mobilization advance along with interest. These projects though complete failure did fattened the pockets of few individuals.

Four successive budgets of this government have backfired as 99 per cent of budget targets were not achieved. The budget deficit increased every year, the trade deficit after a decline in one year continues to rise. The imports during last four years grew at a higher pace than the exports. The trade deficit would have been much higher had the foreign remittances not grown.

The non-development expenditures are on constant rise as the government continues to oblige rent seekers. The development expenses continue to decline. This government has the dubios distinction of keeping the tax to GDP ratio below 10 per cent.

The inflation remained in double digit during the last four years ranging from 25 per cent to 12 per cent. The bank mark up also remained in double digit during this period. The foreign direct investment remained at historic low during the tenure of present regime. This year it might not even touch $500 million if the Etesalat of UAE failed to release the PTCL dues. In 2007-08, the FDI was well over $7 billion.

The loss making public sector companies are eating up over one trillion rupees a year while the losses of these companies were Rs. 200 billion per year when this government assumed power. The corruption level in the country has increased beyond imagination. According to Transparency International estimates the corruption in Pakistan is now over one trillion a year. The losses of public sector companies are mostly due to incompetence and bad
governance and partly due to corruption.

The rupee has lost its value sharply during last four years and is now valued over Rs. 91 against the dollar compared with Rs. 62 per dollar when this government assumed office. The impact of this decline can be judged by the fact that the petrol rates in Pakistan were Rs. 72 per liter when the global rates of oil were $144 per barrel. Now the crude oil is available at $120 per barrel but the petrol rate now is Rs. 103.90 per liter. This increase in petrol prices is partly due to higher government levies and mostly due to lowering of rupee value.

The government is dominated by the NRO beneficiaries. The NRO has been declared illegal by the Supreme Court. Many government functionaries include the home minister of Pakistan have been convicted for corruption but have been granted pardon by the President using his constitutional powers. The regrettable fact is that all convicts and accused have been accommodate in high government offices.

-cuttingedge

Shahid Khalil

Agriculture in Pakistan has the potential to take the country out of its economic troubles. Progressive farmers in Pakistan have achieved a global best in the productivity of cotton, wheat and milk, but the national average is dismally low.

China has the highest productivity in cotton as its gets 1,300 kg of the white gold per hectare. In Pakistan, the average is a little over 70 kg per hectare. However, there are districts in Sindh and the Punjab, where the farmers get over 1,300 kg per hectare. An encouraging aspect of cotton production in Pakistan is that the yield in any cotton growing district of Pakistan is uniform. If, for instance, the average yield in Sukker is 1,300 kg per hectare, the difference between the lowest and highest producer is not more than 5-7 per cent.

This shows that all cotton-growing farmers have adopted and learned the production and crop management practices uniformly. The moneyed farmers with higher resources have not much edge over farmers with lower resources. It is the same in almost all cotton growing districts even if the average output of that district is as low as 600 kg per hectare.

This is an encouraging sign for our agriculture. The farmers are keen to learn about the ways to improve productivity. There is a reason for this interest. Cotton is a risky crop. If infested by pests it could destroy the entire field and even the crop in the entire district. So the farmers are vigilant. They keep an eye on the fields of fellow farmers and advise him to spray his crop if they observe any sign of pests in the crop. They guide him about the best pesticide that is effective against that disease. They have common interest as the pests have a tendency to attack the adjoining fields. Once the infestation level reaches a high level it is then impossible to save any cotton field in the area. This fear of complete annihilation ensures that the cotton farmers, whether small or larger, cooperate with each other.

This comradeship is absent in other crops. In wheat, for instance, a progressive farmer might be obtaining 60-70 maunds of wheat per acre and his immediate neighbours only 25-30 maunds per acre. The crop management practices of the farmers differ. The progressive farmers take care of soil quality; they conserve water through different techniques, use quality inputs including seeds and fertilizers. They ensure absence of weeds from their wheat fields. They have resources and ability to invest more to obtain higher yields.

The low end farmers do not have access to quality inputs. However, despite these drawbacks they are assured of at least 20-35 maunds of wheat per acre depending on the area where they live. There is no threat of complete destruction of crops barring some unusual disaster. They can survive on this low input as well. The progressive farmers have no interest in guiding the poor farmers. The agriculture extension services are available only to the rich farmers. The progressive increase in wheat procurement rates ensures that the impact of inflation is covered from the low yield they get. Cotton prices are based on a free market economy. Wheat prices are ensured by the state through a minimum support price.

It has been observed that the farmers strive hard when they are under stress. In wheat they feel no stress and are reluctant to change the way they manage their crop. In cotton they face the threat of complete destruction of the crop and are ready to change to better management practices.

Milk is another example where the difference between the national average and the average of corporate dairy farms is very high. The average milk yield of a Pakistani cow or buffalo ranges from 4-6 litres a day. This is five to six times lower than the average milk yield of a US cow. The corporate forms in Pakistan obtain the same average yield of 25 litres as obtained by the US farmers.

A silent white revolution in milk production is on the cards, led not by the farmers, but the corporate sector in the Punjab, which has either established large dairy farms or is in the process of importing high yielding varieties of milk cows. Chaudhry's of Gujrat, Sharif brothers and Jehangir Tareen are among the many businessmen eying this business, as are the Nishat Group, leading textile houses Sapphire and Monnoos. The last two have already established dairy farms.

Perhaps acute power and gas shortages in Punjab forced these businessmen to look for alternate avenues of investment. "The livestock sector remained neglected in Pakistan for too long but still showed robust but haphazard growth" said leading businessmen Mian Mohammad Mansha. He said that though Pakistan is the fourth largest producer of milk in the world but it has one of the lowest per animal milk yield. Studies by our experts and French and American consultants reveal that with proper management the yield could be increased manifold.

He said that in 1944, the United States was producing 64 billion litres of milk annually from 25.6 million cows. In 2008, it was producing 82.5 billion litres from only 9.2 million cows. He said that the average yield of Pakistani cows is 1,231 litres per year, while an American cow produces 8,967 litres per year. We need to close this productivity gap and reduce the livestock population.
He claimed that by reducing by one million the livestock population, we would need 2,450,000 tons less feed that would release 520,000 acres of agricultural land for other crops besides sparing 1.32 billion gallons of water consumed yearly by one million cattle. It would also save 1.8 million tons of carbon foot print annually.

Ali Khan Tareen, the young son of Jehangir Tareen, manages his family dairy farm of 1,000 cattle. He said some Australian researchers during a visit to Pakistan found that a Sahiwal cow variety has high milk yield potential. They took this variety to Australia and cross bred it with a high yielding Australian breed. The crossbred variety was named Australian Fusion Sahiwal. Our farm comprises of Swiss high milk yielding variety called Riesen, a low milk yield but high fat variety from New Zealand called Jersey and high milk yielding ASF from Australia.

He observed that the breeding norms in Pakistan are totally different from the developed world that impact milk yield. For instance, he added, Pakistani livestock farmers provide access to water to their cattle twice a day, while in the developed world, the cattle are free to drink water anytime they feel thirsty. Providing access to water alone increases the yield by 15 per cent.

The local milking cows are mostly provided wheat straw as food, and no care is taken to provide them a balanced nutritious diet. The milking cows from the developed world get a balanced diet. “We produce special fodder for our stock at our agricultural farm,” Ali Tareen added. A balanced diet would also improve milk yield. However, real growth in milk production would come through cross breeding the low yield cows with high yielding varieties.

-Cuttingedge

Increasing productivity

[/SIZE]

Shahid Khalil

Agriculture in Pakistan has the potential to take the country out of its economic troubles. Progressive farmers in Pakistan have achieved a global best in the productivity of cotton, wheat and milk, but the national average is dismally low.

China has the highest productivity in cotton as its gets 1,300 kg of the white gold per hectare. In Pakistan, the average is a little over 70 kg per hectare. However, there are districts in Sindh and the Punjab, where the farmers get over 1,300 kg per hectare. An encouraging aspect of cotton production in Pakistan is that the yield in any cotton growing district of Pakistan is uniform. If, for instance, the average yield in Sukker is 1,300 kg per hectare, the difference between the lowest and highest producer is not more than 5-7 per cent.

This shows that all cotton-growing farmers have adopted and learned the production and crop management practices uniformly. The moneyed farmers with higher resources have not much edge over farmers with lower resources. It is the same in almost all cotton growing districts even if the average output of that district is as low as 600 kg per hectare.

This is an encouraging sign for our agriculture. The farmers are keen to learn about the ways to improve productivity. There is a reason for this interest. Cotton is a risky crop. If infested by pests it could destroy the entire field and even the crop in the entire district. So the farmers are vigilant. They keep an eye on the fields of fellow farmers and advise him to spray his crop if they observe any sign of pests in the crop. They guide him about the best pesticide that is effective against that disease. They have common interest as the pests have a tendency to attack the adjoining fields. Once the infestation level reaches a high level it is then impossible to save any cotton field in the area. This fear of complete annihilation ensures that the cotton farmers, whether small or larger, cooperate with each other.

This comradeship is absent in other crops. In wheat, for instance, a progressive farmer might be obtaining 60-70 maunds of wheat per acre and his immediate neighbours only 25-30 maunds per acre. The crop management practices of the farmers differ. The progressive farmers take care of soil quality; they conserve water through different techniques, use quality inputs including seeds and fertilizers. They ensure absence of weeds from their wheat fields. They have resources and ability to invest more to obtain higher yields.

The low end farmers do not have access to quality inputs. However, despite these drawbacks they are assured of at least 20-35 maunds of wheat per acre depending on the area where they live. There is no threat of complete destruction of crops barring some unusual disaster. They can survive on this low input as well. The progressive farmers have no interest in guiding the poor farmers. The agriculture extension services are available only to the rich farmers. The progressive increase in wheat procurement rates ensures that the impact of inflation is covered from the low yield they get. Cotton prices are based on a free market economy. Wheat prices are ensured by the state through a minimum support price.

It has been observed that the farmers strive hard when they are under stress. In wheat they feel no stress and are reluctant to change the way they manage their crop. In cotton they face the threat of complete destruction of the crop and are ready to change to better management practices.

Milk is another example where the difference between the national average and the average of corporate dairy farms is very high. The average milk yield of a Pakistani cow or buffalo ranges from 4-6 litres a day. This is five to six times lower than the average milk yield of a US cow. The corporate forms in Pakistan obtain the same average yield of 25 litres as obtained by the US farmers.

A silent white revolution in milk production is on the cards, led not by the farmers, but the corporate sector in the Punjab, which has either established large dairy farms or is in the process of importing high yielding varieties of milk cows. Chaudhry's of Gujrat, Sharif brothers and Jehangir Tareen are among the many businessmen eying this business, as are the Nishat Group, leading textile houses Sapphire and Monnoos. The last two have already established dairy farms.

Perhaps acute power and gas shortages in Punjab forced these businessmen to look for alternate avenues of investment. "The livestock sector remained neglected in Pakistan for too long but still showed robust but haphazard growth" said leading businessmen Mian Mohammad Mansha. He said that though Pakistan is the fourth largest producer of milk in the world but it has one of the lowest per animal milk yield. Studies by our experts and French and American consultants reveal that with proper management the yield could be increased manifold.

He said that in 1944, the United States was producing 64 billion litres of milk annually from 25.6 million cows. In 2008, it was producing 82.5 billion litres from only 9.2 million cows. He said that the average yield of Pakistani cows is 1,231 litres per year, while an American cow produces 8,967 litres per year. We need to close this productivity gap and reduce the livestock population.
He claimed that by reducing by one million the livestock population, we would need 2,450,000 tons less feed that would release 520,000 acres of agricultural land for other crops besides sparing 1.32 billion gallons of water consumed yearly by one million cattle. It would also save 1.8 million tons of carbon foot print annually.

Ali Khan Tareen, the young son of Jehangir Tareen, manages his family dairy farm of 1,000 cattle. He said some Australian researchers during a visit to Pakistan found that a Sahiwal cow variety has high milk yield potential. They took this variety to Australia and cross bred it with a high yielding Australian breed. The crossbred variety was named Australian Fusion Sahiwal. Our farm comprises of Swiss high milk yielding variety called Riesen, a low milk yield but high fat variety from New Zealand called Jersey and high milk yielding ASF from Australia.

He observed that the breeding norms in Pakistan are totally different from the developed world that impact milk yield. For instance, he added, Pakistani livestock farmers provide access to water to their cattle twice a day, while in the developed world, the cattle are free to drink water anytime they feel thirsty. Providing access to water alone increases the yield by 15 per cent.

The local milking cows are mostly provided wheat straw as food, and no care is taken to provide them a balanced nutritious diet. The milking cows from the developed world get a balanced diet. “We produce special fodder for our stock at our agricultural farm,” Ali Tareen added. A balanced diet would also improve milk yield. However, real growth in milk production would come through cross breeding the low yield cows with high yielding varieties.

-Cuttingedge

April 24, 2012
Dr Ashfaque H Khan

Pakistan’s fiscal profligacy has been in the news for the last five years. All those who have an interest in Pakistan’s economy have been writing on this issue and highlighting the importance of fiscal discipline in preventing macroeconomic imbalances as well as achieving a full growth potential. The government, on the other hand, appears to be least interested in pursuing a sound and disciplined fiscal policy. Hence, the rot continues in terms of low economic growth, stagnating job creation, increased poverty, higher inflation and more debt.

Every government typically aims at promoting strong and sustainable economic growth with a view to creating employment opportunities and lasting poverty reduction. This must probably be achieved by pursing a sound and disciplined fiscal policy. This fact may not be known to the political leadership, but it is assumed that the economic team of every government knows the importance of fiscal discipline for the economy. If the economic team members do their job honestly and urge their political leadership to pursue a disciplined fiscal policy, things would move differently.

A rule-based fiscal policy has generally been associated with improved fiscal performance and debt sustainability. Over the past several decades, there has been increasing acceptance worldwide that fiscal discipline over a prolonged period is essential for maintaining macroeconomic stability. There also exists a general consensus that a prolonged commitment to fiscal discipline can only come from a rule-based fiscal policy. Fiscal rules basically represent constraints, and prevent the government from taking a fiscally irresponsible route.

International experience suggests that countries, which have adopted well-designed fiscal rules and implemented them effectively, have garnered important credibility gains, greater electoral support, and achieved higher economic growth on a sustained basis. Fiscal rules aim to prevent governments from taking short-sighted measures in the light of election cycles and competing demands from special interest groups, by binding policymakers to a fiscally prudent path.

Pakistan has experienced serious macroeconomic imbalances in the 1990s mainly on account of its fiscal profligacy (budget deficit as percentage of the GDP has averaged almost 7.0 percent per annum), and has accordingly paid a heavy price in terms of slower economic growth, rising debt burden, and the rise in poverty. It is against this backdrop that work on a rule-based fiscal policy was initiated in 2001-02. After one year of hard work and wide-ranging consultation in all the four provinces, a rule-based fiscal framework was prepared in 2002-03. This framework was enshrined in the Fiscal Responsibility and Debt Limitation (FRDL) Act 2005, and was passed by parliament in June 2005.

The purpose of the Act was to inject fiscal discipline in the country. This Act ensures responsible and accountable fiscal management by all governments, the present and the future, and would encourage informed public debate about fiscal policy. It requires the government to be transparent about its short and long-term fiscal intentions and imposes high standards of fiscal disclosure.

There are five key elements of the law. Firstly, beginning from July 2003 (2003-04), Pakistan’s public debt would not be more than 60 percent of the GDP by end June 2013 (2012-13). In other words, Pakistan’s public debt had to be reduced from 75 percent to 60 percent of the GDP in ten years. Secondly, every year the government would reduce public debt by at least 2.5 percentage points of the GDP during the ten year period. Thirdly, revenue deficit (total revenue minus total current expenditure) would be eliminated by 2007-08 and a surplus would be maintained thereafter. Fourthly, the government would not provide guarantee to the borrowings of the Public Sector Enterprises (PSEs) by more than two percentage points of the GDP in a given year. Fifthly, social sector and poverty-related expenditures would not be less than 4.5 percent of the GDP for any given year, and the expenditure on education and health would be doubled in terms of percentage of the GDP in ten years.

As can be seen from the above, the law binds the government to pursue a sound and disciplined fiscal policy. It binds the government to reduce public debt to a sustainable level, reduce the country’s debt burden every year, mobilise resources at least to the extent of its current expenditure, prevent the government to cut social sector and poverty-related expenditures and double education and health budgets. It also forces the government not to provide guarantee to the borrowings of the rotten PSEs to prevent the growth of contingent liabilities.

A high-level debt policy coordination office was established in the ministry of finance. Besides many other functions, the debt office was made the secretariat to monitor the performance of the law. Every year, before January 31, the debt office prepares two reports – the fiscal policy statement and debt policy statement and submits them to parliament under Section 6 and 7 of the Act, respectively. While analysing the developments on the fiscal and debt front in a year, the reports also give a compliance report of the Act. Some 500 copies of each report are submitted to the National Assembly and Senate Secretariat for distribution to the members.

From 2003-04 to 2006-07, the law performed very well. Public debt declined from 75 percent to 55 percent of the GDP during the period. However, most of the critical elements of the law have been violated in the last four years. In particular, public debt, instead of declining, has increased to 60 percent of the GDP and revenue deficit continues to prevail. None of the members of parliament has ever raised the issue of violation in the House; hence, no debate has taken place in parliament. Nobody bothers and nobody cares about the law and hence, Pakistan’s economy continues to create pain and misery for the hapless millions.

The writer is principal and dean of NUST Business School, Islamabad. Email: ahkhan@ nbs.edu.pk
-The News

April 24, 2012
By Shahid Javed Burki

It is fair to suggest that ever since Pakistan began life as an independent state, it has never developed a sound growth strategy to deliver a high rate of GDP increase that would be sustainable. It followed the simple production function approach put forward be the early thinkers in the field of development economics. According to it, all that was needed for economic growth was to combine capital with labour. Have enough of both and the result would be a respectable increase in national income. Pakistan had plenty of labour but not enough capital. For the latter, it cultivated friends abroad that were prepared to give it the needed funds as long as their interests in the area around Pakistan were kept in mind. First the US, then China, and still later, Saudi Arabia provided the required finance. Consequently, the economy did well when large doses of external finance were available. It performed poorly when the friends tuned away, not happy with what Islamabad was prepared to do in return for the favours it received. The economy has hit a rough patch at this time, partly because foreign friends are not satisfied with what they are receiving in return.

There is, of course, a different approach to development: to mobilise domestic resources for needed investment. But this will need a sense of confidence on the part of those who have the capital to invest in the economy. Economists have long recognised that confidence is by far the most important determinant of economic performance. Those who developed the old growth model had factored it out of their equation. They did not recognise that even if capital and labour are present in abundance, they will only begin to work together if the owners of capital had the confidence that there will be good results produced from their effort. This confidence is absent at this difficult moment in Pakistan’s history. Could this be restored and could the lost ground be reclaimed. The answer is yes, but that would need the adoption of public policies which would provide confidence to the people that those in positions of power will be acting for the larger good of the citizenry, not just for their narrow interests.

The right time to revive confidence will be when a new administration takes office following the next general elections to be held, presumably, sometime early next year. At that time, whoever becomes the prime minister should announce a set of policies aimed at confidence-building. Those who are reflecting on this matter probably have their own lists; my list has two important items.

The first, of course, is improving the quality of governance. Only when that happens that people with capital will begin to invest in the economy rather than sending capital abroad as seems to be happening now. The well-to-do are acquiring foreign assets even when the return from them is much lower than would be the case if domestic corruption had not increased their transaction costs. If it takes a significant proportion of the capital being committed to a particular enterprise just to get the government’s support, there will be a lowering of the rate of return. There are several ways of reducing corruption. One of these is a system of accountability that is effective and efficient and also one in which people have a high level of confidence. Pakistan has tried several systems over the last half-century. They did not work for the simple reason that they were not allowed to be autonomous. They were controlled by the executive branch, the very branch that was to be the subject of accountability. A government that is serious about making elected and public officials accountable must create a system that is beyond the reach of the people and the institutions that are being looked at. This should not be an impossible objective to achieve. The country is working with different approaches to make appointment to offices and functions such as the Chief Election Commission and senior judiciary as free of influence as possible. The same should be possible for those who manage the accountability process.

The regulatory system is another source of corruption and another area that reduces the confidence of the potential entrepreneurs that their investments will provide the needed returns. The current system of regulation was built over time; some of it dates back to the time of the British. The entire structure needs to be carefully reviewed and the provisions that do not serve the citizens’ interest should be removed. One good example is the infamous SRO issued by those who manage external trade to provide relief to a particular industry or enterprise. Giving so much power to one particular part of the bureaucracy almost always invites rent-seeking behaviour.

The new prime minister by announcing just these two measures — an accountability system that is free of influence and the review of the regulatory system with the intention of reforming it — will help to restore the confidence of the currently disheartened likely investors and get them to participate in making the economy work again. Just the fact that the government has an interest in turning the economy around would bring back hope to the community of potential investors.

The Express Tribune

April 25, 2012
By: Shakeel Ahmad

Sarfaraz Khan, a low-paid sanitary worker, may have to contribute more to the exchequer in case of expected upward revision of taxes, but he has little sway to influence the shaping of next year’s budget of the Khyber Pakhtunkhwa government. “There is talk in the newspapers and television, saying the government is imposing more taxes on us, but I don’t know where I can make a difference in terms of letting the rulers know my problems,” explained Khan, when asked about his role in the current budget making process.

In many developed and developing countries, pre-budget consultations with stakeholders and public debates are organized to incorporate the citizens’ voice in budget proposals. However, it does not happen here, neither at the national nor provincial level. Parliament and for that matter the provincial assembly is the custodian of public trust and funds so it has a greater responsibility to undertake when it comes to the budget-making process. Without reflecting the will of the people and taking them into confidence about the budget-making process, it would be impossible to build trust among the public and parliament

In a surprising and somewhat unexpected move, a senior budget maker of the Ministry of Finance announced that the federal government has decided to enlarge the scope of budget consultation process and all political parties including opposition parties represented in the parliament would be consulted on federal budget 2012-13. It was made to appear that consultation with all parties represented in Parliament would help reduce the trade gap.

It was also informed that National Assembly has already passed the resolution for presenting budget strategy paper in the national assembly in the month of March so as to obtain the parliamentarians guidance and recommendations on the budget. A sub-committee of the Standing Committee on Rules of Procedure and Privileges met in the parliament house with members of the National Assembly. The meeting considered the proposal relating to addition of sub-rule (6) in rule 201 of the Rules of Procedure and Conduct of Business in the National Assembly 2007 as moved by Anusha Rehman Khan Advocate MNA. It was observed in the meeting that although parliament is considered as supreme but factually it’s role in budget making is negligible. Majority of the members of the parliament are not given an opportunity to involve themselves in budget making process, only few parliamentarians actually know what is written in the budget books and majority discusses political issues during budget debate in the parliament house. Parliament should not be used a rubber stamp for approval of the budget and it’s due role should be ensured in budget making process by involving all political parties and parliamentarians to give their suggestions in budget and their voice should be heard before finalizing budget. The convener recommended that a special Pre-Budget Session of the national assembly should be convened for a month period in March for holding pre-budget debate so that all the political parties irrespective if they are in the government or in opposition could give their suggestions before finalization of the budget. Government should place it’s Budget Strategy Paper-1 in this special session to inform the parliamentarians the priorities set by the government for next fiscal year so that they could contribute in developing a meaningful document. The document would become meaningful only if exports were to rise and the trade gap narrowed. According to provisional figures of external trade issued by the Pakistan Bureau of Statistics, Pakistan’s balance of trade widened to $16.095 billion due to rapidly falling exports. Wizards in the Ministry of Finance and the FBR are alarmed to see that there has been a decline in the country’s traditional items, such as value added textiles, rice, leather and leather garments. Industry leaders blame government policies for crippling exports by creating an acute shortage in utilities, such as power, gas and water to the country’s industrial sector.

It is pathetic that currently most of the Ministries, particularly the Ministry of Commerce and the Ministry of Textile Industries are not functioning properly. They lack interest in issues confronting the export trade The decline in Pakistan’s exports are easy to understand. The industry is not being given power and gas that it needs and has to face the worst kind of law and order. The situation is worsened when decisions are not taken on merit and politically motivate plans are put into operation. Providing gas to villages may get the government some votes, but it will not help the trade gap. Parliamentarians from nearly all major political parties expressed their dissatisfaction with the current drafting process of the federal budget, expected to touch Rs3.8 trillion for fiscal year 2012. Concerns about the dominance of the civil service in drafting the federal budget were echoed even by members of the treasury benches. Senator Raza Rabbani of the Pakistan Peoples Party called for a paradigm shift in the budget-making process, suggesting that the focus shift towards the parliamentary finance committees, with “inclusive input of civil service.” Ahsan Iqbal of the Pakistan Muslim League-Nawaz (PML-N), meanwhile, believes the civil service does not share vital information with parliament when it comes to economic matters, highlighting as an example the country’s relationship with the International Monetary Fund, which is managed almost entirely by the bureaucracy.

In all Parliamentary democracies, the budget draft is debated in parliament. One member of our National Assembly complained that “Despite being a member of the parliamentary finance committee, I receive no details about the 2012 budget, when trillion of rupees in spending are going to be presented in parliament next month.” However, analysts said that political parties often do not have detailed policy agendas on economic matters, which often means that legislators cannot meaningfully contribute to the national debate on fiscal policy. It would be educative to reproduce some of the observations made by Dr. Abdul Hafeez Sheikh who is currently in Washington for the annual IMF meetings.

“There was a time when I used to evaluate Pakistan and I thought the best way for it to really develop is to relocate. I used to think that the best place for us to take Pakistan would be somewhere between Italy and Switzerland,” Hafeez Shaikh said in jest.

“Now I’ve changed my mind because the parts that I thought we should be located in (Europe) aren’t doing that great in terms of growth and where we are is the most dynamic part of the world,” he said. “So I think we should stay there, we should work and be good neighbors with each other,” Shaikh, who was visiting Washington for the annual World Bank/IMF spring meetings, said at the Brookings Institution think-tank. The South Asian Association for Regional Cooperation, an eight-nation bloc, has repeatedly pledged to boost economic ties but such promises have made little headway amid the constant friction between India and Pakistan. But Shaikh said that the new trade initiative enjoyed firm support of both business and political leaders. “It reflects considerable thinking and it shows the economic merit that’s there,” he said. “So I personally feel quite optimistic that this is an area where the payoffs are there. Pakistan is faced with persistent economic concerns amid a shaky supply of electricity, a weak revenue base, high external debt and security concerns that have scared off some foreign investors. The finance Minister however, painted an upbeat picture and said that Pakistan’s economy would grow this year at 4% – above IMF forecasts and well up from 2.4% last year – due to solid crop yields and a rebound in manufacturing.

n The writer is a retired secretary of the Government of Pakistan.

Email: shakeelahmad1964@hotmail.com
-The Nation

April 25, 2012
By Talat Masood

Pakistan-US relations remain on hold as Islamabad has yet to take a final decision on the 14-point recommendations drawn up by the Parliamentary Committee on National Security. While resetting its very complex relationship with the US, the government of Pakistan wanted to develop a broad consensus across the political spectrum by giving this responsibility to the parliament. With anti-Americanism at its peak, army leadership, too, would let the parliament formulate a policy. Moreover, by accepting even cosmetic ownership, the government hoped to correct the civil-military imbalance that traditionally remains skewed in favour of the military. It was also expected that involving parliament would enhance Islamabad’s leverage in dealing with Washington.

The approach made sense but a problem was raised which, instead of giving broad guidelines for parliament, has made specific recommendations leaving little scope for manoeuvre. As a consequence, the government despite its willingness and with the backing of the military, is dithering in taking a firm decision to reopen the Nato supply routes. This impasse has provided the rightist and radical parties, including the infamous movement for the Difa-e-Pakistan Council (DPC), to whip up anti-Americanism and make the task of the government more difficult. Meanwhile, a full-blown crisis in US-Pakistan relations could emerge due to lack of cooperation in intelligence and counter-terror cooperation.

Intrinsically, Pakistan is not a hostile country but constant US bashing of the Pakistan Army and the ISI followed by a series of unfortunate incidents have antagonised its people. On the American side, with frustrations in Afghanistan running high, there is a tendency to make the Pakistan Army and the ISI scapegoats for their failures. It then becomes a cause and also consequence of anti-American sentiment.

With the Chicago summit being held in May 2012, the Obama Administration is keen that the Nato supply route is reopened soon and progress is made in normalising relations. Obama could then take credit that would help him in his re-election campaign.

In the pre-election period in Washington, there will not be much movement on US-Pakistan relations as the focus would be on domestic politics. This period is, therefore, critical for Pakistan in engaging with the US.

Whereas both America and Pakistan need each other, they have to see how they can reconcile their diverging interests and consolidate the converging ones to create a more effective partnership. Prudence demands that Pakistan should not disassociate itself from the US when the bulk of its forces are withdrawing from Afghanistan and there is not much hope for a smooth transition. It has to play a positive role in stabilising Afghanistan and prevent cross-border insurgency. Both countries should also look beyond the current impasse for a more enduring relationship. Since 9/11, there have been no meaningful economic relations. Washington has not extended any concessions on exports and no progress has been made on the DPC, whereas these measures could complement efforts in countering militancy. Nor has Pakistan taken advantage of the excellent US educational system to develop its human resource.

The Haqqani network and the Taliban Shura remain a major bone of contention with the US. Pakistan’s view, that the Taliban and Haqqanis are useful tools to countervail Indian influence, may have a logic of sorts — but we have to weigh the overall impact of this policy. It has serious consequences on our domestic stability and international standing. Even partial success of the Taliban and their affiliates would inspire and embolden the Tehreek-i-Taliban Pakistan and the jihadi forces.

The other difficult question is that relating to drones. America is unlikely to relent on its use despite our protestations until we are able to re-establish our control over a majority of the tribal belt. Drones are a vital weapon system in the US inventory to keep the militants unbalanced. Moreover, it is unwilling to transfer drones or its cutting edge technology to Pakistan. For Pakistan, drone attacks are an embarrassment that compromise its national sovereignty and ego, notwithstanding their useful tactical role in countering terrorism and insurgency. The way to reconcile may be to associate the Pakistani military in intelligence-sharing and through joint identification of targets. This would, however, only be possible after mitigating the trust deficit; a challenge that affects practically most aspects of the relationship between the two countries.

The Express Tribune