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currency When
paying tax is not a burden market Manufacturing
water scarcity Time
to show some muscle politics comment The
way forward
Battle of the giants China has faced severe criticism from its trading partners, notably the US and the European Union countries for its “grossly undervalued” exchange rate By Hussain H. Zaidi Will the US impose punitive duties on Chinese exports
in case China does not revalue its currency — the yuan? While the
imposition of duties may appear a relatively easy option as President
Obama administration struggles to put the economy back on track, such a
move will have serious implications for Sino-America relations as well as
for the global economy. Over the years China, has maintained a fixed exchange
rate with the yuan pegged to the dollar. This has resulted into an
under-valued currency, thus making Chinese exports cheaper than they would
be in the event of a floating exchange rate. In 2005, China allowed the
yuan to appreciate but reverted to the pegged exchange rate in March 2009
in the face of the global economic slump and slowdown in exports.
China has faced severe criticism from its trading
partners, notably the US and the European Union countries for its
“grossly undervalued” exchange rate. Beijing, however, has resisted
attempts to make any commitment to reform its exchange rate regime. The US, the world’s largest economy and the biggest
trading nation, is facing massive fiscal and trade deficits — the twin
deficits as they are called. With the country’s exports and imports
standing at $1.28 trillion and $1.93 trillion respectively, the US trade
deficit in 2010 stood at $650 billion. The principal source of the US
trade deficit is cheap exports from China. The US trade deficit with China exceeded $273 billion
in 2010. Conversely in 2010, China’s global exports and imports were
$1.58 trillion and $1.32 trillion respectively giving the country trade
surplus of $260 billion. As on December 31, 2010, China’s foreign
exchange reserves were $2.87 trillion compared with American reserves of
$132.4 billion. The US attributes its increasing trade deficit with
China in the main to the undervalued yuan. Ideally, Washington would want
Beijing to adopt a flexible exchange rate. But realising that the Chinese
banking sector is not prepared for that move, Americans are at present
only calling upon China to re-value the yuan. The US has on several
occasions threatened that in case China does not revalue its currency
vis-a-vis the dollar, it may face punitive action, including additional
tariff on all Chinese exports to the US. Economic theory tells us that no country can maintain
huge trade surplus for long. This is simple. The value of a country’s
currency depends on the demand for its goods and services in international
market. When, therefore, a country has a large trade surplus — showing
increasing demand for its goods and services — the demand for its
currency goes up and as a result it appreciates. Currency appreciation makes the country’s exports
more expensive, thus lowering its trade surplus. However, this mechanism
works only when market forces are allowed to operate. If the exchange rate
is fixed by the government, then increase in trade surplus will not push
up the value of the currency. This is what is happening in China, whose
growing trade surplus has not pushed up its currency value
proportionately. Since China’s economic growth is largely dependent on
its export performance, the Chinese government is reluctant to let the
yuan appreciate freely. The effect of an undervalued yuan is the same as that
of a subsidy to exporters. Both make export price artificially lower than
it would be if left to market forces and thus push up demand for exports.
Interestingly, though there are clear-cut World Trade Organization (WTO)
rules regarding subsidies — subsidies on industrial products are not
allowed if they have the effect of distorting production or price and the
importing country can impose additional duties on subsidized exports to
offset the effect of subsidies — the global trade regime lacks rules
regarding an undervalued exchange rate. However, a country faced with
balance of payment problem just as the US is facing can levy additional
import duties. In case China revalues its currency, Chinese exports
to the US will become less competitive, which will bring down demand for
them. Thus, as US sees it, a re-valued yuan will help correct US balance
of trade with China. The US assessment is, however, only partly correct.
No doubt, yuan is undervalued with respect to the dollar, but this is only
one possible cause of US trade deficit with China. What makes Chinese
exports competitive in the US market is low input costs, particularly
labour cost in China, economies of scale and China’s highly subsidized
state-controlled economy. The US current account deficit is in large measure
financed by China by investing in long-term US treasury bonds and other
government securities. It is estimated that China has invested $700
billion in US long-term bonds. In case China decides to disinvest its
holding of US bonds, the US dollar will come down with a thud, increasing
inflation in the US and destabilising the global economy. But such a move
would also lower the real value of China’s own foreign exchange
reserves. China being the leading nation among the developing
countries and the US being the leading nation among the developed
countries hold the key to the successful implementation of the Doha
Development Agenda (DDA), which will determine the future of
multilateralism in trade represented by the WTO. Probably more than any
other country, these two can help bridge the differences among developed
and developing nations. In case the US takes punitive action against
Chinese imports in an attempt to correct its trade imbalance, it will not
only strain their bilateral relations but is also likely to sharpen
differences between the developed and the developing countries and make it
more difficult to complete the DDA. Besides, trade restrictions may
impinge negatively on China’s headway towards market economy. hussainhzaidi@gmail.com Face to face While the possibility of an American punitive action
on the Chinese exports is always there, several factors militate against
such a move. In the first place, US-based multinational corporations (MNCs)
have invested heavily — to the tune of $25 billion — in China to take
advantage of a huge market and economies of scale. A great deal of what China exports to the world,
including the US is produced by these MNCs. Hence, clamping punitive
duties on Chinese exports will also penalise the US businesses, which are
lobbying against such a move. In the second place, additional duties on the Chinese
exports would harm American consumers, who are getting inexpensive goods.
In the third place, an undervalued yuan means cheap exports to the US of
consumer goods, which is necessary to keep the inflation in check. As mentioned above, in China, the US gets a credible
source of funding for its current account deficit. Imposition of duties
may force China to disinvest part of its holdings of the US government
securities thus pushing the dollar down and causing great inflationary
pressures on the US economy. When
paying tax is not a burden The real tax potential of Pakistan, by a very
conservative official estimate, is Rs3500-4000 billion — if informal
economy is also taken into account it is not less than Rs6-8 billion.
However, the target for the current fiscal year at the time of budget
announcement was fixed at Rs1952 billion, which as per usual practice is
expected to be revised downwards to Rs1700 billion in the coming months. The Federal Board of Revenue (FBR) failed to collect
even Rs1550 billion during the financial year 2010-11 — the original
budgetary target of Rs1680 billion was thrice revised and finally fixed at
Rs. 1580 billion. Pakistan’s enormous tax gap — a country’s tax
gap is measured by the amount of tax that remains uncollected due to
non-compliance with tax laws — is simply horrifying. According to a
study conducted by Rubina Ather Ahmed and Mark Rider of FBR and Andrew
Young School of Policy Studies at Georgia State University entitled,
‘Pakistan Tax Gaps: Estimates by Tax Calculation and Methodology’
(2008) (http://aysps.gsu.edu/isp/files/ispwp0811(1).pdf), the gap for
fiscal year 2004-2005 was Rs409.5 billion or approximately 69 percent of
actual tax receipts of Rs590.4 billion. Terming this as “conservative estimate”, the study
claims direct tax gap at Rs262.8 billion (around 143 percent of actual
collection of Rs. 183.1 billion) and indirect tax gap at 146.7 billion (36
percent of actual tax collection of Rs407 billion). Many experts believe that tax gap since 2005 has
increased manifold, and it can safely be concluded that at present it is
not less than 175 percent of actual tax collection by FBR. The existence
of a huge tax gap and low tax-to-GDP ratio are serious challenges faced by
FBR. First take the tax-to-GDP ratio that is pathetically low — Pakistan
stands at 155th among 179 nations in terms of tax-GDP ratio. Pakistan barely managed 8.8 percent tax-to GDP ratio
in fiscal year 2009-10, missing the target of 9.2 percent agreed with the
International Monetary Fund (IMF). According to reports, it further
deteriorated in 2010-2011 for which FBR has not yet released final figures
due to massive funding scam. If FBR manages to realise even 60 percent of our
actual tax potential, the tax-to-GDP ratio could improve significantly —
it will jump to 15 percent in just one year. This ratio should be
increased rapidly since tax revenue would be required significantly in
contributing to the state expenditure in the coming years after
non-availability of money from US and funds from IMF and the World Bank.
This is also vital if we want to reduce burgeoning domestic and foreign
debt. Sweden is considered one of the countries with the
highest tax-to-GDP ratio in the world. According to the 2010 edition of
the publication of taxation trends in the European Union, issued by
Eurostat, the tax-to-GDP ratio in Sweden in 2008 was 47.1 percent that
improved further to 49.2 percent in 2010. The report also found that
Sweden had the highest personal income tax rate — around 56.4 percent.
For personal income, the tax rate is progressive. The higher the income,
the higher is the rate. At the top level, it even exceeds 50 percent of
the income but, the corporate tax is low. It encourages people to create
businesses. With such figures, it is not surprising that
individual taxes can contribute more than corporate taxes. People also
tend to be self-employed rather than being employed. In addition, this tax
structure brings income equality. As a country with many CEOs and
entrepreneurs, Sweden (2009) has a Gini coefficient of only 23 percent. In real life, the gap between the rich and the poor is
difficult to perceive in Sweden. No wonder that the Swedish people live
peacefully with such high individual taxes. Recently, we asked our Taxand
colleagues in Sweden about anything special about the Swedes, they said
“the Swedish love being taxed!” All Swedes believe their money will be
returned to them with a better value. In Sweden, all education fees, from
elementary to university level, are free. The country also provides
abundant subsidies for public needs, such as subsidies for unemployed
people, pensions for every taxpayer, and free medical services for those
under 18 etc. An article in The Guardian (Nov. 16, 2008) entitled
“Where tax goes up to 60 percent, and everybody’s happy paying it”,
also addresses a similar experience. According to an interview in the
article, most Swedes believe that the state will manage their taxes well.
This public trust is supported by simple tax procedures and transparency
on tax allocation. Tax invoices can be received by cell phone. The agency
provides a detailed explanation of the allocation of the paid tax to the
taxpayers. For instance, if you pay a 100 kronor (US$13.65) tax, then 43
kronor will be allocated by the state for social security, 14.5 kronor
will be for education, 13.1 kronor for health and medical services, 12.4
kronor for public administration, etc. This helps the taxpayers, who are mostly well-educated
people, to understand their contribution and encourages public solidarity.
Furthermore, the tax agency publicly reports their investigation of any
tax gaps and law enforcement measures taken to discourage tax evaders and
bring fairness to the taxpayers. The agency also intensifies the civil
administration to make sure that everyone is officially registered. In Sweden, all newborn babies and new immigrants with
resident status have a tax register number that is integrated with
personal identity (personnummer). Without this number, no one is entitled
to any public subsidy that comes from tax. Nevertheless, in addition to
these tax administrative strategies, the local culture is an important
factor behind the success of tax implementation in Sweden. This culture views the state as the people’s home
where everyone is protected. This creates a strong belief among the people
that every single contribution to the state is for their own benefit.
Therefore, paying tax is not a burden but a means of solidarity to sustain
the prosperity of the country. Although it may take time, this type of culture has to
be cultivated in Pakistan through trustworthy government officials,
efficient and professional public services, well-targeted public
subsidies, as well as a well-defined development strategy that puts people
as its top priority. We also need economic growth that can expand the tax
net by bringing in more people with taxable income and duly registered
with the tax authorities. The writers, tax
lawyers and writers of many books are Adjunct Professors at Lahore
University of Management Sciences (LUMS)
market As the wheat season starts, demand to increase the
crop’s support price is on the rise. But should it be increased or the
old support price should stay unchanged in the coming year? Increased cost of production in the wake of rising
cost of agriculture inputs like fertiliser, seeds and pesticides, and
growing prices of oil and electricity on account of eradication of
subsidies and imposition of general sales tax apparently necessitates
raise in prices but the question is to what extent that could be
beneficial both for farmers and general consumers. While an appropriate raise in wheat support price
cannot be contested, it must be remembered that any exorbitant raise, like
the one in 2008 when it was raised from Rs650 to Rs950 per 40kg at once,
would make life miserable for the poverty/floods/terrorism-hit people in
the country. Raise in support price is a foregone conclusion. The
government may eventually raise the price as it can’t displease the
powerful landlords who are to massively benefit from the raised price and
because the poor have no organised/powerful lobby to thwart the attempt. But with elections due in 2013, the government finds
itself in a quandary: it wants to win over the farming community by
raising the wheat support price but it also knows any raise would further
fuel food inflation and increase public unrest, which could fan
anti-government drive started by its arch-rival Nawaz Sharif. This
explains the delay in taking a decision on the issue. The agriculture planning institute (API), earlier
known as the agriculture pricing commission, while acknowledging the sharp
rise in the cost of production, has recommended a wheat support price of
Rs1200 per 40kg for the coming season. This recommendation was sent to the federal cabinet
for approval. But approval of the provincial chief ministers would also be
needed for increasing the support price as the ministry of food and
agriculture and federal committee on agriculture stand devolved after the
18th constitutional amendment. Will the newly-empowered provincial governments give
their consent to the proposal, thereby, directing the wrath of the people
towards themselves and totally absolving the federal government of any
blame? It remains to be seen. Pakistan is the only country in the world to have
subjected agriculture inputs to general sales tax and brought commission
agents and dealers under sales tax which eventually mean high prices for
consumers. The API also called upon the government to withdraw taxes and
duties on agricultural inputs. Pakistan has an annual average wheat production of
about 24 million tons. It means farmers pocket around Rs57bn from wheat
crop alone. This is a big amount and the state of life of millions of
farmers should have improved but the opposite is the case. Big landlords
might have benefited but smaller ones are not as they should have been. Small farmers have been complaining of their
negligence and malpractices in the procurement system and distribution of
bardana by food department and PASSCO. Initially, eight crops- wheat, cotton, rice,
sugarcane, some oilseeds, gram, onions and potatoes,-were covered by the
support price system. However, under the pressure of international lending
agencies, it was restricted to four crops- wheat, cotton, rice and
sugarcane in 2001. Support price in Pakistan was determined by the
Agriculture prices commission (APCOM) from 1980 to 2000. APCOM was
initially an autonomous body. Then, under goading from the international
lending agencies, it was made an attached department of agriculture
ministry and later was converted to API. Wheat price was increased from
Rs650 to 950 in 2008 without considering its implications. Despite trends of liberalisation and deregulation, the
system of guaranteed minimum price is used in several countries — USA,
Turkey, Egypt, Brazil, Argentina, CIS States, Russia, Japan, Saudi Arabia,
Australia, Canada, Indonesia, etc, — to stabilise prices of agriculture
produces. India, too, established agricultural costs and prices commission
in 1968 to ensure a minimum guaranteed price to growers. The support price system needs to be revamped. Farmers
will greatly benefit if a realistic and extended support and procurement
price mechanism for crops is introduced and efficiently implemented. The problem should be addressed on two counts: One,
the scope of the price support system should be enlarged to cover more
crops like maize, horticulture crops and others; Two, support price
determination should be done not haphazardly but in a transparent and
comprehensive manner after talking to all stake holders and taking into
account multiple factors, such as the cost of production, domestic and
world prices, domestic and international demand and supply situation, etc.
There should also be compulsory direct procurement for
most crops by the public sector to save farmers, especially the smaller
ones and those residing in the poor most areas, from exploitation of
cartels and commission agents. “Officials should purchase wheat from growers at
their doorstep rather than at procurement centres. The agriculture
department should enter into contracts with farmers as in the case of
tobacco crop. The government should announce the list of wheat procurement
centres and open procurement centres at tehsil and union council
levels,” a farmer Niamat Shah said. Globally, five types of prices — monopoly price,
procurement price, support price, free-market price and administrative
price — are being used for agriculture produces. Free market prices are fixed by the forces of supply
and demand. In the system, the farmers benefit in a poor crop year as
supply decreases and demand increases, but invariably suffer in a bumper
crop year when the situation is reversed. Administered prices are the prices which the
government administers for the benefit of producers and consumers. Manufacturing
water scarcity Statistical Yearbook for Asia and Pacific 2011
launched by United Nations last week warns that Pakistan faces the threat
of water scarcity. The report published by the UN’s Economic and Social
Commission for Asia and Pacific (UNESCAP) places Pakistan among “water
hotspots” of the region. Earlier, the World Bank in its report titled as
‘Pakistan’s Water Economy Running Dry’ has termed Pakistan as a
“water stressed” country that is liable to become “water scarce”
by 2035. In a world fast becoming economically integrated, the
powerful international institutions have been making us believe that water
scarcity is one of the most pressing problems to be afflicting the
humankind in present century. Why the water, once considered as abundant resource,
is becoming increasingly scarce demands deep investigation to trace the
underlying causes of the problem and to ascertain that to what extent the
threat is ‘real’ and how much it is ‘constructed’. Embedded in economic thought, the concept of scarcity
connotes dearth or insufficiency of supply. Given the fact that water is a finite resource (only
0.3 percent of available water on planet earth is fit for human
consumption) the ground water aquifers are dwindling and freshwater
sources are being contaminated, one can not deny the existence of
‘real’ water scarcity that is a biophysical phenomenon with ecological
and social dimensions. Water is a renewable natural resource and its
availability is constantly subjected to state variable (e.g. solid, liquid
or in gas form) in hydrological cycle. Besides, water availability also
varies across time and space, depending upon the combination of factors
like climate, season and temperature. Hence, the ‘real’ water scarcity has temporal and
spatial dimensions, implying that it is not something that is permanent
and affecting the whole globe, a region, or say, a country alike. Given
the cyclical aspect of water scarcity, the periods of dearth are
interspersed with the periods of sufficiency or abundance. Cognizant of this temporal dimension of water scarcity
for long, the people living in the arid and semi-arid regions have, over
the centuries, developed local strategies to cope with the associated
threats to lives and livelihoods. Secondly, the ‘real’ water scarcity has the
distributional facet, encompassing the entitlements and practices of
access to and control over the resource base. As we know that there are tremendous inequalities and
injustices in resource distribution, scarcity is not felt universally by
all. The poor and weak tend to suffer more by it than the rich and
powerful. Thirdly, the resource management practices, or the way
water is used or abused, constitute anthropogenic dimensions of scarcity.
Technological advancements, enabling the man to extend his control over
water sources, have been posing newer environmental challenges of
scarcity. However, the scarcity in global debate is rather a
discursive construct. While ignoring the temporal and spatial dimensions
of ‘real’ scarcity, the global debate gives more emphasis on the
essentialised and universalized notions of scarcity. Seeing scarcity as something permanent, the dominant
discourse ignores its cyclical dimensions and undermines the indigenous
knowledge systems wherein the local coping strategies are rooted in. While making out the scarcity to be ‘natural’, it
glosses over the anthropogenic aspects of the scarcity. Though it
appraises the ecological challenges posed by techno-centric approach to
water development but when it comes to solutions, it falls short of any
innovation and offers the proverbial old wine in new bottle. The way the global debate obscures different
dimensions of ‘real’ water scarcity, the threat appears more to be
‘constructed’ than ‘real’. Scarcity is being used to make entry points for
promoting the policy agenda determined by the imperatives of neo-liberal
economic regime. Notorious for their adverse social and environmental
impacts world over, the large dams are back on the agenda of the World
Bank and Asian Development Bank to cope with the much trumpeted water
scarcity in the countries like Pakistan. The WB has already been investing millions of dollars
for protecting the crumbling barrages in Punjab to avoid any contingency
that might cause precarious water scarcity in the country. In the name of institutional reforms to improve the
management of water resources, spaces are being created for private
capital to be invested in water sector. Privatization of water is being prescribed as a policy
panacea to all the ills, ranging from over-exploitation to distributive
injustices, afflicting the existing management of water resource. Transnational corporations are waiting in wings for
favourable policy and legal conditions to buy the world’s rivers and
other freshwater sources to protect the humanity from the scourge called
water scarcity. From the whole debate, it is evident that
notwithstanding the real causes and manifestations of the problem, water
scarcity is being largely manufactured by powerful international actors to
meet certain political and economic ends, or say, corporate greed. The writer is
Policy Officer, Governance, Policy Advocacy and Research Unit, Actionaid
Pakistan
Time
to show some muscle Will Imran Khan be able to leave its mark on the
political scene this time? There are people who are optimistic to look
forward for a pleasant change on the political horizon in Pakistan. In the past, in almost all elections and alliances,
the same factor dominated. It will not be an honest comment to say that
the said factor is over now in our politics. At present, we find a number of anti-Bhutto parties
joining hands for power with People’s party in the federal and
provincial governments. One reason for this is that ideological and
principled politics has given way to lust for powers. That is why Imran Khan is saying that we should not
have politics of the right and left but right and wrong. Imran Khan is
happy to note that president Zardari is doing something very ‘good’ by
managing each and every self-seeker politician join the government,
exposing them in the eyes of the public. Undoubtedly, Pakistan Tehrik-Insaf (PTI) has earned
considerable amount of fame and popularity, among especially in Punjab and
KPK. Interestingly, only six months ago, PTI was nowhere among the masses
of Pakistan. But, surprisingly, it has become talk of the town in no time.
Political rivals in their private sittings have
started pointing him to be a forthcoming challenge. We hear that Imran
Khan is going to cause a heavy setback to the right wing parties, but I
have a reason to believe that it will be a danger to the ruling coalition,
including Pakistan People’s Party. We can find the reason: it is bad governance. The
situation can be easily exploited by PTI and Imran Khan. News reports say youth from the ruling parties are
making a beeline to the PTI. We know that the economy is performing badly
and the capacity of the state to serve its citizens is declining. There is
a mess all-around. It depends on sensible voters in the middle class urban
Pakistan; if they say yes to Imran Khan it will be a different story from
now on. Today, it seems that Imran Khan and his party has been
able to win some hearts and minds of Pakistani youth. This strength is his
weakness at the same time when we see that lovers of Imran Khan are not
registered in the voters list. That is really a big challenge for Imran
Khan and the party. We have to see if the votebank of the youth can be
successfully cast in favour of Imran Khan. Unfortunately, in the past,
young voters stayed away from polling station during elections. First, our
youth was possessed with the idea that the ballot cannot bring any
positive change. Second, the youth had lost interest and was depoliticised
having little confidence in political leadership and their parties. Now Imran Khan claims that in recent years he has been
successful in creating awareness and clarity for change among students of
colleges and universities. One would like to point out here that there is a need
to work in rural areas of Pakistan. Imran Khan can play a great political
role in upcoming general elections only when he succeeds in mobilising the
youth not as voters but as motivated and charged political worker. The opponents of Imran Khan claim the popularity of
Khan is confined only to a few cities and he does not enjoy fame and
popularity among the youth in that cities. The government is facing a
political crisis, especially in the governance context and the people are
looking for options. In case the present government manages to complete
its turn of five years till 2013 it will benefit the PTI. Some time back, the party structure of PTI was weak.
But times seem to have changed a little, at least. But the people who are
trying to analyse politics of Imran Khan in the context of 1997 are not
justified in their conclusions. If Imran Khan is an honest leader he should know the
fact that he is mainly popular in urban Punjab and KP and seems unable to
get political space in southern Punjab, interior Sindh and Balochistan. Imran Khan is clear-headed when he says that the
election and results of 2008 were managed by the national and
international establishment. If that is true, a great challenge awaits the
PTI in times to come. It is good to see that Imran Khan has ruled out any
chance of electoral alliance and is preparing for a solo flight of PTI,
declaring the present ruling parties — including PML (N) — responsible
for the destruction of our political system. We are waiting to hear from Imran Khan how he can make
his plans of solo flight tenable. Has he got candidates who could prove
themselves equal to the task? This question has not been answered yet.
Imran Khan, among other things, should very clearly draw out what should
be the nature of relationship between Pakistan and India, Afghanistan and
America, etc. What does he think is the proper way of doing away
with the menace of religious extremism, terrorism and militant groups?
Eradicating corruption is at the top of his agenda but the secret of the
prosperity lies in economic planning that is not given by PTI clearly. He is accused of having a soft corner for the Taliban.
That needs to be addressed properly. Because the people of Pakistan think
Talibans’ understanding of Islam is wrong. Promising a better future is
not the problem that is exactly what politics is about. But realistic
approach in making promises to the nation is important. The writer is a
political analyst. He can be reached at salmanabidpk@gmail.com)
politics The marked increase in verbal attacks on one another
by mainstream political leaders in recent weeks should be seen as the
first phase of electioneering. Even though the next general election is at
least 18 months away — notwithstanding the possibility of the Pakistan
People’s Party calling a snap election before the present assemblies
complete their five-year terms — it is clear that the Nawaz Sharifs,
Imran Khans and Haider Abbas Rizvis of the world are gearing up for a long
mud-slinging campaign. For a while after the February 2008
election most politicians kept their polemic to themselves, at least
insofar as their peers were concerned. But once the Nawaz Sharif-Asif
Zardari relationship soured, the proverbial floodgates opened. Very few
parties and leaders have steered clear of acrimony — if anything, the
PPP has managed to insulate itself to the greatest degree, probably
because it realises that current alignments give it the best bet of
establishing another majority government after the next election. On cue, the media and our politics-hating middle class
have turned up the heat on politicians. What is called ‘public
opinion’ is being manipulated in more blatant ways than ever before to
reinforce cynical attitudes vis a vis the political process. The country
is going to the dogs, the pundits say, and our parties choose only to
bicker amongst themselves. But if on the one hand public opinion-makers engage in
blanket condemnation of politics and politicians, then on the other hand
they give disproportionate attention to right-wing political forces that
harp on incessantly about ‘loss of sovereignty’ and ‘corruption’
without articulating any meaningful policy alternative to status quo. In
doing so, our haughty TV anchors and columnists, as well as the
‘experts’ found in virtually every middle-class living room, reinforce
the very crisis of legitimacy they claim to be exposing. Of course, Pakistani politicians are not unlike their
counterparts in many other countries who also spend a large part of their The problem in Pakistan is, of course, even more
deeply rooted, precisely because political parties and the political
process have historically been so weak. In other words, elected
politicians in other countries do not spend time worrying about their
survival; in Pakistan the completion of an assembly’s legally-mandated
term in office is nothing less than an historic achievement. Having said this, it is important that our politicians
not be exonerated for their misdeeds. Far too many of those sitting in
assemblies are comfortable in the knowledge of their (limited) power, and
do not make any sustained efforts to eliminate the role of the
establishment in Pakistani politics. The Altaf Hussains of the world who
openly call for military intervention may be a minority, but certainly
there are many others who purport to represent the people but acquiesce to
the domination of a small civil-military oligarchy.
I have no love lost for the shallow attempts at
populism currently in fashion in Pakistan. I think that the tone and tenor
of politics as practised by the right-wing parties currently clamouring to
reacquire a share of power is inappropriate and detrimental to the
long-term health of society, the polity and the economy. But I respect the
right of these parties to make their opinions known and to have their
politics judged by the electorate. I actually think it rather comical that parties with
such similar ideological tendencies as the Pakistan Muslim League-Nawaz (PML-N),
the Muttahida Qaumi Movement (MQM), and the Pakistan Tehrik-e-Insaf (PTI)
are taking one another to pieces. In particular, the PML-N and PTI,
alongwith the Pakistan Muslim League-Quaid-e-Azam (PML-Q) and
Jamaat-e-Islami (JI) are likely to take votes off one another,
particularly in Punjab, whenever elections do come around. It has been said ad nauseam but it needs to be said
again — Pakistani politics will not become much more palatable to the
‘civilised’ classes in the near future. A lot of time and continuity
is required if we want the nature and practice of politics to improve. We should also recognise that the forced engagement of
working people with the permanent apparatus of the state — which is
considered above criticism for too many of our ‘experts’ —
reinforces the role of politicians who play the role of mediators. Until
and unless an alternative structural dynamic is conceptualized and then
struggled for, noone sitting in a cozy living room should hurl abuse at
politics and politicians. I may not have to put up with the indignities of the
thana and katcheri, but most people in this society do, and this is why
they are compelled to seek the patronage of this particular brand of
politicians. In turn, it is the permanent apparatus of the state which
remains content in the knowledge that it has a permanent ‘B-team’ to
turn to. If we want this nexus to be undone, then we need to
stop going on about the failure of politicians and the fact that the
country is going to the dogs, and recognise that in the Pakistan of the
majority, politicians are part of an exploitative yet intimate
socio-political order that cannot simply be wished away. It has to be
changed and someone other than a general or a judge has to do the
changing.
comment A debate is raging on why the government has not
released the poverty number estimated for 2007-08. In fact, the government
has not formally owned any number since the controversial number related
to 2004-05. The Musharraf boys who masterminded the ‘Operation Reduce
Poverty’ by hook or by crook are quite keen, just before the looming
elections, to show that the Millennium Development Goal to halve poverty
had vey nearly been achieved in his last year. What they are focusing on, however, is methodology of
estimation and not the data corrupted by them to achieve the results they
wanted. Any one using this data and the official methodology will get the
same result. This is what is meant by the validation exercises being
quoted ad nauseum. Thus, when independent experts and organisations like
the World Bank are asked to validate, they are not validating the data. It
is simply beyond them, unless they have the resources to re-run the entire
survey. The World Bank validation report of May 30, 2008
quoted by the apologists says, “The World Bank team endorses the CPRSPD/Planning
Commission’s estimates for 2005-06. The team found that CPRSPD/Planning
Commission’s poverty estimates for 2005-06 followed the official
methodology accurately...”. As can be seen, there is no comment on the
data itself. Poverty politics had started from the very beginning
of the Musharraf takeover. The Household Integrated Economic Survey (HIES)
2000-01 had been conducted by the federal bureau of statistics, but its
release and analysis was not allowed for quite sometime. It was a period
of severe drought, signalling a rise in poverty. This would not have been
liked by a government looking for legitimacy in economic improvement. Much depended on where the poverty line was drawn. It
was notified in great haste on 23 July, 2002 by Mutawakkil Kazi, the
handpicked planning secretary. (His pearls of wisdom: “At no time ever
in history has there been a better orchestrated comprehensive poverty
reduction strategy than the one under implementation now”). The
notification was issued without the knowledge of the chief economist. It
was withdrawn after the later protested, and a revised version issued on
16 August, 2002. On the basis of 1998-99 data, the official poverty
line was determined at 2350 calorie per adult equivalent per day,
requiring Rs.673.54 for their provision in 1998-99. The notification also
announced a headcount poverty ratio of 30.6 percent. Both the poverty line
and the number based on it were estimated by the federal bureau of
statistics, not planning commission. It was in 2003 that the planning commission’s
poverty centre was able to estimate poverty line and the poverty number
for the 2000-01 data. The poverty line was estimated at Rs748.56 and the
poverty count at 32.13 percent of the population. It still understated
poverty compared to estimates by donor agencies. However, the finance
minister and his economic adviser were not pleased with the rise of
poverty by 1.53 percentage points since the usurpation of power by their
commando boss, who had been advised that poverty was under control. The
economic adviser, who survived seven finance ministers despite being on
contract, went all out to discredit the result. A recall survey was
ordered two years after the main survey. Such exercises are carried out
within months so that the respondents can fairly recall what they said
earlier. No one took it seriously. But the Musharraf boys took the next survey, due in
2004-05, more than seriously. The finance minister had now become the
prime minister for the “wonders” that he had performed for the economy
— except of course for poverty. Something had to be done. The orders
went out to change the governance of the federal bureau of statistics to
nip the evil in the bud, i.e., to start with the management of the survey,
i.e. itself. The standard recipe of appointing an additional
secretary in charge willing to do anything to become secretary was
applied. He ran the statistics division like a section officer and assumed
the charge of the director general of federal bureau of statistics
himself. An extremely capable officer of the bureau, rightfully expecting
to be the head of the organisation, was shown the door. No wonder, the
economic adviser himself was seen burning midnight’s oil in the computer
centre of the bureau. The data was not given to the Planning Commission
until the statistical saboteurs were satisfied that the expenditure tables
suited their targeted outcome. Compared to the drought year of 200-01, poverty had to
decline in 2004-05 that was a year of good crops and high growth (How
high, of course, is another story). A reversal of the rising trend would
be achievement enough. When the data was analysed in the poverty centre of
the planning commission, the results showed a high reduction of around 5
percentage points. An annual reduction of one percentage point was high
— and incredible. The midnight jackals seemed to have achieved their
objectives. They could have now claimed that the military government had
not only turned the economy around, but it had also achieved a major
reduction in poverty ratio. This was, however, not considered enough and
the witch doctors went for an overkill. Their creativity went beyond fitting the data to their
objectives. For 2000-01, the poverty line of Rs 748.56 was derived from
the survey conducted for the assessment of poverty itself. This survey
covers rural areas and its consumption expenditure data has embedded in it
the prices faced by the rural as well as urban respondents. Obviously,
this is a preferred way of depicting the real poverty line faced in
Pakistan. Instead of using the same procedure for 2004-05, the
apologists of military regime pressurised the economists and statisticians
in the poverty centre to present an alternative estimate in terms of the
Consumer Price Index (CPI). The problem with our CPI is that it does not
cover rural areas. With the large bulk of the poor struggling to eke out
an existence in the rural economy, the use of CPI does not make sense. According to this exercise in cynicism, the poverty
line for 2000-01 was reduced retrospectively. As a result, the poverty
number in that year increased from 32.13 percent to 34.46 percent.
Ironically, these very apologists who were unhappy with the original
figure of 32.13 per cent and had challenged it on the basis of an
illegitimate recall survey were now more than willing to jack it up. Not
for nothing, though. The use of CPI had also reduced the poverty count by
a significant margin for 2004-05. A higher base figure in 2000-01 would
further increase the rate of poverty reduction. Actually, it doubled to an
annual reduction of over two percentage points — the highest ever rate
of poverty reduction known to economic history. A committee under planning secretary was set up to
determine which estimate to present officially. It included, among others,
veteran economic journalist M. Aftab and John Wall of the World Bank. What
the World Bank had to say in the meeting was printed in an article by John
Wall in The News. The World Bank presented its own estimate based on the
survey prices, which came close to the survey-based estimate of the
poverty centre. But it avoided taking any sides. It is incorrect to say
that the “development partners validated the poverty numbers.” M.
Aftab can tell the rest of the story.
Basically, the committee did not come up with a definite
recommendation. The Annual Plan Coordination Committee meeting in 2006
was the forum where the chief economist would have given the official
number. In the absence of any decision by the afore-said committee, this
would be the survey based figure of 27 percent for 2004-05 compared to
32.1 in 2001-02. He was not allowed to present these figures. Earlier,
these figures had been presented in the mid-year meeting of the National
Economic Council by the deputy chairman of the planning commission. The chief economist had doubts about even these
figures, based as they were on a questionable dataset, but he was willing
to go along to avoid the completely unrealistic alternative based on CPI.
The deputy chairman wanted to show better performance but not without
being reassured by professional opinion. The only “professional”
opinion available in support of the CPI based estimate was that of the
master fixer of the poverty survey, who also had the ear of the prime
minister. While the chief economist was in Sri Lanka as a member
of the delegation led by social welfare minister Zubeida Jilal to a World
Bank meeting on social protection, the CPI-based estimate was adopted
officially at the level of the prime minister. The chief economist was not
only removed from his position, he was punished by posting him to a
position meant for Grade 20 officers, despite being a very senior Grade 22
officer. In his column, Munoo Bhai had written that though the name was
Pervez, and the sacking was also during a tour in Sri Lanka, his
misfortune was that he was not wearing a uniform. Poverty reduction never looked back since. From 34.46
percent in 2000-01, it fell to 23.9 percent in 2004-05. In 2005-06,
poverty declined to 22.3 percent and within the next two years, the
decline again picked up pace and the poverty ratio was estimated to be as
low as 17.2 percent in 2007-08. Elsewhere, I have described the present
economic team as an economic team consisting of three marketeers.
Mercifully, however, it has not yet indulged in the doctoring of “ground
realities” — the uninterrupted comparative advantage of the Musharraf
boys. The writer, a
former chief economist of the planning commission, is at present based at
Cambridge
The
way forward Reports suggest that Pakistan has decided, in
principle, to grant the Most Favoured Nation (MFN) status to India. Our
foreign minister also told the National Assembly about this policy shift
and also cited several achievements in bilateral ties in the past few
weeks. India already conferred MFN status to Pakistan in 1996. India and
Pakistan have no formal trade agreement. Until now Pakistan maintained a
Positive List of importable items from India consisting of 1075 items. Most Favoured Nation: Under the WTO agreements,
countries cannot normally discriminate between their trading partners.
Grant someone a special favour (such as a lower customs duty rate for one
of their products) and you have to do the same for all other WTO members.
This principle is known as most-favoured-nation (MFN) treatment. It is so
important that it is the first article of the General Agreement on Tariffs
and Trade (GATT), which governs trade in goods. MFN is also a priority in
the General Agreement on Trade in Services (GATS). Thus, a move towards MFN implies that Pakistan will
not discriminate against India as the MFN, and by extension will apply the
same treatment to other countries. In 1998, the United States renamed MFN
status to “permanent normal trade relations” as all but a handful of
countries had this status already, making it a misnomer. No alarmism: So what we see with Pakistan giving India
MFN status is a normalisation of trade relations after a long history of
protectionism against India. MFN is not a free trade agreement. It just
means duty for India will be the same as for any other favoured nation
contrary to what the alarmists are saying on national television and
endless newspaper articles that have more emotions than facts. MFN by no
means equals preferential treatment. Issues with MFN: Trading with India on the MFN basis
will not automatically translate into a rise in trade unless other
obstacles are addressed. One of these is non-tariff barriers put up by
India that may discourage Pakistani businessmen. These include issues such
as packaging, labelling, certification and sundry testing requirements.
Furthermore, another category of Indian non-tariff barriers concern
transparency issues such as collation of precise information on tariffs,
duties and concessions. Thirdly, the subsidies given by India to its
farmers may turn our farmers uncompetitive. Non-tariff barriers are mercantilist measures that
need to be shunned so as take advantage of geographical proximity. In
fact, the Kashmir dispute may be the only political hurdle to this. China was given MFN status by Pakistan in the 1990s.
However, opinion is that it seized the Pakistani market for consumer goods
and destroyed its small-scale domestic manufacturing industry. Trade with
India opens up the potential for a permanent market, and with regards to
small-scale industry the competition differentials will not be as stark as
with China to cause damage. There is no reason why India should not be
given this status as the transport costs are much lower across the
borders, our exporters stand to gain from reciprocal trade. Policy shift: The recent policy shift has taken place
in the context of our deteriorating economic situation. Since the recent
escalation of tensions between Pakistan and the US our ‘aid’ inflows
might fall. The IMF programme has ended and there are no prospects for
renewal given our inability to reduce public expenditures and raise taxes.
In any case, the political governments cannot do without public spending,
especially on handouts. However, it is anticipated that cheaper imports
from India work against the inflationary trends and the exports — if
they grow consistently — will earn us vital foreign exchange to rectify
our balance of payments’ crisis. More importantly, the pressure from the US on
Pakistan, especially its armed forces, means that making peace on the
Eastern front will help us focus on the Western border, especially the
insurgencies in FATA and Khyber Pakhtunkhwa; and the quest for a lead
place at the policy table on the Afghanistan ‘endgame’. Currently, the total volume of trade between India and
Pakistan is a little over $2 billion. However, the real potential for
increased intra-region trade is huge and estimated to grow to $20 billion
if the restrictions are removed. It may take years for gains to register,
but the outlook is positive. Immediate gains are what can help Pakistan in the
interim; and working towards regional trade can be a win-win situation for
all concerned. India needs more oil, gas, and raw materials from the West
and Central Asia and Pakistan can be in important route. It has been
reported that India, Pakistan, and Bangladesh can work on gas pipelines
and transport gas from Iran, Qatar, Turkmenistan, and Myanmar. A robust
regional trading bloc would lead to stability and long-term prosperity and
will require good diplomatic ties. In September 2011, India announced that it would drop
its objections lodged with the WTO against trade concessions which the
European Union(EU) promised to Pakistan as part of its assistance package
to recover from the harmful impacts of 2010 floods. The EU had promised to
reduce tariffs on 75 Pakistani goods for a period of three years,
including 67 items with zero duty facilities while entering its markets. Regional imperative: India is expanding its trade
links and economic cooperation with almost all the regional countries. New
Delhi struck a high profile strategic partnership with Afghanistan just a
fortnight ago. Recently, India assured Myanmar a $500 million credit line
to improve infrastructure. Earlier, Indian Prime Minister signed ten
agreements, including on trade, environment, power and road and rail
connectivity with Bangladesh. Sri Lanka has also just revived economic
partnerships with India on October 17. Pakistan cannot afford to ignore
the regional climate. Gains are clear: It is now a matter of common
knowledge that India-Pakistan trade will benefit both the countries. One
study undertaken a few years ago (by ICRIER) estimated a volume of over
$10-11 billion (Pakistan 55 percent textiles; India 90 percent
non-textiles) with clear net welfare gains. There may not be a trade
surplus with India but the real issue is if the cost of imports from India
is less than comparable quality imports from other countries. Given the
research carried out in recent years, empirical evidence says that both
our local industry and consumers are likely to gain by trading with the
‘enemy’. The writer can
be contacted via www.razarumi.com or Twitter: @razarumi
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public-speaking lives spewing out polemic and attacking their political
opponents. In the rest of the world, too serious questions are being asked
about the extent to which the liberal democratic order is as
representative and participatory a system as it has been depicted by its
ideologues. 
I
do not concur with the argument, however, that politicians are themselves
responsible for the military’s dominant role. Some may have been
complicit with military rulers or with the military’s attempts to
undermine elected regimes, but it is the military — and its external
patrons — that are responsible for the over-bloated military apparatus.
Yes, our politicians need to become more mature, but this is not the same
thing as saying that our politicians are the primary reason why the
political process is suffocated. 
