As Pakistan's ruling elite and its ghairat brigade, led by PML's Sharif brothers, engage in loud empty rhetoric about infringement of their national sovereignty by the United States, here is something to ponder:
Pakistan runs chronic budget deficits of around 5% of its GDP, and its government collects less than 10% of GDP in tax revenue which is among the lowest in the world. A big share of these deficits is funded by foreign aid and loans, making Pakistanis beholden to the interests and whims of major foreign donors and lenders.
Pakistan's tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
The other major weakness in public finances is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain, the provincial tax receipts total an abysmal 0.7 percent of GDP.
Farm income, mostly earned by the nation's feudal ruling elite, accounting for about 20% of the GDP is entirely exempt from any income tax under the law. Only about 2 million of 180 million Pakistanis pay income tax. Of them, 1.8 million are salaried and paid Rs.27.37 billion in taxes during ended fiscal 2008-09, according to a report to the Senate by Minister of State for Finance and Economic Affairs Hina Rabbani Khar. The government runs large current account deficits, forcing it to beg and borrow to meet the budget needs. The budget deficit for 2008-09 was 4.3% of GDP and it is likely to grow with lower revenue amidst slowing economy in 2009-10. The tax evasion in Pakistan is estimated at Rs500 – 600 billion a year, almost half of the total tax collection of about Rs1200 billion during 2007-08. The untapped amount is almost equivalent to the country’s annual budget deficit.
In a country where majority of the transactions, including purchase of big ticket items, occur in cash, there is widespread tax evasion and a sizable informal economy. The estimates for Pakistan's underground economy vary from 25% to 50% of the formal economy. A recent World Bank (WB) report concluded that every Pakistani citizen evaded tax amounting to Rs 4800 in the year 2007-08, while the total tax evaded in the period stood at Rs 796 billion.
Food prices have dramatically increased since the current PPP government took power in 2008. These higher food and commodity prices are resulting in the transfer of additional new tax-free farm income of about Rs. 300 billion in the current fiscal year alone to Pakistan's ruling party's power base of landowners in small towns and villages in Southern Punjab and Rural Sindh, from those working in the the economically stagnant urban industrial and service sectors who pay bulk of the taxes. The downside of it is an even bigger hole in Pakistan's pubic finances which is being funded with increased foreign aid and loans.
During the height of corruption under Bhutto-Zardari-Sharif governments in the 1990s, the size of the underground economy rose to almost 55% in 1999, by one estimate. As the military regime of President Musharraf cracked down on tax cheats, the nation's revenue collection doubled from Rs. 500 million in 2000 to to Rs. 1.04 trillion in 2007-08.
While the income, assets and taxes of the president and top government officials are publicly disclosed and heavily scrutinized by all in the US, no such transparency exists in Pakistan. In fact, tax cheating in Pakistan starts at the top. The richest and the most powerful politicians in the ruling elite pay little or no taxes, setting a horrible example for the rest of the nation.
For example, Benazir Bhutto, Asif Zardari and Nusrat Bhutto declared assets totaling $1.2 million in 1996 and never told Pakistani authorities of any foreign bank accounts or properties, as required by law in Pakistan. Zardari declared no net assets at all in 1990, the year Bhutto's first term ended, and only $402,000 in 1996, according to a report in the New York Times.
Bhutto's family's income tax declarations were similarly modest. The highest income Bhutto declared was $42,200 in 1996, with $5,110 in tax. In two of her years as prime minister, 1993 and 1994, she paid no income tax at all. Zardari's highest declared income was $13,100, also in 1996, when interest on bank deposits he controlled in Switzerland exceeded that much every week. In June 2008, a senior PPP leader and president of Pakistan's Supreme Court Bar Association, Mr. Aitzaz Ahsan, who was interior minister in Benazir Bhutto's first government, told James Traub of the New York Times that most of the corruption and criminal cases against PPP Co-Chairman Asif Ali Zardari which were dropped recently in Pakistan were justified, and that the PPP was a feudal political party led by a figure (Zardari) accused of corruption and violence. After a moment's reflection, Ahsan further added, “The type of expenses that she had and he has are not from sources of income that can be lawfully explained and accounted for.”
It was only in 2007 that President Asif Ali Zardari returned to Pakistan under an amnesty, euphemistically called National Reconciliation Ordinance (NRO), sponsored by the Americans. However, the Americans know that the corruption charges against Zardari were credible and he, along with his late wife, was convicted in at least one case by a Swiss judge. The conviction was under appeal in Switzerland when Pakistan government withdrew all charges pursuant to the NRO signed by then President Musharraf under pressure from the Americans.
The PPP leadership is not alone in evading taxes. The PML leadership appears to be just as guilty. The entire Sharif family paid a nominal income tax of Rs 250,000, wealth tax of Rs 550,000 and agriculture tax of Rs 130,000, considering their vast assets and properties of at least 23 sugar and textile mills and huge agricultural land, according to the News. The tax evasion by the the Sharif family was the reason that the donor agencies giving aid to Pakistan in late 1990s insisted on publishing tax records of all lawmakers and senior bureaucrats, The News said, adding that for this reason, the donor agencies insisted on broadening the tax net to prop up government revenues.
As Pakistan faces a severe economic crisis and the current leaders appear ready to mortgage the nation's future, the chances of the ruling elite setting a good example by paying their taxes in full appear rather remote. In fact, the feudal politicians are fighting the current IMF condition for even a modest tax on farm income. The only hope for a fairer tax system and improved collection from the rich and powerful to fund education and health care lies in serious and sustained pressure on Pakistan's ruling elite from the donors and lenders, backed by the United States.
To conclude this post, let me quote former finance minister who said the following in a recent op ed: "At the heart of it, these issues are related to governance. This state of affairs is a manifestation of a broader challenge that Pakistan has grappled with virtually since independence – the shifting of the burden of responsibility by a small, self-serving and venal elite to the rest of the population."
Related Links:
Haq's Musings
Comparing US and Pakistani Tax Evasion
Pakistan's Economic Performance 2008-2010
Brief History of Pakistan's Economy 1947-2010
US Raid in Abbottabad
Pakistan's Rural Economy Showing Strength
Shaukat Tarin on Pakistan's Regressive Tax Policies
46 comments:
Has someone touched Zardari to see how thick of a skin he wears ? I guess the big guys, Ele and Hippo must be really envious of thick skinned Paki rulers....
Hi, sorry to bring India into this, but this phenomenon is by no means unique to Pakistan. India too has a microscopic proportion of the population that pays any form of direct taxes. Here too, agricultural income is virtually tax free, and the ruling elite have the same venal approach to paying taxes as yours do. Can you provide some figures on just what percentage of the population pays direct taxes in India? My guess is the tax base in India is about the same as it is in Pakistan.
What you have written is not new and has been known for years. What you really need to focus on is its direct relationship to the democratic system in place in Pakistan which you continually keep supporting like most Pakistanis, whether local intellectuals or Pakistani Americans. Please refer to the below link that we were discussing more than two years back. Your response was more like "I agree but I'm not convinced", thereby continuing on the same argument that democracy is the best system and automatically solves all issues irrespective of the socioeconomic structure of a country.
http://www.riazhaq.com/2009/01/democracy-in-pakistan.html
Pakistan being an agriculture based feudal economy, elections invariably lead to the same feudal ruling elite coming into power which does not pay taxes. You should not be expecting them to legislate to tax themselves, unless forced by the establishment to do so which defeats the fundamental principle of democracy.
To make your blog more meaningful I would recommend that you review your writings from the point of view of consistency of logic between arguments given at different times and on different subjects. This will take it to a level above Geo style journalism, where the difference is essentially that Geo perceives everything Pakistani as negative where you perceive positivity in everything.
Pakistani intellectuals need to develop an existentialist approach rather than pure idealism prevailing generally. This essentially means that the situation as it exists should be clearly understood and accepted and then think of practical solutions to address important issues. The below quote of Niccolo Machiavelli, one of the most practical of philosophers, aptly describes our situation.
"The gulf between how one should live and how one actually lives is so wide that a man who neglects what is actually done for what should be done learns the way to self-destruction rather than self preservation."
vicks: "India too has a microscopic proportion of the population that pays any form of direct taxes."
About 35 million Indians,or 3% of India's population, pay income tax, according to India's Business Standard. This is a lot higher than 2 million, or 1.1% of Pakistanis, who pay income tax.
Beyond that, India's tax collection of 17% of GDP is far higher than Pakistan's 10%.
So, in site of tax evasion problems in India, Delhi's public finance situation is much better than Pakistan's.
What is Pakistan's annual GDP in $ or Rs.?
Mohammad,
IMF puts Pakistan's nominal gdp at $175 billion, and purchasing power parity gdp of $465 billion for 2010.
Beyond that, India's tax collection of 17% of GDP is far higher than Pakistan's 10%.
True but 7 years ago when India's per capita income was almost the same as pakistan(now its 40-50% higher) India also collected about 10% of GDP as tax.
As per capita incomes rise so do tax collections.
Anon: "True but 7 years ago when India's per capita income was almost the same as pakistan(now its 40-50% higher) India also collected about 10% of GDP as tax."
Let's not exaggerate. The IMF puts India's per capita gdp at $1265 vs Pakistan's at $1050 in 2010. And it was about $1000 for both until 2007.
The tax collection does not rise automatically with income. It takes laws, polices and execution to ensure tax collection.
When you exempt 20% of the nation's gdp as is the case with the big zamindars' incomes in Pakistan who all sit in the parliament, it doesn't help the situation.
Suhail: "To make your blog more meaningful I would recommend that you review your writings from the point of view of consistency of logic between arguments given at different times and on different subjects."
Consistency does not mean being perpetually negative or positive about anything, particularly Pakistan, a very complex country which brims with lots of negatives and positives.
I, for one, tend to see Pakistan's glass half full, not empty or half empty as some do.
Pakistanis are a very resilient people, and in spite of all the bad news we hear, I remain hopeful for Pakistan's future.
There is a new book by Prof Anatol Lieven, former Times correspondent to Pakistan and current professor at King's College, London, about Pakistan. It challenges a lot of western myths being perpetrated by many foreigners, and influencing many Pakistanis.
Here are summary and salient points of the book Pakistan: "A Hard Country":
In the past decade Pakistan has emerged as a country of immense importance. Large, heavily populated, strategically placed between Iran, Afghanistan and India, Pakistan has since its creation just over sixty years ago been pulled in several different, irreconcilable directions.
In the wake of Pakistan's development of nuclear weapons, Osama Bin Laden's presence in its unpoliceable border areas, its shelter of the Afghan Taleban, and the spread of terrorist attacks by groups based in Pakistan to London, Bombay and New York, there is a clear need to understand this remarkable and highly contradictory place.
Far from seeing Pakistan as the failed state often portrayed in the media, Lieven's extraordinary new book instead treats it as a viable and coherent state that, within limits and by the standards of its own region rather than the West, does work. Lieven argues strongly against US actions that would risk destroying that state in the illusory search for victory in Afghanistan.
This work is based on a profound and sophisticated analysis of Pakistan's history and its social, religious and political structures. Lieven has interviewed hundreds of Pakistanis at every level of society, from leading politicians and soldiers to village mullahs and rickshaw drivers. In particular, his examination of the roots of popular sympathy for the Taleban in Pakistan draws on the testimony of people whose views are rarely consulted by Western analysts.
1. For most of the years since 1947, Pakistan has had higher economic growth rates than did India. Pakistan does not have the same pockets of extreme poverty, or for that matter the extreme wealth. The level of economic equality in Pakistan is relatively high.
2. Charitable donations run almost five percent of gdp, one of the highest percentages in the world and this reflects the emphasis on alms-giving in Islam.
3. A good quotation from a businessmen: “One of the main problems for Pakistan is that our democrats have tried to be dictators and our dictators have tried to be democrats.”
4. Agriculture pays virtually no tax and the government lends lots of money to businesses and doesn’t seriously ask for it back. As a result Pakistan collects far less revenue than does India, even comparing areas of comparable per capita income. If Pakistan were a state of India, it still would be considerably richer per capita than India’s poorest regions, such as Bihar.
5. The Pakistani state is nonetheless a lot more stable than most people think. In part this is because of the conservative structure of kinship and landholder power in the country.
6. The main threats to the future of Pakistan have to do with ecology and water, not politics.
7. The end of the book has a very interesting discussion about how U.S. actions in Pakistan affect different coalitions, feelings of humiliation, relative status relationships, etc.
Definitely recommended, as are Lieven’s books on the Baltics and Ukraine.
Also what is happening in tax evading India...
"Forty years ago, wealthy Americans financed the U.S. government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money."
http://robertreich.org/post/5583016733
Pakistan Business Council (PBC) has proposed that income from all sources above threshold of Rs 300,000 should be taxed to raise tax-to-GDP ratio to 15 percent, according to pkeconomists.com:
According to a position paper of the PBC on the macroeconomic stabilization, issued at the national dialogue of political parties on the national economic agenda, the reform of the tax system could be done by adopting the principle of taxation regardless of source of income. Several studies which have been carried out recently show that the government could generate an additional Rs300-400 billion in revenue within the present tax regime through better coverage and enforcement.
The taxation measures should focus on documentation and broadening the tax base for direct taxes, PBC said.
It stated that the presumptive basis of taxation should be replaced by net income tax earned basis. Wealth tax in the old form need not be introduced but a tax on assets created out of untaxed income be levied. Moreover, the reforms are needed to address over-invoicing, misdeclaration and Afghan Transit Trade leakage issues. The use of IT tools in customs could help in this regard. The gradual reduction in custom duties on smuggling prone items will discourage these malpractice. The provincial governments do have the necessary legislations in place to tax income on agriculture. The threshold levels, exemption limits should be reinforced, the collection machinery, compliance and enforcement measures strengthened. Urban immovable property tax in major cities can substantially augment the tax base of the local governments if a more realistic valuation is arrived at through periodic surveys and assessments.
The expenditures can be reduced by restructuring of Public Sector Enterprises that will staunch operating losses; by Subsidy rationalization and targeting subsidies to the poor only through Benazir Income Support program (BISP); better implementation and avoidance of waste in development projects.
If the above measures are implemented, and a policy that taxes incomes from all sources above threshold of Rs 300,000 is implemented it is expected that Tax -to- GDP ratio would reach 15 percent in five years time and sustained fiscal deficit would not exceed 4 percent of GDP, the PBC added.
You might want to mention here and cover in another blog.. http://www.dawn.com/2011/05/15/pakistani-students-win-prize-in-intel-science-fair.html
Riaz said..
"Let's not exaggerate. The IMF puts India's per capita gdp at $1265 vs Pakistan's at $1050 in 2010. And it was about $1000 for both until 2007."
Well, according to CIA World Factbook it's $3400 India vs $2400
PPP, so that is 41.66% higher!
I think you are the one who actually exaggerates and spin your objective conclusions from statistical data which has an +/- 5-10 % error rate.
UNDP data for example: India vs Pakistan
poverty rate 29.6% vs 27.5%
gender inequality index 0.748 vs 0.721
Life Expectancy 64.2 vs 67.2
Mean years of Schooling (literate adults only post-secondary)
4.4 vs 4.9
Reading some of your blogs implies Pakistan is some utopia compared to India.
By the way overall HDI: 0.519 vs 0.490
There is no denying India has long way to go. It is the path taken which matters right now. Ultimately, time will tell.
Sushil: "I think you are the one who actually exaggerates and spin your objective conclusions from statistical data which has an +/- 5-10 % error rate"
In spite of recent poverty declines with its rapid economic expansion, India still has higher poverty rates than Pakistan, according to a 2011 World Bank report titled "Perspectives on poverty in India : stylized facts from survey data" released in 2011.
Overall, the latest World Bank data shows that India's poverty rate of 27.5% is more than 10 percentage points higher than Pakistan's 17.2%. Assam, Punjab and Himachal Pradesh are the only three Indian states with lower poverty rates than Pakistan's.
Read more at http://www.riazhaq.com/2011/05/world-bank-on-poverty-across-india-in.html
State Bank of Pakistan Holds Discount Rate at 14.00%, according to Central Bank Info:
The State Bank of Pakistan held its discount rate unchanged at 14.00% as inflation pressures eased somewhat, and as the Bank waits to analyze next month's annual government budget. The Bank noted: "The government is mindful of fiscal pressures and has expressed its resolve to address these issues, especially containment of the fiscal deficit. The budget for FY12 is expected to reflect this commitment,". Pakistan reported annual inflation of 13.04% in April (with prices rising 1.62% month on month), on inflation the Bank commented that "the average CPI inflation for FY11 is likely to remain between 14 and 14.5 percent, which is lower than the central bank's earlier projections,".
Here is an Op Ed by Pakistan's Farahnaz Ispahani published in USA Today:
Just as many Americans are expressing frustration with what they see as Pakistan's slow progress in defeating terrorism (most recently underscored by Secretary of State Hillary Clinton's visit today to Islamabad), Pakistanis are equally frustrated with the increasingly ugly anti-Pakistan sentiment in the United States. Most Pakistanis simply do not understand how cutting U.S. economic and military aid to Pakistan advances the fight against terrorism.
Pakistan is projected by many in the international news media and by some in the U.S. Congress as a purveyor of terrorism but, in cold fact, it remains its chief victim. Three thousand Pakistani troops have been killed (more than all NATO losses in Afghanistan combined). Add to that 2,000 police cut down, the tragedy of 35,000 civilian casualties and the assassination by terrorists of our country's most popular leader, Benazir Bhutto, and one might understand Pakistani exasperation. This recent al-Qaeda attack on a Pakistani Naval Base in Karachi, killing 10 of our sailors, again demonstrates that Pakistan is the principal target of terrorist rage.
How much of our people's blood does it take for Washington to get it? British Prime Minister David Cameron said it most succinctly standing next to President Obama in London earlier this week: "Pakistan has suffered more from terrorism than any country in the world. Their enemy is our enemy. So, far from walking away, we've got to work even more closely with them."
Another Marshall Plan?
At the onset of the Cold War, the U.S. understood that political stability in vulnerable countries like France, Italy and Greece was intrinsically linked to the viability of their economies. President Truman advanced the European Recovery Plan (the Marshall Plan) that brilliantly operationalized this thesis, and by doing so saved Western Europe from communism. The same construct should be applied to Pakistan as we jointly work toward the defeat of the terrorist menace and the rebuilding of a peaceful and stable South and Central Asia.
Secretary of Defense Robert Gates has spoken of Kerry-Lugar-Berman Act for economic development, health, education, energy and infrastructure. Yet only $179 million, according to Sen. Dick Lugar, R-Ind., has actually been spent. The rest sadly has been bottled up in a bureaucratic quagmire within USAID.
The people of Pakistan, especially the poor who were most affected by last year's historic floods, have yet to feel the effects of a U.S. policy that under President Obama was to re-craft the U.S.-Pakistani relationship beyond a short-term military alliance into a sustained economic and social partnership. It is that new relationship that will be the lynchpin to the long-term stabilization of Pakistan and our ability to contain and destroy the terrorist threat to our people, and to the world.
After World War II, the Marshall Plan spent $49.06 per capita in Greece and $30.02 in Italy. Today, the per capita U.S. assistance to Pakistan, adjusted for inflation, is only $7.90. That's a dramatic 400% less than the Marshall Plan's assistance to Italy. And let us be clear: The long-term stakes to world peace are as great or greater in South and Central Asia today as in Europe at the end of the 1940s.
Here's an outline of Pakistan's 2011-12 budget as published by Dawn:
ISLAMABAD: The government has finalised a consolidated budget of Rs3.854 trillion for the next financial year, envisaging a revenue of Rs2.787 trillion, fiscal deficit of Rs912 billion and provincial transfers of Rs1.224 trillion.
The budgetary allocations indicate that current expenditures of most of the federal ministries will be frozen at the level of the current year because of tight fiscal position.
Official documents available with Dawn show the government has set a tax revenue target of Rs2.1 trillion, 2.3 per cent above the current year’s revised target of Rs1.71 trillion. This includes a Rs1.952 trillion tax target of the Federal Board of Revenue (FBR) against current year’s revised estimate of Rs1.588 trillion. The non-tax revenue is estimated at Rs687 billion, up 30 per cent from this year’s revised estimate of Rs526 billion.
Of the total revenue of Rs2.787 trillion, the provinces would get Rs1.224 trillion and Rs1.513 trillion would be for the federal government.
The government had set a revenue target of Rs2.410 trillion for the current year, but it has now been revised to Rs2.235 trillion, because of a shortfall in FBR collection, non-introduction of RGST and slow economic growth.
The centre’s total expenditure has been estimated at Rs2.549 trillion, up from current year’s revised estimate of Rs2.314 trillion. The centre would extend Rs55 billion subsidies to the provinces.
The size of the federal Public Sector Development Programme has been estimated at Rs280 billion against current year’s original estimate of Rs270 billion which was brought down to Rs180 billion.
Another Rs35 billion would be spent for flood relief assistance, slightly less than current year’s Rs40 billion.
Pensions would require Rs118 billion against Rs107 billion this year. Likewise, federal government’s service delivery cost has been estimated at Rs200 billion, which is about Rs20 billion more than current year’s revised estimate of Rs180 billion – brought down from budgeted Rs221 billion.
SECURITY AND INTEREST: The government would earmark Rs495 billion for defence, about 12 per cent more than current year’s allocation of Rs442 billion. Another Rs340 billion would be made available through grants for security expenditure, up 19.3 per cent from current year’s Rs285 billion. Put together, security-related expenditures would amount to Rs835 billion against this year’s Rs727 billion, up by 15 per cent.
An almost equally a large amount of Rs786 billion would be paid as interest cost, which is about Rs60 billion or 8.3 per cent more than current year’s revised debt servicing of Rs726 billion. The government had earmarked Rs699 billion in the 2010-11 budget for debt servicing which has been revised to Rs726 billion.
About Rs50 billion would be allocated for the ministry of interior, up from current year’s Rs44 billion.
BUDGET DEFICIT: The federal government’s fiscal deficit has been estimated at Rs1.036 trillion that is expected to be reduced to Rs912 billion because of a Rs124 billion cash surplus to be provided by the provincial governments. For the current year, the government had envisaged an overall deficit of Rs685 billion (4.5 per cent of GDP) that has now been revised to Rs960 billion or 5.5 per cent of GDP. The provinces were expected to generate a cash surplus of Rs167 billion but it was revised to Rs112 billion.
The budget deficit would be met through Rs95 billion worth of grants, net domestic bank borrowing of Rs807 billion and net external borrowing of Rs10 billion.
Here's a report on Pakistan trying to collect taxes from middlemen (arti) on their profits:
The government has imposed a 10 per cent advance tax on commission, or brokerage fee, earned by the agents of cultivators or farmers and a withholding tax at a rate of 1.5 per cent on the sale of cotton seed, rice and edible oils.
According to new taxation measures announced by the government on Saturday, the new taxes will not be applicable to growers who sell their produce, a circular of the Federal Board of Revenue (FBR) said.
The circular stated that the withholding tax on sale/purchase of seed cotton will be deducted by withholding agents.
“The withholding agent shall not deduct withholding tax on purchase of agriculture produce which is directly sold by a grower of the produce,” the circular added.
The 1.5 per cent withholding tax is being levied on profits earned by the middlemen in the business of buying produce and selling it to the markets at higher rates.
To ensure that the withholding tax is collected, the FBR has directed that the buying agent will have to make three copies of the certificate and give one to the grower, submit the second copy in office of tax commissioner of Inland Revenue and keep the third copy for own record.._
The FBR has also issued a format for the farmers, describing their sale of sugarcane, wheat, rice or cotton to the buyer, which also explains the details of the agricultural land the produce belongs to and the date of sale.
While the circular also states that “in case sale of seed cotton or other agriculture produce is made by a grower/cultivator through a commission agent, then advance tax is collectible under section 123 of the Ordinance at rate of 10 per cent of the gross commission income of the commission agent”.
However, the farmers have rejected the new initiative of the FBR and the farmers’ associations have come up with plans to organise a demonstration in Multan on April 5.
Agriculturists have been accusing the government of adopting policies that would only hurt the small- and mid-level farmers and these measures are being taken to protect the large land owners who should be paying income tax on agriculture.
Calling the new measures as indirect tax on the agricultural sector, the President of Pakistan Agriculture Forum Ibrahim Mughal talking to Dawn said the government was bent upon destroying all the productive sectors and after imposing 17 per cent General Sales Tax on agriculture inputs including pesticides, fertiliser and tractors through presidential ordinance on March 15, 2011, the new move will have more serious impact on the overall agriculture economy.
Mr Mughal said that new measures would affect the overall agricultural sector and its productivity which would reverse economic cycle for the small and mid-level growers.
“In March government imposed over Rs80 billion taxes on agriculture sector in form of GST and advance taxes,” he said adding that around 80,000 tractors are being purchased by the growers per annum and after the imposition of 17 per cent sales tax, they will have to pay a total of Rs8 billion annually more than the earlier price.
Here's the Wall Street Journal report on Pakistan's 2011-12 budget:
..Finance Minister Abdul Hafeez Shaikh forecast a budget deficit of 4%, down from 6% in the current fiscal year, with economic growth rising to 4.2% versus 2.5%. In the most noteworthy new measure, Mr. Shaikh said the government was ending sales-tax exemptions on about 500 items, which will bring in fresh revenues of about 200 billion Pakistani rupees.
But Mr. Sheikh at the same time reduced the general sales tax to 16% from 17% and failed to bring in bold new measures to increase the state's haul of income tax from the country's wealthiest citizens.
"This is a business-as-usual budget. I was expecting it to be a reformist budget," said Ashfaque Khan, dean of the National University of Sciences and Technology Business School in Islamabad.
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U.S. Secretary of State Hillary Clinton, urged by the IMF, has publicly called on Pakistan in the past year to raise taxes on its richest citizens. The IMF itself has since last year withheld the disbursement of $3.5 billion in funding for Pakistan—the final tranche in a $11.3 billion loan package—due to failures to significantly raise taxes. The IMF has urged Pakistan to reform its sales tax to include services but this hasn't happened.
The World Bank and the Asian Development Bank also have suspended budget-support funding which amounts to about $1 billion.
Mr. Shaikh failed to announce announce any new measures to tax agricultural income, which remains exempt. The government says the issue falls under the purview of provincial governments. Many of Pakistan's richest people are feudal landlords who made their fortunes from agriculture.
Mr. Shaikh, who was booed by the opposition, which at moments almost drowned out the delivery of his budget speech, said the government had identified 2.3 million wealthy citizens who currently pay no tax and whom it will pursue. He gave no further details.
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To fund its gaping budget deficit, the state has in the past year increasingly relied on borrowing from the central bank, essentially printing money and stoking inflation to 13%. Mr. Shaikh said the government had recently cut back on borrowing from the central bank and would aim to get inflation back to single digits.
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By borrowing so heavily from its own banking system, the government has choked off the supply of credit to private businesses. Foreign investors—already nervous because of the precarious security situation in Pakistan—have largely shunned the country.
That has stunted economic growth, estimated at 2.5% for the year ending June 30, which is insufficient to create enough jobs for the two million new job seekers coming onto the market each year. The IMF says the country needs 8% annual economic growth to create enough work. India's economy, by comparison, in the year ended March 31 grew 8.5%.
For now, Pakistan is unlikely to plunge back into a balance-of-payments crisis of the kind that forced it to call in the IMF in November 2008. That's because exports are doing well, fueled by high global agriculture prices for crops like cotton. The country is running a small current-account surplus, compared to its usual deficit. The currency, the Pakistani rupee, has been stable for the past few months and Pakistan's foreign-exchange reserves are about $14 billion, or enough to cover four months of imports.
Still, oil-price rises this year is likely to increase Pakistan's import costs in the months ahead, which could send the current-account back into deficit. The poor state of government finances, if unchecked, could further undermine foreign confidence in months ahead, donors and analysts say.
http://online.wsj.com/article/SB10001424052702304563104576363432170384892.html
Here's Frontier Post on Pakistan's "dismal" economic performance in 2010-11:
The latest Economic Survey of Pakistan, as released by Finance Minister Dr Abdul Hafeez Sheikh at a news conference on Thursday, has portrayed a dismal picture of the performance of sectors key to the national economy; failing to meet most of the targets set for 2010-11, including the vital Gross Domestic Product growth that was set to achieve a target of 4.5 per cent and grew only 2.4 per cent in real terms during the outgoing fiscal. As for the budgetary deficit, this may also swell from an estimate of 5.3 per cent to around 6 per cent despite claims of macroeconomic development and “putting the economy back on track”. One significant portrayal is the rising inflationary trend that now stands at 14.1 per cent and food inflation is now touching a whooping 18.4 per cent despite bumper wheat and rice crops. This factor has sent the middle classes and the poor reeling under escalating cost of living making their life miserable. The fact that more inflation is coming from hike in food prices is detrimental to poverty alleviation efforts. The poor GDP growth mainly contributed by services sector (53.3 per cent), agricultural sector (25.8 per cent) and industrial sector (20.9 per cent), is because agriculture gained only by 1.2 per cent and manufacturing sector by 1.71 per cent.There seems a little improvement in collection revenues by 1.71 per cent. The government collected a revenue amounting to Rs1026.5 billion in full fiscal of 2009-10 and this amount has now posted an encouraging Rs1156 billion up to March 2011. Similarly, there is no addition to foreign debt that stands at $55.9 billion as in the previous financial year. But debt servicing has cost higher this fiscal — $6.94 billion as against $5.78 billion in 2009-10. Remittances from abroad also rose to $9.1 billion as against $7.3 billion in the previous fiscal. So is the case of foreign exchange reserves which showed a ceiling of $17.1 billion against $15.04 billion in 2009-10. However, for obvious reason of ongoing terrorist attacks, foreign direct investments have come down $1.49 billion as against $1.6 billion the previous fiscal. But it is not understandable how foreign direct investment was higher than the outgoing fiscal when the dangers of the war on terror and uncertain internal security were no different from the previous financial year. There is no explanation to this situation in the latest Economic Survey of Pakistan. One conspicuous data missing from the document was that of poverty. The finance minister defended the absence of how many more people have slipped down the poverty line (estimated on the basis of an income of less than one US dollar a day) during 2010-11 pleading that the poverty survey was still in progress (understandably for the use of disbursement of cash under the Benazir Income Support Programme) and will be issued as and when completed. In fact such a data to portray the extent of abject and absolute poverty in the country has not been made available and, obviously, no poverty survey has been in hand for six years. However, poverty was recorded at 35.4 per cent in 2000-01 and the Musharraf’s dictatorial regime claimed five years later that it had come down to 22.3 per cent. All factors like constantly rising prices of food and other essential commodities and utility bills owing to frequent raise in power tariff and prices of petroleum products, besides other socio-economic aspects, some more millions must have found themselves reeling under the poverty line.The survey tells a story of economic failures and not meeting most of the targets for the fiscal 2010-11. Even a tight-fisted fiscal discipline, forced by the State Bank of Pakistan, failed to prevent widening deficit and mounting inflation that ultimately shrank capital formation substantially. ....
A recent Princeton study by Blair and Fair based on a survey of 6000 Pakistanis concluded that there is no link between poverty and terrorism:
The policy literature on the causes of militant violence frequently focuses on poverty as a root cause
of support for violent political groups (see e.g. Aziz 2009). Moreover, much of U.S. and Western policies toward Pakistan over the last ten years have been geared toward encouraging economic and
social development as an explicit means of diminishing the terrorist threat. Legislation before the
U.S. House of Representatives in April 2009, for example, called for the United States to
“strengthen Pakistan’s public education system, increase literacy, expand opportunities for
vocational training, and help create an appropriate national curriculum for all schools in Pakistan”
(House 2009).8 In testimony on this bill, U.S. Special Envoy Richard Holbrooke argued that
Washington should “target the economic and social roots of extremism in western Pakistan with
more economic aid” (Holbrooke 2009). This view also played a pivotal role in the April 2009
donors’ conference in Tokyo, where nearly thirty countries and international organizations pledged
some $5 billion in development aid explicitly intended to “enable Pakistan to fight off Islamic
extremism” (“Donors pledge” 2009).9 These policies reflect a belief that poverty is a root cause of
support for militancy, or at least that poorer and less-educated individuals are more prone to
militants’ appeals.10 Despite the strong beliefs about links between poverty and militancy that these
aggressive policy bets reveal, there is little solid evidence to support this contention in the case of
Islamist militant organizations. So what do we know?
First, although the hypothesis that poverty predicts participation in violent political
organizations is widespread in the policy literature it finds little support in rigorous empirical tests
(Abadie 2006; Kreuger and Malečková 2003). That hypothesis is likely so prominent because crossnational
evidence typically shows a positive correlation between overall poverty and levels of militant violence.11 However, the perpetrators of militant violence are predominantly from middle class or
wealthy families (Krueger and Malečková, 2003),12 and there is no reliable link between poverty and
support for specific terrorist tactics. Further damaging the empirical foundations of the povertymilitancy
hypothesis, Tessler and Robbins’ (2007) moderately-sized (n≈1,000) surveys from Algeria
and Jordan find that “neither personal nor societal economic circumstances, by themselves, are
important determinants of attitudes toward terrorism directed at the United States” (323). Using
Pew World Values surveys, Shafiq and Sinno (2010) show that the relationship between “educational
attainment and income on support for suicide bombings varies across countries and targets” (146).
Second, there is a mixed or negative relationship between indicators of poverty such as
unemployment and rates of militant violence within countries (Berman et. al. (2011) find a negative
relationship; Dube and Vargas (2008) find mixed evidence). Across countries scholars have argued
that levels of political violence are increasing in: short-term poverty (Miguel, Satayanth and Serengeti
2004); dashed expectations for material gain (Gurr 1970); and income inequality (Sigelman and
Simpson 1977; Muller 1985), but the overall evidence at the individual and sub-national levels is
deeply ambiguous (Blattman and Miguel 2010).
Given this indeterminacy, making progress in understanding the relationship between
poverty and militant violence requires testing specific mechanisms by which poverty could influence
levels of violence.
http://www.princeton.edu/~jns/papers/Poverty_Support_For_Militancy_24MAR11.pdf
Here's a Dawn Op Ed by Pak economist Shahid Burki on budget 2011-12:
AT this difficult time in its history, Pakistan has one of the most competent teams of economic managers in place in years. They are stars from the field of finance, development, planning and investment banking.
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The first, of course, is the country’s dismal resource situation. As has been said repeatedly, the country continues to slip in terms of collecting a reasonable amount of national income as taxes.
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There are several unpleasant consequences of this. The most depressing of these is that the government does not have much left in its hands to pay for social services the poor need and deserve.
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The other side of the resource coin is government’s non-development expenditure. It is widely known that there is an enormous amount of waste in the way it spends its meagre resources.
The finance minister should have addressed this issue more fully and with resolution. He also needed to lay out a credible plan for addressing waste and inefficiency in the way large public sector corporations are being managed.
Managers of most of these poorly performing entities have been appointed on the basis of their links with those in power rather than on the basis of competence. It is not surprising that they are a huge drain on the public exchequer.
The finance minister did well when he had the portfolio of privatisation in one of the administrations of the Pervez Musharraf period. He could have used that experience to lay down a strategy and a plan for handing over some of these enterprises to the private sector.
This brings us to the issue of the fiscal deficit which has been the Achilles heel of the management of the Pakistani economy. The budget, with an eye on the on-going discussions with the IMF, promises to reduce this to four per cent of GDP. Whether this will help to win the support of the Fund will depend on how that institution sees the tax effort in light of the country’s history.
The managers of the economy have once again decided not to touch agriculture as a source of revenue. This means they were not able to overcome the resistance of the big farmers who have managed to get their sector exempt from income tax. The constitution does not allow federal income tax to be levied from agriculture, but Islamabad can exert pressure on the provinces to take care of this sector which accounts for over one-fifth of the national income. During my brief tenure as the de facto finance minister in 1996-97, the access of the provinces to the resources in the Divisible Pool was made conditional upon raising income tax from agriculture.
We prescribed two per cent of agricultural income as the minimum for drawing from the divisible pool. Unfortunately this was not looked at as a condition in the Seventh National Commission award announced at the end of 2009 but it could have been done retroactively in the budget. But that required political will.
The budget speech also promises to reduce the rate of inflation by half, to nine per cent in 2011-12. The assumption here is that a smaller fiscal deficit will reduce the printing of money for financing which in turn, by decreasing the supply of money, will bring down inflation.
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Where will this budget take the economy over the next financial year? The answer unfortunately is not very far. It will not revive economic growth, not reduce the dependence on foreign flows, not reduce the incidence of poverty nor lessen the gap between the rich and the poor, and not help to integrate the economy with rest of the world. Something better was expected from a team of this talent and experience.
The European Union has signed an agreement to provide 225 million euros for development projects in Pakistan, according to The News:
The agreement was signed by the Finance Minister Dr Abdul Hafeez Shaikh and German Federal Minister for Economic Cooperation and Development Dirk Niebel and European Commissioner for Development Andris Piebalgs at the finance ministry.
The money will be spent from 2011 to 2013 on developing programmes for rural and natural resource, education and human resource, governance and trade development.
Under the arrangement, the EU has committed an annual grant of 75 million euros. Over the three-year period, 90 million euros will be spent on rural development and natural resources management, 70 million euros on education and human resource development, 50 million euros on governance and 15 million euros on trade development.
Briefing newsmen about the meeting, Shaikh appreciated the EU and Germany for their support to economic development in Pakistan.
The minister discussed the current economic situation and measures taken by the government for stabilising and increasing revenue through tax reforms.
The minister said that despite narrow fiscal space, Pakistan has not compromised on social and poverty-related spending and is pursuing a strategy to promote growth.
“As a result of the initiatives to stabilise economy, indicators have shown improvement and the economy is able enough to withstand challenges,” he added.
The minister thanked Germany for supporting Pakistan’s efforts to get access to the EU markets.
The visiting dignitaries appreciated Pakistan’s commitment for sustaining the ongoing economic reforms programme and reaffirmed their support to Pakistan in this regard.
They expressed hope that Pakistan would continue with the reform process.
Niebel said that under the recently concluded bilateral negotiations, Germany had committed additional 78 million euros for education, energy, health and governance besides assuring 12 million euros for the Multi Donor Trust Fund.
Out of the 78 million euros committed by Germany, 48.5 million euros will be spent on energy, 13 million euros on health, 9 million euros on governance, one million euros on education and 6.5 million euros outside these priority areas.
Here's an Op Ed in The News by NUST Business School Dean Dr. Ashfaq Khan calling Pakistan's 2011-12 budget "non-serious":
....The federal budget for 2011-12, the present government’s fourth, is a non-serious budget because it understates expenditures and overstates revenue and thus injects elements of risks. No sensible finance minister and his team would prepare a budget replete with serious risks.
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There are three major risks associated with non-tax revenue. The first is the expected sale of licenses of third generation (3G) cellular services. Rs75 billion have been added in the non-tax revenue under the sale of licenses. Interestingly, the government had kept Rs50 billion under the same heading in non-tax revenue last year as well. Can the PTA sell these licenses in a transparent bidding process this year? The answer is in the negative, and as such the Rs75 billion may not be collected.
Secondly, the government expects to receive Rs119 billion under the Coalition Support Fund (CSF) in the next budget. In the current year it has received Rs63 billion ($742 million) and is striving hard to get the remaining amount in the next two weeks. Can Pakistan get the remaining amount this year? Can we expect $1.35 billion (Rs119 billion) under the CSF next year from the United States? Certainly, there are serious risks involved in such inflows.
Thirdly, the government has targeted Rs200 billion from the profit of the State Bank of Pakistan in next year’s budget. To deliver Rs200 billion to government, the SBP will have to further hike the discount rate and also allow the government to borrow directly from the SBP to finance the budget deficit. I expect neither of these to take place in the next fiscal year, and as such there is risk attached to the Rs200 billion from the SBP.
Let me now turn to the risks on expenditure side. The Inter-DISCO tariff differential has fluctuated wildly in the current budget. The government had targeted a power-sector subsidy of Rs30 billion in last year’s budget, but the year is expected to end with Rs240 billion. The government has targeted a power subsidy of Rs50 billion in next year’s budget – a reduction of Rs190 billion. How credible is this number? Is the government ready to increase power tariff in the range of 22-25 percent next fiscal year? Has the power tariff hike resolved our power-sector issues? An increase in power tariff alone has not worked, is not working and will not work in the future. By raising the power tariff the government is perpetually financing the inefficiencies, theft, corruption and overstaffing of WAPDA/PEPCO and the power distribution companies. Thus, like last year, there will be massive slippages in power-sector subsidies, given the fact that Budget 2011-12 is an election budget as the finance minister has himself proclaimed.
The government has targeted a budget deficit of Rs851 billion, or four percent of the GDP, consistent with the IMF requirement for the next fiscal year. The federal government deficit is targeted at Rs976 billion, or 4.6 percent of the GDP, and it is assumed that the provincial governments would generate surpluses of Rs125 billion or 0.6 percent of the GDP to arrive at the targeted deficit of 4.0 percent of the GDP. The governments of Sindh, Punjab and Khyber-Pakhtunkhwa have already presented their budgets with combined surpluses of less than Rs1 billion. In other words, the budget presented on June 3, 2011, will not even see the light of the new fiscal year. Pakistan will begin the new fiscal year with a budget deficit target of 4.6 percent of the GDP, instead of four percent. Slippages on both revenue and expenditure sides, as stated above, would certainly take the deficit to over six percent of the GDP; that is, in line with the average deficit of the last four years.
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=52457&Cat=9
Here are some interesting excerpts from Anatol Lieven's "Pakistan-A Hard Country" on the role of religion and a description of Edhi Foundation as the essence of Pakistan's real civil society:
"Charities with a religious character tend to more favored and more trusted. It is also true of Pakistan's most famous charitable institution by far, Edhi Foundation, which is nonreligious; however, Abdus Sattar Edhi is himself a deeply religious man, known by the public at large as Maulana (a Muslim distinguished by his piety and learning)even though he is not a Muslim scholar and in fact greatly dislikes being called this.
There is no sight in Pakistan more moving than to visit some dusty, impoverished small town in arid wasteland, apparently abandoned by God and all sensible men and certainly abandoned by the Pakistani state and its own elected representatives- to see the flag of the Edhi Foundation flying over a concrete shack with a telephone, and the only ambulance in town standing in front. Here, if anywhere in Pakistan, lies the truth of human religion and human morality".
Another excerpt from Lieven's book:
"Levels of trust in Pakistani state institutions are extremely low, and for good reason. Partly in consequence, Pakistan has one of the lowest levels of tax collection outside Africa. On the other hand, charitable donations, at almost 5% of GDP, is one of the highest rates in the world".
Lieven quotes the following commandment (2:172) from the Quran:
"Righteousness is not that ye turn your faces towards the east or the west, but righteousness is, one who believes in God, and the last day, and the angels, and the Book, and the prophets, and who gives wealth for His love to kindred, and orphans, and the poor, and the son of the road, beggars, and those in captivity; and who is steadfast in prayers, and gives alms."
Pakistan bond offering withdrawn, says Dr. Ashfaque H. Khan:
Yet another debacle has occurred on the economic front, with the government failing to float its exchangeable bond in the international debt-capital market. In an act of desperation, the Pakistani economic manager had decided to launch a $500-million exchangeable bond with 10 percent shares of Oil and Gas Development Corporation (OGDC) attached to this transaction, the proceeds of which were to come by the end of the current fiscal year. It was the intention of the government to use these proceeds for retiring its State Bank debt and reducing its budget deficit to that extent.
The Pakistani team was informed by the global investors during the road show that they had little appetite for Pakistani paper at the moment, particularly in the presence of the Greek debt crisis and the unresolved issue of increase in the debt limit of the US administration. The Pakistani team did not pitch for the bond and returned empty-handed.
Why did Pakistan have to abandon its transaction? Are the economic managers aware of the consequences of such a colossal failure for the country? One thing is clear from the perspective of the economic managers: who cares about the country? They are there to improve their resumes.
What is an exchangeable bond? The country issues a normal sovereign bond with an option that the bondholder can convert the bond into common shares. The transaction under discussion provided an option to bondholders to convert their bonds into OGDC shares. The advantageous thing about such a bond is that it has the option for conversion of debt into portfolio investment.
There are many reasons for the failure of this transaction. Firstly, the timing for floating the bond was highly inappropriate. This is summertime, when investors close their books and go for vacations. Secondly, the international economic environment, particularly the persistence of the Greek debt crisis and the emergence of issue pertaining to enhancing the debt limit of the US administration have created severe uncertainty in the international debt-capital market.
Thirdly, Pakistan’s own economic fundamentals are weak. Why would anyone invest in a country’s paper whose debt is rising, budget deficit is averaging over six percent of the GDP, high double-digit inflation continuous persists for the last 45 months, and growth is slowing to an average of 2.6 percent per annum over the last four years. Fourthly, Pakistan’s relations with the IMF and other development financial institutions (DFIs) are not smooth. Fifthly, Pakistan’s relations with the United States are also on a bumpy ride. For an emerging market country, its relationships with the US, the IMF and the DFIs are critical in attracting global investors to invest in its paper.
Sixthly, Pakistan’s domestic political and security environment are not conducive to attract global investors to invest in Pakistani paper. Seventhly, the Pakistani team involved in this transaction, barring one member, was quite immature and had no idea whatsoever about the transaction. All these factors have contributed to the failure of the transaction, damaging the reputation of the country and OGDC. In order to save face, the economic team could call this transaction “non-deal road show.” But the international capital market participants are not novices. Word has already travelled across the globe that Pakistan has failed to find takers for its paper.
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It is in this perspective that Pakistan floated its paper from February 2004 to May 2007. Each time the Pakistani paper was oversubscribed substantially. Pakistan emerged as one of the few countries which successfully floated a 30-year bond. This simply reflected the confidence of global investors in Pakistan’s economic management....
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=54874&Cat=9
What a difference 3 years under PPP-led feudal democracy have made.
The failure of the recent bond offering is a serious setback that proves yet again the utter incompetence of the economic team and lack of international investor confidence in the current PPP govt.
It stands in sharp contrast to Pakistan's multiple successful bond offerings from February 2004 to May 2007. Each time the Pakistani paper was oversubscribed substantially. Pakistan emerged as one of the few countries which successfully floated a 30-year bond. This simply reflected the confidence of global investors in Pakistan’s leadership under President Musharraf.
Here's Daily Times overview of current revenue issues in Pakistan budget:
ISLAMABAD: The United States’ reluctance in release of the committed $500 million arrears of Coalition Support Fund (CSF) is creating difficulties for Pakistan and further delay in release of the amount might increase the budget deficit from 5.1 percent of the gross domestic product (GDP) to 5.3 percent of the GDP for outgoing fiscal year 2010-11, a senior official of Ministry of Finance informed here on Monday.
CSF: In case of formal approval, the release of the $500 million by the US before June 30, 2011 would help contain the budget deficit at 5.1 percent of the GDP, otherwise with the rejection by the US, the budget deficit for outgoing fiscal year is to jump to 5.3 percent of the GDP for 2010-11, the official added. The official explained that total CSF arrears due against United States for the outgoing fiscal year are $1.8 billion and Obama’s administration had submitted a request for release of $500 million to Pakistan before June 30, 2011. The US lawmakers who are supposed to approve or reject this request within two weeks had sought one week more and later three days extension for deciding the fate of release of $500 million to Pakistan and the extended period of three days expired on Monday. In case the US lawmakers remain undecided or reject the request of the Obama’s administration then Pakistan’s budget deficit is going to increase from 5.1 percent of the GDP to 5.3 percent of the GDP in outgoing fiscal year 2010-11.
Etisalat: The official informed that the prime minister has tasked the federal minister for finance to settle the issue of release of $800 million to Pakistan as privatisation proceeds of the Pakistan Telecommunication Company Ltd (PTCL). The official informed that the Pakistan People’s Party government is of the view that 98 percent disputed properties have been transferred to PTCL and only 2.0 percent remaining properties should not create obstacle in release of the remaining privatisation proceeds.
Circular Debt: The official informed that the federal government has credited Rs 120 billion paid out in 2010-11 for clearance of the power sector circular debt in the accounts of the fiscal year 2009-10. The government strongly believes that this circular debt was related to the fiscal year 2009-10 and its payment was due and its payment in 2010-11 should be credited in the accounts of 2009-10 instead of 2010-11. The official sources said that the crediting of the Rs 120 billion in the accounts for the fiscal year 2009-10 would help contain budget deficit going up to 6.1 percent of the GDP.
Provincial budget surplus: The official further informed that provinces were required to create Rs 120 billion budget surplus from federal transfers to contain the budget deficit in limits. However, by the start of the month of June 2011 provinces have reported a budget surplus of Rs 85 billion and last instalment of share in federal taxes under the 7th National Finance Commission and it would remain unutilised in June 2011 and would help contain the budget deficit and provincial budget surplus is expected to reach at Rs 115 billion for outgoing fiscal year.
..
Here's Daily Times overview of current revenue issues in Pakistan budget Contd:
Provincial budget surplus: The official further informed that provinces were required to create Rs 120 billion budget surplus from federal transfers to contain the budget deficit in limits. However, by the start of the month of June 2011 provinces have reported a budget surplus of Rs 85 billion and last instalment of share in federal taxes under the 7th National Finance Commission and it would remain unutilised in June 2011 and would help contain the budget deficit and provincial budget surplus is expected to reach at Rs 115 billion for outgoing fiscal year.
Debt servicing: The official said that increase in interest rates have also badly impacted budget of the country and the federal government had paid Rs 29 billion additional on debt servicing in 2010-11. The government had projected payment of Rs 699 billion for debt servicing of local and foreign loans in 2010-11, however, actual servicing of debt has inflicted a cost of Rs 728 billion including Rs 654 billion for domestic debt servicing and Rs 74 billion for foreign loan servicing.
Commodity circular debt: The official informed that commodity circular debt was estimated at Rs 290 billion and federal government has extended guarantee of only Rs 90 billion out of the total amount.
Foreign inflows: The official informed that some foreign inflows are expected for 2010-11 and $193 million USAID disbursement, $200 million Asian Development Bank disbursement is expected soon, while World Bank has already released $38 million.
FBR revenues: The Ministry of Finance is confidant that Federal Board of Revenue’s collection is to reach at Rs 1.592 trillion against the downward revised target of Rs 1.588 trillion for the outgoing fiscal year 2010-11 due to Rs 80 billion revenue for corporate sector on account of advance tax.
State Bank tells Pakistan govt to reduce bank borrowing, according to The Nation:
KARACHI - The State Bank of Pakistan (SBP) has stated that the size of the fiscal deficit cannot be reduced unless the government controls excessive borrowing from the central bank, along with fully implementing fiscal reforms, according to State Bank’s Third Quarterly Report on the State of Pakistan’s Economy for FY11 released Monday.
“Desirable revenue generating measures - broadening of the tax base, improving documentation of the economic system, gradual elimination of un-targeted subsidies and curtailment of quasi-fiscal operations are necessary to contain the fiscal deficit to below 4.5 per cent of GDP in FY12”, said the report.
“These efforts need to be accompanied with better debt management to increase the tenor of domestic debt and lower risks associated with debt re-pricing and rollover,” it added.
The report predicted these initiatives will also protect the external account position and rebuild confidence of the private sector and the country’s international development partners. More importantly, this will help in reducing inflation and the crowding out of private sector credit, thereby facilitating investment, growth and employment opportunities.
The SBP report further said the impact of the widening fiscal deficit is clearly visible in the sharply rising domestic debt. The outstanding government domestic debt reached Rs 5,594 billion (31.8 per cent of estimated GDP) which is more than double the stock at end-June 2007, the report said and added that this sharp growth in debt stock is fueling concerns about macro stability and monetary management.
The report showed optimism about the next cotton crop for several reasons: (a) higher cotton prices during FY10 encouraged farmers to increase acreage for the next crop; (b) there is a shift towards more productive (and disease resistive) BT cotton seeds; and (c) water availability is expected to improve over last year. Rising fertilizer prices are the key downside risk at the moment.
According to the report, the government has set the wheat procurement target at 6.57 million tones, which is lower than the target for the previous year. However, the government may come under pressure to exceed this target since the market price of wheat is considerably lower than its support price while banks appear to be willing to finance the additional procurement. This could feed the circular debt problem and also crowd out the private sector at the margin.
“While energy shortages continue to impact a number of industries, some sectors could face new challenges. For example, the disruption in the global supply of auto parts from Japan may impact some manufacturers in Pakistan. In addition, auto manufacturers will face stiff competition from imported cars as the government has increased the age limit for used imported vehicles from 3 to 5 years,” it commented.
http://nation.com.pk/pakistan-news-newspaper-daily-english-online/Politics/05-Jul-2011/SBP-asks-govt-to-contain-borrowing
It seems that the latest 2011-12 budget passed by the PPP-led coalition pleases neither the right nor the left. Here's a view from the World Socialist Forum:
The $31 billion budget was passed, without amendment, by the National Assembly in June after months of maneuvering by the PPP. Attempts by rival parties to posture as opponents of IMF austerity, especially on the part of Nawaz Sharif’s Pakistan Muslim League (N), produced a months-long political crisis for the PPP. Although the entire political establishment supports austerity, privatization and other pro-business reforms, the PPP’s rivals have sought to distance themselves from the implementation of policies that they know will incite opposition from the working class and rural poor.
Had the National Assembly rejected the budget, the coalition government would have been forced to resign. Ultimately, the PPP was able to get the budget passed with the support of the Pakistan Muslim League (Q) and the Karachi-based Muttahida Quami Movement (MQM).
The MQM had previously left the coalition in May forcing the PPP to invite the PML (Q)—which served as a civilian veneer for the Musharraf dictatorship— to join the government so as to provide it with the parliamentary votes needed to adopt the budget and share the burden of imposing unpopular measures. The MQM subsequently rejoined the government and helped pass the budget.
The PPP-led government is determined to narrow the budget deficit in order to bring an end to a freeze on IMF credit. The IMF has refused to disburse any money to Pakistan since May 2010, citing the government’s failure to implement draconian pro-market reforms, including a Goods and Services or VAT-type tax. The government is desperate to secure the remaining two tranches of an $11.3 billion loan originally issued in 2008, about $3.2 billion. It has also indicated it will soon be seeking additional IMF funding, at least in part so it can begin paying back the 2008 loan.
During the past year, the state has increasingly relied on borrowing from the central bank to fund its budget deficit, stoking inflation to 13 percent. According to Finance Minister Abdul Hafeez Shaikh, the government hopes to reduce the deficit to 4 percent of gross domestic product during the 2011-2012 fiscal year, down from 5.7 percent of GDP for the financial year that ended June 30. It plans to achieve this by decreasing its expenditure and broadening the country’s tax-to-GDP ratio, which, at around 9 percent, is one of the lowest in the world.
After failing to secure the requisite political support to impose a new goods and services tax, the government created a Reformed General Sales Tax (RGST), ending sales-tax exemptions on about 500 items. This is expected to bring in additional revenues of about 200 million Pakistani rupees, even while the government lowers the sales tax rate by one percentage point from 17 to 16 percent.
The RGST and other indirect taxes whose burden fall most heavily on the working class and toilers are supposed to raise 64 percent or close to two-thirds of the government’s 2 trillion rupees ($23.2 billion) in tax revenues
http://wsws.org/articles/2011/jul2011/paki-j22.shtml
Here's an interesting opinion by economist Jeffrey Sachs. about budget politics in America:
..Every part of the budget debate in the U.S. is built on a tissue of willful deceit. Consider the Republican Party's double-mantra that the deficit results from "runaway spending" and that more tax cuts are the key to economic growth. Republicans claim that the budget deficit, around 10 percent of GDP, has been caused only by a rise in outlays. This is blatantly untrue. The deficit results roughly equally from a fall of tax revenues as a share of GDP and a rise of spending as a share of GDP.
On both sides of the ledger -- spending and taxes -- part of the shift results from the weak economy ("cyclical factors") and part from long-term trends. Spending, for example, is higher in part because of unemployment compensation, food stamps, and other federal spending to help the downtrodden in a weak economy. That's the "cyclical" component. Part of the higher spending reflects long-term patterns, such as rising health care costs and an aging population, as well as America's chronic addiction to wrongheaded wars and military occupations in Africa, the Middle East and Central Asia.
Taxation is lower also because of short-term factors and long-term factors. The short-term factors involve reduced federal revenues in an economy with high unemployment. The long-term factors involve repeated tax cuts for companies and high-income individuals that have systematically eroded the tax base, giving unjust and unaffordable benefits for America's millionaires, billionaires, and multinational corporations.
The Republicans also misrepresent the costs and benefits of closing the deficit through higher taxes on the rich. Americans wants the rich to pay more, and for good reason. Super-rich Americans have walked away with the prize in America. Our country is run by millionaires and billionaires, and for millionaires and billionaires, the rest of the country be damned. Yet the Republicans and their propaganda mouthpieces like Rupert Murdoch's media empire, claim with sheer audacity that taxing the rich would kill economic growth. This trickle-down, voodoo, supply-side economics is the fig leaf of uncontrolled greed among the right-wing rich.
The truth is that we need more federal spending to create good jobs and remain globally competitive, not as some kind of short-term "stimulus" but as a long-term investment in education, job skills, science, technology, energy security, and modern infrastructure. I travel around the world as part of my job, and I can say without doubt that America has failed to modernize the economy and is steadily losing its international competitiveness. No wonder the good jobs are disappearing and the pay is stagnant, unless of course you are a CEO who can keep grabbing stock options and profits from the shareholders (who are anyway enjoying record incomes because of stagnant wages and high profits earned overseas).
The Democrats of the White House and much of Congress have been less crude, but no less insidious, in their duplicity. Obama's campaign promise to "change Washington" looks like pure bait and switch. There has been no change, but rather more of the same: the Wall-Street-owned Democratic Party as we have come to know it. The idea that the Republicans are for the billionaires and the Democrats are for the common man is quaint but outdated. It's more accurate to say that the Republicans are for Big Oil while the Democrats are for Big Banks. That has been the case since the modern Democratic Party was re-created by Bill Clinton and Robert Rubin.
Thus, at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits;...
Here's an interesting News International story on Pakistan as an international aid donor:
Pakistan’s contributions to mitigate the suffering of the countries hit by natural calamities are not only commendable but also helped Islamabad a lot to safeguard its economic interests. Sri Lanka, China, Iran, Nepal, Maldives and Afghanistan are the countries where Pakistan did a lot on humanitarian front and also managed to keep its say in the said countries.
As far as Afghanistan is concerned, Pakistan during the Musharraf regime announced the $300 million (over Rs 25.5 billion) grant for various projects out of which Pakistan has so far doled out $ 175 million (Rs 12 billion) since the announcement of the then President Pervez Musharraf during his visit to Kabul.
However, in 2009-10, according to Additional Secretary at Finance Ministry Mr Rana Asad Amin, Pakistan provided Rs 2 billion to Afghanistan to complete the various projects. Likewise, Rs 2.5 billion each allocated to Afghanistan in 2010-11 and current financial year 2011-12.
And in the future Pakistan will keep on doling out the amount to Afghanistan under the pledged $ 300 million grant. The Emergency Relief Fund Data is an eye opener for those who deem Pakistan did not play its role on the humanitarian front which is vital to keep its economic interests intact.
According to Emergency Relief Fund data, Pakistan in 2003 donated Rs 53.9 million in the shape of kind in to to to four countries that include Rs 1.72 million to Sri Lanka for flood victims, Rs 10.9 million to Algeria for earthquake victims and Rs 2.6 million to China for fight against sars and Rs 38.7 million to Iraq for war victims.
In 2004, Pakistan again donated Rs 171 million in kinds to four countries that include Rs 140.8 million go Iran for earthquake victims, Rs 3 million for Sri Lanka for drought victims, Rs 9.8 million to Afghanistan for food shortage and Rs 18.2 million to Bangladesh for flood victims.
However, when catastrophic tsunami badly hit Sri Lanka, Indonesia and Maldives in 2005, Pakistan came up with a bang and helped the said countries on big way and donated Rs 668 million for the said three countries. In addition Pakistan also extended the donation of Rs 26.3 million in kind to Comoros in the head od food assistance.
In 2006, Pakistan bequeathed Rs197.8 million to three countries including Rs 7.7 million in kind to Iran for earthquake victims, Rs 92.2 million to Indonesia also for earthquake victims and Rs 97.9 million to Lebanon for war affected people.
In 2007, China was provided Rs 1.875 million in kind for flood affected people, Bangladesh given Rs 72.19 million for cyclone affected people. However, Pakistan in 2008 donated Rs 5 million to Myanmar for cyclone affected people, and Rs 160.503 million to China for earthquake affected people and Rs 1.153 million to Nepal for flood victims.
And in 2009, Pakistan provided Rs 33.338 million in kind to Palestinians of Gaza. In addition, in 2008, Pakistan also provided Rs 81 million in kind to Cuba for hurricane affected people. As far as Pakistan’s authorities are concerned, they managed to ink trade deals with China and Sri Lanka with which Pakistan also possess the in-depth strategic relations.
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=61681&Cat=2
Pakistan's tax collection declined and fiscal deficit rose to a record 6.6% of gdp in 2010-11, according to Dawn News:
ISLAMABAD, Sept 29: The fiscal deficit during 2010-11 stood at a whopping Rs1.336 trillion — highest in the country’s history and almost 39 per cent of total expenditure and 59 per cent of revenue.
According to consolidated fiscal data released by the finance ministry, the fiscal deficit, excluding payments of electricity subsidies, was Rs1.194 trillion or 5.9 per cent of GDP. However, after inclusion of one-time off-budget electricity subsidy payments of Rs142 billion to Wapda’s power companies, the overall deficit worked out at Rs1.336 trillion or 6.6 per cent of GDP.
During 2009-10, the deficit was Rs929 billion, 6.3 per cent of GDP, and increased by Rs407 billion in a year.
Ironically, revenue collection showed a dismal performance. The total collection declined significantly to 12.5 per cent of GDP against 14.2 per cent in 2009-10, despite a series of additional tax measures introduced in March.
Tax revenue dropped to 9.4 per cent of GDP from 10 per cent achieved in the previous year.
In absolute terms, total revenues amounted to Rs2.253 trillion, an 8.3 per cent increase over Rs2.078 trillion last year.
The tax revenue increased to Rs1.699 trillion from Rs1.473 trillion, by 15.3 per cent.
The growth in total provincial revenue was slightly better at 17.8 per cent.
The total non-tax revenue also declined to 3.1 per cent of GDP from the previous year’s 4.1 per cent, showing widespread erosion of tax collection efforts against the potential.
Even in absolute terms, the non-tax revenue stood at 553.5 billion, about 8.5 per cent lower than the previous years’ Rs605 billion. The federal non-tax revenue declined to Rs491 billion from Rs537 billion — a drop of 8.5 per cent. The provincial non-tax revenues also dropped by 8.5 per cent to Rs62 billion, from Rs68 billion a year ago.
The finance ministry said the total expenditure during 2010-11 increased by 14.6 per cent to Rs3.447 trillion, from Rs3.007 trillion in 2009-10. But the revenue growth of 8.3 per cent did not keep pace with 14.6 per cent increase in expenditure, leading to the huge fiscal deficit.
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Defence expenditure increased by a massive 20 per cent to Rs451 billion from Rs375 billion in 2009-10. Total defence- and security-related grants amounted Rs682 billion (Rs232 billion for security), showing a nine per cent increase over Rs625 billion (Rs250 billion security grants) in 2009-10.
On the contrary, the development expenditure and net lending dropped from Rs653 billion in 2009-10 to Rs514 billion, showing a reduction of 21.3 per cent or Rs139 billion.
The expenditure on the public sector development programme (PSDP) dropped by 11 per cent to Rs461.5 billion from Rs517 billion.
This meant the expenditure on improving the lives of the people posted a sizable reduction when seen in the context of increased prices and deteriorating poverty situation.
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To meet the deficit, the government had to borrow a record Rs615 billion from the banking sector, up Rs311 billion from Rs304 billion in 2009-10.
The non-bank borrowing increased by 8.3 per cent to Rs472 billion from Rs436 billion.
Interestingly, external financing to bridge the deficit posted a reduction of 43 per cent to Rs108 billion from the previous year’s Rs189 billion, showing a falling international confidence to extend financing to an economy battered by a war-like situation and devastating floods.
As a result, domestic deficit financing increased by as much as 47 per cent (Rs311 billion) to Rs1.086 trillion from Rs740 billion.
http://www.dawn.com/2011/09/30/highest-ever-fiscal-deficit-at-rs1336tr.html
Here are some excerpts from Forbes story on Pakistan's electricity crisis:
Analysts say Pakistan's chronic electricity shortages are largely the result of the government not charging consumers enough and of customers, including the government, not paying their bills. There are also problems with outdated transmission systems and bureaucratic infighting that has stalled power generation projects.
The U.S. is working with the Pakistani government to increase the power supply by constructing and rehabilitating six power plants, according to the U.S. Embassy. This extra energy will eradicate 20 percent of Pakistan's existing energy shortage, it said.
But many analysts say a lasting solution to the country's power crisis must involve politically painful increases in electricity prices and forcing customers to pay their bills.
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The country's main opposition leader, former Prime Minister Nawaz Sharif, lashed out at the government over the electricity shortages.
"The country is facing a severe power crisis, but the government is sleeping and doing nothing for the last 15 months over this issue," Sharif told reporters in Bahawalpur, another city in Punjab.
Pakistani Prime Minister Yousuf Raza Gilani sought to deflect blame away from his government in an address to parliament on Monday, pointing his finger at the United States. He said that the U.S. should help Pakistan solve its energy crisis if it wanted better ties.
Pakistan and the U.S. are nominally close allies in the war against Islamist extremists, and Islamabad has received billions of dollars in military and civilian aid over the past decade, including money to help the country's energy sector.
But the two countries have often clashed, and Pakistani officials regularly criticize the U.S. to divert attention away from their own government's performance.
http://www.forbes.com/feeds/ap/2011/10/04/general-as-pakistan-power-protests_8715078.html
Here are some excerpts from an AP story on the impact Punjab govt's spurning of US aid:
......Like many government-run hospitals in Pakistan, Lady Willingdon struggles to provide even basic care. The hospital, built by the British in the 1930s before Pakistan's independence, was meant to house 80 patients. The country's population has since boomed, forcing officials to cram 235 patients into a facility that is now run-down. Paint peels off the concrete walls and black mold covers the ceilings.
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There are only three working infant incubators, which were donated by NGOs, said Mohammed Athar, the doctor who runs the nursery for premature babies. The hospital is forced to use overhead warmers for other infants, leaving them more exposed to disease, he said.
"Without incubators, it's useless," said Athar.
The $16 million offered by the U.S. would have been used to purchase 10 incubators, build a new 100-bed ward and expand the nursery and emergency facilities, said Sharif, the hospital administrator.
The U.S. has financed similar efforts to transform two hospitals in southern Sindh province that treat tens of thousands of patients every year.
The head of the Punjab government, Shahbaz Sharif, tried to justify his decision to spurn American aid following the May 2 raid that killed the al-Qaida chief not far from Pakistan's equivalent of West Point. He said at the time that Pakistan needed "to break the begging bowl" and "get rid of the foreign shackles."
The U.S. operation outraged Pakistani officials because they were not told about it beforehand.
Sharif is a leading member of the main opposition party in the country, and many viewed his decision as a way to siphon votes away from the Pakistan People's Party, which controls the federal government. The Punjab government spokesman declined to comment on this interpretation.
Sharif and other members of his government are unlikely to feel much personal impact from the move to turn down U.S. aid.
Free government-run hospitals like Lady Willingdon are mainly used by the poor, who are already suffering from Pakistan's weak economy and surging inflation. Wealthier citizens opt for more expensive private institutions in Pakistan or abroad.
A large chunk of the American assistance, $100 million, was to be used to rebuild schools in southern Punjab destroyed by last year's devastating floods. An additional $10 million was meant to improve municipal services like clean water and sanitation.
The money will now be redirected to other areas of the country, said the U.S. Embassy.
Washington has continued several programs in Punjab that don't run directly through the provincial government, such as rehabilitation of power plants and small grants to female entrepreneurs in flood-affected areas, said the embassy.
The loss of aid for schools, water and sanitation also won't be felt acutely by the elite. Most send their children to private schools and live in leafy parts of Lahore dotted with Western restaurant chains, polo grounds and cosmetic surgery centers. The Sharifs own property in London worth millions of dollars.
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Life is very different for Pakistanis who live in Shamaspura, a dirt-poor part of Lahore filled with ramshackle brick houses separated by a narrow mud lane coursing with sewage. Most of the roughly 15,000 residents are fruit and vegetable vendors who make about $2 per day. They are forced to tie pieces of cloth across their faucets to filter out dirt and insects in the water.
"We have asked the government to pave our road and build us a sewer system, but they said they don't have any money," said Jumma Khan, a 55-year-old vegetable vendor......
Here's an AP report on US State Dept seeking funding for aid to Pakistan:
WASHINGTON - The Obama administration is pledging robust assistance to Pakistan despite demands on U.S. finances and a sometimes rocky relationship with Islamabad, according to a status report on Afghanistan and Pakistan.
The State Department report outlines U.S. goals in the region more than a decade after the Sept. 11 terror attacks triggered the war against al Qaeda, and the progress after billions of dollars have been spent and American lives lost. It also outlines the steps forward, looking ahead to the withdrawal of U.S. combat forces by the end of 2014.
The report was delivered to Congress on Thursday. The Associated Press obtained a copy.
"Though a tremendous amount has been accomplished, we also have no illusions about the task before us," the report said about Afghanistan. "We expect that ongoing violence, lack of institutional and human capacity, discrimination against women and vulnerable groups, and Afghanistan's incredibly low economic baseline will remain difficult challenges."
The report said the U.S. has reached its "high water mark" for civilian funding and the government in Kabul must move toward establishing revenue sources. The report said the U.S. will build a foundation for the Afghans to assume responsibility for their future.
On Pakistan, the department said the relationship with Islamabad "is not always easy, but it is vital to our national security and regional interests."
In fact, the relationship has been extremely strained the last few months to the point of breaking. Secretary of State Hillary Rodham Clinton recently traveled to the region to pressure Pakistan to crack down on the Taliban-linked Haqqani network, a major threat to American forces in the region. Adm. Mike Mullen, the former chairman of the Joint Chiefs of Staff, said Pakistan's intelligence agency was a "veritable arm" of the Haqqani.
A low point came in May when U.S. forces found and killed al Qaeda leader Osama bin Laden deep inside Pakistan.
Still, the administration insisted it will continue to provide civilian aid to Pakistan, which has fallen from $1.5 billion in the 2010 fiscal year to $1.1 billion this year. The report said next year's levels are uncertain, but the administration reaffirms its "commitment to providing robust, multi-year civilian assistant to Pakistan."
Unclear is how much Congress will push to reduce funds for Pakistan as lawmakers consider spending bills for the State Department and foreign operations.
The report suggested that a low-cost route toward improving stability in the region would be expanding U.S. market access for both Pakistan and Afghanistan.
The department said it was seeking congressional authorization for creating a U.S.-Pakistan Enterprise Fund, similar to funds created in Eastern Europe and with the former Soviet states in the 1990s.
http://www.cbsnews.com/8301-201_162-57318272/u.s-pledges-financial-aid-for-pakistan/
Here's an excerpt from a Dawn report on Ambassador Munter recounting how US AID has helped Pakistan over 50 years:
The US Ambassador further said Pakistanis who doubt that US assistance has borne fruit in Pakistan would be surprised to know that they have tasted it, adding, “Pakistan’s most popular citrus fruit, the kinoo, comes from California. USAID brought kinoo seeds to Pakistan in the 1960s. Today, we are helping export Pakistan’s sweetest fruit, the mango, in the other direction.”
“In the 1950s, we brought together the University of Karachi, the University of Pennsylvania’s Wharton School of Business, and the University of Southern California to establish a campus in Karachi to meet the demand for business managers in the bustling port city.”
“USAID sponsored the project and the Institute of Business Administration became Pakistan’s first business school and one of the first outside of North America. IBA is recognized today as one of South Asia’s leading institutions,” he maintained.
Ambassador Munter said in 1965, Dr. Norman Borlaug, who later won the Nobel Prize for his contribution to agricultural research, came to Pakistan to introduce his new high-yielding variety of wheat.
“We worked with the Lyallpur Rotary Club to support a program that gave individual farmers a bushel of the new generation of seed if, when the harvest came in, they returned the bushel so we could give it to someone else. While modest in scope, this small project brought Lyallpur into the Green Revolution that in turn converted a food deficit region into an exporter of grains,” he added.
In the 1960s and ’70s, a consortium of U.S. construction firms employing Pakistanis, Americans, Brits, Canadians, Germans, and Irish built the two mighty dams of Tarbela and Mangla with USAID and World Bank financing, US Ambassador said, adding, “Those engineering feats – more complex than anywhere in the world at that time – soon accounted for 70 per cent of the country’s power output and made Pakistan a leading provider of clean energy.”
In the 1980s, the US Ambassador said, with USAID’s assistance, Pakistan’s private industry founded the Lahore University of Management Sciences.
“Pakistanis approached us with the idea for the new institution and we agreed to support it with a contribution of $ 10 million. Today, LUMS incubates the ideas and nurtures the leaders who are critical to Pakistan’s future,” he remarked.
Ambassador Munter said, since the inception of the Fulbright scholarship program, nearly 3,000 Pakistanis have studied in the United States and close to 1,000 Americans have studied in Pakistan, adding, today, the U.S. Fulbright program in Pakistan is the largest in the world.
Key to all these successes was that Pakistanis owned them.
We may have helped sow the seeds but Pakistanis made sure the flowers blossomed, he said, adding, “aid is a catalyst and its success depends on those who receive it.”
“So today, while we help complete dams in Gomal Zam and Satpara and rehabilitate power plants in Muzaffargarh and Jamshoro, only Pakistanis can put an end to circular debt by paying their bills and holding the system accountable.”
“While we work to cultivate international markets for Pakistan’s fruit and fashion, only Pakistanis can deliver quality products that can compete. While we pay for road construction in South Waziristan, only Pakistanis can provide the local population with economic opportunities to make use of those roads.
While we build schools in Azad Jammu and Kashmir and Khyber Pakhtunkhwa, only Pakistanis can ensure that qualified teachers show up to teach in them,” the US Ambassador maintained.
http://www.dawn.com/2011/11/04/pakistan-us-relationship-dogged-by-history-munter.html
Here's an excerpt from a piece by Nancy Birdsall of CGD published in Foreign Policy Magazine:
Meanwhile in Washington, debate in the U.S Congress about aid to Pakistan -- not just military aid but aid to shore up the civilian government along the lines that the late Richard Holbrooke advocated -- has grown increasingly hostile. Many in Congress assume that Washington's announced annual economic aid package of $1.5 billion provides leverage that can somehow bring both the civilian and military sides of Pakistan's government into line -- and are threatening to withdraw civilian aid in frustration with the inability or unwillingness of Pakistan's military and intelligence agencies to deal with the Haqqani Network and other threats to the security of Americans in Afghanistan.
The IMF saga makes clear that that leverage just doesn't exist. Using economic aid to push weak civilian governments into political steps they cannot take (unless they are willing to give up power altogether) doesn't work. It is even more far-fetched to imagine that the much smaller amount of U.S. civilian aid constitutes leverage with Pakistan's military and intelligence establishment, or that it's removal is a serious threat to them. If the government of Pakistan is willing to walk away from more than $3 billion of IMF money because it cannot implement a VAT, it seems unlikely that the powers that be will change their strategic calculus in Afghanistan for whatever Congress appropriates this year.
As we have emphasized before, the purpose of U.S. civilian aid to Pakistan is not to bribe or reward, nor would withholding aid be a useful punishment. Aid seldom constitutes leverage over tough domestic policy decisions, as the development community knows well. Apparently, so does the U.S. military. On the eve of his retirement, Chairman of the Joint Chiefs of Staff Adm. Mike Mullen told Congress that the U.S. needs to move beyond counterterrorism in Pakistan and focus on the development issues that constitute the foundation of that country's long run success. In his words, "isolating the people of Pakistan from the world right now would be counter-productive."
The issue is whether modest amounts of U.S. aid -- to help educate kids, create jobs, and strengthen democratic institutions -- might help give Pakistan a shot at becoming a more stable, prosperous and democratic country in the long term. Congress should be demanding evidence of that possible effect and targeting aid appropriately, rather than making superficial cuts that hurt America's image and impact in Pakistan for no apparent gain.
Nancy Birdsall is the founding president of the Center for Global Development, a Washington, DC based think tank. Milan Vaishnav is a visiting fellow and Daniel Cutherell is a policy analyst at the Center for Global Development.
http://afpak.foreignpolicy.com/posts/2011/11/04/pakistan_and_the_imf
I would like you to be cognizant of the fact that now in Pakistan, corruption is at a scale that boggles the mind - at least it should boggle the mind. We are talking no longer millions but BILLIONS. We are talking about Pakistan's external debt shooting up by ten billion dollars in a short span of 3 years with nothing to show for it. I suspect the borrowed dollars have been purchased with corruption billions and transferred abroad. In the next 2 years huge repayments are maturing to the IMF and other lenders. The oil price may shoot up. Our exports reduce and our water supplies may stunt our agriculture. I don't see how we will be able to cope.
Billions are 'spent' by the government and as much as 40-50% if not more is diverted for pay-offs. There is hardly any development or relief going on anywhere. debt service has gone through the roof, being the biggest item in the budget. Poverty is rising, employment growth is nonexistent. Spending on social services had collapsed as there is no fiscal space.
Corruption is a HUGE component in both out fiscal and current account deficits. It has made a huge increase in both our domestic and international debt. it can corrupted the moral fiber of the country, especially the bureaucracy. Now the younger generation is actually embracing corruption as a perfectly acceptable way of life, looking at the leadership, the tycoons and the senior government officers as role models. They are actually openly defending the corruption of their families and expressing their intention to indulge in the same.
US State Dept & Sen Feinstein defend US aid to Pakistan, according to Dawn:
WASHINGTON: The US State Department on Tuesday defended aid to Pakistan amid calls from senators for a full review of whether economic and military assistance there serves the US national interest.
“We believe our assistance to Pakistan still continues to provide dividends for the American people in trying to grow and strengthen Pakistan’s democratic institutions, boost its economy,” said spokesman Mark Toner.
“In the long term, you know, those are the kinds of things we’re seeking to achieve,” he told reporters one day after Republican Senators John McCain and Lindsey Graham made a full-throated call for reevaluating the aid.
His comments came shortly after US Senate Intelligence Committee Chair Dianne Feinstein said that cutting assistance to Pakistan would be unhelpful but warned that calls to do so had strong congressional support.
“I don’t think that’s useful,” she told reporters. “My understanding is that there’s some overtures under way to restore the relationship. Well, that’s fine, but I suspect that if a bill were to come to the floor which fenced money, the bill would have a good chance of passing,”she said.
US lawmakers have expressed mounting anger at Pakistan, accusing military and intelligence officials there of supporting the Haqqani network blamed here for attacks on US forces and targets in Afghanistan.
“I can only express my profound disappointment with the relationship” and the “deterioration” in an already troubled alliance that “goes up and down, and up and down, and up and down,” she said.
“My very strong feeling is you can’t walk both sides of the street with respect to terror,” said Feinstein.
Relations slid to a new low last month when Nato air strikes killed 24 Pakistani soldiers on the Afghan border, prompting Pakistan to boycott an international conference in Bonn on Afghanistan’s future.
“This is a very complex relationship,” Toner said, adding that the deadly border incident “was difficult for the Pakistani people, for the Pakistani government.”
“They have reacted in a way that shows how important and how significant this tragedy was for them,” Toner said.
“It’s absolutely essential that Pakistan, Afghanistan and the US, other international partners, work through this and beyond. It’s in all our interests.”
But Republican Senator Mark Kirk told AFP that McCain and Graham, who serve on the Senate Armed Services Committee, “are right.”
“Military aid to Pakistan is unsustainable, and in this time of deficits and debt, we ought to save the money,” he said, warning that if Pakistan has chose “to embrace terror and back the Haqqani network,” it should do so “without subsidies from the US taxpayer.
Kirk has also called for bolstering ties to India and “making India a military ally of the United States and to encourage India to fill the vacuum in Kabul once we leave.”
http://www.dawn.com/2011/12/07/us-state-dept-defends-pakistan-aid.html
United Kingdom will likely to increase its aid to Pakistan upto 350 million (Pounds) a year till 2015, prioritizing uplift of education and health sectors, according to APP:
"The major portion of our aid will focus on getting more than four million children into school, recruit and train 90,000 new teachers and provide more than six million text books," George Turkington, Head of the UK's Department for International Development (DFID) in Pakistan said.
During his visit to a crisis centre for women (Bedari) in Chakwal, he said the UK government would provide assistance to prevent 3,600 mother's deaths in childbirth; another half a million children from becoming under-nourished and another 400,000 couple’s access family planning and contraceptives.
The UK will also support the country to empower women by strengthening legislation on land rights, marriage rights and domestic violence and get more girls and women involved in decision making at community and federal level so that they can demand their basic rights.
Head of DFID said that over recent years, UKaid has provided 35,096 women victims of violence with counselling, refuge, rehabilitation support and legal aid.
He said that UKaid provide monthly stipends to some 680,000 poor girls to help keep them in school and provided millions of free school text books.
He said that UKaid has also facilitated 1.2 million micro finance loans to poor women, helping them to lift their families out of poverty.
The DFID official also met beneficiaries at Bedari office a local NGO.
http://www.brecorder.com/pakistan/banking-a-finance/38265-uk-likely-to-rise-aid-to-pakistan-upto-350m-pounds-.html
The State Bank said on Wednesday that the value of e-banking transactions aggregated to Rs12 trillion during the second half of 2010-11, showing an increase of 19 per cent as compared to the first half of the year, according to a Dawn report:
The Payment Systems Half Yearly Review released by the State Bank here noted speedy rise in e-banking transactions in the country.
The volume of such transactions during the period under review reached 125.9 million depicting an increase of 15.5 per cent as compared to the first half of FY11, the review said, adding that the payment system infrastructure has maintained an overall growth trend for the second half of FY11.
However, the review also said that the volume and value of paper-based retail payments during the second half of FY11 were recorded as 177.3 million and Rs84.6 trillion respectively, indicating an increase of 3.5 per cent in the volume of transactions.
“The value of transactions has increased by 13.3 per cent as compared to the first half of FY11. The contribution of paper-based payments in total retail payment transactions was 58.5 per cent in terms of volume and 87.5 per cent in terms of value,” it added.
The review said the Automated Teller Machines (ATMs), which are the largest channel of e-banking transactions, showed 16.5 per cent increase in number of transactions and 19 per cent increase in value raising the share of ATM transactions in total e-banking transactions to 58.8 per cent and 5.4 per cent respectively, the review said.
It said the number of Real-Time Online Branches (RTOB) transactions grew by 14.7 per cent and the value of transactions increased by 18.8 per cent as compared to first half of FY11. “These transactions contributed 31.6 per cent in total volume of e-banking and 93.2 per cent in the value of such transactions respectively,” the review observed.
According to the review, as many as 466 more Automated Teller Machines were added bringing the total number of ATMs to 5,200 while 380 more bank branches were converted into Real Time Online Branches (RTOBs).
“A total of 7,416 bank branches (78 per cent) are now offering real time online banking out of a total of 9,541 branches in the country. The number of plastic cards at 14 million also registered an increase of 6.2 per cent during the period under review as compared to the numbers during the preceding half year,” the Review added.
The overall increasing trend in payment system infrastructure was also witnessed in the large value payments settled through Pakistan Real-time Inter-bank Settlement Mechanism (PRISM), which increased by 14.8 per cent in volume and 21.9 per cent in terms of value as compared to the first half of FY11.
http://www.dawn.com/2011/12/29/electronic-payments-reach-rs12tr.html
Here's a Global Post story on NATO using smugglers to supply its troops in Afghanistan through Pakistan:
With few other options available to it since Pakistan closed its border crossings almost two months ago, NATO has at times resorted to paying local smugglers to get much-needed supplies to its troops fighting in Afghanistan, Pakistani officials say.
The Pakistani and Afghan smugglers, who must pay bribes to militants to travel safely through some areas, navigate treacherous routes over the 1,800-mile mountainous divide that separates the two countries to bring containers of oil, food and other essential items — all at a price — to soldiers on the other side.
“Borders mean nothing to us. We have been crossing in and out for centuries,” Sahib Khan, a smuggler who said NATO had hired him, told GlobalPost.
The hiring of illegal smugglers came after a failed attempt by NATO to pay private companies, which truck goods across the border under the Pakistan-Afghanistan Free Trade Agreement (PATA). These private companies, Pakistani officials said, were secretly swapping out their normal cargo for NATO supplies until Pakistani security forces caught wind of the scam.
A senior officer for the Frontier Corps, an elite military unit that is responsible for security along the border, told GlobalPost that a total ban on the movement of containers under PATA, which was signed in 2010 to promote bilateral trade, eventually foiled the strategy.
“We had concrete evidence that some of the containers being imported by private companies, under PATA, were being used to smuggle supplies for NATO troops under cover of commercial imports,” the official said.
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Smuggling between Pakistan and Afghanistan has long been a profitable and vibrant business. Various trade agreements have been signed between the two neighbors in a bid to contain the practice, but high import and export taxes coupled with little government oversight, thwarted those attempts.
Mostly items like flour, edible oil, lentils, dried vegetables, contraband cigarettes, and animals for meat are smuggled into Afghanistan, while spare auto parts, electronics and unregistered vehicles are smuggled the other direction.
Smuggling is so widespread that it has become the backbone of the economy in towns and villages along the border, where locally it is treated simply as normal trade. The mountainous terrain provides an edge over security to smugglers who regularly trickle across the border without any trouble.
Sahib said that most of the food and oil supplies he has carried across the border for NATO originate from the southern port city of Karachi, and are moved through Peshawar and Quetta, and finally through Pakistan’s tribal areas, which are largely under the authority of various militant groups.
For those militants, the smugglers have been an important source of income. Smugglers are required to pay “rahdari,” or “passage,” an unofficial tax that allows them safe passage.
“Once we are onto the route, it’s the responsibility of those who receive rahdari to ensure we are able to safely enter into Afghanistan,” Sahib said.
Any smuggling that is done on behalf of NATO can in no way make up for the closed borders, however. Smugglers say they carry between 20 and 25 small containers a day while, when the border crossings were open, NATO shipped an average of 250 large containers a day — making the reopening of the borders essential to the war effort.
http://www.globalpost.com/dispatch/news/regions/asia-pacific/pakistan/120123/pakistan-border-nato-us-troops-afghanistan
Here is a News report on US Aid for Pakistani universities:
The United States will build new Faculty of Education buildings at six Pakistani universities and renovate a seventh education facility, as part of an agreement signed Wednesday between the universities and the US Agency for International Development (USAID), said Karen Freeman, USAID Deputy Director for Pakistan.
She stated this while addressing the signing ceremony of a memorandum of Understanding for construction and rehabilitation of faculty of education buildings, says a press release. The construction will take place over the next two year and the new and renovated buildings will eventually house approximately 2,000 students of two new teaching degrees: the four year Bachelor’ Degree in Education and a two-year Associate Degree in Education in teaching that USAID helped design and introduce in order to increase quality of teacher preparation across the country and 100 faculty members each year.
“Pakistan and the United States have enjoyed a long and productive relationship that spans more than 60 years and covers a variety of fields. Today’s ceremony is yet another expression of the US Government’s long-term commitment to help build a stronger, more prosperous Pakistan,” she added.
“It gives me great pleasure to be here with you today to witness the signing of the MoU between the seven of country’s public universities and two of USAID implementing partners for the construction and rehabilitation of Faculty of Education buildings across the country. The contribution to the Pakistani education system is yet another example of the US long-term commitment to helping Pakistan address its development priorities.
“Our collaboration in higher education sector spans more than five decades. One of our first undertakings in this sector was the construction of the Institute of Education and Research at the University of Punjab in 1960s. fifty years later, this institute continues to help the country shape its education policies. Over the years, we have worked together to build more higher education institutions that have since become premier centres for knowledge and learning. I am very proud to list among such the Institute of Business administration in Karachi, the Lahore University of Management Sciences, the Faisalabad Agriculture University as well as the Peshawar Agriculture University, and many more,” she said.
Karen Freeman said: “I am happy that through today’s commitment we are continuing this tradition of supporting Pakistan in its efforts to develop strong education institutions.” She said that these new facilities will help attract and train best young minds to teaching profession and will help improve the professional knowledge and skills of many other teachers.
Higher Education Commission Chairman Dr. Javaid Laghari appreciated the efforts of the US Government for improving the quality of education across the country. The $15 million construction initiative was officially launched today at the Higher Education Commission, where representatives of the USAID signed MoU with representatives of the seven universities. As part of the agreement, the US will construct new Faculty of Education buildings at the Sardar Bahadur Khan Women University in Quetta; the Hazara University in Mansehra; the University of Education in Lahore; the University of Sindh in Hyderabad; the University of Karachi in Karachi; and the Sardar Abdul Latif University in Khairpur (Sindh). The US will also help renovate the Institute of Education and Research at the University of the Punjab.
http://www.thenews.com.pk/TodaysPrintDetail.aspx?ID=90967&Cat=6&dt=2/3/2012
The World Bank will extend an assistance of upto $5.5 billion over FY 12-14 to support Pakistan’s poverty reduction and development agenda, reports Pakistan Today.
According to Bank’s Country Partnership Strategy Progress Report, a mid term review and implementation assessment, the Bank has responded flexibly in the face of the tremendous challenges Pakistan has gone through over the past year or so.
World Bank Country Director for Pakistan Rachid Benmessaoud said they will continue strong support to Pakistan while keeping a keen eye on implementation to ensure that these efforts translate into real results on the ground.
The progress report says the overall focus of the Bank’s strategy- to help Pakistan’s economy get back onto the path of high, sustained growth –remains valid and consistent with the overall priorities of the government of Pakistan as articulated in its New Framework for Growth Strategy. Also, the Bank support will remain centred on the original pillars of the CPS- the economic governance, human development and social protection; infrastructure and security and conflict risk reduction.
The Bank engagement over FY 12-14 is projected at up to $ 4 billion in new International Development Association (IDA) credits and International Bank for Reconstruction and Development loans. This will be supplemented by a robust programme under the Multi donors trust fund (MDTF) with initial commitment of $ 140 million and IFC support projected at $ 1.5 billion.
http://www.pakistantoday.com.pk/2012/02/wb-to-provide-5-5b-to-pakistan-in-3-years/
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