Category Archives: Economy

Farming in dry regions threatening aquifers

Pakistan has not undertaken any crop management plan. More credit supplies but little availability of canal water in dry regions, like Bahawalpur, has raised the input cost of agriculturalists as they have to sink tube wells and have increased the use of fertilizers and pesticides. The aquifers are on the course of depletion threatening cities and towns but there is no chance of getting the same refurnished as rapidly as their consumption.

Riaz Missen

British colonized Punjab with a view to make it basket of food and to recruit youth to defend their empire in India. A large swath of land was brought under cultivation by clearing forests and evicting the families living there. Pakistan did not change this policy and the lands are still being brought under cultivation. Cholistan, the tiny desert in Punjab bordering India, can be cited as an example in this regard.

Most of the agricultural lands in Pakistan are cultivated on commercial basis. Intensive cultivation and mindless use of chemicals have not only deteriorated soil fertility but also inflicted a blow to environment, including the flight of crop-friendly birds and insects and acidity in the subsoil water.

The government has not undertaken any crop management plan. More credit supplies but little availability of canal water in dry regions, like Bahawalpur, has raised the input cost of agriculturalists as they have to sink tube wells and increase the use of fertilizers and pesticides. The aquifers are on the course of depletion threatening cities and towns but there is no chance of getting the same refurnished as rapidly as their consumption.

Similarly, water management policy is nowhere in sight. In some areas, this source is available in abundance causing salinity and related problems. Others have got reduced water share due to more areas becoming under cultivation. Bahawalpur provides an interesting example in this regard. Farmers here are receiving 40 per cent per cent of the water available to them half-a-decade back.

The Indus Basin Treaty giving complete right to India over the utilization of water of its three rivers — Ravi, Beas and Sutlej — is nothing but a blunder committed by the people then at the helm of affairs. Contrary to international law, the treaty gave upper riparian the right to use the water of these rivers. No where in the world, a party can divert water in a way that could affect the flow of a river to the detriment of the lower riparian.

Bahawalpur happens to be the worst victim of the Indus Basin Treaty. The perennial rivers gone to India, major cost is being borne by the aquifers for being used extravagantly when water in seasonal rivers is short of enough supplies. The water reservoirs which were constructed to compensate the loss of Sutlej and Beas, have only ended up in increasing the share of Sindh and Central Punjab. The more lands being allotted to the settlers of Central Punjab in Cholistan, the share of the ‘sweet belt’ has significantly declined forcing the cultivators to pump out subsoil water at a time electricity and diesel are turning costly by every passing year.

A study of Water and Power Department of Punjab has found that 75 per cent of water in southern districts is not fit for crops. While the Indus Basin Treaty remains intact and raging controversy surrounds the construction of water reservoirs on the Indus River. The fate of lower regions — cotton belt — is almost doomed.

Welding livestock, fisheries and forestry with farming reflects a not-so-wise approach. As more emphasis is laid on farming, the more it proves a restraint for the livestock, fisheries and the forestry. Promotion of cultivation in semi-desert areas, like Cholistan and Balochistan, has caused a decline in livestock population due to the loss of space available to herding communities.

As for agriculture, landlords must turn to forestry and livestock. This step is necessary to regain soil fertility. Their income will witness downward slide for a few years but will pay in long-term. There is no reason to keep fisheries as an allied subject of agriculture. It should be dealt separately; credit supply to this new sector will revive hope in a large community associated with this sector.

Meanwhile, some quarters are pressurizing the government to defer water conservation plans on the plea that it was useless to invest in this fast declining sector. The move is intriguing, for having storage dams is must as the same can be used as a guarantee to ensure water supplies in dry-months. It is necessary because ours is an agriculture-based economy and that the country now has seasonal rivers for fresh water supplies.

The agricultural policy needs a revision. Pakistan must evolve a strategy to replenish soil fertility through shifting emphasize to forestry and livestock from cultivation. Meanwhile, water resources should be managed to ensure supplies during dry-months. The government should divert credit supplies from crops to forestry and livestock. Meanwhile, crop management policy should be brought forth while taking into consideration the water availability in different parts of Pakistan.

The wastewater must be given biological treatment to meet the watering needs of the wheat crop, particularly in the southern districts of Punjab. This measure will not save the aquifers but also save cities from the deadly water born diseases like Hepatitis. Fisheries and forests will get boost with wetlands becoming pollution free.

Weekly Pulse

Cash-starving Pakistan may bank on IMF

There are talks about the cutting the size of the army which numbers more than half-million. This measure can help direct lot of funds to the social sector development. But before doing this, there is need of rethinking the security policy of the country. And it will not be possible without taking away from the state the responsibility to defend the ‘ideological’ frontiers — it is really a costly job!

By Riaz Missen

The International Monetary Fund (IMF) has shown eagerness to save Pakistan from economic collapse at the time its friends and allies refused to lend a helping hand. Even China, which President Zardari toured with lot of fanfare, did not respond as quickly as the guest was expecting.

 IMF was the lost priority of the PM’s advisor on finance and the de facto finance minister, Mr Shaukat Tareen, as he was sure that Pakistan’s role in war on terror and its democratic credentials would urge the world to save Pakistan from a looming default.

IMF is not going to help Pakistan for the first time. It has done so on several occasions in the past as well. But this international financial institution (IFI) has always been loathed. IMF has never been the first choice of civilian regimes.

It is not what the IMF charges on its loans the regimes of the countries like Pakistan dread but these are the conditions which it insists should be fulfilled like curtailing public expenditure, withdrawing subsidies, expanding the tax base and adopting austerity measures.

IMF started lending its helping hand to the economically depressed countries in the 1970s when many found it impossible to pay their foreign debts due to global economic slowdown caused by the oil crisis. The IMF lent credit to the countries on the verge of default to stabilize their economies as well as enable them to pay off their foreign loans.

The interest rate is as minimal as 2.5% and sometimes as meager as 0.5% per annum. However, IMF asks applicants to restructure their economies to bring efficiency and let more space for the private entrepreneurs by resorting to the measures like privatization of the state-run businesses.

The previous government did accept the IMF loan and undertook some measures like downsizing, deregulation and privatization. However, these measures were carried half-the-way. The semi-democratic regime went ahead only to the benefit of the big businesses. The small investors were losers at stock exchanges, profiteers and hoarders took away essential commodities out of the reach of the commoners and state run industrial units were sold at throwaway prices.

Like the civilian governments in the past, the present one is also reluctant to accept the IMF loan facility for the obvious reasons. It can’t levy taxes on the well offs and big businesses. Though Mr. Tareen has vowed to bring agriculture, stock exchange business and real estate into tax net but he has to go extra long miles to make any difference in this regard.

When the lower and middle income groups can’t be provided relief by lessening the tax burden on them, the government simply can withdraw subsidies only on the risk of losing its face. PML-N is just waiting for the moment to exploit people’s frustration over the rising energy prices and increasing unemployment due to power shut downs.

Going by its vulnerabilities, Pakistan simply can’t escape the looming crisis without the help of the IMF which has offered its liquidity fund to keep the economy afloat. The deal with this IFI will open the door for assistance from the World Bank and Asian Development Bank as well.

The PPP-led regime missed the chance to give positive signal to the IMF as well as the countrymen on the occasion of presenting he budget for this fiscal year. It could have expanded the tax net and announced some relief for the poor and the middle income groups. Unfortunately it failed where it should have succeeded: food, edible oil, gas and petroleum products remained as highly taxed as ever.

The dilemma with the government, hence, is clear. It can’t withdraw subsidies further until and unless it brings down GST and import duty on the essentials particularly kitchen items, petrol and diesel which affects the life of the people the most.

Progressive taxation is the answer while ensuring that the burden is not shifted to the lower income groups through corruption.

The government needs to open up other avenues to end its dependency on traditional sources of revenue. It needs to seriously think of cutting down the non-development expenditure. If it has to withdraw subsidies it should seriously work on the ways to increase spending on health, education and other civic amenities. Cheap justice and rule of law can bring many dividends for both the people and economy — the both.

Foreign tours of the government dignitaries and the bureaucrats, perks and privileges of the heads of the semi-autonomous institutions and the top-down corruption of the officials ultimately burdens the weaker sections of the society.

Instead of investing further on constructing roads and highways, the government needs to improve the railway system and make it more efficient. It will promote business and help cut down the import bill on oil.

There are talks about the cutting the size of the army which numbers more than half-million. This measure can help direct lot of funds to the social sector development. But before doing this, there is need of rethinking the security policy of the country. And it will not be possible without taking away from the state the responsibility to defend the ‘ideological’ frontiers — it is really a costly job!

Necessary amendments in the constitution will certainly redefine the objectives of the state and re-imagine its role and responsibilities as a pluralist entity striving to find a due place in the comity of nations.

Getting rid of the ‘ideological’ burdens will give a strong message to the countries in the neighborhood and beyond. The public expenditure will significantly come down as many institutions will have to be closed. Pakistan will become a heaven for tourists as the country will owe its history far beyond the fall of Sindh at the hands of the Arab armies. Many spiritual sites have attraction for the Hindus and Buddhists a prosperous community of Asia.

Regional trade will not only bring down the cost of doing business, raise the purchasing power of the people and improve the standards of life but it means lot of revenues for the government as well. Further, it will invoke the interest of the neighbors in the peaceful and stable existence of the country.

Weekly Pulse

Musharraf regime presents farewell budget

High subsidies, development funds lose worth when economy stands on shaky grounds

By Riaz Missen

 Despite the wide spread impression that it is an election year budget due to record allocation for public sector development programs but given the prospects of the economic managers who had authored the fate of the economy packing home, it can be safely called a farewell budget. Subsidies for the poor sections of the society are meaningless when the economy stands on shaky grounds. High inflation, energy crisis, mismanaged water resources and political uncertainties are set to deny their gains in last eight years.

The government has tried to strike a balance between the expectations of the different sections of the society as well as the available resources. In some areas it has set unrealistic goals. In others, it seems having a conservative approach while allocating funds or granting subsidies.

A cursory look at the fund allocation chart will reveal that the budget is as business friendly as in the past. A phenomenal growth in agri sector has been used an excuse to allocate record funds for it.

 The priority seems to address the demands of the vocal sections of the society like feudals, traders, financial wizards, and the government employees. The defence allocations have also been increased while keeping in mind the inflationary trends and experience of the last year.

 The ‘silent majority’ can best live with the tall promises that have been made in the budget. A deliberate attempt has been made to prove it to be favouring the poor sections of the society, as well. The subsidies in terms of food items are supposed to alleviate the sufferings of the teeming millions in the times of high inflation.

There are some areas where the government has tried to make promises fully knowing that they can’t be fulfilled. Also, there are some avenues of income it has left untouched. There could be some revolutionary measures that it should have taken to alleviate the sufferings of the lower and middle income groups but it has behaved as usual.

Impressive figures

 The budget 2007-8 with a total outlay of Rs. 1874 billion was presented in the National Assembly on Saturday. The fiscal deficit in the budget will be Rs. 205 billion. The current expenditures in the budget have been set at Rs. 1353 billion i.e. 66% of the total budget, which is 2.2% more than the current fiscal year budget. Rs. 520 billion has been allocated for the annual development program, 37.7 % more than the current year.

 Rs. 1394 billion fiscal resources would be available to the government for the next financial year with Rs. 205 billion deficit. In current year 1100 billion rupees were available to the government. The net taxation revenue target in the budget has been set at Rs. 902 billion, which is 28% more than the current fiscal year.

The centre will transfer Rs. 466 billion revenues to the provinces including Rs. 403 billion from the divisible pool and Rs. 62.8 billion through direct grants. Rs. 113 billion has been allocated in the budget for subsidies, while Rs. 119 billion has been earmarked for interest and repayment of foreign loans while Rs. 318 billion for repayment of the domestic loans.

Defense budget has witnessed increase by 10 percent going by the inflationary trends and the experience of the past years.

Agriculture sector seems to be the real beneficiary in terms of budgetary allocations as compared to industry given the heavy presence of the fuedals in the corridors of power. Rests of the sectors of economy have got their privileges intact and where it seems possible the concessions have been granted in terms of relaxation on importing machinery.

Raise in subsidy on fertilizer, concession on tube well charging rates by 25%, allocating funds for the supply of quality seeds and subsidies on diesel have been the major incentives announced for the agri sector.

 Constructing infrastructure across the country has been termed the major focus of the PSDP. The government has sought completion of ongoing projects within time. The pace of work on these projects was slowed down due to high inflationary trends in the economy.

 Record subsidies have been announced presumably to alleviate the sufferings of these sections of the society. The essential commodities will be made available at subsidised rates (25 %) to the people by expanding the network of utility stores to the Union Council level in four months.

The government employees will get 15% raise in their salaries, the retired ones will get 20% raise in their pensions while the unskilled worker’s minimum salary has been increased from Rs. 4000 to Rs. 4600.

The government intends to construct 250,000 low-cost housing units to provide cheap accommodation facility to the low-income group a housing scheme in collaboration with the provincial and district governments for which the House Building Finance Corporation would provide soft loans. An estimated number of 250,000 units would be constructed in the next five years.

 Another scheme for low paid government employees would be launched under which 37,000 housing units would be given to the employees on ownership basis. The government employees would have the facility to get loans for the construction work.

 

Meanwhile, the government has allocated a sum of Rs1.206 billion for the housing ministry against Rs1.194 billion fund provided to the ministry under the Public Sector Development Programme for the last fiscal year.

Education sector has been allocated 4% of the total budget while health sector has got Rs. 5.24 billion besides Rs. 16 billion for the provision of clean water.

The government has also allocated Rs. 26 billion for the construction of water reservoirs while one billion rupees have been allocated for Thal and Kachhi canal.

Rhetoric vs. reality

The government has made claims vis-à-vis its achievements in terms of improving the micro-economic indicators during last eight years like GDP growth, per capita income, foreign exchange reserves and the revenues. It has also owes the credit of bringing the expenditure on public development programs to the record level besides achieving the 4% target of expenditure on the education sector.

The foreign direct investment has also touched new limits due to the liberalisation policies of the government by which opened all the sectors of economy to the investors. With no limit to earn profit and low interest rates in early years did their wonders in country with 160 million people out of 30 million are supposed to belonging to the middle class.

The benefit of low interest rates went to the banking sector who forwarded credit to the middle class for the purchase of consumer goods. Car leasing companies, motorcycle manufactures did see phenomenal rise in demand. The sale of electronic goods like refrigerator, washing machine, TV etc. also touched new limits. Mobile phone companies also benefited from the credit forwarded by the banking sector to the middle income groups of the society.

Only three sectors out of 32 have been showing worth during last eight years. They include banking, oil & Gas and telecom sectors. The rest have refused to rise up despite heavy restructuring drive. The economic cycle has been run on the money sent back by oversees Pakistanis and the one billion dollar aid package of the Bush Administration.

 Reforms that were meant to bring transparency in the working of the public institutions are still under way. A lot of funds for the uplift of the country could not be spent during last fiscal. The departments missing their targets are being asked to spend the pending amount within next two or three months.

 “The budget doesn’t deal in an effective way with infrastructural bottlenecks (acute shortages of water and power), speculative activity that is diverting precious resources to non-productive areas (real estate and stocks), provision of social security net and lifting and boosting productivity by investing appropriately in human capital,” concludes a commentator.

 Poor on razor’s edge despite heavy subsidies

 When the government had started claiming to achieve micro-economic stability, the then Governor State Bank, Dr. Ishrat Hussain, had publicly admitted that the axe of structure reforms had fallen on the poor and middle income groups.

The poor sections of the society were duly promised to be compensated in the next phase of reforms, for the government had brought down interest rates and showed door to many unskilled workers during its restructuring drive.

The second generation reforms have yet to get a momentum while the team of economic managers is set to leave back to where it had come from. What it has given is a casino-culture economy whereby the mafias of the financial sectors have taken the savings of the poor through stock exchanges and real state business.

 The well-off sections have never been brought in the tax net for the guiding philosophy of the economic managers was that the more they will save, the more they will invest in the export-oriented business.

Tax-to-GDP ratio stood at 13.5 percent in 1999 that is down now around 9%. During the last eight years inequalities have grown while the ratio of indirect taxes has been increased burdening further the middle and lower income groups.

 Amidst political chaos lurking on country’s horizon, energy crisis looming large, inflation rising high, trade deficit increasing every day, cost of business on the rise, the agriculture left on the mercy of the heavens and the middle and lower income groups burdened with heavy taxes, the subsidies will only heat up the economy rather than benefiting the poor.

Economic managers ditch the country

 While instituting reforms, the real task would have been reducing the administrative expenditure as well as taking measures to keep prices of essential goods for the consumers. But as the reformers got the momentum monopolies emerged and the government did not cap the profiteering ratio lest the investors are discouraged.

Too, the regional trade was not promoted to lessen the cost of business and making available cheap and quality goods to the people. Rather, this avenue remained hostage to the political expediency to the bad luck of the economy.

The best hope of General Musharraf after his taking over the government in 1999 could have been the restructuring of the economy to bring efficiency in different sectors. Given the onset of the WTO regime that obliged Pakistan to allow free flow of goods from the other members of the regime, the real challenge was to increase the productivity so that the trade deficit does not push to the limit that the country defaults vis-à-vis it foreign liabilities.

 

While one must not expect the government to be pro-poor in free market economy but it should have protected the consumers against the ruthless profiteering of the business community.

 The repercussion of preferring the businesses over the consumers are obvious. While the economy stands predominantly uncompetitive, government can resist allowing foreign products penetrating into the domestic market, no more. The trade deficit is likely to compounding the woes of economy. How country will bridge gap, remains as confounding a question as it was in the unfolding years of the Musharraf regime.

Prospects of political backlash

Take into consideration the scenario in which the Musharraf’s legitimacy is being questioned by the civil society and political parties, it is not difficult to bring the public irritated by the price hike in essential commodities and falling living standards. While mafias in financial sectors, hoarders and monopolists have made people’s life miserable, the government is increasing losing confidence to establish writ of the state.

The persistence of energy crisis and no prospects to tackle the same makes it evidently clear that it will be difficult to keep up the present pace of economic growth while trade deficit is getting unmanageable. Political stakes have been raised too high to let regional trade deliver its benefits in terms of curtailing cost of business and making available to the consumer low priced but quality products.

 No drastic cut has been made to curtail administrative expenditure. Defence budget remains as higher while the role of armed forces still needs to be defined as per the requirements of the global age. While the prospects of real growth are dismal, these two avenues have not been utilised to give breathing space to the masses.

Middle East remains as turbulent while Iran is becoming increasingly under threat of US attack on the nuclear program. So what is evident is that the energy prices will not come down raising prospects that GDP growth target will keep on falling. The first effect will come out in the form of taking back the subsidies made now available to the poor sections and agriculturalists.

In the presence of the less-democratic political parties and their well-known opportunist outlook, one may not expect the passion will not rise among the masses. Even a little provocation can compound the difficult situation the General-president is in right now.

Last but not the least, once the macro-economic indicators start deteriorating the government, no matter who is in command, will not even in the position to grant concession to pacify people’s passions. Will the well-off sections come to the rescue of the government? The answer is that simple: they will not. The best time to construct barriers against anarchy was 2004-5 but this opportunity was lost. The interesting aspect of the game plan of Musharraf’s economic managers is that there will be left none virtually none to expect responsibility if Musharraf too decides to quit, through a deal or otherwise.