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Pakistan’s fundamental issues

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Pakistan’s fundamental issues
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https://nation.com.pk/Columnist/javid-husain
Javid Husain

January 01, 2019




Pakistan is once again passing through a critical phase of its history marked by political instability and serious economic problems. The preceding year saw the defeat of the PML(N) governments at the Centre and in Punjab in a highly controversial election tainted with allegations of political engineering and the rigging of the electoral results with the involvement of the deep state. Obviously these allegations will remain as such as long as they are not proven through independent and credible investigations. Meanwhile, the political climate in the country has been vitiated and an atmosphere of uncertainty has been created with adverse consequences for political stability and the economy. The accountability process, which is the need of the hour for the eradication of corruption, itself has become controversial with charges of selectivity and political victimisation. NAB’s harsh and arbitrary accountability procedures have generated a climate of fear driving away potential investors and discouraging senior government officials from taking bold decisions in public interest.

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PTI’s agitational politics during the past few years starting with the totally unjustified dharna of 2014 as established later by the Supreme Court Commission findings, which was secretly supported by renegade elements belonging to the deep state, destabilised the country politically, undermined the democratic process, damaged the economy and prevented the country from reaping the full benefits of CPEC. These renegade elements did not realise that in destabilising a duly elected government and undermining the democratic process, they had unwittingly become the instrument of the enemy’s hybrid warfare against Pakistan with the aim of destabilising it politically, demoralising it socially, and weakening it economically.

The worrisome developments of the past few years marked by the reported involvement of the deep state in political engineering and the current political, economic and social problems are the logical outcome of our inability to deal effectively with certain fundamental issues that every nation must settle in the interest of its security and economic well-being. The most important out of them is the issue of the right political system for Pakistan or, more specifically, whether elected representatives or unelected institutions of the state will rule the country and be the ultimate arbiters of its destiny. The verdict of the modern history is in favour of representative forms of government, which are formed through periodic elections allowing the people to decide through their votes as to who will have the right to govern. This principle of consultation with the people for setting up a government is also in accordance with the injunction of the Holy Quran.

Unfortunately, despite the clear injunction of the Holy Quran calling for consultations with the people in running state affairs, despite the emphatic advice given by the Quaid-e-Azam to the senior army officers at Quetta in 1948 to keep away from politics, and despite our unhappy experience with military rule, the country had to bear the disastrous consequences of four military governments. These experiments with military governments repeatedly derailed the democratic process, sowed the seeds of political instability, undermined political evolution on the right lines, undermined the rule of law which is sine qua non for social stability and economic progress of a country, and aggravated centrifugal tendencies resulting in the dismemberment of Pakistan in 1971. It is a pity that Pakistan’s superior judiciary played an ignoble role in validating these military take-overs, the last one being the coup d’etat by Pervez Musharraf in 1999.

The developments over the past few years show that as a nation we have not drawn the right lessons from our own historical experience or from the history of the world over the past several centuries during which democratic institutions have evolved. A national consensus on a democratic form of government is a must for Pakistan’s long-term stability, security and economic progress. Unfortunately, renegade elements belonging to some unelected institutions of the state continue to hatch conspiracies to destabilise and change elected governments, thus, falling prey to the machinations of Pakistan’s enemies. These conspiracies, which have inflicted enormous damage upon the country’s security and economic well-being, must stop and the elected governments must be allowed to govern in accordance with the mandate given to them by the people of Pakistan.

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Besides the challenge of political stability, national cohesion and a democratic form of government, Pakistan faces the daunting task of rapid economic development and eradication of poverty from which about 60 percent of its people suffer. With per capita income of about $1600, Pakistan remains a less developed country which is unable to provide even necessities of life like food, shelter, education and health facilities to the vast majority of its people. Growing inequalities of income and wealth have exacerbated the difficulties of the poor who are groaning under the weight of low income, unemployment, and high inflation. Our national expenditures on education (2.2 percent of GDP) and health (0.9 percent of GDP) are far below the desirable levels.

Consequently, we are turning into a nation of malnourished and semi-literate people who would be unable to face successfully the difficult challenges of rapid economic growth and prosperity in the highly competitive world of the 21st century. Education, especially advancement in science and technology, is a must for economic development in the contemporary world. In this perspective, our low literacy level (about 55 percent) even after 70 years of independence is extremely disappointing. Despite a population of about 220 million people, we do not have even a single world class university. Our economic growth rate remains on the low side as we are caught in the syndrome of low national saving and national investment rates. Our huge current account deficits show that as a nation we are living far beyond our means. The unsustainably large fiscal imbalances are the result of the proclivity of our governments to spend far more than what their revenues would allow.

The changes required in our economic policies to overcome the daunting economic challenges confronting the country are obvious. Side by side with the campaign to eradicate corruption, the need of hour is for steps to raise significantly our national saving and investment rates so as to eliminate our current account deficits and accelerate our GDP growth rates, reduce our fiscal deficits to sustainable levels, increase our exports, promote education particularly science and technology, raise the tax-to-GDP ratio to raise additional revenues for the government, expand health facilities, provide justice, and reduce income and wealth inequalities for the benefit of the poor. Simultaneously the government should launch programs for the rapid development of agriculture, industry and infrastructure in the country.

Unfortunately, in a marked contrast with the message of peace and moderation that Islam embodies, Pakistan has turned into a country which is prone to violence and extremism. Extremist tendencies compounded by strategic mistakes have also created the monster of terrorism which has inflicted enormous damage on our society and economy. We need to take well considered steps to encourage moderation, minimise violence and eradicate terrorism in our society.

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No discussion of the fundamental issues confronting Pakistan can ignore the need for adequate military strength and a proactive foreign policy to safeguard our security and promote our economic well-being. For the allocation of maximum possible resources to the gigantic and urgent task of rapid economic development, we should maintain a credible security deterrent at the lowest level of armed forces and armaments. However, this would be possible only if we pursue a low-risk and non-adventurist foreign policy in the service of our national interests.



The writer is an author, a retired ambassador and the president of the Lahore Council for World Affairs.

javid.husain@gmail.com

https://nation.com.pk/01-Jan-2019/pakistan-s-fundamental-issues
 
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For Pakistan, 2018 marked by economic instability
By Shahbaz Rana
Published: January 1, 2019
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Businessmen are seen inside a high-rise office building. PHOTO: REUTERS

ISLAMABAD: Two key events at the beginning of 2018 defined the economic policies of Pakistan for the rest of the year – the change of finance minister Ishaq Dar and the United States President Donald Trump’s tweet in which he accused Islamabad of deceit and lies.

Both these events symbolise instability that continued till the day, although Prime Minister Imran Khan on December 28 declared that the phase of ‘uncertainty’ is over. The country had three finance ministers in past one year due to an election year and resignation of former FM Ishaq Dar.

Because of frequent change of command at the top, the economic policies changed too every time, which according to some economic experts caused unnecessary pain to the masses.



Trump’s late night tweet just when the 2018 dawned was a clear indication of what kind of difficulties Pakistan’s rulers would have to face in bringing in dollars to avoid default on international debt obligations and to deal with the serious challenge at the hands of the Financial Action Task Force (FATF).

Undoubtedly, both the International Monetary Fund (IMF) and the FATF are under immense influence of the US. Many had predicted that Pakistan would be at the doorstep of the IMF in 2018 and Trump’s tweet raised apprehensions that this time it would have to deal with a tough IMF. The fears were true.

The kind of difficulties Pakistan faced being on the ‘wrong side of the US’ can be best described in the words of the PM Khan. He acknowledged that the IMF was unusually tough on Pakistan due to ‘political reasons’ but hoped that the problem would be over due to improvement in relations with the US.

Due to tough IMF and irritated US, it was for the first time that an IMF mission that had arrived for bailout negotiations left Islamabad on November 20 without reaching a staff level agreement.

In 2018, after 16 years Pakistan excluded the Coalition Support Fund (CSF) receipts from the US from its new fiscal year budget estimates. On an average $1billion annual disbursements had helped keep overall budget deficit under some control.

At the start of 2018, the former Pakistan Muslim League-Nawaz (PML-N) government had taken some decisive measures like launching crackdown against Hafiz Saeed’s Jamaat-ud-Dawa. This did not work out. In Feb, the FATF placed Pakistan back on its terror financing watch-list with effect from June 2018.

After Ishaq Dar’s exit from the scene, the then prime minister Shahid Khaqan Abbasi had decided to pick businessman-turned politician Dr Miftah Ismail to run the economy. His first step was to defreeze the value of currency that Dar had kept unchanged and through $7 billion to defend the value. Under Dr Ismail’s watch, the rupee shed its value by Rs10 or 9.52%, trading around Rs115.

The PML-N government also gave its last tax amnesty scheme with an aim of broadening the tax net and offering wealthy Pakistanis a chance to declare their hidden assets in Pakistan and abroad.

The offshore tax amnesty scheme was part of a five-point ‘radical economic reforms package’ with an aim to increase existing narrow tax base of only 1.2 million individuals to 30 million.

In April 2018, Pakistan put off the signing of a revised free trade agreement with China at the last moment due to strong reservations about the final offer list shared by Beijing.

In May, the PML-N announced its sixth and last budget and also declared that the economic growth rate peaked to 5.8% in the fiscal year 2017-18, which was the highest in 13 years. Soon after end of the PML-N government, the claims of good economic progress started busting.

The Ministry of Finance that hardly a week earlier was claiming marvelous economic achievements, went straight to the caretaker prime minister and told him that without the support of the IMF the country’s financial survival is at stake.

An IMF team was quietly invited but the caretaker government backed out from the programme talks despite admitting that Pakistan may face difficulties in meeting its international debt obligations due to mounting external sector challenges.

Yet, the caretaker finance minister Dr Shamshad Akhtar devalued the currency by another Rs10, hitting the Rs125 to a dollar mark in July 2018 – a level that Moody’s Credit Rating Agency had predicted for a year later.

The country’s trade deficit and current account deficit figures were out by that time. Pakistan booked its highest trade deficit in history of $37.7 billion with imports standing at a record $60.9 billion. Resultantly, the current account deficit also widened to a record $18.9 billion.

Pakistan’s borrowing from foreign sources also hit a record high at $11.4 billion in fiscal year 2017-18,

The government’s debt was equivalent to 72.5% of the GDP at the end of fiscal year 2018. The ratio was “higher than the median estimate for B-rated sovereigns of 55% of GDP for 2017”.

The Public Debt Management Risk Report of June 2018, released by the Ministry of Finance, showed that most of the indicators moved further towards dangerous levels while three breached the redline, set in the medium-term debt strategy.

By the time the Pakistan Tehreek-e-Insaf (PTI) took over the reins in August, it was evident that the new government will have to walk a tightrope as its plan to increase development and social spending as well as to reduce taxes would clash with the need to further tighten monetary and fiscal policies to reduce economic vulnerabilities.

On July 26 Asad Umar, the current finance minister, met with media before taking oath of the office and said, “The crisis is so severe and requires measures so urgent that no option can be ruled out.”

He and Prime Minister Imran Khan travelled the next few months with a begging bowl in hand and finally secured breathing space from the United Arab Emirates and Saudi Arabia. China has not yet publicly announced the quantum of its assistance to Pakistan.

The PTI government also unveiled its Rs5.3 trillion revised budget for this fiscal year but its ‘emergency’ measures lacked the ideological shift that was needed to document the growing informal economy and spur economic growth to create jobs. Resultantly, the dawn of 2019 may see another mini budget.

Umar took a bold step and returned the cabinet’s powers to issue supplementary budget. The government linked authorisation of supplementary budgets with prior approval of the federal cabinet, tightening the slack fiscal controls that were exploited in the past by both bureaucrats and politicians for whimsical spending of the taxpayers’ money.

The PTI government also drastically revised down the active privatisation list, restricting it to only 8 from 64 companies. All bleeding companies like Pakistan International Airlines (PIA) and the Pakistan Steel Mills (PSM) have been dropped from active list of privatization.

In between there was a good news and Pakistan finally jumped up 11 places on the Word Bank’s Ease of Doing Business Index and clinched 136th position — for the first time in 15 years — due to reforms introduced by previous federal and provincial governments.

During the year, the rulers devalued the currency by 33% and increased interest rates by over 425 basis points, which were probably the most stringent measures taken by any country in the region. These measures along with anticipated additional taxes will stifle the economic growth rate.

This will make difficult for Prime Minister Khan to meet his two topmost priorities – providing 10 million jobs and shelter through 50 million housing units. Despite these measures, the investors remained nervous and the Pakistan Stock Exchange (PSX) has been nose-diving.

After the recent devaluation, the rupee is trading at an all-time low of Rs139 to the greenback in the inter-bank market. Yet more will come but hopes for the export to revive remain diminishing due to lack of exportable surplus.

The PT government is projected to add over Rs10 trillion in public debt during its first three years, due to rigidity in expenditures, increase in interest rates and currency devaluation. This debt will be equal to the total debt added by the last PML-N government in its five years term.

The government will face serious issues in broadening the tax base. For the tax year 2018, there are about 1.5 million taxpayers on the Active Taxpayers List.

The tax revenues will be another challenge for the PTI in 2019 as it has so far remained unable to appoint a dynamic person to head the Federal Board of Revenue (FBR). Jehanzeb Khan could be a good federal secretary finance.

How 2019 will be in terms of economic growth rate can be best described in the words of Finance Minister Asad Umar. When there is an issue of survival, “economic growth becomes a secondary issue,” he said on December 28.
https://tribune.com.pk/story/1878655/2-pakistan-2018-marked-economic-instability/
 
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For the allocation of maximum possible resources to the gigantic and urgent task of rapid economic development, we should maintain a credible security deterrent at the lowest level of armed forces and armaments. However, this would be possible only if we pursue a low-risk and non-adventurist foreign policy in the service of our national interests.

Even he's saying lower defence spending!
 
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