Archive for October 15th, 2010
The International Financial Institutions (IFIs), including the IMF and the World Bank, and the finance team led by Dr Abdul Hafeez Shaikh are all worried about the financial indiscipline exhibited by the political leadership over the last two years. In particular, they are worried because the political leadership in the centre and in the provinces is totally oblivious to the developments taking place on Pakistan’s financial scene. For them, it is business as usual.
In order to give them a shock treatment, the finance team made a candid presentation to the prime minister on the state of the economy in general and finances in particular. The political leadership was told point-blank that if we did not bring our house in order, if we continued to follow the path of fiscal profligacy, and continued to play politics with tax reform agenda, Pakistan would be in dire straits by end-December 2010.
The IMF and the World Bank have also shared their concerns with the political leadership about the ongoing financial indiscipline. In particular, the political leadership was told that if Pakistan failed to implement the VAT or reformed GST by October 1, 2010, the IMF Programme would be suspended and as such the remaining tranche would not be released. If the IMF Programme is off the track, flow of funds from the World Bank and the ADB will also dry up.
Money from the Kerry-Lugar Act may also not be available to Pakistan. In short, the political leadership was told bluntly that Pakistan must bring its house in order, maintain financial discipline at all levels of governments, bring economy at the centre stage and support the efforts of its economic team if it expects financial assistance from the IFIs and the Friends of Pakistan.
In addition to the strong message given to the political leadership, the IMF has also raised its serious concern on the financial indiscipline of the provincial governments; budget deficit, instead of shrinking, has widened in the midst of the IMF Programme, thus becoming a source of embarrassment for them; rising circular debt owing to the mismanagement of the power sector; the perpetual bleeding of PSEs draining Pakistan’s finances; and the senseless increase in support price of wheat, giving birth to yet another kind of circular debt. The last concern raised by the IMF is the subject matter of this article.
The present government has raised the support price of wheat from Rs425 to Rs625 and then to Rs950/40 kg during the last three years. The cumulative increase is estimated at Rs525 or 123.5 per cent since 2006-07. In plain language, the government itself has increased the price of wheat from Rs10.6/kg to Rs23.8/kg in just three years. Such a senseless increase in the price of wheat was nothing but to benefit the big farmers at the cost of voiceless millions. Such a massive increase in the price of the basic diet of the people in general and poor and fixed-income groups in particular was cruel.
This act of cruelty has had multidimensional adverse impact on the economy of Pakistan. Firstly, the empirical evidence suggests that a 10 per cent increase in the support price of wheat increases overall prices (CPI-based) by three per cent. In other words, support price of wheat is highly inflationary in nature and has been one of the root causes of the persistence of double-digit inflation in Pakistan. Over the last three years, the cumulative overall inflation and food inflation have increased by 44.5 per cent and 54 per cent, respectively. The incomes of the poor have not increased proportionately and as such they have been devastated by inflationary pressures.
Secondly, the persistence of double-digits inflation has forced the State Bank of Pakistan (SBP) to keep the discount rate at the elevated level, resulting in a substantial increase in cost of borrowing, discouraging investment (investment has declined from 22.5 per cent of GDP in 2006-07 to 16.6 per cent in 2009-10 – a decline of six percentage points), slowing economic growth (averaging three per cent per annum as against seven per cent in the previous five years) with attendant rise in unemployment and poverty. It has also increased the cost of financing fiscal deficit from domestic sources, thus increasing the share of interest payments in total expenditure. These have been the macroeconomic consequences of the senseless increase in the price of wheat.
Thirdly, the massive increase in the price of wheat has given rise to yet another kind of circular debt. The government not only increased the price of wheat to Rs950/40 kg but also procured 9.2 million tons from the farmer – the highest ever purchases thus increasing the financing requirements from banks to Rs219 billion in 2008-09. In the current wheat season (started May 2010), the government has targeted to procure 7.5 million tons, thus raising the additional financing of Rs178 billion. The outstanding stock of commodity financing at end-June 2010 has been Rs413 billion, of which the wheat financing accounts for overwhelming share. How such a large amount is going to be retired to commercial banks?
On the start of current wheat procurement season, commercial banks were reluctant to provide financing for the wheat procurement but were forced by the SBP and the Ministry of Finance to provide financing. The total stock of wheat as on June 14, 2010, has been 10.7 million tons as against 9.5 million tons on the same date last year. Even if all the 10.7 million tons of wheat are released to the flour mills at the rate of Rs1050/40 kg, the government will receive Rs280 billion – much less than the outstanding stock o Rs413 billion. Who will retire the remaining stock of commodity financing? How commercial banks will finance next year’s wheat procurement? Is this a new circular debt in the offing?
The discussion involves all the topics that would have occurred in the last week and may include political issues, social issues, inflation, economy, international issues, showbiz and even religion. Their discussion deals with big and serious issues albeit through simple questions and by employing a layman’s everyday conversation. Mr. Hassan Nisar’s witty and intellectual insights on the current political and social scenario are the highlight of the show.The idea of this program originated from Mr. Hassan Nisar’s column “Choraha”. This program is a representation of Lahori culture where men of a mohalla get together in the evening, sit on a Choraha and discuss issues which are prevalent to their interests. In true spirit of Lahori mohalla culture, the men indulge in jugatbazi, an integral part of even their most serious conversations. Program includes actual Choraha where Mr. Hassan Nisar sits with 3 characters and chit chat on all issues making it interesting with a tinge of wit.
Irfan Siddiqui is the Urdu columnist, known to be the great supporter of former prime minister of Pakistan, Nawaz Sharif. He started writing his columns on Nawaiwaqt. In July 2008, Irfan Siddiqui left Nawaiwaqt and joined Jang. He has been found criticizing Pervez Musharraf and his regime in Pakistan, very bluntly. He was also unhappy with the late Benazir Bhutto and her Pakistan Peoples Party, and wrote the same in the columns. He is currently serving the Jang group of newspapers
Nayar was born at Sialkot, Undivided India on 14 August 1923 in a Sikh Khatri family. His parents were Gurbaksh Singh and Pooran Devi. He had his early schooling at the Ganda Singh High School with his sister Kirsten Harcus, who is known for marrying English entrepreneur Jack Cole, in Sialkot. After school, he studied at a number of institutes including Murray College(Sialkot), Medill School of Journalism (Evanston, Illinois, U.S.). His degrees include B.A.(Hons.), LL.B., M.Sc. (in Journalism) and Ph.D. (Philosophy). After independence he came to Delhi. One Day when he sat sadly in Chandni chowk Delhi, Lok Sabha MP Moulana Hasrat Mohani spotted him. Nayyar introduce himself as an Urdu Journalist. Moulna Mohani however, suggested him to write in English since Urdu was a rather neglected language in India then.
Orya Maqbool Jan is a renowned columnist, poet and CSS officer from Pakistan, who writes Urdu columns for Daily Express, Pakistan. He has received numerous national awards, including the best Urdu columnist in 2004. One collection of poetry has been published.
He has a Masters degree in social work from Punjab University, Lahore. He was the deputy commissioner and district magistrate of three districts for about five years and assistant commissioner and sub divisional magistrate of three sub divisions for about three years. This involves an overall responsibility of law and order, monitoring of development activities, welfare of people, revenue collection personnel management and public relationship of a very sensitive nature. He has contributed to various researche papers including one titled “Comprehensive plan for Improvement of Quetta water Supply and Sewerage System”. He worked as a managing director of Baluchistan water & sanitation authority.
He is presently working as Director General Walled City Project in Lahore after having worked as Information Secretary to the Punjab Government.
He is the author of four popular TV serials “ROAZAN”, “SHAHARZAD”, “QAFAS” and “GARDBAD.
Aamir Liaquat Hussain(Urdu: عامر لیاقت حسین) is a well known politician and broadcaster from Karachi, Sindh, Pakistan. Aamir Liaquat Hussain is also former State Minister for Religious Affairs, and an anchor of popular TV programme Aalim Online on Geo TV. On August 06, 2010, he officially joined ARY Digital Network as Executive of ARY’s Religious TV channel QTV (ARY) Aamir Liaquat Hussain was born on July 5, 1971 at Karachi.Aamir Liaquat Hussain contested 2002 general election under the supervision of Pervez Musharraf, and the platform of his affiliated party Muttahida Qaumi Movement
After meeting the European Union Foreign Policy Chief Catherine Ashton in Brussels, Hillary Clinton said Pakistan should make necessary reforms to increase its tax collection.
“The most important step that Pakistan can take is to pass meaningful reforms that can expand its tax base,” Clinton said while talking to reporters in Brussels after the meeting . “I know how difficult it is, but it is absolutely unacceptable for those with means in Pakistan not to be doing their fair share to help their own people.” She said Pakistan must urgently mobilise its own resources and the international community can only do so much.
Clinton also urged the government to take measures to alleviate the power shortages that stifle the country’s economic growth while making life difficult for its people.
The EU’s Ashton is expected to chair an international meeting to discuss support for Pakistan in Brussels on Friday.
Last month Clinton came out hard against Pakistan when she warned the flood-ravaged country to make its rich pay. Speaking at the US Global Leadership Coalition conference, Clinton had said: “This is one of my pet peeves: Countries that will not tax their elite who expect us to come in and help them serve their people are just not going to get the kind of help from us that historically they may have.”
“Pakistan cannot have a tax rate of 9 per cent of GDP when land owners and all the other elites do not pay anything or pay so little it’s laughable. And then when there’s a problem everybody expects the US and others to come in and help,” she had said.
Finance Minister Abdul Hafeez Sheikh had previously accused the elite class of hampering the broadening of tax net, adding that they were resisting the imposition of the much-needed flood tax.
The government’s proposal for the imposition of flood tax has triggered much debate.
The government’s decision however has been criticised as “little more than a case of loading a greater burden on the proverbial camel that is the miniscule tax-paying class of Pakistan.” Proposals have come forth for the government to prioritise its efforts at widening the tax base.