Business Recorder - 50 years of putting the economy first

MondayApr i l 27, 201 5 www. br ec or der . c om/ br 5 0

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02 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Some glimpses of

a 50-year odyssey Wamiq A. Zuberi Business Recorder commenced publication on 27th April 1965 as a four-page daily printed on flat bed.

Today, by the grace of the Almighty, the solid foundation laid by its founding team and the dedication of its staff it is a 24-page daily newspaper printed simultaneously from Karachi, Lahore and Islamabad on broad sheet. This transition, however, has not been without hiccups and tribulations. The journey was arduous, even testing at times, but we have resolutely stood committed to our motto: ‘In Economic development Lies Our Salvation’. In fact, this credo remains relevant and with the passage of time is indeed more compelling for Pakistan today than perhaps ever before.

It is by now a known fact that the 1965 war with India dealt a body blow to the country’s economy and it began to teeter. The then East Pakistan, now Bangladesh, was left defenseless and isolated during the 1965 war. Contact between the two wings of the country was broken.

“They felt abandoned by Islamabad.

They were despondent, mortified and alienated,” writes Air Marshal Asghar Khan (who was the only West Pakistani who reached East Pakistan via China) in his book “The first

round”. The defenselessness and isolation of East Pakistan during the 1965 war brought into focus the imperatives of autonomy and autonomous military command for the eastern wing. Shaikh Mujib championed and vigorously promoted this concept and as his following and political power snowballed, he became more aggressive in his demands and militant in his actions.

We advocated an amicable resolution of the crisis with a view to averting the break-up of the country; and we also underscored the need for a peaceful negotiated settlement in order to avoid massive bloodshed even if it led to the secession of the then East Pakistan. The country’s economy had hardly commenced recovery from the telling effects of the 1965 war, when another war was foisted upon it in 1971. This precipitated a game changer in the country and indeed its economy. The Pakistan Peoples Party (PPP) government that assumed the reins of government thereafter, embarked upon a policy of nationalization of the commanding heights of the economy. By April 1972, as many as thirty two industrial units were nationalized along with life insurance companies and cotton export. On 1st January 1974, banks,

oil marketing and shipping sectors were nationalized. Subsequently cotton ginning, flour milling and rice husking units were nationalized too.

As a result, the morale of the private sector was at its lowest ebb. A wave of gloom and despondency pervaded the entire industry and trade. The word ‘Seth’ had become a swear word and public sector ruled the roost. We make bold to say that Business Recorder remained true to its beliefs and principles and, firmly stood by the private sector and championed its cause even in that hostile environment. Through ‘Brief Recordings’ columns we started analyzing the annual reports of listed companies.

Thus, this newspaper became a trend-setter in Pakistan’s print media.

The 1980s witnessed the exploitation of religion to perpetuate General Ziaul Haq’s rule over the country. The Objectives Resolution was made a substantive part of the constitution as against its previous place as the preamble. Cases were brought in courts challenging bank interest as haram (forbidden). This ensued in a healthy debate within the country and this paper also took a position on the issue through its numerous editorials, arguing that money has its cost and that there is

also a cost of intermediation that a bank incurs through its role of a financial intermediary between its depositors and borrowers. Therefore a case can be made against compounding of interest and penal interest as being haram but certainly not against charging of simple or ‘puritan’ interest by the bank. To support our argument we cited that the word used in the holy Quran is ‘Riba’ which is usury and not interest.

Our view was in contrast to the view of the Council of Islamic Ideology (CCI) that was then chaired by a retired superior court judge. The obscurantists were extremely upset with us and matters deteriorated to the extent that in May 2000, our offices in Karachi were set on fire; gutting our newsroom and archives.

The printing facilities too were torched and two precious lives were lost in this outrage. It goes to the eternal credit of the newspaper’s staff that its issue for the next day did appear using our facilities in Lahore.

A makeshift newsroom was created in a house near our office and the newspaper was available to our valued readers every day without interruption. This incident was termed by one of our colleagues, the “baptism of fire’.

By far the most serious threat to life and limb of the people working in this newspaper came on 12th May 2007.

The then suspended Chief Justice of Pakistan, Iftikhar Muhammad Chaudhry, decided to visit Karachi.

The whole city was virtually sealed with containers. A cross-fire ensued between the militant wings of two political parties on Business Recorder Road where our offices are situated.

Aaj News, which also has its facilities in the same media complex, true to its creed to keep the people informed, began live transmissions of violence.

Realising that the whole world can see the militants on their television screens they began firing at us, demanding that transmissions be stopped. This attack persisted for over seven hours and so did the transmissions. It only stopped when finally the law enforcement agencies arrived at the scene to disperse militants.

These were some of the testing times that we went through during the last half century but the biggest challenge that we continue to confront is to persuade our people in authority in particular, that unless Pakistan is economically strong, it would neither be truly sovereign nor command much of a voice in the comity of nations.

Objectivity has been the guiding principle in our work and remains so in our sacrosanct duty to keep our readership correctly informed. We are the only newspaper in the country that has a Research Department for analyses and informed comments.

This indeed is most important for a business newspaper that impacts on decision making and policy formulation. We are extremely conscious of this onerous responsibility and strive to live up to our readers’ confidence in us that we cherish ever so dearly and strive to preserve.

Below this column is the rationale and vision of the founder and founding-editor of this newspaper, the late Mr. M. A. Zuberi, that he enunciated in the maiden issue of this paper fifty years ago on 27th April 1965. It is being reproduced to facilitate our readers to judge our performance. Have we remained true to the cause and stayed the course that we set for ourselves and promised our readership to deliver?

This is a question that we cannot and should not answer. It is a call that only our valued readers can make, for every Business Recorder reader is a true judge in this realm.

Why Business Recorder?

“You will have in your hands the first issue of the daily “Business Recorder”.

You will notice that it will not be just another newspaper of the type that you are used to seeing and reading.

Although daily journalism is in an advanced stage of development in Pakistan - foreigners marvel at the vast coverage of world news in our daily press – Pakistanis for the most part are poorly informed on economic subjects.

This is not the fault of the existing daily newspapers; they print all the news and they do it wonderfully well within a limited space. To say cynically that it is the fault of the people themselves would be an unjust accusation.”

“People are uninformed about the developments and shortcomings, our weaknesses and strengths in the industrial, economic and financial sectors because no publication has devoted itself primarily to the dissemination of economic knowledge. How important it is for a country like Pakistan which is engaged in a heroic struggle for development needs

no emphasis. In a task of this magnitude the whole nation has to be mobilized which is only possible through the medium of a newspaper publishing in this sphere.”

“This is exactly what the Business Recorder proposes to do. For we strongly believe that the salvation of our country, indeed of the entire Muslim world, depends on economic development. As a constant reminder for our people, daily Business Recorder will print this truth as its motto on its mast head.”

“However, the busy men in industry, banking, insurance, trade and commerce have also to know what else is going on around them in other spheres of national life and they would like to be kept informed of that also. The daily Business Recorder will endeavour to cater to this need as well and would adapt its news presentation to the limited time which busy executives are able to spend on SIMPLY KEEPING THEMSELVES INFORMED.”

“The task of the Business Recorder is to serve the community as a whole and particularly those engaged in economic activities. It will be a paper which would try to fulfill the modern

“But, more than that, there are thousands and tens of thousands of men and women in the country who are intelligent and who want opportunities to enter this sphere and make

The character of a newspaper emerges from the needs and aspirations of stock holders, advertisers, political parties, governments and other important sources of support necessity of shifting the emphasis from purely political activities and personalities of politics who make public affairs alive, to the sectors on which financial well-being of the people and prosperity of the nation largely depends, and to those soulful personalities who are devoting all their energies for the economic glory of Pakistan.”

their contribution to the economic prosperity of the nation. Unfortunately, they are handicapped, as at present, by the lack of information and guidance.

The daily Business Recorder will keep them posted on the avenues open to such men and women and would offer the necessary advice.”

“The Daily Business Recorder has no political axe to grind. It will

present facts fearlessly. Its style will be clear and interesting, and its news will be presented in a manner so that both the trained and the untrained can grasp it with minimum of effort - the daily Business Recorder is a paper for every man and woman in Pakistan who have the slightest interest in national and world affairs and who have the urge to work for their own progress and the prosperity of the country.”

“Newspapers in Pakistan are often accused of emphasizing the sensational and giving minimum or no attention at all to “good” news depicting the brighter side of national life. When this accusation is made, it is generally forgotten that newspapers are mostly the by-products of the contemporary social system’s characteristic conditions for intellectual and political development, industrial investment and popular support.”

“The character of a newspaper emerges from the needs and aspirations of stock holders, advertisers, political parties, governments and

other important sources of support.

Not unoften, each of these sources have different theories, varying standards and their own conception of “press freedom”, “objectivity” and “ news value” etc.”

“These conceptions and theories, unfortunately, undergo radical corrections according to the changes in positions of authority. When compared with the mercurial nature of the changes in these self-justifying standards, reflecting class and sectional needs -political or otherwise -- and pressures, the national press of Pakistan comes out on top in any comparison.

For, changes in a newspaper’s pattern of institutional decisions are much less blatant or opportunist.”

“To serve you better the daily Business Recorder will gratefully accept all suggestions to enable it to better discharge its duties and would do its best to cater to your needs.”

“Why not help us to produce the type of paper you want?”

Business Recorder | Monday April 27, 2015 | 3

by the editor

04 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Sarfaraz Ahmed It is generally argued that politics has a strong influence on the economy in any society. There is another popular argument; according to which, economics is the basis of politics but the latter has a clear precedence over everything else. However, there are several economic approaches through which politics could be forced to fall from the centre stage.

For example, there is a conception or a belief that “good economics is good politics” or “good economic policies can necessarily relax political constraints”.

However, this line of reasoning is effectively countered on the premise that any economic advice that seeks to ignore politics runs the grave risk of inviting trouble. Noted economist and a former governor, State Bank of Pakistan, Dr Ishrat Husain, for example, seems to have advanced—along similar lines—a strong argument in his contribution to the newspaper’s golden jubilee publication. According to him, “[A] healthy and vibrant economy is what the country [Pakistan] needs. This is possible only when good governance is practiced. There is a lot of truth in the saying that “good governance is good politics”.” His point of view, however, leads to two important questions: Does good economics make for good politics? The other question is whether or not good economics is considered good politics in the context of Pakistan. These arguments sound quite plausible in that these, at least, explain a profound relationship between politics and economics.

Insofar as Pakistan is concerned, the “politics has precedence over economics” logic appears quite convincing because ours is a country where economic imperatives are always held hostage by political exigencies. The same could also be true in the case of India. Answering a question raised by a journalist of an international publication, the then prime minister of India, Indira Gandhi, famously said that she would prefer a non-technical but astute politician for the job of running a mega publicsector industrial complex over a technically sound expert even if the latter is endowed with experience of successfully running huge industrial units for over five decades and the former does not even possess the experience of running a small grocery shop. Her remarks showed--clearly and unambiguously-- strong appreciation of grim political realities. Dogged resistance to the sell-off of Pakistan Steel Mills and Pakistan International Airlines appears to be along similar lines.

It may, therefore, be objectively argued that growth phase lasts for only a few years while decline perpetuates indefinitely mainly because of our subsequent governments’ flawed policies, political bickering and rampant corruption. It is, however, interesting to note that in the case of Israel, for example, which is a technologically advanced economy, economic issues took precedence even over peace as Tel Aviv’s recent general elections neared.

But ours is an economy where economic considerations are not placed above political ones. The plausibility of this argument may not be restricted to the case of developing economies alone. According to a noted Western intellectual, “the US where politics had always taken precedence over economics throughout American political and

Politics, economics and Business Recorder social thought, neoliberal ideas represent the reversal of these [preferences]”.

Another noted economist and a former governor of State Bank of Pakistan, Salim Raza, in his write-up that he has meticulously penned for the same publication seems to have highlighted the threats posed by the growing popularity of neoliberal ideas beyond the continent. According to him, “the current free market, or laissez faire economy, operates beyond the political and social control of the nation-state; its principal agents are giant transnational corporations, and its popular ‘constituency’ is its market – the global investor and consumer. In the ‘liberalized’ economy, the autonomy of individual countries, to put their own society’s interests first, is compromised.”

Then what should be the way forward? One may find one of the plausible answers to this challenge from global economists Daron Acemoglu and James A. Robinson. In their Economics versus Politics: Pitfalls of Policy Advice (published by the Journal of Economic Perspectives: Volume 27, Number 2—Spring 2013—Pages 173–192, they have reasoned that “[an] economic analysis needs to identify, theoretically and empirically, conditions under which politics and economics run into conflict, and then evaluate policy proposals ….”

Here perhaps comes the role of newspapers that can help policymakers in evaluating proposals and articulating policy decisions by playing the role of reliable sources of information and convenient platforms for initiating informed debates. But a large number of economists, if not all, do not favorably look at what is generally produced by economic/financial newspapers. In his famous work Journalism and Economics: The Tangled Webs of Profession, Narrative, and Responsibility in a Modern Democracy, Richard Parker has argued: “Economists often find fault with the way in which economic information is reported. … Journalists, for their part, find much of what economists do both incomprehensible and irrelevant.”

Every newspaper that is known for its astute economic outlook is always required to give equal if not more attention to political news, analyses and comments, although economic news shapes the political agenda. There are quite a few economic/financial newspapers in Europe in particular that vigorously seek to compete with general or mainstream dailies even in the arena of coverage and display of political news and comments. The way the Financial Times of the UK does it for its readers is a strong case in point.

Germany’s Handelsblatt could be cited as another major example in this regard. In the context of Asia, every major economy is armed by at least one economic-finance newspaper known for its wide acceptance as a principal source of information in the realms of economics and finance. For example, Japan’s Nihon Keizai and India’s The Economic Times and many others—dailies, weeklies and monthlies-belong to this category. The Economist, though a weekly publication, is widely described as the best source of news, analyses and comments in the realms of economics and finance.

Insofar as Pakistan is concerned, Business

Recorder—a broadsheet daily that has been celebrating its golden jubilee this year—is arguably the principal source of information in relation to economics, business and finance. Prior to the launch of this newspaper in the mid 60s, mainstream newspapers carried not many stories; none of them had devoted even one single page to business/financial news. At present, there is no doubt about the fact that more and more consumers want to read financial press and almost all mainstream dailies have beefed up the coverage of trade and industry in particular.

Business Recorder carries a variety of sections containing news, analyses and comments in its every issue with a view to meeting the growing expectations of its readers. Of course, political news and comments have a strong presence in this newspaper too. Its sections contain news on national and international politics, global corporate world, daily updates on local and international commodities,

currencies and stocks. It is only this newspaper through which a reader can find comprehensive coverage of issues that may appear trivial or less relevant to other newspapers such as how the EU would charge Russia’s Gazprom with market abuse and why Egypt, the world’s largest wheat importer, has diversified its sources of imports of this commodity. One would also find in-depth coverage of global stocks—the FTSE, the Wall Street, Gulf markets, European bourses, SA and SE Asia Stocks, etc. There are many other examples through which newspaper readers can easily discern the approach of Business Recorder that is vastly different from others’. For example, the current leftist Greek government’s response to the economic crisis may be treated by many publications as a Europe-specific development stemming from EU’s economic woes, but here at Business Recorder emphasis is laid on obtaining a bigger picture of the situation through comprehensive

coverage of not only US-Europe economies but also of all economies—developed, developing and emerging-- as focus is not restricted to Pakistan’s trading partners alone. In the case of trading partners, efforts are made to remind country’s policymakers that they must not lose sight of the country’s short-, medium and long-term economic, political and strategic interests. Seen from that very prism, one could objectively deduce that it has been Business Recorder’s policy to help subsequent governments shape up their agendas. One major example in this regard is Pakistan’s relationship with its “all-weather friend” China.

In this case, the newspaper underscores the need for striking a delicate balance: Sino-Pak relationship may dominate country’s foreign policymaking to the extent that it does not lead to antagonizing the West, particularly, the US, towards Pakistan. The current Ukraine crisis may be the result of Kiev’s growing closeness with the West

BR Research: Intelligence you can bank on Formed in July 2009, BR Research is the research wing of Pakistan’s premier financial newspaper, the daily Business Recorder. In keeping with the newspaper’s tradition of pioneering economic journalism in the country, BR Research is Pakistan’s first and only research-based mainstream publication by any media house in Pakistan.

Its main product is the newspaper’s agenda-setting column that focuses on wide ranging topics – from business and markets, corporate and financial affairs to matters related to politics, economy, public policy and development.

While the column’s centre of attention is Pakistan’s economy with a focus on economic reforms, it also covers key issues

relating to regional and global economy.

Unlike opinions and features on economic issues published elsewhere, BR Research has an emphasis on evidence- based commentary with an aim to provide actionable intelligence where need be.

Ideas and suggestions put forth by our senior editorial staff backed by a dedicated research team have been helpful to the point of steering policy decisions. We have truly been a bridge between you and the policymakers.

The department comprises of financial analysts and economists, most of whom have had prior experience in financial and media sectors, after being schooled in leading local and foreign

and Russia’s desperation to maintain its hegemony over one of former Soviet Union’s states but Business Recorder seeks to examine this crisis essentially from an economic and historic perspective with a lot of focus on Russia’s gas supplies to Europe through Ukraine and the outcome of transition of the then Soviet states from command or authoritarian to free market economies. That is why Boris Yeltsin’s “Shock Therapy” that he introduced to overcome a debilitating economic shock following the disintegration of the Soviet Union and words “perestroika” and “glasnost” that are attributed to Mikhail Gorbachev’s rule as the last Soviet head of state still carry a lot of significance in Business Recorder’s editorials. Though the ongoing Yemen crisis essentially represents a picture of massive political unrest in the Middle East, Business Recorder seeks to examine this conflict from a distinct perspective through which its readers could be informed, among

other things, about economic imperatives of oil and gas supplies and the status of remittances that the country generates through a huge presence of Pakistani workforce in the Arab states in an effective and meaningful manner. Its readers will vouchsafe for the fact that international economic news is never confined to inside pages; the front page of this newspaper always carries one or more global news on economics and finance on a daily basis with a view to informing our exporters, importers and policymakers about the global happenings that may be of interest to them.

Unfortunately, however, Pakistan’s economic diplomacy has not even led to promotion of investment. The woeful foreign investment numbers are a strong case in point. As recently pointed out by Dr Hafiz A. Pasha in a Business Recorder op-ed, “the fixed investment rate plummeted to 12.4 percent of the GDP in 2013-14, perhaps the lowest ever. Private

investment has declined to below 9 percent of the GDP.” Former SBP governor Dr Muhammad Yaqub and other economists have been arguing that a rate of investment of about 20-25 percent of the GDP is needed to generate an annual growth rate of around 7-8 percent. One of Dr Yaqub’s successors at SBP, Shahid Kardar, however, is of the view that “there are no examples in the world of accelerated economic growth based largely on foreign capital”.

Disagreement is good and we at Business Recorder always treasure dissent and welcome diverse viewpoints. The principal job of any financial newspaper is to make the complexity of economics-finance discourses intelligible to its readers.

Business Recorder has been making an effort, however modest, in that direction without losing the sight of profundity of politics and its preponderance among all areas of human activity.

FIND US@ BR Research columns: http://www.brecorder.com/br-research/ Special reports: http://www.brecorder.com – Home – Special Reports https://www.facebook.com/BRResearch @BRResearch09 Email: research@br-mail.com

universities. Although the department is still quite young, a few of BR Research alumni have moved on to lucrative careers in reputed global and local organizations.

Team BR Research maintains close interaction with business leaders, trade and industry associations, policymakers, think tanks, regulatory authorities and government officials.

This helps readers identify changes and challenges to macro economy, business and industries as well as socialeconomic development.

BR Research’s columns feature Monday to Friday on page-2 (inside front) of the newspaper. Aside from these columns, we have three other products:

a) periodic sector-specific publications that provide in-depth perspectives of the emerging challenges and opportunities; b) bi-weekly interviews of public, private, and third sector leaders; and c) thrice-weekly performance review of a selected firm. The latter two are published Monday to Friday in a section called Brief Recordings.

On this auspicious occasion of BR’s 50th Anniversary, we welcome opportunities to collaborate with public and private sector organizations, research houses, academia, think tanks, and policy research institutes to help reform Pakistan’s economy and put the country’s on the path of development.

Business Recorder | Monday April 27, 2015 | 05

50 years of putting the economy first

Addressing informality and inequality Syed Salim Raza Globally, the informal (shadow) economy, and income inequality,are growing consistently - and significantly (‘Informality’ here, essentially, simply refers to allotherwise legal activity, but undertaken outside the official records for production and employment).

In the advanced countries, informality is limited and, related mainly to immigrants, it can be a social issue.

In economic terms, greater attention focuses on the acceleration of inequality post the global ‘liberalisation’ that started in the 1980s. The deregulated, global ‘free-market’ is creating social stress. This shows up in declining returns to lower-skill workers, and in the shrinking of the state’s capacity for maintaining liberal welfare policies.The loss of state revenue from reduced tax rates for the traded good sectors, necessary for international competitiveness, is being compensated, effectively, by regressive taxation on the middle-class.

The free market, or laissez faire economy, operates beyond the political and social control of the nation-state; its principal agents are giant transnational corporations, and its popular ‘constituency’ is its market – the global investor and consumer. In the ‘liberalized’ economy, the autonomy of individual countries, to put their own society’s interests first, is compromised.

Nevertheless, democracy is expected to ensure that if the free-market becomes inimical to the social cohesion of a national electorate government will intervene to redress the social balance, and re-regulate the ‘free market’. But, today, the free market reigns; in the upshot, disillusionment with ruling politicians has been evident in recent voting patterns, in a number of countries.

This article reviews global trends, for both informality and inequality, and also at trends for informality in Pakistan.

Global trends in inequality From 1980 onwards, increased technology transfer between the developed world and emerging markets (Ems) has hastened the integration of global production and finance, which has decreased inequality between nations – but inequality has increased notably, within nations.

Leading EMs have grown considerably faster than the developed world. US per capita in 2014 was 4 times greater than in 1980 ($13k against $54k). In contrast, per capita in China increased 24 times ($350 to $8k) and in India and Brazil grew 8 fold, over the same period.

Eurozone growth has been slower than that in US in this period (US 2.4 % pa, Eurozone 1.5%), and Ems’ relative progress even more marked.

But inequality within nations has increased sharply. In the US, a recent study (Saez and Kopcjuk) shows that the average wealth of the top 0.1% of the population rose sharply, from 7% of the US wealth stock in the early ‘80s, to 22% now.In the meantime, the average wealth of the bottom 90% fell from 36% to 23% over the same period – so that 90% of the population, collectively, have the same volume of wealth as the top 0.1%. For the OECD as a whole, the income of the top 10% is 9.5 times greater than the that of the bottom 10%, versus 7 times in 1980.

However, once social transfers are accounted for in Europe, the Gini coefficient (a measure for inequality, where 0 is perfect equality, and 1 is total inequality), in general, improves from around .5, to around .3, or by roughly 40%. In overall terms, European inequality is noticeably less acute than that in the US (Gini .46).

Turning now to the EMs: inequality has increased rapidly.

The causes are common to most countries. While average per capita income has risen across the board, it masks highly uneven distribution.

High-growth from Globalization has skewed fast-rising income and profits towards a narrow sector of producers, that primary have been the engine for higher GDP growth.

The disaggregated picture shows far less dramatic general improvement. First, given the higher technology bias of modern manufacturing, wages have risen for skilled labour; but the increase in real terms has been negligible for less skilled labour, the majority of the labour pool. Then, rural migration has led to rapid and escalating urbanization in virtually all major EMs. This is compelled by falling labour requirements in the rural areas, from fragmentation of land-holdings, farm mechanization, and the replacement of rural artisanal production by factory-made packaged goods. Rural influx acts as a dampener on wage growth in the urban areas.

At the same time, Fiscal policy lowered direct taxes for the traded goods sector, but increased indirect taxes – with a negative impact on the purchasing power of lower-income groups.

So, GDP growth has certainly helped reduce poverty, but has accentuated inequality. China has reduced those living in poverty from 84% of its population in 1980 to 13% now, an achievement unsurpassed in history.

However, its Gini coefficient has risen from 0.28 to .42, or almost by 50%, from 1980 to 2010; India’s has risen from .31 to .36, by 15% over the same period. Regional inequalities in both countries are markedly high.

Inequality in the advanced countries is an emerging issue of the political economy. In two recent books - “Capital in the 21st century” by Thomas Piketty, and “A Fighting Chance” by Senator Elizabeth Warren (leading figure in US Democrat party), the writers attribute much of emerging inequality to the power of business groups and corporate wealth, over political authority. Declining middle-class purchasing power is an economic and social issue. If the democratic credo of ‘one man, one vote’ loses meaning, there will be political ramifications. The two writers offer suggestions for how the present trend can be checked.

Piketty’s now-familiar ‘r > g’ illustrates that return on capital, ‘r’ has always grown much faster than the growth rate of output, or GNP (except, for special reasons, during the “Golden Age of Capitalism’, roughly 1950 to 1980). The compounding effect of r>g creates huge disparity in ownership of national wealth.

Current trends validate Piketty’s observations.

Growth in the US/Europe has fallen to under 2% pa, but overall, return on capital has run much higher. There are simple reasons for this. For example,

• The steady replacement of lower-skill labour with technology raises return on ‘r’, capital, while ‘g’ remains muted; there is an implicit transfer of income from wages to capital; • Corporate sales and profits can grow faster than domestic GDP, as sales are diverted to high-growth markets abroad, and production outsourced to low wage countries, boosting profits.

• Wealthy individuals and institutions, advised by leading fund managers, invest their funds on a global pattern, also invest in high-yielding Private equity groups, Hedge funds, etc., usually with rates of return much higher than domestic growth.

• Tax ‘arbitrage’ has become common, in global supply-chains and global sales. Giant corporations can reduce their domestic (home country) tax liabilitieson global revenue, through cross-border treaties, choice of domicile of holding companies, and manipulation of double-taxation avoidance to, in effect, produce double non-taxation (the much criticized use of Ireland as a revenue booking centre

by Apple, Google et al is a prime illustration of tax avoidance). Individuals can use international tax-havens, which exceed 50 in number now. US’ IRS reports that the effective tax rate for the 400 richest Americans, in 2009, was 18% - the same rate as that of an office secretary. The principal reason is that the 2/3rd of their income was in Capital gains, where the Tax rate is 15%.

So corporate and private wealth will continue to accumulate faster than increase in incomes from domestic growth.Piketty forecasts return on capital averaging 4.25% between 2012 and 2050, while growth rate of income (developed world) will average just over 1%.Compounding at 4.5%, wealth will double every 16 years; at 1%, in 72 years.

Piketty (like many commentators today) believes that Government action can change this. His suggested solutions include higher marginal tax rates (80% for the highest bracket), and global reporting of assets and income for all entities, which will be liable both to income tax, and to annual global wealth tax – besides higher inheritance taxes.

But will the influence of wealth on politics everywhere, really allow this to happen? In EMs, the power of crony capitalism may be a block; but equally, in the developed world, it will be the immensely wealthy corporate lobbies (in finance, pharmaceuticals, technology, etc) that will lead the counter-attack to any revision in tax policies or in re-regulation.

Senator Elizabeth Warren, in her much acclaimed “A Fighting Chance”, a largely biographical book, expresses frustration with growing inequality in the US. She sees the US financial sector as the leading agent for the accentuation of wealth in the US, and notes that despite its bail-out by public funds, the financial sector is still working for wealth creation for its shareholders and executives, rather than for business development. In her view, the US has become a place where the rich write and rewrite the rules andprivate money influences political outcomes…the power of business lobbies and campaign finance is overwhelming (money spent in the Congressional elections in 2012 was about $ 7bn, versus just $1.5 bn in 1998). Her concern is that the US is not organized institutionally to challenge elite dominance, and she emphasizes that, with the Unions weak, powerful mobilisation of civil society and voters will be needed to stop middle-class stagnation turning into a decline.

Global informality Moving on from the theme of inequality as a global issue to informality: the informal economy is generally estimated to be less than 10% of GDP in the developed world, and variously, 30% to 50% of GDP (i.e., 43% to 100% of the formal economy) in the developing world.

The quality of informality is different. In the developed world, it is mainly in the service sector (labour). In the EMs,it permeates all economic sectors, and can be inextricably linked with the formal economy.

This happens, for example, when registered entities deal with unregistered suppliers or vendors, or when formal enterprises underreport revenue and labour employment statistics, to avoid taxes and/or social security payments.

More than the degree, the issue for the social economy is the direction, of the informal economy. Rising informality accentuates inequality.

Trends in Pakistan Informality in Pakistan has been gauged as being between 30% and (in the most recent study in’12), 45 % of GDP (or 43% to 90% of the formal economy). The impetus to its growth in recent years has been accelerating urbanization,in which micro-enterprises mushroom, but another factor apparently responsible is transfer of capital from formal to quasi-informal/informal sectors.

This transfer of capital may be reflected in the falling rate of formal investment. Investment to GDP has declined to current levels of 12% of GDP, from 22% in 2006. Even if recent GDP growth has been slower compared with earlier years, businesses have been profitable, notably the FMCG and Financial sectors. Attractive business results in many sectors become evident in the sharp growth of KSE indices. So the capacity for expanding formal investment has existed, but was not transacted.

This also finds resonance in the fact that Private sector credit has fallen to 15% of GDP, from 28% in 2007; annual credit growth has been less than inflation, suggesting a contraction of formal credit in real terms.

Also, Cash to Deposit ratio remains at 31%, an unusually high level by any standards, so cash transactions, a preference in informal markets, remain high.

Apparently capital diverted from the formal sector is playing some role in informal economic growth – which appears clearly in excess of official average growth of 3% since ’07. The burgeoning Real-Estate project uptake in urban and peri-urban areas; the Stock-market

acceleration; conspicuous consumption, via large-scale shopping malls and proliferating retail outlets; volume of foreign travel; the inward multiplier effect of record Workers Remittances; and the galloping growth of electric appliance, motor-cycle, and car sales, etc, for example, suggest faster rising consumption than official figures would suggest.

As the unrecorded economy grows, so does its real value. The irony is that mechanisms for ‘big business’ to move opportunistically between formal and informal markets exist, but enterprise value of the dominant low-income groups, is largely frozen, locked-up – given that it cannot interact with formal credit markets.

Such locked-up value stretches across the low-income economy, highly undesirable, from a public-policy perspective: it dampens the creation of jobs, while new job-creation has slowed down in the formal sector.

But irrespective of low GDP growth, the momentum of consumer power has been strong over the last several years - fed not by production growth, but by workers remittances; high agricultural prices; government subsidies, and government deficits. So, in the informal markets, growth has been strong, and is likely to continue strong – in informal services, micro-businesses, building activity and in thetrading economy.

A pressing need for Government now is to encourage initiatives that will help bring the informal sector ‘in from the cold’. The most important step forward here will be new engagement with SME businesses by commercial banks, who have cut back SME lending, from 17% of total loans, to under 6% today. Other necessary concessions will be absolute simplification of registration steps, cutting back on regulatory and reporting requirements to the bare minimum, and reducing the tax regime for small businesses to a simple,

A pressing need for Government now is to encourage initiatives that will help bring the informal sector ‘in from the cold’ The reasons for low-growth of the formal sector are well-known. Briefly, profitability for much of Pakistan’s large industry comes not from competitive strength, but through Government engineered protection from competition; through fiscal concessions (SROs); through oligopolistic cartels, and through Government guaranteed returns, such as in the Power sector, and in the Financial sector, where investment in high-priced Government borrowings (TBs/PIBs, Comm. Lending, PSEs) now approaching 60% of Bank exposure. In spite of effective Govt ‘subsidy’, or perhaps because of enervating dependency on it, formal sector growth continues to remain weak.

single stage (low) tax.Finally, the rapid advance made in tele-banking, and the increasing momentum of microfinance banks will play a substantial role in increasing financial inclusion for the financially disenfranchised.

The informal sector, if avenues for formalization are opened, can build growth momentum, regularize and expand employment, and link forward into supply chains with the larger manufacturing sector. While we deal with the larger issue of reigniting LSM investment, via energy sector development and improving national logistics, the exigent need to empower smaller enterprise must be given due attention.

06 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Perish the thought of reforms Shahid Kardar The official narrative presents four developments as government achievements- a reduced interest rate, a more controlled budget deficit, growing foreign exchange reserves and a lower and declining inflation rate However, none of these were outcomes of better economic management. Inflation is lower on account of the high base-effect and for fortuitous reasons; a drop in global commodity prices.

The reference to lower interest rates conveniently fails to mention that commercial bank deposits have actually declined at a time when the Federal Government has increased its borrowings from the commercial banks! The SBP is helping Islamabad raise this money by pumping more than Rs.720 billion into the system, thereby also defending the interest rate that it had reduced, which (with depositors exiting the banking system for better returns elsewhere) would have been higher but for its intervention.

Commentators have presented enough evidence that the government has resorted to window dressing and sleight of hand to show a lower budget deficit, both by manipulating revenue and expenditure numbers. The IMF (for global political reasons and its own need to speedily recover its past loans) has been an active partner in this blatant massaging of data.

The progress in improving the tax to GDP ratio over decades has been abysmal, particularly with respect to the equity aspect of the structure-same levels of income from different sources being taxed differently. Successive governments have willfully abdicated their responsibility on fiscal virtue but little is being said about the expenditure side of the fiscal equation. The nation has experienced unfettered extravagance on less productive mega projects while other more relevant development schemes, energy related circular debt issues and the social sectors continue to be starved of funding. And what is being done to address the issue of the budget deficit arising essentially for structural reasons? We are resorting to crazy ad-hoc measures to increase revenues, like raising the GST on diesel from 18% to 37%; yet another dim-witted short-term intervention to meet revenue targets because of governmental failure in attending to long outstanding structural issues.

Similarly, what is there to gloat about reserves built entirely on borrowed money (US$ 2 billion of Euro and Sukuk bonds at extortionary interest rates), one-off flows from benefactors and receipts against sales of government owned shares of banks, while our external accounts continue to be under pressure? Our exports are slowly losing ground because of energy shortages, global economic slowdown, the principal buyer of our yarn, China, no longer having a heavy market presence, exporters not getting timely GST refunds, the overvalued rupee etc. These factors are having a debilitating impact on our exports as well as contributing to a still high import bill.

The manna from heaven in the shape of the dramatic fall in the price of oil and other commodities which has contributed substantially to the lowering of the rate of inflation should have provided us an opportunity to make some long-overdue adjustments. But then given our unenviable record on governance and economic

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management we are likely to squander this gift.

Official efforts have tended to focus merely on financing the budget and current deficits than on reducing their size because of political compulsions and our focus only on the immediate or short-term crises issues.

Inflows from remittances, external assistance and the above referred bonds have resulted in the rupee being overvalued by more than 17%, affecting our export competitiveness and thereby our ability to fully exploit the opportunity provided by our GSP status. These flows have only provided ‘temporary’ relief, whereas the narrowing of the deficit on a sustainable basis requires a combination of policy decisions and structural reforms that can only be implemented in the medium term.

This requires a shift in the current policy bias

together, terrorism and sectarianism, weak economic growth, lack of availability of energy at affordable prices, a disaffected Baloch population, etc. Tackling these crises would be overwhelming for the most capable leadership anywhere in the world. And we are not blessed with one with vision and competence.

Our style of governance, however, is to perpetually look towards the international community for handouts to pay our bills, as if we have an open-ended license to mismanage our affairs. Official efforts are geared to simply winkle the next tranche out of the granted loans, especially when it comes to the IMF, with donor rescue packages merely viewed as licenses for fiscal profligacy rather than as temporary relief measures as efforts are launched for fiscal rectitude. The repeated

The Pakistan economy can now only be fixed and anemic growth restored to health by painful structural reforms to establish a just and fair society away from import substitution to exports through a realistic exchange rate, improvement in productivity though better access to technology (supported by adequate public and private investment in high quality education and technical and vocational skills), being part of the global intra-industry value chains and by focusing on markets of dynamic young consumers on our eastern borders.

Contrary to a widely held perception that the technical solutions to our economic travails are well-known, most of the prescriptions tend to be rather broad and general in nature. Not enough serious work has been done on the design of policy instruments, business processes and institutional arrangements (including the regulatory framework and capability) for implementation so as to secure the underlying objectives on a sustainable basis. Even our strategies are poorly conceived. For instance, foreign investment is being desperately sought to jump-start economic growth. Even ignoring critical issues of poor law and order and country image and policy unpredictability, we seem to forget that foreign investors follow a boom, they cannot create a boom. Foreign investment only supplements and complements domestic investment. The experiences of SE Asia and China bear testimony to this. Foreign investment in China is high because domestic investment is high and not vice versa, and also partly because public investment is high. How can, and why should, foreign capital come to a country whose domestic entrepreneurs, being less than sanguine about the country’s economic prospects, are reluctant to invest in the local economy. Moreover, there are no examples in the world of accelerated economic growth based largely on foreign capital.

The Pakistan of today has become an extremely difficult and complex country to govern, with huge political economy challenges facing reform. A number of crises have come

bailouts by the rest of the world have essentially been because of our ‘nuisance value’. The dance of one step forward, one step sideways and one step backwards has only succeeded in creating an illusion of forward movement where there is none. How long will this gravy train continue to run smoothly is anyone’s guess-will it be sudden jump over the cliff or a slow and painful death?

We may be too big a country to be allowed to fail but we are also too big a country for anyone to help. No one has these deep pockets. The Pakistan economy can now only be fixed and anemic growth restored to health by painful structural reforms to establish a just and fair society in which different groups contribute to the restructuring of their capacity to bear this burden. The sacrifices that will be required for this will have to be more broad based than is widely realized.

Obviously there are no quick economic and political fixes to problems accumulated over decades, especially with the elite unwilling to make some sacrifices in its own enlightened self-interest and seemingly blind to changing realities that have put social cohesion under severe stress. A State under the influence of rent-seekers cannot be expected to suddenly change course and opt for fundamental adjustments. Why should groups controlling the state suddenly stop milking it for their own good? We should, therefore, disabuse ourselves from harbouring notions about serious reforms being undertaken by any dispensation likely to be thrown up by our electoral system in the foreseeable future.

An uninspiring, self-serving and inept national leadership doesn’t have the wherewithal to manage the avalanche of expectations and the implementation of fundamental structural reform. It cannot really be expected to a) phase out subsidies on imported fertilizer and subsidies on exports of wheat and sugar which are keeping prices for domestic consumers high

but benefitting foreigners; b) levy and collect taxes, especially from those still legally outside the tax net- instead of burdening existing taxpayers; c) divert funding away from unproductive spending; d) downsize the bloated Federal state structure that continues to accumulate (despite the 18th Amendment) on account of the overlap of functions between Islamabad and lower government formations-which will also reduce opportunities for corruption and extracting rents; e) strengthen institutions and confer on them real autonomy; f) change the orientation of government as an employment agency for family and cronies so that they can ‘profit’ from these positions; g) stop the theft of electricity and gas, etc., etc.

Therefore, perish the thought that there will be any improvement in governance and meaningful reforms, unless our external patrons decide to walk away, compelling us to fend for ourselves.

Maybe we will then learn to swim. The default option is ‘drowning’ that we seem to be unwittingly (or is it wittingly?) pursuing. It appears, therefore, that as the rest of even South Asia bypasses us, we will, at best, muddle through year after year, bumping along at the bottom until we finally hit road blocks that we will not be able to surmount, not having the economic, political and social strength to remove or overcome them.

Business Recorder | Monday April 27, 2015 | 07

50 years of putting the economy first

Economy in a long-term perspective Dr. Muhammad Yaqub

During the last 35-40 years, every government that was faced with difficult economic policy choices to overcome a balance of payments (BOP) crisis approached the IMF for a bailout package. The irony is that all the governments held the view that economic policies proposed/to be proposed by the IMF would hurt the people, and will not help the economy, but every government fell in its lap to escape from taking politically difficult economic policy decisions.

The result is that, while rulers saved their governments through temporary patchwork, economy continued to fall in a deeper hole from a longer-term perspective.

The IMF on its part used an accounting approach to economic programming while providing financial assistance to various governments. Its standard operating procedure (SOP) was to set quarterly financial targets for the government in terms of various aspects of the budget deficit, government bank borrowing and foreign exchange reserves of the SBP, and evaluated government performance on that basis regardless of the quality of measures used to achieve them.

Bureaucrats quickly developed expertise in window-dressing of economic statistics to satisfy quantitative performance criteria of the IMF, and pleased their political bosses by assuring them that IMF conditionalities could be met without major policy

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effort. Such a trickery was welcome with open arms by political leaders and military rulers. However, and while serving short-term interests of the ruling elite, such bureaucrats became instrumental in creating deep-rooted long-term structural economic problems.

The IMF staff by and large accepted such statistics without critical evaluation and gave a certificate of good economic health to every government, at least for some time, enabling them to borrow from abroad to meet the urgent financial needs to avert a crisis. As soon as governments were out of a crisis mode, due to inflows of foreign borrowing made possible by operational IMF programs, almost all of them backed out of any real economic reforms under one pretext or the other.

On many occasions, the IMF also gave waivers when the government failed to meet the targets.Thus, the IMF equally shares the blame for accumulating structural economic imbalances while helping to avoid immediate crises.The hide-and-seek game played by the IMF and the governments for the last three decades or so, may have helped in achieving their respective short-term objectives, but has been a major factor for steady deterioration of the underlying economic conditions.

While in opposition, the PML promised to adopt a new approach to economic management that avoided

temporary patchwork and was to rely on home-grown program of structural reforms to address the underlying policy deficiencies. However, this promise was forgotten as soon as the PML-N government came into power.

It has also adopted the usual IMF program as a way to escape from fundamental policy reforms.

The present finance minister and the IMF have often claimed that the

The IMF equally shares the blame for accumulating structural economic imbalances while helping to avoid immediate crises economy is improving. However, if the veneer of patchwork is removed, the reality is that the economy remains trapped in three structural imbalances (a) between the required rate of investment necessary to generate a growth rate of 7-8 percent---- essential to create enough

new employmentopportunities to absorb addition to labor force each year---and the domestic rate of savings, (b) between the expenditure needs of the public sector and its tax revenue and (c) between imports and exports. Unless a deliberate effort is made to restructure fiscal, monetary, exchange rate and development policies to gradually reduce these structural imbalances, the country will continue to move from one crisis to another relying on begging and borrowing to avert it with no light at the end of the dark tunnel in which it has been pushed by now.

A rate of investment of about 20-25 per cent of GDP is needed to generate an annual growth rate of around 7-8 per cent on a sustained basis. Assuming that inflow of foreign savings in the form of direct foreign investment and a surplus in the current account of the order of 5-6 percent of GDP can be ensured, the government would need to reorient its policies to about double the rate of domestic saving in order to finance the remaining level of investment. It will require policies that encourage savings and curb consumption both in the private and public sectors.

In the public sector, savings cannot be generated without restructuring of the fiscal policy to raise the tax-to-GDP ratio to about twice the existing level. The base of direct taxes must be consolidated and expanded, the scope of a consumption tax in the

form of a VAT must be created, the underground economy should be dismantled and tax administration improved to achieve the required enhancement in tax-to- GDP ratio. An increase in the tax-to- GDP ratio, combined with austerity in current expenditure, is the only viable way to generate public sector savings and reduce budget deficit. Furthermore, the quasi-fiscal deficit of public sector enterprises must be eliminated either by restructuring them to run on commercial basis or by selling them to the private sector.

In the monetary area, three genuine initiatives are necessary to develop a monetary policy that helps reduce the above-mentioned three existing structural deficits. First, the SBP should be made truly autonomous as mandated by the revised SBP Act. Second, its management should be professionalized by appointing competent people on its board and its top management positions. Third, monetary policy and interest rates must be geared to increase financial savings and channel them to productive investments in the private sector.

The banking systemought to be rescued from stranglehold of the government to make it effective as instrument of mobilization of financial savings to finance productive private sector economic activities.

In the external sector, it is important to expand exports and contain imports in order to gradually

bring the trade deficit to a manageable level that can be financed by remittances and direct foreign investment, rather than by borrowings from abroad.In addition, the balance of payments must record an overall surplus to build up foreign exchange reserves of the SBP without net additional foreign borrowing.

The development strategy would need to be shifted to export expansion and the exchange rate policy used to promote exports rather than to keep debt servicing of the government low by maintaining an appreciated real exchange rate. All avenues of capital flight currently available to the rich people must be plugged and the need for imports due to inadequate domestic production of essential consumer goods reduced.

These are broad parameters of a sound long-term macroeconomic policy framework that can be translated into specific microeconomic policies to bring down the existing gaps between the required rate of investment and the actual rate of domestic savings, between public sector expenditure and tax revenue and between exports and imports. In the absence of major structural policy reforms, there is very little prospect of the economy getting out of the crisis mold in which it is stuck at present.

08 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Good governance is good politics Dr. Ishrat Hussain This article is written to pay tribute to the late M. A. Zuberi who believed in sound economic policies and strong management and implementation of these policies for the benefit of the majority of the population.

Pakistan has been facing a unique and difficult dilemma for quite some time. Government leaders of the day are unhappy that they are unable to deliver upon the commitments they had made to the electorate at the time of the elections. These leaders complain that the policy formulation is weak, Policy-Performance Gap is widening every day, and implementation of decisions almost non-existent. The bureaucrats are unhappy that they are not allowed to do their job because of interference by the politicians. The citizens and society are highly disenchanted and dissatisfied as they are unable to access basic services the state has to provide to each citizen – Security of life and property, administration of justice, education, healthcare, water, sanitation, infrastructure, electricity, gas, prices stability etc.

Consequently, credibility of each successive government is eroding rapidly among the public at large creating trust deficit in the political leadership and democratic form of governance.

If each crisis that Pakistan is facing today – energy shortages, low tax revenues, losses of public enterprises, corruption, poor law and order, arms, drug smuggling, non-availability of land, housing and transport – is carefully dissected and examined, the root cause will be found in governance deficit and institutional decay. Civil services have lost their dynamism, vigour and sense of mission. Parliament is not properly exercising the vigilance over the Executive Branch and holding them accountable for results, the court system is overloaded and congested with millions of cases lingering on for long periods of time. Institutions of restraint such as the Elections Commission, Auditor General of Pakistan, Public Services Commissions etc. have become controversial.

Nepotism, Favoritism and corruption have become entrenched social norms. Trust and social capital, on the other hand which play a positive role are eroding rapidly. Social polarization of ‘US’ versus ‘THEY’ has become part of our norms reinforcing tendencies of adversity, confrontation and hostility.

At the same time, the rising numbers of educated middle class and growing urbanization, the intrusion of electronic and social media in the daily life, the demonstration effect emanating from a globalized economy have raised the expectations of the society. The gap between the rising expectations of the masses and the weakening capacity of the state institutions to meet these expectations is widening every day.

It is often asked if current economic ills have been diagnosed and we know what needs to be done, why doesn’t action take place? The reason is the inherent disjuncture between the political risks a ruling party is willing to take and the accrual of

economic rewards through prudent economic management that will take care of these economic ills.

This asymmetry between the incurrence of the costs and the appropriation of benefits lies at the heart of the non-reformist stance of democratically elected governments. Prudent economic management requires control on public expenditures, raising unpopular taxes, removing subsidies, stripping off public sector corporations, restraining non-productive job creation in the government departments/ agencies, tackling corruption and waste and appointing the right person to the right job. The rewards of this prudence will appear in the form of reduction in fiscal deficit, lower inflation, monetary and exchange rate stability, resurgence of growth and decline in indebtedness.

These economic rewards, however, would be spread widely and diffused over a large segment of population – not necessarily among the supporters of the ruling parties that have taken unpopular decisions to set the economy on the right path. As a matter of fact some of the supporters of the ruling party or coalition may actually be deprived of their privileges and pelf as a result of these reforms.

What are the immediate political risks?

In a constituency-based electoral system, the sitting elected representative has to satisfy the expectations of the people at the local level. These people are least concerned with larger macroeconomic issues but are preoccupied with their own bread and butter issues. They want roads, electricity, drinking water, schools, clinics, cooking gas in their areas, whether these are economically justified or not. They want subsidies on irrigation water, electricity, gas, seeds, fertilizer and tractors. They want jobs for their sons and daughters and do not care if the latter are qualified for the position or not.

The aggregation of these local demands at the national level creates a catastrophe for the fiscal and macroeconomic situation. The public sector is overstaffed to accommodate the constituents’ demands. Subsidies are administered without any targeting and wreck fiscal accounts. Development expenditure on unviable projects and at inflated contract prices is made liberally, forcing the government to borrow while funds are siphoned off as kickbacks, commissions, payoffs by the politicians to build the war chest for election expenses.

Further, when jobs are dispensed on the basis of connections or money rather than merit, performance is unlikely to be stellar. If the SHO, tehsildar, Irrigation SDO, teachers and other officials are posted at the recommendation of the local member of assembly, they have no choice but to oblige him and his supporters and harass and harm his opponents. It doesn’t matter if the law and order situation deteriorates, crime rises, revenue collection declines, water is wasted as long as the authority of the elected politician is asserted in his constituency.

It may appear at the first sight that the compulsions of political expediency are at loggerheads with

the dictates of good governance and prudent economic management.

This is true in the short run but not in the longer term.

In the short run, the proposed reforms attack the existing system based on patronage, loyalty, connections, mutually benefitting bargains and deals and narrow personal and parochial interests.

The new system lays down merit, hard work, ethical behavior and reward for performance as the underlying principles. The ordinary politician who has to face his constituency would not be able to place his supporters in lucrative governments jobs, award juicy contracts to them, get officers loyal to him appointed as DC, SP, Tehsildar and SHO. From his viewpoint these reforms are an anathema because he loses all the levers of control which he exercises through this patronage system. The fierce resistance by the elected MNAs and MPAs sparked by their fear of losing their privileges, power and pelf immediately as a result of these reforms is the primary reason as to why no government has bitten the bullet and implemented the long term structural reforms agenda.

In the long run, the critical test for the political leadership is to consider whether in 2018, the economic situation would look attractive enough that the people would vote them back to power.

Leaving aside voters in some traditional rural areas -- where biradari and kinships, tribal affiliations and landlord-peasant relations dominate -- the younger population, that forms a considerable size of the electorate, will be the new element in the equation. The new census, if held today, will show that the urban constituencies will account for at least 40-50 percent of the total votes. The preferences of the urban voters are driven by performance and delivery and not on affiliations. The ruling parties can keep these younger educated urban voters contented and happy if they are able to provide them jobs, essential food at affordable rates, clean drinking water, healthcare facilities and education to their families. Security of life and property and providing an expeditious and inexpensive justice system would remain a challenge but is a must.

To fulfill these aspirations of the voters, Pakistan needs good governance, sound economic policies and management. A pragmatic and smart leadership would realize that by creating jobs in the public sector for few of their loyal supporters and saddling the exchequer with financial burden, the fiscal deficit would be amplified.

For each job only one person is obliged by the politician, while 99 other potential or actual supporters, who do not get that job, are disappointed.

The politicians end up with the worst of both the worlds. They not only alienate the majority for the sake of a few, but also unwittingly contribute to the problems of fiscal deficit, debt and inflation.

The leaders would also be confronted with the reality that the lives and the property of common citizens cannot be

preserved when policemen are appointed not on their suitability for the job but on the recommendations or sifarish and political connections. Electricity, gas or water cannot become available to consumers and businesses when these services are heavily subsidised across the board, poorly managed and theft and pilferage are rampant with the active connivance of the politicians. Government will be unable to balance its books when taxable private incomes or dutiable goods are left out of the tax net either because of corrupt officials or the interference of his political followers in the postings and transfers and coming to the rescue of tax evaders. The ambitions to lay down large infrastructure projects such as Motorways, Metros would be faced with financing shortfalls or increased indebtedness if resource mobilization at all tiers of the government—Federal, Provincial and Local—is not assigned priority.

Growth, poverty reduction, employment creation, low inflation and investment will gain strength if there is a positive market sentiment and a general upbeat mood among consumers and businesses.

In other words, the investors and businesses have confidence in the foresight and capabilities of policy makers and the leadership.

As a result of this confidence, investors will sense a positive return on their future investment and expand or build a new capacity for goods and services. This heightened economic activity will create jobs, reduce unemployment, add to purchasing power and thus raise aggregate demand.

It will naturally boost growth rates and result in more taxes because of higher incomes, filling in the fiscal gap. If the investors perceive that the economic policy direction is right and tough political decisions are being taken to set the economy on the correct path they would not hesitate in taking the decisions to expand or invest. Increased Investment, in turn, leads to growth, poverty reduction, job creation and price stability.

Higher growth will also allow the salaries of public servants to be revised upwards and development spending on energy, transport, infrastructure, education and health can be accelerated as additional resources become available because of this boost in level of economic activity.

Shortages and supply bottlenecks in the energy sector -- that cripple the economy and create disaffection among the people –would be eased, lowering the costs of doing business, making Pakistani goods competitive in the international markets and cooling tempers of the households. Looking at the successes of the domestic investors, foreign investors will also bring in capital, know-how and technology.

This scenario would create conducive conditions for the political parties in power in 2018 to appeal to the electorate with this record of performance and their chances for victory would become bright.

Public memories are short.

They will not recall the 2013 and 2014 when they faced energy shortages, inflation, unemployment and difficult law and order situation. In 2018, they will

see the bright lights, humming factories and stable prices.

How can this virtuous cycle replace the current vicious cycle?

The answer lies in the sagacity and wisdom of our collective leadership.

An economic compact on the lines of the Charter of Democracy should be agreed upon by all the major political parties. The compact should have some basic underlying principles

that are non-controvertible. These are: Policy decisions would be based on considerations of "what is good for the majority rather than for me and my supporters”, appointments to key positions would be based on merit rather than connections and loyalty, tax evaders would be penalised instead of being condoned, law enforcing agencies

would be free from political interference and those indulging in corruption, waste and self-enrichment would be taken to task.

A healthy and vibrant economy is what the country needs. That is possible only when Good governance is practiced.

There is a lot of truth in the saying that “good governance is good politics".

Business Recorder | Monday April 27, 2015 | 09

50 years of putting the economy first

Pakistan’s economy: What lies ahead?

Shahid Javed Burki The government headed

by Prime Minister Nawaz Sharif came into office in June 2013 proclaiming that putting the economy on the trajectory of high rate of growth was one of its top priorities. It identified three “Es” as the areas that would be the focus of attention in the making of public policy during the first few months of its tenure. In addition to the economy the other Es included energy and extremism. It could have included other Es in its list of priorities; perhaps a couple of “Ws” as well. The expanded list of priorities could have incorporated education, employment, environment, and external relations. The Ws could have included the empowerment of women and preparing to handle the worsening water situation.

The three Es received a great deal of new government’s attention but so did long-term strategic planning. A considerable amount of state’s resources were spent on preparing a vision statement. The Planning Commission prepared a document titled “Vision 2025” that identified the structural problems the country faced in 2014 and listed a long list of actions that needed to be taken to close the various social and economic gaps that had developed over time. But the vision document launched with much fanfare was silent on the amount of resources that will be needed to implement the program and how the needed resources will be garnered. These simultaneous moves – addressing a few priority areas that needed immediate attention and the writing of a long-term strategy spanning a period of more than a decade – left some confusion about the approach of the new government.

Two major foreign institutions jumped into this already crowded area of public policymaking.

The International Monetary Fund was approached by the new government soon after it took office to provide fast-disbursing capital flows to help the country tide over the external payments problems. The Fund

responded with a $6.6 billion program of assistance which was linked to several areas of reform. Given the country’s poor record of performance under several IMF programs entered into in the past, the Washington-based institution kept

it had fallen since the early years of the 21st century. By the financial year 2012-13, Pakistan had completed almost seven years of sluggish growth. The 2006-13 was the slowest period in the country’s history in terms of the rate of growth of the economy. In

thousands of young and well-trained women are providing IT services to their clients living abroad.

One IT executive estimates that about a billion dollars of capital flows that get recorded as remittances are in fact payments for the work done by these

Pakistan has the potential to significantly increase the rate of growth in its economy in the years ahead Islamabad on a short-leash.

Each quarterly release of funds was made contingent on the satisfactory review by the IMF staff of the performance by Islamabad in the previous three months. The sixth quarterly review was held in early February and concluded with a statement expressing qualified approval of the policy moves made by the federal government.

However, it agreed to reduce the target for revenue mobilization by the federal authorities.

The World Bank Group was the second international institution to come to the help of the country. While the IMF program had focused on balancing the economy by the adoption of a string of measures aimed at improving the external and internal resource situations, the WBG got involved in a number of areas aimed at structural reforms. Energy became a major area of the institution’s involvement. It developed what was called the “Indus Cascade” – as series of projects on the Indus River to generate electricity – while approving its financial involvement in the large Dasu run of the River project downstream of the Bhasha Dam. In 2013-14, the WBG completed its largest one-year program of commitments and disbursements to Pakistan.

With this as the background, can we draw the conclusion that Pakistan is on its way to climb out of the economic rut into which

2013-14, the first year of the current government the economy grew by 4.1 percent. Did this mean that the way had been prepared for the country to climb onto a higher growth plane?

This question received a positive answer from the Economic Advisory Council convened in Islamabad on 21 February to review the situation. The EAC met under the chairmanship of Finance Minister Ishaq Dar and concluded that a rate of growth of 5 percent was within sight – perhaps by the year 2015-16. A broad-based pattern of growth was in place that would ensure that the country will steadily increase its growth performance while, at the same time, addressing the issue of the poor development of its large human resource.

All the growth numbers used above are for the formal economy.

There are several analysts who are of the view that the size of the informal sector is as large as that of the formal part. Much of the activity in the informal part takes place in small and medium enterprises that escape the attention of the data gatherers as well as that of the tax collector.

There is little knowledge of the goods produced and services provided by the enterprises that operate under the radar. Three examples of what kind of activities are being carried out that are not formally recognized will help to illustrate what official numbers don’t tell.

Women are involved in all three activities. Tens of

one-woman unregistered enterprises. Those who are engaged in this work were once employed as workers in large IT firms but left after getting married.

However, they continued to work from home even while raising families.

Private schools established by women in towns and villages as well as in the peripheries of large cities are another example of the type of activity that does not receive the attention of the authorities. Most of these are modest operations built around one person who has received some education and is adding to family income by providing basic education to children in the neighborhood. The parents who send their children to these establishments are not impressed with the type education on offer in the public sector and are looking for alternatives.

The third sector in the unrecorded part of the economy can be loosely described as the “fashion industry.” This includes small enterprises that are making garments and providing health and beauty services to the more affluent segments of the Pakistani society. The entrepreneurs who have established these enterprises belong to the part of the social segment they are servicing. As such they have a good understanding of what the market needs.

These three examples point to the enormous potential of the service sector in defining

both the rate of growth of the economy as well as its future structure. It also underscores the role women can play in moving the economy forward.

Should the state play a role in developing these activities or should they be left alone to develop on their own? The weakness of the state suggests that it is better to leave alone these enterprises. That said, it may be of some use to encourage the public educational system at the higher level to train the youth, particularly women, who could become workers as well as entrepreneurs in these kinds of areas.

Where the state could get involved in improving the country’s economic future is to turn Pakistan’s strategic location into an economic asset.

There are four countries that share borders with both China and India – Asia’s two giant and rapidly developing economies.

Two of these countries – Bhutan and Nepal – are small. The third, Myanmar, is of medium size. It is also struggling to develop a viable political structure.

Pakistan is not only large with a population approaching 200 million, it is also politically and economically more developed. By improving relations with India and by investing in developing the needed infrastructure, Pakistan could make use of its extraordinary location to use trade as a major driver of growth. Not only that. It could also obtain large amount of finance by offering its territory for moving goods and commodities among the nations on its borders as well as those not too distant from it.

Some of the needed investments are being planned. The most notable of these is the China-Pakistan Economic Corridor.

While the precise location of the CPEC has become politically contentious, there are good indications that the massive investments that are currently envisaged will get to be made. The American pullout from Afghanistan and the election of Ashraf

Ghani as the new Afghan president have set the stage for ushering in a new period of economic growth in this area. China needs to reach the enormous but untapped mineral wealth of Afghanistan some of which overflows into the Pakistani territory. China also needs the Pakistani and Afghan spaces to access the energy resources of the Middle East and Central Asia.

Improved relations with India would mean linking that country into these corridors. The Indians also

need to have good access to Central Asian and Middle Eastern energy to overcome their deficit of this vital economic input.

What all this implies is that Pakistan has the potential to significantly increase the rate of growth in its economy in the years ahead if it undertakes a major paradigm shift in economic thinking. It needs to focus on some of the neglected drivers of economic growth. These include its large and young population, in particular

the contribution women can make to the economy; its proximity to large Chinese and Indian economy; and its location.

Intelligent and imaginative use of these potential assets could produce the rates of economic growth that would approach those of the fast growing Asian economies. It is possible to think of and plan for rates of economic growth north of 8 percent a year by the end of this decade.

10 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Wrong name ...right cause!

A reflection on 50 years of an unusual newspaper Javed Jabbar

This writer has never quite taken to the name of the Business Recorder.

The title is far too restrictive and even mundane. "Business" is too transactional. "Recorder" is too mechanical.

Whereas what this remarkable newspaper has done for five whole decades is to define the subject of political economy as a specialised sector deserving of exclusive attention , rather than merely cover business news as an adjunct section of a daily journal that deals primarily with political events and also covers sports, entertainment , local news, et al.

In 50 years, Business Recorder --- notwithstanding its deceptively narrowly-focused name! --- has actually pioneered a holistic approach in Pakistani journalism to a particularist yet pervasive dimension of our country and our times. This conceptually comprehensive perspective has promoted the need to view events, trends, statements, actions ostensibly relevant only to the trade or financial or monetary or investment aspects as reflections of the larger, multi-dimensional, multi-layered societal, demographic, regional, global and inescapably political realities that shape how whole countries change, for the better or for the o worse.

Initially, one did not take this newspaper as seriously as is suggested by the portentous observation in the preceding paragraph. One tended to presume that this strange new entrant into journalism was merely yet another addition to the field, meant to appeal to a limited number of prosperous entrepreneurs whose primary interest was in enhancing personal and corporate profit.

Gradually, however , just as the newspaper itself began to discover its own potential , and began to deal with the challenge of how to be distinct and, if possible, better than the daily business section of Pakistan's leading English general newspaper, one developed an appreciation for this new venture's individuality.

both the people and by the Armed Forces ultimately proved to be a drastic turning point toward a descent of the country's polity --- in terms of unity and of economics --- to the country's disintegration in 1971.

Business Recorder's formative phases were therefore a prolonged baptism in fire. That searing, traumat-

Credit for this visionary venture 50 ages ago rightfully belongs to its founder One determinant factor on how quickly and how distinctly Business Recorder could carve out a specific, unmistakable niche was the fact that the human resource pool from which it could draw its own staff was the very same pool from which all other English general newspapers were deriving their team members. And neither the universities at that time nor the emerging first-ever business education institutions like IBA were preparing specialists, at that time, in reporting on business issues with special skills.

So the newspaper itself and its staff --- both were learning-on-the-job.

And they were doing so in tumultuous times. From the hopes and actual highs in conventional industrial output achieved during the first years of the Ayub Khan Government came the sudden break in momentum with the September 1965 war with India. That event, momentarily inspiring for the examples of courage and resistance shown by

ic experience for the entire nation must obviously have enabled the journal to become more conscious than it earlier was that its mandate was larger than commerce alone.

Conventionally defined on the dictionary of the internet --- not one's first favourite because the thick, printed-on-paper version is still the first preferred dictionary --- the scope of political economy places it as a branch of the social sciences. Drawing from the economy and political science, the political economy perspective uses sociological viewpoints as well to observe how a country is governed and managed.

And inevitably, how all this impacts on a nation's productivity, progress and prosperity.

During one's six years in the Senate of Pakistan, 1985 to 1991, a relatively brief period that saw martial law and its removal, followed by five changes of governments, one began to notice that the Business Recorder published a daily Press

Gallery report on the proceedings of Parliament. The content of those daily blends of what was said on the floors of the two Houses mixed with the caustic soda of the writers' own opinions reflected, in a limited yet revealing way, how the newspaper recognised ostensibly non-business affairs as also being directly relevant to the business of business!

Over the 50 years of its youth , the newspaper has steadily acquired its specialist economics expertise through a combination of in-house professional resources deployed for day-to-day reporting as well as daily editorial comment, regular columnists (including one's old-young friend Nusrat Nasarullah!), free-lance contributors of its op-ed analyses, interviews with captains --- and brigadiers and generals!--- of industry, reproductions of ,and reflections on official statements, explorations of detailed studies conducted by research forums and think tanks, regional and global views and readers' reactions and outpourings.

On the way, the paper has trained and nurtured hundreds of journalists and workers, coached promising practitioners to become proper professionals, evolved as a stable organization, played an active role in building collective representative forums, served often as a bridge between the perennially-discontented business sector and Government.

Though clearly geared, by name and by function, to cater to a fairly well-defined audience, and thus making no bones about it, the newspaper may sometimes be, rightly or wrongly, seen as a spokesman for the narrow, vested interests

of private profit. This is an occupational hazard the journal always needs to be conscious of. But on balance, after making an unavoidable allowance for the inherent space it occupies, the Business Recorder has placed the public interest as its guiding editorial principle.

Due to the limited yet influential status of the English-reading segment of the country's business-related population , one wishes that the huge numbers of non-English speaking and reading businesspersons of our land, doing their work so industriously and productively in every nook and corner could also , at least occasionally, be able to read the Business Recorder!

Who knows, in the emerging age of mobile media, up ahead somewhere may well be electronic versions in Punjabi and Sindhi, in Sindhi and Seraiki, in Pushto and in Gujarati, of the newspaper taking shape in embryo form!

Credit for this visionary venture 50 ages ago rightfully belongs to its founder. Amongst those few Muslim professional journalists who made the national and psychological transition from pre-1947 times to an independent, severely disadvantaged Pakistan, Mr. M .A. Zuberi bravely chose to take the first steps into the unknown realm of a full-fledged business daily newspaper.

It was, and remains, aptly symbolic of the determination to be different that the location of the premises of Business Recorder is at some fair distance from the traditional Fleet Street area of Pakistani journalism.... which was McLeod Road/later I. I. Chundhrigar Road.

That distance by itself must have helped the founder to strike his own precise path!

One recalls with pleasure his characteristic persona, his fascinating collection of anecdotes and episodes from his personal participation in historic events and meetings which were part of the country's crucial early decades, his leadership of the Council of Pakistan Newspaper Editors and his continuing concern for developing journalism as much as for the development of the economy and national institutions .

Though his direct off-spring, his grandchildren, his nephews, the part of his family that has remained associated with the newspaper and its affiliate groups have, in their own respective right, established their individual capabilities, Mr. M.A. Zuberi must surely be enjoying the view from up there somewhere at the legacy he helped create.

He must also be a fairly regular viewer of Aaj TV, the unlikely but frequently pleasantly surprising first cousin of the Business Recorder.

Though each entity has managed to ensure its respective separate media and genre identity. While the newspaper itself will surely benefit from the self-scrutiny conducted by the second and third generation of Mr. M.A. Zuberi's proud descendants of this part of the large Zuberi clan on the milestone of the golden anniversary, one joins many others in wishing full speed ahead to the completion of an action-packed, exciting century!

And as for the name, a rose by any other....?

Business Recorder | Monday April 27, 2015 | 11

50 years of putting the economy first

Despite failures there are rays of hope A.B. Shahid As the Business Recorder celebrates the fiftieth year of its publication, it is worth examining where Pakistan stands today, the reasons there for, and the way forward because despite the many failures and few successes of the regimes that administered Pakistan, it has the potential for rising well above the level it is at. However, neither the public nor the private sector shows enough awareness thereof.

At present the stumbling block is the public debt; in 1958 it was only Rs 5.8 billion of which just 13% was external, but in 1968, it rose to Rs 17.7 billion of which 49.6% comprised external debt but the bulk thereof was spent on infrastructure development and industrialisation, yet wasn’t enough because population growth was high, as it is today – an imbalance that has only worsened.

In 1964, at a World Bank conference on ‘Problems of Developing Countries’, eminent economist Prof. Richard Eckaus concluded that, based on its record in the early 1960s, Pakistan was “a puzzle, a miracle of levitation; with one of the lowest domestic savings rate in Asia [due to low growth in per capita income], its economy has performed quite creditably”, but wondered “whether the capital inflows sustaining this growth would last”.

The 1960s were unique in providing the private sector the freedom it needed to bolster growth, which was rapid to a point where SBP found it hard to ensure monetary expansion at the commensurate pace. To achieve this aim i.e. keep inflation at the logical level, SBP had to use all regulatory tools including credit controls, statutory reserve requirements, credit ceilings, lending

quotas for banks, and floors and ceilings on lending rates.

The fact that SBP focused so much on regulating the monetary system pointed to a developing cavalier attitude among bankers – surrendering to market demands without foreseeing the economic consequences of this attitude. The freedom afforded to the private sector proved fatal because it gradually led to creation of serious economic imbalances between East and West Pakistan.

The 17-day war with India in September 1965 was a tragedy of incalculable proportions. The pace of economic development suffered a reversal because resources were diverted to replenishing the losses of the defence forces. It was a turning point in our history under whose dark shadow we have lived ever since, though deterioration in other areas, especially state administration, aggravated the problems.

The post-1965 economic slowdown was manifested in many ways. The 1960-65 period was nicknamed the “green revolution” because agriculture registered the highest-ever growth rate. Besides, gross fixed capital formation averaged 21% of the GNP and GNP growth averaged 6.4%. All these indicators began sliding. On top thereof, simmering popular dissent led to the downfall of the Ayub regime and then the break-up of Pakistan.

No one can deny that private sector – engine of growth in non-communist states – must be afforded the freedom it needs to perform at the optimal level, but the state cannot shrug its obligation of giving this sector direction so that the

eventual result is higher prosperity for all – not a select class. This has been the key (though vocally denied) failure of all regimes to-date.

The beginning thereof was heralded by wholesale sacking of principled and forthright bureaucrats

by Gen Ayub. Z.A. Bhutto did the same at a far higher scale, forcing the bureaucrats to become servants of the politicians, not the state, which compromised the integrity of the state. Now even the National Accountability Bureau doesn’t (let alone the other pillars of the state) hold accountable the known criminals.

Over the decades, sidelining of those who were both capable and competent but suffered from the disease of being “visionary and sincere” has diluted, in fact decimated, the key social values. Striving for short-term material gains has now become the main objective, irrespective of how the flawed routes to achieving it damage the society – today’s stark reality.

This pursuit has become the accepted life-style – a trend that can damage the country irretrievably. In 1987, Allan Bloom authored a book (The closing of the American mind) pointing to the intellectual deficit in America’s educational system which was imparting knowledge based on superficial coverage of disciplines that amounted to institutionalizing closeness in the guise of openness.

“When there are no shared goals or vision of public good, is a social contract possible”, he asked, and lamented the corruption of future generations’ mindset with the premise that American way of perceiving and resolving issues is ideal. He agreed with Plato that if we

are to be truly human we shouldn’t be content only with the values our culture provides; such existence is a closed cave – a prison sealed by a blinkered self-righteous attitude”.

The deadliest of the flawed values is elevation of self-benefit above all considerations because it amounts to saying “everyone for himself, God for us all”; when applied to economic activity, this mindset rapidly escalates economic disparities, which is the harsh reality of almost every country, but Pakistan is among those that manifest it starkly, as depicted by its rising (but uncared for) poverty line.

What worsens this scenario is the fact that, instead of accepting their governance failures, regime after regime either simply denies them, or cites bigger failures of previous regimes as the consoling factor although it amounts to admitting being at least as incompetent and corrupt as the previous regimes – a tendency that has turned mal-governance and trampling of civilized values into the accepted culture.

Although the Rupee depreciated throughout the last 25 years, this flawed culture didn’t make entrepreneurs realize that, given their inability to undertake requisite balanced modernization and replacement of the industrial base, they cannot achieve the competitiveness imperative for serving the local markets at globally competitive prices and gaining and sustaining a foothold in foreign markets.

All they keep asking for are tax concessions, which escalate the fiscal deficit, and prevent repairing and expanding the physical infrastructure which is rendering

businesses progressively more un-competitive. Until Pakistan is able to overcome the gaps in its physical infrastructure, the sane strategy is to focus on sectors that are based on local inputs and don’t require highly specialized skills.

Pakistan’s reality is that each year its youth population increases by 3.6 million and now forms 53% of the total. These boys and girls are units of energy; it is up to the state to decide in which direction this energy should go – petty and big crime, terrorism, or professions wherein it is utilized productively and the youth get used to earning through hard work.

This huge mass can’t be educated but vocational training can turn it into productive, self-sustaining individuals who could be employed in Pakistan or abroad. In Pakistan, they could be employed in agriculture, orchard, dairy farming, animal husbandry, poultry farming, and fisheries sectors. With a largely uneducated population that’s what Pakistan should capitalize on.

But doing so implies confronting tough challenges from the firmly entrenched landlord aristocracy; it would do everything in its power to stop in its tracks any corrective effort e.g. corporate farming, which was offered by Middle Easter investors but didn’t materialize due to landlords’ resistance. It is unfortunate that this failure wasn’t highlighted by the media.

As it is, agriculture sector’s infrastructure is in shambles; its profile worsened after the 2010 and 2011 floods, but the private sector has yet to realize, for instance that, for preserving crops’ attributes while

stored, purpose-oriented storage facilities are vital. Besides, well-monitored storage facilities could help in borrowing on secured bases to finance a host of agriculture-related inputs–seeds, fertilizer, pesticides, tools, gadgetry, etc.

Pakistan is a mega producer of fruits and milk, but we didn’t develop adequate capacity to preserve and process these items. We need ‘cold chains’ to move them to domestic markets, and country-wide network of processing plants to produce and export their value-added output. The side benefits would be rise in activity in specialized auto, cold storage, processing technology, and packing material sectors, above all, in employment.

Same is true of animal husbandry, poultry farming, and fisheries sectors. Besides developing these sectors the other issue demanding attention is revival and expansion of the ‘import-substitution’ sectors – sectors that can produce locally what is being imported and adding to Pakistan’s bludgeoning trade deficit. All this is now imperative because if this isn’t done, the load of external debt will virtually kill Pakistan.

But nothing can change without ridding the state bureaucracy of the cronies, incompetent and the unprincipled therein to guarantee pervasive transparency for optimal resource utilization instead of squandering. Before the 1988 British elections The Guardian had rightly pointed out that “governments come and go; only a competent, committed and forthright bureaucracy provides continuity to the state and assures stability, not its politicians.”

12 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

The next 50 years: More of the same?

Mirza Qamar Beg Business Recorder has come a long way: from an ‘also read’ tabloid to a ‘must read’ twenty pager. During this 50 year journey it saw the rise and fall of several rivals. It also successfully maneuvered the ‘game changers’ of the day: government advertising and newsprint quota. It held its head high. It brought in professionalism.

The readership grew.

It seems to have been a less glorious period for Pakistan. A singular dearth of vision led to the loss of its biggest province. The Constitution survived, buttressed by 21 amendments (in comparison, over its 226 years the US Constitution has been amended 27 times, including the ten amendments constituting the Bill of Rights) but Democracy, even our version of it, was made to play hide and seek. And our slide down almost all global indices - from transparency to human rights to competitiveness – read like the Chronicles of a Death Foretold.

During this period the State, whose conceptual framework was firmly rooted in the 1935 Government India Act (until that zephyr of 18th Amendment - even if it was unmindful of the ‘change management’ imperative) refused to go against its grain. It ‘managed’ the provinces through the All Pakistan services, controlled the use (if not ownership) of all resources, and until the re-robed Chaudhry court started to assert itself, it could always count on the law of necessity – Kelsen as interpreted by Justice Munir.

The State was all over the place – from school text books to rewriting history. It even arrogated to itself the right to be the arbiter of a citizen’s faith.

Ironic, then, that its power frayed at the edges. Its writ weakened,

almost in direct proportion to the travelling distance from Islamabad.

The greatest casualty was a systemic weakening of institutions. Army alone retained its shining armour, even as it faced charges of being bigger than the State.

The menu of disillusionment offers a veritable smorgasbord.

Hard to choose from. But if I must, I would choose two: erosion of societal values and growing inequalities.

To progress as a nation its citizens have to share certain inalienable values. No economic might, no nuclear prowess, no health potion, not even the miracle of good governance, can substitute for certain basic norms and values that society, as a whole, believes in and is willing to make sacrifices for. Rule of law, tolerance and respect for the rights of others, insaaf and fighting for the just cause, respect for the weak and succor to the disadvantaged.... You take away the quintessential value system and you have a ‘dog eat dog’ disposition. Children are encouraged to use unfair means in exams, eschew truth, hanker after ‘lucrative’ government jobs. Being honest becomes a pejorative term. Sifarish seeps in. Good governance becomes bad politics. The whole concept of meritocracy is jettisoned.

Are we becoming too selfish a nation? I come first?

It is now an established fact that the full potential of a country cannot be unlocked when there are glaring inequalities: personal, regional or gender-based. Every government claims to act in the name of the poor and the downtrodden; it says it will reduce inter and intra-regional disparities; it promises rights to women. And yet we end up with more poor (conveniently, percentages

are used to mask the growth in total numbers), access to education has become more challenging for the girl-child, and Pakistan has certainly become a two-speed economy.

The good news is that the average reader of Business Recorder will have to walk several miles to

and integrity; some wore the OSD’ship as a badge of honour.

Good people trapped in a bad system? Too few to make a difference? The competence-differential between the senior and junior tiers of bureaucracy? The sheer enormity of the challenge? Or, the

Rules of Business, mandated by the Constitution, become farcical when the Secretary serves entirely at the pleasure of the Minister come across someone who is worse off today than he was fifty years ago.

No, there is no real contradiction between this and the earlier statement of the number of poor growing. The sprawling, tax-unencumbered, informal economy, not the remittances, has made the number of affluent grow. Conspicuous consumption happily subsists with rank poverty that cling-wraps it.

How did we come to this sorry pass? There are many worthies to compete for the title of the worst offender. But as a minor incident in the lives of others I must accept my share of the blame. Yes, alibis can be found, but the bottom line remains unassailable. ‘Where did we go wrong?’ is a question that my colleagues and I often ask. After all, in a manner of speaking, we controlled the levers – from Planning to Finance to Education to Health – and trust me, it wasn’t because our heart was not in the right place. Also, quite a few were as good as they come in competence

villain of the piece: didn’t have enough power?

It is interesting how people out of power always bemoan that they did not have enough power when they were in power. Ask Musharraf.

It is also instructive how transient the ‘policies’ of the Titans have been: Ghulam Mohammad’s one unit, Ayub’s architecture of democracy, Bhutto’s capture of the ‘commanding heights of the economy’ (that included flour and ghee mills!), Musharraf’s devolution and ‘eliminating the Deputy Commissioner’. Jury is still out on Zia’s theocratic incursions and the Catholicism of Sharif’s privatization mantra.

It appears an appreciation of the power-policy coefficient eludes Pakistan’s leadership. While making policy is the province of those in power, power alone cannot lead to durable policies. There is a secular difference between using power to develop a coalition of interests and using power to rule through fiat. The

difference is between leading and commanding, between building consensus and fearing dissent, between stakeholder ownership and the received wisdom. Judicious use of power builds institutions; fiat destroys them. And what defines genuine power is that ultimate red line: no compromise on basic principles and morality, no matter how high the cost. A wise Prince will also not look askance upon effective checks and balances. This ensures justice, and makes his policies last.

Civil Service is an essential element of the power apparatus.

While it will be facile to argue that the bureaucracy doesn’t deserve its less than savoury reputation, it makes little sense to throw the baby out with the bath water. You can’t expect someone to perform well in the hailstorm of abuse and mistrust, compounded by an aura of insecurity that disincentivises decision making.

It will be educative to see why the Army succeeds where the Civil Service fails. It is not about compensation per se - yes, they have the Defence Societies but several civil servants too have several plots. It is about asymmetry between authority and compensation. It is not about quality of human resource – at entry levels Civil Service is much better endowed. It is about constant re-tooling and proactive career planning. It is not about the Army Act vs the Civil Servants Act. It is about how effectively you use the code.

But what really distinguishes the two is that the Army manages its own affairs. The Civil Service does not. What could be more telling than to have non-civil servants heading the Public Service Commission that selects civil servants, and the National School of Public Policy that

trains them? Rules of Business, mandated by the Constitution, become farcical when the Secretary serves entirely at the pleasure of the Minister. Establishment Division can hardly do any succession planning when it is not allowed to find the right man for the right job.

Unless we revitalize the Civil Services we are destined to suffer more arbitrariness, more government through fiat, more poor governance. The world has moved on. You can hold civil servants accountable without amputating them. We need to put in place a proper Performance Management System (along with a forced bell curve to sift the really good from just average). We need to give reasonable space to the Civil Service to manage its affairs.

So, will the next 50 years be more of the same? I don’t think so.

Not for the Nation; not for Business Recorder. Not only are people beginning to find ‘voice’, they are also finding ways to be heard. In ways that are hard to articulate people are somehow putting the pressure on. A safe majority in the Assembly is no longer the ticket to completion of the term. Perform or perish seems to be the message. This augurs well for Government’s accountability to the people, even if the road is long and full of pitfalls. But, as Kafka put it, life is more than a Chinese puzzle.

With the advances in technology, that make news stale before it can go to press, I see Business Recorder going back- intime to a four-pager, with comments and analyses migrating to blogosphere, or some such variant. Hope BR becomes the must-go-to search engine for business and finance in Pakistan. Good luck.

Business Recorder | Monday April 27, 2015 | 13

by the editor

14 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Solutions before the problem Syed Bakhtiyar Kazmi Felicitations to Team Business Recorder (BR) on the Golden Jubilee; may BR have many more. Everyone, at least from the business community, will vociferously agree that BR is “The” publication for reliable and current business news, data and information in Pakistan. It is indeed an honour to have been invited to contribute an article on the 50th Anniversary Special Edition of BR. The theme, as advised by the Editor, revolves around suggestions to revive the ailing economy of Pakistan; definitely the need of the hour, but unfortunately, exactly therein is a dilemma. Evidentially, there already exists a consensus, between domestic and foreign experts, over the solutions for Pakistan’s economy; starting from removing barriers to international trade, deregulating flow of currency, facilitating foreign direct and indirect investment, enforcing international copyrights, all the way down to privatization. In short the standard prescription, referred to as the Washington Consensus, prescribed for developing nations fortunate, or unfortunate, enough to be advised by IMF. All of which might have been just fine, except that in the final substantive analysis, after having taken the medicine for around 2 decades, Pakistan still finds itself sinking deeper into the quagmire.

According to the conventional view, popularised by the monarchs of capitalism, a country’s ability to borrow in the international debt market is the barometer of its economic health, hence Pakistan is doing fantastic; but somehow this

adjudication remains indigestible. If the economy were healthy enough, there wouldn’t be a need to borrow.

There are a host of other popular economic indicators and barometers which are quoted as evidence of an improving situation, depending upon which indicator is positive at a given time, but somehow, contrary to the law of physics, the trickling down of this growing opulence seems to defy gravity; the

however, the nation seems to be notching up an unsustainable import bill, which till now is being financed through an ever increasing foreign debt; it remains to be seen how long this particular party will continue.

Unable to compete with global corporations, domestic industries and services are taking a beating, resulting in stagnating exports with a continuing singular reliance on cotton. The world seems

common man is getting more common with each passing day. And, as some might be aware, an ever shrinking middle class is fatal for democracy. But before beating the doomsday drum, let’s analyze the results to date of all the above great solutions.

Opening the borders for international trade has been amazing for Pakistani consumers, albeit those who can afford to splurge on a luxurious life. In the balance

to want nothing from Pakistan except cotton and even that demand seems to be tapering over the last few years.

Imports have to be earned through exports; that is the irrefutable, fundamental law of international trade, which surprisingly all structural reform programs seem to ignore. Pakistan’s solution to this edict is to export Pakistanis, but while this does bring home the bacon, there is a flip side. If the

educated middle class and hard working and adventurous workers leave to toil in greener pastures, who will build Pakistan?

Free flow of currency is another great thing; it is amazingly simple now to move wealth, honest or ill gotten, out of Pakistan, a facility designed specifically for the rich.

Notwithstanding, unhindered flow of currency also provides an opportunity for foreign speculators to invest in Pakistan’s stock market, create a boom and leave before the collapse for greener pastures; Pakistan’s gains out of these activities have always been a big mystery.

Free flow of currency is also great for foreign direct investment.

But if the nation rampantly imports finished goods, which is more profitable for global corporations, FDI will be limited to guaranteed high return low risk short payback projects.

So if the rich and the foreigners only want to take dollars out, where will the funds come for setting up hard core manufacturing industry in Pakistan? Has anyone been noticing, a host of global corporations, seem to be leaving, or have already left, Pakistan for greener pastures.

All thanks to the government of Pakistan for enforcing copyrights and allowing the citizens of Pakistan to watch latest Indian movies in comfort in cinemas in Pakistan; older generations who fought for independence could not even have imagined this turn of events. Domestic entertainment industry has almost shut down and whatever actors are left, are also leaving for greener pastures.

Everyone, at least from the business community, will vociferously agree that BR is “The” publication for reliable and current business news, data and information in Pakistan With no one investing, the rich exporting their wealth, educated, hard working and talented Pakistanis leaving, how else can the imports and debts be paid for but by selling whatever can be sold. But how long can privatization go on, there are limited assets and even more disturbingly, the crown jewels have

already been sold, and foreign debt has increased!

So where is Pakistan going with all these stupendous solutions?

If history is any guide, definitely not becoming an industrial power, or becoming a developed nation in the foreseeable future. And if all goods and even services continue to be imported, foreign national debt will keep rising and while the workers will keep remitting to families back home, the party cannot continue forever. And since nothing tangible is happening, schemes to defraud will increase for want of quick money and the social unrest will get worse for lack of employment; even the educated feel hunger pangs.

If this is not the desired state, the cart is definitely before the horse; whatever these solutions purport to solve, is not Pakistan’s problem.

The problem is not in importing, as long as all imports are earned by at least equal exports.

Problem is not free flow of currency, as long as flight of domestic capital especially the tainted kind can be curtailed. The problem is not with foreign investment, as long as it is utilized in setting up manufacturing which pay for imports. The problem is not with copyrights, as long as it does not harm domestic culture, initiatives and sensitivities. Problem is not with privatization, as long as it is not mandated by the debt trap.

Problem is with enterprising Pakistanis leaving Pakistan, the country needs them.

If everyone agrees with the problem statement, that will be a huge step in the right direction.

Business Recorder | Monday April 27, 2015 | 15

INF/KRY/No. 1531/2015

16 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Mian sahib: 2015 is not 1999!!!

Anjum Ibrahim My long association with Business Recorder began not because of my interest in economics, though that certainly was a factor given that after half a century after independence it remains the only business daily in the country, nor because I was looking for a job or indeed more money (though again if truth be told these remain factors in career decisions); but because I met and was inspired by the founder of the paper M A Zuberi.

The place we met was Davos, Switzerland, the time end-January early-December the event the World Economic Forum. My association with the paper’s founder did not begin with a passionate discussion on economics or politics or indeed the impact of one discipline on the other. Our first conversation began with our mutual amusement at over hearing the insistence of the then Prime Minister Nawaz Sharif that he wanted to go skiing with one officious official saying that “he would strongly advise against it as in the event that you break your leg, an unfortunate occurrence that can happen to even experienced skiers leave alone first time skiers, Pakistan would be leaderless.” I mumbled that a broken leg may compromise mobility or a foreign visit but is unlikely to be an impediment to prime ministerial work requiring reading files and taking decisions, which was over heard by Zuberi sahib, who smiled. He had known at the time, unlike me, that Mian sahib does not like to read files and relies exclusively on his loyalists to inform him of what is happening under his watch.

At the time Mian sahib agreed, albeit visibly, with poor grace, and instead focused on his mantra that has survived into his third term as the country’s chief executive: luring foreign investment as an overarching foreign visit objective. It is indeed rather sad that more than a decade down the line Nawaz Sharif has neither learned how to ski, though I am not sure whether he abandoned this objective after making an attempt as it is more of a challenge for some relative to others, nor indeed has he been able to attract direct foreign investment (though his family stands accused of engaging in direct foreign investment in Saudi Arabia and the UK).

The PPP-led coalition government (2008-13) regarded by analysts and economists as one of the most corrupt and mismanaged governments ever in our history, managed to attract foreign direct investment inflows of 314.2 million dollars with an outflow of 61.3 million dollars. Granted that this performance is appallingly poor, yet the Nawaz Sharif administration has gone one step worse with total inflows by December 2013 at 201 million dollars while outflows were 111.4 million dollars. The Finance Minister, Ishaq Dar, would no doubt wax eloquent on this decline and argue that he was engaged in fire fighting during the first six to seven months of the PML-N government and hence more time than six months was needed to turn the tide. The tide has indeed turned thirteen months later but the other way round: in December 2014 inflows declined further to 195.6 million dollars. And this is the party that was brought into power on what was widely believed to be greater experience in running government (as opposed to Zardari sahib) and the party’s stated pro-business policies designed to fuel growth as well as attract direct foreign investment.

So how is the PML-N government performing third time around? Growth has been fuelled not by higher economic activity but by manipulating data, common enough practice by Pakistani governments’ - civilian and military - spanning decades. Some federal ministers were clever about data manipulation for example Hafeez Sheikh changed the weightage given to various components of Consumer Price Index (CPI) to show a decline, while others changed the final statistic leaving supporting data unchanged, an example being the inflation and CPI cited by Shaukat Aziz. Ishaq Dar for all his rhetorical antipathy towards Shaukat Aziz, sourced to Aziz’s accusations of data fudging during the second stint of the PML-N government, falls into the same category as his nemesis. The proof of the pudding: to ensure that he could claim a higher rate than in any of the five years of Zardari-led government Dar lowered the growth data not

of 2012-13, which he could have legitimately done as it was the last year of PPP led coalition government with three months of the caretakers thrown in, but the year 2011-12 when growth registered 4.4 percent to 3.8 percent.

Dar has also engaged in some innovative though obviously flawed claims. First, he has claimed that the government procured foreign loans at around 5 percent and retired domestic debt procured at 12 percent. His sleight of accounts, hardly disguised from either a qualified accountant or economist, is evident from the following data in his budget documents: (i) interest on domestic debt rose from the budgeted 926 billion rupees in 2013-14 to 1.02 trillion rupees in the revised estimates with 1.153 billion rupees projected for the current year.

The reason: heavy reliance on short term borrowing from the commercial banking sector (due to the IMF condition not to borrow from the State Bank) not only raising indebtedness but also crowding out private sector activity; (ii) Eurobonds budgeted at 49,500 million rupees were over-subscribed to 205 billion rupees. Ten year Eurobonds had an applicable interest of 8.5 percent and 7.5 percent for the five year bonds with sukuk issued at 6.5 per cent – well above the 5 percent rate for the issuance of bonds by heavily indebted Greece. The Eurobonds and sukuk issues are in foreign currency and have to be repaid in foreign currency and sadly no analysis has been undertaken to determine whether a yearly conservative rupee depreciation of 5 percent would make this ‘capital transaction’ a very expensive proposition; and (iii) Dar’s budgeted grants figure of 108,982 million rupees was a gross over estimation and only 38,786 was given as grants from external sources. This year Dar has budgeted 244,803 million rupees as grants and this appears to be even more of an over estimation than last year.

Budgeted external loans for 2013-14 of 467,437 million rupees escalated to 675,326 million rupees in the revised estimates though it is unclear whether the placement is correct under an escalation in programme (budgetary) support of 139,111 billion rupees.

Secondly, Dar placed Gas Infrastructure Development cess under other tax revenue though it should legitimately have been placed under non tax revenue thereby showing a rise in the tax to GDP ratio. Privatization proceeds have been placed at 198 million rupees under external grants (up from 79 million last year which was not realized given the state of the domestic economy and law and order situation as well as Eurozone recession). Would he succeed this year? He reckons so and has informed the IMF that the country would sell 43 percent government shares in HBL in two transactions while privatization of 3 distribution companies would take place before the end of the current calendar year. However the global environment remains far from conducive to these sales including the decline in revenues of oil rich countries, the Ukraine crisis as well as the Greek crisis.

Thirdly, Dar continues the flawed tax regimen by raising taxes on existing tax payers while he named and shamed the parliamentarians for the little tax they paid through a publication, an IMF condition incidentally, but which has not led to any appreciable increase in tax paid by parliamentarians. Laws that would impact on those who bank abroad (reference to avoidance of double taxation) or who launder money by sending money abroad and remitting it as white money (a practice that continues to this day) continue to be untaxed.

The Sharif administration has used up most of its political capital during the first twenty months of power by holding its predecessors responsible for flawed policies. Khawaja Asif won the case against the Zardari government for making flawed senior appointments with a much hailed verdict that identified a transparent process of appointments. The irony is, that the very same party when in power appealed the verdict by claiming that it is the federal government’s prerogative to appoint whoever it deems appropriate at key autonomous posts. The power sector crisis continues to this day and the circular debt is once again close to what was inherited by this government with inefficiencies and theft and corruption

continuing. The Baloch imbroglio remains unresolved and the government has held no talks with the disgruntled Baloch leadership.

Law and order remains an issue and while the military courts are generally welcomed by all after the horrendous Peshawar attack, yet there appears to be no movement towards building capacity within the civilian judicial system as well as the investigative and prosecution branch to ensure that two years’ down the line the civilian institutions can take over the task.

The government’s focus remains on attacking political adversaries, an approach that appears to be more representative of the 1990s politics, though the adversaries have changed, rather than on focusing on the many challenges that face it today – economic as well as political. The consensus that has evolved is that there has been a soft coup with PML-N ceding control of all major

The government’s focus remains on attacking political adversaries, an approach that appears to be more representative of the 1990s politics portfolios to the establishment mainly because it has been unable to take decisions on time or to hold its own badly performing ministers accountable. Others maintain that this is not due to a conspiracy against the government as the conspiracy comes from within its own ranks – a conspiracy that is redefined as internal party

backbenchers’ discontent, cabinet’s appallingly poor performance and last but not least Mian sahib’s reluctance to fire cabinet members on the grounds that it would further weaken him.

Two institutions need to be granted autonomy in letter and spirit on an emergent basis: the State Bank of Pakistan, though with Dar in the Finance Ministry, it is unlikely that he would allow this though he is being compelled to grant autonomy in letter by the IMF, and Pakistan Bureau of Statistics to enable it to present credible and realistic data to guarantee policy making based on reality; again not possible under Dar. So what can be done differently to improve the lot of the common man? Sharif maybe dismissing the PPP performance in 2013 elections as the peoples’ rejection of Zardari politics/policies or a rejection of jiyalas of Zardari as Benazir Bhutto’s political heir or indeed his own charisma or rising popularity but surely he must also acknowledge that part of the problem was the poor performance in 2008-13. He must accept that he and his ministers are operating in a time warp, 1999, and that the economy, the media, civil society as well as the general public present a markedly different picture from that era.

But most importantly of all the Prime Minister needs to begin to read files and make his own evaluation of the performance of his ministers. Irrespective of what yardstick the Prime Minister employs to determine his cabinet members’ loyalty, the fact remains that in a democracy elections are not won or lost on a show of strength by resisting cabinet reshuffle when performance is poor or with data manipulation but on public perception of performance. That remains poor and in this respect to put it facetiously the PML-N appears to be vying with the PPP of 2008-13.

Business Recorder | Monday April 27, 2015 | 17

50 years of putting the economy first

Beyond out of box Ashfaq Tola Central government controls the main fiscal jurisdiction, such as taxation, spending and borrowing, in the countries having federal morphology, to upraise stability in the country by truncating horizontal inequities.

Through the 18th constitutional amendment a new paragraph to article 38 of Principles of Policy of the constitution was added and disparities regarding share of provinces in assorted services were consigned to expiration bin.

The amendment also extirpates Provincial autonomy and the articles 70, 142, 143, 144, 149, 157, 160, 161, 167, 172, 232, 233 and 234 were either measured or out-rightly altered. The issues included National Finance Commission affairs; production of electricity; emergency provisions; natural gas; legislative powers and borrowing of provinces.

The most momentous change was Article 142(b) and (c), which gave rights to provincial assemblies to legislate with respect to criminal law, criminal procedure and evidence.

Pakistan is also a Federal democracy and to conserve inter-governmental fiscal relationships, setting up of a National Finance Commission (NFC) at mostest intervals of five years is provided under Article 160 of the Constitution. The mandate of NFC is to recommend to the President the distribution of resources between the Federal and Provincial Governments.

The President, through Presidential Order, endow legal cover to the recommendations of the NFC. The contrivance of revenue allocation between federal and provincial governments is available and used in the form of NFC.

NFC acts as a constitutional gizmo and has primary onus of disseminating the resources at sub-government levels employing a conjointly agreed and specified formula. This apparatus of allocation of resources and accountabilities betwixt distinctive layers of government is a serious affair and privations may lead to social, economical and political turbulence, therefore, this format of revenue sharing arrangements is required to be supplemented by a strong system of upfront and transparent distribution.

Presently, 7th National Finance Commission (NFC) Award (2009) is functional. Through this Award, the financial sovereignty of the provinces has been invigorated by snowballing their share in the Divisible Pool (taxes) from 50% to 56% in fiscal year 2010-11 and to 57.5% from fiscal year 2011-12 onwards. For the first time in history, diverifox indicators were assented for apportionment of provincial shares in

the divisible pool whereas in all the previous Awards, population remained as solitary criterion for dispersal of provincial share in the divisible pool with special grants (subventions) to smaller provinces.

NFC also acknowledged that sales tax on services is a Provincial subject under the Constitution of the Islamic Republic of Pakistan, and may be collected by respective Provinces.

Provinces were allowed to collect sales tax on services and consequently, Punjab revenue Authority (“PRA”), Sindh Revenue Board (“SRB”) and Khyber Pakhtunkhwa Revenue Authority (“KPRA”) were established as alternative to Federal Board of Revenue for collection of sales tax on services.

These boards/authorities were established and are functioning under their separate rules and regulations. The lack of uniform provincial tax laws has provoked rifts to be evolved among provinces, peculiarly between SRB and the other two provincial bodies (PRA and KPRA).

An example of mismatch among provincial tax laws is that Punjab and Khyber Pakhtunkhwa are of the opinion that services received or consumed in their jurisdiction should be subjected to sales tax. But Sindh argues that services originating in its territory should be subjected to sales tax even if they are delivered or consumed in other provinces.

Currently there are a number of different types of taxes imposed in Pakistan operating both under federal and provincial regime.

Some of them are enumerated below: 1. Income Taxes 2. Workers Profit Participation Fund (WPPF) 3. Workers Welfare Fund (WWF) 4. Goods and sales tax (VAT) 5. Provincial Sales Taxes on Services 6. Professional tax 7. Stamp duty 8. SESSI 9. EOBI 10. Sindh Development & Maintenance of Infrastructure (SDMI) 11. Petroleum Development Levy 12 Marking Fee 13. Customs Duty 14. Federal Excise Duty 15. Property tax 16. Motor Vehicle tax 17. Capital Value Tax (CVT) 18. Hotel Tax 19. Tax on interest 20. Entertainment Duty 21. Advertisement (Visibility) Tax 22. Market Committee Act 1948 23. Education Cess 24. Fuel tax 25. Employee paid - Pension contribution The presences of assorted types of taxes under different authori-

ties also evince the presence of complexities in the inter-governmental revenue transfers and settlements besides causing grave catastrophe to genuine taxpayers. This country is virtually being supported by an insignificant number of tax payers and these rifts are also dissuading them to operate and grow.

The issues relating to inter-governmental transfers arising time and again due to lack of concrete revenue entitlement determination mechanism. This causes piling of taxes paid on services pending to be adjusted against federal taxes or refund claims. These growth impediments are attenuating the growth of economy and wherefore resulting into “dead weight loss”.

To address the anomalies amid provinces and between provinces and federation, there needs to be a way forward. The representatives of the provinces, at highest forum, will have to discuss and agree on the basis of provincial taxes, that is, whether the tax should be charged on services on the basis of area of origination or consumption. Also, a thorough study would be required to be undertaken to evaluate and harmonize the provincial and federal tax laws especially for services.

Probable way forwards should include: 1. Harmonized Tax Codes: The lack of harmony over provincial tax laws for services amidst provinces causes the incompatibility between taxes charged and their adjustments for the taxpayers operating in multiple provinces.

Therefore, the tax codes should be harmonized and any disagreements

should be discussed and removed.

The tariff codes for services in each province should also be revised.

2. National Tax Authority and Clearing Company A structure through which dues of provinces to each other and to federation and vice versa are settled should also be defined. A national neutral body is required to be established with responsibility and authority to settle inter-governmental dues employing this mechanism.

The body may be called as National Tax Authority (“NTA”). NTA may be structured through formation of a Board of Directors (“BoD”) consisting of five directors, one representing federation and the rest representing each province and all stakeholders must subscribe its equity equally.

A National Tax and Levy Clearing Company (“NTLCC”) may be formed under the NTA to clear and settle the inter-governmental dues.

The lessons learned and experiences gained through working with Pakistan Revenue Automation (Pvt.) Ltd. (“PRAL”). NTLCC would act as a hub for collection and disbursement of taxes and levies to and from governments. The taxes and levies which relate directly to provinces like stamp duty, motor vehicle tax etc. would be directly disbursed to provinces and the revenues which are p art of federal pool would be settled on a monthly basis after incorporating inter-governmental adjustments forthwith.

The establishment of NTLCC will smoothen the flow of revenue and would pace up the economic activities.

18 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Retooling country’s foreign policy Sartaj Aziz It is a time of profound transformation in global politics and economy with paradigm changes not only in South Asia but also in Europe, Central Asia and West Asia: • There is a discernable shift of the economic centre of gravity with rumbles of new alignments in which China and Russia are cooperating in Eurasia through trade and energy connectivity and many new financial institutions and organizations like SCO. • The “Asian pivot” or “rebalancing” – though primarily focused on the Asia-Pacific – is also generating new dynamics in South Asia.

• The rise of potent non-state actors, like ISIS, has changed the global threat matrix and is beginning to imperil the stability of many states and societies.

• Terrorism, climate change, economic interdependence, regional integration, and a shrinking globe, are all facets of the infinitely complex world that we are destined to grapple with.

• Meanwhile, globalization continues to forge ahead, with all its positive and negative ramifications.

Keeping in view these far reaching changes, the first important foreign policy objective is to safeguard Pakistan’s security and eliminate the growing culture of extremism and violence from society. Starting with a clean-up operations in Karachi initiated in September 2013, the launch of the operation Zarb-e-Azb in North Waziristan in June 2014 and finally a 20-point National Action Plan of December 2015 initiated with the active support of all the political parties, constitute decisive initiatives for providing sustained security to people.

The second important objective is to make economic revival and sustained development the center-piece of our foreign policy. In fact, no country can safeguard its

sovereignty and vital national interests without a strong economy. There are several positive indicators to highlight the progress that has been made in the past 18 months. It is expected that economic revival will gather further momentum in the coming years as the energy crisis is resolved.

The third important priority of a peaceful neighbourhood automatically flows from these two objectives. Significant progress has been made in strengthening Pakistan’s relations with Afghanistan, China and Iran.

After Ashraf Ghani took over the Afghan Presidency in September 2014, there has been a steady improvement in Pakistan’s relations with Afghanistan. Apart from important agreements for strengthening economic and trade ties, both countries have also agreed not to allow their territory to be used against the other and cooperate in achieving peaceful reconciliation in Afghanistan. The prospects of peace in Afghanistan are now more hopeful.

Pakistan’s relations with China have always been very friendly but in the past 18 months, economic and security cooperation has crossed new thresholds to become “a strategic partnership for common destiny”.

The only disappointment in pursuing this policy of peaceful neighbourhood is India. During Prime Minister Nawaz Sharif’s visit to New Delhi to participate in Prime Minister Modi’s inauguration on 26 May 2014, it was agreed that the two Foreign Secretaries will meet soon to revive the peace process. This meeting was scheduled for 25 August, but a week earlier, India unilaterally cancelled it on the pretext of Pakistan High Commissioner’s meeting with two Kashmiri leaders. The cancellation was followed by growing tensions and

unprovoked firing across the Line of Control and the Working Boundary.

India has also launched a systemic campaign to isolate Pakistan by dwelling on its favourite themes of the past few years and by refusing to acknowledge Pakistan’s determined efforts to eliminate terrorism from the region.

On 13th February, Prime Minister Modi telephoned Prime Minister Nawaz Sharif and said the Indian Foreign Secretary would visit Pakistan soon. Whether this visit will be a resumption of meaningful dialogue between the two countries remains to be seen.

Pakistan’s bilateral relations with the US are also witnessing a significant improvement. After the crisis ridden relationship of 2011-2012, the official visit of the Prime Minster to Washington in October 2013 put the relations back on a positive trajectory. This was followed by the two rounds of the Strategic Dialogue that were suspended in 2010, the first in Washington on 28 January 2014 and the second in Islamabad on 12-13 January 2015, just a fortnight before President Obama’s visit to India.

The improvement in US-Pakistan relations is based on several important policy changes and initiatives by Pakistan in the past 18 months. These changes and initiative were motivated by Pakistan’s own national interests but they also addressed some of the US concerns and priorities.

First, is the strong commitment to fight terrorism. Second, the remarkable upgrade in Pakistan’s relations with Afghanistan has not only helped to create a conducive environment to facilitate a smooth drawdown of US forces from Afghanistan but also improved the prospects

for a stable and peaceful Afghanistan.

Third, the comprehensive interactions in 5 Working Groups on the economy, energy, defence, nuclear issues and counter-terrorism have helped broaden and deepen US-Pakistan cooperation in these areas.

Other initiatives taken, as a part of a more active and result-oriented foreign policy include: • Launch of several new initiatives to expand energy and trade connectivity with Central Asia and West Asia.

The proposed Economic Corridor from Gwadar to Kashgar will be further extended to other Central Asian countries, and apart from expanding CASA-1000 electricity import project, additional projects will be undertaken to import gas from Iran, Turkmenistan and Qatar.

• Deepening engagement with the Russian Federation, as Russia and China cooperate, in SCO and other fora, to integrate Eurasia into the world economy without ideological overtones of the cold war era.

• Building deeper trade and economic linkage with Southeast Asia/ASEAN. • Reviving closer ties with and seeking new avenues of cooperation with Africa and Latin America.

• Serving Pakistani diaspora and mobilizing their potential to advance our national interests.

The core elements of our approach would remain constructive engagement, non-interference and advancement of trade, investment and economic cooperation to maximize our diplomatic space and enhance foreign policy options.

The center piece of this new partnership seems to focus on security and military cooperation based on Defence Technology and Trade Initiative and a framework for US-India Defence Relationship for the next 10 years.

Pakistan is an important player on the Western half of Asia The second important component was the understanding on the implementation of Civil Nuclear agreement finalized in 2006. While details are still unclear, they have agreed to create an Insurance Pool of Rs.15 billion to cover the liability risk of American nuclear companies. It is too early to predict if these companies would find this insurance pool sufficient to facilitate large scale export of nuclear reactors.

The two sides also signed a US-India Investment Initiative, and an MoU on cooperation of many high tech items with $2 billion private investment in clean energy.

The US also offered its support to India’s bid to become a permanent member of the UN Security Council and join the Nuclear Suppliers Group. They also agreed to “work together” on climate change to seek a positive outcome of the Paris Conference by the end of 2015.

From the US perspective, closer relations with India fit in well with its Asia Pivot policy as it tries to boost India’s status as a key regional power and a counter-weight to China.

While the final outcome of the visit will unfold in due course, Pakistan has already spelled out its initial concerns and expectations about the visit.

Pakistan’s key concern is the paramount importance of strategic stability in South Asia.

India has embarked on a massive military build-up, through sizeable arm purchases both from

Russia and the US. This will inevitably worsen the conventional imbalance.

In addition, India is also expanding its fissile material production facilities that would boost its weapons programme and is seeking access to advanced technology in missile and related delivery systems.

These conventional and nuclear imbalances between India and Pakistan are growing at a time when India is accentuating tensions and unprovoked firing across the Line of Control and the Working Boundary. It has also launched a systematic campaign to isolate Pakistan by dwelling on its favourite themes of the past few years and by refusing to acknowledge Pakistan’s determined efforts to eliminate terrorism from the region.

While Pakistan reserves the right to safeguard its national security interests, it expects USA to recognize the importance of strategic stability to allow space and resources to focus on the objectives of economic development and poverty reduction and reduce the possibility of a reinvigorated arms race in the sub-continent.

We hope that not only USA but also other important members of the international community will also support this objective of regional balance and strategic stability in South Asia.

Pakistan is an important player on the Western half of Asia, which includes Afghanistan, Iran and the whole Central and West Asia. As one of the few stable and well functioning states in the Muslim world, Pakistan’s role in promoting stability and in facilitating connectivity in this important part of Asia, is indispensable and well recognized not only by USA but also by Russia and China.

Business Recorder | Monday April 27, 2015 | 19

50 years of putting the economy first

Structural challenges Asad Umar Pakistan’s economy continues to be faced with the same structural challenges that it has been grappling with for more than the last quarter of a century. What are these structural challenges?

1> Pakistan is not able to collect enough revenues to pay for the essential needs of its citizens and the requirements of the state. This has resulted in chronic fiscal deficits and over the years Pakistan has fallen into a classic debt trap where we now find ourselves borrowing to service the previous debts. The flip side of this inability to raise enough revenues is a chronic under investment in physical and social overhead capital, badly eroding Pakistan’s global competitiveness. Endemic load shedding and a very poorly educated and under skilled manpower are some of the key manifestations of this under investment 2> Pakistanis do not save enough to finance the investments needed to attain the required growth rate of the economy. Therefore, Pakistan has to import capital to finance even the very low levels of Investments that we undertake. For Pakistan to absorb the youth bulge, approximately two million joining the workforce every year, we need our economy to grow at approximately 7% per annum. In order to do that on a sustained bases we need to invest between 25% and 30% of GDP. With national savings rate at less than half this level, this is a pipe dream. No country in the world can import capital at that level on a sustained bases let alone Pakistan with its massive issues of poor perception around the world.

3> The third major structural problem is that Pakistan does not produce enough goods and services of a quality and at a price demanded by the rest of the world to pay for all the imports being made by the country. As a result we have run chronic current account deficits virtually thru our entire existence. That has resulted in piling up almost 70 billion dollar of external debt and liabilities to pay for these

deficits and has sent us back to the IMF every few years, as we are essentially bankrupt on the external account and have not been able to survive without periodic bailouts.

Economists will be able to tell us about the technical reasons why we have not been able to overcome these structural challenges and why it seems that the more things change the more they remain the same or even get worse.

However let me talk about a couple of fundamental issues which have impeded most attempts to correct our course The first is the elite capture of Pakistan’s economy and politics. This has resulted in all policy levers and implementation machinery being rigged in favour of the few against the many. If this was being done to rig the game in favour of the productive elements of the elite there would still be great social cost but we could potentially gain economic mileage at least in the short to medium term. However, most of these interventions have been to favour the least productive elements of society.

As a result we have disincentivized risk taking and entrepreneurship and encouraged rent seeking in society. The highest rates of returns are not to those who come up with innovative ideas, takes risks and work hard, but those who know the “right” people or the ones with the worst value system The other perhaps even worse manifestation of this elite capture of society is the severe under investment in public goods and welfare. As a result we have one of the worst education records in the world, overall social indicators amongst the worst in the world and in many cases worse than those in many sub Saharan African countries. A poor infrastructure with a rail system that has nearly collapsed resulting in high freight costs and energy shortages resulting in devastating losses to the economy. If the wealth of those who have captured political and administrative machinery comes not from the increasing global competitiveness of Pakistan’s economy but from the ability to skim money from “thekas”

and other scams, why should they bother with ensuring investment in physical and social infra structure? isn’t it much better from their point of view to direct even the woefully inadequate investment to feed the patronage network they have created to sustain their grip over power?

The second aspect which is an increasing barrier to our ability to overcome the structural challenges faced by us is the institutional crises in Pakistan. Over the last decades the vast majority of the institutions have suffered from a dangerous erosion of capacity. We have now come to a point where the state’s ability to implement the policies it develops has become seriously questionable.

The ability to enforce the writ of the state has been undermined and the state has even lost its monopoly over violence. Ask any federal minister today about the capacity of his ministry and be willing to listen to a litany of complaints. If this is happening at the apex of the system you can imagine what the situation is at the lower levels.

Years of grotesque political interference has badly politicized the bureaucracy at the cost of promotion of merit. Rule of law has withered under the assault of leadership which believes that rules are only for the weak and vulnerable sections of society. The result is weak institutions unable to cope with the complex challenges of an increasingly integrated global economy and Pakistan falling behind the rest of the world on an almost continuous bases.

The question is will we realize in time the existential crises this has created for Pakistan and make amends so that the nearly 200 million people of this land can live a life of peace and prosperity? I have been, and remain, an optimist and believe the answer to this question is an overwhelming yes. My children in their lifetime will see a Pakistan that is not only a country that all Pakistani’s are proud of but one of the star economies of the 21st century. Nature has endowed Pakistan with far too much potential for it not to happen.

20 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Five flashpoints for strategic planners Sherry Rehman For a country navigating multiple internal and external challenges, Pakistan’s economic, governance and policy-delivery deficits have been a constraint on strategic resource-allocation and decision-making. Continued economic fragility has also seriously impacted foreign relations, allowing external actors to mount diplomatic pressure on Pakistan at critical points. Any notion of sustainable sovereignty will require a re-visit of strategic flashpoints, beyond the framework of standard-issue solutions. None of the five identified below are in the public discourse as sectors that need surgery, but a renewed focus and freedom from old models of politics as patronage-dispensation is required to reinvent the policy-delivery wheel. The magic ingredient will of course continue to be the much sought after political will, which is patchy at best and missing at worst.

1. Governance Serious challenges in governance and service delivery have affected the state’s ability to execute policy change.

Policy agendas in Pakistan have increasingly become subject to executive paralysis, judicial activism and a fragile administrative capacity. More importantly for Pakistan’s democratic future, governance and executive failures have eroded trust in government institutions.

There is little disagreement that the quality of public service delivery is marked by rising levels of inefficiency, poor performance and pervasive corruption. Apart from low service delivery, Pakistan’s global competitiveness has also been severely affected by governance problems, with corruption, inefficient government bureaucracy and policy instability among the ‘most problematic factors for doing business’ in the country. Government departments and ministries lack the capacity to utilise funds including foreign aid, to the extent that by end of the fiscal year they scramble to mop up their budgets by investing in non-essentials such as high-end vehicles and supplementary spending. The lack of transparency and web of non-rationalisations cripple the system.

Take one key example, the pivotal energy sector, which has become a glaring symptom of governance malaise. Recurring crises, an expanding circular debt and regulatory overlaps continue to block reform in the energy sector. The persistent crisis in this sector continues to cripple the economy and severely strains prospects of short-term growth. Estimates suggest that there is an annual loss of up to 2 percent of GDP on account of the energy sector circular debt alone. Broadly, the sector has consistently faced three main issues: circular debt, transmission and distribution losses and low levels of recovery. The ballooning of circular debt has again signified the overarching role of the Ministry of Finance as the lender of last resort at the same time as Pakistan tries to implement IMF conditions to cut back on subsidies to public sector enterprises. In the absence of an integrated energy ministry and clear governance will to collect receivables and coordinate efforts, it has become obvious that reform will remain just a power-point plan on some consultant’s laptop.

Lack of quality governance in Pakistan has not only led to failures in public service delivery but has also impacted and constricted economic growth. Governance reform, linked to civil service overhaul, is crucial for actualising any policy vision or planning futures. Experts point to investing further in the public-private partnership model, in which public sector financing allows the private sector to take the lead in overall management as the shortest route for governments to interrupt the stubborn inefficiency chain in government-led interventions. This may be one of the optimal ways to introduce transparency in management as well as an induction of fresh blood in sclerotic enterprises. But minus civil service reform, guarantee of tenures and clear rule of law mandates to widen decision-making in institutional templates, the executive paralysis and culture of graft will hamstring delivery to citizens.

2. Terrorism and Extremism Pakistan’s domestic stability has become critically vulnerable to internal security threats. While external threats cannot be discounted, there is a recognized need for cohesive, inclusive and well-coordinated action against actors who explicitly or implicitly challenge the state and continue to pose security risks. In many ways, the ongoing operation against militants of ‘all hues and cries’ is by definition a landmark enterprise, but a year from its commencement in North Waziristan, it is now bogged in an unproductive stalemate between deficits in coordination and a joint civil-military silence on targeting banned groups that roam free with impunity.

The biggest dis-service to Pakistan right now is the building of a national consensus against terrorism and the quiet shelving of its core goals, which appears to have happened recently. The National Action Plan, created in the aftermath of the Peshawar school tragedy appears to have lost its teeth, as recent disclosures from NACTA, in the public domain, suggest that key agenda items, specifically action or monitoring of proscribed groups, have been quietly dropped. This is both shocking and dangerous. Aside from the incalculable human cost of over 80,000 souls lost, the economic cost due to terrorist attacks in Pakistan has been estimated to be over $28 billion. Pakistan has not only suffered immensely in terms of global competition with significant losses in both exports and foreign investment inflows, but has also been subject to increasing diplomatic pressure internationally due to home-grown militancy.

No rocket science is needed here: the effort against terrorism and extremism cannot reach any serious level of success without turning off the patronage spigot of proscribed groups that target citizens, because until then terrorism will continue to be the single most acute strategic risk to Pakistan’s future. This will require a far higher resolve to face off all threats and all groups, but will also need the strengthening of civilian law enforcement agencies as well as a constant publically articulated resolve by the national leadership to ensure a spirit of unified collective action. As it stands, the reduced mandate of an underfunded NACTA coupled with the government’s inability to form a Joint Intelligence Directorate is not an encouraging trend.

In order to deal with the globally franchised nightmare of sub-conventional and boundary-less warfare, strategic planners will have to go beyond the NAP and clamp down on potential threats of militancy, including those arising from propagation of extremist narratives, including what to block and what to not on broadcast and social media, by government. Right now,

once again credible public buy-in is low because of cherry-picked media and open-source websites where the sanction for certain terrorist and sectarian sites to operate freely flouts the sacrifice of soldiers and policemen on the frontlines. The new cyber-crime bill floated by the federal government is a clear example of such political disinegenuity. This must change, as the sequencing of targets or capacity-limits argument is now in danger of cancelling clear gains made in building public confidence as a result of terrorist operations already in the works. At the same time, there has to be clarity and seamless coordination between the military and civilian LEAs to permanently choke militant activities and financing.

3. Job-Creation Today, Pakistan is ranked among the most populous countries in the world, with a median age of 23. This demographic profile, however, poses more challenges than dividends. There is a growing consensus among economists in Pakistan that propelling the growth engine will be crucially important not just for economic prosperity but also for stabilizing a highly turbulent domestic environment, and for job creation, which remains largely ignored.

Current levels of economic growth have no capacity to absorb the tidal wave of our labour force.

Latest estimates from the Pakistan Labour Force Survey show that over 3.7 million people are still unemployed; the rate of unemployment, at the back of stunted growth, has also gradually risen from 5 percent in 2007-08 to 6 percent 2012-13.

Pakistan’s youth cohort, defined as population between the ages of 15 and 24, is currently estimated to constitute up to 36 percent of the total labour force. By

an average of 14 percent to 10 percent of GDP. “Rent-seeking elites of Pakistan” has become the favourite catch-phrase in cold climates where the loans are negotiated. Back home, they remain a protected species, freed in their minds from the essential social contract with the state that defines modern citizenship. Despite much drum-beating where the taxman is said to go into places where no man has gone before, the wealthiest in Pakistan, with notable exceptions, remain in a cloud of immunity. Taxing the rich becomes an even more fraught exercise when weaknesses in both policy and administration are amplified by preferential treatment and exemptions granted through statutory regulatory orders (SROs) and limited capacities of the provinces to collect taxes.

Complicated procedures have additionally de-incentivized the filing of taxes and increased the cost of compliance, while overlaps between taxes levied at the federal and provincial levels still add to the kafka-esque wireframe. Devolution of the taxation structure should in theory have helped in expanding the tax base, but there is no replacement for the famous missing animal called political will, which is to emerge.

5. Urbanization Un-noticed by most, Pakistan is now the most urban country in South Asia, even by a UN yardstick. At 36.2 percent, the ratio of urban to rural population in Pakistan is currently the highest in the region, with 3 percent annual growth in urban population. To plan for this level of urban sprawl, Pakistan’s urbanization rates will have to be strategically nested in the context of population growth and the rising youth bulge. As it stands, the share of urban population in Pakistan has grown to 38 percent

Lack of quality governance in Pakistan has not only led to failures in public service delivery but has also impacted and constricted economic growth 2050, this number is projected to rise to 50 percent. Given the current pace of population growth – close to 2 percent per annum – estimates from the World Bank suggest that there will be 1.7 million entrants to the labour force every year. This massive shift should shake up planners to devise inclusive policies that prevent further social unrest on the lines of the Arab Spring uprisings in the Middle East, which clearly had a demographic underpinning. At the same time, it also provides an opportunity for economic development when population growth rates are falling across the developed world.

While opportunities for entrepreneurship and private sector-led jobs remain scarce, the already over-burdened public sector continues to attract job expectations, adding to an informal system of patronage that exerts further pressure on public finances. Industries with high growth potential also require advanced skills and training that largely remain absent in the majority of the working age population. On the one hand, there are thousands of job seekers for a job, but on the other hand the market cannot employ them because they don’t have the requisite skills or level of education. This gap not only requires expanding the scope of coverage in the education sector but also optimal use of public finances to enhance employable skills and training. At the same time, progressive policies aimed at increasing financial inclusion of the poor can help create opportunities for self-employment at a time when it has become difficult for both the public and private sectors to provide salaried employment.

Inequality is predicted to be the most important divisive trend of the 21st century, and without a massive push towards job-creation and a clear pubic conversation on economic growth, Pakistan will be a prime example of a country awash with restless young people in search of a cause. Given that the public sector is no longer able to support the employment needs of a young population, managing the fallout of economic growth with inequality will be crucial to guaranteeing social justice and fundamental entitlements. Social safety net programmes such as the Benazir Income Support Programme are already playing a critical role in household consumption at the bottom of the economic pyramid, among other social benefits, but lack of access to opportunity and income-generation via employment or entrepreneurship will impact change negatively and de-humanize the democratic experience for citizens.

4. Taxation, Taxation, Taxation It is said that the Mughal Empire collapsed from a lack of modern weaponry including a navy, and a war with no end in the south of its periphery. In reality, the advance of another imperial power and a pincer from the Deccan was compounded by the collapse of its famous tax-collection system set up under Emperor Akbar. The lessons for Pakistan should be very clear. No country that spends more than it raises from its own resources can expect to be taken seriously as a player in the global marketplace of changing geo-strategic interests. Pakistan has a rent-seeking habit since the 1950s. Today, as the US Kerry-Lugar Act’s dollar pipeline dries up, budgetary support will only come from other multilateral donors and organisations with eyes on bigger hotspots, from the Middle East to Africa as well as parts of Eurasia. The ongoing military operation and rehabilitation of internally displaced persons will exert pressure on public spending and further stretch the government deficit.

Crises in public finances have become recurrent over the last few years due to unprecedented natural disasters, a persistently low tax to GDP ratio, increased debt servicing, untargeted subsidies and financing of bleeding public sector enterprises (PSEs). Despite growing demands to expand the tax base, the tax system in Pakistan has come under severe criticism and has only grown even more incapable of meeting expenditure requirements. High levels of continued and profligate government borrowing have led to a debt-trap, making resort to external assistance a chronic habit. The cycle of both domestic and external borrowing continues to compound the problem by squeezing out credit as well as space for much-needed development funding.

Instead of showing better results with time, compared with the 1980s, tax collection has reduced from

and will further rise to over 50 percent by 2050. Karachi by itself is poised to be the largest mega-city in the world by that time.

Trends in urban demography have been reflective of Pakistan’s overall demographic structure, which has undergone a phenomenal 600 percent increase since 1961. Growth in population has led to increased migration, resulting in a bloated demographic structure in urban centres. Pakistanis are migrating to the cities at rates that will become unsustainable in terms of provision of the most basic of services, which already go missing in the overstretch and overlap of boards that run the cities.

One of the most important push factors for migrations to cities is the erosion of livelihood opportunities in rural areas. There has also been a substantial change in the social and communal structures in rural areas, whereby local jirgas are now believed to have less moral authority over the lives of indigenous people. In the absence of coherent communities of the past, en masse migration will continue even as mechanization of labour processes erodes job opportunities. This will expand the spatial spread of cities and increase the number of katchi abadis, which can contribute to social unrest in the absence of essential social structures and public services.

Karachi alone is home to 562 identified katchi abadis.

The challenge is multiple. Not only are housing, sanitation, water, power and municipal services an issue, jobdeficits add to the choke points of crisis. The absorption rate in formal sectors remains low, leading to a rise in informal working arrangements as well as criminal activities and structured begging. Mainstreaming a large youth influx into a working force has therefore gained primacy not only in terms of providing employment opportunities but also in terms of maintaining social stability in cities.

Pakistan’s cities will therefore need attention as well as the creation of public spaces where people can build communities of accord, instead of urban ghettoes which breed anger and intolerance. They will need development boards that conduct public hearings and accommodate competing interests. Just making more land available for low-cost housing will help ease the stress, as will a web of enforceable by-laws that prevent extortion and land-grabbing.

Business Recorder | Monday April 27, 2015 | 21

50 years of putting the economy first

Seeking a new economic model M. Ziauddin A state does not deserve to be called one if it fails to provide to its citizens universal schooling, at least up to the primary level, universal primary healthcare, free potable water, universally affordable two square meals a day, universally affordable gas and electricity, and universally affordable road, rail and air transport.

Since Pakistan’s scorecard on all these essentials is totally blank, the state, therefore, finds itself continuously in a state of tentativeness.

There are many reasons why Pakistan as a state has landed itself on such a slippery slope. The main one, however, being the economic policy it has been following all these years. Evidently, this policy appears to have been inspired by the so-called Washington Consensus emerging out of Reaganomics and Thatcherism of the early 1980s, which gave birth to the callous concept of letting the market determine the ups and downs of the economy, even if it meant neglecting a state’s essential obligations towards its have-nots.

Unless Pakistan realizes the inappropriateness of this economic model to our peculiar circumstances and opts for a more socially inclusive one, that would guarantee equitable sharing of socioeconomic gains, as well as the associated hardships, it is hardly likely to be called a state.

The model that we need to adopt to make it possible for even our have-nots to share the fruits of development and progress equitably can be called social market economy, which as opposed to deregulated market economy would ensure an all-inclusive society in which every citizen is allowed equal opportunity to better his/her lot irrespective of his/her class, creed, caste, religion, sect or faith.

Over the years, Pakistan has become more and more dependent on foreign dole and less and less on domestic revenues. And whatever little we make from our own resources, plus the amount we borrow and

beg from rich countries, we spend on amortization of past loans, defense, law enforcement and civil administration. Obviously very little or nothing is left after funding these functions for social essentials.

So, the most essential function of the state of Pakistan, if it intends to become one in the real sense, to start with, is to enforce its tax collection laws with all the powers at its command.

Secondly, it should rationalize its defense expenditure, bringing it in line with our funding capacity after having taken care of the social needs of the population.

With income from all those who earn over and above taxable income and savings from the defence budget, the state should be able to do most of what it is obliged to do for its citizens for them to enjoy a sense of belonging and feel proud of being Pakistanis and defend the country with their own lives against all those forces which are trying to take it over or are trying to destroy it.

A handful of Pakistanis have succeeded in cornering almost the entire national wealth, as well as the sources that generate it, thanks largely to the ‘neo-liberal’ economic policies that we have been forced to follow since the mid-1980s by the proponents of the infamous Washington Consensus. The most devastating side effect of these policies has been the emergence of an enormous inequality gap between the rich and poor. Meanwhile, this policy of minimal government interference and letting free market forces determine prices of even minimum essentials has reduced the state to a skeleton incapable of formulating a way out.

The trickle-down theory in practice has failed miserably to deliver worldwide. In Pakistan, its failure has been spectacular. Using the rule of thumb some economists have estimated that to lift even 20 per cent of the population living in crushing squalor out of poverty, Pakistan’s economy would need to grow at the rate of

by the editor

over 10 per cent a year for at least 10 years at a stretch.

Considering our mounting debt and declining incomes, this appears well nigh impossible. So far in Pakistan, the trickle-down theory in practice has only widened the gap between the rich and the poor. And more of the same is not going to reverse the trend.

The inequality gap would continue to widen unabated unless land reforms are introduced and concurrently all incomes, irrespective of their sources, are brought into the direct tax net. The ownership of agricultural land, besides property and financial assets is the primary manifestation of inequality in Pakistan.

Small farmers with less than five acres, constitute as much as 65 per cent of the farming population in Pakistan, but own only 19 per cent of farmland. There are about 26,000 farmers only (0.4 per cent of total), who own as much as 14 per cent of the land. Large landlords have preferential access to irrigation water and own tractors, tube wells and other agricultural equipment. And since they also wield enormous political power, they have frustrated all attempts to introduce land reforms and have also seen to it that their incomes continue to remain outside the tax net.

Furthermore, the top 20 per cent of the population accounts for almost 52 per cent of property income, while the top one per cent of depositors account for 80 per cent of the deposits.

Banks extend 77 per cent of the credit to the top one per cent of borrowers.

There are an estimated one million shareholders of publicly quoted companies. Market capitalization of $70 million is part of the wealth of these one million individuals. Family ownership of companies still dominates the corporate world, making them too vulnerable to the vagaries of the market.

These wholly familyowned corporate entities, in order to offset the effects of such risks to their incomes and assets, indulge in tax evasion and pilfer public utilities.

Lobbyists of big business buy political influence to ensure governments keep making ‘business-friendly’ taxation policies.

Meanwhile, the incidence of poverty in the country is estimated to have reached 37 per cent.

And due to continued under-investment in the people, rate of improvement of Pakistan’s Human Development Index (HDI) is estimated to be slowing down considerably.

One of Pakistan’s eminent economist and former federal finance minister, Dr. Hafeez Pasha, has recommended the following measures for lifting the country out of its present state of economic depression: i) tax policy must focus on more progressive direct taxation.

The key areas of focus are agricultural income, property and unearned capital income from financial assets; ii) focus on regional disparities. It is an issue to be tackled by the NFC and the PFC (to be constituted after the establishment of local governments). The PFC will have to design an appropriate revenue-sharing formula to tackle intra-regional inequality; iii) development allocation to focus on maximum employment potential sectors, like agriculture, rural development, small-scale manufacturing and construction; iv) social protection policies, especially designed to help workers, women, youth and minorities; v) appropriate pricing of agricultural inputs, support prices for inputs and income supplement programs; vi) a higher share of public expenditure will have to be devoted to social services, especially education and health.

The direct tax-to-GDP ratio is 3.2 per cent. The figure for the same is 11 per cent in Malaysia, eight per cent in Thailand and six per cent in Turkey, India and Indonesia. Pakistan’s share of direct taxes in total tax revenues is 33 per cent, as compared to between 45-60 per cent in many Asian countries.

Dr. Pasha’s study has revealed that only about one-third of the 60,000 companies in operation file

Over the years, Pakistan has become more and more dependent on foreign dole and less and less on domestic revenues returns and among those, less than half declare taxable profits. Also, it is estimated that about three million people in Pakistan earn more than the exempted income of Rs400, 000 annually — but only one-fourth actually file returns. In effect, one in 260 people file a return in the country as compared to one in 40 in India.

The tax base for corporate income tax, according to Dr. Pasha, is eroded by almost to its half due to exemptions, deductions against labor and charitable contributions, and lower (presumptive) taxation of exports, etc. While many of these are in the nature of fiscal incentives, they have an implied revenue loss of almost Rs160 billion.

Dr. Pasha maintains that the root cause of failure of the taxation system of Pakistan is the very limited taxation of the rich and powerful. In addition, there are over 1,900 statutory regulatory orders (SROs) which create many holes in taxes like GST, customs and excise duties. The SROs largely benefit strong pressure groups and lobbies.

Two recent books, one by Joseph Stiglitz (The Price of Inequality, 2012) and the other by Thomas Piketty (Capital in the Twenty-First Century, 2014) have discussed in great detail the kind of inequality that Pakistanis are suffering from and offered their respective solutions to avert it.

In his book, Stiglitz shows how, left to their own devices, markets are neither

efficient nor stable and tend to accumulate money in the hands of the few rather than engender competition, producing a slower growth and a lower GDP. Piketty argues that the rate of capital return is persistently greater than the rate of economic growth, and that this will cause wealth inequality to increase in the future. He shows that inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention.

He argues that unless

capitalism is reformed, the very democratic order will be threatened.

Reformed capitalism, it is believed, would ensure continual expansion of middle income population while at the same time marginalizing the populations of the rich and the poor. This model falls somewhere around equidistant from the model based on crass capitalism and the one underpinned by socialist ideology. And this in-between model is called the social market economy. It is a form of

market capitalism combined with social policy. It refrains from attempts to plan and guide production, the workforce, or sales, but it does support planned efforts to influence the economy through the organic means of a comprehensive economic policy coupled with flexible adaptation to the market. This type of economic policy, it is believed, creates an economy that serves the welfare and the needs of the entire population.

22 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Our neglected dairy sector Mian Asif Said In an article that appeared in Business Recorder’s columns on 15th January 2015 titled "Challenging Received Wisdom", your scribe had argued that if we wish to launch the country on a high economic growth trajectory like that of China and India, we will need a fundamental change in our national economic policies even if these upset our lenders of last resort, i.e. The World Bank and IMF. It was argued that we need to focus on the strengths of our national endowments of water, soil, and abundant sunshine to become an advanced agricultural powerhouse. Our model of growth should be New Zealand, the largest dairy products exporter in the world rather than Japan or South Korea which, lacking natural resources, chose the route of industrial technologies to generate large trade surpluses. Their disciplined and educated labour force enabled them to compete with the West in industries like automotives, electronics, and shipbuilding. The likes of Toyota, Honda, Samsung, and Hyundai are the outcome of years of methodical acquisition of technology and result-oriented R&D. We have neither the technically educated workforce nor world-class institutes of science to emulate their model of industrialization for export-led economic growth. We do, however, have plenty of "grunt-labour" which forms the backbone of our inward remittances, putting bread on the table for millions of households. Using this same grunt-labor we can break into the ranks of advanced dairy exporters. When managed as an organized industry, dairying will not only generate large exportable surpluses, but more crucially, it will absorb hundreds of thousands of our illiterate but physically able rural labour force feeding, washing and caring for high-yielding milking cows.

First, some background data to lend perspective to this discussion. As per FAOstat, the monetary "farm-gate" value of global cow and buffalo milk production of 680 billion liters for 2012 was worth USD 238 billion.

Ranking 4th behind India, USA, and China in terms of volume (but third in value because buffalo milk has a higher percentage of total solids), Pakistan's 37 billion liters of milk per annum was worth USD 12.9 billion, i.e. over 40% of all annual agri-produce and 9% of GDP . In terms of value addition, it exceeds that of our entire textiles sector. And yet, we do not have a single federal agency or ministry focused on this critical bedrock of our economy. Even at the provincial level, Punjab that accounts for 74% of all milk production, has no all powerful Provincial Dairy Ministry. It has sporadically flirted with setting up underfunded and irrelevant agencies such as the present Punjab Dairy Development Board that has to date achieved precious little.

Its annual budget is smaller than what the Punjab Government plans to splurge on a controversial 7 kilometer signal free roadway in Lahore! So much for our economic development priorities. But, you must have guessed the reason for Governmental apathy. Milk animals are critical to livelihood of poorest sections of rural society. Their existential plight is a low priority and can be safely ignored by politicians.

Industry Issues Because the issue is not deemed of overriding importance, misgivings about accurate data on all aspects of Dairy Industry in Pakistan abound. There are big question marks on the real numbers of milking animals, their composition (buffalos, cows, goats, camels, and sheep), per animal milk yield, percentage of output processed, sold, and the extent of transit losses due to spoilage. The relevant data in Pakistan Economic Survey is based on projections from an animal head-count reportedly conducted as far back as 1996.

Even that dubious census was a guesstimate based on incomplete survey of selected districts. So, when we report to FAO that we have 37 million lactating cows and buffalos (as against 7.5 million animals in USA and half as many in New Zealand for instance), we derive annual milk output by multiplying a fictitious head-count of producing animals with an approximate average yield of 1000 litres of milk (or roughly 3 liters per day) per lactating animal per annum. i.e.

37,000,000 X 1,000 = 37,000,000,000 liters of milk per annum. Presto!

A farcical corroboration of the foregoing figure from the perspective of consumption is frequently trotted out. This concerns the assumed average 2 litres daily milk consumption per family. There being roughly 40 million families in our 200 million strong nation (both dubious assumptions), and with an assumed 25% loss due to calf-feeding and spoilage (again unsubstantiated assumptions), the experts at Federal Bureau of statistics ostensibly derive the country's annual milk consumption as follows: 40,000,000 x 2 X 1.25 X 365 = 36,500,000,000 liters of milk per annum. Superb confirmation of the earlier output figure, don't you think?

But jokes aside, it does anecdotally point to an often overlooked aspect of our vaunted position as the 4th largest milk producing nation, i.e., we do not have enough surplus milk for industrial processing into value added products! The data from other nations is much more reliable. We know that annual milk output in USA in 2012 (again as per FAOstats) was 91 billion liters and that of New Zealand 20 billion liters. Dividing these by precisely documented populations of their milking animals, we can confirm that an average American cow produces over 12,000 liters of milk per 305 days' lactation cycle while the New Zealand animal's output is roughly half as much (the difference being accounted for by the simple fact that most New Zealand animals are range-grazed and not fed processed rich diets as are most stall-fed cows of the dairies in USA).

The wrong animal Our dairy sector is afflicted by some basic whammies. First, and foremost, is that historically our predominant milk animal has been the buffalo. When healthy, the best of these half ton beasts can consume upto 50 kilos of fodder to barely yield 5 liters of milk per day. Compare this to American Holstein cows that average 35 liters of milk for the same volume of feed (though consisting of silage and high protein additives). I.e. they are 7 times more efficient than our buffaloes in converting feed into milk. This feed to milk ratio is even better for the famous AFS (Australian-Friesian-Sahiwal) breed currently being imported by scores of progressive farmers for a paltry PKR 350,000 per animal. These compact animals that have been genetically improved over the past 50 years for milk yield, resistance to disease, and for ability to withstand extreme temperatures weigh half as much as our monstrous buffaloes; consume half the amount of feed, and yield 4 times as much milk as our best black behemoths maintained as standard milk animals by poor small-holding farmers and landless peasants.

And yet, despite success of several private farms using AFS and other cross-bred animals to multiply milk yield, there has been no Government designed or supported initiative to progressively replace our buffalo population

with high-yielding cows mentioned above. Even if 15% of the country's 25 million buffaloes can be replaced by imported AFS cows; and if these can be housed and stall-fed in small well managed farms, they can easily add as much milk to the country's total output as all of New Zealand's production...taking Pakistan's total production to 60 billion liters, overtaking China in third place. There is no reason why this goal cannot be achieved in under 10 years with a well understood plan of action implemented by trained professionals.

More importantly, were we to do so, a bulk of the incremental high quality milk can all be processed into value added products like cheese, creams, yogurt drinks, and baby foods for local consumption as well as for export. New Zealand's Fonterra, the largest milk processor in the world accounts for nearly all of New Zealand's dairy exports of over USD 6 billion per annum! There is no reason why Pakistan, blessed as it is with abundant water, soil, sunshine, and cheap labor, cannot develop into a similar dairy processing powerhouse. In fact, once the capital infrastructure of modern dairying is in place, with its low labor costs, Pakistan can easily out-compete the likes of New Zealand and Australia.

The foregoing brings to mind a historical anecdote from 1997 when your scribe, in his capacity as Chairman of Pakistan Dairy Association, took a delegation to India upon the invitation of the late Dr. Kurien, the colossus of India's milk miracle. He informed our delegation that before partition, what is now India, was so short of milk that milk trains used to run all the way from Lahore to Delhi and Bombay! In fact, when I informed him that our milk processing plants found it difficult to procure enough milk throughout the year, he jokingly offered to send milk trains from India to Pakistan! What a case study of thoughtful planning in India Vs. mindless neglect in Pakistan.

Looming Supply Deficit Let us look at our current milk collection and processing infrastructure. First, we do not have many scientifically designed dairies to house thousands of high-yielding animals, staffed by knowledgeable dairy experts, with access to high quality "Silage" feed (mulched unripe maize dehydrated to a state of 35% dry matter) and additives, on site veterinarians, and automatic milking parlors with instant chilling facilities. In all of Punjab today, less than 150,000 liters of milk a day is procured by milking plants from such modern dairies. Of course, 10 years ago, even these did not exist. The result is that 90% of the milk collected by the handful of operative processing plants (Nestle, Engro, Haleeb, Shakarganj, etc) comes from milk collection centers set up by them in what is known as the "Milk Shed"...irrigated agricultural land between Indus and Chenab ranging from Gujrat in the North to Sadiqabad in the south. Small farmers and "Dodhis" (milkmen) bring their surplus milk to these collection centers where it is chilled before being transported to processing plants. Unfortunately, the transit time between milking and final reception at processing plants is often more than 12 hours. By that time, milk quality has already deteriorated significantly. Globally, raw milk is deemed fit for processing when its "bacterial load" denoted by TPC (total plate count) is under 100,000 per CC (cubic centimeter). From personal experience of running Haleeb Foods as its MD for several years, I can vouch that the average quality of milk received by processing plants has a bacterial count in excess of five million per CC. Such milk is unfit for conversion into quality products like yogurt, cheese, and baby foods. The processing plants, therefore, have limited choice. They either convert it into powder or long-life (UHT) milk for urban consumers.

Availability of milk in general is also erratic. During cooler months (November thru April), the so-called "Flush Season", with abundant green fodder, animals yield twice the volume of milk as they do in the rest of the year. This whammy of "Feast" and "Famine" in milk availability needs to be ironed out so that dairy processors can run plants efficiently 365 days a year. If not, they will remain hostage to seasonal processing like our sugar industry that only runs for an average 120 days in a year.

Twenty years ago, when global farmgate milk price was 25 US Cents per liter, the equivalent price in Pakistan was PKR 9 or roughly 20 US Cents. I.e., milk was cheaper in Pakistan than elsewhere. Today, the global average price is 45 US Cents per liter. Against this, the farmgate price in Pakistan is PKR 55, or US Cents 55 per liter. In other words, for the first time in history, Pakistan's fresh milk is over 20% more expensive than its average global price. In fact, progressive farmers possessing large herds of high yielding imported animals are being offered as much as PKR 60-65 per liter of milk by desperate processing plants like Nestle and Engro Foods. UHT long life milk that retailed for PKR 16 per liter twenty years ago, now sells for PKR 110 per liter, a compound annual growth of over 10% for past 20 years!

Though we have not yet realized it, the country is looking at a widening fresh milk supply deficit...the result of decades of neglect of this vital sector where demand growth as reflected in steep price increases has swamped the meager 3% per annum growth in milk output...largely accounted for by growing animal herds rather than milk yield per animal. A glaring evidence of this is the phenomenal growth in demand for dairy whiteners in preference to milk. People can no longer afford fresh milk for tea.

Whiteners like "Tarang", "Tea Max", and "Every Day" are much more economical. And why is that? Simply because the recipes of these whiteners contain nothing but 90 grams of cheap imported SMP (Skimmed Milk Powder) and 20 grams of sugar per liter of resulting concoction that sells for PKR 70 per liter! All the dairy processing plants in the country are busy manufacturing this white chemical liquid for use in tea! Thus, with abysmally low 30% import tariff on subsidized SMP, our Government is actively destroying its own dairy sector.

Structured Subsidization Although annual global fresh milk production of cows and buffaloes in 2012 was worth USD 238 billion, less than 60% of it was processed into non-liquid products for sale, primarily butter, cheese, and milk powders as shown below.

More significantly, only a third, USD 45 billion worth, of this production is exported. And who are these exporters? They are a tightly knit oligopoly of four...ECC countries (60%), New Zealand (13%), USA (6%), and Australia (4%). Surprisingly, other than USA, none of the top 6 milk producing countries of the world noted above figure anywhere in this list of exporters. As we shall note below, there are good reasons for this lopsided global trade in dairy products.

We observe that USA and ECC taken together account for 2/3rd of global dairy product exports. Their ability to do so is based on heavy subsidization of their dairy

industries. A measure of this often quoted in WTO forums is that these exporters, on average, spend USD 2 per animal per day in terms of cash and farmgate product price supports to their dairy farmers. And, whereas, New Zealand and Australia have ceased subsidizing their dairy sectors (New Zealand in 1984 and Australia in 1990), for the previous half a century, they too had injected billions of dollars to develop what are today the most capital intensive and efficient dairy countries in the world. Ironically, both of them are now held up as examples by Washington based lending agencies and WTO mandarins to deter developing countries from subsidizing their ill-equipped sectors. It is the same "Free Trade" argument that the airline manufacturing duopoly of Boeing and Airbus now espouse to prevent other countries from subsidizing their manufacturers of aircraft. History demonstrates that both Boeing and Airbus were patronized and heavily subsidized by their governments over several decades to reach their present state of lowest cost capital intensive manufacturing. However, emerging giants of the dairy industry, namely India and China, are not buying such arguments. They are aggressively developing their dairy sectors with tariff protections and direct subsidies.

I'll hazard a guess. Twenty years down the road, not only will India and China be the largest milk producers in the world, their dairy processing industries will have swamped the four current leaders noted above. Unfortunately, Pakistan's government is oblivious to the need for such dire initiatives, even though it can easily beat both India and China handily because of superior natural resources.

Action Plan: As of this writing, international price of SMP is USD 2,200 per ton. Its landed cost with 30% duty is a meager USD 2,860 per ton. With sales tax and inland transport included, its maximum cost to our friendly Jauria Bazaar trader is no more than USD 3,000 or PKR 300,000 per ton. Based on 130 grams of solids per liter of milk, this equates to PKR 39 per liter for imported milk! Obviously, the in-country milk powder plant operators like Nestle and Engro Foods cannot compete because fresh milk, which is their raw material, costs them PKR 55-60 per liter.

Hence, even if they could procure enough milk for processing, their powder towers stand idle. They have no choice but to use cheap imported SMP for their largest segment of "dairy whiteners" while using high priced local fresh milk to produce limited quantities of UHT and Pasteurized milk for their upscale urban customers who happily pay PKR 110-120 per liter.

The dismal state of our dairy sector described above calls for immediate remedial action. Some suggestions, with appropriate timeframes are enumerated below: Immediate Anti-dumping: To address the issue of milk powder dumping by above-mentioned exporters club needs urgent revision of import tariffs. Landed price of these powders must exceed an equivalent local fresh milk price of PKR 60 per liter…the price dairy milk processors pay for the best quality milk from organized dairy farms. In view of calculations noted above, an increase of the basic duty slab from 30% to 75% is critical for survival of our dairy processing industry.

Processing Incentive: To encourage the processing industry its cost of milk needs to be brought down without hurting poor farmers who bring their surplus milk to the collection centers of these dairy processors. In fact, they need to be encouraged to sell milk to these collection centers rather than to "Dodhis" who transport the raw milk, often diluted and adulterated, to households in urban centers. Keeping in mind that dairy subsidies in the largest dairy exporting market, the EEC, are roughly equivalent to PKR 20 per liter of milk, it is suggested that the measure of this subsidy be used as benchmark for state subsidy for each liter of high quality milk (defined as milk of TPC count under 300,000) received by processing plants. Since milk reception at processing plants is automated and electronically recorded, the disbursement of subsidy should be relatively easy and free of fraudulent manipulation. Given that barely 150-200 thousand liters a day of such milk is currently being processed, the initial processing subsidy will not exceed PKR 3-4 million a day, or PKR 1.2-1.5 billion per annum. The sole purpose of this "quality premium" for milk supplied to processors is to gradually expand value addition in the range of dairy products. It will encourage progressive farmers to increase their herds of high-yielding cows thereby lifting the overall high quality milk availability to over 5 million liters per day within 2-3 years...inducing processors to expand capacities in tandem, and in a repeating loop encourage farmers to further expand their herds of high yielding AFS and cross-bred cows.

Lowering feed costs: The preponderant structure of dairying in Pakistan is based on surplus milk sold by the poorest farmers and landless peasants for whom their often sickly and underfed animals provide supplementary cash income. Farms with herds larger than 20 animals do not account for more than 10% of fresh milk brought to market.

Our archetypical village widow with 2 buffaloes and a scrawny cow cannot afford sufficient fodder and oilseed cake for her animals to achieve yields better than 2-3 liters per animal. More often than not, she lets her animals graze in fallow fields and along the edges of water courses during the day and throws them a few kilos of wheat straw and a handful of green fodder bought from landed farmers in the evenings. This model needs urgent modification. The worldwide norm in serious dairying countries is for animals to be stall-fed with a protein rich "silage" equivalent to 10% of body weight. This can easily double milk output per animal. However, since these peasants cannot afford silage that costs PKR 6-7 per kilo, it needs to be subsidized to an extent of 50% at least. In India, village cooperatives directly perform this task for its members who daily trade surplus milk for high quality silage, vitamins, minerals and concentrates, taking the rest in cash. There is no reason such schemes cannot be implemented in Pakistan through the "collection centers" set up and managed by several dairy processors. This function can be tied into the above mentioned "quality premium" subsidy provided to farmers through the dairies. I.e., the two activities can be clubbed for participating dairy processors.

Medium Term: Improving Herd Composition: Reliance on buffaloes as our primary milk animals, as mentioned above, is the weakest link in our dairy chain. It is imperative that we take proactive steps to change this picture. Of course, we cannot overnight replace all 25 million odd animals into high yielding cows. But, a beginning must be made. Business Recorder scribe suggests that the Punjab Dairy and Develop-

ment Board and its counterpart in Sindh be tasked with replacing low-yielding buffaloes (those with average milk yield under 5 liters per day) with imported AFS cows from Australia. The medium term goal should be to replace at least half a million animals per annum for the next 5 years.

Both governments should import these cows and swap them for buffaloes, slaughtering the latter for meat. I'm sure the recipient poor farmers and landless peasants would be only too happy to make the switch. And to make sure the imported animals are well cared for, these farmers should be trained and taught to care for their new animals and to feed them high quality subsidized silage as noted above. Efficient management of this programme can ensure an annual increase of 1.5 billion liters of high quality fresh milk...over 7.5 billion liters in 5 years. The annual herd replacement subsidy will amount to PKR 175 billion. However, it is not a steep price to pay as it will add PKR 90 billion worth of fresh milk to the economy, an investment payback of under two years for each year's investment in cows. It would be a steal for the overall economy in general and dairying in particular. By the way, this calculation does not account for the huge savings in feed costs as an AFS cow has an efficiency of feed to milk conversion that is 8 times greater than a buffalo.

Long Term: Developing the Dairy Processing Industry: The mandarins at our Federal Bureau of Statistics would have us believe that the Federal Government provides nearly PKR 100 billion (0.43% of GDP) per annum in various subsidies (electricity, diesel, water, and fertilizers) to our agricultural sector that contributes 21% to our GDP and accounts for 44% of employment. In China, agriculture accounts for only 10% of GDP and 35% of employment. However, its agriculture subsidies total 3.8 trillion Yuan (1% of GDP)...nearly two and a half times the comparative level in Pakistan. What is more, The Central Bank of China mandates 22% of bank lending for agriculture. In Pakistan, last year SBP was hard put to marshal our reluctant lenders to extend PKR 230 billion for agriculture... a shade over 6% of total banking industry credit, or nearly a quarter the level of China's support for its agriculture. China has invested heavily in imported cow herds and large scale dairy processing plants that convert the bulk of the country's 40 billion liters of milk per annum into value added products like yogurts, cheeses, and baby foods.

Several of these products are now being imported into Pakistan. In India, subsidization of agriculture is of similar magnitude and runs to IR 3 trillion per annum (PKR 5 trillion). Since the Indian economy is 10 times in size as compared to Pakistan’s, our matching state subsidy to this sector should be at least PKR 450-500 billion...i.e., four times the current level. Failing that, I fear that in a couple of decades our vaunted dairy prowess and potential will only be a footnote in history.

For the long haul, therefore, we need to target subsidization in an intelligent and focused manner. Other than the immediate and medium term initiatives identified above, we need a 10-year plan for progressively building up a capital intensive dairy infrastructure. Its first rung on the ladder is an expanding cluster of scientifically designed dairies each housing over 300 lactating high yield imported or cross-bred cows around milk collection centers of large dairy processors. Having financed one such PKR 100 million operation south of Lahore in his capacity as Wholesale Banking Head for Silkbank, newspaper’s scribe can vouch for the visceral reluctance of bankers to credit extension for dairying. This is despite the fact that gross margins in dairying (the business of rearing and milking cows) is close to 50%.

Compare that number to our vaunted textile sector where gross margins in excess of 20% are rare. For starters, then, SBP needs to develop targets for commercial banks for dairy financing equivalent to, say 2% of total balance sheet lending with usual penalties for non-compliance. To this, at the dairy level, provincial governments need to subsidize animal insurance. Perhaps a 50-50 sharing of premiums with farmers will be sufficient to protect the dairies' most valuable assets, their cows. Finally, sowing of maize for silage needs to be addressed if we are to move away from feeding scraps and indigestible straw and occasional green fodder to our milk animals. The surest way to achieve this goal is to give "Silage Manufacturing" an industry status with specific subsidies for targeted cropping...perhaps cash grants of PKR 5000 per acre for sowing maize for silage.

The next stage is that of milk processing. Today our total number of state of the art dairy processing plants can be counted on the fingers of one hand. If the strategy to raise milk supply described above bears fruit, we shall need at least 50 times as many by 2025. But, whereas setting up a modern dairy operation as the one described above requires PKR 100-200 million (mostly for imported cows and automatic milking parlors and chilling facilities), a plant capable of processing a million liters of milk a day can easily cost 30 times as much.

Again, SBP can goad commercial banks to meet annual disbursement targets for dairy processing plants along lines suggested above. And to ensure both types of programs remain viable, concessionary finance tools that SBP is familiar with can be employed. For instance, these dairy industry loans can have 5-10 years tenors and be priced at KIBOR less 2.5% p.a. (the rate at which SBP should offer refinance to banks), while letting banks charge KIBOR to these targeted borrowers.

Conclusion: The largest and most viable economic activity in Pakistan is the business of dairy farming and processing its produce into high value added products. With our largely illiterate population adding over 5 million souls each year to its burgeoning mass, there is no better outlet for large-scale job creation. Unfortunately, to date we have done precious little.

The consequences of neglect have already arrived in the shape of skyrocketing fresh milk prices as demand outstrips supply and consumers are forced to rely on chemically concocted recipes for "tea whiteners". And, this is happening at a time when we proudly proclaim beating China to become the third largest milk producer in the world after India and the USA. Whatever the merit of this claim, it is a glaring reality that our dairy processors can't find sufficient fresh milk for processing. Urgent and well thought out plans for improving the quality of our milk animals, their housing, hygiene, and feed quality need to be addressed. Beyond that, Government and SBP directed initiatives need to be launched not only to enhance the volume of surplus high quality milk, but to ensure that many more state of the art processing plants are set up over the next 10 years. The obvious goal should be to reach the prominence of New Zealand as a major exporter of processed dairy foods.

Business Recorder | Monday April 27, 2015 | 23

50 years of putting the economy first

Boosting exports for economic growth Dr Manzoor Ahmad If there is one tried and tested way for quick economic growth, it is through international trade.

Pakistan’s export performance during the past 40 years has been much below its potential. Until the 1960s Pakistan’s manufactured exports were higher than those of the Philippines, Thailand, Malaysia and Indonesia combined. Now our total exports are merely a fraction of the exports of any one of these countries.

The chart below compares Pakistan’s present export performance to its once comparable economies.

What happened?

Half a century ago, Pakistan

shorter land routes of Wagah. If Pakistan keeps its current policies in place, it would be the biggest stumbling block in creating the Silk Road Economic Belt and the realization of the South Asia Free Trade Area.

While there is a theoretical acceptance in Pakistan that open trade and investment regimes are a key driver of growth, our government’s policies are just doing the opposite. Only recently new "regulatory import duty" of 5 to 15% was imposed on 313 products. In addition, a large number of other products that were previously importable at zero percent have now been

During late 1970s, Pakistan and Turkey had similar level of exports – about US $ 3 billion. During early 1980’s, Turkish leadership decided to adopt policies that would enable them to become a part of the European Community. As a first step they aimed to have a Customs Union with the EC. This required reducing customs tariffs to bring them at par with the EU where the average tariff is 2-3 percent and most imports are exempt. During the next 15 years Turkey followed that path. During those 15 years, we kept increasing our tariff rates.

We can see the results now;

Pakistan’s Comparative Export Performance US$ billion 600 500 400 300 200 100 0 South Korea

India

was a forward-looking country with a relatively open international trade.

Nationalization of key industries that soon became inefficient and started demanding high tariff walls set the trend in the 1970s.

Import substitution became our mantra. While most other countries have outgrown this phase, in Pakistan it is still equated with being patriotic.

Successive governments have been announcing ambitious export targets but these were not backed by any concrete actions. In 2007, when our exports were USD18 billion, a target of increasing the exports to USD43 by 2013 was set.

Subsequently in 2012, when the Strategic Trade Policy Framework 2012-15 was announced, a target of USD95 billion was set to be achieved during the three years. These goals were not matched by a corresponding change in policy for international trade. The fact is that by 2015, Pakistan’s exports have barely crawled up to USD25 billion from 18 billion and trade in goods and non-factor services as a proportion of GDP declined from over 35% in 2007/08 to approximately 31% in 2013/14. The current government, under its Vision 2025, is eyeing exports of US$150 billion by 2025. Would they succeed this time? It is highly unlikely as the primary focus of the trade policy is not to grow exports but to collect more taxes on imports. No successful country has followed such policies.

It is not just our own economy that we are ruining through high tariffs but that of our neighbouring countries as well. Pakistan has been hindering trade of Afghanistan and other Central Asian countries by placing various restrictions on transit trade. Most of that trade has now shifted to Iranian ports in spite of those routes being longer and more expensive. If we want to reciprocate the goodwill of President Ashraf Ghani, we need to allow Afghanistan to import its goods through Pakistan.

Rationalizing our tariffs would ensure that it would no longer be economical to smuggle back goods into Pakistan. This would also allow Pakistan to enable the Central Asian countries and Afghanistan to import goods from India through the

Malaysia

Indonesia

Turkey Philippines

subject to one percent customs duty. This was against our bilateral and international commitments.

New taxes on import of machinery and environmentally friendly goods would make it difficult for any new investment to come into the country.

There seems to be no realization that open economies are better able to exploit their comparative advantages and gain access to global markets. The prevailing misperception about Pakistan’s economy being rather open and not in need of further liberalization needs to be corrected. This perception dates back to 1980s when most economies followed import substitution, but is not correct any more.

The following chart clearly shows that in every sector whether it is chemicals, industrial raw material or finished goods, Pakistan has the highest tariff rates compared to its competitors.

This also means that Pakistan is unable to compete in any of these sectors. Protectionism in Pakistan is also clear from any globalization index.

According to the Swiss KOF Index of Globalization, Pakistan is ranked at 143 out of 184 countries. This rank is below Chad and Rwanda and just above Niger and Benin.

Another factor that is not realized by policymakers is that the pattern of international trade has changed. International trade is now carried out as a part of global supply chains and production networks.

Changed circumstances need corresponding adjustment in trade policy but our trade policy has continued to be as it was several decades ago. About 80% of trade in the East Asian economies is now carried in components and parts. Pakistan is unfortunately not adjusting to these realities. Having higher tariff means that our industry is not competitive and it also brings an anti-export bias.

Almost all economies that achieved big jumps in their trade volume, had a well-considered reform process.

Pakistan needs to learn from those successful examples. Two such cases, where trade policies were earlier similar to Pakistan’s but then they radically changed their policies from import substitution to export-led growth, are worth mentioning.

Pakistan

while Turkey’s exports are over USD170 billion, we are languishing at USD25 billion.

Another relevant example is that of Chile. Like Pakistan, Chile was a protectionist country till the late 1970s. Then it decided to get out of its protectionist mode, level the playing field for all industrial sectors and reduce all tariffs to 10%. Its economy started growing at a fast pace. But some industries were used to rent seeking and prevailed on the subsequent government to reverse some of those policies. In the 1980s there was some roll back but it was soon realized that taxing international trade was not the right way forward. Chile recommenced its liberalization

and adopted a uniform rate of 6% in 2003. Since most of its trade is with countries with which it has Free Trade Agreements, almost all imports are duty free. Chile is now a member of OECD and one of the most stable and prosperous countries in Latin America. Its exports are now over US$80 billion.

In its own neighbourhood, opening of China and India over the last two decades has done wonders for them. Pakistan should have followed their example instead of the solitary path of isolationism.

A well-conceived reform process aimed at achieving export-led growth can only be carried out with a political vision. Currently, the Ministry of Commerce is the focal agency for achieving these exports but it has no regulatory authority on any of the export promoting instruments. According to the WTO, the main trade policy instrument in Pakistan is its customs tariff.

But since the tariff rates are set mostly by the Federal Board of Revenue which is more focused on raising revenue, Pakistan’s export interests are not receiving due importance. It is important that all tariff-related reforms should be assigned to the Ministry of Commerce so that export-led growth becomes a priority for the government.

While it cannot be denied that Pakistan’s tariff regime is much more liberalized as compared to the 1990s but since the reform process was stopped in 2002 whereas our competitors continued to liberalize, our industry has lost its competitive edge.

Indian economy was far more protectionist till the 1990s but thanks to continuous reforms, it is now much more liberalized. Now Pakistan is left far behind.

Further tariff reforms will have to be carried out, if Pakistan’s exports are to grow. The present government has imposed more tariffs during the short time it has been in power than any other government did during the last 15 years.

Higher protection results in higher inefficiency.

Pakistan’s industry cannot afford to be less competitive than that of the other

trade. In his research paper for the World Bank on “Multilateral Trade Liberalization and Political Disintegration”, Maurice Schiff gives several examples of how high taxes on international trade have been responsible for secessions and civil wars.

One of the examples he quotes is the secession of East Pakistan. He explains how such tariffs resulted in

schemes such as GSP are at best temporary measures.

These schemes are basically meant for least-developing countries, which are unable to carry out domestic reforms or get market access on the basis of equality through bilateral free trade agreements.

A lack of reforms has resulted in Pakistan reneging on its international and bilateral commitments.

tariff rates in its second tenure but this time, it seems to have become protectionist in its outlook and unable to follow its reform agenda. Pakistan has to revisit its policy of high taxes on international trade. This keeps it a closed country and prevents it from taking advantage of its location as a transit country, and becoming a part of the global supply

Its Free Trade Agreements (FTAs) are frozen, as it is unable to meet its commitments for follow-up phases.

For example, Pakistan was committed to starting work on the second phase of Pakistan China FTA in 2013.

Instead of going further, it is seeking reversal of earlier concessions. It is the same situation in case of SAFTA. While other SAFTA countries have integrated through bilateral or unilateral measures, Pakistan is standing alone.

During its previous two tenures, the PML(N) government was known for its business-friendly and reform-oriented attitude. It had taken many bold steps such as doing away with import licensing during its first tenure and substantially reducing

chain and global trading community. Since taxes collected on international trade are simply passed on to the public, this exacerbates poverty.

If the government is to achieve the lofty targets it set for itself in its Vision 2025, it has to back them with a reform process and follow the path of other successful countries.

Waiting for largesse from major countries is not the answer. The government has to radically reform its policies to join the ranks of successful countries. It will not only be helping its own poor but would also be providing more stability for its terror-torn border provinces and its neighbouring countries.

Average Tariff on Industrial Goods (%)

Source: WTO

similarly placed countries.

Given high freight and insurance costs faced by Pakistan’s exporters, they have to be more competitive than others even if all other things were equal. For its internal tariff reforms, the best way is to benchmark against a group of successful developing countries such as the ASEAN and reach that target. India has been working towards achieving that for the past 10 years and is gradually closing the gap.

It is high time that the authorities realize that Pakistan’s ill-advised tariff and trade policies are not only hurting the country economically but also politically. Pakistan’s high tariffs are making it an undesirable destination for investment and a less preferred global partner for

shifting of resources from East Pakistan to West Pakistan as the latter was selling manufactured goods to East Pakistan at prices well above the international prices. Since most of the industry is located in Karachi and Lahore and protected through high tariffs, we are doing the same thing vis-à-vis smaller provinces.

Pakistan has also to abandon the belief that any special market access granted to it by developed countries can boost its export. For years, Pakistan’s main focus was on getting GSP plus from the EU. It got it and except for some export diversion, there was hardly any noticeable increase in exports.

Achieving market access through preferential

24 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Innovative role in economy Dr Zafar Altaf I have been an avid reader of Business Recorder (BR) for some length of time.

One started with the Pakistan Times and then the Morning News and even the Civil and Military Gazette. Dawn obviously featured for most Pakistanis at that time but the paper was received late upcountry. Is it objectivity that one looks at, is not all objectivity based on subjectivity? Is subjective-objectivity possible at all? There are shades of this in the nation’s written press. What was my finding in respect of this was that the BR was the most objective and did not have a slant on news as the other papers had.

The motives could only be known to the editors of those newspapers.

Perhaps the debacle of East Pakistan could have been avoided if the news on that province had been truthfully and objectively recorded. To my horror the geography of East Pakistan was not known to many and East Pakistan was referred to as “Dacca”.

Plain and simple. So this newspaper has objectively reported the facts and passed on the information to the public. It serves the business and economic aspects of life in Pakistan along with generalized news. There is no sensational news and no favors sought by inflaming a situation. The best part of a newspaper is its Editorial. Now that our economics is not pure there is a part of political economics I find that the newspaper provides a balanced view of political economy. The language of the paper has not been intemperate and I find that the newspaper has excitement on all its pages and there is no fillers as such. The policies of the government

have been objectively recorded and whenever there was some lacunae these were properly identified. It provides the nation of where our industrial functioning is taking us and of late the other less well recorded sector of the economy-agriculture.

But that is not all that one has started expecting from the newspaper under examination? My articles have been for those that have been excluded from the economic systems of Pakistan. The poor and the disadvantaged of this country who may have toiled for the country but never received living wages. These are iconoclastic articles and I have been pushing the edge, albeit sometimes, to force the hand of the policymakers of whatever hue or colour.

I have been writing articles on the economy and testing the various theories of western economists and have been particularly severe on those that have no idea of ground realities but tread along as experts. My reading of an expert is that he has lost his bearing. I for one would never claim any such expertise.

What then is the way forward for Pakistan? The way forward is where the energy of the mind is applied to the natural resources of this country. In my life as a bureaucrat I have broken most rules for rules are fastidious and outdated. If the rules have not been broken then one cannot go forward. Rules are made by invidious idiots who call themselves farishtas (angels). In life, and in Pakistan especially, the mistakes of East Pakistan need not be repeated.

That means that the marginal and

peripheral people and areas are to be considered in the inclusive development. Our political leaders may have learned the jargon but they really do not know what to do in these circumstances.

Two examples will suffice with some caveats. In my lexicon there is no bad water and no Banjar Zameen (infertile land). I can give more but these will illustrate what the way forward for Pakistan will be.

Sea water is also useable and in a recent summary to the CM I had offered that rice can be grown in the 700 mile coastal belt up to half a mile in the ocean. No water and no fertilizer would be required. The pigeon brains do not understand the implication of providing jobs to those inhabitants that were living there.

The area from Quetta to Varan is a desert and bland with no tree. I did a workshop on waterless agriculture and to this workshop Baluchis came in large numbers and when I stated what could be done, there were a lot of nodding heads. Come to Thar. All subsoil can be cleaned at the household level no matter what the level of subsoil salinity is. Instead they went in for millions of dollars of reverse osmosis. Fine play with the resources of the country.

In the nineties I went as a consultant to Texas and Sicily for bio fuel. I had already tried some of this in Thar. PSO came in to act and had the program cancelled. That biofuel was not based on sugarcane or on corn but on a plant called jatropha.

The plant was successfully grown in Mithi and in Bahawalpur. The

Pakistanis in Canada had provided Canadian $140,000 as grant. Why listen to PSO. The diesel oil from the plant would have been available at Rs 9 per litre. Schools and colleges were promised by the Pakistanis living in Canada. Cholistan and Baluchistan would have been forested by the plant that had a drought tolerance of five years!!! Why are our policymakers suffering from an inferiority complex? I wish Dr. Ajmal had been here to carry put a psychological study of these idiots that listen to everyone from abroad but do not have the abilities to use their own minds. They have a virus of the mind.

This illustration is from the salt range where the subsoil water is more saline than sea water. There we experimented successfully with growing sugarcane, cotton and maize -three crops in a year.

Sugar from salt range? But there it is. Cotton similarly has a new belt from Malakand to Jhelum and gone are the areas of Multan, Rahimyar Khan, etc.

The requirement is for the development of conceptual issues. The way forward is by people whose imagination can fly and they can implement what is required.

Alas the highest requirement is really of people that can place themselves as subservient to the common cause of Pakistan. I can go on ad

infinitum but there is always a case for instigating an excitement. Pakistan’s soils are such that any plant can be grown anywhere with any and less water. Efficiency, equity and efficacy are the concepts that have to be worked in to the system. Or take another East Pakistan.

If the lessons of history are not to be repeated then effective steps have to be taken to apply energetic minds to the specific issues in specific areas by

specific people. But there is no place for gimmickry and trickery. Make mistakes, break fastidious rules that have been made by the dead. I have done it at some cost. But one lives to fight another day. Courage to the brave and may BR live a long and as adventurous a life. I consider the BR as a paper that furthers innovation.

Thought for the day-where does all the mobil oil go when it’s drained from the cars? Think? The waste economy is something to think about. Mad hats in the belfry!!!

Business Recorder | Monday April 27, 2015 | 25

50 years of putting the economy first

Corruption is holding us back Saida Fazal If asked to identify two top issues confronting this society, few would hesitate to name corruption after terrorism. Pervasive as it is, the problem could not be a part of our genetic instructions. Many in the developed Western societies would be easily tempted too by the lure of easy money, but systemic checks stand in the way. In our situation those presiding over the system stand in the way of checks.

Corruption in high places is rampant in this country in its various forms from cronyism and nepotism to bribes, kickoffs, embezzlement, willful loan default, tax evasion, and money laundering. Going by Transparency International’s Corruption Perceptions Index, with the passage of time, things have gotten from bad to worse, worst, and back to bad. In 2009 Pakistan was at 139th position out of 180 countries rated on its index, 143rd out of 178 in 2010, 134th out of 182 in 2011, and 139th out of 174 countries in 2012. The story behind these figures is all too familiar to us. The next year, i.e., in 2013, things improved somewhat as Pakistan moved up to number 127 among the 175 countries rated.

The rating though may not reflect a significant change in conditions. In fact, it reminds one of an anecdote narrated by a journalist. He was asked by a VVIP-- in an indirect reference to our last government’s reputation-- why do people from a certain part of the country tend to be so corrupt? The journalist offered an interesting illustrative answer. Those people acted like a bunch of hicks eating mangoes and throwing around

the waste to be seen by all, he explained, whereas when others enjoy mangoes they take care to properly dispose of what need not be seen.

Once perceived as social stigma financial corruption, over the years, has become quite acceptable.

Otherwise reasonable people have lost the capacity to be shocked by it. It is even defended as something that purportedly is prevalent in Western democracies. Examples are trotted out of European companies paying heavy bribes, with the knowledge of their governments, to rulers of various Asian and African countries to win lucrative contracts. The argument does not hold water. First, because bribing outsiders is not the same as bribe giving and taking at home.

Besides, morality is never a consideration in the imperialists’ quest for and control of weaker states resources. In fact, some of the world’s bloodiest wars have been fought, still are being fought, over economic control.

Second and more importantly, the shady deals they make fetch profits and jobs for their home countries. Conversely in our case instead of bringing benefits to this society, money is stolen from the people or made from shady foreign deals at their cost to be invested abroad. Bulk of the money made from loot and plunder of our national resources is either invested in businesses or pricey properties in the UK, France, the Gulf states, and other attractive destinations abroad or stashed away in Swiss banks. Finance Minister Ishaq Dar revealed a while ago, apparently in an unguarded

moment, that some $200 billion — though he would not say this was ill-gotten laundered money—owned

by Pakistanis is sitting in Swiss banks.

The resources that should be going into human resource development, job creation and other socio-economic advancement schemes have been flowing into the bottomless pit of our ruling elites’ greed.

Third, whilst Western democracies have no qualms about using bribes or naked power to exploit other countries resources, when it comes to domestic affairs there is little tolerance for financial misconduct. Back in 2009, six British MPs and peers were expelled from Parliament and jailed for involvement in what came to be known as expenses scandal. They were punished for misusing public money through false accounting, wrong

Once perceived as social stigma financial corruption, over the years, has become quite acceptable.

overnight allowance claims, and rent for self-owned houses. The highest wrong claim involved what would be petty cash by our standards: a mere 13000 pounds. Then there is the example of former French president Nicholas Sarkozy who has been questioned several times since leaving office for alleged acceptance of illegal donations from a business house for his 2007 presidential election campaign. Here we have several instances of government/political parties leaders accepting highly expensive gifts for personal use from foreign governments as well as local businessmen in exchange of favours at public expense. So far no one is asking any questions.

Tax evasion by the rich and powerful of the land is a huge problem, costing an estimated Rs. 1000 billion annually to the national exchequer in terms of revenue lost. Yet successive governments instead of making a serious effort to have the

elites pay their dues to the state look towards donor agencies or other governments for economic assistance that comes with strings attached, and sometimes good advice. Hillary Clinton, when she was secretary of state, had openly counseled Islamabad, during a speech at a Global Leadership Coalition conference, to tax its own rich before asking for American tax payers’ money.

“Pakistan cannot have a tax rate of 9 percent of the GDP,” she said, “ while land owners and all the other elites do not pay anything or pay so little it’s laughable.” Her advice rolled off our leaders’ ears like water off a duck’s back.

For obvious reasons the elites have no intention to end corrupt practices. An accountably bill presented by the previous government in Parliament was a brazen attempt at giving a clean chit to wrongdoers amongst its own ranks. The present government nearly halfway through its term has

introduced National Accountability Ordinance (Amendment) Bill, 2015, but without any enthusiasm to push its passage. And the National Accountability Bureau is yet to become an independent anti-corruption watchdog it is suppose to be. It is useless to expect the same parties with similar interests to do something different. The PTI has been making a lot of noise about bringing in anti-corruption reforms through a strong accountability law, ensuring independence of the Accountability Bureau, introducing conflict of interest legislation, and making substantial increase in the tax to GDP ratio. If and when we have such systemic reforms in place, we can hope to have a solid institutional foundation on which to structure socio-economic progress and prosperity.

26 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Good news missed no news?

Babar Ayaz Bad news and reviews are always raining on the wretched people of this country. But there must be something right somewhere that this country has moved on for the last 67 years. There is a slew of empirical evidence that negates the impression given by the Doom-Sayers that the collapse is around the corner.

Most economists and journalists are no pessimists, but the fact is their focus is on the official economy and statistics which often lack credibility. So they do tell us half truths, not because they are alarmists, but perhaps because they fail to look at other business and social indicators which are out of official data. Unfortunately, however, the urban-based and urban-based media is so consumed by the theatrical politics that it hardly pays any attention to rural areas and the social changes in society.

Economic journalism has come a long way since the country was established and Finance Minister Ghulam Muhammad was given to handle “an economy with a total central and provincial expenditure amounting to no more than 1500 million rupees.” (Ibnul Hasan 1987).

Today, we have a revenue budget 2013-14 of over Rs3.5 trillion. But then Pakistan had to feed 70 million people, who included those living in the then East Pakistan; today with half the country gone it has to feed 186 million. The per capita income has also increased many times and the size of rich, lower and middle classes has grown to 60 percent of the population. But the bad news is that nearly 40 percent of our people live below the subsistence level that is almost every third person. This is one of the reasons that our social fabric is bursting at the seams.

So a quick review of the strengths and weaknesses of our demographic profile is important if the country has to grapple with its socio-economic issues. The good news is that the population profile has changed, promising a better economic future.

For every one person who is in the age bracket of dependents (below 15 years and above 60 years of age) there are 1.33 persons to support them. There are 58.88 million Pakistanis who fall in dependents’ age bracket as compared to 91.52 million people who are in the working age bracket (15 to 59 years).

According to Dr. Zeba Sathar, Country Director Population Council, this shift in the population profile has happened mainly because the fertility rate in Pakistan declined from 6 to 4 children per woman.

Now the question is what benefit should this demographic dividend bring to the country if managed sensibly by our policymakers? Pakistan has entered the second phase of this transition. In this phase less young (under 15) and older (above 60) mouths have to be fed by the population which is in the working age bracket. It is this working age segment of population which is contributing to higher production and at the same time higher consumption thus fueling the economy. This shift in the population profile is offering dividend in the shape of increased young labour supply, savings, higher per capita income (which has doubled in the last 7 years), a growing middle class, rising remittances and exports. The East Asian model also shows that when this opportunity was offered to them by demographic transition, they invested heavily in their human resources. And the result is sustained fillip in the economic growth rate.

But as Andrew Mason says ‘the change in age structure define possibilities, by themselves do not determine the outcomes.” So the big challenge for the planners is to convert this pass given by demographic transition into a goal.

This would mean providing employment to over 91 million working age population. It is one thing to have a huge human capital; it’s another to employ them gainfully. And yet another bigger challenge is to improve the quality of this human resource pool to raise its productivity and absorption in the employment market.

One of the major problems in Pakistan is that the literacy rate is low; almost 50 per cent of the workforce is illiterate. The government claims that it has achieved to raise the enrolment rate to 86 percent, but only 53 percent of the enrolled students complete their primary education. Unfortunately the education planners are not paying much efforts to arrest the dropout slide.

Even those who cross and move over to do matriculation are by and large semi-literates. That is perhaps the reason for higher unemployment rate among matriculates. A workforce survey has shown that the rate of unemployment is higher among people who have higher educational qualification. The major factor for this skewed relation between higher education and unemployment is that our education system has no linkage with the job market.

According to an ILO Paper, the UHT processed milk sector is presently employing a total of nearly 1,550,000 workforce directly and indirectly. The planners hope if the amount of UHT processed and packaged milk is increased by 10%, the total number of additional jobs which

will be created is expected to be around 4.6 to 5.0 million.

Another good development in the last few years has been a rapid increase in micro financing – the number of borrowers has risen from just 210,000 in 2002 to around three million.

But there is also the downside of having a large young workforce in the country. Demographers say that this transition generally lasts for about 50 years and then the ratio of old age dependents starts taking over the young workforce in the third phase.

One of the major problems in Pakistan is that the literacy rate is low We have been living on the dividend now for almost 15 years. So the time to act and utilise this dividend is now.

One dangerous outcome of this change in population profile is unemployment. At present unemployment and under-employment of our youth, particularly of women, is high. It is one big reason for the growing anger among youth, which is being fuelled by criminals and Jihadis equally.

Pakistan’s another major strength is its sustainable agriculture which contributes around 25 percent of GDP directly. As most of the cash crops are processed by the industry its contribution to the economy is much higher. In the past few years because of better floor pricing of the agriculture produce there has been a substantial transfer of money to the rural areas which has visibly changed the consumption patterns in these areas.

Once one gets out of the depressing environment of the big cities, where people are being consumed by

domestic and regional political questions, and visit some good factory or the rural areas of Pakistan one feels that the people are resilient and would do better than just muddling along.

The numbers too aren’t bad. Though there will always be a gap between the desired agriculture yields and what it is, for a change let’s look at the positive side. Wheat production in Punjab has increased from 2.5 million tons in 1948 to 17.7 million tons in 2012; this shows an average annual growth of 9%; Cotton production annual average increase in the same period has been 22%; Rice 19% and Maize an amazing 27%. The latter has seen a phenomenal rise in per acre yield in the few years because of introduction of hybrid seeds.

Farmers admit that they are better off now as compared to what they were a few years ago, a random survey by this writer of shops in a small village Odero Lal, reflected the changing pattern of consumption and rising purchasing power in the agricultural society. One sizeable farmer said that out of 50 share-croppers employed by him 40 have bought new motorcycles in the last three years.

The motorcycle manufacturers confirm that their growth is mainly coming from the rural areas of Pakistan.

Another quiet white-evolution that needs to be studied in greater depths is going through the villages.

The livestock sector is now contributing almost 50% of the agriculture sector’s growth. Higher milk and meat prices, which are resented by the urban populace, are a blessing for the rural poor. It seems to be just the beginning as only 4% of the total 4.2 billion litres of the milk produced in the country is procured by the eight pasteurized milk packaging compa-

nies. Livestock farming enthusiast Mumtaz Khan Manais says this is nothing. “In developed economies 70 to 90% milk is packed, in Pakistan it is just the beginning. Our livestock farmers are getting a good price now, but the issue is low productivity as at an average we get only 6 to 8 litres of milk a day from a cow, while if proper farming methods are adopted this production can go up to 50 litres a day,” Manias maintains. He has the distinction of securing a national prize for having a cow which produced 52 litres in a day.

According to senior Punjab Government official, Dr. Anjum, 69% of the agriculture workforce is of women; this claim has been fully endorsed by farmers. This is contrary to the official FBS data that shows that only 17.9% of the rural workforce is that of women. The FBS labour force survey perhaps needs to revisit the issue. It is evident at the time of cotton picking, rice sowing and harvesting of almost all the major crops in Punjab and Sindh in which participation of women workforce is greater than men’s. The same is true with the livestock farming at smaller levels.

Though large parallel economy is bad news for any government, the fact remains that a very robust parallel economy almost as big as the GDP is flourishing in the country. It has not only kept the consumption of goods and services growing, but is also creating job opportunities and is pushing up the social mobility ratio.

The tragedy is that the successive governments have failed to improve the quality of Pakistan’s human resources, have been painfully slow in bringing new agricultural technologies and have shown no will to control the black economy.

28 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

The reform process: A strategic analysis Munnawar Hamid It is necessary to state at the outset that this is a generic and strategic analysis of the Reform Process in the context of a Nation State, and an endeavour to apply it to a view, widely and generally held by civil society, that there is a general failure of Reforms in Pakistan. This failure has been amply elaborated upon on several occasions and piecemeal solutions suggested but it must, however, be appreciated that a successful Reform Process does not come into being without a strategic consideration of the phenomena and the fundamental pre-requisites for it to be instituted in full.

A successful Reform Process is generally constituted by two main elements i.e. an effective Governance System and a high quality and relevant Reform Agenda.

Governance System.

A generic analysis of an effective Governance System would make apparent the following constituent pre-requisites for it to be established and operate successfully: A. A process to determine an appropriate set of objectives for the organization in question, as a whole as well as at each level, and more importantly to reach a consensus on them.

B. Systems and processes to achieve these objectives.

C. A framework to ensure the successful operation of these systems and processes. This needs elaboration. It includes the institution of the necessary organizational structures, a clear statement of responsibilities and consequent accountabilities, a complimentary delegation and distribution of authority and resource, a clear delineation between

the various levels of the organization, the assured operation of a sharp boundary between Executive Action and a strong function to Overview and Redirect it, and finally provisions which promote merit and competence and decisively reject marginal performance and deviant behaviors.

In other words a framework converts an amorphous collection of people, ostensibly engaged in a single or set of activities, into an effective organization operating with clarity, with the ability of monitoring itself through appropriate checks and balances, focused on the achievement of its objectives with integrity and transparency. Such a framework, very importantly, needs to exist at both the very macro as well as the micro level.

D. Competence and Responsible behaviors. It is obvious that to, determine high quality Agendas with consensus and establish the systems and processes and the framework, it would require both professional and organizational competence. Unless a critical mass of such competence exists at the different levels of any human endeavor it is impossible to expect effective Governance and Reform.

E. It has to be recognized that every human endeavour has an inbuilt sense of vested interest emanating from sentiments ranging from, “protecting turf”, “professional arrogance and independence” to more base ones such as “protecting corruption and nepotism”, “marginal performance” and “predominant vested interests”. It can therefore be expected that conditions for Good Governance cannot be achieved with full effect unless an external legitimate influence is not active to overview.

F. Governance in any entity, whether social, economic or political generally sustains itself only if it exists in a continuum and cascades, from a beginning to an end point. To explain with an example Governance in a public sector entity would be dependent upon a cascade down of standards from the relevant Department/Ministry, which in turn is influenced by standards in the Government as a whole, and ultimately the mandate set out and monitored by the State. In the Private Sector it begins with the mandate set out by the shareholders and relevant corporate statutory legislation and ends on the shop / office floor with the Board, Executive leadership and line and supervisory management in between. Governance can only be successfully established and more importantly sustained in a continuum of the necessary Governance standards. Any attempt to establish Governance in isolation will be incomplete (as many corporate leaders co-opted into the Public Sector have learnt to their ultimate dismay) lasting only till the special circumstances establishing it are eventually removed. The experience may however be different, as an exception, in case vested interests around are not strong enough which can only be in the case of marginal organizations and therefore of immaterial importance to the overall situation.

Reform Agenda The second essential part of an effective Reform process is the presence of a high quality, relevant and credible agenda for Reform. A consideration of the current state of affairs, generally held by civil society,

would give a fair estimate of the enormity of the task confronting Pakistan. It is not the scope of this dissertation to present a recommended Agenda, as there can be many alternatives equally effective, and secondly to do so would need multidimensional expertise not possible for a single proposer.

However, two major common factors will have to characterize any Agenda based on a realistic evaluation of the situation – it will have to be fundamental and not incremental, and comprehensive not partial in its scope and nature. A second part of this aspect, closely linked, would be the capacity to build up credible and game changing agendas, and to acquire or create the financial, human and organizational resource necessary to successfully implement the Agenda. A clear reason for the current failure is the significant inadequacy in both areas, and therefore would need to be rectified as a priority.

It is also not the intention to evaluate performances of different Governments, (as several Governments including the current one have attempted reform and also succeeded in pockets) nor to consequently politicize this objective debate and deviate from the necessity to confront this issue as a National one.

The fact that Reform has been attempted and has been successful in pockets but the cumulative position remains grossly inadequate, is a clear indication that Reform has not been sustainable and conditions (Governance and Agenda) for a comprehensive and sustainable Reform have not been obtainable over the history of independent Pakistan. It is therefore inevitable to re-position our Reform

effort against this background and apply a model Governance System which shakes us out of our historical inertia by a strongly deliberated action, which if not done sustainable and quality progress will continue to elude us.

Such a re-positioning will need to be based on an objective evaluation of the current situation.

This clearly indicates a few glaring generalizations which characterize our existing situation, developed over our political history.

• A macro framework and a continuum of good standards does not exist.

Power is characteristically concentrated in the top echelons of the Executive neither drawn from nor shared with the State, nor delegated down to the local level. The very essence of Good Governance which is checks and balances at all levels, the residence of authority and resource where it is required, with clear responsibilities and accountabilities, is present only on paper. A very relevant analogy can be drawn from the Corporate Sector, or for that matter from any other form of organized human endeavour, as the phenomenon is generically similar.

Governance always becomes an issue in the presence of an overly powerful Central (Chief) Executive which is characteristically and consequentially accompanied by a weak and compliant Board, and a deliberately placed line management typified by average caliber and poor potential incapable of significantly influencing or intellectually challenging the power base. This results in decision making and authority to securely concentrate at the top, a natural tendency for Agendas to deviate from the designated track and a perpetuation of

mediocrity and marginal behavior, or in other words conditions are established for the facilitation of vested interests and the dismantling of responsible leadership and management.

• The system so developed has, strengthened compromise and to support party political interest and personal vested interest as opposed to ensuring objective tough decisions to strengthen the State, and has failed to ensure Government for all, to produce competence and professional action and behaviors, and given minimal opportunity to the Constituencies and Offices of the State to establish a strong enough oversight. This in turn, as would be natural, has given comfortable room to corruption, nepotism and acceptance of marginal performance to take root firmly.

If the model for National Governance (ie, a continuum starting from the top and cascading down) presented here is accepted, any Reform of the present status would require first of all a new consideration of the various Constituencies and Offices of the State. The most important, of these, are the people of Pakistan who can elect and mandate Governments through a fair and transparent Electoral Process followed by the Parliament, the National Constitution, the Office of the President of the Republic, the Superior Judiciary, and various other Apex Constitutional Offices. Clearly the roles performed by each have not collectively been able to enforce the competence and the macro framework required for good Governance.

Continued on next page

Business Recorder | Monday April 27, 2015 | 29

50 years of putting the economy first slow. Also evolutionary processes very often require phases of unorthodox interventions to ensure that evolution remains faithful to National interest.

Revolution Revolutions are destructive, uncontrollable and reactionary and historically seen to always require subsequently, by necessity, a phase of centralized strong management to restore stability, responsible Governance, and balanced Agendas away from the reactionary and unrealistically severe ideologies of the revolution.

Continued from previous page It is important to discover why this has been so. This may have been due to the existing roles, which may be generally inadequate and also lack the effective means to enforce mandated roles, or the will to effectively use the means which may be available and are adequately present even in their the currently defined roles, and therefore the existing dispensation responsible for shaping our National Governance requires another look in this context.

Interventions by the State (or the Army) in the past have been labeled as disruptive to the development of Democracy. Agreed that Army intervention maybe so but the important question not asked is whether State intervention is harmful for Democracy or persistent bad Governance. A view of the evolution of Pakistan’s political history has unfortunately shown a bias towards the former view and dismissed the latter possibility which unfortunately has been the root cause of the problem. This is due to a pervasive vested interest. Secondly such interventions have also lost credibility as they have deviated mid-stream from the original objectives of the intervention, also by becoming susceptible to vested interest and consequently failed to redirect and reposition National Governance positively on a sustainable basis. As a result whereas conditions may have improved temporarily in the tenure of the intervention, they spring back to the same or even cumulatively worse position once it ends.

It is essential therefore that any reconsideration must result in the assurance of the following attributes in the role of the State and its constituents and as a consequence of the Government, on a sustainable basis: The State which has: - A clear mandate to enforce competence and a macro – framework for a successful Governance System, in the Executive arm of Government.

- With the ability to ensure a system of checks and balances and the potential ability to monitor and censure Governments and, - Finally have the effective means and therefore the capability to enforce its mandated role.

Managed Intervention A strongly managed intervention with due lawful sanction and professional competence, time bound and with the sole purpose of breaking the vicious circle of retrogression and bringing into effect a deliberated repositioning for a sustainable step change in Governance, institutionalized through Constitutional sanction.

This can be done, either by:

The Government which has: - The institution of a strong macro framework for good Governance, with the appropriate systems, processes, competence and professional expertise to potentially enable it to formulate valid Policies and Agendas and the capacity to execute them effectively and transparently.

This can happen in two ways. Firstly by the institution of a constitutionally sanctioned and selected technocratic and professional Government or by achieving an electoral process which significantly improves Governance in a consequently elected Government.

Fundamental to the above two sets of attributes is the recognition of the differences in the roles of the various Constituencies, and the consequent inevitability of their separation from each other with commensurate authority, and most importantly that the occupants of these Constituencies may need to be drawn by different methods (selection, nomination and election) from different segments of the body politic and civil society of the Nation. More

specifically this exercise to reposition Governance has to: 1. Review the existing dispensation, to evaluate whether appropriate provisions already exist to achieve these attributes and if so what is required to enforce them more faithfully than in the past, and if not what new ones are required.

2. Recognize correctly the nature of the change required in the context of our situation, which is characterized by a persisting poor economic and social emancipation arising from poverty, low literacy and poor health, a society with a powerful feudal component and as a consequence a weak and subjective electoral system which provides no or very little entre for a progressive and successful evolutionary process to take root.

3. Recognize the urgency for the change to restore the increasing lag between Pakistan and comparable countries and its rightful position for trade and political influence in the mainstream comity of Nations.

4. Assure that the critical mass of the change is comprehensive (a continuum of Governance) and simultane-

ous, to assure its sustainability thereafter through a reformed evolutionary process of Government.

5. It must therefore, challenge the traditional Parliamentary System, which over history has failed to give good Governance and consider alternatives suited to the fundamental shift we require to meet the challenges of our specific situation cumulatively obtained over our unusual political history. Test vigorously other constitutional models including one which allows the induction of members of Civil Society who are professionals with proven credentials, distinguished citizens with merit in social service, and other credible citizens, into the Executive (i.e. the Cabinet and the bureaucracy) overseen by a strong elected Parliament focusing on national legislation and approval of senior leadership in Government and all significant Policy, and an appropriately enabled President to overview the Republic or even to finally lead it.

6. Strengthen at the same time the independence and competence of the apolitical Constitutional institutions

of the State i.e. the National Election Commission and the Electoral Process, the Public Service Commissions, the State Bank, the Auditor General’s Office etc., by reviewing the terms and process of appointment, qualifications, and reporting relationships to completely skew them away in practice from any modicum of Government Control to that of the State. If such provisions already exist they do so it seems on paper alone and need to be enabled to become effective in practice on the ground.

The final question at hand, in addition to choosing the nature of the change, is to choose the appropriate process by which the macro framework of National Governance is revamped and progressive, relevant and credible Agendas are established at every level to ensure a successful Reformation to evolve in the future.

Historically Nation States have seen three generic processes for fundamental change: Evolution History shows many examples, mostly Western Democracies, but by nature it is

A political Government (which would include the present one, if it so desires) based upon a genuine political consensus and having a strong focus and determination for it, with the broad and progressive mindedness to acquire professional merit and competence where necessary to drive the intervention, and finally the demonstrated wisdom to allow the charting of Government Agendas as tributaries to National interest rather than vested interest. or An apolitical Government with professional competence, due support and sanction of the apolitical Constituencies of the State, and time bound with a single Agenda of bringing about the step change required in our National Governance.

As final points, firstly it must be recognized that making the choice of the nature and process of the change is the most critical conundrum facing our beloved country but it has to be made, and secondly if the status quo continues it will, as is in the nature of it, lead to a state of desperate deterioration where such a choice in both would inevitably be a forced one.

30 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

My years in journalism – in retrospect M. A. Zuberi I would not like to go into the details of my pre-journalistic career. I will just tell you how I came into contact with Quaid-e-Azam Muhammad Ali Jinnah. I started my career after training in the Indian Military Academy in the city of Dehradoon.

Later on, I was posted in intelligence censor unit in New Delhi, where all letters, etc., addressed to senior civil officers of the Government of India as well as Indian Members of the Viceroy’s Executive Council were checked before delivery. There I came across a letter addressed to a Hindu officer of the Home Department of Government of India marked ‘personal and confidential’. That letter contained details of an R.S.S. Plan to reduce the Muslim majority in Bengal.

As a Muslim I suffered a shock and I lost my cool for a while. It was 9.00 PM and I was alone in my room, I made a copy of the letter. I would not like to go into the details, I managed to get it delivered to Quaid-e-Azam Mohammad Ali Jinnah. This was about mid-1944. Soon after I sought release from my service, opting to forego my severance benefits. I was released in November 1945. At the end of the month I had an opportunity to meet Mr. Khursheed, Private Secretary of Quaid-e-Azam Mohammad Ali Jinnah. I mentioned to him my desire to meet the Quaid-e-Azam.

He arranged an interview for me and I met our great leader in the first week of December 1945. I asked him if he had received the RSS Plan delivered to him. He was surprised and asked what I knew about it and why I had asked about its delivery. Then I explained to him everything, thinking that he would greatly appreciate it.

But to my surprise, he said: “You violated your oath of secrecy while in government service. I said, “sir, I took the oath of secrecy to a foreign government and I was concerned about the security of Muslim community in Bengal. I have already acquired release from the service to seek some other job”. “What job are you looking for? You go and join Dawn,” he almost commanded me.

Somewhat baffled, I said “Sir, I am not a journalist.” He cut me short, “we are training journalists. You go and see Mahmood Hasan, General Manager of Dawn, day after tomorrow,” adding after a brief pause, “now that you will be a journalist apply your mind to the subject before you, honestly and objectively; do not grudge credit where it is due and do not hesitate to criticize even if it is Mohammad Ali Jinnah. If you make a mistake it should be an honest mistake you should own it up immediately.”

Then he left the room and I came out quite nervous. Khursheed asked me what had happened. I did not tell him the whole thing but only that the Quaid had asked me to go and get training as a journalist in Dawn. He said, it was very good and he rang up Mr. Mahmud Hasan and informed him about me. I went to see him the next day and he appointed me Apprentice Sub-Editor in December 1945. I was taken to the newsroom and introduced to the Editor of Dawn, Mr. Altaf Hussain, who had become the Editor of Dawn in October 1945, replacing Pothen Joseph.

Here I may mention that Mr. Altaf Hussain was previously Director of Information in the Government of Bengal and used to write a column in a newspaper, The Statesman, under the title “Darul Salam”, with pen name ‘Shahid’. The writer’s identity was highly secret. The whole column used to discuss the problems faced by the Muslim community and the Muslim League efforts to rescue them from their plight. It is a long story how the Quaid established the identity of the writer and got him released through Bengal Chief Minister Mr. Suharawardy, to appoint him as Editor of Dawn.

Now reverting to my introduction, after meeting the Editor I was introduced to Mr. Hussain the News Editor of Dawn. He was brought to Dawn from the daily Pioneer published from Lucknow. At that time there were five people in the newsroom: one Muslim, two Christians and two Hindus. I sat down and one of them used to guide me how to edit news reports. Till the end of February I worked during the day.

Hussain Sahib used to come at 9.00 AM and would be there till 9.00 – 10.00 or even 11.00 PM. He did not allow me to maintain any duty hours. I was supposed to come at 9.00 AM and some time sit there till around 9.00 PM, sometimes he did let me go at 5.00 or 6.00 PM. Early in March I was shifted to night duty and I was going to the office at 9.00 PM and worked upto 3.30 or 4.00 AM. In the mean-

time, some more apprentices came, they were being trained and gradually the Hindu and Christians staff started quitting. Mr. Hamid Zuberi, who was also brought in from The Pioneer was a Sub-Editor, the senior most amongst us, and his job was to train apprentices as Sub-Editors.

I was rotated between various assignments on the desk and reporting. The News Editor, Hussain Sahib, would go through the entire dak edition and city edition, mark out mistakes, pointing out what could be better headlines, what stories should have been better displayed and what items deserved front page or back page or an inside page. There was not a day the edition incharge was not rebuked for not correcting the mistakes of Sub-Editors in his shift.

It was the month of September or October, while I was incharge of city edition it so happened that the Unionist Provincial Government banned the sale and distribution of Dawn in the Punjab.

Here comes my extra-journalistic assignment. The Punjab Muslim League leaders sent a request to Mr. Altaf Hussain that Dawn should be brought to Lahore somehow. I was assigned to go and meet Mr. Mumtaz Daultana in Lahore. I put in about 10 or 20 copies of Dawn in my suitcase and covered them with my clothes and embarked on my first visit to Lahore as a smuggler. There I met Mr. and Begum Daultana at their house. I was also introduced to some other Muslim League leaders and their wives. Two hours before I caught the train back to Delhi, Begum Daultana introduced me to two other ladies; unfortunately I don’t remember their names, but they were prominent Muslim League leaders. It was decided that Begum Daultana herself or one of these ladies would be seen standing about a mile or two miles away, from Lahore Railway Station. I should throw out at least 30 to 50 copies of Dawn in bundles from the running train for them to pick up. Those Dawn copies, I was later told, were sold in Lahore at a price of Rs. 10, 20 or even 30 each and all that money went to Provincial Muslim League fund. This continued for about two weeks until the ban was removed. During that period I had an opportunity to meet the firebrand Editor of Urdu newspaper “Zamindar” Maulana Zafar Ali Khan, a leading figure of the Khilafat Movement and non-cooperation agitation, and Nawa-e-Waqt Editor Mr. Hameed Nizami. Unfortunately nobody remembers the “Zamindar” and his Editor to say nothing of the services rendered by him to the cause of Pakistan. When I was made a Reporter. I asked Hussain Sahib what would be my beat. He said, Reporters have no beat. “All Reporters are Reporters and whatever story one can get from anywhere one should write it and submit it.” I said sir, but you assign the reporters to different sectors. He said, “yes but that does not mean that their sector was their monopoly.

Reporters should inform each other about the stories they pick up so that the stories are not duplicated.”

One of my first tasks as a reporter was to go to Maulana Hasrat Mohani to check with him a copy of a report being filed on a speech he had made at Delhi. The report stated that the Maulana was telling some youths how to make a Molotov cocktail bomb. Upon being told that I had come from Dawn, he launched into a tirade against the Editor of Dawn. I walked out and protested to the News Editor that why he had sent me to such a violent person using such abusive language. I was told: “a journalist has no ego until his work is done. Go back and finish the task you have been given.” I went back to the Maulana’s residence. He again got angry: “You have come back”. I said: “Why are you angry with me. I am just doing the job entrusted to me.”

Another interesting incident of my reporting stint, which has a historical bearing also, came in April 1946. There was a Muslim League legislator’s convention in Delhi and I went to cover it. The Standing Committee meeting was to take place at 11.30 am while the General Body meeting was to take place at 3.00 PM. As a news reporter I did not know it was the standing committee in session. I went and quietly sat in the back row. The Quaid-e-Azam came everybody greeted him and he sat down. He said “Gentlemen I could not sleep last night. We shall achieve Pakistan but my fear is that because there is a history of division of Bengal…” Now before the Quaid-e-Azam could complete his sentence Mr. Khwaja Nazimuddin said, “Mr. Jinnah, if

Bengal is divided on that basis, there is nothing in East Bengal except the city of Dhaka and the Commissioner’s Residence. Economically East Bengal would not be a viable state and Indian Hindus will occupy it in a short time”.

Just at that moment one of the members of the Standing Committee noticed my presence there and said to me, “what are you doing here?” Quaid-e-Azam also looked at me and said, “You are not supposed to be here.” I left obligingly.

Later I learnt that a sub-committee was formed with Choudhry Khaleequzzaman Sahib as convener.

Now it should be remembered that the Muslim League resolution of 1940

None of them was ever printed and I never had the courage to ask him for his views on the notes that I submitted to him.

In the month of October I submitted an Editorial on “Beggary is a vocation in India and has nothing to do with poverty.” That night I had not seen the editorial page proof. In the morning when I got up and found my editorial printed, in Dawn, I tried feverishly. When I went to the office as usual for night duty at 8.00 PM, Hussain Sahib said, “what are you doing here, get out”. “Sir, what have I done? Please forgive me,” I cried. He said, “You are no longer a Sub-Editor; you are now a leader writer. Go and see Mr. Altaf Hussain in the morning

demanded ‘Muslim States in the North East and North West of the Sub-Continent.’ In the resolution passed in 1946 at the Muslim League legislators’ convention the word ‘States’ was turned into a singular word as the resolution stated that ‘Muslim State in the North East and North West of the sub-continent shall be Pakistan’ Mr. Suhrwardy had not been able to attend the morning session as his train was late. He was briefed by some Muslim Leaguers at Ghaziabad Railway Station, a short distance away from Delhi.

The next session of the convention was to take place at 3.00 PM. I went to the Railway Station to receive Mr. Suhrwardy. Journalists from other newspapers were there too. He was asked questions about Pakistan. He said “We shall have Pakistan, nobody can stop us from achieving Pakistan, and we shall demand a Railway Corridor between East Pakistan and West Pakistan”.

Before this day nobody had ever heard the nomenclature East Pakistan. Later on he was asked to drop the demand for a Railway corridor.

I continued as a Reporter till June 1946 before going back as Edition In-charge. It was the month of July or August, Mr. Hussain one day asked me: After bringing out the Edition you go and sleep, what do you do when you get up. “Sir, I meet people; go here and there.” He said: “Thus you waste your time. Why don’t you write Editorials?” I said sir, how can I write an editorial? You tell me on what subject I have to write.

“Don’t be silly,” he admonished, adding “don’t you read comments on various news items you edit for the paper. Write down those thoughts and that is the editorial.” After a day or two he reprimanded me for not submitting an Editorial. Somehow on every second or third day after that I gave him a short note for about two months. He never read them in my presence and said nothing to me.

and about some time in November I became Assistant Editor of Dawn as an Editorial writer.

As the Congress conceded the Muslim demand for Pakistan, the British Government announced the June 3 Plan. Here I am not going into the details of the Plan, Quaid-e-Azam summoned Mr. Yusuf Haroon who was member of the Muslim League working committee. He had planned the publication of a newspaper, Pakistan Herald, from Karachi even before the June 3 Plan was announced. The Quaid told him that Dawn must come out from Karachi and the Herald press would be utilised for this purpose. Mr. Yusuf Haroon, then decided not to bring out Pakistan Herald even though the whole staff had been appointed for it.

Mr. Haroon was also told that the Editor, who would not be issued any instructions by the management, would define the policy of the Paper.

When the Muslim League refused to participate in the Interim Government headed by Pandith Jawaharlal Nehru as the Congress was not willing to part with the Home Department, I carried a message from Mr. Zahid Husain, who was a friend of my late father, to Liaquat Ali Khan sahib to take the Finance Portfolio.

Liaquat Ali Khan’s budget speech was prepared by Zahid Chacha and Mr. Ghulam Mohammad. The budget was a bombshell. It was aimed at taxing the Hindu Banya who had been financing the All India Congress Party over the years. The budget increased the tax on income and at the same time removed the Salt Tax - a popular move with the Congress rank and file.

Mr. Altaf Hussain and I were transferred from Dawn Delhi to Dawn Karachi. I was assigned the task to prepare the Pakistan Independence Day Supplement. Mr. Altaf Hussain came along with the Quaid-e-Azam Mohammad Ali Jinnah to Karachi on 7th of August 1947 but I was still in

Delhi getting the supplement printed.

I arrived in Karachi on 10th of August 1947 with the supplement and was received by Saeed Abdullah Haroon.

Here I would like to mention certain events that I was witness to during the course of my career as a journalist.

In a meeting with some politicians, the Quaid was questioned about the constitution of the country.

He said, “the Government of India Act 1935, is the product of the best legal brains of England and India. All that is required is to amend it for an independent sovereign state.”

I learnt how to analyse the budget from Mr. Zahid Husain who was a classmate of my father. My father also knew the Finance Minister Mr. Ghulam Muhammad and I had access to him. I can recall that he was very angry with Mr. Chaudhry Mohammad Ali on his return from Hyderabad Daccan about the expenditure on the Dakota plane refitted with tanks to take the Quaid to Dhaka without a stopover in India. He wanted the issue to be discussed in the Cabinet Meeting. To everyone’s surprise word came that the Quaid would himself preside over the meeting.

The Quaid instead of following the agenda took up the item of expenditure on the plane first. He said “Gentleman, I would like you to read the Government of India Act, 1935. You enjoy your ministerial position during my pleasure. As far as I am concerned this meeting is over”.

And he threw his file towards the Finance Minister and walked out.

Raja Ghazanfar Ali grabbed Mr. Ghulam Muhammad by the collar and was ready to hit him for insulting the Quaid. The Finance Minister was asked to go to the Quaid with a written apology. The Quaid refused to meet him and just put in a line across the request. “Do not waste time on petty matters, you have more important work to do.”

I can also recall when Mr. I.I. Chundrigar as Commerce Minister was called by the Quaid, to explain the grant of an import permit to a relative or a family friend who was in business. The Quaid said: “Chundrigar, I made a mistake in making you the Commerce Minister. I should have taken into account your family’s business connections. The permit issued by you was perfectly within the policy. But you should have sent the file to either the Cabinet Secretary or the Prime Minister instead of approving it yourself. I suggest you resign and I will send you as Ambassador to Afghanistan.” Such were the standards of public life and official propriety the Quaid would have set.

Quaid-e-Azam announced the foundation of Refugee Relief Fund as a large number of refugees were arriving. He asked the countrymen to make donations and send them to Habib Bank. He asked Mr. Altaf Hussain that Dawn should help in the collection for the fund. Altaf Sahib came and told me about it and I said we could do the same that Hindustan Time and the Times of India did when Gandhi and Nehru asked for donations. These newspapers asked their readers to make contributions to the fund set up by them and they would publish their names as an acknowledgement. We could do the same.

Then we went to the Quaid and Mr. Altaf Hussain presented this proposal to him. He asked whose idea was this. Altaf Hussain pointed at me and then the Quaid said, “Listen young man, never touch this nation’s money. You belong to a people who stigmatized Mohammad Ali (Johar) as an embezzler. I never ask them to send me money. I tell them to send it to Habib Bank If anybody sends it to me I redirect it to Habib Bank.”

After two days I proposed to Mr. Altaf Hussain that we should hold a Mushaira. He smiled and said go and propose this to the Quaid. I went to him and made my suggestion. He said I believe you spend more than you collect in such functions. I said Sir, please let us know what we should do.

He was quiet for about two or three minutes and then said, “Alright you will not spend more than 20 rupees on any item without sanction from me.” I was takenaback. However, we held the first Dawn Mushaira in early 1948. Mr.Ghulam Mohammad presided over the Mushaira. We collected over Rs. 40,000. Total expenditure was about Rs. 1200. The Mushaira was held in Sindh Madressah. I went and presented the cheque to Quaid-e-Azam with the list of expenditure on about 10 or 11 items.

Seven days later, Mr. Raza, Quaid-e-Azam’s Secretary, rang me and said, “Send me 21 rupees.” I said

“what happened.” He said, “you did not give the receipt and said never mind I have paid the 21 rupees.” I said no Sir I am coming. Then he put the papers before me. Quaid-e-Azam had sent the list of 10 or 11 items to Auditor General of Pakistan. The Auditor General’s report praised our efforts to collect that much money at that time, keeping the small expenditure, in check. He wrote that receipts do not support expenditure of 21 rupees.

Quaid-e-Azam had read the report and noted to ask Zuberi to pay the money.

I paid the required amount.

About a month and a half later there was a function in the Governor General’s House. I was also there. The Quaid saw me. He indicated to me to come near him. He said, “Well done! Do it again and collect more money.” Sir, I said, “You fined me 20 rupees.” He said why? I repeated to him the whole thing. He said, “Why didn’t you ask for the receipt?” I said, “Sir, this was mostly for Cord (sutley) and Gum (lai). The sellers of these items are illiterate.

They don’t give receipts.” He said, “Don’t be silly. How do they keep their accounts. If they can keep their accounts they can give receipts, and if you people insist for receipts they will learn documentation and pay taxes.” This was 1948, today we are struggling to document the economy, and the retailers pay a flat turnover tax instead of a real tax on income.

Here I remember another incident – the Quaid was ill in Ziarat.

Mr. Altaf Hussain gave me a letter and asked me to go to Ziarat and give it to him in his hand. He will see you about 4.30 PM and a car will take you from Quetta to Ziarat. Till today I don’t actually know what that letter contained. However, I went to him as arranged and for a while I was with him. His Naval ADC came in and gave him a pair of socks and also the receipt. The Quaid extended his hand for change. The Naval Officer said the shopkeeper did not have 4 annas change. The Quaid said, “Listen young man, we Musalmans in general, and youngmen in particular do not know the value of money. A paisa saved today is two paisas tomorrow, four paisa after that and so on and so forth. Because of our addiction to living beyond means and borrowing money we lost our sovereignty over this sub-continent.”

On my first visit to East Pakistan as a member of a journalist’s delegation, we were invited to a dinner with the Chief Secretary, Mr. Aziz Ahmad. I noticed that while our car was allowed to be driven into the compound of his residence and we were dropped in the portico, the provincial ministers were required to get down at the gate and had to walk up to the portico. His haughty attitude towards the Bengali political leadership meant a Brown Sahib replacing the White Sahib. On my return, I wrote in Dawn how resentful were the East Pakistani ministers with the attitude of the Chief Secretary. The Prime Minister soon transferred him from East Pakistan.

I visited India for the first time after partition with Shaheed-i-Millat Liaquat Ali Khan. I wanted to file a report from Delhi but was denied permission so that there was no news leakage. I used my old contact at the Viceroy’s Lodge, which was now the Governor General’s House and managed to send a report to Karachi.

The second Governor of the State Bank of Pakistan Mr. Abdul Qadir complained to me that the Government was not keeping its expenditure in check and forex reserves were depleting. I went to the Finance Minister Mr. Ghulam Muhammad and said: “You keep on harping on a surplus budget while the kitty is empty.” He called Mr. Qadir and said: “What is Zuberi saying”. I could not hear what Mr. Qadir said in reply. But he did thank me later on for making the Finance Minister realise the need to keep the expenditure in check.

While in Dawn at the end of 1950 I proposed that we should bring out an Evening Paper. Altaf Sahib said, “go and talk to Mr. Haroon”. He was not prepared to go in such a venture, as Dawn itself was not earning enough money. My colleagues in Dawn and I at that time were very enthusiastic about this venture and sought permission from Altaf Hussain to let us bring out an Evening Paper by ourselves under the aegis of an organisation – a sort of unregistered partnership – that we name “Newsmen Combine.”

Continued on next page

Business Recorder | Monday April 27, 2015 | 31

50 years of putting the economy first Continued from previous page It was decided that all members of the Editorial Staff would be share holders of this venture and the percentage of shares allotted to each member was according to their salaries. It was to be deducted in instalaments from their monthly pay.

Two or three months after this collection from the salaries we had enough money to buy newsprint for the publication of the daily Evening Star and it was mentioned under the title of the paper “Asia’s first newspaper owned and run by newsmen”.

However after about a year we were asked to pay the printing dues of the Pakistan Herald Printing Press. We did not have that much money because whatever we were getting through monthly deduction from salaries was spent on the purchase of newsprint for the circulation was increasing. So the paper was sold to the owners of the Pakistan Herald Press.

One day I was surprised to see an armed guard with Foreign Minister Chaudhry Zafarullah Khan. I inquired about the guard from Sir Zafarullah. He said: “Zuberi Mian he has been posted so that in case somebody kills me, he would kill the assassin so that nobody would know why I have been killed.” These words turned prophetic when Prime Minister Liaquat Ali Khan was assassinated at Rawalpindi.

I came to know from my Editor, Mr. Altaf Hussain that the Muslim League leadership from East Pakistan had decided to seek the Prime Ministership in October 1951 after Mr. Liaquat Ali Khan’s assassination. I went with Altaf Sahib to the Governor General, Khawaja Nazimuddin. I pleaded with him that he was not suited for the job and his simplicity would be exploited.

Instead, I argued, he should remain the Governor General and appoint Sardar Abdur Rab Nishtar as the P.M. Mr. Fazlur Rahman dissented with me and proposed that the Finance Minister be put in golden chains and be made the Governor General. I also impressed upon Khawaja Sahib that his decision to elevate the Secretary General, Finance, Chaudhry Mohammad Ali to the office of the Federal Finance Minister was not right, as every bureaucrat in the country would henceforth aspire to be a minister instead of accepting Federal Secretaryship as the end of the career line. I was told that “we have heard you and now you can leave”. Both these decisions have had historical repercussions on our country.

When I told to my brother-in-law, Commodore Khalid Jamil at the Dilawar Naval Base about Ghulam Muhammad being made the Governor General, he said, “I bet Ghulam Muhammad would be the one who would dismiss Nazimuddin”. I also met Khawaja Sahib when he was due to leave on a train journey for up-country, the red carpet for the P.M. was being rolled back. He very innocently informed me, “Zuberi, I have been dismissed”.

The game of musical chairs in Karachi started with Ambassador of Pakistan to the US Muhammad Ali Bogra being appointed Prime Minister. Governor General Ghulam Muhammad refused to resign when he suffered a stroke. He was soon eased out of the office and I witnessed Mr. Iskandar Mirza slapping the paralyzed old man and pushing him in the car in the portico of the now Sindh Governor’s House.

When Feroze Khan Noon was the Prime Minister, it was being debated in the Cabinet whether to renew the lease of Gwadar to Oman or not. He came to know that I was publishing the story. He called me and offered me duty free import licence as a bribe. I turned it down and said, “ Prime Minister you have put a very small price for my honesty”, and I walked out.

In the early hours of October 7, 1958, I received a call from the President House to attend a press briefing. Soon after Altaf Sahib called me to confirm that he had received a similar invitation. Since he did not drive and his Chauffeur was not available at that ungodly hour I offered to pick him up. We went together and near Rex Cinema we saw Army tanks on the streets of Karachi. Altaf Sahib asked me to pull to the kerb and said: “Do they intend to arrest us?” I said, “Sir, if they wanted to do that they would have sent soldiers to your residence”.

When we assembled in the President House, Iskandar Mirza informed us that the Government and the Assembly had been dismissed. The constitution was abrogated and Martial Law imposed, and that General Ayub Khan was appointed CMLA who would tell us the rules of the game. He was walking out after the short speech. At the door, he turned round and pointing towards the Editor of Dawn, he said: “Altaf, you behave yourself”.

Just twenty days later, I happened to drop in the Naval residence of Commander C.S. Ahmad for a leak. I was in the bathroom, which had a window towards the garden. I heard Air Commodore Maqbool Rab hollering “I am in the air and you are on the Sea” and the

President wants us to arrest the Army Chief. He had been sent to seek a Naval detachment to arrest General Ayub upon his arrival at the Mauripur Air base. When I came out I asked Air Commodore Rab what had happened? He held my hand and said, “You are my guest for a day.” He would not leave me and I accompanied him to the Mauripur Air Base. I was allowed to ring up Mr. Altaf Hussain and inform him that it would not be possible for me to attend the office today due to some important business. I stayed there and had lunch with them. At about 4.30 PM General Ayub’s plane arrived and as he got out of the plane, Air Commodre Rab saluted him and said: “Sir, I have been asked to arrest you by President Iskandar Mirza”. General Ayub smiled and said, looking towards me standing at a distance, “You have brought Zuberi to publish the whole story.” Commander C.S. Ahmad explained to him about the problem he faced. General Ayub accompanied us to the Defence Department on

Ingle Road. There he met Lt. General Azam Khan and informed him of the situation. General Azam lost his temper, he was asked to cool down.

Later with some troops he went to the President House and I also followed him. He kicked the bedroom door open of the President and ordered him to come out. The President’s second wife – an Iranian divorcee – Naheed Mirza could be seen putting on her dressing gown over her night clothes. Iskandar was ordered to change his clothes. He was then pulled out, dragged and finally kicked in the same portico where he had slapped Ghulam Muhammad.

To our surprise, before Iskandar Mirza could leave the President House the British High Commissioner and the US Ambassador in Karachi confronted us. They pleaded to allow him to go into exile in the UK. General Azam was not ready to listen to them and said: “This is not your concern, how did you manage to come to the President House”? However, there were a lot of arguments and explanations and ultimately a Colonel was asked to take them to General Ayub. It was decided that Iskandar Mirza be allowed to go into exile after a written undertaking given by him and the British High Commissioner and the US Ambassador that Iskandar Mirza would not take any part in politics or issue any statement. Unfortunately the Qantas flight to London was delayed by some hours and Mirza had to be sent to Quetta until the Qantas flight arrived in Karachi.

General Ayub presented his first draft of 1962 Constitution to newspaper Editors in Muree. I asked why the word Islamic had been dropped before the Republic of Pakistan. Secondly, I also objected to the change from Quran and Sunnah to just in accordance with the tenets of the Quran. He was quite annoyed at my objection but I persisted that the injunctions of the Quran cannot be fully comprehended without reference to the Sunnah. He consulted Mr. Manzur Qadir who agreed to incorporate both the changes.

In 1958 General Ayub assumed power and declared himself the Head of State. In Dawn we took the stand and wrote editorials opposing this move. Our editorial argued that ‘Army rule cannot be a substitute for democracy’. This opposition was continued and the owners of Dawn were asked to stop us from publishing anti-government articles and editorials. General Ayub was informed that when Quaid-e-Azam sent us from Delhi to bring out Dawn from Karachi they were told in writing that the Editor would conduct the policy of the Paper. The management had no authority to interfere. It was then that a conspiracy was hatched to oust Mr. Altaf Hussain and myself from Dawn.

Somehow that conspiracy succeeded and by 1964 we were out of Dawn, one after the other. Mr. Altaf Hussain was offered ministership and he was made the Federal Minister of Industries. Later on, I was offered an Ambassadorship, which I did not accept. Then I was offered the Editorship of the newspaper Morning News. Mr. Zamir Niazi had also heard of the offer and he came to me and asked me, when was I taking over. I said, I had refused and he was surprised. I was also offered the Editorship of Pakistan Times which also I did not accept. However, some of my journalist colleagues particularly, Mr. Zamir Niazi, Kazi Abrar Siddiqui, Mr. Zamiruddin Ahmed, insisted that I must not leave journalism. It’s a long story and at their persuasion I decided to do something on my own. I said, “We will work together again then, let us bring out an illustrated Urdu weekly?” At first they did not agree and they said you must bring out an English Paper. I said, “How can we compete with

Dawn. It is a national newspaper and I have given nearly 20 years of my life to this paper”. Kazi Abrar said, “Then let us bring out an Evening paper”. I said, “How is it possible, I am the one who brought out Evening Star, managed and run by journalists, while being a senior Assistant Editor in Dawn”. Somehow they agreed to an illustrated weekly and a declaration was obtained in the name of “Absar”.

But even a modest venture required money and I did not have that much at that time. I sought a loan from the Industrial Development Bank of Pakistan (IDBP) and placed orders for machinery. A great discussion followed with my colleagues and ultimately I decided to bring out a business / financial daily and then the “Business Recorder” started coming out in April 1965.

I was in Europe when the 1965 war broke out. All flights to Karachi were suspended. I met the Pakistan High Commissioner in London, who arranged for my return on the flight bringing the UN Secretary General U Thant to Pakistan on the condition that I would brief the Pakistan Ambassador in Tehran during the stopover about my assessment of what U Thant would be proposing. I had a long chat with Mr. U. Thant and reported to the Ambassador that the US under President Johnson had decided to play a second fiddle to the Soviet Union and we would be offered a ceasefire and it would be the Soviet Premier Kosygin who will be calling the shots.

My sons – Wamiq and Arshad - were active in the simmering agitation in the student community.

They informed me that Mr. Bhutto had been dismissed and they were planning to be part of the big welcome to receive him at the Cantt Station in Karachi. I called Mr. Zulfiqar Ali Bhutto in Islamabad. He said, “ I have not resigned but have taken medical leave for operation on an abscess behind my ear”. I met him two days later at 70 Clifton. Mr. Bhutto cried at the treatment given to him by the man whom he called “daddy”. I told him, “Zulfi time is on your side and you should not feel disappointed as you would emerge as a leader in your own right”.

Soon after General Yayha took over as President. At the first press conference he walked into the auditorium and was angry at his team for the television cameras and the lights placed for the meeting. He said, “What is this Tamasha? Remove all this”. I said to a senior Secretary of the Government, “This man looks to be different and I hope you all will not lead him up the same path as you did Field Marshal Ayub”. He countered me by saying, “Haven’t you seen the Esso advertisement with a tiger roaring and flexing his muscle and then being put in a bottle with the caption - Put a tiger in your tank.” He did meet with the same fate –

and was quick to dispatch Vice President Fakhruddin Ali Ahmed who managed to reach Rabat, the very next day with the Indian delegation.

They were shocked when told that the invitation had been withdrawn.

The Times of India came out with a cartoon showing a shoe mark on the back of a black sherwani with the caption “They are back from Rabat”.

In my one to one meeting with General Yayha I was convinced that he was sincere about holding the general elections. Afterwards, when I realised that the West Pakistan bureaucrat - military combine would

economy. Using that as a peg I wrote an Editorial in Business Recorder titled “Give him the boot or he will ruin the economy”. Some months later in the middle of the night I received a telephone call from Mr. Bhutto saying, “Zuberi I have given him the boot. “Groggy from sleep I simple mumbled “Given whom the boot” to which he responded, “Were you sleeping “I ignored the question and he hung up leaving me confused.

In the 11.00 am news bulletin of Radio Pakistan it was announced that the Finance Minister had resigned for health reasons. The interesting aspect of this story is that the Dr. Mubashir Hasan was attending a conference in Cairo, Egypt, at that time.

At the first televised press conference of General Zia-ul-Haq, I asked him, “You have talked about patriotism and shunning provincialism. But the job application form for government service instead of requiring where his candidate was born also makes it mandatory to provide information about “where your father was born? After another fifteen years will the applicants be required to state where their grandfather was born.” He issued on the spot instructions to remove this requirement but the bureaucrats worked around it and replaced it with the question: “What is your mother tongue?”

General Zia-ul-Haq one day asked me; “Zuberi Sahib, you knew the Quaid. What was in his opinion the Ideology of Pakistan.” I said, “Sir, I need to write to respond to your question, but I am afraid your censor people would not allow it in print”. He turned around to his Information Minister, Lt. Gen. Shahid Hamid (Retd), to see that the censor did not use the knife on my Editorial. I came back to Karachi and wrote about the four precepts that the Quaids had given to us. (A) Pakistan would not be a theocracy (B) Muslims will live their lives in accordance with the Quran and Sunnah (C) Parliament will be Supreme. And, the fourth precept I wrote, he gave us while attending a reception in his honour by the Muslim Armed Forces Officers in Delhi at the residence of the then Lt. Col. Shahid Hamid, now the Information Minister. There was a colonel in uniform who walked up to the Quaid and said Sir, there are better British officers than the ones selected by you.

We wish you had sought our advice in the matter. Quaid-e-Azam pulled the officer by the button of his tunic and said: “Let me make it perfectly clear that in Pakistan you will be governed by a civilian authority and their orders would have to be carried out without demur. If you don’t like that, don’t opt for Pakistan.”

When General Zia-ul-Haq visited Bangladesh, and, Maulana Sattar Edhi presented Ambulances that would be used for emergency services, the Bengali gentry in the President House, Dhaka, became quite emotional and complained to General Zia, “You have ditched us.” I reminded them that it was they who had first opted in and then opted out of the Federation.

not be willing to hand over power to Mujib-ur-Rahman and Mujib himself would feel uncomfortable ruling from Islamabad I wrote an Editorial in the Business Recorder “Let us separate as friends.” I recalled that it was the Bengali leadership, which had advocated for a Federation between the two wings in Delhi. They must be allowed to exercise the option to opt out now. Mr. Bhutto called me and was quite upset at the editorial.

Business Recorder took a principled stand against the nationalisation policies of Mr. Z.A. Bhutto’s government. That was long before, Thatcherism made privatisation and denationalisation fashionable. Mr. Bhutto informed me at a private dinner that his Finance Minister, Dr. Mubashir Hasan wanted Business Recorder to be banned. He asked me to see the summary lying with the Information Secretary Mr. Nasim Ahmed. In response I simply said I would. The Finance Minister a few days later issued a statement extolling the virtues of a mixed

General Zia was due to visit Sri Lanka after Bangladesh and then proceed on a State visit to India. Some of us journalists where asked to skip the Sri Lankan portion of the visit and proceed directly to India to assess the mood of the Indian leadership. We met Prime Minister Rajiv Ghandhi who accused Pakistan of operating training camps for Sikh dissidents. I countered by saying: “Sir, if you are so sure where these camps are located, please form a joint journalist committee from both countries and we shall proceed this instant to Pakistan and go directly where allegedly these camps are located and we will expose the Pakistan Government”. He did not accept my offer but did change the subject.

The Editors were called by General Zia in 1984 where he promised us about holding the elections. I happened to meet Mr. Fatahyab Ali Khan upon my return to the hotel. I told him I have it from the horse’s mouth that he would hold elections.

Fatahyab said, “Zuberi Bhai, why don’t you believe me when I say he will not

caught between the army leadership, bureaucracy and the two leaders that had emerged as a result of the elections.

I accompanied General Yayha to the first Islamic Summit in Rabat. The Indians, through Algeria and Egypt, managed to convince others that India having the third largest Muslim population in the world must also be invited to the OIC. It was contrary to the principle laid down for membership of the OIC. I went to General Yayha who was taking his afternoon siesta in the hotel room and said, “Sir, let us pack up and go home. We must walk out of the Summit if the invitation to India is not withdrawn.” We went into a huddle with other members of the delegation, which included Lt. General Ghulam Omar (Retd) and foreign secretary Sultan Mohammad Khan . A letter was sent to King Hassan of Morocco, the host, about Pakistan’s objection and our decision not to be a member of the OIC if India was made a member. India knew before hand about the Algerian/Egyptian move

After the general election held in November 1988, I wrote an Editorial calling on Benazir Bhutto to invite Nawaz Sharif to join her in a government of national unity. It was the only way, I wrote, to keep the army in the barracks. All my colleagues opposed its publication, saying “You can’t mix oil and water.“ I had to overrule them to get it published.

In hindsight I only wish both the young leaders had heeded my advice. hold elections and instead you believe him”. I said, “Because he says his namaz and you don’t”. Mr. Irshad Ahmad Haqani surprisingly reproduced this humorous conversation with the youngster in totality in his column in Jang – quoting me verbatim.

To my surprise General Zia instead of holding the elections called for a referendum. We were again called to Islamabad to hear his explanation. I told him about my conversation with Fatahyab and how embarrassed I felt. On his own he added: “So now you will say he says his namaz and still lies”.

I can say without any hesitation that Mr. Muhammad Khan Junejo was by far the most honest Prime Minister in the post Ayubian era. We were returning from a state visit to the Philippines and saw the carpet for the Prime Minister being rolled off at Chaklala Airport, Rawalpindi, in the same manner as was done nearly three decades before at the Cantt station, Karachi, when Prime Minister Khawaja Nazimuddin was dismissed by Governor General Ghulam Mohammad.

After the general election held in November 1988, I wrote an Editorial calling on Benazir Bhutto to invite Nawaz Sharif to join her in a government of national unity. It was the only way, I wrote, to keep the army in the barracks. All my colleagues opposed its publication, saying “You can’t mix oil and water.“ I had to overrule them to get it published. In hindsight I only wish both the young leaders had heeded my advice.

It had become a common joke among my senior colleagues that some eventful change would be taking place when I am abroad. When the 1965 war broke out I was abroad.

Mr. Bhutto was hanged I was not in Pakistan. When General Zia’s plane crashed I was on a trip. And, when Ghulam Ishaq and Nawaz Sharif stepped down I was again not in the country. The last October 12, 1999 change also took place in my absence.

The noble profession of journalism has now become a mere employment. But there is still hope as the press in Pakistan has managed to fill the vacuum of an effective opposition to check the excesses of men in authority. Let us hope and pray our children would do a better job.

The spirit of the Pakistan movement is now a distant dream.

We have lost our sovereignty to multilateral and bilateral lenders and donors. The ‘land of opportunity’ during the first two decades has become the ‘land of missed opportunities’. Meaningful change in the lives of the poor has yet to happen. We all are to blame for not living up to the ideals of the founding fathers despite every thing that this country has given to us.

32 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Messages M. I. Akbar Chairman

Akbar Group of Companies

Mirza Shakil Baig Managing Director

Bakri Trading Company (Pvt) Ltd

It gives me immense pleasure to congratulate the country’s premier financial daily on successfully culminating half a century of unbiased, unfettered and comprehensive coverage of the news and events that shape our economy. Through the years, the Business Recorder has been the benchmark of accurate and timely information that businesses, large and small, have come to depend upon to stay abreast of local and international happenings that define and drive decision making.

But this newspaper’s contribution to the economy extends far beyond the role of a messenger as it has actively advocated policies that are sustainable and advantageous for national prosperity. There is no doubt in my mind that the Business Recorder has always worked diligently to promote and protect national interest and the services of its men and women in oiling the wheels of the economy through thick and thin are as commendable as they are irreplaceable.

It gives me immense pleasure to know that Business Recorder newspaper is celebrating its 50th year. On this auspicious occasion, I would like to congratulate the Management and the team of Business Recorder and AAJ News Group for providing factual and timely information to the business community that has facilitated in effective decision making. Covering news from all industries, Business Recorder and AAJ News Channel is a continuous source of information providing up-to-date coverage of events that are unfolding in today’s dynamic environment. We wish them the best in future and are confident that the same quality of news and entertainment will be maintained in times ahead.

Shams-ul-Qayyum Managing Director Bank of Khyber

Business Recorder is Pakistan’s first financial daily that covers financial, commercial and business news in the country and around the world. For the last 50 years, the newspaper has set new benchmarks in financial news coverage and fostered the highest values of responsible journalism. Daily Business Recorder has earned its credible reputation through its authenticity and accuracy.

Active in print media. Business Recorder is the most reliable source of economic information; therefore it is highly respected by corporate leaders, Bankers, financial experts, industrial investors, public bodies, academicians and decision makers.

Bank of Khyber acknowledges Business Recorder’s contributions in developing financial journalism in Pakistan. We hope that in the wake of a reinforced economy and increase in local and foreign investments, Business Recorder will play a leader’s role in the progress of journalism in the 21st century.

Yacoob Suttar President ICAP

Dr. Navaid ul Zafar Managing Director

Dr Zeelaf Munir Chairperson EMB

Executive Management Board

Sadia Rashid President

Hamdard Foundation Pakistan

Prof. Nisar Ahmed Siddiqui Director

A Golden Anniversary is a significant milestone in the history of any organization. For a media organization this is even more noteworthy, given the dynamic, real time and highly competitive environment of the industry. Business Recorder, Pakistan’s leading financial daily, and the first such publication in the Muslim World, has achieved this milestone admirably indeed. Its untiring work in keeping society well-informed about a wide range of subjects and acting as an effective advocate for sustainable progress is commendable. It is truly a publication with the highest standards of professional journalism.

On behalf of English Biscuit Manufacturers (Pvt.) Ltd. – EBM – I take this opportunity to offer our sincerest felicitations to the management and staff of Business Recorder on the publication’s Golden Jubilee, and wish it the very best for the future. EBM deeply appreciates the challenges the paper must have faced on its 50 year journey, as EBM too has been in business now for over 45 years, rising to be the pioneering market leader in a highly competitive industry What a wonderful milestone 50 years is! No wonder it is called the Golden Jubilee – precious, and cause for much jubilation.

In a world where the reading habit is dropping, in a country where the literacy rate is low, in a city of several million where no newspaper – not even in the vernacular – can claim a circulation of even a million, for a newspaper in the English language, devoted basically (though obviously not solely) to business, to have reached its Golden Jubilee is little short of miraculous! More importantly, it is an undeniable tribute to the excellence of the newspaper.

The founding editor of Business Recorder, the late Mr. M.A. Zuberi, was a veteran journalist and a sound financial analyst. When the former President Gen. Zia-ul-Haq wanted to impose the Islamic banking system in one go, replacing others, Mr. M.A. Zuberi wrote a thought-provoking editorial which helped persuade the president that such a sudden step would jeopardize the whole banking industry of the country. He suggested instituting a dual banking system. His editorial said: ‘We believe it will be advisable to give people a choice to bank according to their likes and beliefs.’

The soundness of the advice is borne out by the fact that his suggested system continues to this day. Fortunately, his sons have proved to be more than worthy heirs.

All connected with the Business Recorder and responsible for it, have every right to celebrate, before dedicating them-selves to the Future Fifty!

My felicitations and good wishes go out to them, along with my prayers.

My heartiest congratulations to Business Recorder team for completing 50 years. Since its inception Business Recorder has being able to maintain its status of Pakistan’s premier financial daily. The Business Record has remained a major source in Pakistan for Global Economic news and views. The webpage of Business Recorder is very informative, update to date and user friendly.

I would like to wish the business recorder team best of Luck in their future endeavors and hope that Business Recorder will also play its part in the promotion of education in the country and to reduce the gap between industry and academia.

Hamdard Laboratories (Waqf) Pakistan

It is indeed good news that daily ‘Business Recorder’ has planned to celebrate the golden jubilee on completion of 50 years of its continuous publication this year.

I am glad that I am asked to express my thoughts on this memorable occasion.

I believe, newspapers, being the engine of awareness and truth, play an important role in streamlining the democratic system.

Highlighting the importance of newspapers, one of the founding fathers and 3rd president of United States of America, Thomas Jefferson remarked: “Were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate a moment to prefer the latter”.

A healthy democratic society requires referees and media is one of those referees which can blow the whistle when it perceives that fouls are being played and some thing is going wrong somewhere in the society and infringements of rules are taking place in the country. Courts accept newspapers’ credible investigative reports in criminal cases and often quote them in their verdicts.

‘Business Recorder’ mostly covers with accuracy the news of business, commerce, finance, foreign trade and industrial activities, which are the back bone of country’s economy. Nation’s growth and prosperity depend on vibrant economic activities.

I think, coverage of business news in a business specific English newspaper promotes the foreign investment opportunities in the country. It is no doubt a national service, which is being done by the daily ‘Business Recorder’.

While congratulating the daily ‘Business Recorder’ on celebration of golden jubilee, I wish may this newspaper grow and develop from strength to strength.

Parvez Ghias CEO

Indus Motor Company Ltd.

Mr. Nadeem Naqvi Managing Director

Karachi Stock Exchange

Kamil H. Mian Chief Executive

English Boot House

I am gratified to lean that the DAILY BUSINESS RECORDER is celebrating the fiftieth anniversary of its founding and I cordially extend to you and your associates in its publication, and the large audience to whom it is addressed, my heartiest congratulations and best wishes for the future.

Reading through the pages of this informative financial daily newspaper one gets a thorough insight into Pakistan’s commerce and industry. International financial reports get a fairly good expose’ on the RECORDER pages. Complete stock market activities are well addressed together with the exchange parity of the rupee with other major world currencies.

Having read BUSINESS RECORDER every day since 1975 keeps me up dated in my business, not to mention the government edicts and other monetary changes, which, unfortunately happens regularly in our country and effects business environment abnormally making DAILY BUSINESS RECORDER a must read every morning.

Now that retail sector has assumed a major player position in the country’s economy, I hope DAILY BUSINESS RECORDER will incorporate more news about retail in its columns.

Lastly, but with no less enthusiasm I congratulate BR again by giving a large measure of their contribution to industry, idealism, and public spirit in the service of our country for another fruitful 50 years as envisaged by its founder.

Nadeem Hussain

Founder, President & CEO Tameer Micro Finance Bank Limited

M. Habib-urRahman CEO

Atlas Asset Management Company

Business Recorder is Pakistan’s foremost English language daily that covers financial, commercial and business news in the country and around the world. For the last 50 years, the newspaper has set new benchmarks in financial news coverage and fostered the highest values of responsible journalism. The English language daily has earned its credible reputation through its authenticity and accuracy. Active in both print and electronic mediums, Business Recorder is the most reliable source of economic information; therefore it is highly respected by corporate leaders, financial experts, industrial investors, public bodies, academicians and influence makers.

Gul Ahmed acknowledges Business Recorder’s contributions in developing financial journalism in Pakistan. We hope that in the wake of a reinforced economy and increase in local and foreign investments, Business Recorder will play a leader’s role in the progress of journalism in the 21st century.

On the Occasion of the Golden Jubilee of Business Recorder, the Indus Motor Company Ltd extends its heartiest congratulations to the Editor in chief, the Bureau Chiefs and their staff. What started as a humble beginning is now a major newspaper of Pakistan, highly revered and referred to by the business community at home and abroad. Business Recorder has, throughout its existence, carried out impressive and extensive research backed coverage of business and political news and has become the newspaper of choice for the business community.

Moving forward, we convey our best wishes and hope that Business Recorder will continue to serve the society with balanced reporting

For the past five decades, the Business Recorder newspaper has been the voice of the economy. It has chronicled the achievements, opportunities and challenges confronted by the country’s businesses. From the fields, farms and mines, to the assembly lines and factories; from shop floors to the floor of the Parliament; this publication has kept those that drive the nation’s economic prowess informed about the world around them, and also taken their voice to the chambers which decide and implement policies that shape our economy.

Business Recorder has continued to evolve and develop as an objective and analytical newspaper with arguably the best investment and business research capability amongst major publications in Pakistan. Page Two has become a must read for busy professionals, investors and business persons akin to the LexColumn in the Financial Times. The Business Recorder Op-ed page provides readers with independent and well-articulated views on current affairs, economic and regulatory policies as well as aspects of the political economy.

To summarise, Business Recorder provides its reads with a broad spectrum of news and views enabling them to make informed decisions.

Since its launch in 1965, as Pakistan’s first financial daily, Business Recorder has played a pivotal role in providing factual and timely information to the business community that has facilitated in effective decision making. Covering news from all industries, Business Recorder is a continuous source of International, local and financial information providing up-to-date information that is unfolding in today’s dynamic environment.

On its 50th Anniversary, I would like to congratulate the Management and the team of Business Recorder and wish them the best in future and I am confident that they will keep raising the bar in times ahead.

The KASB Securities team would like to take this opportunity to congratulate Business Recorder on achieving 50 years of excellence in Financial reporting. The Paper has single handedly brought Finance to the mainstream. We, at KASB Securities, rely on Business Recorder on a daily basis and always refer it to our esteemed clients.

Perhaps even more important than their accurate and timely reporting, is a continuing legacy of thought provoking and insightful articles and editorials that have helped shape the Financial Industry. It has been a pleasure to bear witness to the contribution this fine organization has made over the years. We thank the Business Recorder team for their service and wish them continued success in the future.

Sukkur Institute of Business Administration

For the past five decades, Business Recorder (BR) has been the voice of the Pakistani economy (or Pakistan’s business community). BR has set high journalistic standards by providing prompt and professional coverage of achievements, opportunities and challenges experienced by the corporate sector. BR’s publications have kept decision makers informed about national and global affairs while also providing a platform to communicate their opinions.

BR has upheld the true spirit of journalism and today it stands as an example of bravery and persistence. We, at Atlas Asset Management, wish Business Recorder a joyous Golden Jubilee and we look forward to celebrating many more achievements for more decades to come.

On behalf of the Institute of Chartered Accountants of Pakistan (ICAP), I would like to extend my heartiest congratulations to Business Recorder on their Golden Jubilee. The remarkable strides that the Business Recorder has made in recent years, is truly impressive. I compliment you all, particularly, your dynamic founder Muhammad Ahmed Zuberi.

Both print and electronic media play a significant role in the development of communication in any country. Today, the media, is transforming at an incredible pace. Keeping pace with the change, Business Recorderhas stamped itself to be a trusted source of information for the business community of Pakistan. Through its objectivity and commitment to portray the real picture of economy and valid statistics, Business Recorder has become a reliable journalistic brand of the country.

Business Recorderextends its support every year to the Institute of Chartered Accountants of Pakistan (ICAP) on the occasion of its signature event The CFO Conferenceas media partner for its professional coverage.

Business Recorder gives an in-depth insight and has an eye on the latest global developments which aids to formulate business policies.

I congratulate Business Recorder leadership, both past and present, on this remarkable occasion and sincerely appreciate their continuing support and patronage. I hope that this remarkable history and legacy of Business Recorder would continue to be a guiding source of information for generations to come.

Dr. Amjad Waheed, CFA

Chief Executive Officer NBP Fullerton Asset Management Ltd (NAFA)

Congratulations to Business Recorder (BR) on its Golden Jubilee. The BR is the “Wall Street Journal” of Pakistan giving excellent insight on the economic and political issues facing the country. It covers in depth the investment and business climate of the country, and publishes analysis and comments on sectors and companies. BR Editorials provide intelligent solutions to various economic, political and social issues facing the country.

Reading of BR should be a mandatory reading for those in the business world, and those who are studying business in colleges and universities. I hope that BR will continue to contribute towards development of the country by spreading knowledge, commending the government where it does a good job, and criticizing its policies where it sees gaps in policies.

Business Recorder | Monday April 27, 2015 | 33

50 years of putting the economy first

Muhammad Shoaib Ibrahim Chairman

NBFI & Modaraba Association of Pakistan

It gives me immense pleasure to know that Business Recorder is celebrating 50th Anniversary of its launch. Business Recorder is a prestigious, highly respected and credible financial and business newspaper operating within the industry of print media of Pakistan since 1965. The paper is widely read within the business, financial and other related circles.

Present era is of electronic media consisting of a huge number of channels which gives instant and update news in every minute. In the presence of such a strong electronic media, print media still plays strong role. The importance of newspapers can be gauged from the fact that millions of people across the country wait for the information appears on its pages.

Over the years, Business Recorder has developed a sound reputation within local and international print media industry of providing news promptly with accurate information round the clock from all the important segments of the life. The paper plays a very vital role within the business and financial sector of the country. It keeps update its reader about the latest news and current affairs in varied fields of politics, economics and businesses.

No doubt, the daily publication of various research articles and editorial of the Recorder on different segment of economy provide great support to researcher, analyst and investors for right decision making and also gives valuable information to other stakeholders within society.

The NBFI and Modaraba Association consist of Modarabas, Leasing companies and Investment Banks sector. These sectors are vibrant and progressive component of the financial industry of Pakistan. The Association provides a platform to interact with each other in order to deal with the sectors’ issues and formulate strategies for its consolidation and growth in the context of market challenges and opportunities.

On behalf of NBFI & Modaraba Association of Pakistan and its members, we congratulate the management and entire team of Business Recorder for celebrating its 50th Anniversary from its launch and wish them all the success in their future endeavor.

Mian Muhammad Mansha Chairman MCB Bank

The Late Mr. M.A. Zuberi, a veteran journalist and media icon, will long be remembered as a pioneer in the field of economic and financial journalism in the country. I always admired his incisive assessment of issues relating to the economy of Pakistan, and benefitted greatly from his writings and views. It was under his able stewardship that “Business Recorder” emerged as the leading business and financial daily of the country.

I am Happy to note that Business Recorder is celebrating the 50th Anniversary of its launch. I wish the publication continued success.

Mr. Anwar H. Rammal Chief Executive

Marc P. George Swiss Ambassador

I congratulate the Business Recorder on its Golden Jubilee and wish them success for the years ahead!

Wasim Ahmad CEO

wi-tribe

FIrebolt63

Congratulations. Fifty years is a monumental celebration and an amazing accomplishment itself. It is a time to look back at the good times and a time to look ahead for more and much better achievements.

Ayub Butt, CEO,

ZRG International

Naiyar Manzoor Saifi

On behalf of TCS, I would like to congratulate the management and team of Daily Business Recorder on their 50th anniversary. In my 20 years of association with the newspaper, it has always been my most preferred source of all the latest happenings and up-to-date coverage of events that are unfolding in today’s dynamic business environment. Once again, I would like to commend them on achieving this milestone and wish them the best for maintaining their high quality service in the years ahead.

Director Marketing and Public Affairs

TCS Holding Private Limited

Mian Muhammad Adrees President FPCCI

The Business Recorder is a premier financial daily covering various sectors of Pakistan’s economy including trade, industry, banking, insurance, agriculture and social economics etc. I am delighted to congratulate this august newspaper on the occasion of its 50th Anniversary.

The Daily Business Recorder is not only serving business community but also assisting the policy makers of Pakistan by providing the relevant reliable data and graphics to ease them in making economic and trade policies. Similarly, I am thankful to Business Recorder for conveying the suggestions and problems of the business community to the concerned government authorities.

It is a reflector of the struggles of Late Mr. M. A. Zuberi the worker and companion of the father of the nation Muhammad Ali Jinnah in Pakistan Movement.

On behalf of the business community of Pakistan, I appreciate the team of Business Recorder for serving the nation since long and provide information to the business community and general public as well.

I wish to take this opportunity to congratulate Business Recorder group for having reached the prime age of 50 years.

The Golden jubilee anniversary is a super special occasion not only for the Business Recorder, who are fortunate to celebrate 50 years of success and achievements, but also for their readers and followers.

In the 50 years of its existence, The Business Recorder has been an indispensable part of our lives. Our history could not have been the same without the outstanding teams the Business Recorder produced during all these years; men and women who would go on to make vital contributions to our nation in different endeavors.

The balanced approach of Mr. Wamiq Zuberi in maintaining consistent editorial policies and contents has been second to none.

This has been complemented by the impressive and genuine command of financial data compilation and analysis skills by Arshad Zuberi in producing unmatchable output. The depth of the electronic and technological understanding of Mr. Asif Zuberi has indeed brought the great benefits of ICT efficiency, system reusability and technical process optimization to the group.

Together with your own passions, specializations and skills, you three make a great team that has been delivering the best of the best to the market. You three are role models for everyone who believes in the importance of freedom of expression and unbiased recording and reporting of facts.

Needless to say that it must not have been an easy and smooth journey and the Business Recorder management must have had their share of joys and sorrows, difficult as well happy times, but the fact is that life is like that! Joys and sorrows go hand in hand. But they faced it together, because they had a commitment, they had promised to each other, that they will stand by each other, no matter what situation they face.

Any democratic society appreciates the need for a critical media which keep the public informed of developments and enable society to engage meaningfully on matters that are of public concern.

The Business Recorder continues to empower, inform, educate and entertain its readers and to play a commendable role as a critical but constructive voice as we struggle with the mammoth task of constructing a united, democratic, just and prosperous society.

I am therefore confident that The Business Recorder will continue to promote the ideals of a free and democratic society, providing a public platform to express their opinions, thus contributing to the strengthening of our nation.

Once again, happy anniversary and many happy returns.

Omar Jilani

Managing Director Pak Oasis Global

Faisal Akhtar

Managing Director

BASF Pakistan (Private) Limited

It is a thing of great pride and honor for me to pen down this message to congratulate Pakistan’s biggest financial daily Business Recorder on completing 50 successful years of delivering reliable news to the people of Pakistan. Business Recorder has set examples for the new generation of publications to follow as it has always brought unbiased news to its readers.

Media both print and electronic have a great role to play in nation building. Media should be playing a positive role in supporting the country by presenting an optimistic picture of Pakistan and the people who are trying to uplift Pakistan’s economy and paving the way for its success. Real issues prevalent in the society should be highlighted to create awareness among people.

Unfortunately negativity in print media and talk shows discourage foreign investment in the country and depicts a bad picture of Pakistan in international media which will ultimately result in destabilizing business opportunities and will deter Pakistan from climbing the ladder to economic and national prosperity.

News based on truthful facts should be promoted to set examples for the new generation of journalists to follow. The media should help build statesmen, businessmen, scholars, scientists, artist while projecting socio economic issues faced by the country.

Well done Business Recorder – Heartiest Congratulations on your Golden Jubilee!!!

As a frontrunner in providing highly focused business news, market analysis, economic forecasts, national and international news we applaud you for your dedication. Today, as you celebrate 50 years of existence, we offer our sincere felicitations on achieving this great success.

The team of Business Recorder have always shown their expertise and upheld unbiased reporting.

Indeed you have always stood up to journalistic challenges with perseverance.

We, at BASF Pakistan, wish Business Recorder many more accolades and joyous occasions to celebrate successes in the future.

Brig. (R) Tariq Saddozai

Chairman

National Eclectic Power Regulatory Authority

On behalf of NEPRA I would like to extend my warmest congratulations to the Daily Business Recorder on this auspicious milestone of their 50th Anniversary and pay a tribute to the dedicated management and editorial team. In these 50 years the daily has become a part of our lives and we have witnessed the solid growth of the paper. It has established great credibility in providing unbiased, independent and professional reporting. It has won admiration for its award-winning journalism, its commitment to achieving excellence and for providing important and reliable business, economic, financial, political, and monetary policy making information. We wish Business Recorder a journey of continued success and look forward to another era of in-depth and articulate coverage of news, events and issues.

I wish to take this opportunity to inform your valuable readers that NERPA is committed to develop and pursue a framework for safe, reliable, affordable and efficient environment for provision of electric power to our consumers and to maintain a balance between the interests of consumers and service providers.

Recently we have taken various steps for the first time ever in Pakistan to mitigate the power crisis in the country. A few include upfront tariff for coal fired power plants, upfront tariff for small hydro, upfront tariff for solar, LNG and bagasse based power plants.

To promote the use of indigenous resources NEPRA has kept return higher while determining the Upfront Tariff for Thar Coal Power Project. In order to encourage and facilitate power generation plants the Authority has formulated necessary guidelines for wheeling of power, guidelines for sale of renewable energy, net metering guidelines and tariff methodology guidelines for expediting multi-year tariff regime. Though our task is beset with challenges we have firm belief in reforming and improving the power sector in Pakistan.

The Business Recorder’s 50th anniversary provides us with an opportunity to appreciate the significance of a responsible media in a functional democracy. Its role as an attentive observer, a balanced commentator and a proactive trend-setter cannot be valued enough. Being an avid reader, I appreciate the quality journalism reflected in the economic analyses of the Business Recorder and value greatly the professionalism of its journalists in this regard – which has contributed immensely to the daily’s strong credentials in the economic and financial sectors.

Syed M. Husaini President & CE

Askari Bank Limited

Kalim Farooqui Managing Director

Technology Links (Pvt.) Limited

Business Recorder is Pakistan’s foremost English language daily that covers financial, commercial and business news in the country and around the world. For the last 50 years, the newspaper has set new benchmarks in financial news coverage and fostered the highest values of responsible journalism. The English language daily has earned its credible reputation through its authenticity and accuracy. Active in print media, Business Recorder is the most reliable source of economic information; therefore it is highly respected by corporate leaders, financial experts, industrial investors, public bodies, academicians and influence makers. wi-tribe acknowledges Business Recorder’s contributions in developing financial journalism in Pakistan. We hope that in the wake of a reinforced economy and increase in local and foreign investments, Business Recorder will play a leader’s role in the progress of journalism in the 21st century.

Askari Bank would like to congratulate the Business Recorder on 50 years of excellence in financial reporting. Pakistan's first financial daily; the Business Recorder is a source of pride for our country with its sustained attention to, and relentless investigation of, the region's economic development over the last five decades. It is a widely read publication in the commercial sector, catering to a rapidly expanding financial network and its concerns. As such, the Business Recorder performs a critical function in Pakistan's socio-economic landscape. We wish the publication continued prosperity over the coming years.

I take this opportunity to congratulate Business Recorder on its celebration of their Golden Jubilee this year. Business Recorder, the first and the largest business newspaper in circulation in Pakistan, is also the first newspaper to be read by me every morning. While the bulk of the news and interesting articles relates to business in Pakistan and internationally, it also provides comprehensive coverage in respect of national news, international news on world affairs as also sports. Whether it is information regarding commodities or money markets around the world, Business Recorder proves to be the right source for decision making in a variety of business operations and decision making. Additionally, businesses are kept abreast of the activities of bodies such as local Chambers of Commerce, Federation Houses as also Bi-Lateral Business Forums in which I am actively involved.

Special Supplements to promote trade and investments between Pakistan and other countries are regularly taken out. While such supplements elaborate upon the potential that exists, it also highlights the impediments that stand in the way which effectively reaches the decision makers in the respective governments to take remedial measures.

Business Recorder has come a long way since its inception and I wish them every success in all their future endevours.

34 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

A ten-point agenda for the new way forward for Pakistan D.M. Qureshi Rebuilding Pakistan at this juncture is a mighty assignment. Collectively we shall have to muster a sprit similar to the one witnessed at the time of the creation of Pakistan in 1947. We shall have to tear apart all self-created blood-letting iron curtains of religious sectarianism, chauvinistic ethnicism, pathological antipathy against positive nation-building milestones established in the past by military dictators.

Indeed, it is this spirit and approach that the Prime Minister Nawaz Sharif has been underlining in his oft-repeated and highly sagacious call that the multifarious challenges facing the country at present are not for his party alone to overcome but all the parties and every patriotic Pakistani throughout the country. The Zarb-e-Azab and the National Action Plan (NAP) aimed at rooting out militancy in all its shapes and forms is one of the defining embodiments of this new mind-set in the country.

Consistent with this approach, the proposed agenda is prefaced by three major milestones attributable to the much-maligned General (Retd.) Pervez Musharraf which are crucial for strengthening democracy in the country. The first and the foremost is the recent judgement of the Sindh High Court rejecting his request for contesting National Assembly election for failing to fulfil the constitutional requirement of being ‘righteous’ because he suspended the superior judiciary during his tenure as the military dictator President of Pakistan. It is hoped that the qualification of being righteous will be broadened by the Election Commission to also encompass the attributes of being Sadik & Ameen. This will serve to weed-out all corrupt elements in the society from being elected as representatives of the people in all tiers of public bodies. Secondly, the revival of local bodies with greater devolution undertaken by him will be broadened still further instead of being stalled as at present in Punjab, Sindh and Khyber Pakhtunkhwa on frivolous grounds.

Thirdly, the most epoch-making step taken by him to liberate the media which is the fourth pillar of the State will not be hamstrung by measures taken by the previous PPP government such as the blockade on the access to file-sharing site of YouTube since 12th September 2012.

Thanks to this liberation of the media, the entire society of Pakistan has been literally pilloried by a volcanic variety of causes and cures to resurrect Pakistan to rediscover its legitimate geo-centric role in the present day world. This discussion often gyrates around the very rationale for the creation of the country, what went wrong since its creation and what should be its reconstructed ideology and new direction: Should it be an idealistic, euphoric and sub-lime modernistic version of Medinite Islamic State of the like practised by Khulfa-e-Rashideen. OR A modernistic Wahabi-cum-Salafi Saudi Arabian version of Islamic State. OR An amalgam of Deobandi/Barelvi/ sub-continental Jafaria version of Islam OR A copy-cat Francis Fukuyama (The End of History…..) westernised version of secular democratic State.

This debate in the recent past has been so wide-ranging that it often leaves an average Pakistani in an utter state of confusion and indiscretion. Among its variants, the debate is degenerated into a variety of shibboleths:

Quaid-i-Azam’s Pakistan; Naya Pakistan; the Vision & Meaning of Pakistan being epitomised in the puristic meaning of Kalma-e-Tayyaba.

Globally, the perspective is undergoing a paradigm shift. As the single supreme super-power, the USA in the eighties of the preceding century created, nourished and used Militant Islam, under the guardianship of Pakistan and the front-line support of Afghanistan, to break-up the USSR and destroy Socialism. Soon after, when the Jihadist Islam turned its militancy against the duplicitous support of Israel by USA to wreak atrocities on

21st-century geo-centric narrative for Pakistan. This narrative, to paraphrase Nadeem Paracha, should “get beyond abstract religious rims and ideological whims”. After the heinous vivisection of the eastern wing of Pakistan, triggered mainly by the ethnic venom of Bangla-Bhasha and paranoia of domination by Punjab-led West Pakistan, two exercises were carried out to construct a new narrative for Pakistan. Firstly, the Bhutto government reconstructed an ideological narrative that may help redeem the floundering belief in a united Pakistan. Secondly, a religious narrative was constructed by

In league with its western allies, US destabilised Libya and caused the creation of ISIS Palestinians, culminating in the most humiliating the 9/11 attack in 2001 on US soil, the USA under the President-ship of younger Bush, unleashed unparalleled atrocities unknown in recorded history by killing 0.5 million Iraqis, 50,000 Afghanis and an equal count of collateral killing of Pakistanis. Based on the managed-leaks of interrogation in Guantanamo Bay, Bagram, Abu Ghraib and other hideouts in different parts of the world, the USA established hair-raising record of new techniques of torture unknown in the history.

In league with its western allies, it destabilised Libya and caused the creation of ISIS as the reformulated embodiment of militant Islam.

Hopefully for the Muslim ummah, in particular, and the world, in general, a new narrative is being reconstructed under the leadership of the first non-white Afro-American US President Obama. This narrative was first outlined in his most inspiring speech in Cairo a few years ago and has been articulated more recently on 19th February 2015 in a three-day summit on Countering Violent Extremism (CVE) held in White House, in Washington.

The Summit comprised a cross-section of religious scholars, social service providers and Ministers from more than 60-countries, the UN Secretary-General and senior officials from other multilateral bodies. The Conference has shifted the emphasis of radicalism from militant Islam to being fuelled by political and economic disparity both within the Muslim countries and the rest of the world. More specifically, the CVE addressed the root causes of extremism through community engagement, including the following programs: • Building awareness—including briefings on the drivers and indicators of radicalization and recruitment to violence; • Countering extremist narratives—directly addressing and countering violent extremist recruitment narratives, such as encouraging civil society-led counter narratives online; and • Emphasizing Community-led Intervention—empowering community efforts to disrupt the radicalization process before an individual engages in criminal activity.

Set against the foregoing background, a ten-point Agenda is outlined for the reconstruction of Pakistan: 1. Formulate a Futuristic Narrative for Pakistan: To start with, It appears that the first and the foremost attention should be focussed on constructing a more realistic

General Zia-ul-Haq to galvanise support for anti-Soviet insurgency in Afghanistan by mobilising Jihadist support under the overarching umbrella of intelligence, funding and the weaponry provided by USA. A more scientific and methodical way to construct this narrative would be to organise a wide-ranging conference of leading intellectuals of the country consisting of economists, technocrats, historians, religious and secular scholars, media personnel and artists to re-construct a futuristic narrative of Pakistan.

2. Eliminate Ethnicities in all its Forms & Shades: Allah (SWT) denounces rabid chauvinism in all its forms and shades as stated in Ayah 26:48 of Surah Al-Fatah “When those who disbelieved had put into their hearts chauvinism - the chauvinism of the time of ignorance. But Allah sent down His tranquillity upon His Messenger and upon the believers and imposed upon them the word of righteousness, and they were more deserving of it and worthy of it. And ever is Allah, of all things, Knowing”. Furthermore, to quote Imam Al-Bukhari in his Saheeh (8/137), “a young man from the Muhajireen and a young man from the Ansar once argued, so the Muhajir said: "O Muhajireen! (meaning, come help me)", whereas the Ansaree said: "O Ansar!" When the Prophet (PBUH) heard this, he said: "Is it with the calls of Jahiliyah that you cry out, while I am still amongst you?". With almost 7-decades since the creation of Pakistan, it is anachronistic, indeed sacrilegious, to use the term Muhajirs as a symbol of identity for finding a space in the ethnically dominated society of Pakistan.

As we all know, the term Muhajir is a highly noble terminology and traces its origin and sanctity from the migration of Prophet Muhammad PBUH and his companions from Makkah to Medina and their total absorption in the social fabric of Medina over a period of 10-years. Going a step further, the sanctity of Hijrat has been embodied for eternity by making it the starting point for the Islamic lunar year of Hijrah. Notwithstanding this sanctity, the terminology has been desecrated to a special category nick-named as UP-ka-Muhajir. At its end, by sheer dint of sustained constructive socio-economic work at the ground level for the betterment of the common man, the MQM with its re-designation as the Muttahida Qaumi Movement (MQM), has evolved as the single-most urban

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middle-class political party, not only in Karachi and urban Sindh, but throughout the length and breadth of the country. Similarly, the ethnic-centric image of the dominant Punjabi must be demolished and reconstructed to define its historical & cultural pageantry of the glorious land of 5-rivers, beauty & grace and the centre of learning, art & literature in Pakistan. In the same way, the Sufistic Sindh and Saraiki regions of Pakistan should not be debased as the scions of Sindhudesh of Raja Dahir of the 7th century Muhammad bin Qasim era. Also, the bold and the brave Pushtoons with handsome Aryanic features and ingrained faith in Islam should not be identified as the symbol of militant Muslims.

Similarly, the highly self-respecting, proud and freedom-loving Baloch should not be dubbed as anti-state agents of the enemies of Pakistan and provided all the rights and privileges available to the rest of Pakistanis.

To translate the positive Naya-Pakistan mind-set into an operational reality, the existing four provinces should be re-constituted into, at least, 18-20 geographically contiguous and economically viable administrative provinces. This is suggested on the analogy of Switzerland, which has 26 cantons, with each canton being akin to our existing provinces and a land mass not exceeding 42,000 sq. km. representing nearly 57% of the area of Gilgit-Baltistan and a population hardly two-fifth of the estimated population of Karachi.

3. Grass-Root Devolution & Empowerment: To preserve democracy from the external predatory attacks by military dictators and adventurers and internal abuse by gangs of hereditary breed of politicians, land-grabbers, tax-evader business tycoons, our sole panacea lies in grass-root empowerment of the local bodies. Except for Balochistan, the democratic governments of Punjab and Sindh have been finding untenable excuses for delaying the process. Khyber Pakhtunkhwa, which has also been delinquent, have been directed by the Supreme Court to hold elections on 30th May 2015 while Punjab and Sindh to hold elections on 20th September 2015. Apparently, the real reason for postponement appears to be the greed to control and siphon away public funds by the ruling elite of Vaderas, Chaudhries, Sardars, land-grabbers and gang-leaders of the militant wings of the ruling political parties in power in the delinquent provinces.

4. Mandatory Decennial Census & Delimitation of Constituencies: Transparent decennial census is the basic building block for the functioning of any democratic system. It is a sad reflection on the democratic system that no concrete action has been taken so far to carry out the decennial census since the last census undertaken 17-years ago in 1998. The subject was debated in the Council of Common Interest a year ago with no indication of conducting the census in the near future. There is no gainsaying the fact that a variety of important issues hinge around the availability of census data: delimitation of constituencies, seat shares in the national parliament, NFC Award, targeted subsidies and a host of policy issues that are built around census data. Massive population influx over the years has changed the composition of population in the old and burgeoning cities.

This has caused profound transformation of the population and consequential need for

delimitation of constituencies. It is a pity that highly wide-ranging decisions are being taken on assumptions with no relevance to the ground realities.

5. Four-yearly Election for all Elected Bodies Including Eligible Political Parties Contesting Elections: For the democratic system to take strong roots, firstly, the term of all elected bodies should be reduced to four-years from the existing five-years for the next twenty-years. Secondly, the scope of periodical elections should be widened to also include the election of office bearers of political parties under the jurisdiction of Election Commission. Thirdly, to weed-out family-oriented hereditary politics, no office bearer should hold any office consecutively for more than two-terms in any political party.

Fourthly, to stop horse-trading and changing loyalties, any person who changes his membership from a political party should not be allowed to hold an Office in any political party or in any elected body. Last, but not the least, the constitutional requirement of righteousness should also be widened to encompass the attributes of Sadik & Ameen and serve as the screening factor for holding any office within the political party or for nomination as a candidate for election in any elected body.

6. Mass Primary Education and Health Care: Given the will and commitment to increase the level of literacy in the country, a number of coordinated actions must be taken at the national scale by optimal utilisation of the existing infrastructure available throughout the country. Firstly, thanks to our faith, there is a wide network of mosques, maderessas and other places of worship in all the nooks and corners of the country. These should be requisitioned for use as the existing physical structure for promoting primary education, both for male and female children, among all sections of the society that cannot afford entry into commercially-run educational institutions. The entire infrastructure of mosques should be mobilised as the existing location for implementing the programme of mass literacy. In this area, one of the most positive development, reported recently in the media, is the consensus by wafaq-ul-madaris to have a cross-sectional framework consisting of basic, and yet uncontroversial, religious education pertaining to various maslaks together with modern sciences and technology. Secondly, every ghost school and the public sector built structures for education that are being misused for keeping cattle and storage of agricultural produce should be re-requisitioned and reconditioned for its principal objective of providing education. This strategy should be operationalized by making it one of the primary responsibilities of the revived and reformed local bodies in their respective jurisdictions. Similarly, for primary health care, instead of sporadic and uncoordinated campaigns, a mass campaign should be launched at regular intervals throughout the country under the aegis of local bodies for vaccination against tropical diseases as a prophylactic measure. Already, a working model of such efforts is underway, on a more coordinated basis, for administering anti-polio drops on a mass scale.

Continued on next page

Business Recorder | Monday April 27, 2015 | 35

50 years of putting the economy first Continued from previous page 7. Supply of Potable Water, Waste Water Drainage & Waste Disposal: Unless the basic services for the supply of potable water, waste water drainage & waste disposal at the district council level are raised to the same level of importance as the supply of electricity, gas and petroleum products etc.

They will not receive the attention that they deserve at the national level. While operationalizing this measure, a clear line of demarcation of responsibility should be established whereby the supply of potable water from waterways is shared between the federal government and the provincial government. Within the jurisdiction of all local bodies, the supply of water and efficient maintenance of the drainage system and timely collection and disposal of waste should be the area of highest priority and sole responsibility for all local bodies. Similarly, the infrastructure for these services should be the responsibility of the provincial and district administrations.

8. Mass Transit System in Cities above an Evolving Threshold: Yet another key area of public services under the jurisdiction of provincial governments should be the provision of infrastructure consisting of road network, including culverts, bridges and fly-overs and other mass transit systems such as metropolitan mono-rail system within the city above an evolving threshold of population. This would ensure greater productivity and efficiency of the working population in the main commercial and financial centres of the country. We have a wealth of experience, insight and on-the-ground lessons to learn from how we have messed-up efforts to improve the mass transit system in the main metropolitan cities. The saga of messing-up the revival of circular train system in Karachi is too fresh to learn from our blunders of heartless mismanagement.

9. Restoration of Sovereignty & Soundness in Fiscal & Monetary Management: Besides a whole variety of fiscal fire-fighting being undertaken by the government to keep the economic system afloat, in the field of fiscal management, one of the measures that merits immediate action is ensuring transparency in project selection, the tendering process and periodical monitoring of all mega-projects of national importance. In the chastened spirit and all parties approach demonstrated in NAP for fighting militancy and the policy of national reconciliation adopted in many crucial areas of political significance, a similar cross-party approach

should be adopted for all mega projects which are characterised by frequent cost-escalations and unprecedented delays. This should be operationalized by constituting a cross-party sub-committee of the parliament as the forum for selection, tendering and periodical monitoring of all mega projects.

In the field of monetary management, two-areas need high attention at the national level.

First and the most important area for safeguarding the health of the monetary system, is the restoration of the sovereignty of the State Bank of Pakistan (SBP), to bring it on a par with its peers such as the US Federal Reserve System, the Bank of England, and closer at home, the Reserve Bank of India.

Among the crucial areas of monetary management, the most important fields are: a) Preservation of the purchasing power of currency undermined by unbridled deficit financing and note printing. b) Restraining uncontrolled growth in domestic and external borrowing by the Government. c) Put a brake on the growth of informal sector which is reported to have assumed a size twice as big as the formal financial sector. d) Failure to make the financial sector fully inclusive. e) Failure to fulfil the constitutional obligation of eliminating Riba from the economy within 10-years which has since expired in

As an organisation, since its establishment in 1948, the State Bank has played a commendable role in ensuring the soundness of the banking system and building an outstanding pool of senior executives and man-power to perform its traditional role as a central bank.

The only area that needs serious consideration to restore the sovereignty of the State Bank of Pakistan for effectively fulfilling its principal objective is the process of selection of its Governor. We can benefit in the selection process by gaining guidance and insights from the process of selection of the fully independent Chairman of the Federal Reserve System in USA, the Governor of the Bank of England and the most recent selection of the Governor of the Reserve Bank of India. For example, in the UK, for the first time, the proud and jealously independent Bank of England broke all its traditions of the so-called Old Lady by appointing a Canadian as its Governor. Nearer at home, most recently in India, inspite of the availability of a strong talent pool within the country, the recently appointed Governor of the Reserve Bank of India has been chosen from amongst one of the senior Indian-origin person who formerly held the position of the Chief Economist of IMF. Against this background, a three-step approach would be more appropriate to be adopted for the selection of the Governor of SBP.

and supporting the economy to manage unforeseen economic crises such as the collapse of the Korean boom and support to the unsold stocks of cotton and jute crops.

Over time, the NBP has sharply deviated from its fundamental role and has transformed itself into a universal bank consisting of an amalgam of high-street commercial banking, hazardous investment banking, politically-motivated project financing and marginalised Islamic banking. This is reflected in an overall comparison between the asset-mix of its balance sheet after 10-years of its establishment for the year ended 1960 and the latest balance sheet for the year ended 2013. It is observed that, compared to the predominance of government securities in the asset-mix in 1960, the latest balance sheet for the year ended 2013 represents a hybrid of investments in unrated Islamic products, unlisted common stocks and highly risky funding of investments and businesses of counter-parties most of whom wield strong political affiliations.

There is an imperative need to redefine the role of the Bank and use it as an arm of the government and the State Bank of Pakistan for performing treasury functions, support the promotion of exports, promote Islamic Banking to fulfil the provisions of Constitution, achieve financial inclusiveness of the banking sector and bring the informal

As an organisation, since its establishment in 1948, the State Bank of Pakistan has played a commendable role in ensuring the soundness of the banking system 1983. This is reflected in Islamic Banking constituting hardly 10% of the banking system in 32-years as of now. At this rate, it may take almost three centuries to implement the constitutional provision for Islamization of the banking system. Worse still, a whole range of objections are being raised by Sharia scholars about the compliance and transparency of Sharia requirements. The litmus test would have made some headway, if conventional audit system would have formulated guidelines for Sharia audit within the framework of Accounting and Auditing Standards outlined by AAOIFI and IFSB. Similarly, a Sharia rating system could have been evolved if the IDB-sponsored Islamic Rating Agency could have developed meaningful parameters for ranking of institutions and instruments in the matter of Sharia compliance.

One, the minimum hurdle rate of age for selection should be 60-years. Two, the appointee should be statutorily debarred from holding any office-of-profit after his retirement. Three, the selection should be carried out in two-steps. Initially, a Search Committee of a cross-section of eminent persons such as, for the present, may consist of Mr Shahid Javed Burki, Dr Ishrat Hussain, Dr Mohsin S. Khan and Dr. Shahid Kardar to select a panel of three persons. Finally, a cross-party Sub-Committee of the Parliament should select the Governor of State Bank of Pakistan.

Secondly, the second most important arm of the government in the field of banking was the establishment of National Bank of Pakistan (NBP) in 1949. Its main objective was to serve as an extension of State Bank of Pakistan for performing treasury functions

sector within the fold of the formal sector of the economy. After utilising its resources in the fulfilment of its redefined role, the surplus funds should be used for participation in high-grade commercial and investment financing syndications with other leading commercial banks of the country.

Finally, for redefining its new role, a high-powered Commission consisting of senior bankers, retired and currently working senior government officials from financial services and leading representative of commerce and industry should be constituted and submit its findings for consideration of the government. The existing manpower of the Bank has a strong and competent core of personnel to successfully implement the redefined role of the Bank.

Yet another reform, against the background of widespread scandals relating to

unscrupulous and politically-motivated financing by the provincial-government sponsored commercial banks, namely Punjab Bank, Khyber Bank and the recently established Sindh Bank, is to disinvest them to private sector. This will serve to safeguard the health of the banking sector being undermined by facing situations somewhat similar to the one faced in the past when a provincial bank, sponsored by the Balochistan Government, had to be disinvested to the private sector owing to serious financial mismanagement.

10. Overall Governance & De-labelisation of Talent Pool in the Country: There appears to be an all-abounding break-down of civil governance throughout the country. The police force, which is responsible for the maintenance of law & order, is highly politicised.

Merit and competence do not command any premium. Vacancies in the public sector are filled on the basis of political contacts and sold openly in the market through agents. Neglect and incompetence is all-pervasive. Even for non-militancy crimes, assistance is sought from para-military and military personnel.

Besides over-stretching the resources of the armed forces of the country, it also renders the democratic system vulnerable for being taken over by future military adventurers much easier. A number of Commissions on civil services reform had been constituted in the recent past. The latest, most professional and relevant in this series is Dr Ishrat Hussain’s Report on the reform of civil services in the country. This Commission comprised of eminent personalities from various fields and deliberated, in consultation with all stakeholders, on multiple issues of governance. The Report identified 100-key public institutions in the country which exercise a critical impact on economic and social issues and recommended restructuring into four types of services: All Pakistan; Federal; Provincial; and District Services. Meanwhile, until such time this Report is implemented, a high-powered Task Force should be constituted by the Prime Minister under a dynamic person. In selecting this person and his team, the Prime Minister should rise above personal likes and dislikes, pressures from his and other political parties and de-labelise persons, otherwise highly competent and professionally sound, but disliked on account of political and ethnic affiliations. It appears that the most suitable person to lead this Task Force could be General (Retd.) Pervez Musharraf. To legitimise him for undertaking this uphill task, firstly, all cases against him in the Courts should be withdrawn, and secondly, channels should be opened to enable him to be eligible for election as member of the National Assembly.

36 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Addressing the deprivations and inequalities in society Zafar Azeem When Pakistan came into being in 1947 it gradually adopted a parliamentary form of government, multiple parties system was introduced, freedom of speech and extensive political rights were guaranteed in the constitution. The constitutional provisions also guaranteed equality before law and equity in opportunities. Discrimination on the basis of caste, creed and religion was prohibited. Equal opportunity was to be made available to all.

Unfortunately, we failed to strike this balance, and as a consequence lost our eastern province (formerly known as East Pakistan). A hue and cry was raised for some time over the debacle, but very soon we forgot our follies. Despite constitutional requirements we failed to establish the rule of law.

The causes of lawlessness are attributed to poverty, non-availability of jobs, and lack of human development, education and health care. Achievements of these goals require continuous economic development. Thus an important goal for Pakistan even today is to maintain a balanced growth. The growth is essential to meet the needs of the people, especially of the poor.

There have been major failures to generate economic growth to enhance people’s living standards to foster growth and to utilize public resources.

Social services such as schooling, medical care, drinking water, electricity, drainage, transport and sanitation still remain inadequate. The feasibility of desirable economic growth is threatened in the long run by the under-development of social and physical infrastructure. We are witnessing the neglect of human resources, and our efforts in this regard are in contrast with the Asian approach of simultaneous pursuit of economic growth and human development.

To write a success story for public, two things are needed; first rethinking by policymakers and second understanding the impact of economic deprivation in the country.

Existing inequalities in our society tend to constrict any informed public discussion, by confining it largely to the lives and concerns of the relatively affluent.

This article accordingly presents an analysis not only of Pakistan’s deprivations and inequalities, but also of the restraints on addressing them and proposes for the possibility of change by adopting desired democratic values.

During the last six years, the Pakistani economy has done not so well in terms of GDP growth. As per government statistics, real growth rate of GDP in last six years has been as under.

Table1: Real GDP Growth Rate Years

Percent

2010 2011 2012 2013 2014

2.6% 3.7% 3.8% 3.7% 4.1%

The growth rates indicate that economic dynamism is dying. To arrest this trend, attention is needed to bring in economic enthusiasm and it calls for attention of policy maker to pursue more innovative and out of box solutions to stop the derailment of economy.

In the last two decades, we must note developments taking place around us. Our neighbor India has expanded its lead over Bangladesh in terms of average income (it is now about twice as rich in income per capita as Bangladesh), and yet in terms of many typical indicators of

living standards (other than income per head), Bangladesh not only did better than Pakistan, but also gained a considerable lead over it (Pakistan had two decades ago a substantial lead over Bangladesh).

Pakistan’s slow rate of GDP is continuing over the last few years.

The fall in growth deserves a serious attention. The concern is important because economic growth can help improve people’s lives (not only by

of undernourished children, a lack of healthcare, an extremely deficient school education, and homes without toilets (forcing half of all Pakistanis to practice open defecation), have to reconsider not only the reach of their understanding of the mutual relationship between growth and development, but also their appreciation of the demands of social justice, which is integrally linked with rule of law.

Resisting the concentration of wealth and power is an important part of the political struggles in Pakistan raising per capita income but also by generating public revenue that can help to build social advancement of the people), and also because a deeper analysis of the relation between economic growth and social progress is seriously overdue in Pakistan.

Development is best seen in terms of an expansion of people’s basic freedoms, and growth in human capabilities. The relationship between economic growth and the expansion of human capability is a fact to be recognized. GDP growth brings with it both human freedom and increased capabilities, and this change is an important factor for growth. The resources generated by growth provide assistance and help both to public and private sectors that can help to expand different social sectors including education, health-care, nutrition, social facilities. This expansion of human capability, in turn, allows a faster expansion of resources and production, on which economic growth ultimately depends.

Those who dream about Pakistan becoming an economic power, even with its huge proportion

Inequality in Pakistan It is essential to take note of the pervasive reach of inequality, and its special nature to assess the present day Pakistan. The income inequality in Pakistan is not the prime element in the disparities that characterize the country.

In fact, judged by the standard measures of economic inequality Pakistan does not look significantly different from, other developing countries. However, this comparison misses out two major issues: First, where people cannot afford very basic necessities, the gulf between their lives and those of the more prosperous has an intensity indeed an outrageousness and this fact is not captured by aggregate inequality indicators. Second, measures of private incomes miss the role of public services in the field of education, healthcare, social facilities and environmental support. Such services if properly rendered can make a big difference in protecting people from deprivation. The supply of these services can expand freedom amongst the people.

These goods and services to be

judiciously distributed are only those needed by everyone. These include rights, liberties, powers, opportunities, income, wealth, and self respect.

An equal distribution is needed, unless a certain amount of inequality is to everyone’s advantage, for example, by providing incentives which will generate more wealth for everyone. Once a certain level of material well-being is secured, we then emphasize on our basic liberties that is, political liberty, the freedoms of speech, assembly, conscience, thought, personal property more than other goods. In this sense equal liberty is preferable than unequal liberty but greater wealth.

These two ideas lead to two principles of justice, with the first (political justice) always taking priority over the second (social justice): 1. Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all; and 2. Social and economic inequalities are to be arranged so that they are both a. To the greatest benefit of the least advantaged; and b. Attached to offices and positions open to all under conditions of fair equality of opportunity.

For both these reasons, inequality in Pakistan takes the terrible form. There exists a massive disparity between the privileged and the rest, and there exist a huge deficiency of the basic requirements for a minimally acceptable life for the unprivileged people.

No doubt the ratio of high incomes to low incomes is no less in other countries than in Pakistan, but the extraordinary feature of the lack of basic amenities for large sections of the people is a characteristic of the spread over inequality that contrasts

sharply with the nature of inequality amongst other developing countries.

The lack of healthcare, tolerably good schools and other basic facilities important for human well-being and elementary freedoms, keeps a majority of Pakistanis shackled to their deprived lives in a way quite rarely seen in other self-respecting countries that are trying to move ahead in the world. For example, the majority of rural households does not have any access to toilets, forcing them to resort to open defecation on a daily basis.

The entrenched division of Pakistan between the privileged and the rest reflects, in part, the mutual reinforcement of different types of disparities of class, caste, community and gender. It is, for instance, an important clue to the country's limited progress in the field of elementary education, hampered as it has been by the socially compartmentalized nature of educational opportunities, aspirations and expectations.

Resisting the concentration of wealth and power is, of course, an important part of the political struggles in Pakistan. One of the worst features of social injustice in Pakistan is the continued exclusion of a large part of the population from essential facilities and opportunities that ought to be available to everyone.

These demands for access to education, healthcare, social security and other entitlements remain an integral part of the struggles of disadvantaged groups for the removal of income related indignities and inequalities.

Continued on next page

Business Recorder | Monday April 27, 2015 | 37

50 years of putting the economy first Continued from previous page Inefficiencies in the Public Delivery System The state of Pakistan's health care system is rarely discussed in the mainstream media, let alone recognized for what it is an antiquated 'out of pocket system' where most patients buy healthcare for cash from private providers, in stark contrast with the worldwide trends towards universal health coverage based on public funding and planning (typically supplemented, rather than being driven, by private insurance). The near-stagnation of real wages in the last 20 years or so, which is particularly striking in contrast with many developing countries; Pakistan's declining position within South Asia, in terms of standard social indicators; the abysmal levels of pupil achievements in Pakistani schools; Pakistan's pathetic record with child immunization; and the extraordinary imbalances of public spending, involving lavish concessions to powerful lobbies along with a crucial neglect of investments that could enhance the living standards and human capabilities of the underprivileged. None of these issues have been widely debated in public in recent years.

This incomplete and distorted understanding of the country's predicament is associated with an exceptionally narrow view of economic development on the part of the new Pakistani elite.

Whereas the ground realities are very different; see for example, the statement of a political player who very rightly outlined the existing problems faced by the people of Pakistan:

“Seeing the injustice through my own eyes and not being able to do a single thing to bring an end to the inequality, barbarism, inflation and lawlessness prevailing in this country I have decided to quit my post, as if I can’t do anything for my fellow men and I have no right to stick to my post�.

The knowledge and awareness created by media is certainly changing the existing political mosaic He further said that the country is being governed by land grabbers and criminal mafias who have become so powerful that the writ of the government nowhere exists.

These failures of the government would not have been so costly but for the fact that the 'will to enforce law', a cause that stands identified not only misses important causal connections in generating and sustaining economic growth (supported by a more healthy, better educated and less deprived population), but also lacks the basic demands of a humane democratic society.

One recent example is the impact of the wave of media coverage of violence and sectarian killings. The terms of public discourse on issues such as corruption, crimes, under nutrition, involuntary

displacement, the right to education and public sector accountability has significantly changed in Pakistan, in a way that would have been hard to predict just a few years ago.

It appears that politics is forcing the elite to recognize rights of oppressed and to initiate policies for their improvement. The media reports are propagating the effectiveness of programmes like BISP, Rapid Transport Systems, Thar Poverty Alleviation Program and other efforts to improve healthcare but the common man does not consider these steps as little more than hotbeds of corruption and waste. The media effort in exposing failures of governance is a good thing and these efforts can contribute towards improvement in the existing environment.

However, we are still waiting to find evidence to see whether or not such programmes are making any difference in the quality of life of the common man.

The knowledge and awareness created by media is certainly changing the existing political mosaic. There exists some evidence both in Pakistan and abroad. Indeed, an appreciation of constructive possibilities is as important as a fuller realization of how serious and severe Pakistan's deprivations really are.

What contributed to corruption?

Despite economic stagnation society has shown patience, as being the only available option for slow rhythm of the country.

Many classes have shown silent resignation to the absence of freedoms. For lack of accountability, there has been patient endurance and evils like corruption are considered to be unavoidable as being necessary for development. And of course there has been

adaptive submission by the underdogs of society which has accepted it as fate accomplice of the continuing misery, exploitation and indignity. There is a view point that such inadequacies are inescapable accompaniments of a stable economic order.

Inequities and injustices cannot be corrected through patience nor can it help to improve the situation. In contrast, positive changes have often occurred and yielded some liberation when the remedying of ailments has been sought actively and pursued with vigour.

plunder for private gain, and the showering of public subsidies (implicit or explicit) on privileged groups.

The existence of the social division between privileged and the rest makes it so outrageous that it becomes much harder to use the normal tools of democracy, to confront the inequalities involved.

The incidence and intensity of extreme suffering are hidden in the fog of obscurity and the very idea of immediate support to the common people from vocal political leaders still remains to be defined. A society which is

The power thought to be in the hands of privileged is also illusive and their political importance has never been meaningful. The majority of Pakistanis stands excluded from the policy making and distribution decisions and the majority remains deprived and powerless.

The existing environment with all the exclusions of underprivileged leads to complete disregard of the existing interests of the poor. The neglect of school education, healthcare, social security and related matters in Pakistani planning is one aspect of this general pattern.

But the biases of public policy towards privileged interests also take many other forms, including the neglect of agriculture and rural development, the tolerance of environmental

full of injustices and inequalities, nobody is sure of his place amongst the so-called elites. Whereas the common man feels as being an underdog of society, which can be a fitting description only if we compare them with the top layers of society.

Nevertheless, the democratic values enshrined in our political system are a ray of hope for the deprived and oppressed classes for bringing out their strength to demand for the removal of the existing inequalities and to improve the environment for progress. This goal can be achieved if we understand the structure of inequality in the country and its adverse impacts.

Removing inequalities in society is a major challenge even today.

38 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Banking sector –

Performance, prospects & challenges Dr. Shahid Hasan Siddiqui After the privatization of two major public sector banks namely United Bank Limited and Habib Bank Limited in 2002 & 2004 respectively, the profitability of the Pakistan’s banking sector has increased at an unprecedented rate. The successive governments, State Bank of Pakistan (SBP), Ministry of Finance, Planning Commission, Privatization Commission and even most professionals have been unanimous in saying that for last ten years or so, the banking sector in private hands is a real success story. The credit is therefore, given mainly to the privatization of public sector banks. An analysis is, therefore, in order.

The following table (Table –A) shows the comparative position of total deposits, advances, investments, equity, assets and after-tax profitability of the Pakistan’s banking sector.

It is simply beyond comprehension that as against rise of 395 percent in deposits and 781 percent in equity, the after-tax profit of all the banks

ing loans (NPLs) in addition to write-off advances of an estimated amount of Rs.200 billion during this period, the rise in the profitability of the banks would have been much higher. (The quantum of advances write-off by banks in recent years has not been published by SBP) The reasons for an abnormal rise in profitability of the Pakistan’s banking sector include: a) Not sharing their profits with the depositors although these deposits have been secured on PLS basis. b) Largely ignoring their core business of financing, trade, industry and agriculture etc. and diverting funds in risk-free investments in government securities mainly for financing of budgetary deficits – the product of tax evasion and corruption. c) Persistently keeping the banking spreads very high.

It is now proposed to briefly discuss these three factors and some other related issues. (a) According to the Regulations of

TABLE – A

Comparative Position of the Pakistan’s Banking Sector Rupees in billion

Item Deposits Advances Investments Equity Assets After-Tax Profit

CY2002 1678 921 701 107 2223 2.9

CY2013 8311 4110 4313 943 10487 112

recorded a phenomenal rise of 3762 percent. It is also important to appreciate that had banks not made provision of Rs.327 billion between CY02 and CY13 against non-perform-

Rise 6633 3189 3612 836 8264 109.1

% Rise 395 346 515 781 371 3762

SBP, all banks operating in Pakistan including foreign banks can accept Pakistani Rupee deposits only on PLS basis except deposits in current accounts where no return is normally

paid. The banks have however, not been sharing their profits with depositors.

The SBP Governor on May 15, 2006 asked banks to share profits with depositors and increase the real rate of return (rate of return paid to depositors is less than the rate of inflation) on deposits. Again on December 02, 2006, SBP Governor observed that despite record profits, banks are not sharing profits with depositors. Earlier, another SBP Governor had observed in 1993 that: “… A banking System that gives a rate of return to small savers which is negative in real terms is an exploitative one as it taxes the savings of the poor who keep their money in banks.” It is important to note that Article 3 of the Constitution of Pakistan lays down that “The state shall ensure the elimination of all forms of exploitation….”

The SBP Governor on December 2, 2006 had also said: “I have told the large banks to increase return on deposits otherwise the State Bank will intervene to get the result.” It was also committed that SBP would take a decision in this regard possibly in January 2007. It was, however, conceded by Governor SBP that depositors are getting negative returns when real interest rate was considered.

The banks however, continued to pay a negative real rate of return to depositors which in fact increased in coming years. The SBP took no action despite the fact that a Governor SBP had also said in 1993 that “The State Bank should not sit on the side walks of the banking system as a silent witness to the transfer of resources from the small savers to the rich and

TABLE – B

Profitability and Returns – Pakistan’s Banking Sector Rupees in billion

Year

Pre-tax profit

% Rate of return on equity (before tax profit)

% Rate of return on SB Accounts

CY01 CY02 CY03 CY05 CY07 CY08 CY11 CY12 CY13 Sept’14

1.1 19.0 44.1 93.8 107.0 63.0 170.0 176.0 162.0 176.0

1.4 21.1 35.4 38.2 22.6 11.4 23.0 21.2 17.9 24.2

6.6 3.5 1.7 1.2 2.1 4.9 5.0 6.0 6.5 5.5*

(* from February 01, 2015.)

powerful defaulters of bank loans.”

The following table (Table-B) shows the position of pre-tax profit, rate of return on equity and on SB accounts of the Pakistan’s banking sector.

The above statistics show that banks have been enhancing their profitability by reducing the rate of return on deposits secured on PLS basis. In 1H 2004 some of the large banks paid returns as low as 0.1 percent on saving bank deposits despite the fact that their pre-tax profit was showing a rising trend. It may also be mentioned that in CY2012, the rate of return on equity of four large private sector banks ranged between 25.4 percent and 33.5 percent whereas these banks paid a return of a mere six percent per annum to their saving bank account holders.

It is estimated that had banks paid the same average real rate of return to depositors between January 2001 and December 2014, and even not shared a tremendous rise in their

profitability, millions of depositors during these 14 years would have received an additional profit of about Rs.1350 billion over and above the amount already received by them as profit from banks.

Due to a continued reduction in the rate of returns on deposits by banks and a host of other reasons, the rate of national savings recorded a significant fall in coming years. The rate of national savings which stood at 20.8 percent in FY03 fell to 12.8

also declined from 17.6 percent to 5.4 percent during the same period. The low and declining national and domestic savings rates are indeed a cause of worry and anxiety.

As the banks did not respond positively to half-hearted persuasion efforts of their Governor, SBP in order to fulfill the responsibility of protecting the interest of banks’ depositors, should have exercised its statutory powers of directing banks to share their profits with depositors.

This would have obviously not pleased the banks. It is important to note that 80 percent of total assets of Pakistan’s banking sector are now held by banks owned by foreigners.

Instead of issuing these directives, SBP introduced the policy of laying down minimum rate of returns on all categories of PLS saving deposits from June 01, 2008. This directive was in fact in conflict with the notion of ‘deposits on PLS basis’.

This minimum rate of return has been changed by SBP from time to time and presently stands at 5.5 percent per annum. (b) The following table (Table-C) shows the comparative position of net advances and net investments of banks:

TABLE – C

Comparative Position of Net Advances and Net Investments of Pakistani Banking Sector Rupees in billion

Item Advances (net) Investment (net)

CY2008 3173 1087

percent in FY14. The rate of national savings in India in 2014 was 32 percent. The rate of domestic savings

September’14 4209 4717

Rise 1036 3630

Continued on next page

Business Recorder | Monday April 27, 2015 | 39

50 years of putting the economy first Continued from previous page It will be seen that net advances of banks rose by Rs.1036 billion between CY08 and Sept’14, whereas the corresponding rise in net investments during this period was as high as Rs.3630 billion. It is obvious that banks are ignoring their core business and their total investments now are more than their total advances. The fact of the matter is that in last over six decades upto 2011, total advances of the banking sector have been higher than their total investments but the position has now changed.

The SBP Financial Stability Review for first half of 2011 observed that “… the commercial banks have become major source of deficit financing as government shifted its borrowings away from the central bank.” It also concedes: “The prevailing level of high fiscal deficit has turned out to be a blessing in disguise for the banking sector.”

It is an admitted fact that the fiscal deficit is the mother of all ills and must be contained by checking tax-evasion and taxing all incomes as also by reducing the unproductive expenditure. It is, therefore, unfortunate that SBP has been facilitating banks for financing the fiscal deficit by providing them liquidity.

The result of this policy has been that advance-deposit ratio of the banks which stood at 75.2 percent in FY08 declined to 61.6 percent in CY10, 52.2 percent in CY2012 and 48.2 percent in September; 2014. This has enabled banks to enhance their profitability by investing in risk-free government securities, slowing down the economic growth. (c) It was over 21 years ago, in 1993 that the Governor SBP famously said: “… the fact remains that the spread between the weighted average lending rate of 16 percent and weighted average return on deposits of about 8 percent is much too high by the standards of other countries.

There is, of course, no mystery about this spread as it reflects the structural weaknesses of the banking system and its inefficiency, waste and corrupt practices.”

Again on September 16, 1995 the Governor SBP observed that “…this spread must be reduced to a more normal level of 3-4 percentage points which can benefit

both savers and borrowers…”

The second SBP quarterly report for FY07 observed that a widening spread could hurt the economic stability but surprisingly observed that it may be too early to warrant an immediate policy response. It is worth mentioning that in 1989-90, the banking spread was 2.4 percent but in January 2015 it soared to over 6 percent. After the announcement of Monetary Policy on January 24, 2015, the Governor SBP again asked banks to reduce the spread by June 2015, though a similar statement was also made by SBP Governor about 20 years ago in 1995. It is now the time that SBP exercises its statutory powers to direct banks to restrict their spreads to 3.5 percent without further loss of time.

The Quality of Assets As the quality of assets has a direct impact on health, ability to make advances and of course profitability of

2014 was 37.9 million who have placed fund amounting to Rs.8052 billion with banks. The number of borrowers on the same date was, however, only 3.2 million i.e. 8.4 percent of total number of deposit accounts. It is however, significant to note that only 65000 borrowers (2 percent of total number of borrowers) had availed advances amounting to Rs.3410 billion (84 percent of total advances of Rs.4068 billion). These figures clearly establish that banks are contributing significantly to the concentration of wealth in few hands.

Islamic Banking system The SBP in its Strategic Plan 2014 – 18 concedes that the product offerings of Islamic Banks are overwhelmingly debt-based and do not meet the Shariah objectives of risk and reward sharing and equitable and broad based distribution of economic gains. The fact of the matter, however, is that the

TABLE – D

Position of NPLs Rupees in billion

Year CY04 CY08 CY10 CY12 June’14

Quantum of NPLs 200 359 556 618 595

banks, it is proposed to review the quality of assets of the banking sector.

The above table (Table-D) shows the comparative position of non-performing loans (NPLs), provision their against and net NPLs. From the above table it will be deduced that banks have made huge provisions of Rs.332 billion (Rs.473 billion – Rs.141 billion) in just nine and half years between CY04 and June’14 to the debit of their income account. This has, therefore, unduly undermined the interest of the depositors as some of the advances were either not sanctioned or monitored in a professional manner.

It is also important to note that out of NPLs of Rs.595 billion as on June 2014, an amount of Rs.505 billion has been classified as a loss by SBP. The bulk of this amount will have to be ultimately written-off by banks.

Banks Contributing in Concentration of Wealth The total number of deposit accounts of all banks in Pakistan on June 30,

Provisions 141 250 371 442 473

Net NPLs 59 109 185 176 122

Islamic banks are following the bench-marks of the Interest-Based System. The system adopted under the banner of Islamic Banking System cannot, therefore, be described as “Islamic Banking System”.

Conclusion and recommendations In view of the above submissions it is concluded that during the last over 12 years or so banks, among other things, have discouraged savings, encouraged consumption and have contributed in slowing down the rate of growth of the economy, thereby creating lesser job opportunities. The SBP has on various occasions also conceded that (a) The banking sector which provides a rate of return to depositors which is negative in real terms is exploitative. (b) Banking sector taxes savings and provides a subsidy on lending to the rich. SBP has also admitted that banks have adopted a policy which is “injurious from welfare and growth points of view”. The banks under the banner of Islamic Banking System are following the bench marks of

interest-based system and as conceded by SBP are not contributing to the achievement of the objectives of Islamic Economic System.

The following are therefore some recommendations: i) SBP must ensure that banks share their profit with depositors in the real sense. This will ensure that banks pay a positive real rate of returns to depositors. ii) The banking spread must be reduced to 3.5 percent by statutory directives of SBP. iii) Instead of too much reliance on the tool of interest rate in the Monetary Policy, the system of allocating sector-wise credit ceilings for banks should be revived by SBP. iv) SBP should not provide liquidity to banks for investment in Government securities. v) The Islamic banking system (a) Must not be based on the bench marks of Conventional Banking System (b) Must contribute to the achievement of socio-economic objectives of the Islamic Economic System and (c) Must eliminate the injustices of interest-based system. vi) A deadline must be set for the abolition of the parallel system of the banking as Article 38 (f) of the Constitution lays down that State shall “eliminate riba as earlier as possible.”

SBP should not provide liquidity to banks for investment in Government securities

40 | Business Recorder | Monday April 27, 2015

by the editor

Business Recorder | Monday April 27, 2015 | 41

50 years of putting the economy first

SelfReliance Yusuf H. Shirazi Since its independence, Pakistan has been under the influence of globalization – liberalization, privatization and deregulation - which has served the developed world more than developing countries.

Some developing countries, on the other hand, Like Malaysis and India, followed globalization through localization – ‘glocalization:.that is ‘localization of investment, production and export’ – Nehru’s recipe for developing countries. This approach has not only served the masses but allowed the likes of Malaysia and India to jealously guard its political, economic and social sovereignty.

A major problem of the developing countries has been political, economic and social instability. Foreign exchange reserves are paltry. Interest rates have usually hovered in double digits. Currencies have generally devalued – now in Pakistan from Rs 60 to about Rs 100 per dollar. If the dollar-rupee parity is not defended, it will be incompatible at least with the neighboring countries – India and Bangladesh, which would adversely reflect on the entrepreneurship, resource base and quality of human resource.

Value Addition: The stage thus must be set for growth through optimum investment, production and export, not only to create employment but also to increase the much desired revenues. An agreed strategy has to focus on sustained growth through manufacturing and agriculture. The emphasis must also be on strategic industry-led growth and value added exports, transfer of hi-tech and import substitution.

This would naturally include the basic industries, such as,

steel, heavy mechanical and chemical complexes and engineering currently internationally uncompetitive following the globalization led growth strategy. The globalization strategy is now being questioned both in the developed and the developing world.

In glocalization alone lies continued macro-economic stability, an antidote to deficit finance, trade imbalance and inflation. It is thus glocalization – not globalization which will serve the purpose.

Basic industries It is in this perspective that one must highlight assembly of several basic industries including engineering, chemicals and pharmaceuticals done generally through irregular channels which neither add value, nor create employment, earn foreign exchange or reduce cost. On the other hand, massive under-invoicing is being undertaken at an ‘agreed value’ for custom clearance, which are lower as compared with regular imports.

This occurs despite the fixed minimum export price the world over including China. There is the law to restrict such imports under global discipline of misfeasance under which the organized sector cannot do so in whatsoever circumstances.

Thus, there is a case for rationalizing such a practice. It causes huge unemployment and revenue loss at a heavy cost to growth strategy of value-addition. The least that may be expected is, that no one should be allowed to undertake assembly without a Technical Assistance Agreement and/or Joint Venture Agreement, drawings of the components and parts from the principals,

A major problem of the developing countries has been political, economic and social instability in-house frame and engine manufacturing facilities, paint shop, maintenance, testing, after Sales/Warranty arrangements, etc. Without these pre-requisites, it will endanger loss of user life on the one hand, and loss of revenue, not to speak of the industry development. The last budget has re-enacted this, where Industrial Development Board has been authorized to ensure its implementation. Otherwise, capital investment of over billions in the industry will go to waste and further investment due to extremely hi-tech value added parts would be otherwise jeopardized. This would require policies of adequate safeguards to the industry.

Glocalization There is also a need of dismantling imports and export barriers. However, protection is not as out of mode as sometimes made out. Examples of protection in US and EU to agriculture, textiles, steel, etc. are well known.

Let us, therefore, dovetail industrial policies with local priorities which transfers technology, saves foreign exchange and generates employment. In this respect, reliance must be placed on what the then World Bank President, Mr. Wolfensohn, believes in i.e. globalization through localization: He says: “We need local ownership and local participation.

Gone are the days when development could be done behind closed doors in

Washington or Western capitals or any capital for that matter”.

Such thoughts thus must be harmonized with local genius. The Malaysian experience shows that as long as a country has sufficient reserves – industrial policy can be formulated that simultaneously promotes export, import, substitution and strategic industries. The industry and especially hi-tech manufacturing industry can be promoted to become globally competitive. In India, the basic industry is now one of the top tax generators for the government.

They did it through focussing on manufacturing and value addition and not packaging or assembly.

Revenue shortfalls and unemployment – with the actual inflation over 10% must be checked. The reliance on these policies would be in the larger national interest.

Inconsistency Inconsistent economic policies discourage investment, production and export and employment and need to be harmonized with local aspirations. The remedy lies in industry and particular in manufacturing, not packaging or assembly. A balance must be struck irrespective of external pressures. The reliance on these policies will ensure, socio-politico-economic sovereignty, to say the least. In that also lies the solution of “Roti, – Kapra aur Makaan”: Bread, Clothing and Housing:

42 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Tax justice agenda Dr. Ikramul Haq The extending of extraordinary tax-free benefits to the powerful classes, failure to tap actual tax potential, indulgence in wasteful expenditure and funding of inefficient public sector enterprises are continuously pushing the country to more and more borrowings—both internal and external. The unrelenting huge fiscal deficit and rising quantum of debt are the major source of macro-economic imbalances over the last many years.Making the things worse, the growth-retarding tax policy is playing havoc with stagnant economy. Sole stress on oppressive indirect taxes is not only widening the rich-poor divide, but has also failed to enable Pakistan toreduce even revenue deficit—we are not mobilising enough to meet current expenditure.

It is an admitted official position that despite resorting to all kinds of highhandedness, illogical policies and unjust withholding taxes, the Federal Board of Revenue (FBR) has failed to improve the tax-GDP ratio—it dipped to 8.9% in 2013-14 from 9.5% in 2011-12. In 1991, our fiscal deficit was just Rs. 80 billion. It increased to 6 percent of GDP against the budgeted target of 4.7 percent in 2013-14. It was mainly due to slippages in FBR budgeted tax revenue, proving beyond any doubt that irrational taxes cannot avert fiscal disaster—against the original target of Rs. 2810 billion, actual collection was just Rs. 2254.5 billion.

Irrational taxation always paves way for anarchy and economic retardation. This is exactly what the successive governments—civil and military—have been doing since long.

In 2004, FBR promised a 0.2 percent per annum growth in the tax-to-GDP

ratio for the next five years while submitting 'tax projections' and 'revenue-to-GDP ratio' to the International Monetary Fund (IMF) on the conclusion of 9th review by the Fund under the Poverty Reduction Growth Facility (PRGF). FBR informed the IMF that it would increase tax-to-GDP ratio from 9.2 percent to 10.3 percent in 2008-09.

Interestingly, in 2008-2009 instead of improvement there was a decline!

Since then, there is no improvement in the situation.

The question is where does the fault lies? Even the World Bank-IMF funding and “guidance” has failed to produce desired results.

Who is responsible for the prevailing pathetic state of affairs? Our debt burden has increased monstrously, fiscal deficit is simply unmanageable, inflation is crushing the poor, taxes are evaded and avoided by the rich and whatsoever is collected is wasted by the rich and mighty. What a tragedy that the elites (ashrafiya)not only evade taxes but also thrive at taxpayers’ expense. They are the de facto beneficiaries of all the State’s resources—generated mainly by the suppressed land-less tillers and diligent industrial workers. Pakistan is not a poor country—the State’s kitty is empty because ofcollossal wastage of taxpayers’ money on unproductive expenses (perks and perquisites of ruling elites) and non-exploitation of vital natural resources as well unwillingness of the rich to pay income tax.

The absentee landlords (they include mighty generals who have been allotted State lands under one pretext or the other during the last many decades) have been resisting proper personal taxation on

their enormous income and wealth.

An unholy anti-people trio of indomitable militro-judicial-civil complex, inefficient politicians and greedy businessmen—controlling and enjoying at least 90% the State resources—contribute below 1% towards national revenue collection but is beneficiary of 90 percent of resources. The higher-ups in military, civil bureaucracy, ministers, state ministers, advisers and consultants are not willing to cut down their perquisites and privileges. They are not prepared to live like the common man by surrendering unprecedented perks and privileges they are enjoying. It is pathetic that less than 20% share is given to the poor in the budgets of all governments.

fiscal policies have decreased tax burden on the rich and increased its incidence on the poor.

We cannot increase our tax-to-GDP ratio unless the following steps are taken: • Simple sales tax and income tax regimes to facilitate the people to pay their taxes without any fear and in return the masses must get universal entitlements e.g. health, education, housing, transport, clean drinking water and other amenities.

• Establishment of a single tax collection agency (National Tax Agency) at the national level as is the case in Canada (Canadian Revenue Authority) to relieve the taxpayers of highhandedness of many.

• Absentee landlords and so-called pirs(spiritual leaders) should be taxed

Anti-people trio of indomitable militro- judicialcivil complex, inefficient politicians and greedy businessmen— controlling and enjoying at least 90% the State resources The existing exploitative, rotten, regressive, ill-directed and unfair tax system is rapidly widening the existing divide between the rich and the poor. The sole stress on regressive indirect taxes [even under the garb of direct taxation through presumptive tax regime on goods and services] without evaluating its impact on the economy and lives of poor masses and lack of political will to tax the rich and the mighty, remains our dilemma—not scarcity of resources or narrow tax base. Equity demands higher taxes from those who have higher income and wealth, but in Pakistan since the first martial law all

heavily as they earn billions by exploiting landless tillers and mureeds (followers).

• Capital gains arising from movable and immovable assets should be taxed at the normal rate.

• Confiscation of all assets created out of untaxed money.

• Abolition of all kinds of tax exemptions and tax amnesty schemes.

• Deletion of provisions facilitating whitening of black money e.g. section 111(4) of the Income Tax Ordinance, 2001.

• Reintroduction of progressive taxes, e.g., wealth tax, gift tax, and estate duty by the provinces.

• Stringent provisions to counter money laundering, tax evasion and rent-seeking.

We can easily generate taxes of Rs. 12 trillion at federal and provincial levels if above measures are taken. This will help the State to meet all current expenses and earmark substantial funds for development and special programmes for the poor and needy.

The dire need in today’s Pakistan is to reduce inequalities through a policy of redistribution of income and wealth. Higher rates of income taxes, capital transfer taxes and wealth taxes are some means that can be adopted for achieving these ends in all the democratic countries.

In Pakistan there has been a gradual shift from equitable taxes to highly inequitable taxes. The shift from removing inequalities through taxes to presumptive and easily collectable taxes has destroyed the fundamental principle of horizontal and vertical equity. The equity principle can be held to be satisfied when the overall classification of individuals into categories is reasonable and broad enough to contain many individuals within each category and there is equal treatment within each category. In other words, there is a level playing field for all.

The existing tax system is highly unjust. It protects the rich and mighty having monopoly over economic resources. At present there is no political will to tax the rich. The common people are paying an exorbitant sales tax of 17% to 27% (in fact 35-40% on finished imported goods after mandatory value addition and income tax at source) on essential commodities but the mighty sections of society such as big industrialists, landed classes, generals and bureaucrats are paying

no wealth tax/income tax on their colossal assets/incomes. For social justice and pro-people economic development, the government, through tax policies, must discourage certain activities, which are considered undesirable; for example, special excises on luxury and semi-luxury goods. Such measures act as a deterrent in avoiding a spill-over of these items that create disturbance in society as a consequence.

For achieving the cherished goal of establishing an egalitarian society and a self-reliant economy, proper taxation of the privileged classes—ruling the country for the last six decades—is the need of the hour.

They are the culprits as they do not pay income tax and have amassed enormous wealth—many of them are beneficiaries of huge loans write-offs as well. Many of them are guilty of plundering and wasting public money. The State has become so callous that the people living under the poverty line are subjected to exorbitant sales tax of 27% on petroleum products. They are paying exorbitant sales tax on many items of daily use but the ultra-rich having billions areenjoying tax-free incomes.

People are dying of hunger, but President, Prime Minister, Governors, Chief Ministers, the army of ministers, state ministers and privileged members of military and civil are wasting millions on their “security”, personal comfort, lunches, dinners and foreign visits. So, the issue of more taxes and improving tax-to-GDP ratio should not be discussed in isolation but needs to be analysed from social justice point of view as well.We need to end inequalities and ensure fair and equitable of resources as part of Tax Justice Agenda.

Business Recorder | Monday April 27, 2015 | 43

INF/KRY/No. 1531/2015

44 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Myth. Not a myth Qaisar Mufti We need scales or standards for measurement of activities and achievements. These enable evaluation of changes, whether brought about by own designs or actions ushered by outside forces, including environment and time. Mostly it is comparison of two positions of the same entity obtaining at different times. At times, for comparison purposes, results of different entities are placed against each other. In business and economics, positions compared are in relation to achievements of a business entity or of the state, including a provincial or local authority.

Indicators to evaluate strength of a country’s economy can be said to include: GDP Growth, Tax GDP Ratio, Per Capita Income, Exports to GDP, Complexion of Goods & Services in the GDP, Foreign Exchange Reserves, Balance of Trade, Balance of Payment, Exchange Rate, (Total) Debts to GDP, Foreign Debts to GDP, Per Capita Income, Per Capita Incidence of Debts, Per Capita Investment, Stock Exchange Index, Savings & Investments of GDP, Domestic Price Index, Consumer Price Index, Fiscal Deficit, Unemployment Rate etc. The number of warheads possessed and atomic arsenal store are relatively later additions to these indices. Positive variances in these indices, in isolation of other factors or fallouts in the scenarios compared, are taken for indicators of progress or vice versa. Probably latest addition to the list of such measurements is remittances in foreign currency natives send to their fatherlands.

Although, there is not even a remote agreement from the traditional players on these being not measures to express progress or

development, the problem becomes precarious when one reckons voices of social scientists. Pronounced is that per capita income growth is a misnomer as it does not tell which strata or percentage, segment of the society or class of the society has progressed or that it is not representative of the majority mass. Averages in these indices are a camouflage, it is claimed. Contention is that these are meaningless till evidenced are fruits of development gone to the populace at large. Postulate to this is that fruits of any specie, including profit from business, seeds of which may be sown by individuals or groups of them, are made possible by the society. It is national assets which provide the outcome. Sons and daughters of the soil are stake holders in the tillage. The narration of Corporate Social Responsibility (CSR), now nurtured by the business world, bears testimony to the same.

CSR is described in annual report of the corporations, containing details of profit made and respective financial strength.

One often finds allocations for education or health as percentage of GDP or in terms of $ per capita. What is US, Canadian, Chinese or Russian GDP percentage allocation for education or health sectors turns Pakistani allocation a totally irrelevant indicator. Particularly when one gets to measure its impact on healthcare or education in the home country. Also because the succeeding flows of funds to these sectors in the cited countries add to strong physical and professional structures already obtaining in contrast to what we unfortunate have. One finds that allocations for

health and education in the rich countries are astronomical in comparison to positions obtaining in backward countries.

There are social scientists challenging GDP Growth as an index.

Because the index turns flat lows and highs between incomes of different segments of the populace. It does not

additional set of statistics – worked after these adjustments, the plea is.

On the macro side: At times there are countervailings, overlappings or parameters in conflict with each other. For example, with a view to have higher credit rating, national foreign exchange balances may be raised through borrowings, at rates

Does a grown percentage in the number of people of visiting KFC, McDonald or Pizza Hut signal growth? change in the wake of middlemen grabbing major portion of value addition during travel of the produce from producer to the consumer.

Some social analysts believe that it is not rise in exports to be complacent with. To be reckoned should be the value addition which should have been there but is not there. According to them, for internal statistics purposes, an increase indicated has to be qualified for what is value addition not realized e.g. clinker not converted into cement, cotton not processed into yarn.

However, it is a long way to go, viewed that such a leap forward would call for conversion of cloth into apparels. Also that apparels have different markets, which are not related to their quality.

Reference is made to the conditions in which workers of the export houses, including under age, work with numerous hazards. Cost on this account, not incurred in monetary terms, is referred as the social or shadow cost which is difficult to bring into measuring rod of money. There should be an

many times more than the returns on foreign exchange balances held. The increase in foreign exchange reserves may pose a positive indicator with simultaneous pegged-up national borrowings and related service liability sounding negative. Rise in inward remittances may be a positive factor. Inflation agitated by spending out of foreign exchange inflows, through such inward remittances in the home country, shall be a negative count. The situation is complicated with enormous social cost when families of natives employed in foreign lands stay back home.

Rise in national debt may not be a negative factor given the advantages demonstrated by relatively substantial moving-up of GDP and increase in employment level sans waves of inflation. A rise in national debt may be acceptable only when it is translated into appreciable growth and ways of its off loading are in sight. In this connection realization has to be that all economies are not versatile, capable of opening new vistas, like the US economy. What is viable in that scenario may not be

workable in countries not enjoying likewise strong political linkages.

Countries suffering with disproportionate foreign debts should go for each additional trenche of debt on the basis of a debt service table showing coverage of each installment towards debt servicing by (say) two times after application of due sensitivity tests.

Then of course the question arises, what is growth. Does a grown percentage in the number of people of visiting KFC, McDonald or Pizza Hut signal growth? Alternatively, shall flocking of wardrobes by the branded shirts and jeans in place of modest shalwar kameez signal dawn of growth? Or the teenagers reciting passages from Eliot, Wordsworth or Shakespeare as against Shah Latif, Mir or Ghalib, their parents recited, would mean advent of march on.

Resolved, these issue remain not resolved. Not likely to be resolved.

Chalo ab aage barh chalen, yahan theherke kiya karen.

Increase of dwellings in a situation fraught with scarcity of homes, financed by borrowings, may not be a good sign in the wake of rise in non-performing loans of banks and financial institutions (NPL). Increase in NPL goes to the financiers’ clenching fists, causing ripples in the business world, adversely affecting the construction industry, the allied trade and industries of the construction business.

Thus no movement, no indice or parameter can be relied upon in isolation. To be reckoned is the overall view………, a compromise eventually.

Performance of a business entity does not depend on who has that entity in its fold, public or private sector. Nowadays, plenipotentiaries of

ventures both in the public and private sector are alike, attended same or almost identical schools, having had similar education, training and values, holding identical virtues, whatever these be. Thanks to the resources, ingenuity and mind-set of the ones in business and sorts of bureaucracies we have come to have.

Private sector usually has strong linkages with bureaucracies.

One should not wonder finding scions of successful business, civil, military or multinational bureaucracies, sitting over multiple business empires both in the private and public sectors, siblings adorning dais of political parties, apparently at war.

Due to improper or faulty steering a company in the private sector may fail, while an organization owned by the government may prosper. There are instances we find.

Despite the fact that men at helm of affairs of public enterprises should normally be possessed with better vision, be more seasoned viz. a viz. the ones in private sector and that lot many siblings from the business families come to steer public sector organizations, rhetoric is that public sector can not deliver.

This writer’s synthesis that, other things remaining the same, a manager in the public sector should be more tempered viz. a viz. a manager in the private sector, is based on certain assumptions. The foremost being that a public sector guy, at the start of his career, would have been indoctrinated that his job is to act according to rules.

Continued on next page

Business Recorder | Monday April 27, 2015 | 45

50 years of putting the economy first Continued from previous page There are always sets of rules and accountability processes subsisting for the public sector officials. On the basis of such ‘log books’, his span of control is described. To have a good training in ‘governance’ before being on the job is normally mandated for a public sector man. This may not be must in the case of private sector. A public sector manager is not required to, simultaneously, superintend heterogeneous ventures: a bank, an insurance company, a brokerage house, a fertilizer factory, construction networks, stock exchange operations and the like. The sort of unity in diversity with no chains position (as may be existing in the private sector), public sector people, as class, hardly imagine. They can not imagine their being both makers and followers of rules – shifting positions, whenever they like. A public sector man, as the tautology would have it, is chained by the rules, while private sector guys shape rules of the game or can have these altered for convenience, in business interest.

Fault lines in a public sector enterprise can be due to lust. There can be milking of enterprises for self or by a foster group or political interest by the ones whose job is to provide light i.e. ideologues in the governments. At times when functioning of public sector is the issue, it may be difficult to discern ‘where the Government is’. But then there is an array of rules to get hold of the delinquents. These are big strength for the public sector.

Relatively, there can be easy twisting in the private sector. It can be a design to make an enterprise suffer because the decision makers or the doers want some other to prosper at its cost. A sugar mill, a public company, may suffer due to higher payments for the sugar cane purchased, by over – weighing the crop tendered for milling. This can happen when cane suppliers are from the clan of directors and cronies of the sugar factory owners. Sugar cane may be purchased from growers by middlemen for ‘on cost’ supply to the mill. The sugar mill may purposely show lower recoveries of sugar and molasses. Contention may be that beggasse thrown by milling was used as fuel for the boiler, which may not

be ture. Every bill in the name of the sugar mill may be ‘business as usual’.

To the desired end may be cited employment of nears and dears, needed or not by the mill, at high packages. Ghost employees can also be there. Of course there can be kick backs to bulk buyers of the produce.

The sugar buyers may be paying lower than market rates. The buyers may be provided longer term credits, while banks and other financiers’ meters of financial cost to the mills keep ticking. There may be travels, sojourns at the cost of the company.

There may come to exist engineered bad debts.

This is just by way of conjecture, imagination, to profess that in the industrial and business sectors there could be ‘plays’ staged in pursuits other than business interest by men at the helm. More than what may be attributed to the cited industrial sector, can be identified with an airline, steel mills or a utility company.

“The argument for privatization to gain efficiencies is also contested by various critics as many economies have reformed while big companies are run by the public sector. Majority of large corporations in China are owned by the government and are performing competitively to any big globally privately-run company in the same business. Success of Dubai is all due to a visionary leader and Emirates, world's biggest air carrier, a publicly owned company and the list goes on.”

– Business Recorder, 10 February, 2015 (Page-2).

Controversies float in relation to scores of indices in the corporate culture. These, in general, are derivatives of the financial and management accounting records. Whatever their constitution or corporate structure be, all sorts of set-ups have some accounting record. Corporate Social Responsibility (CSR) is another measurement that the corporate evaluators have come to have. May be on a future date we see CSR’s related quantification and qualification in audit reports of enterprises.

Basic function of the Board of Directors or Governors is to chart route of the organization in keeping with constitution of the organization viz. Memorandum & Article of Association, charter or the special law which brings the relevant institution

into being. In private sector, when the venture is part or component of a business group, it is the group profit focussed. How it is made-up or which unit of the group contributed what is a secondary matter.

Governments do not set-up institutions basically to make money because government’s business is not money making. These are brought into being to deliver identified services to attain desired ends in keeping with the governmental overall program, be it development of an area, to make available certain goods and services or providing employment. Such institutions may come to make money at the altar of their objective i.e. purpose of bringing into being. Money may flow in the process. If the organization makes a loss, to be judged is whether the cost of delivering the service is in order.

The government has to take the accounting loss through its budget, which should be taken as a valid cost of delivering the targeted services, like other costs in public service.

When the government sets-up a limited liability company or some other corporate structure to operate a bus service, the venture is provided precious land, otherwise needed for public good. Since performance is rated in relation with the object, performance of the bus company should be evaluated in terms of service to the populace, not in terms of money it makes. It would hardly make a profit if usage of land it takes over and damage to environment it causes are reckoned in its operating costs. In case the venture is not for public good or the element of public good is taken out from its objectives, it should pay for the public assets it takes over as also for utilities it consumes and environmental hazards it causes.

The government sets up projects in public interest. It divests project in public interest. If the government decides to divest the bus project, subsequent acquirer of the bus facility should pay for the infrastructure or pay for use of all the national assets. However, in consideration of the community service, such acquirer proposes to render, the government may allow him a bounty by way of reduction in the money he would otherwise be called upon to pay to the government.

The government has to ensure that public is compensated for the use or take over of the national assets. There may be several ways to take care of the same. Inflows from the privatized projects by way of taxes, employment providing to the public, making the economy investment friendly for private sector investment are illustrative to this end.

Governing body or board of directors’ job is to provide action plan to achieve the objectives for attainment of which the relevant institution has come into being. That is the mantra. Be it public sector or private sector. The board should ensure that this is done. If the board does not do that or is not competent enough to come upto the task, blame has to be taken by the ‘set-up’ which has named the board or has installed that. Not the Chief Executive Officer, not the Board. Accountability should lie at the level which has failed to perform like the one committing an embezzlement.

Boards of companies both in the private and public sectors may be lousy. Their directors may not have enough time for the company. When it is a private sector project with a lousy board, shareholders, voting them in, are sufferers by way of depreciation in their investment values or non-exploitation of its potential by the venture.

Often observed is a board’s travel to dysfunctioning e.g. lack of interest in non-focal companies when it is a group of companies operating.

They may have interest only in such affairs of the company which benefit them as individuals. Such benefit may have various shapes. It can extend to demonstration of being on the boards of several companies.

Pakistan has too many dissentions and bickerings from too many corners. Summary disposal of which does not appear plausible.

Pattern or form of ownership of business ventures is one of these.

Public OR private ownership of enterprises can not get through all the throats. This leads to the ticklish proposition of privatization of ventures in the public sector once a government dominated by the traders and industrialists comes to have the steering. Cited is privatizations of certain ventures which have prospered after getting out of

government control while, side by side, are instances of closure and getting out of business of quite a few industrial units privatized, squandering assets – particularly land.

Proponent of private sector talk in terms of monetary losses that public sector projects may have suffered with. Winked at is the strategic advantages reaped or not reaped by these projects. Forgotten is that evaluation is in relation to the object e.g. we can not evaluate performance of a general hospital set-up by the government in terms of its excess of revenue over expenditure. The evaluation has to be in terms of service rendered by the hospital.

Lawmen keep debating whether land given by the state to set-up an industrial unit for uplift of populace can be given away for other purposes viz. housing or better utilized for revenue generation, notwithstanding enabling provisions in the laws for such appropriation.

One may find weight in arguments from both sides. Being an issue which appears to have graduated as a question of faith, it can not be really resolved either by a court decision or a government decree.

With reference to the proposition of way in which we move, this writer is of the view that both the arguing factions have to be on board. Solution appears to be that we move in both the directions. We should strangulate neither public nor private sector.

There may be strategic issues to be taken care of by a steel mill in Pakistan, not written for public consumption, not stated in the mills founding documents, not overtly catered by its constitution. At the time of its planning, a steel mill may have scores of up and down stream projects for its make-up or of national importance, to be set-up in due course. These may not quickly and directly fatten the steel mills bottom line. Resources viz. land or water courses, kept idle in the project’s periphery to such ends, may not enthrall a private sector guy focusing quick gains. Similarly, there may be lot many country view point a national airlines may serve e.g. meeting defence requirements or getting, direct or indirect, diplomatic acclaim from other countries for training personnel of their airlines.

These may be airlines’ contributions of substance for the country. Big science laboratories not exclusively devoted to the venture, indirectly serving the state, may not have fancy of the private sector owners.

It may appear difficult to assume that the private sector will be as enthusiastic about these national interests as may the government be.

Not because they are not patriots.

Because they are not so cut. The succeeding generations of founders of large public sector projects can research these, add to the list of strategic advantages. Such additions are made possible by increase in the treasure of knowledge the succeeding generations come to have. One way of reaching true profitability of public sector giants is credit to their profit and loss with the invisibly existing and future gains to the country. A management accountants working for the public sector may do that in his shadow profit and loss account.

Relevant is not alone profit in money terms. Projects in the public sector make or do not make profit or losses they incur. It is a question of far reaching effects on national health, the governments have super most.

We have to align with divergent voices. We have to reread benefits on the national scale that a steel mill, operating in or likely to operate in multi-dimensions, may usher. Many of these would have been envisaged at the time of the mills setting-up. Lot many time and experience may add.

Merits associated with airlines in the public sector are not to be winked at. It is not a simple issue to be decided on the basis of financial ratios or accounting parameters. Then: how do we sustain? On the governance issue we should all sit and close ranks.

Probably option emerging may be nurturing both the sectors and develop new corporate governance models for our public sector.

According to Daily Dawn of 18 March, 2015, President Barak Obama has counseled” “….. we should generally aim before we shoot.”.

46 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Pakistan’s shrinking governance space Saeed Ahmad Qureshi One of the dimensions not often discussed in the literature on governance, is the issue of governance space i.e., the degree of freedom in taking initiatives, formulating policies, organizing important decisions and ensuring their effective implementation.

Broadly speaking, the issue of governance space can be covered by asking; Does the stewardship enjoy the confidence of people? Does it have the room to take bold initiatives? Is it in a position to enforce the writ of the Government?

Does it have the ability to implement its policies? What are the constraints that constrict these options? Are parallel power centres or power systems emerging in defiance of the writ of the state?

Governance space is neither a legal nor physical concept. It is functional. Its loss is a reflection of the gap between de-jure and de-facto authority, and equally between legal and moral authority of the government. A new government established through free and fair elections, enjoys both legal and moral authority, legal because of its legitimacy and moral because it embodies the aspirations of the people. After it becomes operative, the factors that can constrict its governance space are, poor quality of stewardship, lack of reliability and integrity, ineptitude, performance failure, inaccessibility, absence of foresight, inadequate response to a crisis, erosion of institutions, distorted priorities, preoccupation with the urgent rather than important and the failure to achieve a viable balance between constituency and Government.

The loss of space is generally, but not always, a phenomenon emerging from default rather than design.

This process is mainly, though by no means entirely, internal to the state.

An important manifestation of this phenomenon is that the Government is driven by expediency, is shy of major initiatives and hesitant to take decisions that are necessary but difficult.

The Processes of Loss of Space The processes that curtail governance space fall in three categories a) Ceding of governance space b) Erosion of governance space c) Surrender of governance space Ceding of Governance Space A-Informal Economy In the economic sphere, an important limitation of the governance space arises from the unreported segment of the economy. It has two main categories, activities which are legitimate but outside the monitoring system such as cottage crafts or unpaid family help, and the surreptitious activities which violate the laws of the country, such as bribery, corruption and drug traffic.

In Pakistan, the informal economy has been expanding over time. Social Policy and Development Centre, Karachi, reported in 2000, that the informal economy was about 42% of the national economy in 1980-81, grew to 46% in 1998-99 and represented 50% of the national economy in 2000. In November 2012 ,economist Ali Kemal claimed in a Conference of Pakistan Institute of Development Economics, that the

informal economy is almost equal to the formal economy.

The unreported economy operates outside the fiscal, regulatory and monitoring framework of the government. It weakens the resource base of the state, limits the impact of policies, reduces the reliability of economic data, and results in an understatement of size of GDP. However it is the biggest source of employment. So it cannot be taken lightheartedly.

A new government established through free and fair elections, enjoys both legal and moral authority, legal because of its legitimacy and moral because it embodies B-The Window of Immunities Within the formal economy, there have been numerous instances of

ceding governance space, for short term revenue gains. An important example is the introduction of the bearer instruments in mid-1980’s and early 1990’s. These instruments were granted exemption from all taxes and immunity from any probe relating to the sources. There have also been several tax amnesties in Pakistan. No questions asked, if the hidden assets or hidden incomes are disclosed.

These are taxed at a highly concessional rate. Each amnesty is declared to be the last, but the count has been increasing. So far there have been seven amnesties. These dispensations, open large holes in the fiscal system create room for tax evasion and constrict the writ of the state.

Such expediency oriented compromises are often in the nature of a “penny wise pound foolish” approach.

C-Outsourcing the Policy Function In the management of the economy, the government must maintain stability, on the fiscal, monetary and balance of payments fronts. These are the essentials of a sound macro-economic management system. In Pakistan this has not been possible, most of the time. Persistent fiscal deficits have often led to accumulation of domestic and external debt, forcing the Government to look for support from the multilateral agencies. The deficits in the external accounts necessitate recourse to the International Monetary Fund, an institution demanding on conditionalities. In the late eighties and much of nineties Pakistan had to approach the IMF for assistance several times.

The conditionalities imposed on the state were hard and all embracing.

The credit under the Enhanced Structural Adjustment Facility provided by the IMF in 1997, had a policy matrix that ran into 13 pages, stipulating 124 policy actions, each of which had a specific time-frame.

Between 1988 and 2001, as many as 13 agreements were negotiated with the IMF – averaging one agreement per annum. Three of these agreements were in the nature of emergency assistance, provided in one tranch. Two were completed with delay of one year each. The remaining eight faltered.

The assistance contemplated in these agreements aggregated to $4983 million, while the disbursements were only $1537 i.e. 30 %.

Instead of completing the three-year mandate successfully, Pakistan became a single tranch economy, failing to implement its pledges. The institutional capacity and the political will had been over-estimated.

The Stand-By Arrangement (SBA) concluded between the Government and the IMF in November 2000 had an unusual feature; certain reform actions were to be completed before the IMF Board considered the request for a stand-by credit – which really is in the nature of emergency assistance to forestall an impending balance of payments crisis. It carries a market related rate of interest and does not normally impose prior conditionalities.

The upfront measures to be implemented by the Government, included exchange rate adjustment, increase in the interest rates on Government borrowing reduction in import tariffs, special audit of the Directorate of National Savings,

formation of Ad-hoc Public Accounts Committees, settlement of Government dispute with HUBCO and KAPCO. The agenda also included implementation of the structural reforms agreed with the World Bank, a substantial package in its own right.

A case could be made out against categorizing this phenomenon as loss of governance space. First, that these are agreements between a lender and a borrower. The borrower is free not to take the loan if the conditions are unacceptable. Second, the policies stipulated by these agencies are consistent with long-term stability of the economy and therefore in the interest of the country.

In fact, the alternative do not really exist. These arrangements come in the shadow of a crisis, emerging from poor macroeconomic management, a governance failure. Such crises enable the multilateral institutions to impose harsh conditions Secondly the issue is not whether these policies are good for the economy but that economic policy has to be a national enterprise. Outsourcing it undermines the government’s steering function and reduces it to an implementation agency. Lacking in national ownership, it alienates the stakeholders. They feel the loss of governance space.

Erosion of Governance Space The process of internal erosion of governance can be precipitated by a decline of confidence in the governing structure. A lacklustre response to a major crisis has frequently resulted in loss of space.

Continued on next page

Business Recorder | Monday April 27, 2015 | 47

50 years of putting the economy first Continued from previous page The worst failure on this account, dates back to the regime of Yahya Khan. In November 1971 there was a devastating cyclone in East Pakistan (Now Bangladesh). The President did not visit the area in time. The assistance from the Federal Government reached after the foreign assistance. This lack of interest had a disastrous effect on the writ of the Federation.

On a lesser plain, when the floods triggered by heavy rains in 2011, devastated Southern Pakistan, affecting a million people, the Government had to face adverse criticism for failing to take timely and effective measures to deal with the situation. While the floods were raging, President Zardari left for France and took a helicopter ride to a sixteenth century chateau that his family owns in Normandy. This was regarded as an expression of indifference to public suffering, affecting the moral authority of the Government, which found it hard to live it down.

A second factor constricting the writ of the government can be misconceived initiatives that produce a backlash. A notable example is the nationalization of as many as 3,752 small industrial units (rice milling, flour milling and cotton ginning) by Bhutto in 1976. This predatory takeover caused widespread resentment and built up a hostile constituency of mid-level businessmen. The difficulties of management precipitated the crisis. Many of the enterprises were located in the rural areas. It was not possible to find 3752 competent, honest managers, available on an immediate basis and willing to serve in the remote areas. The traders and businessmen affected by this policy were in the forefront of the anti-government agitation of 1977. As a result the Bhutto Government was overthrown and the country went under Martial Law. A third factor is delivery failure. There are a number of recent examples. When PPP Government took over in 2008 the country was experiencing prolonged power outages that go by the name of load shedding. The Government announced, right in the beginning, that these would be over within one year. Five years passed, but the load shedding continued on an extensive scale. This was one of the reasons for the defeat of the Party in the general

elections held in May 2013. The record of the next government, headed by Nawaz Sharif, is no better either. In this case, the operative gap is not between promise and performance, but between expectations and realization. The people expected more from the new government. It did not happen.

The PPP Government also dithered on its public commitment to restore higher judiciary, sacked by Musharraf. Eventually this was done, but under pressure from the public, the lawyer community and the army.

Such divergences between promise and performance, have an adverse impact on the moral authority of the Government, limiting its freedom to take major initiatives.

The fourth factor is the divergence between official pronouncements and ground realities. A notable example relates to the drone attacks carried out by US in North Waziristan. The drones are unmanned vehicles, operated by remote control. According to the American Bureau of Investigative Journalism, US carried out 362 attacks from 2004 to 2013, killing more than 3000 people, many of them women and children.The Government of Pakistan has been privy to this, but has been lodging protests, thus misleading the people. on these attacks. The remarks on Wikipedia web site are typical.

“Pakistan's Government publicly condemns these attacks, but has secretly shared intelligence with the United States and also allegedly allowed the drones to operate from Shamsi Airfield in Pakistan until 21 April 2011, when 150 Americans left the base. Apparently, Prime Minister Yousaf Raza Gilani had allowed drone strikes in the tribal areas of Pakistan, saying they would protest the attacks in the National Assembly and then ignore them. Pakistan's Army Chief Ashfaq Parvez Kayani had also agreed to the drone flights. In fact, he requested Americans in 2008 to increase them Another source of embarrassment was the startling disclosure that Osama bin Laden, the most wanted terrorist in the world, was living in Pakistan for nine years, (and in Abbotabad for more the 5 years) before he was eventually killed by American Marines in May 2011. The Government has not been able to offer any plausible explanation for

this. If we were ignorant for so many years, it is a damning failure of the intelligence services. If it happened with our connivance, we could be considered a rogue state. We lose out either way.

Surrender of Governance Space A-Partial Surrender Defiant Power Centres The power centers that work on a sharply focused agenda (mostly in sphere of organized crime) do that in total defiance of the writ of the state.

The most prominent example of this phenomenon was the rule of dacoits in the province of Sindh from late 1980s to 2001. They exercised complete control over the katcha (riverine) area starting from Kashmore to Sagyoon, covering five districts – Jacobabad, Shikarpur, Larkana, Sukkur, Ghotki and Khairpur. According to the press reports high level Government functionaries were mixed up with the dacoits. There was some temporary relief after the army operation in1992, but this was temporary. The phenomenon again reached a peak again in 2001 The dacoits were responsible for 400 kidnappings in the first seven months of 2001.

Another manifestation of the defiance of constitutional guarantees on freedom of movement was the emergence of No Go areas in

certain localities of Karachi in 1990s.

During the conflict between the two MQM factions, Altaf Group and Haqiqi Group, some of the strongholds of Altaf Group, particularly Malir, Landhi, Shah Faisal Colony, Korangi and Lines were seized by the Haqiqi Group. To consolidate its control the Haqiqi Group banned the entry of Altaf Group in these areas.The state did not interfere.

These are the areas which go by the name of No Go areas.

In 2008 the Taliban had virtually besieged Peshawar, the capital of KPK, by taking over control of the main routes out of the city. The Government had to negotiate a special agreement to reopen these routes.

B-Interim Surrender Lal Masjid In March to June 2007, the Lal Masjid clerics and their students in Islamabad had taken the administration of justice in their own hands.

In March 2007 the girl students from Jamia Hafsa, were in the vanguard of their movement. They attacked the video shops in Islamabad. In the drive against vice, they apprehended four women suspecting of running a brothel. These women were forced to make a public confession and give assurances of better behavior in future. Similar treatment was provided to another group of ladies, including six Chinese women. These

activities were stopped only after the military action in July 2007, which resulted in loss of more than 100 lives.

The Government was driven to it, because it failed to take timely action.

C-Total Surrender New Power Systems The erosion of governance space described in the foregoing paragraphs, pales in comparison with the emergence of alternative power systems in the country. The militants who use organized violence as their chosen instrument, have terrorized the entire country, marking the failure of the state to provide security of life, liberty and property, the first guarantee given by the Constitution.

They have seized authority in large segments of the country, regardless of what the Constitution says, or what the official policy pretends.

After the Peace Agreement of 2004 in South Waziristan, Baitullah Mehsud enforced Shariat based legal system in that agency, set up Shariat courts and organized Shariat police for enforcement.

In October 2007 Fazlullah set up Islamic courts in 59 villages that he controlled, including his native village Imam Dehri On June 2,2008 he heard 23 cases, in Sakhra area of Matta tehsil and dispensed the judgment on spot.

Taliban have also been dispensing street justice, without formal proceedings.In December 2005, the Taliban took control of Miranshah town, the headquarters of North Waziristan. They killed 17 members of a local gang which had set up check posts on various roads to collect money from the travelers.

After killing them they tied their bodies to vehicles and dragged them through the streets. Three of the dead bodies were hung on electric poles, one of them upside down.

On September 24. 2008: tribal elders, clerics and Taliban militants publicly killed four criminals in Wana in South Waziristan for allegedly committing murder. The Taliban blindfolded the (alleged) criminals and then allowed the people to shoot them On July 30, 2009 the Lashkar-e-Islam (LI) executed four men after pronouncing them guilty of abduction and murder. They had to face a firing squad. The local citizens were invited through loud speakers to witness the execution.

In Swat, Bakht Zeba, a former member of the Swat district council, met a violent death in December 2008, because she had criticized the Taliban for preventing girls from attending school. Masked gunmen dragged her out of her house, thrashed her thoroughly and then shot her. Her body lay unattended for several hours.

Anatol Lieven, Professor of Terrorism Studies at King’s College London recounting his experiences during a visit to Pakistan mentions an incident that caused great disgust in Swat. This was about Taleban’s treatment of Pir Samiullah. He was a leading hereditary religious figure and had led local opposition to the Taleban. Taleban killed him, dug up his body, hung it in public for three days, and then blew it up with explosives.

Taliban believe that the existing system of education is un-Islamic. And they do not favour female education. They have been destroying the schools, in KPK, SWAT and FATA. On February 21, 2013, Education Minister of KPK, Sardar Hussain Babak, disclosed that the militants had destroyed or damaged more `than 3,000 schools in KP. In addition 460 schools were damaged or destroyed in FATA. Apart from administration of justice, Taliban had also taken over a second function of the state i.e., tax collection. In October 2006 Hafiz Gul Bahadur imposed tax in North Waziristan in line with Sharia’ practices. In 2007 media reported that ‘Baitullah Mehsud was collecting his own taxes in South Waziristan. In 2009, Hakimullah Mehsud was collecting Jazia (Tax on Non-Muslims), from the Sikh and Hindu communities living in the Orakzai Agency after he had imposed Shariat’ in the area.

In the areas under their control, Taliban successfully challenged the state’s monopoly over physical violence. They established a new system of justice. They started collecting taxes. These are the constituents of a rudimentary statehood.

The writ of the state disappeared, a total surrender of governance space. One hopes that the government’s National Action Plan and Zarb-e-Azb, the military operation that started in June 2014, would be able to bring this unhappy chapter to an end.

48 | Business Recorder | Monday April 27, 2015

Business Recorder | Monday April 27, 2015 | 49

50 years of putting the economy first

Pakistan’s economy and the way forward Shaukat Tarin Since the World War II, several countries of the world have made transition to developing and semi-developed economies through sustainable economic growth over considerable period of time. Examples of South Korea, Taiwan, Singapore in the first wave and Malaysia, Thailand, Chile and Mexico in round two are countries who have progressed. Lately China, Brazil, Turkey and India have also followed the script. In all the above examples, a political consensus on long-term economic policies is evident and followed. Growth rates of 8% + per annum have been achieved through more or less similar economic policies; stable macro-economic environment with low inflation /interest rate regimes resulting in stable currencies, investment in human capital, emphasis on exports and services, thereby building strong exchange reserves.

Close to home, whereas, we have seenclose to 5% annual economic growth since independence, it has been largely cyclical.

The upturns have coincided with military rules and inflow of foreign aid as our own tax to GDP as well as saving rates have been insufficient to support higher economic growth.

Moreover, frequent changes between military and democratic political dispensations have overtime eroded our state institutions. As a result after 67 years of independence, we are dismally lagging behind on all of the human development indicators and far behind countries who were our peer group at independence.

The question is with a population of close to 200 million of which close to 60% are below the age

of 25, what do we have to do to not only catch up with others, but, also utilise the population bulge.

At the onset we need to understand that we need to achieve an equitable and sustainable economic growth rate of 8% + for at least 20 years plus to move to the status of developing country.

Here are a few recommendations: A- Governance Due to the political musical chairs between civilian and military regimes our governance structure has taken a knock. Political parties do not have well ground and groomed organisations which are ready to hit the ground running when they come into power. Our bureaucracy is at best, lacking in the ability and passion to deliver as they have been badly politicised. Add to it far below market compensation, results in adverse selection and corruption. We have over the years, destroyed our governance institutions. Apart from a few, such as Armed Forces, SBP, the remaining institutions need major revamp and help. We must understand that this will have to start from commitment and demonstration from the top i.e. the Prime Minister and his Cabinet. No policy framework no matter how good it is, will succeed if its implementation is shoddy.

B- Stable macro-economic enviornment No country has progressed amid high inflationary and unstable macro-economic environment. For long-term investments, low inflation and a stable currency is needed. Unfortu-

nately, we have not witnessed a sustained stable macro-economic regimes given large fiscal deficits due to very low tax to GDP ratios, wastage of resources through bad governance and leaking of State Owned Enterprises. The result is that we have only grown 5% + rates when we have received foreign aid.

Therefore, we will need to (a) Increase the tax to GDP rate to 20% in the next 8-10 years (b) Reform, restructure and sell off the SOE's (at least the strategic sale)

D- Education and health No nation has progressed past by ignoring education and health of its population. Japan has almost no material resources and still is the third largest economy of the world by developing its human resources. We have a very versatile and large human resource base and we do not spend enough to educate them and look after their health. If we have to progress, we will need to harness this resource of ours by spending on their education and health.

Agriculture needs more and better utilisation of water, better seeds, fertilizers, mechanisation, financial support as well as efforts to increase value addition. and (c) Radically reduce the inefficiencies in our governance structure for the government to be able to provide the essential services and pay its bills without encroaching upon space meant for the private sector.

C-Stable security enviornment Pakistan is currently beset with a challenging internal security environment. We have lost over 50,000 people fighting the war on terror with the extremists. We have to win this war as this has existential ramifications. Not only it presents a risk to human life, it also negatively effects our economy. For this we need to deal with it militarily but also look at the economic and social reasons and thus have a much broader strategy to overcome this challenge.

E-Energy/power/water scarcity We have not invested enough to boost our water, power and energy resources. This has lead to a crisis situation now which affects the entire population and economic activities.

We need to combine the various ministries dealing with this under one roof and deal with the problems on a war footing. We must understand that we will need to parachute management talents from the private sector into this new agency as we do not have the requisite skills in the present dispensations. More water dams need to be constructed to solve the water scarcity and flooding problems, our power sector energy mix has to shift to more hydel, wind and solar so that we can produce cheaper electricity through indige-

nous resources and we need to invest more in exploration of oil and gas where success rates of between 25-33% are one of the highest in the world. It is a shame that OGDCL and PPL who are mandated to drill 100 wells a year, only did less than 7 last year.

F-Pay attention to agriculture and manufacturing Both agriculture and manufacturing provide our economy the jobs needed for our fast growing population.

Unfortunately, both these areas do not have the support of long-term coherent public policy frameworks.

The result is that agriculture growth rates have been declining over the last several decades and manufacturing remains brittle with a shallow base, fragmented and low on value addition.

Agriculture needs more and better utilisation of water, better seeds, fertilizers, mechanisation, financial support as well as efforts to increase value addition.

Manufacturing needs to expand its base with new products, but also consolidation and value addition in the existing industries, such as, textiles, sports goods, leather products, milk, pharmaceuticals, etc.

We convert one million bales of cotton into $ 1 billion, whereas China earns $ 4 billion from the same. We should try to scale up textiles, cement, pharmaceuticals, milk, automotive and food based industries to create exportable surpluses.

Our exports have been stagnant for a very long time. Unless, we do not equip ourselves to compete in the world, our manufacturing will never come of age.

G-Financial sector Our banking sector is only 33% of our GDP and lending is only 15%. This compares to 50% in Bangladesh, 65% in India and 180% in Korea. Apart from the banking sector we have very shallow capital markets and virtually no debt market to support our formal economy. Moreover, our banking sector derives resources from across the country and spends over 85% on a few large cities. This leaves KPK, Baluchistan, Northern Sind, Southern Punjab and Azad Kashmir resource starved. KPK has approximately Rs 500 bn of deposits and only Rs 50 bn of lending through the banking sector. The sectoral distribution is also lopsided with bulk going to the Corporate lending, only 7% to SME, 7% to agriculture and 6% to Consumer. These disparities have to be bridged and fast, if we want an equitable and sustainable economic growth in our country.

Conclusion The above are a few areas in which we need to pay attention to progress.

Areas such as infrastructure improvements, poverty alleviation, population planning and others have not been mentioned not because they are not important, but, because of length of this discourse. I would also urge our policy makers and readers to study some of the success stories of the recent past, such as Turkey, China, and Brazil who have progressed rapidly in the recent past. Hopefully, we would learn from their experiences.

50 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Economy just limping along Ikram Sehgal With over 180 million hard-working people it is our misfortune that even after 67 years Pakistan as a nation finds itself immersed in crisis after crisis year after year. Oscillating between democratic and military regimes, Pakistan today is surrounded by grave threats, internal and external. Poverty, bigotry and insecurity have almost become the ‘hallmarks’ of this nation. It is the bankruptcy of our policies that has put us under pressure internationally from disparate forces and domestically, force-multiplied by the constant attacks by the forces of evil, their appetite for loot and plunder being insatiable. Almost every govt must bear responsibility for our downward slide and for putting to shame the Quaid’s vision of Pakistan as a modern and progressive nation.

Among the many threats that we face, terrorism and extremism are the most potent. According to the Finance Division, Pakistan’s economy has suffered a loss of more than Rs 2.1 trillion because of the ongoing war on terror. The economy suffered direct and indirect losses in terms of exports, foreign investment, privatization, industrial production and tax collection. In addition Pakistan’s economy has suffered irreparable loss of $ 68 billion due to turmoil in Afghanistan and Afghan refugees.

After having lost more than 55000 citizen’s lives to acts of terrorism. The counterterrorism policy crafted by the incumbent govt in 2013 was a case of better late than never. Focused on dismantling, containing, and preventing terrorism, reforming the country’s education system, and reintegrating low-level militant foot soldiers, the new policy

integrates military action and civilian follow-up, emphasizing the need for greater development and economic support in areas affected by terrorism. While it might be difficult to implement the incipient policy because of the govt’s limited capabilities and Pakistan’s social and political environment, this time around there seems to be a political will to take the bull by the horns. The ongoing military operation, Zarb-eAzb, against terrorists in North Waziristan has achieved success and will have long-term positive impact on national and regional security.

This success must be matched in the counterterrorism by our civilian law-enforcement agencies (LEAs) in

urban areas. However, we will not be rid of terrorism in even 100 years unless we have a dedicated Counterterrorism Force (CTF) duly reinforced with actionable intelligence capability and mandated for action across the country.

Another problem we face is in our education sector where the system of education is one of the most backward in the world. The low budget allocation for education, less than 3% of the total annual budget contributes to the rot, this is indicative of the very low priority given to education. In addition, the powerful feudals, many being deeply entrenched in the corridors of power having a stranglehold on the

Parliament and Cabinets, have prevented or hijacked meaningful educational reforms. How can democracy function without Local Bodies at the grassroots level? Yet we have seen even the Supreme Court (SC) unable to enforce this. In many rural areas where the local tribal chief's word is law, schools cannot function unless he acquiesces. With large segments of our society remaining poor, deprived and marginally trained, it is the responsibility of the govt to ensure that the talented and the selected few get access to quality education. We must improve the quality of our middle and higher echelons of leadership to provide dividends, with nepotism and corruption among leadership being ruthlessly eliminated.

Significant economic, governance and security challenges loom in front of Pakistan. The conflict in the border areas and security challenges throughout the country are factors that impede development to a great extent. Pakistan’s main challenges are militancy and extremism, reviving the economy, resolving the energy crisis, educating our children and generating jobs to absorb the youth so as to avert a looming demographic disaster. But of all the problems that threaten Pakistan the most pressing relates to the economy as almost every other issue that bedevils us is related, either directly or indirectly, to the economy. In the end it is the economic or the material base of a society that will determine its politics and other societal forms and manifestations.

Despite inheriting an economy that was in poor shape in 2013. The Mian Nawaz Sharif govt launched an economic plan, with

IMF’s providing the required technical and financial support, in September that year to reverse the situation, Energy reforms, stabilizing public finances and improving the external balances were the three tasks of the reform programme. It was hoped this plan would, over the next five years raise economic growth, bring inflation down from double digits, reduce fiscal deficit down to 3 per cent of GDP and also increase international reserves. In return, the IMF demanded Pakistan carry out various economic reforms, including the privatising of 31 state owned companies, rationalisation of gas tariff and introduction of a new gas levy to generate increased revenues. However, so far three is little to show on all counts.

Energy must remain a high priority item on the govt’s agenda, Pakistan is caught in the middle of an extremely serious energy crisis that has resulted in resorting to load-shedding of electricity all over the country, in some instances as much as 12 – 16 hours daily in summer. While the prolonged outages of electricity and in many cases, of gas, slow down the pace of all economic activity, it also causes friction and public unrest among the people who take to the streets, venting out their rage by resorting to violence. This in turn creates a law and order situation, at times serious ones and lives are lost unnecessarily. The situation is alarming and capacity utilization in some key industries has fallen to nearly 50 percent and even below.

Pakistan’s heavy reliance on thermal power plants that mainly use furnace oil has exacerbated its woes and the power shortfalls are estimated at

anything between 3500 to 6000 MW – upto a third of the total demand.

One factor that contributed to the emergence of such a dismal situation is Pakistan’s consistent failure to complete a hydroelectric project in recent decades. It is a sad reflection on successive govts in Pakistan that the last mega dam, Tarbela, was completed in the mid seventies. Since then no other major dam has been constructed despite the fact that everyone knows that it takes considerable time to construct new power plants and develop alternative energy sources!

To be fair to the Nawaz Sharif government, it has initiated a sound economic agenda with a major thrust in the energy sector.

The steps to revive the economy are not going to happen unless meaningful structural reforms are undertaken to increase domestic investments and more importantly, attract foreign ones. Over the last few years foreign investment in Pakistan has kept plummeting mainly due to poor economic management, acute energy shortages and persistent terrorism. The Chairman Board of Investment recently expre¬ssed hope that 2015 wou¬ld be a better year for Pak¬istan when pace of foreign investment (BOI) in the country would pick up with improvement in the security situation for investors and provision of main infrastructure facilities, including supply of power and gas.

One hopes for the sake of Pakistan that the economic turnaround envisaged and being planned by the govt will start bearing fruit in the days to come, for the moment the economy is just limping along.

Business Recorder | Monday April 27, 2015 | 51

50 years of putting the economy first

First and foremost Saleem Mandviwalla First and foremost, I would like to congratulate the founding members of Business Recorder on this milestone and their contribution in providing the economic information backbone of information about business and in general to the citizens of our country.

Pakistan, in my opinion, is a land with abundant opportunity and with the vision and leadership such as PPP has the potential to be one of the leading developed countries in the world. Pakistan, recently has transitioned tremendously since the elections of 2008, after 61 years of independence, we saw the first democratically elected government successfully complete its entire term in office and a smooth transition to the next elected democratic government. Mr. Bhutto, in 1972 during a summit in Multan after the loss of east Pakistan stated “we will build a new Pakistan, a democratic, prosperous and strong Pakistan.” A vision that for the first time has seen realization in Pakistan from 2008 to 2013. Now, the need is to evolve into a complete democratic state like other developing or developed democratic countries where real democracy has prevailed for decades.

Our government, during its term in office worked hard to lay the foundations for democracy and its survival and now it is the responsibility of the following governments to maintain the same with integrity and show the same leadership and selflessness in governance and in continuing the democratic process.

Pakistan is one of the few countries whose contribution to the war against terror cannot be overlooked.

We are a country that is fighting and

supporting the war on terror not only for ourselves but for every nation, internally and externally. We, PPP, with the vision of our Quaid coupled with the foresight of our leaders i.e.

Mr.Zulfiqar Ali Bhutto, Shaheed Benazir Bhutto and Mr. Asif Ali Zardari have paved the way for Pakistan towards development and success through an evolving democratic process.

Our foreign policy aligns gravely with the foresight of our Quaid-e-Azam, Muhammad Ali Jinnah, who stated in 1948, "Our foreign policy is one of the friendliness and goodwill towards the nations of the world. We do not cherish aggressive designs against any country or nation. We believe in the principle of honesty and fairplay in national and international dealings and are prepared to make our utmost contribution to the promotion of peace and prosperity among the nations of the world. Pakistan will never be found lacking in extending its material and moral support to the oppressed and suppressed people of the world, and in upholding the principles of the United Nations Charter.”48"" Our foreign policy not only established and furthered new diplomatic relationship but worked hard to re-establish old tarnished relationships with our allies particularly Russia during PPP's tenure.

Today, Pakistan defense is impregnable only because Pakistan is a nuclear power with delivery capability added by Mohtarma Benazir Bhutto during her watch as Prime Minister. Furthermore, peace is holding between Pakistan and India is a direct contribution of our policies

and efforts for this country dating back to Zulfiqar Ali Bhutto’s era (example, the set up of Nuclear power in Pakistan, we can all remember Mr. Henry Kissinger once said, if Mr. Bhutto you do not stop your nuclear program we will make you a horrible example.) However, today Pakistan is

the dismemberment of the federation in 1971. Zulfiqar Ali Bhutto, living up to the repute of a great leader, took up the challenge and after intensive consultations and persuasions gave the consensus constitution of 1973 to the people of Pakistan It has served as a powerful bond among the people of the federating units since then and undoubtedly keeping the federation intact as such even today. It is no exaggeration the federation of today owes all to the constitution of 1973 after the fall of Dhaka. The successive dictators mutilated it almost beyond recognition but they could not abrogate it simply because the unprecedented support it enjoyed of the people right across the country.

Credit goes to the PPP not only for its enactment but also its restoration through the 18th amendment brought in with consensus. Former President Asif Ali Zardari voluntarily transferred his powers to the Parliament to make it much stronger

The PPP built more residential communities (flats and colonies) for workers during the five years than all the rest of the governments in the country put together. a nuclear state. Zulfiqar Ali Bhutto internationalized the Kashmir issue through diplomacy and statesmanship. He secured the membership of OIC in Casablanca for the Kashmir Hurriat Conference despite the fierce opposition from India. The other giant step in this direction was his declaration of Kashmir Day on 5th of February, the Day when all over the world the Kashmir Day is observed to express solidarity with the Kashmiri people with the clarion call for holding plebiscite in occupied Kashmir in pursuance of the UN Security Council resolution. Shaheed Mohtarma slogan during her visit to Azad Kashmir will be source of inspiration on the both sides of LOC. She said that slogan for Azadi is louder than the bomb explosions in occupied Kashmir.

On the domestic front, Zulfiqar Ali Bhutto’s contribution to give constitution to the people of Pakistan is reflective of their aspirations. It was a big responsibility for the new government especially after

than the Office of The President. For the times to come, it will remain as a milestone in the history of Pakistan as a unique, unprecedented and selfless decision.

The successive Presidents, both civilians and military had axed elected governments by using the notorious 58 (2) b despite the governments enjoyed majority in the National Assembly. Former Presidents Asif Ali Zardari eliminated the chances of such, illegal, un-ceremonial and unethical dismissal of the democratic governments by different Presidents. Other major achievements include: 1) Devolution of 18 Ministries to the provinces under 18th amendment.

2) Increase of substantial financial resources from the “Divisible Pool” to the provinces under the 7th National Finance Award.

3) Appointment of judges of the Superior Courts by Parliament.

4) Appointment of Services Chiefs by the Parliament.

5) Appointment of Governors.

6) Establishment of Caretaker Government in consultation with Opposition leader to hold impartial elections.

7) Appointment of Chief Election Commissioner with consensus.

PPP has served the labor, putting our citizens the foremost, by granting them stakeholding in industry by offering shares in eighty five Public Corporations under the Benazir Employees Stock Option Scheme. It was the motto of the PPP that the contended labor force and increased productivity were interlinked. Furthermore, Trade Unionism was restored with the collective bargaining mechanism to protect and promote the interests of the workers. PPP government minimized the income gap between the civil and the private sector and increased the pay and pensions of the labor by more than 135% along with the increase of Workers Death Grant from one hundred fifty thousand to five hundred thousand and marriage grant for their daughters from fifty thousand rupees to one hundred thousand during its tenure.

The PPP built more residential communities (flats and colonies) for workers during the five years than all the rest of the governments in the country put together.

The PPP reinstated and regularized thousands of government employees whose services were arbitrarily terminated by the government on flimsy grounds as political appointees. The PPP is not shy to warn the present government not to pursue privatization recklessly at the cost of the workers and their interests. Under PPP land reforms acres of land at the disposal of the government for distribution among the landless farmers and haaries has been structured. It is important to note that the Bhutto family stepped forward and surrendered two hundred thousand acres of agricultural land in pursuance of land reforms.

The PPP previous government’s increase in the support price of wheat was unparalleled from Rs. 625 to Rs. 950 per forty Kg in 2008.

The result was that the country attained the status of a wheat exporting country from a wheat importing country. Similarly, the price of cotton was Rs. 4500 and basmati rice more than Rs. 2000 per

forty Kg. As a result, there was prosperity in the rural areas as Rs. 300 billion were pumped in the rural economy during 2010-11 financial years according to BBC. The PPP government secured the interests of farmers and growers by establishing Trading Corporation of Pakistan mandated to keep the market prices stable in the interest of the farmers and consumers at the same time.

Now, the prices of cotton are about Rs. 2000, rice Rs. 1250 and sugarcane Rs. 150 that have devastated the farmers tantamount to their economic massacre.

PPP considers minorities and women as its constituency and the Party has proved worthy of its claim when judged from steps taken dedicated to their welfare. Zulfiqar Ali Bhutto created a separate Ministry to look after the minorities. The PPP previous government reserved four seats for minorities in the Senate which was unprecedented. The same government declared 11 August as the Day of Minorities. Its significance is linked to Quaid-e-Azam’s speech on 11 August, 1947 when he declared that minorities in Pakistan would enjoy equal rights.

For women folk, Mohtarma Benazir Bhutto took a score of steps for their empowerment. A number of prestigious government’s positions were filled by appointing women of substance as ambassadors, judges of the Superior Court, senior government servants. First Women Bank was established at the instructions of Mohtarma Benazir Bhutto to encourage women role in the country’s economy. The previous government launched the Benazir Income Support Program. Furthermore, legislations to protect the women from ill social practices were passed by PPP governments including the Anti-Women Practices Act (2011), Protection against Harassment of Women at Work Places and Domestic Violence Prevention Act (2010) and etc.

I strongly believe that there have been many positive actions taken for the betterment of the people if we choose to look at the good things. Yes, there are many things to correct, do better and which remain to be done and following the vision of our Quaid and our leadership will align Pakistan to the path of development and prosperity.

52 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Beyond success: Beyond success: BR’s path-breaking eminence Moazzam M. Malik

Humayun Akhtar Khan In the days when business journalism was considered an adjunct to political news, the publishers of Business Recorder had the foresight to launch a newspaper dedicated to economy, commerce, and finance. The paper’s beginning in 1965 were days of hope and expectation in Pakistan. The economy appeared to be on a sustainable path of growth. Business flourished and management was modernized. Pakistan opened itself to the outside world and became an icon of developing world progress. The paper’s founder, Mr. M. A. Zuberi, had the canny perception and sagacity to recognize these trends.

What may have been nascent then has gained strength since. The task of business journalism is not easy, but Business Recorder has performed it admirably in a number of ways. It broke new ground, not just in Pakistan, but also in much of the developing world. In addition, it has made sense of complex issues for the lay reader and has done so in a language that is lucid for non-specialists.

Business newspapers worldwide have a distinct bent.

They are staunch advocates of free market. In fact, some papers maintain an orthodox fundamentalist line on economic issues. Access to government and corporate leaders for information allows them to stay ahead of the competition. Inevitably, they align news reports to one or other powerful interest group. This also helps advertising revenues to flow. Some journals and newspapers even assume the role of investment guide.

Business Recorder has never fallen into the trap of becoming part of the blink and glow of the powerful.

Its management placed rigour and thoroughness above belief and orthodoxy. The paper has taken the high route of informing the reader and analyzing issues. Perhaps it is from its publisher’s sense of rectitude or because the

corporate sector is not quite the powerhouse in Pakistan as it is in other countries. Nevertheless, Business Recorder has earned rightly a reputation of sound reporting and robust analysis. The alternate of arduous and rigorous reporting that it presents has held special value for its readers.

It has enabled readers to stay informed and policy makers to base decisions on evidence. For success, Business Recorder has never relied on sensational and juicy news stories. Its somewhat austere headlines represent aptly what it perhaps holds most dear, accuracy of content without towing a particular line.

Today, Business Recorder also makes astute analysis of government policies and programmes in an age when endless discussion on these take place in microscopic detail. Proliferation of news organizations has brought about over-analysis and myriad views on topics of interest to the public. Often some discussions include hints of malpractice by government functionaries.

Business Recorder helps with separating the wheat from the chaff. It is candid with its views, but wholesome and credible in the way it presents information.

A news organization is as good as the people that work in it. Like other major newspapers, Business Recorder too has reporters and editors who have earned reputation the hard way. They have honed their skills on the whetstone of grind. In addition, the paper has developed a cadre of business and economic journalists that has pretty much set the direction and tone of such reporting in the country.

I congratulate Business Recorder and its fine team on their fifty years of success and wish them continued progress for the future.

Despite less than appeasing macros over Pakistan’s tumultuous history, the country’s benchmark index, the KSE-100, has continued to depict stellar returns backed by a strong bottoms up story and continued investor appetite. Average annual returns over a 10 year period at the KSE-100 stand at an impressive 25% with US$ based average annual return at 20%. Even more impressive has been the market’s recent performance where the KSE-100 has generated a cumulative 183% return over the past 3 years. In the process, the Karachi Stock Exchange continuously ranked amongst the best performing markets globally.

The uptrend in performance has been a factor of both macro and company level developments where specifically, the strong rally post elections 2013 underpin investor confidence in the economic choices of the incumbent government. Pakistan is on the right development path with FY15 GDP growth expected at 4.5% (FY14: 4.1%) while inflation has come off to just 2.5% from a peak of 15.5% in Dec’10, aided to an extent by receding global commodity prices. Reserve movement has also been positive with the country’s total reserves reaching US$17.2bn after bottoming out at US$7.6bn in Feb’14. The country also re-entered the global capital market space with successful Eurobond and Sukuk issues while the privatization process appears on track. It was heartwarming seeing the excellent

response received by the recent HBL secondary offering and underscores the demand as well as the confidence of international and domestic investors on well managed institutions. At the other end of the spectrum, strategic sale of loss making entities particularly the domestic power distribution companies should help mitigate the fiscal burden on successful governments in the years ahead.

The government’s economic reforms have been well perceived internationally with Pakistan’s Eurobond yields falling to current 4.8% from a peak of 8.56% reached in Jul’13. At the same time, Pakistan’s broad risk perception as measured by CDS spreads has improved substantially with current spread at 450bps, significantly lower than the 30%+ witnessed in FY09.

Superior market returns have obviously led to questions of sustainability over a longer term and the market correction in the first quarter of the current year certainly fanned these flames. I believe Pakistan has entered a defining phase where the market (a proxy of the economy) movement is likely to track economic progress in conjunction with geo political developments. The government certainly needs to be consistent in its policies where structural impediments to economic progress need to be addressed. Reforms within the energy sector - a bane for growth in the country, need to continue where current subdued

global oil prices have provided the government space on the external front and an excellent opportunity to focus on alternatives. Resting on laurels will not be enough and the government needs to ensure it avails the opportunity to substitute expensive furnace oil electricity generation with coal (local and imported), LNG and hydel capacities. This will have a two-pronged benefit to the economy in that not only will it mitigate exchange pressures but will also help in making our exports competitive given lower energy / input costs.

On the economic front, the fiscal side needs much attention particularly with regards to tax collection. Replacing National Tax Numbers (NTNs) by National Identity Cards (NICs) is a smart move in my view and should lead to growth in numbers. At the same time, improved targeted FDI particularly in light of the US$50bn China Pak Economic Corridor project should bring to the fore latent economic activity within the country and its neighbors. From the market’s development point of view, recent increased oversight by the Securities and Exchange Commission of Pakistan (SECP) with rules for Analysts and Traders as well as the recent passage of the Securities Bill 2015 by the Senate are long term positive. What the government needs to ensure is that for market development, all stakeholders have to work together and interests of all parties including regulators and investors should be aligned.

Business Recorder | Monday April 27, 2015 | 53

50 years of putting the economy first

Faith, hope and $50 billion Majyd Aziz Pakistan’s 200 million denizens, at least nowadays, are convinced that they live in a unique country and, in their opinion, they are the Almighty’s Chosen Few. It is this conviction that has enabled the huge majority of citizens to bear the disparities in their livelihood, to sustain the impact of natural calamities, to tolerate the perennial shortages of water, power, gas and gasoline, to endure the deteriorating law and order situation, and to put up with the false promises made by politicians.

At the same time, the nation’s exporters who trot the globe to market their excellent products and services have to, more often than not, stomach the negative image of their motherland. Even before they are able to make their sales pitch, they have to answer about Pakistan’s heavy load of international allegations. Even delegates attending exhibitions, conferences and forums in different countries have to patiently deal with these accusations and brickbats.

Terrorism, Extremism, Sectarianism, Human Smuggling, Money Laundering, Narcotics, Environment and Nuclear Proliferation.

On the diplomatic front, Pakistani officials debate in a manner that is, to say the least, not encouraging and definitely not inspirational.

Politicians are still in a juvenile mode, and thanks to TV talk shows, the citizens get their daily dose of hilarity and oral wrestling. Lawyers and jurists have taken to streets or frequently boycott the courts.

State-owned enterprises are in a race to hemorrhage scarce financial resources at a pace faster than the FBR’s tax collection drive. The defenders of the faith have involved themselves in acrimonious dema-

goguery, confrontational fanaticism, blatant bigotry and organized militancy. For the hapless members of trade and industry, the government officials have become their invisible partners who extract their bound of flesh in advance. It is a rare government employee or a politician who does not roll over with a derisive laughter whenever the term Good Governance is talked about.

What is the future of Pakistan and the way forward? This is an everyday topic of intensive debate between those who manifest optimism and those who are either compulsive doomsday theorists or are sitting in their cozy cubicles at various think-tanks around the world. If there is a Dr Strangelove in the guise of Ajit Duval across the Line of Control, then there is a Karzai mentality on the west of the Durand Line. If there is a pseudo human rights activist in Lahore, then there is a misguided liberal fascist in Islamabad. If there is a Baloch separatist safely ensconced in the environs of London or Geneva, then there is a so-called socialist Sindhi nationalist hedonistically enjoying the pleasures of life financed through bullying landlords or traders. They regularly regurgitate venom against the country, against her traditions, and against her importance in the comity of nations. Sadly, they manage to generate detrimental media hype resulting in emboldening their stance against Pakistan.

Pakistan will be a failed state. Pakistan will default on its financial obligations. Pakistan will let the strategic national assets fall into the hands of terrorists and extremists. Balderdash. These scenarios are not going to happen because of the

determination and resilience of two prime stakeholders in the country.

The Armed Forces of Pakistan and the entrepreneurial spirit and exuberance of the industrial and commercial community of Pakistan.

The rallying cry is “When no one can do it, Pakistan can.”

and influence, Pakistan survived, survives, and will survive. This is what makes this nation so great. Oh yes, Pakistan is a nuclear country too.

Make no mistake about it.

Commerce and Industry are the precious jewels in any nation’s crown. The crown is not worth its

The message to the international community is that to make Pakistan zoom up on a fast track, all that Pakistan needs is Faith, Hope, and $50 billion.

In this chaotic state of affairs, there is a comforting presence of sanity. This is emanating out of the citadels of the guardians of the borders, seas, and the skies. Pakistan is said to be the most geo-strategically situated nation on earth. But this status imposes an onerous burden on the nation’s defenders to deploy personnel in each and every area of the borders. Seldom has any country continuously faced such a sensitive and a tense situation of keeping armed forces on alert at the borders. The highly-touted Global War On Terror has catapulted Pakistan into a frontline state and the ensuing ramifications have created havoc on the fragile threads of the nation’s fabric. Knowingly, Pakistan also suffers enormously as a powerless victim of the proxy war between two large Middle Eastern countries representing the two major sects of Islam. From death of thousands of precious civilian and military lives, to billions spent on this war instead of development of civic facilities, to the creation of local and alien hardcore terrorists, and to the damaging dissemination of anti-Pakistan propaganda by forces inimical to the country’s sovereignty

value if these two jewels are not genuine but instead are ersatz replicas placed haphazardly on the crown. Commerce and industry has to flourish in order for the country to earn foreign exchange, have a strong presence in the global marketplace, provide huge opportunities for employment, and contribute to the social welfare of the citizens. Thus it is incumbent upon the government to ensure that commerce and industry are shielded from infrastructure shortages, protected from corrupt, conspiratorial and lethargic bureaucracy, safeguarded from criminals and extremists, and provided facilitation, whether in the financial, taxation, diplomatic, or political domains.

Notwithstanding all such deficiencies, shortages, blockades and other negative influences, the fact is that there is surely a way out.

There are many less fortunate countries that are coping with difficult conditions and are managing to come out of their precarious position. There are many less fortunate countries that lack the entrepreneurial spirit and business

acumen of the Pakistani businessmen. There are many less fortunate countries that envy the skills, talent and ingenuity of the Pakistani worker and professional. There are many less fortunate countries that are not endowed with a wide array of natural resources that Pakistan has.

The recent announcement emanating out of Chiniot in Punjab is that substantial resources of iron ore, copper, and even gold have been discovered. Massive reservoirs of coal in Thar still need to be extracted and turned into energy. Alternate renewable energy, wind or solar, has gigantic potential. Operation Zarb-eAzb is showing spectacular results while military courts are being set up to decide the fate of hardened criminals. Politicians are gradually coming to terms with protection of democracy instead of exercising radical adventures. For the first time after a gap of five years, bank financing to the private sector has shown a positive figure. The privatization process is gradually gaining momentum. The local bourses are showing spectacular optimism and foreign portfolio investors are making a bee-line to mop up blue chip scrips.

Inflation has been controlled while the deep dip in world oil prices has been a source of relief for the citizens as well as the government. Findings coming out of various studies highlight a bright economic future for the country.

Can Pakistan make it? The IMF, World Bank, Asian Development Bank, etc are cautiously giving a rosy prognosis. Relations with Afghanistan have made a U-turn after President Ashraf Ghani made a memorable visit to Islamabad. Iran and Saudi Arabia are in a race to be on

favorable terms with Pakistan.

Turkey has renewed her close fraternal ties too. Russia is making overtures to forget the past and instead work with Pakistan. China is willing to open her coffers to encourage economic prosperity. India under Narendra Modi has, with obvious traditional reservation, sending out feel-good indications.

Yes, Pakistan can make it.

Pakistan is once more in the center of the geo-political bid for influence. The world knows that peace in South Asia, in fact even in Middle East, can never be a reality unless Pakistan is stable and prospering. This is the plus point. The world knows that the Pakistanis are resilient and have strong Islamic values. The world knows that Pakistan urgently needs financial outlays to make that paradigm shift towards a better, secure, and vibrant society. There is faith in Pakistan’s capabilities while Pakistanis have faith in their religion and their country. There is hope that Pakistan is the key player in the global arena while Pakistanis have profound hope about themselves and their country.

There is global money to lend or aid while Pakistan is struggling with her financial resources. Hence, Pakistanis must sincerely heed the advice of Quaid-e-Azam Muhammad Ali Jinnah who said, “You will have to make up for the smallness of your size by your courage and selfless devotion to duty for it is not life that matters, but the courage, fortitude and determination you bring to it.”

The message to the international community is that to make Pakistan zoom up on a fast track, all that Pakistan needs is Faith, Hope, and $50 billion.

54 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Need for ‘United Pakistan’ Syed Jawaid Iqbal

Where is Pakistan headed? Is the ship of the state sinking? And whither democracy? These and many similar questions rear their ugly heads when one puts one’s mind to the conditions Pakistan has been driven into. Six decades may be a brief period in the wider context of the evolution of a nation but it is time enough for the country to have survived all the knocks and blows and emerge as a confident and forward-looking nation, having a thriving economy and moving confidently forward on the road to democracy. It seems though that we have wasted six valuable decades in finding our way and we still do not know where we are going.

The people look towards the military but it is already heavily engaged in protecting the borders.

Besides, various incidents of terrorism have forced it to take due cognizance of the situation and play a more proactive role in the affairs of the state.

Operation Zarb e Azb is in place to flush out the terrorists from the tribal areas but the so-called ‘democratic’ politicians continue to squander state funds on irrelevant projects. The situation today is very well depicted in ZA Bhutto’s words uttered at least four decades back, that in a sea of poverty, an island of prosperity cannot survive for very long.

The politicians have done nothing except to create conditions for the military to take charge. This has happened in a soft manner though. The 111 Brigade has not come into action but the Dec. 16 carnage in Peshawar has prompted the army to take most of the initiative into its own

hands. While this time it may not look like an obvious army takeover, but it is quite clear as to who really calls the shots.

Every government that has come into power has spoken about Jinnah’s Pakistan to be restored but no concrete steps have been taken in this direction. Jinnah envisioned Pakistan as a nation where the fruits of democracy would devolve to the grassroots and the people would fully enjoy the real meaning of freedom.

He saw all people as equals but this never happened.

Going forward, if Pakistan is to survive as a nation despite all the odds pitted against it, it must revisit Jinnah’s vision. The immediate need is to counter the militants and terrorists. The army, under the leadership of Gen. Raheel Sharif, is tackling the situation through army courts and the Operation Zarb e Azb. A National Action Plan has also been devised by Prime Minister Nawaz Sharif and his close associates but it still has to make an impact.

In the long run, however, Pakistan as a nation needs to dig deeper and draw a road map that is in greater conformity with the ground realities. Many opportunities of nation-building have come and gone but succeeding rulers and governments after Jinnah have dismally failed in their task. It is obvious that the administrative setup of the country has lived out its concept of being based on a single federal territory and four large and cumbersome provinces governed from one distantly located federal and four

provincial capitals. The utter lack of communication between these capitals and the people is unrealistic and painful. The distance creates a wide gap in better awareness of the people’s problems and the dispensation of justice and protection and provision of administrative services.

Pakistan is a vast country spread over 877, 406 square kilometers. Its population is somewhere around 200 million but most of the people are far away from the fruits that are their right in a democratic polity.

The law and order situation is dismal as it were. The people are bereft of basic amenities, such as electricity, gas and even petrol. The administrative structure in most parts of the country has simply collapsed and there is hardly any governance. It is time, therefore, that instead of four large, ungovernable provinces, the country is divided into at least 20 States or administrative units. These units need to be formed strictly on administrative lines and no consideration needs to be given to linguistic or ethnic divisions. Each unit can have its own state capital, own Governor and Chief Minister and an Assembly under the Constitution of Pakistan (which should be accordingly amended).

Many countries around the world have broken their bigger provinces into smaller States or units to bring the administration machinery closer to the people, so that services can be delivered more effectively. There are 29 states and seven union territories in India. The USA comprises 50 states. More states

would lead to a more united entity such as the UAE, USA, UK or the former UAR and the USSR. If that happens in Pakistan the country can be renamed as “United Pakistan” Pakistan is also the only country in this region which still retains the feudal system and all the ills that go with this system. It is time that concrete measures were taken to smother the power of feudals. A good way to do this would be to reduce the parliament’s term from 5 to four years. This would also be a good opportunity to bring in a Presidential form of government, since the parliamentary system has all but failed. Such a system would be closer to the Islamic style of ‘khilafat’.

The president would serve a four-year term, while the national and state assemblies would also be elected for four years. Elections repeated after every four years would also establish more democratic traditions and the feudal lords would also fall in line.

For greater administrative efficiency, some kind of a distinction would also need to be made between the people’s representatives elected to the National and State assemblies and those made ministers. A distinction must be made between those who seek assembly seats just to become ministers and the people’s representatives in the assemblies.

People elected to the legislatures (both at federal and provincial levels) would only make laws while the ministers would run their ministries.

People appointed ministers need to have sound knowledge of the

ministry they are assigned to. An ’elected’ education minister must be an expert on education while a health minister should be fully cognizant with the people’s health needs.

At present, the provincial governments are far away from the people – the functionaries responsible hardly ever come into contact with the public. The local governments, when they were in place, at least created some linkages between the rulers and the ruled but this lasted only for a few years. The subsequent democratic governments did not seem to believe in attending to the people’s needs through the local government system.

To keep a watch on the interior and external security interests of the nation, Pakistan also needs a National Security Council, like the one initiated by the then President and Army Chief, Gen. Pervez Musharraf.

Pakistan today stands at a juncture where it needs to find radical solutions to threats both from within and without. There is a limit to what the armed forces can do in terms of defending the national borders, countering the terrorists and also playing a role in judicial and administrative matters. It is time that the elected politicians, instead of behaving as mere puppets, also attend to the country and the people in a more result-oriented manner.

Perhaps this is the only way that we can save Jinnah’s Pakistan.

KHUSHALI AD

Business Recorder | Monday April 27, 2015 | 55

50 years of putting the economy first

Agriculture for economic growth Huzaima Bukhari

“Agriculture not only gives riches to a nation, but the only riches she can call her own.”—Samuel Johnson “The soil is the great connector of lives, the source and destination of all. It is the healer and restorer and resurrector, by which disease passes into health, age into youth, death into life. Without proper care for it we can have no community, because without proper care for it we can have no life.”— Wendell Berry, The Unsettling of America: Culture and Agriculture A couple of years back, the Planning Commission of Pakistan took an initiative to start a nationwide public debate on preparing policies for long-term economic development.

67 years of Pakistan have already been wasted despite having great potential in terms of natural and human resources. We boast of many brilliant economists yet the economic mess in our country continues to surmount. Although some of these stalwarts were in the driving seat, nothing concrete was done to bring about any structural changes. Even in the presence of outstanding experts in all spheres of knowledge, their services were never solicited by the government. No wonder our economic system has become one of the most corrupt and inefficient in the world—With the fall in gross domestic product, tax-to-GDP ratio has also decreased from 13.5 % in 1992-93 to 8.2% in 2013-14. Are we intellectually barren or professionally incompetent or morally bankrupt that we have remained unable to tap our potential and make optimum use of our natural and human resources?

Pointing towards the main causes is much easier compared to providing on-ground solutions of the prevailing pathetic socio-politico-economic situation. Inefficient, corrupt, repressive, insensitive and outrageous governmental departments and corporations, least bothered for the welfare of the common people, are essentially responsible for the present state of affairs. There is a dire need for right-sizing, monetizing all perks and benefits and providing a fool-proof system of their accountability but the vested interests in the establishment and parliament are absolutely unwilling to introduce reforms having a direct bearing on the over-all economic empowerment of the country and its people since such a move would disinvest them of powers through which they exploit the masses. Unless affairs are handed over to people—through councils elected by the residents—Pakistan will never prosper.

There is no denying the fact that economic development is not possible without a dependable political and justice system but at the same time we desperately need to pick up an important strand from the perplexing ball of problems and then endeavour to untangle in a gradual manner. Agriculture, that is the backbone of our country’s industries and the bread basket of our people, is one sector from where such beginnings can be made. Since time immemorial, this part of the world has been known for its rich agricultural produce attracting other nations which made their inroads, not only subjugating the locals but also exploiting its wealth of resources.

Any sane government in power should focus its attention in promoting agriculture by first of all conducting research to gain up-to-date knowledge, enhance production capacity and introduce modern means to bring into cultivation, those tracts of arable lands that remain neglected due to dearth of resources.

Brazil is a country that could provide an important case study.

In an article appearing in the 26August 2010 edition of The Economist, some important questions such as, could Asia learn from Brazil’s agricultural success and should Asia try to copy the Brazilian model of agriculture to help feed its people, were raised. The Brazilian story of success highlighted in the article, should provide some food for thought for our government. Besides increasing productivity, the only way to ensure that there is sufficient food to feed the country’s explosive population, there is a pressing need to put new land into production.

In addition to the Brazilian example, benefits could be derived from the study conducted by The Tracking Development (TD) project between 2006 and 2011. Funded by the Dutch Ministry of Foreign Affairs, this multilateral, international research project directed its study to the comparative development trajectories of Southeast Asia and Sub-Saharan Africa over the last 50 years. It observed that since 1960, Southeast Asian countries achieved massive economic growth and large reductions in poverty rates compared to similar countries within Africa. TD’s conclusions hold that the most important weakness is in the neglect of productivity improvement in

smallholder agriculture, not just in Africa, but within the Southeast Asian countries before their periods of sustained growth. Since, the same is applicable to the Pakistani context lessons can be learnt from this study.

According to the Tracking Development Project, three policy features stand out: 1. Macro-economic stability, 2. Pro-poor, pro-rural public spending, and lastly, 3. Economic freedom for peasants and small entrepreneurs Those in Pakistan who make claims of expertise in agriculture and associated fields and those who are heading the Ministry of Agriculture could benefit from such studies to ensure a complete turn-around in this area. If countries like Rwanda can take advantage of Southeast Asian countries’ history of economic transformations and models for poverty reduction, using these studies as a guide to achieving the same development and poverty reduction for its people, why cannot Pakistan? If we want to make Pakistan an

egalitarian society, we need to concentrate on empowering the overwhelming masses living in the rural areas, making them economically independent by providing employment at their doorsteps.

In addition to understanding the ways and means to increasing production and reclamation of land for agriculture, the three policy features mentioned by TD merit consideration. These indicate the much-needed reforms of governance along with appropriate accountability in matters related to public spending.

TD has emphasized that government expenditure is not enough alone; the quality of its expenses are highly crucial. Providing labor-absorbing activities, widespread irrigation, and rural infrastructure were only a few of the key factors to Southeast Asia’s success, as concluded by it.

Any important project cannot be initiated without adequate study and concrete deliberation.

Civilized nations conduct years’ long researches before daring to embark upon something which involves taxpayers’ money but in Pakistan, it has been observed that money is instantly poured out on the basis of whimsical opinions conjured on

short notices of a few minutes. The ones who are in charge of utilizing public funds cannot absolve themselves from the outcome of irresponsible spending and should be given exemplary punishment for their deeds. Only then would the government officials be deterred from mishandling public funds.

Together with increasing productivity of agricultural land and reclaiming further land for cultivation, agro-based industries not only need to be set up on a large scale but the existing ones also must be brought at par with international standards. Rather than exporting raw farm products, the same could be effectively processed to increase exports that would result in valuable foreign exchange for the country besides improving rural areas and raising the standard of living of the people residing here. This would certainly not be possible if due attention is not paid to uplifting the present industries in addition to establishing new ones. The acute shortage of employment opportunities can easily be overcome by changing the direction of economy towards development of agriculture and associated sectors.

56 | Business Recorder | Monday April 27, 2015

50 years of putting the economy first

Distant village Sikander Hayat Almost all major cities in Pakistan host large sprawling shanty-towns on their outskirts, inhabited by the people who fled their villages and settled there in search of better life. But have they found that better life, certainly not barring a very few exceptions.

To them the village life they bartered away for better economic future in urban centres was deficient in many things modern. But living in with their own people always around, they were economically secure and socially connected, as against that uncertainty that haunts them in their new habitats. They left behind an environmentally clean life and have opted to live in squalid conditions with sewers overflowing in front of their new homes, to meet strangers looking askance at them in the street, and invariably concerned about safety of families they leave behind in unprotected huts every morning as they go to their work places – if at all they have ones by then. Better schools, medical facilities, uninterrupted energy supply, none of it is there in the slums. Their dreams have gone sour. But they cannot go back; they have nothing left to go back to. The little money they collected by selling their inheritance in the distant villages exhausted even before they could feel earth under their feet. How green was my valley, they ask each other.

Such an exodus should not have taken place; this was unwarranted given the fact that Pakistan's rural areas have significantly more economic potential than its cities. Unlike majority of countries Pakistan is blessed with a variety of rich natural resources, the richest being its vast tracts of fertile, arable land and a willingly hard-working farming community. And unlike its urban centres which had little industry and rudimentary infrastructural base at the time of Independence the villages of Pakistan had the even then the right potential and wherewithal to sustain national economy of the new country. And they did, and in many ways keeping doing. No wonder then the country’s first and to date the most viable industry remains the textiles, which is essentially agriculture- based. Even today

agriculture is the country’s biggest employer and most cost-effective source of national wealth. And this continues to be the case without grudge, unlike other sectors of national of economy that burst into occasional disruptions, often as pressure tactics to force untenable demands. The villagers don’t block roads when irrigation channels go dry or the fertilizers prices are raised only to line already near-filled pockets. They ask less and give more.

At the time of Independence the life in rural areas was worth the cost of modernity the cities offered, if not more. Given their secure life under the umbrella of the state and granted access to justice against wrongs done to them the urban living was no great attraction for the people living in villages. But not for too long after Independence; within a decade or so as the state control passed on from the white masters to the brown masters the villages lost their cover of their hallmark serenity and self-sufficiency. The police force that dared not to be partial became the party, as much to wipe clean the shallow pockets of the villagers as it became mandatory to please the local feudal lord who had become

part of the governance thanks to the perverted version of democracy. Almost inescapably it became essential that before going to the police station to register a complaint the villager wronged by somebody’s action should pay a visit to his local political leader’s ‘daera’. Invariably, the first thing the newly elected leader would do was to ensure that the local police chief was of his bidding. The ‘patwari’ who used to be generally helpful to the simple villagers at the revenue offices became unforbiddingly costly, even in matters as routine as issuance of the ‘fard’ (land ownership proof). And the rural economy became hostage to the goodwill of the commission agents at the market places.

It was insecurity of life and looming economic hardship which triggered exodus to cities in hope of better life. The governments of the day did nothing to stop it, either by way of ensuring equal protection for the villagers against high-handedness of political bigwigs and their hired goons or to sustain village economy by subsidizing the agricultural inputs. So, as far pavilions of urban life beckoned them the intrepid among the villagers sold their homesteads and cattle

heads and made for the cities, and the saga t continues. They are moving from rural areas to cities in search of jobs, opportunities to improve their lives and to make a better future of their children. And they are in no small numbers – during 2013-14 alone the population in rural areas decreased from 62.1 percent to 61.4 percent, while in urban areas it increased from 69.87 million (37.9 %) to 72.5 million (38.56 %). That means in just one year some 27 lakh people – that is almost the combined population of Islamabad-Rawalpindi twin-cities – have come to settle in cities, adding to the size of shanties. With infrastructures for utility services in cities already under great stress due to uncontrolled urban sprawl there is not much on the ground for the newcomers to realize their dream of having basic facilities like education, clean drinking water and health services. Add to this the crippling energy shortages that drastically pare away employment opportunities in industrial sector, their plight is feared to go a long way.

Unfortunately there is not much in evidence to suggest if the disproportionate influx of population into the urban centres

has received due attention of successive governments and their concerned planners.

Nothing seems to be in the works on how to monitor and check large scale migration of people from villages to the urban centres in search of jobs which are not there, at least in foreseeable future. Perhaps, there is scant realization on the part of rulers of the nightmarish possibility that the unemployed dwellers of shanty towns will join together and come on the street to ask their share of the national pie. This is indeed too grim a challenge and can be overlooked or trivialized at the cost of social harmony and political stability. And more so now when the country is already in tight grip of terrorism.

On the face of it, at least three remedial measures are in order. One, the pristine peace and serenity of village life should be preserved by ensuring law and order with the help of depolitised police force. That the rulers should barter away the villagers’ peace of mind in exchange of winning over the loyalty of the local feudal lords it is unacceptable. If it was possible to have neutral police force during the colonial days, why not now? At the same time time-specific arrangements should be made to resolve land ownership disputes, as well as to ensure prompt service delivery on the part of the revenue officials. Two, the villagers should become part of the government, which is possible only by reinstating third tier of government by putting on ground local governments. The bitter truth is that once elected as members of provincial and federal legislatures the so-called leaders representing rural population simply disappear from the scene – until the next election. Three, rural economy should be strengthened by way of subsidizing agricultural inputs, securing prices in the generally anti-farmer markets and by way of introducing modern framing and horticultural techniques. All of it is doable, provided the government decides to revisit the rural landscape in order to have feel of the place and put its ears to the ground to learn what would stop next in the line to leave the village for the city.

Business Recorder | Monday April 27, 2015 | 59

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