16
10
10 Weekly Roundup 14 Insafian vs Nooni: The choice before the voters
22 22 Education: Fixing a badly broken school system 26 Water and climate change: the (hopefully not) insurmountable challenges
37
31
31 Healthcare: the (hitherto) ignored priority 37 Energy: colliding visions for powering Pakistan
26
Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Reporters: Farooq Baloch l Kazim Alam l Aisha Arshad l Arshad Hussain l Muhammad Faran l Syeda Masooma l Ghulam Abbass l Ahmad Ahmadani l Shehzad Paracha l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l ZulďŹ qar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani lPublishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: proďŹ t@pakistantoday.com.pk
CONTENTS
welcome
MOVING THE NATIONAL DEBATE What a civil, elevated policy discourse might look like Elections have consequences, as commentators in mature democracies are wont to say, and perhaps none more so than those in a republic that is still seeking to build up its participatory institutions. In Profit, for this issue, we examine nothing but the possible consequences of the choices Pakistani voters will be making next month. Give the paucity of intellectual debate and policy discourse in general in Pakistan, we have had to rely on a tool borrowed from fiction: the imagined conversation between two characters who are themselves composites of several individuals, and even large groups of people. These two characters, whom we have named Insaafian and Nooni, each representing the PTI and PML-N respectively, engage in a WhatsApp conversation (because what else would it be in modern Pakistan) about areas that they agree upon and areas where they disagree. And because it is a fiction, we had the luxury of making them respect each other. (Literary licence has its benefits.) While the words are not direct quotes, however, the policy stances are anything but fiction. They are based on public statements of key party leaders, interviews with policymakers, and publicly available documents that each of the parties has put forward to represent their agenda. We have organized this issue of the magazine to focus on individual subject areas that we believe are most directly relevant to the economic future of the country. They are by no means the only ones, or even the most important ones, but they are the key pocket-book issues that matter to the voters. We are under no illusions that voters are highminded philosophers who weigh the pros and cons of each political party’s policy stances on key issues before deciding upon which one to
8
vote for, and we are most certainly aware that the “youthia versus patwari� trolling on Twitter and Facebook does not come out of nowhere. But we also know that in a new democracy like Pakistan, a very large swathe of the population still does not have fixed political views, and are open to changing their minds. And even the committed partisans may benefit from reading a respectful conversation that represents the best form of the policy argument not just from their side, but also from that of their chief political rivals. Regardless of the outcome, we believe it is our responsibility as the fourth estate to help foster a constructive political discourse in the country, and provide voters with information that will help them make the key decision at the ballot box. It is then for the voters to decide whether and how to use that information.
Farooq Tirmizi Managing Editor
FROM THE MANAGING EDITOR
FPCCI President Ghazanfar Bilour
QUOTE
“Pakistan has the potential to produce biofuel from ethanol in which the Brazilian side is interested”
“As part of SCO, Pakistan will strengthen economic ties and boost cooperation in communication and transport” Pakistan Ambassador to China Masood Khalid
$1.773b
was the figure of profit repatriation in first ten months (July-April) of financial year 2017-18. The inflow of foreign investments wasn’t much higher, creating a major issue for Pakistan as it grapples to control the forex reserves. Foreign direct investment (FDI) during first ten months (July-April) of the outgoing financial year 2017-18 stood at $2.237 billion, whilst payments made on FDI were $1.521 billion against $1.234 billion in the same period of last year (SPLY). The net outflows during July-April FY18 recorded an increase of 16.6 percent compared to previous year, with changes of this figure reaching $2b by end of FY18. According to data available from Economic Affairs Division (EAD), the PML-N government contracted $9.6 billion of foreign loans during July-April FY 18, 65 percent higher than the previous year. And borrowing from commercial banks was twice more when compared to previous year. Highest outflow was recorded from the oil and gas exploration of $199.8 million against FDI of $165 million in July-April FY18. FDI Inflows from food sector were recorded at $101.6 million against $195 million payments on FDI during the period under review.
30pc
year-on-year (YoY) increase was posted in Pakistan’s LNG imports in May 2018, touching 568,000 tons compared to May 2017. In May, the country received a total of nine cargoes with two delivered to Pakistan GasPort (PGP) and nine cargoes to Engro Elengy (EE) terminal respectively. Also, Pakistan’s LNG imports soared by nearly 80 percent on a year-on-year basis (YoY) in April 2018, the second-highest amount for a single month ever recorded. Back then a total of nine cargoes were delivered in April, with imports crossing 560,000 tons. The conclusion of the commissioning of the Haveli Bahadur Shah power plant in May and on Monday Balloki power plant successfully passed its combined-cycle test run. From end of August last year, Balloki has contributed over Rs18 billion of electricity to the national grid and groundbreaking of this project occurred on 10th November 2015. In total, both these plants have fed 3.7 billion units of electricity into the national grid and since the commencement of Ramazan, NPCC has successfully generated 880 million units of electricity which is sufficient to power over six million households-translating to around 18 percent of overall households in Pakistan.
10
Rs3.274t
was collected by the Federal Board of Revenue during the first eleven months of FY18. This means the tax regulator is left with a mammoth target of collecting Rs661 billion in June 2018 to ensure it meets the revised annual collection target. FBR’s collection was 14.4 percent higher or Rs414 billion against the same period last year, as revenue collection registered a slowdown. During the first eleven months of the previous financial year 2016-17, the FBR had collected Rs2.96 trillion in taxes. For the current financial year 2017-18, the parliament had approved a revenue collection target of Rs4.013 trillion and due to a persistent shortage, the government revised down the target by Rs78 billion to Rs3.935 trillion in April. Officials from the tax regulator shared they may able to collect Rs3.8 trillion by end of this financial year, which ends this month. However, the FBR would miss its target by Rs213 billion which would correspondingly increase the budget deficit by the same amount. The budget deficit in first nine months (July-March) of the current financial year stood at Rs1.481 trillion, which translated into 4.3 percent of gross domestic product (GDP).
“Pakistan has placed its relations with Poland in high esteem and there is a huge scope to deepen parliamentary and economic ties for mutual benefit” Senate Deputy Chairman Saleem Mandviwalla
QUOTE
Rs15.520m
were released for the petroleum sector during first eleven months (July-May) of financial year 2017-18. According to the official data, Rs415.807 million have been released for acquisition of four drilling rigs with accessories for the Geological Survey of Pakistan, Rs24.681 million for appraisal of newly discovered coal resources in Badin and adjoining areas of Southern Sindh, Rs5.892 million for exploration and evaluation of metallic minerals in Bela and Uthal areas of district Lasbella Balochistan, Rs2.444 for the exploration of Tertiary Coal in Central Salt Range Punjab and Rs15.614 million for the exploration and evaluation of coal in Nosham and Bahlol areas of Balochistan.
35pc
increase will be seen in power production of Mangla dam after conclusion of refurbishment work by General Electric in 2023. The refurbishment work on 1,000 megawatts of Mangla hydropower plants by General Electric (GE) is set for completion within the next five years. The project is being jointly funded by the United States Agency for International Development (USAID) and French development agency. Mangla’s refurbishment is set to be concluded by 2023, at a cost of Rs15 billion, said Sarim Sheikh, Chief Executive officer (CEO) of GE Pakistan, Iran and Afghanistan. He added after the conclusion of the refurbishment work, the plants would be able to generate 35 percent more electricity using the same amount of water. This is part of Water and Power Development Authority’s (Wapda) plan to raise the share of low-cost hydropower generation in national grid and maximize share of it. The Mangla power station is situated in Kashmir and has an installed capacity of 1,000MW.
$4.4b
of loans were obtained by Pakistan from China during the first ten months of financial year 2017-18. Due to a slowdown in disbursements from bilateral as well as multilateral creditors, Pakistan’s sole reliance on China has risen as it received $1.2 billion commercial loan from Chinese banks. Loans from bilateral and multilateral creditors during April stood at $172 million, as China topped the list of bilateral credit by dishing out $228 million in April 2018 for implementation of various projects in Pakistan. And contingent on China giving $1 to $2 billion as safe deposits in the forthcoming days for boosting foreign exchange reserves, then its total financial support during the entire financial year 2017-18 could cross $6.5 billion.
$9.5b
would be need to be raised by Pakistan for meeting its financing needs for FY19. External debt and liabilities has increased 76 percent to 10.6 trillion rupees ($92 billion) since June 2013, taking the ratio up to 31 percent of gross domestic product, the highest in almost six years. Pakistan’s debt will continue to grow as it has the highest financing need as a percentage of GDP in emerging markets over the next two years, according to IMF projections. The government is instead borrowing more. It plans to raise Rs1.1 trillion rupees of foreign debt in the fiscal year starting from July 1 compared with a budgeted Rs810.7 billion. Major lending sources will be commercial banks, global bonds and China, according to finance ministry data.
25pc
stake has been acquired by ExxonMobil in offshore drilling in Pakistan. Previously, Italian energy giant Eni, Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company (OGDC) held 33 percent share each in offshore drilling in Pakistan. With ExxonMobil’s acquisition of a 25 percent stake in offshore drilling, the share of the remaining three companies has now fallen to 25 percent each. An agreement was reached in this regard at the Prime Ministers secretariat between Government Holdings Private Limited (GHPL), PPL, ENI, OGDC and Exxon Mobil. ExxonMobil has major experience in the realm of offshore drilling for the search of hydrocarbons and it will enhance efforts of partner entities for oil and gas exploration in Pakistan. GHPL Managing Director, Mobin Saulat said an agreement had been clinched with Exxon Mobil which would acquire 25 percent stake in offshore drilling in Pakistan.
BRIEFING
“Pakistan is young and dynamic and it will be among top economies of the world by 2050” Azad Jammu and Kashmir President Sardar Masood Khan
QUOTE
$3b
investment is being targeted by Rocket Internet in artificial intelligence and fintech. Rocket Internet, which had a shaky start after listing in 2014 as its start-ups made big losses, saw its share price jump last year after HelloFresh and Delivery Hero went public. Delivery Hero, HelloFresh, Home24 and Global Fashion Group (GFG) have already reported quarterly figures, while Home24 announced plans earlier this month for an initial public offering. Rocket said its African e-commerce group Jumia, also a possible candidate for a listing, saw gross merchandise volume – the value of goods sold via the site – rise 71 percent to 151 million euros, adding it remained well funded.
0.28pc
share has been divested by Noor Financial in Meezan Bank to foreign buyers at a purchase price of Rs70 per share. The investors include New York-based Ruane, Cunniff & Goldfarb, London-based RWC Partners and Swedish asset manager Tundra Fonder, they said. Tundra Fonder has a Pakistan-themed fund which already holds some shares in Meezan. It was reported that none of the interested parties would acquire more than 5 percent of Noor Financials’ stake in Meezan Bank to ease the approval from the State Bank of Pakistan. The part sale of 2.49 percent on Friday and 0.28 percent stake in Meezan Bank seems to be a strategic move from Noor Financial to avoid any problems with the banking sector regulator, State Bank of Pakistan. Earlier in May, Noor Financial Investment Company (Noor) had sought State Bank of Pakistan’s (SBP) approval for divestment of 9.59 percent of its 49.1 percent stake in Meezan Bank Limited. Noor Financial owns 49.1 percent of Meezan Bank, according to the bank’s last annual report.
27pc
year-on-year (YoY) increase was recorded in fertilizer offtake during April 2018, touching 558,000 tons. Till now, farmers are said to have planted 40 percent of the cotton crop and 10 to 15 percent of the rice crop and cotton plantation will end by May and rice cultivation in Sindh by July. Urea sales recorded a 50 percent surge, touching 375,000 tons in April this year against 250,000 tons in the same period of last year (SPLY). Diammonium phosphate (DAP) sales recorded a 28 percent fall in April 2018, touching 60,000 tons compared to 96,000 tons in April 2017. The fall in DAP sales isn’t surprising since it sees heavy usage during wheat (Rabi) plantation season which concluded in March 2018. But fall in DAP sales was attributed to a major price increase of 22 percent on a YoY basis. During January-April 2018, sales of urea were recorded at 1.63 million tons, posting a 45 percent increase and DAP sales went up 6 percent, touching 434,000 tons in the above-mentioned period.
Rs70m
investment has been approved by the board of Dawood Lawrencepur for the right shares issue of its wholly owned subsidiary Reon Energy Limited. It also gave go-ahead to an issuance of a corporate guarantee in favour of Allied Bank as a security against running finance/money market loan of Rs5 million to be obtained by Tenaga Generasi Limited. In December last year, the board of directors of Dawood Lawrencepur had approved investment of Rs280 million by subscription of 28,000,000 Right Shares of Reon Energy Limited at Par value of Rs10 each.
12
17.2pc
of GDP will be the figure of growth in investments in next financial year 2018-19 compared to 16.4 percent in outgoing FY18. Fixed investment is expected to grow by 15.6 per cent of GDP in 2018-19, official sources said adding that the National Savings as a percentage of GDP was targeted at 13.1 per cent. The investment target is achievable given an improvement in the ease of doing business, affordable energy supply, and prospects of higher profits and enhanced capacity utilization rate, they said adding that the spillover effect from public investment under China Pakistan Economic Corridor (CPEC) was expected to catalyze the private sector and foster public-private partnerships.
BRIEFING
14
I
By Farooq Tirmizi
n 1969, the administration of President Ayub Khan had been growing unpopular for many reasons, but the triggering event that brought more than just committed student activists to the streets was a rise in the price of wheat. Ten years of industrial progress was forgotten in an instant because of the price of bread. In 2007, Pervez Musharraf was presiding over what, until then, had been the largest expansion of Pakistan’s middle class, but when the price of fuel rose too fast for the government to be able to control through subsidies, the lawyers and students who had been agitating for the rule of law were joined by ordinary voters, and out went Pakistan’s last enlightened despot. In each of those cases – and many others throughout history – economics was not what made those regimes brittle in the first place. Authoritarian and despotic regimes of any kind often contain within them the ingredients for their own demise. But it is almost always bread and butter issues that infuse the courage in the common man to join the intellectual agitator in delivering the death blow to those regimes. “It’s the economy, stupid,” in short, does not begin to describe the consequences of a nation’s economic conditions on its political future. In democratic dispensations, however, the direction of causality is more often reversed: political choices made by voters end up having a significant effect on the economic fate of the republic. With that in mind, we at Profit have set out to determine – as best as we can, given the lack of developed policy debate in Pakistan – what choices face the voters in the 2018 elections. This is, after all, the primary justification of the freedom of the press: to hold the powerful to account, and
to inform the voters about the actions of their government, and the choices they face in the ballot box. We feel so strongly that this is our duty that we have dedicated the entirety of this issue to discussing the various issues – at least the ones most directly tied to the economy – that voters must decide upon.
Format of the issue
T
he format of this issue, then, is different from our normal ones. In our cover story, we examine the broad highlights of the economic progress made by the country over the past five years, and take a look at two of the key policy priorities – taxation and civil service reform – that we believe will overshadow all others. Each of the subsequent stories will have three sections: * The facts on the ground: where Pakistan is, and how it got here; * The agreed approaches: the areas of agreement between the major national political parties; * The debate: where the major national political parties disagree, what each party believes, and why. For the purposes of this issue, we have restricted ourselves to the positions held by the country’s two largest political parties – the outgoing Pakistan Muslim League Nawaz (PML-N) and the Pakistan Tehreek-e-Insaf (PTI). We address the third major political party – the Pakistan Peoples Party (PPP) – in a separate article, where we examine the ideological divisions within the party. Our reason for focusing on the PML-N and the PTI: the two are by far the likeliest contenders for the Prime Minister’s Office, and the PPP has all but given up on the idea of governance or ideology for the most part. We have also excluded smaller political parties under the assumption
‘THE FORMAT OF THIS ISSUE, THEN, IS DIFFERENT FROM OUR NORMAL ONES. IN OUR COVER STORY, WE EXAMINE THE BROAD HIGHLIGHTS OF THE ECONOMIC PROGRESS MADE BY THE COUNTRY OVER THE PAST FIVE YEARS, AND TAKE A LOOK AT TWO OF THE KEY POLICY PRIORITIES – TAXATION AND CIVIL SERVICE REFORM – THAT WE BELIEVE WILL OVERSHADOW ALL OTHERS’
that they are likely to join a coalition with one of the two major parties which will then drive the national agenda, or they will sit on the opposition benches in Parliament, in which case their direct impact on national economic policymaking is likely to be limited for the next five years. For the facts on the ground, we rely mostly on data from a variety of sources, including the Pakistan Bureau of Statistics, the State Bank of Pakistan, the National Electric Power Regulatory Authority, the Federal Finance Ministry, and the World Bank. We recognise that the selection of which facts to include – and how they are presented – in itself relies on a degree of editorial judgement, though we have attempted as far as possible to stay neutral in our statement of the facts themselves. With respect to the agreed approaches, we wished to highlight any areas where the two major parties agree. Since both parties are – at least nominally – right-of-center political parties, this is not an insignificant area of discussion. As for the debate, we have relied upon direct interviews with party leaders, public statements, and publicly available manifesto documents put out by each political party to discern their respective stances on each of the main issues we discuss. The arguments laid out here will represent – to the degree possible – the best form of each party’s case, and will be presented in the form of a WhatsApp conversation between two hypothetical party leaders.
Why use the ‘best form’ of the argument
W
e understand that voters in Pakistan are – correctly – cynical about the abilities or sincerity of any political party in implementing an agenda that improves the lives of the citizens of this country. We leave assessments of levels of corruption, incompetence, and naivete to each individual reader. Our goal is to examine the proposals and policy differences between the two major political parties as they intend them to be and not apply any further assessment about relative effectiveness to it. Our reasoning: to do so would necessarily introduce a level of political bias into this analysis that would render such an exercise into a piece of
COVER STORY
propaganda for one party or another. In order to remain neutral, we make a ‘good faith’ assessment of each political party’s agenda: what would it look like if the best effort was made to implement it, and how does it compare to its rival. We do this also, in part, to offer Pakistan an alternative to ‘youthia versus patwari’ trolling that typically takes place on social media, most vociferously on Twitter, but also on Facebook. We believe our nascent republic deserves an elevated debate of policy and political principles, and that part of the job of the fourth estate is to hold politicians to a higher standard.
Why taxes and civil service reform top our list of issues
R
egardless of what any individual voter believes the government should or should not be doing, it is undeniable that the government will need both money and competent and properly incentivised civil servants to get anything done. The government of Pakistan, since the very founding of the country, has not been able to pay for itself (your grandparents who tell you otherwise are lying). That inability to pay for our own expenses has resulted in a massive buildup of debt, and made policymaking in the country the preserve of foreign donor-funded consultants, rather than politicians and civil servants paid by the citizens and taxpayers of
‘THE LINK BETWEEN TAXATION AND ACCOUNTABILITY OF GOVERNMENT IS AT LEAST AS OLD AS THE MAGNA CARTA, WHICH DATES BACK TO 1215… IN PAKISTAN, HOWEVER, WE HAVE ALWAYS GOTTEN THIS BALANCE WRONG. FROM THE VERY EARLY DAYS FOLLOWING PARTITION, THE GOVERNMENT OF PAKISTAN HAS FAILED TO ADEQUATELY TAX ITS PEOPLE, PARTICULARLY ITS WEALTHY ELITE, AND RELIED INSTEAD ON AID FROM FOREIGN POWERS, LARGELY THE UNITED STATES, BUT ALSO BRITAIN AND JAPAN AND NOW CHINA, IN ORDER TO PAY FOR THE COST OF RUNNING THE COUNTRY’ Pakistan. There is also, by now, a consensus that the Civil Service of Pakistan, at least in its current manifestation, is not a functional institution and needs serious reform in order to become more effective in formulating and implementing policies, as well as becoming a more mindful custodian of public money (translation: they are largely corrupt and incompetent). Most independent analysts who study the issue agree that the Civil Service has become more interested in preserving and advancing its own privileges rather than the interests of the citizens it was created to serve.
‘OUR REASON FOR FOCUSING ON THE PML-N AND THE PTI: THE TWO ARE BY FAR THE LIKELIEST CONTENDERS FOR THE PRIME MINISTER’S OFFICE, AND THE PPP HAS ALL BUT GIVEN UP ON THE IDEA OF GOVERNANCE OR IDEOLOGY FOR THE MOST PART’ 16
Representation without taxation
I
n December 1773, as American revolutionaries dumped tea shipments from the British East India Company into the Boston harbour, they were revolting against the idea of “taxation without representation”, that they were taxed by the British government without having representatives in Parliament to help determine how their tax money would be spent. The link between taxation and accountability of government is at least as old as the Magna Carta, which dates back to 1215, when the English aristocracy and urban middle class forced King John to accept constraints on his power, through Parliament, if he were to retain his right to tax his subjects. In Pakistan, however, we have always gotten this balance wrong. From the very early days following Partition, the government of Pakistan has failed to adequately tax its people, particu-
larly its wealthy elite, and relied instead on aid from foreign powers, largely the United States, but also Britain and Japan and now China, in order to pay for the cost of running the country. Perhaps this aversion can be attributed to the fact that Pakistan’s creation owes in large part to the defection of Muslim political leaders from the Congress-allied Unionist Party, a defection that decisively turned political opinion in what is now Pakistani Punjab towards being in favour of Partition and the creation of Pakistan. That political leadership consisted largely of rural landed aristocrats and urban industrialists, who joined forces with their Muslim counterparts who migrated from the United Provinces of Agra and Awadh to form a government in Pakistan that systematically served its elite without burdening them with taxes. That fateful choice at Partition lasts until this very day. The Pakistani wealthy elite do not believe the government should tax them, and do not even bother to convincingly hide their tax evasion. And yet, the entire structure of government is bent towards serving them. On the taxation side, the urban industrial elite get tax credits and exemptions for their export-oriented manufacturing units (which many claim even on non-export-oriented production), in
‘MOST INDEPENDENT ANALYSTS WHO STUDY THE ISSUE AGREE THAT THE CIVIL SERVICE HAS BECOME MORE INTERESTED IN PRESERVING AND ADVANCING ITS OWN PRIVILEGES RATHER THAN THE INTERESTS OF THE CITIZENS IT WAS CREATED TO SERVE’ addition to concessional prices on inputs such as electricity and natural gas. And the rural landed elite is virtually exempted from any taxation altogether. (In theory, provincial governments levy taxes on agricultural income, but the taxes are so miniscule, and so rarely ever collected, that the rural aristocracy is virtually untaxed on its income.) And all of this is before we even get into the problem of tax evasion, which pervades virtually all segments of the economy, barring the few that are documented by their very nature (banks, telecommunications), or controlled by the government or large multinational corporations (energy, tobacco). Well over half of all taxation (54% in 2013) is collected at Karachi Port and Port Qasim, where the government can literally hold an importer’s goods to ransom until they pay their taxes (which includes sales tax, customs duties, and income taxes in the form of a withholding tax). Profit examined Pakistan’s budget
‘THE ARGUMENTS LAID OUT HERE WILL REPRESENT – TO THE DEGREE POSSIBLE – THE BEST FORM OF EACH PARTY’S CASE, AND WILL BE PRESENTED IN THE FORM OF A WHATSAPP CONVERSATION BETWEEN TWO HYPOTHETICAL PARTY LEADERS’
deficit data as far back as we could get reliable numbers for, and we found no surpluses ever since at least 1986 (and we suspect much further in history than that). And budget deficits lower than 2% of the total size of the economy have not been seen since the early 1990s. More recent years have numbers hovering between 4% and 6% of gross domestic product (GDP) with some years going as high as 8.8% of GDP. And by the way, these numbers charitably include foreign aid as ‘government revenue’. If one expands the definition of fiscal deficit to include total government spending minus total tax revenues alone, the budget deficit routinely runs into 10% of GDP in the good years, and 12-13% in the bad years. Quite simply, the government collects between 9% and 12% of the GDP in a given year in taxes, and spends very consistently between 19% and 21% of GDP on all services as well as its own financing costs. In short, half of Pakistan’s needs from its government are paid for by foreign governments and borrowing from both domestic and foreign lenders. And increasingly, the balance of that second half is shifting towards borrowing, as more and more governments and voters in other countries ask themselves: “Why should we continue to pay for Pakistan when its own wealthy elite refuse to do so?”
COVER STORY
18
COVER STORY
Shaking up the civil service ‘A 19th century government serving the needs of a nation in the 21st century’ “We effectively have a 19th century government serving the needs of a nation in the 21st century,” said Nadeemul Haq, former head of the Planning Commission. At some level, both major political parties recognize this. “Unless you fix that implementation machinery, there is no policy change that will result in improvement,” said Asad Umar, a PTI member of the National Assembly from Islamabad, and most likely designee to be federal finance minister in a possible PTI government. And Ahsan Iqbal, the PML-N member of the National Assembly from Narowal and outgoing federal planning minister, spent the first half of his time in the cabinet trying
20
to push through an ambitious civil service reform agenda that ultimately ended up getting nowhere. It is that lack of success on the part of the PML-N that has made the PTI somewhat more wary of trying to push through any such reforms of their own should they come into office in the elections in next month. “Civil service reform is high on our agenda, but that one is long-term,” said Taimur Khan Jhagra, the ex-McKinsey & Company management consultant who now leads the PTI’s policy unit. “We cannot wait for civil service reform to happen to begin working on the rest of our agenda.”
COVER STORY
EDUCATION
FIXING A BADLY BROKEN SCHOOL SYSTEM Both parties agree that the school systems need fixing, and both are focused foremost on physical infrastructure
22
I
t is by now cliché to talk about just how badly Pakistan’s educational system is doing, and just how little is being spent upon it. Figures such as ‘less than 2% of GDP’ are thrown about with abandon to indicate how little of a spending priority it is for the government. And while much of what you may have heard about education in Pakistan is negative, the story about the turnaround in Pakistan’s schools, particularly government schools, is real. But first, let us get a few facts straight. The total proportion of money spent on education in Pakistan is low, but has been rising steadily over the past decade. Government spending on education accounted for just 1.75% of GDP in 2007 and is expected to exceed 2.53% by the end of the ongoing fiscal year ending June 30, a relatively rapid pace of increase. And it is important to realise that the government is not alone in spending money on students. Parents, in particular those in urban areas, are highly likely to send their children to private schools if government schools prove to be inadequate. That spending does contribute to the total national investment in education, even though it does not show up in the government’s numbers. According to estimates compiled by Profit, using
‘...THERE ARE SIGNIFICANT GENDER GAPS… AND THEY VARY WIDELY BY REGION. IN SOME PARTS OF KHYBER-PAKHTUNKHWA, FOR INSTANCE, GIRLS ALMOST COMPLETELY DISAPPEAR FROM THE EDUCATIONAL SYSTEM PAST THE PRIMARY SCHOOL STAGE. THE NUMBER OF GIRLS WHO ARE OUT OF SCHOOL AT EVERY AGE GROUP IS SIGNIFICANTLY HIGHER THAN THAT OF BOYS’ data from the Pakistan Bureau of Statistics, that spending adds between 1.4% and 2% of GDP in any given year to total educational spending. In short, the total sum being spent on education (not including any philanthropic spending) is expected to hit 4.2% this year, compared to just 3.0% as recently as 2011. Moreover, it appears that the campaign by nonprofits like Alif Ailaan to promote the idea that the dilapidated state of public education in Pakistan constitutes a national emergency appears to have worked. Governments, both federal and provincial, have dramatically expanded not just the monetary resources they make available to schools, but also a significant proportion of the man-
‘IN OTHER WORDS, PUBLIC SCHOOLS HAVE IMPROVED SO MUCH IN SOME PARTS OF THE COUNTRY THAT PARENTS ARE TAKING THEIR CHILDREN OUT OF PRIVATE SCHOOLS AND PUTTING THEM INTO GOVERNMENT SCHOOLS’
agerial attention of chief ministers and chief secretaries in the provinces. (Since the near-simultaneous passage of the 18th Amendment to the Constitution and the Seventh National Finance Commission Award, much of the action on education now takes place at the provincial level.) On a per student basis, the country is projected to spend approximately Rs2,300 per month in fiscal year 2018, compared to just Rs633 per student per month in FY2007, an increase of about 12.4% per year on average during that time. Encouragingly, government spending during that time has outpaced private spending: 13.3% per year on average, compared to 11.3% per year for parents spending on private schools. Here is why that is relevant: provincial governments claiming that their improvements in the quality of schools is having a real impact on the ground is now measurable in the data: aggregate spending by parents on private schools and colleges was down sharply between 2014 and 2016, according to data from the Pakistan Bureau of Statistics.
EDUCATION
That period coincides with the first wave of massive school improvements – mostly in terms of physical infrastructure – in Punjab and Khyber-Pakhtunkhwa, and, to a lesser extent, in Sindh. In other words, public schools have improved so much in some parts of the country that parents are taking their children out of private schools and putting them into government schools. We as Pakistanis are rarely used to seeing our government doing something right, so it is tempting to feel elated that they have chosen to do so on something so monumentally consequential as the education of our children. But there is significantly more work to be done. For starters, the money being spent right now is almost entirely on the physical infrastructure of schools as well as putting in more effective monitoring systems to ensure that school teachers actually show up to teach, and that children are actually in school, and to a slightly lesser extent, to whether the students who are in school are actually learning.
‘...LET US GET A FEW FACTS STRAIGHT. THE TOTAL PROPORTION OF MONEY SPENT ON EDUCATION IN PAKISTAN IS LOW, BUT HAS BEEN RISING STEADILY... GOVERNMENT SPENDING ON EDUCATION ACCOUNTED FOR JUST 1.75% OF GDP IN 2007 AND IS EXPECTED TO EXCEED 2.53% BY THE END OF THE ONGOING FISCAL, A RELATIVELY RAPID PACE OF INCREASE’ Gaps that need plugging
T
here are, however, several gaps that still need to be filled. Firstly, there are wide geographic variations in the effectiveness of these reforms. Punjab has a massive headstart, though Khyber-Pakhtunkhwa is rapidly catching up. Sindh and Balochistan are starting to pay attention, but are still far behind. About 88% of children in Punjab enroll in primary schools, compared to just 58% in Balochistan. Secondly, there are significant gender gaps still in the educational system, and they vary widely by
‘...THE VAST MAJORITY OF THE ATTENTION BEING PAID IS TO GETTING CHILDREN INTO PRIMARY SCHOOLS, EVEN THOUGH OVER 60% OF OUT-OF- SCHOOL CHILDREN ARE OVER THE AGE OF 10 AND THUS BEYOND THE PRIMARY AGE… NOBODY IS THINKING OF THE LOST BOYS AND GIRLS AND WE MAY LOSE AN ENTIRE GENERATION’S EDUCATIONAL AND INTELLECTUAL POTENTIAL FOREVER’
24
region. In some parts of Khyber-Pakhtunkhwa, for instance, girls almost completely disappear from the educational system past the primary school stage. The number of girls who are out of school at every age group is significantly higher than that of boys. For instance, the government estimates that, in 2016, there were 10.5 million boys out of school at all school-going age groups (age 5 through 18), but 12.1 million girls out of school in the same age groups. Thirdly, the vast majority of the attention being paid is to getting children into primary schools, even though over 60% of children who are out of school are over the age of 10 and thus beyond the primary school age. In short, nobody is thinking of the lost boys and girls and we may lose an entire generation’s educational and intellectual potential forever. Fourthly, and perhaps most critically, there are very few attempts to make the curriculum more geared towards critical thinking skills and away from rote memorisation. On this front, there appears to be relatively little progress being made in any province.
EDUCATION
WATER AND CLIMATE CHANGE
WATER AND CLIMATE CHANGE:
THE (HOPEFULLY NOT) INSURMOUNTABLE CHALLENGES Even if both parties made this their number one priority, nothing they could do would be enough on its own
H
ere is the bad news when it comes to climate change: if the government of Pakistan consisted of 100% extremely competent and completely uncorrupt officials, if they devoted all of their resources and energy towards solving Pakistan’s problems with climate change, it would quite simply not even be close to being enough. Are you sufficiently depressed yet? That, of course, does not mean that Pakistan necessarily has to become an unlivable hellhole, but it does mean that we need to understand that
26
we will be one of the worst affected by a problem not entirely, or even mostly, of our own making and that we need to set reasonable expectations of what we
can achieve on our own. It also means that, given the fact that some of the worst effects of climate change are already happening and will hit us worse
‘THE PROBLEM WILL BE ONE OF SHARPER DIVERGENCES FROM THE MEAN. IN OTHER WORDS, RATHER THAN HAVING MOSTLY NORMAL RAIN EVERY YEAR WITH DROUGHTS AND FLOODS EVERY DECADE OR SO, PAKISTAN WILL MOVE TOWARDS HAVING MUCH MORE FREQUENT DROUGHTS AND FLOODS, WITH FEWER YEARS OF WHAT USED TO BE CONSIDERED ‘NORMAL’ RAIN’
than most of the world, Pakistan also needs to take the challenge much more seriously than most other countries. Before we get into what needs to be done, though, we need to understand what is most likely to happen, given the changes that have already begun to take place in the climate. Firstly, temperatures are going to start to become warmer. Winters in Karachi and Hyderabad are already effectively the equivalent of what a slightly chilly spring used to be a generation ago. And the summers throughout the country are already starting to get hot, and will get hotter. According to a study by the Asian Development Bank, the average heatwave length is getting longer by about 11 days per decade in Pakistan. If that trend persists (or worse, accelerates), that means the heatwave gets longer by a little over one day every year. What does that mean on a day-today basis? The heat waves that currently occur for a few days in some parts of the country every couple of years or so will occur every year, almost all over the country, and for weeks at a stretch. Secondly, the precipitation pattern is going to shift. It is not as though Pakistan is going to suddenly have less rain and less water, as most people appear to be fearing this year. In fact, the opposite is true: on average, for instance, most parts of Pakistan will actually get more rain over the coming decades.
The problem will be one of sharper divergences from the mean. In other words, rather than having mostly normal rain every year with droughts and floods every decade or so, Pakistan will move towards having much more frequent droughts and floods, with fewer years of what used to be considered ‘normal’ rain. For Pakistanis, this has meant asking the question about whether we need to build more dams, and the answer, as with most things in life, is much more complicated than that. Dams can have massive water
‘...GIVEN THE FACT THAT SOME OF THE WORST EFFECTS OF CLIMATE CHANGE ARE ALREADY HAPPENING AND WILL HIT US WORSE THAN MOST OF THE WORLD, PAKISTAN ALSO NEEDS TO TAKE THE CHALLENGE MUCH MORE SERIOUSLY THAN MOST OTHER COUNTRIES’ storage capacity. When it is at full capacity, Tarbela dam, for instance, contains enough water to supply the entire city of Karachi for about eight years. However, getting the water from where it is to where it needs to be is not simply a matter of building a dam at where the rain falls, and then having it flow through rivers to where the people live. For one, water evaporates from rivers faster than one might think, and seeps into the ground from the river bed, so one loses a lot of water along the way. And for another, the dam needs to be built at a point in the river that will actually see the higher flows. Sorry, fans of Kalabagh dam, but its complet-
WATER AND CLIMATE CHANGE
ed feasibility study, which was the biggest reason President Musharraf gave for why it could be built faster than any other dam site, is based on old data. As rain patterns shift, Kalabagh may not be the best site for a dam. Indeed, more recent climate models project that the upper portions of Khyber-Pakhtunkhwa, where Diamer-Bhasha dam is being built, is probably a better site. So, what can be done to help mitigate and adapt to the effects of climate change in Pakistan? For one, the country most likely needs to speed up the building of infrastructure to provide electricity – and thus cooling – to as many people as possible, particularly in parts of Sindh and Balochistan that regularly see temperatures above 50º Celsius. And secondly, and perhaps much more crucially, we need to build an infrastructure that allows for the most efficient possible utilization of water.
AREAS OF AGREEMENT AND DEBATE
28
WATER AND CLIMATE CHANGE
HEALTHCARE
HEALTHCARE:
THE (HITHERTO) IGNORED PRIORITY
After several decades of being a rounding error, Pakistan is finally beginning to spend more on its healthcare, though there is still a long way to go to catch up
I
f one had to reduce the state of an entire nation’s healthcare to a single number, it would be average life expectancy, particularly how that has changed over time. For Pakistan, that number stood at 49.3 years in 1964, and has since risen to 66.4 in 2015. The average Pakistani, in other words, lives 17.1 years longer than they did half a century ago. That sounds impres-
HEALTHCARE
31
sive, until you realise that during that same time, the average Indian saw their life expectancy go up by 23.3 years, from 45.1 years to 68.4 years. How did that happen? How did India leave Pakistan behind in its dust when it comes to the healthcare of its citizens? Quite simply: they spent more money. Healthcare, until recently, has not been a priority of any government in Pakistan. If anything, judging by the high degree of volatility seen in the budget numbers, healthcare seems to be the place that governments have previously sought to extract spending cuts from in their desperate bid to balance the budget. As recently as 2011, the government of Pakistan spent only 0.2% of total GDP on healthcare. That number has since then risen sharply to 1.1% of GDP, an increase driven almost entirely by larger provincial allocations towards healthcare spending (and a testament to the genius of the 18th Amendment to the Constitution and the 7th National Finance Commission Award, which moved spending authority towards the provinces). Add in private household spending on healthcare, which has hovered
‘THE NUMBER OF HOSPITALS – AND THE NUMBER OF AVAILABLE BEDS IN THOSE HOSPITALS – IS ALSO RISING AT A STEADY CLIP. IN 2017, THERE WAS ONE HOSPITAL BED FOR EVERY 1,580 PEOPLE, WHICH IS UP FROM ONE BED PER 1,647 PEOPLE IN 2011’ between 1.0% and 1.4% of GDP in any given year over the past two decades, and one gets total healthcare spending numbers that sound slightly more respectable. The year 2018 is expected to see Pakistan’s highest investment yet in the healthcare of its people: at 2.5% of GDP, of which 1.4% is expected to come from private spending. How does that compare? Well, in 2010, when all of Pakistan collectively spent about 1.6% of our GDP on healthcare, India spend 5.6%. And the results are obvious. The reasons as to why healthcare should matter to the economy – besides generally being a very large component of broader human welfare of a country – are obvious: healthier families and workers result in higher productivity, which boosts both household incomes and overall eco-
‘WHAT THAT SPENDING HAS ACHIEVED IS TO MAKE HEALTHCARE MORE ACCESSIBLE THAN IT HAS EVER BEEN IN PAKISTANI HISTORY. THE TOTAL NUMBER OF DOCTORS AND NURSES IN PAKISTAN HIT A RECORD HIGH THIS YEAR... WHAT IS MORE ENCOURAGING IS THAT THE NUMBER OF DOCTORS PER CAPITA HAS ALSO HIT A RECORD HIGH.’ 32
nomic productivity. So why have we so thoroughly neglected to pay any attention to healthcare then? Well, it did not help that for much of our history, healthcare was stuck as part of the federal budget, where it had to compete with interest on the national debt, defence spending, and other, flashier avenues of spending, such as transportation or energy infrastructure. Once this area was moved out from there, and towards provinces that were controlled by competing political parties, healthcare became a priority, and the allocations of money began in earnest (it is too soon to have a full measure for what outcomes that will bring). Since 2011, government spending on healthcare has risen by an astonishing average of 33.9% per year. What that spending has achieved is to make healthcare more accessible than it has ever been in Pakistani history. The total number of doctors and nurses in Pakistan hit a record high this year, which is not surprising in a country with a rapidly growing population, but what is more encouraging is that the number of doctors per capita has also hit a record high. In 2017, there was doctor for every 957 people, compared to one doctor for
every 1,162 people in 2011. The number of hospitals – and the number of available beds in those hospitals – is also rising at a steady clip. In 2017, there was one hospital bed for every 1,580 people, which is up from one bed per 1,647 people in 2011. What happens next to the healthcare sector will have a significant impact on Pakistan and its economy for decades to come, which is why the policy debate surrounding healthcare is of utmost importance. On the policy front, it appears that most provinces are engaged in policy initiatives similar to those in education: improving the physical infrastructure first and worrying about the surrounding conversation around designing a healthcare system later. Nonetheless, given how large a healthcare system can be, and how rapidly its costs can start to escalate, it is important to start having those conversations about designing the system now, before Pakistan ends up stumbling into a system that it later finds it can ill afford, but upon which
‘THE YEAR 2018 IS EXPECTED TO SEE PAKISTAN’S HIGHEST INVESTMENT YET IN THE HEALTHCARE OF ITS PEOPLE: AT 2.5% OF GDP, OF WHICH 1.4% IS EXPECTED TO COME FROM PRIVATE SPENDING’
‘ONE COULD ARGUE THAT GIVEN HOW ABYSMALLY LOW SPENDING ON HEALTHCARE CURRENTLY IS IN PAKISTAN, THAT PERHAPS THESE INITIATIVES ARE NECESSARY TO BOOST ACCESS AND LOWER COSTS TO PEOPLE WHO ARE CLEARLY PUTTING OFF CARE THAT THEY NEED’ millions of people will be dependent by then. For one thing, Pakistan’s healthcare system seems to have a heavy emphasis on hospitals, which is the most expensive setting of care. While all provincial governments are seeking to build out clinics and other primary care facilities, these tend to get less attention – and less money – than hospitals, which are bigger, flashier projects that ministers like to be photographed inaugurating. Another big decision to make: are we going for a unified healthcare system model along the lines of the United Kingdom, a single-payer model, or some hybrid. The Pakistani system as it stands right now consists of two completely separate systems. There is the government-owned, publicly funded system of hospitals and clinics, which are theoretically free or else highly subsidized to anyone who needs them. And then there are the privately owned hospitals and clinics, most of which operate on a for-profit basis, and charge on a fee-for-service basis to anyone who has the ability to pay their charges. Until recently, the two systems were not linked, but with the introduction of the Sehat Insaf card in Khyber-Pakhtunkhwa, the Punjab Health Initiative, and the National Health Pro-
gramme, the two systems are about to become more closely connected. Take the Sehat Insaf Card, for instance. Under the programme, any eligible household in Khyber-Pakhtunkhwa (and over half of all households in the province are eligible), will be given a card and allowed to spend up to Rs540,000 per year per household on any care they need from designated private hospitals as well as any government hospitals. That is a very generous system, at least by Pakistani standards. To put that in perspective, the average Pakistani household spends approximately Rs25,800 per year on healthcare. To provide an allowance that is almost 21 times that amount seems like a very generous initiative, and perhaps an invitation for use beyond that which might be necessary. Because that is the thing with providing a benefit that is free for users: if they do not feel any of the costs, they will likely not stop themselves from using more than they need. Punjab’s initiative is a little less generous, with Rs250,000 in an allowable maximum for hospital services, and Rs50,000 for secondary services, per household per year. Still, it dramatically exceeds what the average household actually spends in a given year.
HEALTHCARE
One could argue that given how abysmally low spending on healthcare currently is in Pakistan, that perhaps these initiatives are necessary to
boost access and lower costs to people who are clearly putting off care that they need. Still, some caution is needed when designing these pro-
grammes. As the contentious debates around healthcare in the United States demonstrate, once a benefit is given, it can be very hard to take it away.
AREAS OF AGREEMENT AND DEBATE
34
HEALTHCARE
ENERGY
COLLIDING VISIONS FOR
POWERING PAKISTAN Both the PTI and PML-N offer competing proposals for how best to manage Pakistan’s electricity generation sector
P
erhaps the single biggest promise that Nawaz Sharif made when he ran for prime minister in 2013 was fixing Pakistan’s chronic energy crisis. That has been his single biggest obsession since the day he took office as prime minister, and his critics would argue, the genesis of some of his biggest mistakes in policymaking. Unlike education, healthcare, taxation, and other critical areas, energy is one where both the PTI and PML-N believe they have strong subject matter experts in senior leadership positions within the hierarchy, and both sides have very different views on how best to manage the Pakistani energy sector. Nonetheless, there is an agreed baseline of facts that cannot be argued with, and we lay them out below. We begin with the following prem-
ENERGY
ise: if everyone in Pakistan paid their electricity bills in full and on time, there would be absolutely no load-shedding in the county, ever. Load-shedding, in other words, is the consequence purely of two governance failures on the part of all power companies in the country: a failure to prevent theft of electricity from the power lines, and a failure to collect 100% of the bills that are issued
to customers who are not stealing it directly from the grid. The fact that these failures are currently happening is the reason behind circular debt, and circular debt is the reason Pakistan does not have enough power plants, and the ones it does have are producing at less than optimal capacity. Here is how this works.
‘SO, ALL TOLD, ABOUT 33% OR SO OF THE ELECTRICITY PRODUCED IN PAKISTAN IS EITHER LOST IN TRANSMISSION, STOLEN, OR BILLED BUT NOT PAID FOR. AND NEPRA ONLY ALLOWS POWER COMPANIES TO DEDUCT 15% OF IT FROM THEIR COSTS, WHICH STILL LEAVES ABOUT 17% OF WHICH TO ACCOUNT FOR’ 37
Electricity tariffs in Pakistan are determined by the National Electric Power Regulatory Authority (NEPRA), which determines which costs each power company is allowed to charge for its calculation of revenues and costs, which in turn feed into the calculation of what tariff it is allowed to charge its customers. Now, NEPRA is aware that it is operating in Pakistan and so for power distribution companies (LESCO, K-Electric, etc), it allows them to include the cost of theft – which is given the cleaner euphemistic name of “transmission and distribution losses” – as part of their cost structure. This is where things start to go wrong.
Where circular debt comes from
T
ransmission and distribution (T&D) losses can occur for technical reasons as well (ask your local physics teacher about resistance in wires), and in more advanced economies, can reach as much as 7% of the total electricity generated. In
38
‘UNLIKE EDUCATION, HEALTHCARE, TAXATION, AND OTHER CRITICAL AREAS, ENERGY IS ONE WHERE BOTH THE PTI AND PML-N BELIEVE THEY HAVE STRONG SUBJECT MATTER EXPERTS IN SENIOR LEADERSHIP POSITIONS WITHIN THE HIERARCHY, AND BOTH SIDES HAVE VERY DIFFERENT VIEWS ON HOW BEST TO MANAGE THE PAKISTANI ENERGY SECTOR’ Pakistan, NEPRA estimates that total T&D losses came to 21.1% among the government-owned companies (which most analysts believe is understated) in 2016, and 29.6% in the privately-owned K-Electric during that same period. The problem: NEPRA only permits these companies to include T&D losses of up to 15% in their allowed cost structure. And it allows absolutely zero losses for failure to collect bills, a number that averages about 12% nationwide during that same period. So, all told, about 33% or so of the electricity produced in Pakistan is
either lost in transmission, stolen, or billed but not paid for. And NEPRA only allows power companies to deduct 15% of it from their costs, which still leaves about 17% of which to account for. And that, dear reader, is where circular debt comes from. Where power distribution companies cannot recover the cost of theft, they cannot pay the full amount they own the power transmission company, which in turn then cannot pay its full bills to the power generation company, which then cannot pay their fuel suppliers, who in turn end up having trouble
ENERGY
paying the international oil companies from whom they buy the oil. Every few years, the government decides to “clear� the circular debt, which effectively means converting the amount lost due to uncollected bills and theft into a government subsidy that is then paid out. Why, any logical person might ask, then not simply just have NEPRA allow higher allowances for electricity theft in the first place? There are two reasons, the first of which is that it would be unfair to the customers who pay their bills in full and on time, and the second is that the lower limit is meant to be
an incentive for the power companies to curb their losses. That sounds fine in theory, but as you can see from the chart of line losses, the state-owned power companies managed by Pakistan Electric Power Company (PEPCO) have basically seen no real change in their line losses over the past decade. By the way, this amount is over and above the subsidies that the government pays to power companies, which is another matter entirely and one worthy of discussion in its own right. The short summary of the power subsidies discussion is this: in theory it is meant to help make electricity an
THE DEBATE
40
affordable right, but in practice, according to a study by the World Bank, about 90% of electricity subsidies go towards lowering the bills of the upper middle class who can afford to pay full price for their electricity. And all of this is before we have even been able to get to the fact that the government has recently committed to building massive coal-fired power plants all over the country at the exact moment when the effects of climate change are beginning to badly affect Pakistan, and solar power has now become economically competitive with other sources of electricity.
ENERGY