Hassanwazir's List: ECONOMY

• . Official trade between the two countries is modest but has great potential for growth. Recent studies show that bilateral trade could grow to $11bn from the current $1.8bn if India and Pakistan get serious about improving trade relations.
• And yet, in India-Pakistan relations, politics trump the economy each time

  • TRUMP:
    Beat (someone or something) by saying or doing something betterif the fetus is human life, that trumps any argument about the freedom of the mother trump Noun
• both India and Pakistan are paying the price for such curmudgeonly
  attitudes — and so is the rest of South Asia

  • cur·mudg·eon  (kr-mjn)n.An ill-tempered person full of resentment and stubborn notions.
     A cantankerous person; an ill-tempered and disagreeable person.
• t I am a fervent believer in regional economic cooperation and integration.

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• The proportion between non-developmental (72 per cent) and developmental (28 per cent) expenditure is still highly imbalanced. The defence expenditure comprised 16 per cent of the budget last year. This along with the other even bigger chunk (50 per cent) for ‘general public service’ needs to be trimmed to enhance allocation for more productive activities such as health, education, social protection, housing, recreation, and environment, which collectively got a paltry two per cent. Even other important activities such as economic and public order safety affairs got merely four per cent last year.
• In the budget speech last year, the finance minister acknowledged the fact that “[i]ndiscriminate borrowing over the last four years has brought us to a debt level of 55 per cent of GDP which is approaching the limit under the Fiscal Responsibility and Debt Limitation Act.
• Consequently, it is not surprising to note that the budgetary allocation for education went down to 1.24 per cent last year from 1.28 per cent the year before. One would, therefore, have to rely on provincial governments to not only meet the federal budget shortfall but also enhance the allocation for education in their budgets. It is heartening to note the electoral promise made by the MQM to allocate a minimum 20 per cent of the provincial and district governments’ revenue expenditure for education. One hopes that the MQM fulfils this promise and sets an example for other parties to emulate.

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• This may not be too far-fetched, given FBR`s own estimate of what can be plugged via better administration. For the past three years, it has stated that Rs15-20bn can be yielded through improvement in its internal working. Given that FBR has an incentive to understate the number, Rs100bn (over $1bn) a year is certainly a plausible number for total leakage.
• For an idea, consider the audit report for 2007-08, which listed irregularities amounting to Rs330bn for the year (over three per cent of GDP).
• By my reckoning, the heaviest loss of taxpayer money occurs in two areas where the public sector`s footprint is still very substantial: procurement, and the Public Sector Development Programme (PSDP). Including petroleum and food commodities, annual procurement by the public sector totals billions of dollars, and spawns petty as well as mega-level corruption, despite the presence of the bureaucracy-manned Public Procurement Regulatory Authority (PPRA). The PSDP is another area that operates with a lack of transparency, with very substantial losses imposed on the economy by a faulty process starting from project selection to its costing, approval, implementation and monitoring.
• In the past four years, the annual subsidy to the power sector (for tariff differential as well as to cover operational loss) has amounted to Rs625bn. A not-insignificant part of these `losses` is caused by corruption. While difficult to quantify, the case of the Fata account is illustrative. The Rs85bn parked under this head as uncollectible receivables from the tribal agencies, and which was eventually paid for by public funds, represents use of electricity far in excess of Fata`s actual annual usage. Insiders in the sector have long claimed this is a `sundry` account where losses incurred by not collecting bills in other areas, in collusion with consumers, are parked
• Another area where fiscal resources can be saved relates to the untargeted nature of budgeted subsidies. Currently, other than for electricity, most of the subsidies are directed towards sectors (such as fertiliser) and corporations (such as Railways and the Trading Corporation of Pakistan), with little direct benefit to the final consumer. While elaborate targeted subsidy schemes are difficult and time-consuming to construct, the freeing up of budgetary resources for other beneficial interventions in the economy makes it a worthy enterprise.

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• Ranked as the third-fastest expanding Asian economy after China and India in the middle of the last decade, Pakistan is now among the slowest growing South Asian countries.
• Pakistan`s economy is expected to expand by 2.4 per cent this year as the region is projected to grow by 8.7 per cent and the world`s developing nations by 6.5 per cent.
• Investment has contracted to 13.4 per cent of the size of the economy from 22.5 per cent in 2007. Domestic savings are down to 9.5 per cent from 16.3 per cent in 2006. Growing energy shortages and a higher cost of borrowing continue to haunt private investors and affect industrial output. Public-sector enterprises continue to eat into meagre resources at the cost of public services like education; development expenditure formed only 3.4 per cent of GDP.
• Exports have increased on the back of higher commodity prices. An additional income of Rs342bn has been transferred to the rural economy during one year alone, compared to Rs329bn during 2001-08. The exchange rate remains stable and inflation is down to 13 per cent from 25 per cent in October 2008

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• The government will spend Rs56 billion on internal security of the country during 2011-12
• The allocation is Rs1.5 billion more than the Rs54.58 billion spent this year.

• However, the annual salary of the president remains at Rs1 million for the upcoming fiscal year too
• he has a budget of Rs3.5 million for presents and charities and Rs15.8 million for entertainments and gifts. The president has kept his discretionary grant at Rs1 million for the next fiscal year.
• An amount of Rs2.8 million will be spent on Prime Minister Yousuf Raza Gilani’s foreign tours in 2011-12 as against Rs2.6 million in the outgoing fiscal year.

• The budget of Prime Minister’s Estate Gardens is Rs14.33 million, with an increase of Rs2.78 million from last year budget of Rs11.55 million.

  Salaries of more than 70 gardeners will eat away Rs13.31 million, while more than Rs1 million have been allocated for the maintenance of Prime Minister’s House gardens.  The Prime Minister’s House has 180 servants whose salaries and expenditures stood at Rs45.41 million.
• Of the total Rs501.85 billion given to the defence ministry for fiscal 2011-2012, the Pakistani armed forces walk away with Rs495 billion – an increase of 12 per cent from the Rs442 billion allotted in the last fiscal.
• the home security departments falling under the interior ministry are given Rs56.09 billion
• The overall amount of subsidies – direct and indirect – was Rs395 billion in outgoing fiscal year. This has now been reduced to Rs166.44 billion for 2011–12.
• The overall development budget of the country is Rs730 billion for the year that is just ending which is 10 per cent higher than the allocations for the coming year. From the new budget, Rs300 billion is meant for the federal PSDP and Rs430 billion for the provinces
• The most important feature of this PSDP is that this is the first since the implementation of 18th Amendment and hence Rs430 billion has been set aside for the provinces.
• Overall, water and energy have been given priority for the new fiscal year. An allocation of Rs33.2 billion or 12 per cent of the total PSDP has been allocated for water projects including the completion of the raising of Mangla; the construction of Satpara Multipurpose Dam (Gilgit-Baltistan) and the Gomalzam Dam (Khyber Pakhtunkhwa).
  

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• Sovereignty is not about foreign militaries transgressing borders arbitrarily drawn on a map, but the ability to identify and resolve issues and problems which affect the people of a country. In today’s world, unlike the 18th, 19th or even the 20th century, sovereign nations are not necessarily military powers; they are economic powers. Japan and Germany come to mind.

  Both have US troops based there and are part of military alliances and pacts, but no one questions their claim as sovereign powers. Additionally, sovereignty is not simply about economic wealth — pace Saudi Arabia — but about the ability, desire and responsibility to take unpopular and difficult, though necessary, decisions. All aspirations to be a sovereign nation must at least be based on this premise, and the ability to meet one’s needs based on one’s own resources must be central to this understanding
• The tax-to-GDP ratio fell from an already low 11.4 per cent in 2003, to 9.5 per cent in 2009 despite the fact that the economy grew by almost six per cent per annum, and has fallen further to 9.1 per cent this fiscal year.

• only 1.5 million of Pakistan’s registered 2.8 million income-tax payers have filed their returns this year.

  This means that the proportion of those paying income tax this year is way less than one per cent of Pakistan’s population.
• What is quite astonishing then is in his budget speech the finance minister decided to raise the taxable income to almost Rs30,000 per month which means that the number of registered income-tax payers will fall further

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• PAKISTAN`S economy is failing rapidly on many fronts: the growth rate stagnates, inflation persists and public debt has ballooned due to macroeconomic imbalances; the infrastructure cannot meet requirements of power, transport and water resources; roads and port facilities are rapidly deteriorating and are further burdened by the transit use of Isaf forces in Afghanistan.

  Human development indicators are low, the social infrastructure needed to address the needs of a growing population inadequate; poverty is growing; local government which is critical to providing health and education services is dysfunctional; the environment for doing business is neither cost-efficient nor corruption-free; the rule of law so essential to nurture private enterprise is challenged by a democratically elected government in the Supreme Court daily. And law and order is hostage to the destabilising effect of the US war in Afghanistan.
• With population growing at 2.1 per cent annually, unemployment is rising. Over 50 million people have now slipped below the poverty line especially due to erosion of purchasing power by inflation.
• Reminiscent of Musharraf`s regime, economic managers claim mockingly that per capita income now exceeds $1250, another sleight of pen by converting the inflation-based GDP into dollars at an overvalued exchange rate.
• The last four years have also seen acceleration in inflation, with year-on-year inflation peaking at over 25 per cent during late 2008, but persisting subsequently, fluctuating around 15 per cent until recently. This is the longest spell of inflation Pakistan`s economy has suffered, threatening the social order.
• Economic managers blame dismal conditions on factors outside their control: war on terror, global financial crisis, the subsequent economic recession and the floods of 2010. Only some are relevant and their impact is overstated, while policy-controlled factors have been more important: the floods of 2010 caused a loss of over Rs800bn but policy- and mismanagement-induced losses in the public sector exceeded Rs400bn last year as well; the war on terror was only one factor that impacted investment, other rectifiable factors that discouraged investment were macroeconomic mismanagement, the rising cost of doing business, energy crisis and corruption.
• The contagion from the global financial crisis never reached Pakistan because we are not integrated in markets globally

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• According to the revised medium-variant estimates, Pakistan will have 275 million people by 2050 — significantly less than the 335 million forecast previously. If fertility rates remain constant, the
  country will hold about 380 million people by that year — not the 450 million estimated earlier.
• The country’s total fertility rate (TFR) is currently about 3.6, significantly higher than the replacement level rate (2.1) now registering across much of the world
• A quarter of Pakistan’s women wish for, but do not use, some form of contraception, which is due in part to the fact that many rural Pakistani women must travel, on average, 50 to 100 kilometres to receive family planning services.
• Unsurprisingly, the country’s contraception prevalence rate (CPR) registers at only 30 per cent. Little wonder Pakistan has the highest population growth, birth, and fertility rates in South Asia.

• As much as a third of Pakistanis may lack access to safe drinking water.

  Seventy-seven million are food-insecure. Forty million out of the country’s 70 million 5-to-19 year-olds do not attend school.

  Half the population is not fully active in the labour force, while women’s labour participation rates barely crack 20 per cent.
• t Pakistan will require nine per cent GDP growth (it is now 2.4pc) to employ its nearly 100-million-strong under-20 population.

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• but a stagnant economy and inflation are taking a severe toll on domestic employment, incomes and the purchasing power of the poor in particular. Since the latter have not yet translated into political and social strife, present economic conditions have not triggered the urgent response that these warrant, either from the civilian government or other stakeholders.
• Persistent and growing budget deficits are at the root of macroeconomic imbalances which afflict Pakistan’s economy contributing to rigidities and risks across the economy. While reducing the deficit is critical to recovery, the democratically elected federal and provincial governments have made no credible attempt at revenue mobilisation and expenditure control.
• Important fiscal reforms are hostage to short-sighted political compulsions and corruption. The government response to rising unemployment, economic stagnation and persistent inflation has been over-employment in state-run enterprises, untargeted subsidies and mushrooming development projects. The latter contribute to more losses in PSEs, circular debt and greater fiscal deficits that contribute further to inflation and economic stagnation, perpetuating a vicious cycle of worsening government finances.
• Double-digit inflation has stubbornly persisted for more than four years now
• Industry in Pakistan has been ground to a halt by power shortages, high interest rates, lack of credit and loss of competitiveness of nearly 15 per cent over the last three years.
• Growth in GDP has slowed to an average of 2.5 per cent annually during the last four years. Prospects for revival in growth are poor due to declining investment especially private investment
• The recent increase in remittances is not policy-induced hence risky to rely on; the decline in September 2011 is worrisome.
• Economic imbalances cannot decline unless the budget deficit is reduced through tough fiscal measures.

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• Pakistan is a global laggard not just in collecting tax revenue from its own citizens, but also in terms of expanding its exports
• Hence, while Bangladesh has managed to increase its exports four-fold since 2000 (from $6 billion to $24bn), and Vietnam over five-fold (from $14bn to over $72bn), Pakistan’s exports have risen from $9bn to $24bn in the same period. India’s exports have grown from $42bn to $305bn since 2000.

• energy and food commodities.

   

  Combined, imports under these two heads amounted to $20.3bn in 2011-12 (nearly half of Pakistan’s total imports for the year).
• As I have written before, a rough calculation suggests that if we had managed to raise our tax-GDP ratio to around 13 per cent in 2005, instead of the nine per cent it had sunk to, and sustained this level, Pakistan’s public debt could have been lower by around 15 per cent of GDP today. In monetary terms, this would translate into a public debt stock that would be at least Rs3.1 trillion lower, if not more under favourable conditions. In terms of annual saving on interest payments, it would translate into roughly Rs300bn per annum — or 27 per cent of the current budgeted debt servicing, and nearly 10 per cent of the entire budgeted outlay

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