The Global Financial Crisis has impacted Pakistan through channels of Aid and FDI. To read more see paper by Vaqar Ahmed and Cathal O' Donoghue (published in the International Journal of Microsimulation).
Web: http://www.microsimulation.org/IJM/Articles/IJM_36.pdf
Showing posts with label Pakistan. Show all posts
Showing posts with label Pakistan. Show all posts
Wednesday, June 16, 2010
Saturday, February 6, 2010
Water availability falls sharply
THE NEWS
Sunday, February 07, 2010
By our correspondent
LAHORE: Pakistan is fast becoming a desert because of a drastic fall in water availability from 5,000 cubic metres per capita in the 1950s to 1,000 cubic metres in 2010.
Lahore Chamber of Commerce and Industry’s former vice president Shahzad Ali Malik said this in a presentation to US Consulate’s Economic and Political Adviser Richard C Jao.
LCCI Vice President Faisal Iqbal Sheikh, Executive Committee members and former Lahore Chamber of Commerce presidents also attended the presentation.
Malik said without water 20 million acres of fertile land would dry up in a week and tens of millions of people would face starvation. No army, with bombs and shellfire, could devastate the country as India by cutting off river flows, he stressed.
He urged the US to ensure implementation of the Indus Water Treaty in letter and spirit, sharing of complete information about water flows as per Article VI of the treaty and installation of telemetry system on rivers by international agencies.
Besides, he added, the country should be compensated for loss of 0.2 million acre feet of water to Baglihar and protection of watershed in upper reaches (J&K) of western rivers.
According to the presentation, Indian manipulation of river water goes back to 1948 as all the rivers on which Pakistan depends originate from India and Kashmir.
The presentation further said between 1951 and 1960 the US took keen interest in water issues leading to the Indus Water Treaty in 1960. The World Bank was the facilitator in appointment of neutral experts and arbitration. Three eastern rivers (Ravi, Beas and Sutlej) were given to India and three western rivers (Indus, Jhelum and Chenab) to Pakistan.
However, last-minute changes in the treaty permitted India irrigation of 1.343 million acres (2.85 MAF) from western rivers. Water for Pakistan was not quantified.
All water heads originated in Kashmir, the jugular vein of Pakistan, he said, adding through annexation of Kashmir India managed to take control of Pakistan’s ‘lifeblood’.
India first used the water weapon in 1948, prompting an intervention by US President Truman. Under the Indus Water Treaty, India cannot stop or interfere with western rivers, whereas in case of Baglihar Dam India did not meet the treaty’s provisions of sharing information. India withheld 0.2 MAF of water in case of Baglihar.
He said India was building a huge storage facility (national river linking project) at a cost of $120 billion to be completed in 2016 which might result in conflicts with neighbouring countries including China, Bangladesh, Bhutan and others.
India was also blatantly violating commitment to ensuring 50,000-plus cusecs in Chenab at Marala. The presentation said that under-construction Kishanganga Dam was a severe threat to Neelum-Jhelum Hydel Project of Pakistan.
Sunday, February 07, 2010
By our correspondent
LAHORE: Pakistan is fast becoming a desert because of a drastic fall in water availability from 5,000 cubic metres per capita in the 1950s to 1,000 cubic metres in 2010.
Lahore Chamber of Commerce and Industry’s former vice president Shahzad Ali Malik said this in a presentation to US Consulate’s Economic and Political Adviser Richard C Jao.
LCCI Vice President Faisal Iqbal Sheikh, Executive Committee members and former Lahore Chamber of Commerce presidents also attended the presentation.
Malik said without water 20 million acres of fertile land would dry up in a week and tens of millions of people would face starvation. No army, with bombs and shellfire, could devastate the country as India by cutting off river flows, he stressed.
He urged the US to ensure implementation of the Indus Water Treaty in letter and spirit, sharing of complete information about water flows as per Article VI of the treaty and installation of telemetry system on rivers by international agencies.
Besides, he added, the country should be compensated for loss of 0.2 million acre feet of water to Baglihar and protection of watershed in upper reaches (J&K) of western rivers.
According to the presentation, Indian manipulation of river water goes back to 1948 as all the rivers on which Pakistan depends originate from India and Kashmir.
The presentation further said between 1951 and 1960 the US took keen interest in water issues leading to the Indus Water Treaty in 1960. The World Bank was the facilitator in appointment of neutral experts and arbitration. Three eastern rivers (Ravi, Beas and Sutlej) were given to India and three western rivers (Indus, Jhelum and Chenab) to Pakistan.
However, last-minute changes in the treaty permitted India irrigation of 1.343 million acres (2.85 MAF) from western rivers. Water for Pakistan was not quantified.
All water heads originated in Kashmir, the jugular vein of Pakistan, he said, adding through annexation of Kashmir India managed to take control of Pakistan’s ‘lifeblood’.
India first used the water weapon in 1948, prompting an intervention by US President Truman. Under the Indus Water Treaty, India cannot stop or interfere with western rivers, whereas in case of Baglihar Dam India did not meet the treaty’s provisions of sharing information. India withheld 0.2 MAF of water in case of Baglihar.
He said India was building a huge storage facility (national river linking project) at a cost of $120 billion to be completed in 2016 which might result in conflicts with neighbouring countries including China, Bangladesh, Bhutan and others.
India was also blatantly violating commitment to ensuring 50,000-plus cusecs in Chenab at Marala. The presentation said that under-construction Kishanganga Dam was a severe threat to Neelum-Jhelum Hydel Project of Pakistan.
Govt trying to get GSP-plus status from EU
THE NEWS
Sunday, February 07, 2010
By our correspondent
KARACHI: The government is trying to negotiate with the European Union to get Generalised System of Preferences-plus status for Pakistan which will help exporters to compete in European markets.
In this regard, a booklet and a documentary have been prepared so Pakistan’s case can be well presented in the European Union. It shows how the cost of the war on terror is badly affecting the cost of doing business.
This was stated by Zafar Mahmood, Federal Secretary for Commerce, at the Karachi Chamber of Commerce and Industry (KCCI) on Saturday.
He said the war on terror was affecting industrial sectors of the country and was one of the major factors which was adding up to the cost of manufacturing and doing business. Eighteen factors had been identified including tangible and intangible factors which were adversely affecting the trade, he said.
Owing to the high cost of the war on terror, he said, investment from various sectors was being shifted to the war, which was badly affecting development in different sectors including energy.
He said European and American buyers were pressurising Pakistani suppliers to shift their manufacturing units to other places in order to ensure continuous and timely supply. He said exporters should share such type of information so the government could take up the issue because closure of any industrial unit would lead to unemployment and that in turn would create terrorists. “Unemployment is also one of the reasons for growing terrorism.”
He said a committee had been set up to look into the pros and cons of trade agreements with different countries, adding free trade agreement with China was not benefiting Pakistan though its aim was to provide benefit for both countries. However, “China is benefiting from it.”
He added Pakistani goods’ containers were rejected on technical grounds and no one was providing the details and the issue would be taken up.
He said eight per cent tax to GDP ratio was very low and governments could not sustain on that rate and tax collection had to be increased but systematically.
Regarding the Afghan Transit Trade, he said, a committee had been set up which was negotiating on various issues with Afghan officials.
The secretary said commercial counselors or commercial attaches would be appointed on merit and for this written test had been made mandatory and they would be on contract for two years. They would be given targets to achieve and their contract would be revised subject to their performance in the respective countries, he added.
He said drop in imports was not a good sign which showed that the purchasing power had decreased and production had dropped.
The secretary commerce said the KCCI should put on record the fake trade bodies’ issue and send its suggestions to the National Assembly Standing Committee on Trade and Commerce.
KCCI Acting President Rasheeduddin Rashid, Businessmen Group (BMG) Chairman Siraj Kassam Teli and Adviser to Sindh CM on Investment Zubair Motiwala were also present.
Some major issues were discussed including power and gas crisis, high utility tariffs, textile sector problems, Trade Ordinance 2007 and Afghan Transit Trade Agreement.
Businessmen said textile exports fell sharply as high operational cost and hike in power and gas tariffs affected export activities. Due to the high operation cost, exporters were unable to compete in the global market, they said, adding some concessons must be given to the textile sector in the form of exemptions and relief in taxes.
They said the Afghan Transit Trade Agreement had been massively abused by unscrupulous elements who imported products way above their actual demand in Afghanistan and brought the products into Pakistan.
Sunday, February 07, 2010
By our correspondent
KARACHI: The government is trying to negotiate with the European Union to get Generalised System of Preferences-plus status for Pakistan which will help exporters to compete in European markets.
In this regard, a booklet and a documentary have been prepared so Pakistan’s case can be well presented in the European Union. It shows how the cost of the war on terror is badly affecting the cost of doing business.
This was stated by Zafar Mahmood, Federal Secretary for Commerce, at the Karachi Chamber of Commerce and Industry (KCCI) on Saturday.
He said the war on terror was affecting industrial sectors of the country and was one of the major factors which was adding up to the cost of manufacturing and doing business. Eighteen factors had been identified including tangible and intangible factors which were adversely affecting the trade, he said.
Owing to the high cost of the war on terror, he said, investment from various sectors was being shifted to the war, which was badly affecting development in different sectors including energy.
He said European and American buyers were pressurising Pakistani suppliers to shift their manufacturing units to other places in order to ensure continuous and timely supply. He said exporters should share such type of information so the government could take up the issue because closure of any industrial unit would lead to unemployment and that in turn would create terrorists. “Unemployment is also one of the reasons for growing terrorism.”
He said a committee had been set up to look into the pros and cons of trade agreements with different countries, adding free trade agreement with China was not benefiting Pakistan though its aim was to provide benefit for both countries. However, “China is benefiting from it.”
He added Pakistani goods’ containers were rejected on technical grounds and no one was providing the details and the issue would be taken up.
He said eight per cent tax to GDP ratio was very low and governments could not sustain on that rate and tax collection had to be increased but systematically.
Regarding the Afghan Transit Trade, he said, a committee had been set up which was negotiating on various issues with Afghan officials.
The secretary said commercial counselors or commercial attaches would be appointed on merit and for this written test had been made mandatory and they would be on contract for two years. They would be given targets to achieve and their contract would be revised subject to their performance in the respective countries, he added.
He said drop in imports was not a good sign which showed that the purchasing power had decreased and production had dropped.
The secretary commerce said the KCCI should put on record the fake trade bodies’ issue and send its suggestions to the National Assembly Standing Committee on Trade and Commerce.
KCCI Acting President Rasheeduddin Rashid, Businessmen Group (BMG) Chairman Siraj Kassam Teli and Adviser to Sindh CM on Investment Zubair Motiwala were also present.
Some major issues were discussed including power and gas crisis, high utility tariffs, textile sector problems, Trade Ordinance 2007 and Afghan Transit Trade Agreement.
Businessmen said textile exports fell sharply as high operational cost and hike in power and gas tariffs affected export activities. Due to the high operation cost, exporters were unable to compete in the global market, they said, adding some concessons must be given to the textile sector in the form of exemptions and relief in taxes.
They said the Afghan Transit Trade Agreement had been massively abused by unscrupulous elements who imported products way above their actual demand in Afghanistan and brought the products into Pakistan.
Friday, February 5, 2010
Only 66% committed education aid disbursed
The News
Tuesday, January 26, 2010
Myra Imran
Islamabad
The commitment and disbursement gap in the Official Development Assistance (ODA) in Pakistan’s education sector is becoming all the more evident in view of the fact that only 66 per cent of the ODA committed is disbursed.
These views were expressed at the launch of a study titled ‘A Policy Scan of Official Development Assistance (ODA)’ published by the Pakistan Coalition for Education (PCE). Civil society activists, government officials, media representatives and education experts participated in the event and expressed their views on the issue.
The study shows that the ODA in education sector faces innumerable issues and challenges such as meagre allocation of resources, little focus of multinationals on education, gaps in commitments and actual disbursements, strict aid conditionalities, and lack of implementation and transparency mechanisms.
Highlighting the importance of ODA, Chairman National Standing Committee on Education Abid Sher Ali said it is vital in addressing the missing links in education. “Our enhanced focus, however, should be on generating and mobilising local resources,” he added.
Talking about the inadequate focus of multinationals on education, researcher of the study and Executive Director Centre for Peace & Development Initiatives (CPDI) Mukhtar Ahmed Ali said the trend is evident from the fact that the World Bank and the Asian Development Bank apportion most of the project aid to infrastructure development. He further mentioned that grants constitute only 19 per cent of ODA and the remaining comes in the form of loans.
Assessing the role of ODA in Pakistan, Advisor to Chief Minister Sindh Dr Kaiser Bengali emphasised that as a rule, loans should only be taken for asset creation and should never be taken for budgetary support. However, he cited education as an exception to this rule, as it is not aimed at asset creation but the overall well-being.
He reiterated the importance of foreign assistance but specified four areas of concerns regarding shortage that of teachers, laboratory equipments/instruments, libraries, and research resources like journals/books and scholarships. He also called for comprehensive planning to control the brain drain.
Mohammad Muntasim Tanvir, Campaign Coordinator Asia South Pacific Association for Basic & Adult Education (ASPBAE) - a network of 200 organisations working in 36 countries - spoke on the ODA trends in Asia. He highlighted the inadequacy of aid and low priority accorded to education in the whole region.
He also underlined the key policy demands from the Asian civil society regarding aid, adding that aid should be transparent, unconditional, consistent and better quality grants (instead of loans). “The aid should be monitored through strong accountability measures and should be used in a harmonised process for long term and sustainable projects with full participation from civil society in its design, implementation and monitoring.”
Pakistan Coalition for Education (PCE) is a network, which by design is a forum for initiating, sharing and exchanging dialogues on different education related issues like policy, governance and financing. It encourages dialogues on issues in education with a view to promote awareness among people and create a critical mass for facilitating a positive change and improving upon the overall education scenario.
Tuesday, January 26, 2010
Myra Imran
Islamabad
The commitment and disbursement gap in the Official Development Assistance (ODA) in Pakistan’s education sector is becoming all the more evident in view of the fact that only 66 per cent of the ODA committed is disbursed.
These views were expressed at the launch of a study titled ‘A Policy Scan of Official Development Assistance (ODA)’ published by the Pakistan Coalition for Education (PCE). Civil society activists, government officials, media representatives and education experts participated in the event and expressed their views on the issue.
The study shows that the ODA in education sector faces innumerable issues and challenges such as meagre allocation of resources, little focus of multinationals on education, gaps in commitments and actual disbursements, strict aid conditionalities, and lack of implementation and transparency mechanisms.
Highlighting the importance of ODA, Chairman National Standing Committee on Education Abid Sher Ali said it is vital in addressing the missing links in education. “Our enhanced focus, however, should be on generating and mobilising local resources,” he added.
Talking about the inadequate focus of multinationals on education, researcher of the study and Executive Director Centre for Peace & Development Initiatives (CPDI) Mukhtar Ahmed Ali said the trend is evident from the fact that the World Bank and the Asian Development Bank apportion most of the project aid to infrastructure development. He further mentioned that grants constitute only 19 per cent of ODA and the remaining comes in the form of loans.
Assessing the role of ODA in Pakistan, Advisor to Chief Minister Sindh Dr Kaiser Bengali emphasised that as a rule, loans should only be taken for asset creation and should never be taken for budgetary support. However, he cited education as an exception to this rule, as it is not aimed at asset creation but the overall well-being.
He reiterated the importance of foreign assistance but specified four areas of concerns regarding shortage that of teachers, laboratory equipments/instruments, libraries, and research resources like journals/books and scholarships. He also called for comprehensive planning to control the brain drain.
Mohammad Muntasim Tanvir, Campaign Coordinator Asia South Pacific Association for Basic & Adult Education (ASPBAE) - a network of 200 organisations working in 36 countries - spoke on the ODA trends in Asia. He highlighted the inadequacy of aid and low priority accorded to education in the whole region.
He also underlined the key policy demands from the Asian civil society regarding aid, adding that aid should be transparent, unconditional, consistent and better quality grants (instead of loans). “The aid should be monitored through strong accountability measures and should be used in a harmonised process for long term and sustainable projects with full participation from civil society in its design, implementation and monitoring.”
Pakistan Coalition for Education (PCE) is a network, which by design is a forum for initiating, sharing and exchanging dialogues on different education related issues like policy, governance and financing. It encourages dialogues on issues in education with a view to promote awareness among people and create a critical mass for facilitating a positive change and improving upon the overall education scenario.
Saturday, January 30, 2010
Businesses advised not to depend on govt assistance
The News
Saturday, January 30, 2010
By By Mansoor Ahmad
LAHORE: Successful entrepreneurs from knitwear, packaging and auto sector talking to The News have advised their counterparts in trade to promote best management practices and go for innovation instead of looking towards government for dole outs and facilitations.
They said that facilitations and concessions if offered by the government at any time would be more useful for those entrepreneurs that improved their efficiencies and management skills during the hard times. Those that expect to survive on dole-outs would come under pressure again when concessions are withdrawn.
They said that in a badly governed country like Pakistan it was a folly to pin hopes on government. They said the entrepreneurs would have to innovate and upgrade technology to produce value added products with maximum efficiency.
Pakistan Hosiery Manufacturers Association Vice Chairman Adil Butt said that the deteriorating economic conditions in the country were taken as a challenge by his organisation. He said his company used the research and development grant provided by the government after 2005 for the same purpose that prepared the company for competition. He said entrepreneurs that used the R&D grant to capture export orders at lower rates faced the music when this facility was withdrawn.
He said instead of brooding over high cost of doing business his company opted to increase production to achieve economies of scale and at the same time controlled wastages as the sponsor directors remained on the manufacturing floors to ensure that all guidelines of the good management practices are fully adhered.
Adil Butt said even after offering the clothing at extremely sharp margins the company earned more profit than it did during the boom of knitwear exports in the late 90’s. He said his firm gave nine bonuses to its entire workforce this year on the basis of high profits earned.
He said the steep depreciation in the rupee value did help the company a lot. However the basic point was that the firm has established its reputation as the quality knitwear supplier.
He said the earning would have been exorbitant had the government policies been supportive. The efficiencies now achieved he added would serve his company when economy resumes normal growth path supported by prudent government policies.
Nabeel Hashmi who is in auto-parts manufacturing and LPG distribution business said that the slump in car industry provided him an opportunity to diversify and start making parts for other industries.
He said auto-parts makers supply to the original equipment manufacturers according to the standards dictated by their principles in Japan and Korea.
This he added has equipped the auto-parts manufacturers to make precision components according to best global standards. Hashmi said now he is applying the same skill to make precision parts for other industries that were importing spare parts at exorbitant rates.
Hashmi said earlier his exports were limited to auto-parts only now he exports number of components for the engineering industries. He said he has further diversified in to making gardening gadgets for domestic market. Now he added he is forced to expand his manufacturing facility and construction is on at five times larger area in Sundar Estate.
Chief Executive Officer of SPEL Almas Hyder said that his company registered a growth of 50 per cent this year when most of the companies struggled to survive. He said the success was possible due to stress on diversity of business, stress on quality and prudent marketing. He said his concern diversified much before the economic slump started from auto-parts to die moulding and packaging. “We knew from our past experience that Pakistan’s economy is managed non-transparently through inconsistent policies that have subjected it to periodic ups and downs.”
Almas said the main emphasis of the management had been on quality and efficiency through upgradation of technology. He said during past three years his company has maintained robust growth. He said his exports are increasing along with the local sales. He said he has strengthened the human resource of the company by engaging the best brains in the industry that were retrenched by failing companies due to economic crunch.
Saturday, January 30, 2010
By By Mansoor Ahmad
LAHORE: Successful entrepreneurs from knitwear, packaging and auto sector talking to The News have advised their counterparts in trade to promote best management practices and go for innovation instead of looking towards government for dole outs and facilitations.
They said that facilitations and concessions if offered by the government at any time would be more useful for those entrepreneurs that improved their efficiencies and management skills during the hard times. Those that expect to survive on dole-outs would come under pressure again when concessions are withdrawn.
They said that in a badly governed country like Pakistan it was a folly to pin hopes on government. They said the entrepreneurs would have to innovate and upgrade technology to produce value added products with maximum efficiency.
Pakistan Hosiery Manufacturers Association Vice Chairman Adil Butt said that the deteriorating economic conditions in the country were taken as a challenge by his organisation. He said his company used the research and development grant provided by the government after 2005 for the same purpose that prepared the company for competition. He said entrepreneurs that used the R&D grant to capture export orders at lower rates faced the music when this facility was withdrawn.
He said instead of brooding over high cost of doing business his company opted to increase production to achieve economies of scale and at the same time controlled wastages as the sponsor directors remained on the manufacturing floors to ensure that all guidelines of the good management practices are fully adhered.
Adil Butt said even after offering the clothing at extremely sharp margins the company earned more profit than it did during the boom of knitwear exports in the late 90’s. He said his firm gave nine bonuses to its entire workforce this year on the basis of high profits earned.
He said the steep depreciation in the rupee value did help the company a lot. However the basic point was that the firm has established its reputation as the quality knitwear supplier.
He said the earning would have been exorbitant had the government policies been supportive. The efficiencies now achieved he added would serve his company when economy resumes normal growth path supported by prudent government policies.
Nabeel Hashmi who is in auto-parts manufacturing and LPG distribution business said that the slump in car industry provided him an opportunity to diversify and start making parts for other industries.
He said auto-parts makers supply to the original equipment manufacturers according to the standards dictated by their principles in Japan and Korea.
This he added has equipped the auto-parts manufacturers to make precision components according to best global standards. Hashmi said now he is applying the same skill to make precision parts for other industries that were importing spare parts at exorbitant rates.
Hashmi said earlier his exports were limited to auto-parts only now he exports number of components for the engineering industries. He said he has further diversified in to making gardening gadgets for domestic market. Now he added he is forced to expand his manufacturing facility and construction is on at five times larger area in Sundar Estate.
Chief Executive Officer of SPEL Almas Hyder said that his company registered a growth of 50 per cent this year when most of the companies struggled to survive. He said the success was possible due to stress on diversity of business, stress on quality and prudent marketing. He said his concern diversified much before the economic slump started from auto-parts to die moulding and packaging. “We knew from our past experience that Pakistan’s economy is managed non-transparently through inconsistent policies that have subjected it to periodic ups and downs.”
Almas said the main emphasis of the management had been on quality and efficiency through upgradation of technology. He said during past three years his company has maintained robust growth. He said his exports are increasing along with the local sales. He said he has strengthened the human resource of the company by engaging the best brains in the industry that were retrenched by failing companies due to economic crunch.
Tuesday, January 12, 2010
Energy sector's some profound woes
BUSINESS RECORDER
EDITORIAL (January 13 2010): Energy sector's woes appear to be multiplying. According to sources in the Ministry of Finance, inter-corporate energy sector's gross receivables have now crossed Rs 419 billion against their payables of Rs 279 billion, leaving a huge gap of Rs 140 billion.
Total receivables of Pepco stood at about Rs 175 billion on January 4, 2010 as against its payables of about Rs 141 billion, leaving a gap of about Rs 35 billion, while PSO's receivables stood at Rs 75 billion against its payables of about Rs 60 billion. Likewise, receivables of OGDC against power and gas companies stood at about Rs 53 billion, while Pak Arab Refinery Limited owed about Rs 23 billion to oil and power companies. KESC's total payables stood at about Rs 45 billion on 4th January as against its receivables of about Rs 13 billion.
In an attempt to reduce inter-corporate circular debt (ICCD), Finance Ministry released Rs 15 billion on 6th January and a part of this amount would be paid to refineries and gas companies on behalf of the PSO to improve their cash flows. A Rs 24 billion capital injection by the Federal Government in June, 2009 had reduced the size of the ICCD by Rs 106 billion through a cycle of book adjustments.
It was also confirmed that Pepco would not be given more than Rs 55 billion as subsidies during the current year, in accordance with commitments made to international lending agencies and its revenue shortfall would be bridged through recoveries, efficiency and tariff increases.
While the above situation would look like a nightmare, the case of PSO, which plays a central role in supplying the needed fuel to the energy sector, is of special significance due to its extremely negative ramifications on the economy of Pakistan and its people. There are reports that refineries have refused to honour the order of PSO because of non-payment of their dues, which have soared to over Rs 60 billion.
PSO is also unable to import furnace oil due to acute financial constraints. In the latest development, the arrival of two ships carrying furnace oil has been delayed due to non-availability of the required liquidity. Fuel reserves are reported to have declined by 50 percent from 24 days' stocks, putting the internal power generation in the country in the danger zone.
This decline has occurred at a time when the country is in the grip of massive loadshedding and in dire need of efficient supply of fuel. As of January 4, oil stocks for Kot Addu Power Generation Company were reported for one day only, while Hubco and AES Pak Gen+Lalpir had stocks for three days and two days, respectively.
Thermal power-generation came down to only 2,261 MW as against the installed capacity of 4,828 MW. Obviously, this appalling situation would further aggravate if the slow supply of fuel to thermal houses continues and PSO fails to import more furnace oil.
Clearly, this nightmarish situation has not developed in a day or two but is a self-inflicted disaster, which owes its origin to criminal mismanagement in the past. In too many ways the frightful situation has the true potential to inflict harm on the economy beyond all hope of repair.
In fact, even a modern, vibrant and industrialised economy is unimaginable without an adequate and smooth supply of energy throughout the year. A combination of factors has added to the woes of the energy sector in Pakistan. Authorities of the country have not been able to exploit the full potential of hydropower generation mainly due to political reasons.
Adding insult to injury is the fact that the water level has significantly decreased in both the Tarbela and Mangla dams. Their capacity to produce electricity has been constrained due to silting and more recently, canals have been closed for cleaning and are likely to remain so for another month.
Thermal power is decreasing fast due to a serious lack of liquidity at PSO, a huge amount of circular debt and a lack of proper planning and management. We talk too much about alternative sources of energy, including from coal, but there is almost nothing practical on the ground. The import of gas from Iran or other sources, which could have solved the problem to some extent, still looks like a distant possibility.
There are nuances of irony in the present situation. All and sundry, including the government, talk too much about impending energy shortages, but there is nothing on the ground to indicate a measured response to such challenges.
Even the issue of circular debt is not likely to be resolved soon despite a clear understanding with the IMF. As a last resort or in a desperate bid, government gives some money to PSO or other concerned entities or asks the banks to come to its rescue, but budgetary constraints would not let the government use this option freely in future.
All of this suggests that the stage is set for a collision between problems that have the capacity to literally bring the people on the streets and the country on its knees. We would implore the government to urgently attend to the issue before it becomes truly catastrophic. So far as tackling the problem through improved recoveries and efficiency is concerned, nobody could be sure about the success of such a strategy because of past experience.
EDITORIAL (January 13 2010): Energy sector's woes appear to be multiplying. According to sources in the Ministry of Finance, inter-corporate energy sector's gross receivables have now crossed Rs 419 billion against their payables of Rs 279 billion, leaving a huge gap of Rs 140 billion.
Total receivables of Pepco stood at about Rs 175 billion on January 4, 2010 as against its payables of about Rs 141 billion, leaving a gap of about Rs 35 billion, while PSO's receivables stood at Rs 75 billion against its payables of about Rs 60 billion. Likewise, receivables of OGDC against power and gas companies stood at about Rs 53 billion, while Pak Arab Refinery Limited owed about Rs 23 billion to oil and power companies. KESC's total payables stood at about Rs 45 billion on 4th January as against its receivables of about Rs 13 billion.
In an attempt to reduce inter-corporate circular debt (ICCD), Finance Ministry released Rs 15 billion on 6th January and a part of this amount would be paid to refineries and gas companies on behalf of the PSO to improve their cash flows. A Rs 24 billion capital injection by the Federal Government in June, 2009 had reduced the size of the ICCD by Rs 106 billion through a cycle of book adjustments.
It was also confirmed that Pepco would not be given more than Rs 55 billion as subsidies during the current year, in accordance with commitments made to international lending agencies and its revenue shortfall would be bridged through recoveries, efficiency and tariff increases.
While the above situation would look like a nightmare, the case of PSO, which plays a central role in supplying the needed fuel to the energy sector, is of special significance due to its extremely negative ramifications on the economy of Pakistan and its people. There are reports that refineries have refused to honour the order of PSO because of non-payment of their dues, which have soared to over Rs 60 billion.
PSO is also unable to import furnace oil due to acute financial constraints. In the latest development, the arrival of two ships carrying furnace oil has been delayed due to non-availability of the required liquidity. Fuel reserves are reported to have declined by 50 percent from 24 days' stocks, putting the internal power generation in the country in the danger zone.
This decline has occurred at a time when the country is in the grip of massive loadshedding and in dire need of efficient supply of fuel. As of January 4, oil stocks for Kot Addu Power Generation Company were reported for one day only, while Hubco and AES Pak Gen+Lalpir had stocks for three days and two days, respectively.
Thermal power-generation came down to only 2,261 MW as against the installed capacity of 4,828 MW. Obviously, this appalling situation would further aggravate if the slow supply of fuel to thermal houses continues and PSO fails to import more furnace oil.
Clearly, this nightmarish situation has not developed in a day or two but is a self-inflicted disaster, which owes its origin to criminal mismanagement in the past. In too many ways the frightful situation has the true potential to inflict harm on the economy beyond all hope of repair.
In fact, even a modern, vibrant and industrialised economy is unimaginable without an adequate and smooth supply of energy throughout the year. A combination of factors has added to the woes of the energy sector in Pakistan. Authorities of the country have not been able to exploit the full potential of hydropower generation mainly due to political reasons.
Adding insult to injury is the fact that the water level has significantly decreased in both the Tarbela and Mangla dams. Their capacity to produce electricity has been constrained due to silting and more recently, canals have been closed for cleaning and are likely to remain so for another month.
Thermal power is decreasing fast due to a serious lack of liquidity at PSO, a huge amount of circular debt and a lack of proper planning and management. We talk too much about alternative sources of energy, including from coal, but there is almost nothing practical on the ground. The import of gas from Iran or other sources, which could have solved the problem to some extent, still looks like a distant possibility.
There are nuances of irony in the present situation. All and sundry, including the government, talk too much about impending energy shortages, but there is nothing on the ground to indicate a measured response to such challenges.
Even the issue of circular debt is not likely to be resolved soon despite a clear understanding with the IMF. As a last resort or in a desperate bid, government gives some money to PSO or other concerned entities or asks the banks to come to its rescue, but budgetary constraints would not let the government use this option freely in future.
All of this suggests that the stage is set for a collision between problems that have the capacity to literally bring the people on the streets and the country on its knees. We would implore the government to urgently attend to the issue before it becomes truly catastrophic. So far as tackling the problem through improved recoveries and efficiency is concerned, nobody could be sure about the success of such a strategy because of past experience.
Sustainable environmental strategy: water, food, energy security vital to poverty alleviation
BUSINESS RECORDER
RAJA AQEEL & SEHRISH WASIF
ISLAMABAD (January 13 2010): Security of water, food and energy must be the cornerstones of new world sustainable environmental strategy to achieve the goals of poverty alleviation, population control and trend of urbanisation in a meaningful manner.
The strategy aimed at making sustainable commitments, outlining how the World Bank would work with client countries to meet the environmental challenges. This was the consensus of speakers on the first day of a two-day workshop on "World Bank (WB) Group Environment Strategy and Institutional Analysis of Air Quality Management in urban Pakistan," organised by the World Bank here on Tuesday.
Speaking on the occasion, Senator Humayon Khan Mandokhel, Chairman of the Senate Committee on Environment, said that being an agricultural economy, "we mainly depend on natural resources and their judicious use is need of the hour." He stressed the need for strict compliance with the environment laws taking into account the economic benefit of the policies. The assistance of the World Bank, he added, had prompted the local authorities to make environment development projects sustainable.
Speaking next, Javaid Afzal, senior environment specialist of the World Bank, said that the Environment Ministry, in collaboration with the WB, was preparing technical assistance loan for implementation of National Environment Policy (NEP). This workshop is a part of the ongoing global consultations, which the WB is undertaking to prepare its new environment strategy.
He said that through this assistance, the ministry and the bank would work on institutional strengthening, setting up pilots to reduce pollution load and draw out national strategy on climate change. The WB is helping the Ministry of Industries and Production in mainstreaming environmental management with industrial processes through non-lending technical assistance.
"The Bank's Environment Strategy, formulated in 2001, was successful in mainstreaming environment into development. Our new environment strategy seeks to address persistent challenges such as environmental health and pollution management, social equity, and sustainable natural resource management, as well as the growing challenges of climate change and urbanisation," he added
Naveed Naqvi, acting WB head in Pakistan, said that sustainable development was economically, socially and environmentally sustainable and key to all strategies and policies leading to the ultimate goal of poverty alleviation. He further said that the new strategy would build on the bank's first environmental strategy, titled "Making sustainable commitments: an environment strategy for the World Bank", formulated in 2001.
That strategy outlined how the World Bank would work with the client countries to address their environmental challenges and to ensure that the projects and programmes integrated the principles of environmental sustainability. The Sindh government has also requested the World Bank to help in identifying environmental priorities and propose investment operations for their management. The urgency of addressing Pakistan's environmental problems had probably never been greater, he said.
Conservative estimates presented in the WB report suggests that environmental degradation costs the country at least six percent of the GDP or about Rs 365 billion per year, as these costs fall disproportionately upon the poor. Experts said that the most significant causes of environmental damage identified and estimated include illness and premature mortality caused by air pollution, diahorrea and typhoid due to inadequate water supply, sanitation and hygiene and reduced agricultural productivity due to soil degradation etc.
RAJA AQEEL & SEHRISH WASIF
ISLAMABAD (January 13 2010): Security of water, food and energy must be the cornerstones of new world sustainable environmental strategy to achieve the goals of poverty alleviation, population control and trend of urbanisation in a meaningful manner.
The strategy aimed at making sustainable commitments, outlining how the World Bank would work with client countries to meet the environmental challenges. This was the consensus of speakers on the first day of a two-day workshop on "World Bank (WB) Group Environment Strategy and Institutional Analysis of Air Quality Management in urban Pakistan," organised by the World Bank here on Tuesday.
Speaking on the occasion, Senator Humayon Khan Mandokhel, Chairman of the Senate Committee on Environment, said that being an agricultural economy, "we mainly depend on natural resources and their judicious use is need of the hour." He stressed the need for strict compliance with the environment laws taking into account the economic benefit of the policies. The assistance of the World Bank, he added, had prompted the local authorities to make environment development projects sustainable.
Speaking next, Javaid Afzal, senior environment specialist of the World Bank, said that the Environment Ministry, in collaboration with the WB, was preparing technical assistance loan for implementation of National Environment Policy (NEP). This workshop is a part of the ongoing global consultations, which the WB is undertaking to prepare its new environment strategy.
He said that through this assistance, the ministry and the bank would work on institutional strengthening, setting up pilots to reduce pollution load and draw out national strategy on climate change. The WB is helping the Ministry of Industries and Production in mainstreaming environmental management with industrial processes through non-lending technical assistance.
"The Bank's Environment Strategy, formulated in 2001, was successful in mainstreaming environment into development. Our new environment strategy seeks to address persistent challenges such as environmental health and pollution management, social equity, and sustainable natural resource management, as well as the growing challenges of climate change and urbanisation," he added
Naveed Naqvi, acting WB head in Pakistan, said that sustainable development was economically, socially and environmentally sustainable and key to all strategies and policies leading to the ultimate goal of poverty alleviation. He further said that the new strategy would build on the bank's first environmental strategy, titled "Making sustainable commitments: an environment strategy for the World Bank", formulated in 2001.
That strategy outlined how the World Bank would work with the client countries to address their environmental challenges and to ensure that the projects and programmes integrated the principles of environmental sustainability. The Sindh government has also requested the World Bank to help in identifying environmental priorities and propose investment operations for their management. The urgency of addressing Pakistan's environmental problems had probably never been greater, he said.
Conservative estimates presented in the WB report suggests that environmental degradation costs the country at least six percent of the GDP or about Rs 365 billion per year, as these costs fall disproportionately upon the poor. Experts said that the most significant causes of environmental damage identified and estimated include illness and premature mortality caused by air pollution, diahorrea and typhoid due to inadequate water supply, sanitation and hygiene and reduced agricultural productivity due to soil degradation etc.
'Inflationary pressure growing again'
BUSINESS RECORDER REPORT
KARACHI (January 13 2010): Inflationary pressure is again growing in the economy, and continued fiscal stimulus could complement an expected rise in imported inflation, raising the risk of resurgence in domestic prices, says State Bank''s First Quarterly Report. According to the Report, released on Tuesday, Consumer Price Index inflation is likely to remain higher than the annual target of 9.0 percent for the year.
The report has projected a CPI inflation of 10-12 percent for the current fiscal year. "The adjustment in administered prices of key fuels amid rising international oil prices and cut in electricity subsidies are important factors behind the expected strengthening of inflationary pressures", the report said.
The report said that headline CPI inflation dropped to 8.9 percent YoY in October 2009 (the lowest level in the preceding 26 months), it bounced back to 10.5 percent in November 2009. Similarly, WPI inflation saw a sharp jump in November 2009 to 12.5 percent from only 3.8 percent YoY during the previous month, the report said, and added that an uptick in November was largely attributable to higher food prices on account of Eid-ul-Azha.
As a leading indicator, WPI shows growing inflationary pressures in the economy. This view is also reinforced by an uptick in inflation measured by SPI in recent months, continued high levels of core inflation and as well as strong CPI inflation numbers on a month-over-month basis for an extended period, the report said. The risk of resurgence in inflationary pressures is also evident from strong core inflation. Both indicators, the non-food non-energy (NFNE) and 20 percent trimmed mean, though declining since H2-FY09, remained high, it added.
One of the main reasons for the persistence in both measures of core inflation is the double-digit increase in house rent index (HRI) despite an easing since June 2009. Moreover, the rising trend in international commodity prices, particularly crude oil, metals and some food items, is likely to fuel inflationary pressures in the economy. The risk of higher inflation in food commodities also stems from weak monsoons in India, which would likely have negative spillovers on domestic prices.
KARACHI (January 13 2010): Inflationary pressure is again growing in the economy, and continued fiscal stimulus could complement an expected rise in imported inflation, raising the risk of resurgence in domestic prices, says State Bank''s First Quarterly Report. According to the Report, released on Tuesday, Consumer Price Index inflation is likely to remain higher than the annual target of 9.0 percent for the year.
The report has projected a CPI inflation of 10-12 percent for the current fiscal year. "The adjustment in administered prices of key fuels amid rising international oil prices and cut in electricity subsidies are important factors behind the expected strengthening of inflationary pressures", the report said.
The report said that headline CPI inflation dropped to 8.9 percent YoY in October 2009 (the lowest level in the preceding 26 months), it bounced back to 10.5 percent in November 2009. Similarly, WPI inflation saw a sharp jump in November 2009 to 12.5 percent from only 3.8 percent YoY during the previous month, the report said, and added that an uptick in November was largely attributable to higher food prices on account of Eid-ul-Azha.
As a leading indicator, WPI shows growing inflationary pressures in the economy. This view is also reinforced by an uptick in inflation measured by SPI in recent months, continued high levels of core inflation and as well as strong CPI inflation numbers on a month-over-month basis for an extended period, the report said. The risk of resurgence in inflationary pressures is also evident from strong core inflation. Both indicators, the non-food non-energy (NFNE) and 20 percent trimmed mean, though declining since H2-FY09, remained high, it added.
One of the main reasons for the persistence in both measures of core inflation is the double-digit increase in house rent index (HRI) despite an easing since June 2009. Moreover, the rising trend in international commodity prices, particularly crude oil, metals and some food items, is likely to fuel inflationary pressures in the economy. The risk of higher inflation in food commodities also stems from weak monsoons in India, which would likely have negative spillovers on domestic prices.
Sunday, January 10, 2010
Home remittances
Editorial of Business Recorder 8-01-2010
Encouraged by a steep increase in home remittances in the recent past, authorities of the country have been taking several measures to increase such flows to narrow the gap in the external sector. In order to further facilitate banks and beneficiaries of home remittances under the recently launched Pakistan Remittance Initiative (PRI), the State Bank on 4th January, 2010 reduced the timeliness for payment and settlement of home remittances, in view of the problems faced by banks in crediting beneficiary accounts on the same day due to time and resource constraints. According to the SBP circular, new timeliness for the first batch would be remittances received upto 0900 hours that potentially cover remittances from countries within the time zone of the US, partially Europe and the Middle East, whereas the second batch would be referred to remittance transactions that potentially cover remittances from the countries within the time zone of the Middle East and Europe. After the successful implementation of the new payment system's architecture, home remittances will be credited in one-hour time to the beneficiary's accounts and the timeliness for the two batches will be reduced to 1100 hours and 1500 hours, from 1200 hours and 1600 hours respectively.
It is good to see that the SBP and commercial banks are adopting innovative ways to increase the inflow of remittances. Although, it is very difficult to quantify the overall impact of the latest measure on the level of remittances, yet, any increase, even if it is marginal, due to the new initiative would be welcome because of the current problems in the country's external sector. In fact, without substantial improvement in home remittances in the recent past, Pakistan's current account deficit would have been much larger and its foreign exchange reserves at a much lower level. In this context, it would be in order to also give due credit to the helpful role played by the banking community. It was definitely not easy for them to change their bureaucratic attitude and compete successfully with a highly organized informal sector, which had perfected its tools over time to operate on very thin margins and in a very efficient and speedy manner to attract clients in the overseas market. Their success rate could be gauged from the fact that Allied Bank, Habib Bank, KASB Bank, MCB Bank, National Bank of Pakistan and United Bank that are currently part of the PRI mechanism, have settled around 100,000 inter-bank transactions worth Rs. 6.2 billion during the last two months. Hopefully, the latest circular of the SBP would further facilitate the banks as well as the recipients of home remittances. Also, Bank Alfalah and JS Bank are expected to join the PRI mechanism soon. The shift to modernity and the provision of quicker service, in our view, was definitely a step in the right direction.
However, it needs to be highlighted that the latest measure taken by the State Bank, in fact the whole idea of Pakistan Remittance Initiative, centres around the provision of a high level of convenience and comfort to the households receiving home remittances from abroad. In our view, there are other more potent factors determining the level of remittances through the banking channels, which include the difference in the exchange rates offered in the official and informal markets, employment of Pakistanis in foreign countries and their income levels, and investment opportunities and political conditions back home. We expect that the government will also continue to keep a close watch on all these factors and try to immediately remove any impediments which could retard the present buoyant trend in home remittances.
Encouraged by a steep increase in home remittances in the recent past, authorities of the country have been taking several measures to increase such flows to narrow the gap in the external sector. In order to further facilitate banks and beneficiaries of home remittances under the recently launched Pakistan Remittance Initiative (PRI), the State Bank on 4th January, 2010 reduced the timeliness for payment and settlement of home remittances, in view of the problems faced by banks in crediting beneficiary accounts on the same day due to time and resource constraints. According to the SBP circular, new timeliness for the first batch would be remittances received upto 0900 hours that potentially cover remittances from countries within the time zone of the US, partially Europe and the Middle East, whereas the second batch would be referred to remittance transactions that potentially cover remittances from the countries within the time zone of the Middle East and Europe. After the successful implementation of the new payment system's architecture, home remittances will be credited in one-hour time to the beneficiary's accounts and the timeliness for the two batches will be reduced to 1100 hours and 1500 hours, from 1200 hours and 1600 hours respectively.
It is good to see that the SBP and commercial banks are adopting innovative ways to increase the inflow of remittances. Although, it is very difficult to quantify the overall impact of the latest measure on the level of remittances, yet, any increase, even if it is marginal, due to the new initiative would be welcome because of the current problems in the country's external sector. In fact, without substantial improvement in home remittances in the recent past, Pakistan's current account deficit would have been much larger and its foreign exchange reserves at a much lower level. In this context, it would be in order to also give due credit to the helpful role played by the banking community. It was definitely not easy for them to change their bureaucratic attitude and compete successfully with a highly organized informal sector, which had perfected its tools over time to operate on very thin margins and in a very efficient and speedy manner to attract clients in the overseas market. Their success rate could be gauged from the fact that Allied Bank, Habib Bank, KASB Bank, MCB Bank, National Bank of Pakistan and United Bank that are currently part of the PRI mechanism, have settled around 100,000 inter-bank transactions worth Rs. 6.2 billion during the last two months. Hopefully, the latest circular of the SBP would further facilitate the banks as well as the recipients of home remittances. Also, Bank Alfalah and JS Bank are expected to join the PRI mechanism soon. The shift to modernity and the provision of quicker service, in our view, was definitely a step in the right direction.
However, it needs to be highlighted that the latest measure taken by the State Bank, in fact the whole idea of Pakistan Remittance Initiative, centres around the provision of a high level of convenience and comfort to the households receiving home remittances from abroad. In our view, there are other more potent factors determining the level of remittances through the banking channels, which include the difference in the exchange rates offered in the official and informal markets, employment of Pakistanis in foreign countries and their income levels, and investment opportunities and political conditions back home. We expect that the government will also continue to keep a close watch on all these factors and try to immediately remove any impediments which could retard the present buoyant trend in home remittances.
The great divide (on Inequality)
From Business Recorder 8-01-2010
Huzaima Bukhari and Dr Ikramul Haq
A number of informative - though highly disturbing studies - conducted by the Centre for Research on Poverty and Income Distribution (CRPID, www.crpid.org), confirm that rich-poor divide in Pakistan is increasing alarmingly. According to conservative estimates, 63% of the poor in Pakistan are in the category of 'transitory poor'. The rest of the 32% and 5% of the population - subsisting below the poverty line - are 'chronic' and 'extremely poor', respectively. Chronic and extremely poor are those households that are always below the poverty line, all the time during a defined period. Similarly, on the other side, 13% and 21% of the total non-poor (above the poverty-line) have been classified as 'transitory vulnerable' and 'transitory non-poor', respectively.
This portrays an alarming situation as more and more people are moving from the transitory category to the chronic category, courtesy regressive taxation leading to inequitable distribution of income and wealth, monopoly over assets by a few, and wasteful expending by the government. Rulers in Pakistan since 1948 have shown extreme apathy towards the poor. They are not at all interested to make Pakistan an egalitarian society - providing economic justice to all. One wonders if the present government, badly trapped by the forces that matter in the land in various non-issues, is cognizant of this state of affairs and devising some practical means to overcome it.
Political economy is the theory of wealth and of how wealth is created and shared within the society. Its key concepts are production, distribution, exchange, and consumption. Historically, the political economy is a response to the rise of capitalism and capitalist society. Its concepts are refined, redefined and added to as capitalism progresses from the mercantile or merchant capitalism of the sixteenth and seventeenth centuries, to the agricultural and manufacturing capitalism of the eighteenth century, to the industrial capitalism of the nineteenth century, from the rise of a unipolar world power, to quest for monopolies in the 21st century.
Unfortunately, nobody in Pakistan has conducted a comprehensive research to determine all the dimensions of the rich-poor divide. Different studies (notably that of late A. R. Kamal and Talat Anwar) provide estimates of various inequality indices in Pakistan, wherein the Lorenz Curve and Gini Coefficients, have been most commonly used. According to Mr. A.R. Kamal, studies on income inequality in Pakistan show different estimates arising due to the following five important factors. Firstly, different studies use different data sets, some based on Household Income and Expenditure Surveys, others that make use of income tax data, and some other studies splice the two sets of data. Second, while some studies consider inequalities in income, others consider inequalities in the consumption expenditures. Third, while some studies are done for Pakistan as a whole, others examine income inequalities in both the rural and urban areas. Fourth, some studies report income inequalities across households; others report inequalities across population or earners. Fifth, some researchers classify data by deciles prior to estimation of the Gini-coefficient; others employ the income intervals that are not uniform. All studies, however, confirm that income inequality in 2000-2007 had been the maximum compared to any time period in the history of Pakistan. The poorest 30% lost their share, while the richest 20% gained in both the urban and rural areas during the Musharraf-Shaukat era.
The Gini Coefficient is named after Corrado Gini, an Italian economist who published it in 1912. The Gini Coefficient is derived from a statistical formula and expresses the degree of evenness or unevenness of any set of numbers as a number between 0 and 1. A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1 would mean that one person had all the income and nobody else had any. Thus, lower Gini Coefficients indicate more equitable distribution of wealth in a society, while higher Gini Coefficients mean that wealth is concentrated in the hands of fewer people. Sometimes, the Gini Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100. This is called the "Gini Index". Pakistan's latest position, vis-୶is some selected nations, is illustrated in the Table.
According to UN Official report, from 1987-99 the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, which deteriorated to 0.68 in 2006, yet Musharraf and his "technocrat team" (sic) keep on claiming a wonderful 'economic turnaround" during the PML(Q) regime. It is a national shame and disgrace; for their insensitivity, indifference and apathy towards the poor masses of Pakistan for which, history will never forgive them.
Inequalities in income in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle class own very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common man at affordable prices and installments; the sale of shares of public enterprises in smaller lots; human resource development; and credit to the micro, small and medium enterprises are some of the ways that might help the poor in acquiring assets. However, the role of official bodies set up by federal and provincial governments in this regards (much-publicized 'Benazir Income Support Programme' or 'Khushal Fund'!) is simply hopeless - due to various weaknesses, even the allocated funds have not been distributed or are mis-utilised.
The income inequalities in Pakistan have increased sharply during the last 8 years and the trend continues unabated, despite tall claims (sic) of poverty reduction. The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. The single most devastating factor for increased income and wealth inequalities remains the regressive tax system. Incidents of tax on the poor during the last 10 years has increased substantively (35%) while the rich are paying no tax on their colossal income and wealth. A study of Pakistan from this political economy perspective is very crucial as our society is fast moving towards dehumanizing characteristics, unfettered and unchallenged. We are facing economic disparities, starvations, scarcity of eatables, and lack of essentials services. The Great Divide in today's Pakistan between the rich and the poor is assuming alarming proportions and may eventually lead to civil commotion, if curative measures are not taken immediately.
(The writers, tax lawyers, are visiting Professors at Lahore University of Management Sciences (LUMS)
===================================================
Table: List of recent Gini Indexes for a select
group of nations
===================================================
Japan 14.9 United Kingdom 23.0
Sweden 21.0 Iran 41.0
Germany 22.3 United States 46.6
France 32.7 Argentina 52.2
Pakistan 68.0 Mexico 54.6
Canada 23.1 South Africa 57.8
Switzerland 21.1 Namibia 70.7
===================================================
Source: US State Department report (2008)
Huzaima Bukhari and Dr Ikramul Haq
A number of informative - though highly disturbing studies - conducted by the Centre for Research on Poverty and Income Distribution (CRPID, www.crpid.org), confirm that rich-poor divide in Pakistan is increasing alarmingly. According to conservative estimates, 63% of the poor in Pakistan are in the category of 'transitory poor'. The rest of the 32% and 5% of the population - subsisting below the poverty line - are 'chronic' and 'extremely poor', respectively. Chronic and extremely poor are those households that are always below the poverty line, all the time during a defined period. Similarly, on the other side, 13% and 21% of the total non-poor (above the poverty-line) have been classified as 'transitory vulnerable' and 'transitory non-poor', respectively.
This portrays an alarming situation as more and more people are moving from the transitory category to the chronic category, courtesy regressive taxation leading to inequitable distribution of income and wealth, monopoly over assets by a few, and wasteful expending by the government. Rulers in Pakistan since 1948 have shown extreme apathy towards the poor. They are not at all interested to make Pakistan an egalitarian society - providing economic justice to all. One wonders if the present government, badly trapped by the forces that matter in the land in various non-issues, is cognizant of this state of affairs and devising some practical means to overcome it.
Political economy is the theory of wealth and of how wealth is created and shared within the society. Its key concepts are production, distribution, exchange, and consumption. Historically, the political economy is a response to the rise of capitalism and capitalist society. Its concepts are refined, redefined and added to as capitalism progresses from the mercantile or merchant capitalism of the sixteenth and seventeenth centuries, to the agricultural and manufacturing capitalism of the eighteenth century, to the industrial capitalism of the nineteenth century, from the rise of a unipolar world power, to quest for monopolies in the 21st century.
Unfortunately, nobody in Pakistan has conducted a comprehensive research to determine all the dimensions of the rich-poor divide. Different studies (notably that of late A. R. Kamal and Talat Anwar) provide estimates of various inequality indices in Pakistan, wherein the Lorenz Curve and Gini Coefficients, have been most commonly used. According to Mr. A.R. Kamal, studies on income inequality in Pakistan show different estimates arising due to the following five important factors. Firstly, different studies use different data sets, some based on Household Income and Expenditure Surveys, others that make use of income tax data, and some other studies splice the two sets of data. Second, while some studies consider inequalities in income, others consider inequalities in the consumption expenditures. Third, while some studies are done for Pakistan as a whole, others examine income inequalities in both the rural and urban areas. Fourth, some studies report income inequalities across households; others report inequalities across population or earners. Fifth, some researchers classify data by deciles prior to estimation of the Gini-coefficient; others employ the income intervals that are not uniform. All studies, however, confirm that income inequality in 2000-2007 had been the maximum compared to any time period in the history of Pakistan. The poorest 30% lost their share, while the richest 20% gained in both the urban and rural areas during the Musharraf-Shaukat era.
The Gini Coefficient is named after Corrado Gini, an Italian economist who published it in 1912. The Gini Coefficient is derived from a statistical formula and expresses the degree of evenness or unevenness of any set of numbers as a number between 0 and 1. A Gini Coefficient of 0 would indicate equal income for all earners. A Gini Coefficient of 1 would mean that one person had all the income and nobody else had any. Thus, lower Gini Coefficients indicate more equitable distribution of wealth in a society, while higher Gini Coefficients mean that wealth is concentrated in the hands of fewer people. Sometimes, the Gini Coefficient is multiplied by 100 and expressed as a percentage between 0 and 100. This is called the "Gini Index". Pakistan's latest position, vis-୶is some selected nations, is illustrated in the Table.
According to UN Official report, from 1987-99 the Gini Coefficient for Pakistan was in the range of 0.33 to 0.43, which deteriorated to 0.68 in 2006, yet Musharraf and his "technocrat team" (sic) keep on claiming a wonderful 'economic turnaround" during the PML(Q) regime. It is a national shame and disgrace; for their insensitivity, indifference and apathy towards the poor masses of Pakistan for which, history will never forgive them.
Inequalities in income in Pakistan, as elsewhere, largely reflect inequalities in the distribution of assets. Since the poor have virtually no assets and the lower middle class own very few assets, income distribution is skewed. Distribution of state land; development of plots and houses for the common man at affordable prices and installments; the sale of shares of public enterprises in smaller lots; human resource development; and credit to the micro, small and medium enterprises are some of the ways that might help the poor in acquiring assets. However, the role of official bodies set up by federal and provincial governments in this regards (much-publicized 'Benazir Income Support Programme' or 'Khushal Fund'!) is simply hopeless - due to various weaknesses, even the allocated funds have not been distributed or are mis-utilised.
The income inequalities in Pakistan have increased sharply during the last 8 years and the trend continues unabated, despite tall claims (sic) of poverty reduction. The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. The single most devastating factor for increased income and wealth inequalities remains the regressive tax system. Incidents of tax on the poor during the last 10 years has increased substantively (35%) while the rich are paying no tax on their colossal income and wealth. A study of Pakistan from this political economy perspective is very crucial as our society is fast moving towards dehumanizing characteristics, unfettered and unchallenged. We are facing economic disparities, starvations, scarcity of eatables, and lack of essentials services. The Great Divide in today's Pakistan between the rich and the poor is assuming alarming proportions and may eventually lead to civil commotion, if curative measures are not taken immediately.
(The writers, tax lawyers, are visiting Professors at Lahore University of Management Sciences (LUMS)
===================================================
Table: List of recent Gini Indexes for a select
group of nations
===================================================
Japan 14.9 United Kingdom 23.0
Sweden 21.0 Iran 41.0
Germany 22.3 United States 46.6
France 32.7 Argentina 52.2
Pakistan 68.0 Mexico 54.6
Canada 23.1 South Africa 57.8
Switzerland 21.1 Namibia 70.7
===================================================
Source: US State Department report (2008)
Pakistan: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding
http://www.imf.org/External/NP/LOI/2009/pak/121109.pdf
December 11, 2009
December 11, 2009
Saturday, December 26, 2009
Wednesday, December 23, 2009
Subscribe to:
Posts (Atom)
