Pak-Afghan Economic Ties Appear Better Than Perceived

By Amir Zia
The News
Sunday, February 27, 2011

Pakistan is the largest trading partner of Afghanistan, while Afghanistan remains the third largest export market for Pakistani goods. The official and unofficial Pak-Afghan trade figures now hover around $4.0 billion a year.

Ejaz Haider, one of Pakistan’s leading journalist and a dear friend, bought a stylish cap as a souvenir from Kabul’s famous Kocha-e-Murghan (Chicken Street), but it was made-in-Pakistan. The cap design, popular on both sides of the Durand Line, was a favoruite of slain Afghan warlord, Ahmed Shah Masood, whose portraits now adorn the Afghan capital. In fact, Ejaz wanted to buy a made-in-Afghanistan cap, but unfortunately none were available at least in the two or three shops which we visited during our flying shopping trip of a couple of Kabul bazaars. Friendly Afghan shopkeepers tried to impress us by showing us their best products, but many of them were Pakistan-made.

In Kabul’s landmark Intercontinental Hotel, one meets Pakistani traders, businessmen and marketing officials not just from Peshawar or Quetta, but also from Karachi and Lahore. One of them had been coming here all the way from Karachi since 2002 to market one of Pakistan’s popular biscuit brands.

According to Pakistanís Ambassador to Afghanistan Mohammad Sadiq, a leading consumer goods company exports around $11 million worth of made-in-Pakistan products to Afghanistan monthly. From Pakistani tractors to yogurt, all have a loyal market in this country, he said.

Yes, Islamabad may remain the favourite target of select Afghan intellectuals’ and government officials’ wrath for its alleged double-game and soft approach toward the Taliban militants, but Pakistani goods are in great demand in this war-ravaged country, striving for peace and normalcy in the wake of more than three decades of continous war and conflict.

The hue-and-cry made by many Pakistani opinion makers and analysts that Pakistan is being marginalized and losing its stakes in this land-locked Central Asian state appears exaggerated and off-the-mark given the dependency and deep economic and trade ties between the two countries, sharing a common frontier stretching over 1,500 miles.

The facts speak for themselves.

Pakistan is the largest trading partner of Afghanistan, while Afghanistan remains the third largest export market for Pakistani goods - after the United States and China.

The official and unofficial Pak-Afghan trade figures now hover around $4.0 billion a year. Out of it, more than half remains the unofficial exports from Pakistan - purchased from Peshawar, Quetta and other border regions.

From wheat to cement and medicines to fizzy drinks ñ all are imported from Pakistan.

The official Pakistani exports to Afghanistan have jumped to $1.2 billion in financial year 2010 from $26 million when the Taliban ruled Afghanistan 10 years ago. Now Pakistan is eyeing $1.7 billion official exports to its neighbour in FY2011 with the first half figure already touching $875 million (July-January).

The country, which stands second in bilateral trade with Afghanistan, is Iran, having a figure of $600 million annually. India and other neighbours come nowhere near.

The popularity of the made-in-Pakistan products in Afghanistan stems from the fact that a vast number of Afghans have lived in Pakistan for decades. Many are hooked to Pakistani brands, preferring even expansive Pakistani medicines compared with the Indian ones which are relatively cheaper.

No wonder, Pakistani medicines enjoy a lionís share in the Afghan market. A few Pakistani pharmaceutical companies now export their entire production to Afghanistan rather than marketing it in the domestic market.

And it is not just Pakistani exports which remain crucial for Afghanistan. Pakistan’s Ambassador Sadiq says that more than 70,000 Pakistanis now work in Afghanistan ñ from daily wage labourers to professional bankers, chartered accountants and government advisors.

Many of the ardent Afghan critics of Pakistan — from Pashtuns to Hazaras and Tajiks to Uzbeks ñ have lived and studied for years in Pakistan. One finds it amusing that a college in Karachi’s Shah Faisal Colony or a medical college in the Khyber-Pakhtoonkhawa province served as the alma mater of some of these fiercest Afghan critics, who would smile and tell you about their good days spent in Peshawar, Quetta, Islamabad or Karachi.

The strength of Pak-Afghan economic ties stems from the people-to-people contact at all the levels with many leading Afghan businessmen, who play a crucial role in Afghanistan’s economy today, have lived, been brought up and been educated in Pakistan for years. Their Pakistan ties remain intact.

And there is a depth in this relationship, which no other country enjoys. Pakistan issues more visas to Afghans daily than rest of the world combined — without charging any fee.

Sadiq, the Pakistani ambassador, said that on an average Pakistan issues 1,200 multiple-entry visas to Afghans daily, while more than 50,000 Afghans also cross into Pakistan daily without any travel documents.

“They can go up to Karachi without any restriction. They can get free treatment from Pakistani government hospitals and avail private medical facilities like any other Pakistani.”

J.P. Singh, Head of Political & Information Office of the Indian Embassy in Kabul, said that his embassy issues around 250-300 visas every day on an average, while the four Indian consulates at Herat, Mazar-e-Sharif, Jalalabad and Kandahar issue 40-60 visas daily.

Both Pakistan and India compete to win goodwill and friends in Afghanistan, which can be seen as healthy competition, benefitting the Afghan people.

India has a robust $1.3 billion assistance programme for Afghanistan, which is the sixth largest for this war-torn country.

With new development and infrastructure projects, India is also renovating and restoring some of its old projects under this programme, which also cover their administrative and monitoring cost.

Pakistan has a $330 million aid programme for Afghanistan, but it does not include the administrative and monitoring cost. This means that the entire amount is being spent just on Afghanistan. Pakistan has undertaken important infrastructure, development, health and education projects that include the Jinnah Hospital Kabul, Sir Syed Post Graduate Faculty of Sciences, Nangarhar University, Jalalabad, Liaquat Ali Khan Engineering Faculty, Balk University, and Rahman Baba High School, Kabul.

It is nice to see buses on the roads of Kabul with inscription in Dari-language proclaiming that “it is a gift from Pakistan.”

In recent years, Pakistan has gradually worked to underline the fact that it remains a friend of not just a particular ethnic group, but all the Afghans.

This suits the country in the long-run and should remain the cornerstone of Pakistan’s Afghan policy.

No country is likely to benefit more in the world than Pakistan once peace returns to Afghanistan.

The peace offers huge economic and trade potential for both countries, not just because of their demography and under-utilized or unutilized resources, but also because of their strategic location that can make them a super-highway for trade and transfer of energy from Central to South Asia and the Middle East. Pakistan’s foreign policy and politics should take a lead from the country’s economic interests.

20 Years of The News: Reaching for Greater Heights

By Amir Zia
The News
Special supplement
February 22, 2011

Those were the days when you went to the office with a spring in your step and a fire in your belly. Wherever there was a big story, some of us jumped liked paratroopers to get a byline. There was great comradeship, but stiff competition.

Only a handful of journalists get a chance to be part of the launch team of a newspaper in their lifetime. A smaller number can boast that their team had just the right blend of experience and youth. And fewer get the opportunity to witness the technological revolution of an industry. The launch of The News in February 1991 made all these three possible for us.

From rickety old typewriters, stacks of rough paper, the manual labour of page-making and telex machines to the wonderful world of computers, it was indeed a great leap forward for print journalism in Pakistan. The young ones were in awe of the brand new Macintosh machines. The computers allowed them to rewrite, cut, paste and improve the copy in the blink of an eye. They helped with spellings and even allowed them to kill time with free games of crystal quest and solitaire. Some just played – climbing higher and higher on the ladder of levels in their quest for crystals and others balanced pleasure with work. Computers were an ultimate luxury at that time, which those born in this age take for granted.

Some of our seniors missed old typewriters as one misses a beloved. The nostalgia for typewriter ribbons, rough paper and the loud rattle of the typewriter keyboard was immense. Some of them made it a point to get typewriters’ rattling sound from computer keyboards. No wonder, many computer keyboards suffered fatalities.

But it was not just the technology that made The News the most exciting and happening project of its time - it was a trend setter in more than one way.

The biggest remained the freedom to experiment, expand boundaries and explore new grounds in journalism. From the conservative news writing and editing style to a creative and unconventional one and, from a controlled newsroom culture in most newspapers of those times, to a more open and liberal one - The News has many firsts to its credit.

With Ghazi Salahuddin as its founding editor in Karachi and Imran Aslam as News Editor, one could have expected nothing less than what the initial years of The News had to offer to its team in terms of work environment and exciting content to its readers. A bold new voice set to report, articulate, simplify, explain and analyse – all the news that mattered.

“Now every dawn will break with The News,” was one of our launch slogans.

Ghazi “Saheb” was often seen parading visitors through the once-swanky offices of The News in its pre- and post-launch days or huddled in meetings with senior team members with the occasional exchange of greetings with juniors like us on the stairs or fourth or fifth floor offices. It was not that our softspoken, gentle Ghazi Saheb kept his doors shut to us, but many of us juniors stayed clear of his path because he was the editor. For many who were at the start of their career or starting their first ever job, the stereotypical image of ‘tough editor’ remained glued to their minds.

It was Imran Aslam who usually was the victim of oppressive attention from young reporters and sub-editors of that time. We used to barge into his office to get our “special” stories edited. The ones we thought the city or the national desk would not be able to polish and shine to make them worthy of our bylines. Imran always had time to guide juniors, though I wonder now how he managed to edit stories and even do translations with all the other pressing work. During those days, he stayed away from the computer. Yaqoob Haroon typed for him as Imran dictated changes, correcting articles, putting in the right prepositions, removing adjectives and replacing them with powerful verbs, adding a line here and a word there, which made the copy standout. The next day we would take credit for all the good in the story, though the best words and sentences came from Imran. Often we wanted his time to discuss ideas which, in 99.99 per cent cases, used to be a one-way traffic from Imran - one idea after another. How many were wasted in our raw hands or did not see the light of the day remains for another story. When there was no other pretext left, it was just the pleasure of listening to him on issues ranging from politics to literature, the 1970s Balochistan insurgency to Quaid-e-Azam Mohammed Ali Jinnah’s politics, Che Guevara to Maulana Maudodi and novel to drama. And when Imran was not in his room, we went inside to read British tabloids stacked in the office to improve our writing. But often it was the Page 3 of The Sun, which commanded our attention the most.

There was a star-studded team of seniors at that time from whom young reporters had loads to learn and unlearn.

Abbas Nasir, the Chief Political Correspondent of The News in those days, not just gave reporting tips and shared experiences, but also rewrote copies of juniors, giving them the much-needed punch, the angle, the depth of background and analysis. There never was a dull moment in Abbas Nasir’s presence.

We had Abid Ali Syed as Editor Style and Production, who used to fret about the way we committed “atrocities” on the English language. Despite being an easy-going and softspoken person, he kept us on a tight-leash when it came to reporting and writing standards.

Najma Sadeque, the editor of the weekend magazine “We”, was a tough task master and demanded highest level of dedication and focus from those who reported directly to her or contributed to her pages. “We” was replaced by “The News on Friday” in the mid 1990s, which is now “The News on Sunday.”
Sadeque now works for a nongovernment organisation.

The late Iqbal Jaffery, the first city editor of The News, was an institution unto himself. He already had seen the peak of his career as a correspondent of BBC and The Associated Press and The News was his last job. No reporter could take him for a ride - he knew the city and most politicians like the back of his hand. He kept a hawk’s eye on his reporters, instilling the core values of accuracy, impartiality and fairness among them. He could scold you for catching a cold and be kind when one least expected it.

Qaiser Mehmood, who was initially a senior commerce reporter but later became chief reporter, had untiring stamina and determination to chase and hound reporters 24/7. He was often the first to arrive and the last to leave the office. He turned down all our requests to find a girlfriend or a wife who could have diverted his attention. He left The News ages ago, but remains a confirmed bachelor even today.

The highly talented, but fiery-tempered Imran Sherwani, was everywhere in the pre-launch and post launch days, making pages, editing and writing stories for many of us and at the same time fighting, arguing, shouting. It was fun to be with him - a man divided between the love of journalism and theatre. He also left The News in its initial years.

The reporters’ room gave an impression of a gas-chamber most of the time as we lighted one cigarette after another. The heavy smell of tobacco of every kind and flavour hung in that smoke-filled room. Yes, in the early 1990s, we had not become civilised enough to ban smoking in air-conditioned offices.
It was still the rough-and tough world of journalists.

The reporting team of those days mostly comprised of youngsters or the young at heart. Undoubtedly, it was the dream team for any newspaper. Those were the days when you went to the office with a spring in your step and a fire in your belly. There were beats, but many of us never cared about them. Wherever there was a big story, some of us jumped liked paratroopers to get a byline. There was great comradeship, but stiff competition. No wonder, members of The News launch team today hold some leading positions in the national media.

Azhar Abbas, who covered the city government at that time, is the managing director of the country’s biggest channel — Geo News. In a retrospect, Azhar had the remarkable ability of staying calm and getting a story without making a fuss or wrinkling his dress even then.

Murtaza Solangi, currently the Director General Pakistan Broadcasting Corporation, was the first high-tech reporter of The News - keeping his contact list in an electronic diary. He ruled the diplomatic beat and passionately covered the nationalist and left-wing parties.

Owais Tohid, perhaps the only reporter among us who wore branded clothes, loved to write “colour” pieces. In the initial days, he covered the health beat with a special focus on leprosy and aids patients and later moving on to political and crime beats before he left The News to work for AFP and other media organisations.

Then, we had late Zuleikha Ali, who died young in an accident in the initial years of The News. She made her mark in a short span by writing moving stories on wildlife and the environment.

Kamal Siddiqi, now editor at The Express Tribune, was among the key business reporters. He was always gentle, friendly and focused on his work, as he is today.

The late Sarwar Naseem covered the education beat, while young guns including the bubbly Javed Soomro and the thoughtful Nusrat Amin added depth to the political and court reporting along with seniors like Manzoor Hussain, Zarar Khan and Shujaat Ali Khan. Mohiuddin Azam, sang as he typed stories. He was one of the most prolific reporters of the initial team.

The 1991 team has scattered long ago. Macintosh computers have been replaced by unbranded ones and The News offices may not look that swanky and modern now. However, in the eyes of some young reporters of the current team, one finds the same passion and hunger for stories that was the hallmark of the initial team. The legacy of The News lives on.

— The writer was member of the launch team and rejoined The News in March 2010 — after15 years of working with some of the leading national and international media organizations.

Digging A Deeper Hole

By Amir Zia
Newsline
February 2011

The government’s interference in KESC will have devastating consequences for the future of foreign investment in the country

There appears an uneasy truce between the Karachi Electric Supply Company (KESC) management and the government-backed trade unions. KESC recently bore the brunt of the country’s worst labour violence in recent years, following the sacking of more than 4,000 non-core employees.

However, the government through an executive order, forced KESC management to reinstate these employees, but the thorny issue is far from over.

The signs are ominous. The defiant management has placed the shell of a charred car on top of the main entrance of its head office in solemn remembrance of January 20, when violent protesters went on a rampage, while police and paramilitary Rangers refrained from taking any action.

Dozens of computers, furniture, windows and glass doors of the buildings were smashed by the violent mob. Around 150 cars were damaged and three were set ablaze. At least 15 staff members – from directors to general managers and guards – were badly beaten. “We will never forget” reads a banner below the charred car.

But all this violence and the government’s controversial pressure tactics have failed to force the KESC management to abandon its restructuring plans for this loss-making entity, in which slashing the number of staff remains crucial to its financial health. KESC’s Chief Executive Officer, Tabish Gauhar, categorically stated that the management will launch the Voluntary Separation Scheme (VSS) once again to make KESC viable. But the trade unions, emboldened by their victory, appear ready to take up the gauntlet once again. Labour union leaders have been issuing stern warnings to the management that any new move to retrench workers will be forcefully blocked.

The way the battle lines are drawn between the management and the “non-core” employees – comprising drivers, peons, sanitary workers, security guards and bill distributors – poses a nightmarish situation for any commercial, industrial or business organisation. And the irony is that the government remains largely responsible for creating this mess.

The bitterness on the part of the management of the privately-run KESC, in which the leading Dubai-based private equity firm Abraaj Capital has more than 50% share and management control, is understandable. The government and state institutions simply failed to perform the basic function of providing security to a legitimate and important commercial and public service concern. In fact, the political parties in the ruling coalition – the Pakistan Peoples’ Party (PPP), the Muttahida Qaumi Movement (MQM) and the Awami National Party (ANP) – supported and endorsed the protestors through their respective labour wings. No wonder, the police and Rangers remained paralysed as flags of ruling parties fluttered during the violence.

For their own selfish political ends, all three parties in the ruling coalition have sent a negative message to potential investors across the world, portraying Pakistan as an unsafe place for investment and to do business. The government, through its actions, has proved that it is neither able to provide physical protection nor implement policies and fulfill commitments, even to those who have invested in Pakistan.

Here, we are not talking about the rule of law and security issues in the lawless Taliban and Al Qaeda-infested northern tribal region, but of Karachi – the country’s commercial hub. The crumbling state institutions and the government have failed to establish the writ of the state, even in big cities where in recent years one has witnessed frequent incidents of mob rule.

“The Privatisation Commission of Pakistan and the Board of Investment should now close shop,” says Dr Ashfaque Hasan Khan, a former advisor of the finance ministry. “What will they offer to potential foreign investors and how will they portray Pakistan as an attractive investment destination – through the attack on the KESC head office?”

But failure to provide security was not the sole slip-up of the PPP-led government. The bigger blunder was to pressure the KESC management to reinstate employees, rather than opting for a legal course to settle the labour dispute.

KESC, which booked 14.64 billion rupee losses in the last fiscal year, moved for retrenchment as part of the restructuring plan in which non-core functions have already been outsourced at a fraction of the cost, compared with the internal resources. KESC offered VSS to its non-core employees, which entitled them from Rs 600,000 to 5 million rupees benefit – depending on their seniority. But the political parties’-backed unions managed to convince employees – many of whom are political appointees and ghost workers – that they would be able to reverse this decision or get them higher benefits.

KESC CEO Gauhar was so appalled at the way some top government officials pressed for the reinstatement of workers that he asked them to renationalise the power utility. He refused to attend the press conference along with the government officials, when they announced the labour victory.

KESC management’s frustration is understandable. The government is unable to support them in taking action against defaulters and power thieves and it blocks any move to restructure the organisation – to make it leaner, efficient and viable. KESC’s power theft losses amount to 22%, or around 44 billion rupees of its total power supply.

The government’s interference in the human resource policy of a privately run company not only damages Pakistan’s already stalled privatisation programme and creates a gloomy investment climate, but also sanctions lawlessness and mob rule. The government, which has been paying lip service to privatisation and restructuring of the loss-making state-run organisations, has failed to match its walk with the talk, and the KESC management alone is not the only one facing the brunt of the self-serving policies of the ruling political parties. By supporting the illegal action of the KESC unions, the government has also sealed the fate of reforms in major public sector entities, which are bleeding the country’s financial system dry.

The populist approach will not allow eradication of the menace of overstaffing, political appointments and corruption in major state-run entities which needed a staggering fiscal injection of 250 billion rupees in subsidies in 2009/10. From Pakistan International Airlines to Pakistan Steel and Pakistan Railways – all suffer from this fundamental problem of overstaffing, which is one of the many factors keeping them in the red. Since the PPP government assumed power in early 2008, the problem of overstaffing has exacerbated, as thousands of employees have since been reinstated or given jobs in these loss-making institutions. The KESC affair proves that there is no way to stop this financial bleeding as the PPP-led government appears in no mood to take any unpopular decisions at this point in time.

This approach of running commercial and business organisations like charities and saddling them with unwanted staff have had a disastrous impact on the economy.

The government, rather than providing an enabling environment where businesses and investment can grow and create a genuine demand for workforce, is settling for stop-gap measures. These short-sighted policies will bite the country more in the mid- to long-run, with foreign direct and indirect investment taking a plunge and even local investors putting their plans on hold. To attract investment and put the economy back on the high growth trajectory, the government needs to ensure good and transparent governance, establish supremacy of the law and follow consistent policies. But the present democratic dispensation appears determined to follow a suicidal course.

Deaf & Blind

By Amir Zia
Newsline
February 2011

As the economy crumbles and business moves elsewhere, Pakistan's rulers refuse to listen to advice from its own financial experts to enact tough economic reforms

For Pakistan’s financial managers, it is a race against time. With the budget deficit for the current fiscal year – July 2010 to June 2011 – likely to shoot to a staggering 8% against the targeted 4.7%, and inflation, according to the State Bank of Pakistan’s estimates, to hit 15-16% against budget estimates of 11.5%, keeping the country’s economy afloat is indeed a daunting task.

With most of the key economic indicators painting a gloomy picture, the financial team led by Finance Minister Abdul Hafeez Sheikh appears to be struggling to convince Pakistan Peoples’ Party (PPP) bosses, allies and the opposition about the gravity of the situation and the necessity of pushing the tough reform agenda on a fast-track basis. So far, the efforts of this team have proved futile.

The government’s bid to generate revenues through the imposition of the reformed general sales tax (RGST) this financial year hit a dead end in the wake of stiff opposition, and not just from the main opposition parties, but even allies. Now the implementation of the RGST has been put on hold at least for the current fiscal year. In another major reversal, the government had to backtrack a decision to raise fuel prices by 9% in early January, because of the political backlash, costing the national exchequer around 4 – 4.5 billion rupees a month. No wonder the revenue target of 1.667 trillion rupees for the year will be missed. Top government officials now confess behind closed doors that if government revenues get anywhere close to the Rs 1.6 trillion mark, it would be an achievement.

The government has been sending negative signals to foreign and local investors through its inconsistent policies, poor governance and tendency to yield to the pressure of interest groups, and this includes such disastrous steps as forcing privately run Karachi Electric Supply Company (KESC) to reinstate sacked employees (see “Digging a Deeper Hole”).

The non-implementation of the reform agenda, which also includes reforms in the energy sector, has a far-reaching adverse impact on the country’s economy. The International Monetary Fund (IMF) held back the disbursement of the last two tranches of an $11.3-billion loan to Pakistan under a standby arrangement, which was supposed to end last year, forcing Islamabad to seek a nine-month extension in the programme. The disbursement of loans from other lending agencies also remains on hold.

Pakistan’s western allies including the United States, which are supporting Pakistan’s wobbly economy, have been urging Islamabad to tax its rich and expand the revenue base. With the country’s tax-to-GDP ratio hovering at less than 9% against the world average of 16-18%, the demand to tax wealthy Pakistanis remains justified if the country wants to continue getting relief of the backs of western taxpayers.

The government’s credibility remains so low that most donors want to spend money in Pakistan through non-government organisations, rather than giving it to the authorities because of the fear of corruption and embezzlement.

Pakistan’s privatisation programme remains stalled since 2008 when this government took power. Furthermore, foreign investment plunged to a mere $2.08 billion at the end of fiscal 2009-10 from the highs of $8.42 billion in fiscal 2006-07. The chances of a turnaround in fortunes appear bleak given the government’s poor record and lack of commitment to reforms. The grave law-and-order situation and rampant crime only add to the many economic factors that are keeping foreign investors and business people away from the land of the pure.

On the domestic front, sentiment remains equally weak in industrial and corporate spheres regarding the government’s economic policies. Most local investors have put their investment and business plans on hold because of the country’s political instability, poor governance, acute energy shortages, inconsistent economic policies and terrorism and crime. According to industry sources, many are moving capital and expanding businesses in safe havens like Malaysia, Dubai, South Africa and even Bangladesh.

Foreign clients of some of Pakistan’s leading textile manufacturers are not only afraid to come to Pakistan because of the security risk, but also doubt their Pakistani suppliers’ abilities to continue production here in the medium and long-run. They have asked their Pakistani partners to find facilities elsewhere in the world if they want to do business with them.

In the wake of the enormous and pressing challenges faced by the economy, the government’s response has been weak and inadequate. It appears to lack both the will and the capacity to take the bull by its horns and go for tough decisions on the two most important (and most basic) fronts – revenue generation and expense management.

Government officials say that they started the current fiscal year on an optimistic note: they kept reasonable targets that included a 4% GDP growth rate. This, however, has now been slashed to 2.5%. Last year’s devastating floods and a steep rise in oil prices jolted the economy, they said. “Floods damages alone were more than 10 billion dollars,” the finance minister told a group of journalists during a recent visit to Karachi. “The lack of consensus among major parliamentary parties about the tax reforms has hurt efforts to meet the revenue target,” he said.

Although government sources say that efforts to build consensus with the major political parties, including the Pakistan Muslim League-N, have made advances, other insiders say that there has not been any meaningful development on key issues, such as the imposition of RGST and the withdrawal of subsidies.

The PML-N 10-point agenda far from offers any recipe to soothe the country’s present crisis. The very first demand of the withdrawal of the petroleum price hike remains lethal for the economy at a time when world oil prices are close to $100 a barrel. The government had to reduce its levy on petroleum products to accept the demand from its allies and political parties and this created a further dent in its revenues. Selling fuel at the current rates will not be feasible for the country, admits a senior finance ministry official. “The subsidies should be targeted at the poor rather than given to all.”

Out of the remaining nine points from the PML-N agenda, none address efforts to boost revenues. The focus is on political issues, which clearly sell among a particular section of the public and the media. After the first couple of rounds of talks, PPP and PML-N leaders had little to offer to the nation but their intentions of goodwill. Analysts say that the PML-N and the government diluted the economic agenda in the 10-point plan by including political issues such as the restructuring of the Election Commission and the implementation of all decisions of the judiciary, including the decisions on the National Reconciliation Order. There should have been only one point on the agenda of the talks between the government and the opposition: the economy. The delay in tackling the economic crisis with serious, workable decisions is strengthening the pull of the financial quicksand.

An official of an international lending agency, who spoke requesting anonymity, said that the government seems to lack direction when it comes to the economy. “There appears to be a paralysis, and nothing is being done to ward-off the crisis,” he said. “The reforms are crucial, but they are being sacrificed on the altar of the politics of expediency. There appears a complete disconnect between the financial team and the PPP bosses.”

The finance minister, however, says that the situation remains difficult, but manageable. “Tough decisions are required to cut expenditure and mobilise resources,” he said. “And for this, we need a political consensus.”

The government is already considering slashing the annual development budget by 100 billion rupees to bring it down to around 180 billion rupees. It is also urging provinces, which under the new National Finance Commission (NFC) have received 10% more resources from the federal government, to show greater financial discipline. Sadly, in the short term, things look bleak. The finance minister’s pleas to his party and the opposition to bite the bullet and accept the RGST and other reforms have so far been in vain. Moreover, Sheikh’s prescription – backed by the IMF – hardly appears to have any takers in the ruling party itself. Making matters worse is the state of the PPP government and its weak coalition: the PPP is not just tainted with corruption allegations, but remains locked in a struggle for survival on a day-to-day basis, further eroding its capacity act.

Sindh Bank - Retrying A Failed Formula

By Amir Zia
The News
Fabruary 13, 2011

It is not the government's job to run commercial entities. Its job is to provide an enabling environment where businesses, trade and industry can grow amidst healthy competition

It is a tried and tested formula, which failed to deliver in the past, yet the Sindh provincial government still wants to try it. Yes, a new public sector venture - the Sindh Bank - is all set to commence its formal operations, signifying the confusion and the lack of direction in the government’s economic policies at every level.

The controversial decision of setting up Sindh Bank came despite the fact that similar experiments of operating banks by the provincial governments of Punjab and the Khyber-Pakhtunkhwa turned out to be costly and disastrous affairs. But in Pakistan, rulers hardly learn from the past.

The Sindh government has committed 10 billion rupees to meet the State Bank of Pakistan’s minimum paid-up capital requirement for the Sindh Bank, which plans to open 50 branches by the year-end. The new bank, the fifth public sector commercial bank, will focus on the agricultural sector and small and medium enterprises. But why can’t the existing banks, that also include the specialised Zarai Tarraqiati Bank and the heavyweight state-run National Bank of Pakistan, perform the task remains an important question that the provincial government needs to answer in a rational way.

The idea to “serve people” through depositors’ money remains flawed in its essence. This has been proved beyond doubt. The government should mobilise resources through taxes to do this, rather than trying to run a commercial entity.

According to a senior SBP official, both the Bank of Punjab and the Bank of Khyber suffered because of “mismanagement, political interference and violation of credit policy guidelines.” The central bank authorities claim that the “bad experience” of the two provincial banks led them to introduce stringent conditions and policy guidelines for the Sindh Bank that include a demand for the appointment of professionals on key management positions and setting a higher bar for the board of directors, but they admit that monitoring a public sector bank remains an uphill task. In most cases, it is after months that any violation of rules and regulations appears on the central bank’s inspection radar.

Given the allegations of rampant corruption and nepotism at the top government level, how will the Sindh Bank ensure transparency in hiring and operations and prevent political interference? These also remain burning questions.

As far as getting top professionals in the Sindh Bank’s management team and board of governors is considered, the start has not been that encouraging. The board of governors is headed by the Sindh chief secretary ñ hardly a person to claim that he knows the banking business. The other government nominees in the board include the provincial additional chief secretary and finance secretary with a sprinkling of the private sector representatives. The management team is yet to be completed and put in place.

Syed Sardar Ahmed, the Muttahida Qaumi Movement’s (MQM) parliamentary leader in the Sindh Assembly, who himself was a senior bureaucrat, said that bureaucrats do not have the expertise to guide a bank. The MQM, a coalition partner of the PPP, opposed the bank, saying that it was not the government’s job to run commercial organisations. Instead it proposed setting up a microfinance bank, which could benefit the poorest of the poor in large numbers, but the suggestion has been overruled.

On a broader policy level, the opening of a new public sector bank reflects poorly on the government’s economic vision, which at least on paper aims for deregulation, liberalisation and privatisation. There has been a broad consensus on these three economic pillars among all the major political parties and the establishment since the early 1990s that led to financial sector reforms and privatisation of major banks over the last two decades.

The policy paid dividends in more than one way. The privatised banks transformed into profit-making institutions from those, which were a burden on the national exchequer because of overstaffing, over-branching, huge portfolio of the non-performing loans and political interference. The financial sector reforms also led to an improved customer service, diversification in the product range, better management and transparency.

It is strange why the government plans to expand its stakes in the financial sector where its past involvement brought nothing, but scandals, poor performance and big losses. The key existing public sector organisations already remain a huge drain on the government, which provided 250 billion rupees in subsidies to just eight of these entities in fiscal 2009/10 to keep them afloat.

In the current fiscal year, the trend has not been reversed as these institutions — plagued by overstaffing, corruption and mismanagement — continue to inflict billions of rupees losses every month.

This brings us back to the fundamental issue that it is not the government’s job to run commercial organisations. Its job is only to provide an enabling environment where businesses, trade and industry can grow amidst healthy competition. The government needs to act only as a regulator and swing into action to prevent any excesses committed by interest groups or market failure.

Therefore, it is necessary to snap the government’s direct control over businesses given the history of our politicians of interfering in the affairs of the public sector companies. It is not just a question of greed and corruption; elected representatives often yield to the pressure of their supporters, who demand jobs, posting and contracts. It remains imperative that the rulers focus on their core job of running the government rather than dabbling in business ventures. The peoples’ representatives, however, appear adamant to do the opposite and yet hope for positive results. How ironic!

Pakistan’s Economic Management -Tragedy Of Delay

By Amir Zia
The News
Sunday, February 6, 2011

A large budget deficit is considered the mother of economic problems. It multiplies public debt, increases interest rates and reduces fiscal space.

We are being told that Pakistan’s economy remains in the throes of a crisis. The fiscal deficit is all set to balloon to 7.5 to 8.0 percent against the targeted 4.7 percent in the current fiscal year if the government fails to mobilise resources and cut expenditures. Inflation, which the government planned to keep pegged at 9.5 percent, is now expected to hover between 15 to 16 percent in fiscal 2010/11 (July-June). The public debt has crossed the red mark of more than 60 percent of the Gross Domestic Product (GDP) or 10 trillion rupees. It was around 4.8 trillion rupees in 2006/07 - when former military ruler Pervez Musharraf started losing his grip on power. This means that in the three years of this democratic rule, total public debt has more than doubled.

What do these economic numbers mean for an ordinary Pakistani? The answer is not difficult to guess — hard times and a grim future! A large budget deficit is considered the mother of economic problems. It multiplies public debt, increases interest rates and reduces fiscal space. That’s what has been happening in Pakistan where social sector and development spending have taken a deep cut.

The government’s desperate borrowing from commercial banks, as is being done in today’s Pakistan, crowds out the private sector from the credit chain, further slowing down the economy and resulting in large-scale layoffs. High government borrowing from the central bank, also being done with impunity these days, compounds inflationary pressure. It directly hits the poor and fixed income group, creating a snowball effect.

The scenario of doom and gloom is being articulated by leading national and international institutions, government officials and experts. The State Bank of Pakistan (SBP), in its first-quarterly report on the country’s economy, warned that any “further delay in implementing the critical structural adjustments” poses great risks. The global lending agencies, including the International Monetary Fund (IMF), mince no words in asking the government to implement the reformed general sales tax (RGST) and reforms in the energy sector.

Finance Minister Dr Abdul Hafeez Sheikh has been pointing out the structural challenges faced by the country in parliament, at various government forums and to the opposition. He has been telling his political bosses, President Asif Ali Zardari and Prime Minister Yousuf Raza Gilani, about the gravity of the situation. But he is unable to make an impact. Political considerations and vested interest continue to dictate economic policies.

Even the opposition and the Pakistan Peoples’ Party’s (PPP) coalition partners acknowledge the seriousness of the issue. But despite all these alarm bells, what is being done to address the situation? Agreed, that there is a lot of noise and commotion, but practically nothing.

It appears a drama of inaction.

The opposition Pakistan Muslim League-Nawaz (PML-N) announced a 10-point agenda in January and gave the government 45 days to implement it. The government welcomed the gesture and started negotiations, but is this 10-point agenda a prescription for the country’s economic ills?

The answer is a big ‘NO’.

Most of the agenda points are political, ranging from the implementation of judicial orders on the National Reconciliation Ordinance and other issues such as an overhaul of the Election Commission. Corruption, action against politically-connected loan defaulters and formation of an independent accountability commission remain some of its key points, but sadly these points have little to do with the economic crisis. The agenda also includes a demand for the reversal of the fuel price hike, which already has been accepted. But the decision costs around 4.5 to 5.0 billion rupees a month to the national exchequer against the backdrop of a steep rise in international oil prices, which hover above $100 a barrel now. It will contribute in widening of the budget deficit.

The demand for slashing 30 percent expenditure makes sense and Prime Minister Gilani remains all set to reduce the size of his cabinet, but the gesture is symbolic as the government lacks political will and commitment to restructure ministries, departments, and the state-run institutions where overstaffing remains rampant. In fact, the government itself contributed in making the situation worse by saddling thousands of more people in some of the already loss-making institutions. The forced reinstatement of employees in the privately-run Karachi Electric Supply Company underlines that the PPP government and its allies remain unable to walk their talk.

No wonder, in the four rounds of talks between PML-N and the government nothing substantial came out. According to an official, who attended these meetings, the crucial issue of resource mobilisation, including the RGST, has not even been discussed. This exposes the moral and intellectual hollowness of today’s ruling elite, which remains hesitant to do what is required of them. It does not want to pitch in their share through taxes nor is it able to provide honest leadership. It demands sacrifices from the people, but is found wanting itself.

The Muttahida Qaumi Movement’s (MQM) recent nine-point agenda includes a demand for the imposition of tax on agriculture income. But the influential lobby of landlords, which dominates parliament, remains bitterly opposed to this idea. The government appears in no mood to face the political fallout of any such decision.

As the country sinks deeper into trouble, it appears there is a stalemate on the economic front. It is a perfect tragedy of delay, where reforms remain on the hold in the name of consensus and nothing is being done to ward off the crisis. Maybe the IMF, the United States and its allies and our Arab friends, despite their weariness in supporting the country for so long, will again push us back from the brink and keep the economy of this lone Muslim nuclear power afloat. If this is the real plan ‘B’ — then we really are a nation with great faith.