The United Arab Emirates has taken over the US as the largest source of home remittances sent by overseas Pakistanis this fiscal year possibly because the US economy is yet to recover fully from the Great Recession of 2008-09. While Saudi Arabia retained it second position, the United States has slipped to the third place.
The average rate of increase in remittances from the US in the last four years has been much lower than that of the GCC countries. An impressive average growth of 34 per cent per annum in case of the UAE, Bahrain, Kuwait, Oman and Qatar exceeded 15 per cent of Saudi Arabia. Clearly, the centre of gravity of Pakistan’s home remittances has shifted towards the Middle East. However, still a huge amount of money comes from the US and the UK with an average growth rate of 8.5 per cent and about 16 per cent respectively.
“So our policies must aim at retaining the levels of remittances from these countries and increasing their growth rates as well,” says a central banker involved in monitoring of remittances’ inflows.
The inflow of remittances from the US are expected to rise in April-June this year as the US economy is likely to continue shrugging off the aftereffects of the recession. But going forward, if the world’s top economy plunges into a double-dip recession, as is being feared by many in the US and elsewhere, then such inflows would remain low. “Besides, since the 9/11 terror attacks, export of Pakistani manpower to the US has remained almost static. In order to attract larger remittances, we need to persuade the US authorities to liberalise issuance of work visas to Pakistanis in future,” said an official of Overseas Pakistanis Foundation.
The British economy is coming out of the recession more slowly than the US economy and migration of Pakistani workers to UK has also not accelerated much after the 9/11. Therefore, one should not anticipate a big increase in remittances from there.
But as far remittances from the GCC countries are concerned, these look set to remain strong in future for a couple of reasons. Though the oil price boom in the Gulf region is no more, a large number of Pakistani professionals including doctors, engineers, bankers, teachers and highly-skilled to semi-skilled labourers are well settled in that region. In some cases, people of Pakistani origin are even engaged in business activities. “All this is going to keep the inflow of home remittances steady.”
However, remittances from Dubai (which is part of the UAE) have declined recently. The emirate’s wealth is dependent on services and real estate sector activities that kept attracting huge foreign investment in the past.
After the global financial crisis and recession, foreign investment started drying up slowing down the pace of Dubai’s economic growth and Pakistanis living there also witnessed a decline in their incomes. But, most professional Pakistanis and high-skilled craftsmen are believed to have found alternate jobs in Abu Dhabi. This is evident from a simultaneous increase in remittances from there.
On balance, the outlook for remittances looks satisfactory in coming years. But there is no room for complacency. Bangladeshi workers’ remittances have remained constantly higher than those of their Pakistani counterparts for the last four years and the trend is continuing through this year.
For the first time in FY06, overseas Bangladeshis sent back home $4.8 billion—higher than overseas Pakistanis’ remittances of $.4.6 billion.
The trend continued in FY07, FY08 and FY09. Bangladesh attracted $6 billion, $7.9 billion and $9.7 billion remittances in these years whereas Pakistan received $5.5 billion, $6.45 billion and $7.8 billion respectively. During the first half of this fiscal year also, remittances of Bangladesh at $5.53 billion was well above Pakistan’s $4.53 billion.
Higher development spending on education sector to produce and export high-quality professionals and high-skilled manpower can help Pakistan in accelerating the pace of growth in home remittances. Whereas Islamabad keeps persuading developed countries to give our exporters freer access to their markets, it hardly makes any serious effort to seek freer movement of Pakistani manpower to these countries. That too should be on agenda of the policymakers.
The launching of Pakistan Remittances Initiative—a mechanism jointly developed by the Ministry of Finance, Ministry of Overseas Pakistanis and the State Bank—late last year has provided overseas Pakistanis some incentives in sending foreign exchange back home through official channels. The initiative ought to be continued with constant improvements
Source: http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/recession-and-remittances-350
Wednesday, May 5, 2010
Tuesday, May 4, 2010
Export-oriented industrial sectors: long-term remedy for sustained progress By SHAFIQ-UR-REHMAN
ARTICLE (May 03 2010): Pakistan's economy has been shattered during last 4 years due to global economic meltdown, domestic political uncertainties, law and order situation, high financial cost, high inflation and energy shortages (electricity and gas).
Manufacturing has remained most vulnerable during this period and impact of this pressure will be felt over coming years as well.
Out of manufacturing sector, textile is the economic driver of our country in the international market. During the years 2000-05, huge investment was made in this sector, anticipating big gains in the post-quota integration scenario and availability of cheap credit with the financial institutions. However, results of the post-quota integration period were not as good as anticipated due to heavy subsidies by the competing countries, levy of anti-dumping on bed linen by the EU, liberal market access to Bangladesh, successive cotton crop failures, and increase in financial cost.
We have to analyse that what actions we have to take today in order to overcome burgeoning trade and current account deficits, as no substantial direct investment is coming and our begging bowl is increasing day by day. Unemployment is touching alarming levels and existing industries are on the verge of extinction due to the aforementioned reasons. In order to comply with strict prudential regulations, most of the working capital was used for mark-up servicing and debt repayment. Now most of the companies are crippled under working capital shortage crunch.
Luckily, we have few sectors on which we can focus and help these resuscitate, including mainly value-added textiles (home, knit, garments, towel and so on so forth which provides employment to maximum workforce including women), leather, surgical, sport goods, light engineering, other sectors, which can maintain and additionally contribute in enhancing the exports and reducing unemployment on urgent basis.
During professional engagements, author of the article has observed the devastating consequences which follow due to inaction of policy makers and banks at appropriate time. Sometimes, there are committees (Beg Committee - a noble departed soul) CIRC, or circular 29 type solutions which erodes much of the national resources at a throwaway price.
The entrepreneurs are engines of growth in any society apart from a good economic vision at the policy-making level. We have dearth of this sacred talent and whatever is available with us let's not destroy it and chalk out pragmatic, justifiable and long-term strategy firstly for their survival and secondly for their growth. There are no pragmatic bankruptcy laws in our country and anyone, who undergoes is destined for a bleak future and the other sufferers are numerous, including labour, banks, creditors and economy as whole.
Focus of the paper is on how we can salvage substantial export-oriented industry with in-house production potential to maintain and enhance exports.
SUGGESTED MEASURES:
There has to be an estimate of exportable capacity and capability of each industrial segment. This will be based on installed capacities, and actual utilisation during the last 3 years, plus some cushion for better utilisation of existing capacities. This will be worked through industry studies and feedback can be obtained from the machinery suppliers and experts on urgent basis.
In the first phase, we can focus on industries having US $25 million per annum export potential. We can reduce this threshold level after evaluating one-year practical experience of this imitative.
The government should provide 10-year Equity Support Fund (ESF) to all industry segments, which directly or indirectly export 75% of their output. Provided the export value has been repatriated from the country of export. During the first 6 years, companies should only pay mark-up on this fund.
The ESF should be equivalent to 50% - all short-term and long-term outstanding (including lease finance) as of 31st March 2010 - excluding loans given by the respective companies to their associated companies, which are not engaged in export business, or invested in non-core business activities.
The ESF should carry mark up rate equal to the SBP's export refinance rate excluding any bank spread. It should be disbursed through existing banks of the companies.
Seventy-five percent of the ESF, to be used to repay long term and short term loans of the banks including the ERF where applicable and lease obligations. Twenty-five percent to be used for working capital purposes. Companies to issue TFCs or preference shares (convertible into ordinary shares) against the ESF, and these should be secured on pari passue basis with existing banks.
If an industry is not able to repay and service even 50% of the existing principal borrowing, then there is a serious business plan failure and in that case, other remedial measure must be initiated.
As an alternative to direct equity investment, there could be a special 10-year government bond for this purpose and the banks and leasing companies may replace these bonds with their borrowing on a pro-rata basis.
Mark-up rate on these bonds should be equal to the SBP refinance rate (excluding bank spread). These bonds may be made SLR qualified and some tax concessions may be added to the bond income in order to give a better yield to the holders.
PRECAUTIONAY MEASURES:
There should be a freeze on short term and long term borrowing and on private credit on the befitting companies. Management change agreements through consent decree and corporate laws must be entered into with the recipients of these funds.
Auditors of these companies must be rotated with 2 years' tenure and only first class firms to be eligible for their audit. There could be a special set-up under the SBP or banking council for monitoring of the benefited industries, comprising industry and banking experts, and the benefiting companies to reimburse all their costs.
Board of directors of the benefiting companies should be reconstituted and independent paid directors to be added to the boards of the entities qualified for ESF on rotation basis.
FISCAL AND REGULATORY CONCESSIONS:
There should be relaxation in debt equity and current ratios of the benefiting companies for the next 5 years. The ESF may be considered as part of the equity till its repayment.
Most importantly, there should be relaxation in prudential regulations for the financial institutions, which have substantial investment (over 25% of exposure in such industries) and provision requirements should be relaxed. Existing provisions allowed to be reversed.
Income tax exemption on investment portfolio of financial institutions in export-based companies be allowed for the next 5 years. This will encourage the already committed financial institutions to remain engaged and take more exposure in this vital sector of the economy.
STARTING POINT:
To start with, 30 companies from value-added textile sectors with highest export potential from in-house production capacities, which have achieved maximum value-added per kg of raw material and 5 industries each from other sectors selected for eligibility for the ESF.
CONCLUSION:
This proposal will increase/maintain export earnings of the industries. Most importantly increase employment opportunities and business confidence, boost the financial institutions' performance and increase their liquidity. The benefiting industries should be encouraged to invest in energy self-sufficiency and compliance requirements out of available resources.
There has to be a trade-off between export earnings or obtaining loans if we let our export-oriented companies close down. Timely investment and action will be of the essence, and this action is needed due to force majure exogenous and indigenous developments, which are beyond control of policy-makers and entrepreneurs.
This suggestion is in line with recent international practices and based on ground reality, which the author has observed through direct interaction with the industry, financial sector and entrepreneurs. Icon institutions like Citi Bank, Bank of America, General Motors, RBS and many more were provided equity support by the US, UK, EU and other governments instead of letting them go bankrupt. We should not be shy of supporting our national assets and stopping to bash industrialists, who need a sympatric and pragmatic treatment during this most volatile and dangerous phase of our history.
Current democratic government and entire political hierarchy have achieved incredible milestones on political issue and on the menace of war on terror (where we have to face idiotic lunacy due to distorted interpretation of our greatest religion), but if we won't act on economic front, all big achievements may be doomed for a failure. Therefore, a swift action towards revival of our export oriented industrial sectors is a must and that too on emergency basis. Domestic industry will also be immediate beneficiary as bulk of it is working as supply chain to the export based industries.
(The writer is former member, Finance of Corporate and Industrial Restructuring Corporation (CIRC) and former Textile Monitoring head of Habib Bank Limited.)
Source: http://www.brecorder.com/index.php?id=1052081&currPageNo=1&query=&search=&term=&supDate=
Manufacturing has remained most vulnerable during this period and impact of this pressure will be felt over coming years as well.
Out of manufacturing sector, textile is the economic driver of our country in the international market. During the years 2000-05, huge investment was made in this sector, anticipating big gains in the post-quota integration scenario and availability of cheap credit with the financial institutions. However, results of the post-quota integration period were not as good as anticipated due to heavy subsidies by the competing countries, levy of anti-dumping on bed linen by the EU, liberal market access to Bangladesh, successive cotton crop failures, and increase in financial cost.
We have to analyse that what actions we have to take today in order to overcome burgeoning trade and current account deficits, as no substantial direct investment is coming and our begging bowl is increasing day by day. Unemployment is touching alarming levels and existing industries are on the verge of extinction due to the aforementioned reasons. In order to comply with strict prudential regulations, most of the working capital was used for mark-up servicing and debt repayment. Now most of the companies are crippled under working capital shortage crunch.
Luckily, we have few sectors on which we can focus and help these resuscitate, including mainly value-added textiles (home, knit, garments, towel and so on so forth which provides employment to maximum workforce including women), leather, surgical, sport goods, light engineering, other sectors, which can maintain and additionally contribute in enhancing the exports and reducing unemployment on urgent basis.
During professional engagements, author of the article has observed the devastating consequences which follow due to inaction of policy makers and banks at appropriate time. Sometimes, there are committees (Beg Committee - a noble departed soul) CIRC, or circular 29 type solutions which erodes much of the national resources at a throwaway price.
The entrepreneurs are engines of growth in any society apart from a good economic vision at the policy-making level. We have dearth of this sacred talent and whatever is available with us let's not destroy it and chalk out pragmatic, justifiable and long-term strategy firstly for their survival and secondly for their growth. There are no pragmatic bankruptcy laws in our country and anyone, who undergoes is destined for a bleak future and the other sufferers are numerous, including labour, banks, creditors and economy as whole.
Focus of the paper is on how we can salvage substantial export-oriented industry with in-house production potential to maintain and enhance exports.
SUGGESTED MEASURES:
There has to be an estimate of exportable capacity and capability of each industrial segment. This will be based on installed capacities, and actual utilisation during the last 3 years, plus some cushion for better utilisation of existing capacities. This will be worked through industry studies and feedback can be obtained from the machinery suppliers and experts on urgent basis.
In the first phase, we can focus on industries having US $25 million per annum export potential. We can reduce this threshold level after evaluating one-year practical experience of this imitative.
The government should provide 10-year Equity Support Fund (ESF) to all industry segments, which directly or indirectly export 75% of their output. Provided the export value has been repatriated from the country of export. During the first 6 years, companies should only pay mark-up on this fund.
The ESF should be equivalent to 50% - all short-term and long-term outstanding (including lease finance) as of 31st March 2010 - excluding loans given by the respective companies to their associated companies, which are not engaged in export business, or invested in non-core business activities.
The ESF should carry mark up rate equal to the SBP's export refinance rate excluding any bank spread. It should be disbursed through existing banks of the companies.
Seventy-five percent of the ESF, to be used to repay long term and short term loans of the banks including the ERF where applicable and lease obligations. Twenty-five percent to be used for working capital purposes. Companies to issue TFCs or preference shares (convertible into ordinary shares) against the ESF, and these should be secured on pari passue basis with existing banks.
If an industry is not able to repay and service even 50% of the existing principal borrowing, then there is a serious business plan failure and in that case, other remedial measure must be initiated.
As an alternative to direct equity investment, there could be a special 10-year government bond for this purpose and the banks and leasing companies may replace these bonds with their borrowing on a pro-rata basis.
Mark-up rate on these bonds should be equal to the SBP refinance rate (excluding bank spread). These bonds may be made SLR qualified and some tax concessions may be added to the bond income in order to give a better yield to the holders.
PRECAUTIONAY MEASURES:
There should be a freeze on short term and long term borrowing and on private credit on the befitting companies. Management change agreements through consent decree and corporate laws must be entered into with the recipients of these funds.
Auditors of these companies must be rotated with 2 years' tenure and only first class firms to be eligible for their audit. There could be a special set-up under the SBP or banking council for monitoring of the benefited industries, comprising industry and banking experts, and the benefiting companies to reimburse all their costs.
Board of directors of the benefiting companies should be reconstituted and independent paid directors to be added to the boards of the entities qualified for ESF on rotation basis.
FISCAL AND REGULATORY CONCESSIONS:
There should be relaxation in debt equity and current ratios of the benefiting companies for the next 5 years. The ESF may be considered as part of the equity till its repayment.
Most importantly, there should be relaxation in prudential regulations for the financial institutions, which have substantial investment (over 25% of exposure in such industries) and provision requirements should be relaxed. Existing provisions allowed to be reversed.
Income tax exemption on investment portfolio of financial institutions in export-based companies be allowed for the next 5 years. This will encourage the already committed financial institutions to remain engaged and take more exposure in this vital sector of the economy.
STARTING POINT:
To start with, 30 companies from value-added textile sectors with highest export potential from in-house production capacities, which have achieved maximum value-added per kg of raw material and 5 industries each from other sectors selected for eligibility for the ESF.
CONCLUSION:
This proposal will increase/maintain export earnings of the industries. Most importantly increase employment opportunities and business confidence, boost the financial institutions' performance and increase their liquidity. The benefiting industries should be encouraged to invest in energy self-sufficiency and compliance requirements out of available resources.
There has to be a trade-off between export earnings or obtaining loans if we let our export-oriented companies close down. Timely investment and action will be of the essence, and this action is needed due to force majure exogenous and indigenous developments, which are beyond control of policy-makers and entrepreneurs.
This suggestion is in line with recent international practices and based on ground reality, which the author has observed through direct interaction with the industry, financial sector and entrepreneurs. Icon institutions like Citi Bank, Bank of America, General Motors, RBS and many more were provided equity support by the US, UK, EU and other governments instead of letting them go bankrupt. We should not be shy of supporting our national assets and stopping to bash industrialists, who need a sympatric and pragmatic treatment during this most volatile and dangerous phase of our history.
Current democratic government and entire political hierarchy have achieved incredible milestones on political issue and on the menace of war on terror (where we have to face idiotic lunacy due to distorted interpretation of our greatest religion), but if we won't act on economic front, all big achievements may be doomed for a failure. Therefore, a swift action towards revival of our export oriented industrial sectors is a must and that too on emergency basis. Domestic industry will also be immediate beneficiary as bulk of it is working as supply chain to the export based industries.
(The writer is former member, Finance of Corporate and Industrial Restructuring Corporation (CIRC) and former Textile Monitoring head of Habib Bank Limited.)
Source: http://www.brecorder.com/index.php?id=1052081&currPageNo=1&query=&search=&term=&supDate=
What would I do were I the finance minister? By ANJUM IBRAHIM
ARTICLE (May 03 2010): Each new Pakistani government has, like its counterpart in other nations developed and developing alike, appointed its own finance minister. However, unlike the rest of the world, the majority of our finance ministers have not been elected but selected with many retired international bureaucrats, a handful of serving commercial bankers and a smattering of economists, who have left this hapless country more vulnerable to crisis than their past performance in their area of expertise would have warranted.
It is very easy to criticise, but difficult to act in a responsible manner given our political milieu, or so has argued many a former finance minister. This is used to explain endorsing policies that have compromised the country's economy time and again. Here are a few examples that highlight the need to hold past finance ministers accountable for their dastardly policy actions.
Salman Shah as the finance minister of the former government must be held accountable for his decision to subsidise oil and its products, which had such disastrous consequences for the economy that the country is still reeling from its effect as attempts to bring the deficit to sustainable levels continue. For him, to argue that it was a cabinet decision cuts no ice because Shah did have the option to resign but chose not to exercise it. Shaukat Aziz's decision to privatise state-owned entities, like Pakistan Steel Mills, on terms and conditions that were regarded as suspect by the country's Supreme Court, damaged the entire privatisation process and he needs to explain his take on the process as opposed to the policy itself.
The decision to freeze foreign currency accounts by the Nawaz Sharif government after the international community stopped all assistance in the aftermath of our nuclear test - the single most disastrous policy decision that had lasting repercussions and compromised foreign inflows as well as eroded domestic confidence, require an explanation.
Benazir Bhutto's decision to fill state-owned institutions with Jiyalas is held responsible for poor performance of the state-owned entities that continue to account for heavy annual budgetary injections to keep them afloat. Z A Bhutto's policy of nationalisation was held to be accountable for plummeting productivity and increasing unemployment levels, though not on the scale as is evident these days with high cost of borrowing and a massive energy shortfall.
Critics counter this contention by pointing out that our finance ministers have been no different from our army dictators: once they are appointed, or once the coup is successful as in the case of military dictators, political considerations outweigh economic considerations. Thus while Pakistan's military dictators have all formed a king's party, and quite easily at that, the members of that party as well as members of the civilian governments have all routinely extracted their pound of flesh - flesh that may consist of looking the other way when they flout public procurement rules, take out right bribes for awarding contracts or indeed get paid for approving lucrative appointments. Such activity requires complicity from the country's bureaucracy as well as the armed forces that have ruled this country for longer than the civilians have. In other words when the PPP alleges that corruption is pandemic in this country and not restricted to politicians and more particularly the PPP politicians they do have a valid point.
In this context what can a finance minister with no political clout do? A qualified finance minister defined as someone with appropriate experience and qualifications may not be what Pakistan needs at this stage. What we do need is a finance minister, who constantly challenges those who appointed him. That this has not been done in the past no longer holds true.
Shaukat Tarin was an honest man and he constantly challenged the insistence of his cabinet colleagues to award a contract to one party over another, and the most glaring example of this is the third party audit that confirmed public apprehensions about the non transparency of the rental power project contracts. In addition he is the first finance minister this country has had who resigned without being coerced into it. The new Advisor to the Prime Minister on Finance has, therefore, an extremely tough act to follow.
What must he do that would make a difference and make him fondly remembered in our history? Unlike Tarin, his expertise is in economics, however, we would hope that he displays as much integrity as was displayed by his predecessor in fighting corruption and tendering a resignation when his hands were tied by his colleagues. But with respect to the budget, he needs to make some radical changes.
One such change must be to allocate adequate amount to education in this country - an objective that is supported by the 18th Amendment that promises to provide education to all. The absorption capacity of this sector is probably low in this country, however, one would hope that the government does allocate 5 percent of the budget to this sector - expenditure that must be monitored and carefully audited to ensure its success.
A literate Pakistan would automatically lead to a more discerning electorate, which may not suit some politicians' re-election plans, and a population less susceptible to dogma of whatever ilk. At the same time, a literate Pakistan would automatically reduce the annual outlay on health and result in a more productive workforce that would increase the country's gross national product. Each subsequent year, thereafter, there must be at least a one percent rise in education budget as a percentage of the total budget till literacy rates are 100 percent.
Secondly and equally importantly the de facto finance minister must trim the development budget to what is doable. It is unfortunate that in this respect, Shaukat Tarin's example must not be emulated as he indicated a development budget rise of over 50 percent which he could not deliver at the end; and within the development budget, there is a need to allocate a hefty 80 percent to enhancing power generation and cutting down on transmission losses. Let us have one infrastructure sector that meets demand and is efficiently run.
On the revenue side, the next budget must end all exemptions, especially those to specific sectors like the income of the rich landlords. In this regard, it is unfortunate that the hundred plus amendments to the Constitution did not include making farm income a Federal subject. Thus there is a concern that exemptions are unlikely and may best be deferred.
If the new Advisor on Finance can just achieve these three policy goals, he would go down in history as the man who changed the economy of Pakistan and put it on the road to wealth.
Source: http://www.brecorder.com/index.php?id=1052080&currPageNo=1&query=&search=&term=&supDate=
It is very easy to criticise, but difficult to act in a responsible manner given our political milieu, or so has argued many a former finance minister. This is used to explain endorsing policies that have compromised the country's economy time and again. Here are a few examples that highlight the need to hold past finance ministers accountable for their dastardly policy actions.
Salman Shah as the finance minister of the former government must be held accountable for his decision to subsidise oil and its products, which had such disastrous consequences for the economy that the country is still reeling from its effect as attempts to bring the deficit to sustainable levels continue. For him, to argue that it was a cabinet decision cuts no ice because Shah did have the option to resign but chose not to exercise it. Shaukat Aziz's decision to privatise state-owned entities, like Pakistan Steel Mills, on terms and conditions that were regarded as suspect by the country's Supreme Court, damaged the entire privatisation process and he needs to explain his take on the process as opposed to the policy itself.
The decision to freeze foreign currency accounts by the Nawaz Sharif government after the international community stopped all assistance in the aftermath of our nuclear test - the single most disastrous policy decision that had lasting repercussions and compromised foreign inflows as well as eroded domestic confidence, require an explanation.
Benazir Bhutto's decision to fill state-owned institutions with Jiyalas is held responsible for poor performance of the state-owned entities that continue to account for heavy annual budgetary injections to keep them afloat. Z A Bhutto's policy of nationalisation was held to be accountable for plummeting productivity and increasing unemployment levels, though not on the scale as is evident these days with high cost of borrowing and a massive energy shortfall.
Critics counter this contention by pointing out that our finance ministers have been no different from our army dictators: once they are appointed, or once the coup is successful as in the case of military dictators, political considerations outweigh economic considerations. Thus while Pakistan's military dictators have all formed a king's party, and quite easily at that, the members of that party as well as members of the civilian governments have all routinely extracted their pound of flesh - flesh that may consist of looking the other way when they flout public procurement rules, take out right bribes for awarding contracts or indeed get paid for approving lucrative appointments. Such activity requires complicity from the country's bureaucracy as well as the armed forces that have ruled this country for longer than the civilians have. In other words when the PPP alleges that corruption is pandemic in this country and not restricted to politicians and more particularly the PPP politicians they do have a valid point.
In this context what can a finance minister with no political clout do? A qualified finance minister defined as someone with appropriate experience and qualifications may not be what Pakistan needs at this stage. What we do need is a finance minister, who constantly challenges those who appointed him. That this has not been done in the past no longer holds true.
Shaukat Tarin was an honest man and he constantly challenged the insistence of his cabinet colleagues to award a contract to one party over another, and the most glaring example of this is the third party audit that confirmed public apprehensions about the non transparency of the rental power project contracts. In addition he is the first finance minister this country has had who resigned without being coerced into it. The new Advisor to the Prime Minister on Finance has, therefore, an extremely tough act to follow.
What must he do that would make a difference and make him fondly remembered in our history? Unlike Tarin, his expertise is in economics, however, we would hope that he displays as much integrity as was displayed by his predecessor in fighting corruption and tendering a resignation when his hands were tied by his colleagues. But with respect to the budget, he needs to make some radical changes.
One such change must be to allocate adequate amount to education in this country - an objective that is supported by the 18th Amendment that promises to provide education to all. The absorption capacity of this sector is probably low in this country, however, one would hope that the government does allocate 5 percent of the budget to this sector - expenditure that must be monitored and carefully audited to ensure its success.
A literate Pakistan would automatically lead to a more discerning electorate, which may not suit some politicians' re-election plans, and a population less susceptible to dogma of whatever ilk. At the same time, a literate Pakistan would automatically reduce the annual outlay on health and result in a more productive workforce that would increase the country's gross national product. Each subsequent year, thereafter, there must be at least a one percent rise in education budget as a percentage of the total budget till literacy rates are 100 percent.
Secondly and equally importantly the de facto finance minister must trim the development budget to what is doable. It is unfortunate that in this respect, Shaukat Tarin's example must not be emulated as he indicated a development budget rise of over 50 percent which he could not deliver at the end; and within the development budget, there is a need to allocate a hefty 80 percent to enhancing power generation and cutting down on transmission losses. Let us have one infrastructure sector that meets demand and is efficiently run.
On the revenue side, the next budget must end all exemptions, especially those to specific sectors like the income of the rich landlords. In this regard, it is unfortunate that the hundred plus amendments to the Constitution did not include making farm income a Federal subject. Thus there is a concern that exemptions are unlikely and may best be deferred.
If the new Advisor on Finance can just achieve these three policy goals, he would go down in history as the man who changed the economy of Pakistan and put it on the road to wealth.
Source: http://www.brecorder.com/index.php?id=1052080&currPageNo=1&query=&search=&term=&supDate=
Fair and equitable taxation By MUHAMMAD ASHRAF
ARTICLE (May 02 2010): Although, the Federal Board of Revenue (FBR) has launched a campaign to arrest tax defaulters, it has not made any arrest owing to a variety of factors, including fear of litigation. In old days, taxes were not collected in accordance with the ability and capacity of taxpayers as powerful people were exempted from tax whereas the people from middle income group were burdened with tax.
The latter category of people used to face quite harsh punitive measures, including confiscation of their assets and imprisonment. Computerisation does not mean introduction of a modern tax system. Arbitrary arrests of citizens without giving them fair opportunity to explain their position show as if we are still living in old days.
When Pakistan came into existence, some patriotic businessmen gave blank cheques to Quaid-e-Azam Muhammad Ali Jinnah as a support to the emply treasury of the newborn state. The question is why citizens are not paying taxes now? It has to be examined whether the tax administration is collecting tax without considering the capacity of the taxpayers who have no confidence in the tax administration.
They think that once they are "trapped" by the tax authorities, they would have to bear the tax burden of powerful non-taxpayers, face harassment and notices. Therefore, it is necessary to minimise contacts between taxpayers and tax collectors. Let the computers issue self-generated tax notices to defaulters, reducing significantly the role of the tax collector and allowing a taxpayer to pay tax according to his capacity and income.
Some taxpayers do tax planning with a view to deceiving the tax collector and avoiding payment of tax. There are two types:
-- Such taxpayers claim legitimate benefits, including all deductions, exemptions, allowances and rebates so that tax liability is reduced to minimum. But when the tax planning is in the form of colourable devices to deceit the legal sprit behind the law to avoid payment of tax by resorting to dubious methods it becomes, clearly and unambiguously, a case of tax avoidance. Tax avoidance is defeating the genuine spirit of law by misrepresentation of facts, it is also suppressing the legal intention.
Income tax ordinance 2002 covers anti-avoidance tax as under
Section 108: Transaction between associates.
Section 109: Recharacterisation of income and deductions entered into as part of tax avoidance schemes without economic affect and substance for the main purpose for avoidance and reduction of tax reliability.
Section 110: Salary paid by private companies.
Section 111: Unexplained instance or assets in person book of account, investment expenditure. Excludes foreign exchange remitted from outside Pakistan through normal banking channels that is cashed into rupees by schedule banks.
Section 112: Liability in respect of certain security transactions (bonds, certificates, debentures, stocks and shares) More and more tax avoidance means more and more tax legislation. Over 50 percent of legislations in the UK are about tax.
There are various reasons behind tax avoidance. If the tax is collected according to one's ability to pay, the taxpayer will work hard to earn more, resulting in an increase in tax collection. However, imposition of heavy taxes contrary to one's ability to pay tax would pave the way for tax avoidance.
Powerful and rich believe that they are beyond the grip of the tax net. Due to their influence, their ugly and anti-state activity is largely ignored. There are some entities or persons who are in the habit of tax avoidance.
In spite of the fact that Income Tax Ordinance 2001 is well defined, even then there is tax avoidance in real estate transactions. Recently, the government has unearthed the flight of foreign exchange through hundi when dollar appreciated to Rs 84 from Rs 60.
Anti-Avoidance Act: If tax is not paid now, then someone in his next generation will have to pay with a mark-up. The Income Tax Ordinance should be rationalised and shifted from the presumptive tax regime to real tax regime. Information through newspaper shows that the FBR is dissatisfied with the progress and performance of certain tax managers, but it rarely provides training opportunities to its officials abroad so that they can improve their performance.
There is already a survey department in the FBR and people there have knowledge about those who avoid tax. If they do not know, the FBR must hire the services of a private survey company for this task. More and more data collection, more and more surveys, and more and more efficiency is the key to a quantum leap in revenue.
This news has been read with pleasure that one Khawaja Sohail Mansoor from Sindh has been declared as highest taxpayer, who has been conferred Sitara-e-Imtiaz by the President of Pakistan on Pakistan Day at the Aiwan-e-Sadr on 23-03-2010. This revenue reward is a good step towards efforts aimed at increasing revenue collection.
The FBR should broaden the tax net and hunt down those avoiding tax net. We must revolutionise the revenue administration through automation and introduction of plastic currency.
Relaxation for mandatory return filing under Section 114(a)(b) for subscriber of telephone, car owner, member of club and person undertaking foreign travel should be rescinded and every person except dead, bankrupt, liquidated, and person of unsound mind or person permanently leaving Pakistan should be required to furnish return each year irrespective of income.
Computerisation and introduction of plastic currency can be an effective and meaningful strategy against tax avoidance. Heavy and inequitable taxation, besides tax avoidance may result in unemployment, inflation, less investment, poverty and a brain drain.
(The writer is former Deputy Collector of Customs)
Source: http://www.brecorder.com/index.php?id=1051846&currPageNo=1&query=&search=&term=&supDate=
The latter category of people used to face quite harsh punitive measures, including confiscation of their assets and imprisonment. Computerisation does not mean introduction of a modern tax system. Arbitrary arrests of citizens without giving them fair opportunity to explain their position show as if we are still living in old days.
When Pakistan came into existence, some patriotic businessmen gave blank cheques to Quaid-e-Azam Muhammad Ali Jinnah as a support to the emply treasury of the newborn state. The question is why citizens are not paying taxes now? It has to be examined whether the tax administration is collecting tax without considering the capacity of the taxpayers who have no confidence in the tax administration.
They think that once they are "trapped" by the tax authorities, they would have to bear the tax burden of powerful non-taxpayers, face harassment and notices. Therefore, it is necessary to minimise contacts between taxpayers and tax collectors. Let the computers issue self-generated tax notices to defaulters, reducing significantly the role of the tax collector and allowing a taxpayer to pay tax according to his capacity and income.
Some taxpayers do tax planning with a view to deceiving the tax collector and avoiding payment of tax. There are two types:
-- Such taxpayers claim legitimate benefits, including all deductions, exemptions, allowances and rebates so that tax liability is reduced to minimum. But when the tax planning is in the form of colourable devices to deceit the legal sprit behind the law to avoid payment of tax by resorting to dubious methods it becomes, clearly and unambiguously, a case of tax avoidance. Tax avoidance is defeating the genuine spirit of law by misrepresentation of facts, it is also suppressing the legal intention.
Income tax ordinance 2002 covers anti-avoidance tax as under
Section 108: Transaction between associates.
Section 109: Recharacterisation of income and deductions entered into as part of tax avoidance schemes without economic affect and substance for the main purpose for avoidance and reduction of tax reliability.
Section 110: Salary paid by private companies.
Section 111: Unexplained instance or assets in person book of account, investment expenditure. Excludes foreign exchange remitted from outside Pakistan through normal banking channels that is cashed into rupees by schedule banks.
Section 112: Liability in respect of certain security transactions (bonds, certificates, debentures, stocks and shares) More and more tax avoidance means more and more tax legislation. Over 50 percent of legislations in the UK are about tax.
There are various reasons behind tax avoidance. If the tax is collected according to one's ability to pay, the taxpayer will work hard to earn more, resulting in an increase in tax collection. However, imposition of heavy taxes contrary to one's ability to pay tax would pave the way for tax avoidance.
Powerful and rich believe that they are beyond the grip of the tax net. Due to their influence, their ugly and anti-state activity is largely ignored. There are some entities or persons who are in the habit of tax avoidance.
In spite of the fact that Income Tax Ordinance 2001 is well defined, even then there is tax avoidance in real estate transactions. Recently, the government has unearthed the flight of foreign exchange through hundi when dollar appreciated to Rs 84 from Rs 60.
Anti-Avoidance Act: If tax is not paid now, then someone in his next generation will have to pay with a mark-up. The Income Tax Ordinance should be rationalised and shifted from the presumptive tax regime to real tax regime. Information through newspaper shows that the FBR is dissatisfied with the progress and performance of certain tax managers, but it rarely provides training opportunities to its officials abroad so that they can improve their performance.
There is already a survey department in the FBR and people there have knowledge about those who avoid tax. If they do not know, the FBR must hire the services of a private survey company for this task. More and more data collection, more and more surveys, and more and more efficiency is the key to a quantum leap in revenue.
This news has been read with pleasure that one Khawaja Sohail Mansoor from Sindh has been declared as highest taxpayer, who has been conferred Sitara-e-Imtiaz by the President of Pakistan on Pakistan Day at the Aiwan-e-Sadr on 23-03-2010. This revenue reward is a good step towards efforts aimed at increasing revenue collection.
The FBR should broaden the tax net and hunt down those avoiding tax net. We must revolutionise the revenue administration through automation and introduction of plastic currency.
Relaxation for mandatory return filing under Section 114(a)(b) for subscriber of telephone, car owner, member of club and person undertaking foreign travel should be rescinded and every person except dead, bankrupt, liquidated, and person of unsound mind or person permanently leaving Pakistan should be required to furnish return each year irrespective of income.
Computerisation and introduction of plastic currency can be an effective and meaningful strategy against tax avoidance. Heavy and inequitable taxation, besides tax avoidance may result in unemployment, inflation, less investment, poverty and a brain drain.
(The writer is former Deputy Collector of Customs)
Source: http://www.brecorder.com/index.php?id=1051846&currPageNo=1&query=&search=&term=&supDate=
VAT: some suggestions By HAFIZ MOHAMMAD IDRESS
ARTICLE (May 02 2010): Numerous words have been used in the proposed "the Federal and Provincial Value Added Tax 2010" bill but there is no definition of these words, hence these words need proper explanation to avoid long litigation. For example, Progressive or Periodic Supplies, Ancillary or incidental supplies, increasing/decreasing adjustment, minor correction, etc, need to be explained. It is, therefore, suggested that suitable definition of the above words/phrases should be provided.
Provincial VAT - time of supply: Time of supply for service has not been provided in the Provincial VAT. Further, there is no provision in the Provincial VAT, which covers post services adjustment for bad debts. It is suggested that the time of supply of services should be defined as "the time of receipt" in the case of professionals such as doctors, lawyers, chartered accountants and architects.
Exemptions: As per section 11 of the Federal VAT and Section 10 of the Provincial VAT, the 1st Schedule deals with the exemptions, whereas the threshold limit of Rs 7.5 million is given in Section 41 of the Federal VAT, which deals only with registration. This means that the threshold limit will be only for the purposes of registration, but the persons having turnover less than Rs 7.5 million will be subject to the levy of VAT.
It is suggested that the threshold limit of Rs 7.5 million should be provided in the 1st Schedule of the Bill. The Provincial VAT, under the heading "Continuity of Registration" provides for the continuation of the registration for the persons registered under Sales Tax Act 1990 and also states that if the person exceeds the registration threshold under Section 46 or if the person does not exceed the registration threshold under Section 47.
From the above, the question arises: Sections 46 and 47 referred in the Provincial VAT belong to which statute? Imposition of tax: The Federal VAT is imposed at the 15% rate on taxable imports under Section 9 of the Bill. On the other hand, the threshold limit of Rs 7.5 million is provided in Section 41. Question arises that if an importer, having turnover less than the threshold limit and is not liable to register, then how the same is subject to levy of VAT.
Rate of tax: The rate of 15% is too high in comparison with the other countries of this region. Further, the proposed VAT will be imposed on almost every item, which will result in price hike. It is suggested that rate should be at the rate of 10%. Restriction on input tax deduction: Threshold limit of Rs 50,000, ie payment through banking channel to vendor should be enhanced to Rs 100,000 keeping in view the increase in prices of goods.
Authority: Officer of Inland Revenue, through whom the VAT will be administered, has been defined in Section 2 of the bill. But on the other hand in most of the sections of the bill reference to the Board has been given, particularly Section 59 of the bill states that all the powers and functions shall be performed by the Board.
Is it practically possible that the Board will delegate its powers to the Officer of Inland Revenue for each and every function? Further, Section 60 states that the Board may constitute the Directorates General for achieving the objects of this Act consisting of the Director General, Director, Additional Director, Deputy Director and Assistant Director. On the other hand, in many sections, Officer of Inland Revenue has been made responsible to do certain acts under this Act.
Questions arise: (1) Will the Board perform all the functions under this act? Or (2) Will the new Directorate General, constituted under Section 60, perform all the functions under this Act? Or (3) The Officer, Inland Revenue, under the present setup will perform all the functions under this act? Amended tax return: An Amendment to tax return should not be made subject to permission by the board.
The concept of rectification of mistakes apparent from records is available in Income Tax Ordinance, which facilitate to rectify mistakes such as calculation error and incorrect credit of tax. But no such provision is available in VAT, which may result in unnecessary prolonged litigation. It is suggested that the concept of rectification should also be provided in this Bill.
Repeal and saving/adjustment of input: Sections 95 and 96 of the Bill do not provide saving to the sections of the Federal Excise Act 2005, which will be omitted in the event of the promulgation of this act, which will result in unnecessary litigation.
1st and 2nd Schedule: Exemptions have been withdrawn on the items of the basic needs. It is suggested that exemptions should be granted to items of basic needs such as rice, pulses, vegetable, fruit and milk. Pharmaceuticals and medical supplies have been placed in the 2nd Schedule as items on which the VAT is zero-rated. It is suggested that these items should also be placed in the 1st schedule.
VAT on immovable property - Provincial VAT: In the 1st schedule, some of the supplies of immovable property have been exempted vide serial No 6 of the schedule which means that some supplies other than provided in this schedule are taxable but in section 3 of the Provincial VAT, immovable property has been excluded from the definition of supply of services which needs a clarification/amendment.
Chargeability of VAT on inter-provincial services: It is not clear from the language of section 14 of the Provincial VAT Bill about the levy of VAT on a person who is resident of one province and is also providing/rendering services in other provinces. How and in which province he will be levied VAT? Provincial VAT bill is not exhaustive/complete: Section 18 of the Provincial VAT Bill deals with "Power and duties of the Board".
Provincial VAT Bill is not exhaustive/complete like Federal VAT Bill. Some of provisions of Federal VAT Bill relating to Registration etc are referred in Provincial VAT Bill but many other provisions which are necessary for enforcement of this Bill are not referred.
It is suggested that either Provincial VAT Bill be made exhaustive/complete to cover all the eventualities or section 18 should be suitably amended by giving reference that all the sections of Federal VAT Bill will apply mutatis mutandis, otherwise it will result in unnecessary long litigation. Repeal/adjustment of input: The Bill does not provide saving to the sections of the Federal Excise Act 2005 which will be omitted in the event of the promulgation of this Act, which will result in unnecessary litigation.
(The writer is a Supreme Court lawyer)
Source: http://www.brecorder.com/index.php?id=1051841&currPageNo=1&query=&search=&term=&supDate=
Provincial VAT - time of supply: Time of supply for service has not been provided in the Provincial VAT. Further, there is no provision in the Provincial VAT, which covers post services adjustment for bad debts. It is suggested that the time of supply of services should be defined as "the time of receipt" in the case of professionals such as doctors, lawyers, chartered accountants and architects.
Exemptions: As per section 11 of the Federal VAT and Section 10 of the Provincial VAT, the 1st Schedule deals with the exemptions, whereas the threshold limit of Rs 7.5 million is given in Section 41 of the Federal VAT, which deals only with registration. This means that the threshold limit will be only for the purposes of registration, but the persons having turnover less than Rs 7.5 million will be subject to the levy of VAT.
It is suggested that the threshold limit of Rs 7.5 million should be provided in the 1st Schedule of the Bill. The Provincial VAT, under the heading "Continuity of Registration" provides for the continuation of the registration for the persons registered under Sales Tax Act 1990 and also states that if the person exceeds the registration threshold under Section 46 or if the person does not exceed the registration threshold under Section 47.
From the above, the question arises: Sections 46 and 47 referred in the Provincial VAT belong to which statute? Imposition of tax: The Federal VAT is imposed at the 15% rate on taxable imports under Section 9 of the Bill. On the other hand, the threshold limit of Rs 7.5 million is provided in Section 41. Question arises that if an importer, having turnover less than the threshold limit and is not liable to register, then how the same is subject to levy of VAT.
Rate of tax: The rate of 15% is too high in comparison with the other countries of this region. Further, the proposed VAT will be imposed on almost every item, which will result in price hike. It is suggested that rate should be at the rate of 10%. Restriction on input tax deduction: Threshold limit of Rs 50,000, ie payment through banking channel to vendor should be enhanced to Rs 100,000 keeping in view the increase in prices of goods.
Authority: Officer of Inland Revenue, through whom the VAT will be administered, has been defined in Section 2 of the bill. But on the other hand in most of the sections of the bill reference to the Board has been given, particularly Section 59 of the bill states that all the powers and functions shall be performed by the Board.
Is it practically possible that the Board will delegate its powers to the Officer of Inland Revenue for each and every function? Further, Section 60 states that the Board may constitute the Directorates General for achieving the objects of this Act consisting of the Director General, Director, Additional Director, Deputy Director and Assistant Director. On the other hand, in many sections, Officer of Inland Revenue has been made responsible to do certain acts under this Act.
Questions arise: (1) Will the Board perform all the functions under this act? Or (2) Will the new Directorate General, constituted under Section 60, perform all the functions under this Act? Or (3) The Officer, Inland Revenue, under the present setup will perform all the functions under this act? Amended tax return: An Amendment to tax return should not be made subject to permission by the board.
The concept of rectification of mistakes apparent from records is available in Income Tax Ordinance, which facilitate to rectify mistakes such as calculation error and incorrect credit of tax. But no such provision is available in VAT, which may result in unnecessary prolonged litigation. It is suggested that the concept of rectification should also be provided in this Bill.
Repeal and saving/adjustment of input: Sections 95 and 96 of the Bill do not provide saving to the sections of the Federal Excise Act 2005, which will be omitted in the event of the promulgation of this act, which will result in unnecessary litigation.
1st and 2nd Schedule: Exemptions have been withdrawn on the items of the basic needs. It is suggested that exemptions should be granted to items of basic needs such as rice, pulses, vegetable, fruit and milk. Pharmaceuticals and medical supplies have been placed in the 2nd Schedule as items on which the VAT is zero-rated. It is suggested that these items should also be placed in the 1st schedule.
VAT on immovable property - Provincial VAT: In the 1st schedule, some of the supplies of immovable property have been exempted vide serial No 6 of the schedule which means that some supplies other than provided in this schedule are taxable but in section 3 of the Provincial VAT, immovable property has been excluded from the definition of supply of services which needs a clarification/amendment.
Chargeability of VAT on inter-provincial services: It is not clear from the language of section 14 of the Provincial VAT Bill about the levy of VAT on a person who is resident of one province and is also providing/rendering services in other provinces. How and in which province he will be levied VAT? Provincial VAT bill is not exhaustive/complete: Section 18 of the Provincial VAT Bill deals with "Power and duties of the Board".
Provincial VAT Bill is not exhaustive/complete like Federal VAT Bill. Some of provisions of Federal VAT Bill relating to Registration etc are referred in Provincial VAT Bill but many other provisions which are necessary for enforcement of this Bill are not referred.
It is suggested that either Provincial VAT Bill be made exhaustive/complete to cover all the eventualities or section 18 should be suitably amended by giving reference that all the sections of Federal VAT Bill will apply mutatis mutandis, otherwise it will result in unnecessary long litigation. Repeal/adjustment of input: The Bill does not provide saving to the sections of the Federal Excise Act 2005 which will be omitted in the event of the promulgation of this Act, which will result in unnecessary litigation.
(The writer is a Supreme Court lawyer)
Source: http://www.brecorder.com/index.php?id=1051841&currPageNo=1&query=&search=&term=&supDate=
The terrible role of IMF By DR NIAZ AHMED KHAN
ARTICLE (April 30 2010): It is a bitter reality that one has to surrender to conditions of one's lender, no matter how cruel these conditions are. Same is the case with Pakistan as the international lenders, like the IMF and World Bank, have forced it to yield to the conditions of their choice, thus leaving no option for it to escape.
And now the price of this is being paid by the 170 million people of Pakistan, who arc groaning under the burden of ever-increasing price hike, unemployment, loadshedding and poverty, while suicide bombings, worst law and order situation and energy crisis have made their lives absolutely insecure.
Pakistan is trapped in shape of foreign loans so badly that it has to beg the IMF, World Banks, ADB, US and Friends of Democratic Pakistan (FoDP) for funds (for loans) to run its financial affairs at home. The government gets loans, but ignores the fact that what price it is paying to the lenders in terms of humiliating conditions and compromise on national interests. Through loans they are making next Pakistani generations their "financial slaves".
This is the height of our government's helplessness that Prime Minister Syed Yousuf Raza Gilani most recent had admitted that they had to take tough decisions on the pressure of international financial institutions (IFIs) and he knew that the masses were lacing difficulties due to these decisions. It is a point of extreme regret that the prime minister has no vision to realise the ground realities of the poor masses whose life is getting worst with the every passing day.
With the start of the year 2010, the government had jacked up gas, power and petrol prices. So far the power prices have been raised up to 24 percent with the caution that next year the same would go up by fifty percent. This does not end here as the slapping of value-added tax (VAT) is being considered, and the IMF has already warned to halt the remaining loan instalment in case the VAT is delayed.
Subsequently, now the provincial governments would have to make laws regarding taxation and have to be accountable to not only the federal government, but also the IMF regarding their income and income sources. The power tariff raise has triggered the cost production of a number of various commodities thus further putting the financial burden on the poor masses.
But the IMF has no interest with all these miseries of the poor people of Pakistan, as it is interested only its loans and the interest on them. The energy crisis has led to closure of thousands of industrial units and many more thousands are going to close due to the excessive power outages, but the government, being oblivious to this crisis, is regularly raising tariffs of national utilities on the instructions of the IMF.
There arises a big question as to whether the IMF and other IFIs are putting pressure on the government only to the extent of raising power rates, withdrawal of various subsidies and imposition of more taxes? Of course, not. They are regularly interfering into Pakistan's foreign policy and are now manoeuvring to limit our defence capabilities, including excess to our nuclear assets.
The sane Pakistanis can well imagine what motives the IMF has behind making Pakistan financially dependent on it. This is also a bitter reality that the government has no escape from the trap the IMF has made in the shape of financial loans coupled with tough conditions.
Total foreign loans have made a major jump of $12.12 billion from the earlier around $43 billion. It means that every Pakistani owes around Rs 27,000 to the IFIs. Pakistan owes $7.5 billion to the IMF alone. And now the humiliating conditions the IMF has attached for more loans would never be acceptable to an independent state. Even poverty and hunger stricken states like Sudan and Haiti would never accept these conditions.
"Now what is the solution to this financial crisis" is a question, which is haunting every patriotic Pakistani. This is also a fact that when there are problems, the Nature bestows a lot of qualities to human kind to solve them. Pakistan, no doubt, can get freed from the clutches of the IMF and other major lenders, but this requires of the Pakistani leadership and the people to adopt a pragmatic approach.
Pakistan is rich in almost all natural resources as well as skilled manpower. We are a nuclear power...we have capability to make satellites and send them into space. So what is the reason of surrendering to the IMF and other IFIs when we are self-sufficient and independent state? Why do we celebrate the approval of Kerry-Lugar Bill like laws? How long we continue compromising our national interests for getting paltry foreign loans?
It is a biting reality that only a hungry person raises begging bowl. Similarly, a hunger-stricken state has to comprise its sovereignty and make its friends as masters to get loans from them. I like every Pakistani, wish that the begging bowl be broken forever, hut the increasing volume of foreign loans indicates that size of the begging bowl has abnormally increased. This pathetic situation forces one to ponder what bigger sized pot the government will use for begging more loans if the volume of current foreign loans increases further and after that.
drnakhan2000@yahoo.com
And now the price of this is being paid by the 170 million people of Pakistan, who arc groaning under the burden of ever-increasing price hike, unemployment, loadshedding and poverty, while suicide bombings, worst law and order situation and energy crisis have made their lives absolutely insecure.
Pakistan is trapped in shape of foreign loans so badly that it has to beg the IMF, World Banks, ADB, US and Friends of Democratic Pakistan (FoDP) for funds (for loans) to run its financial affairs at home. The government gets loans, but ignores the fact that what price it is paying to the lenders in terms of humiliating conditions and compromise on national interests. Through loans they are making next Pakistani generations their "financial slaves".
This is the height of our government's helplessness that Prime Minister Syed Yousuf Raza Gilani most recent had admitted that they had to take tough decisions on the pressure of international financial institutions (IFIs) and he knew that the masses were lacing difficulties due to these decisions. It is a point of extreme regret that the prime minister has no vision to realise the ground realities of the poor masses whose life is getting worst with the every passing day.
With the start of the year 2010, the government had jacked up gas, power and petrol prices. So far the power prices have been raised up to 24 percent with the caution that next year the same would go up by fifty percent. This does not end here as the slapping of value-added tax (VAT) is being considered, and the IMF has already warned to halt the remaining loan instalment in case the VAT is delayed.
Subsequently, now the provincial governments would have to make laws regarding taxation and have to be accountable to not only the federal government, but also the IMF regarding their income and income sources. The power tariff raise has triggered the cost production of a number of various commodities thus further putting the financial burden on the poor masses.
But the IMF has no interest with all these miseries of the poor people of Pakistan, as it is interested only its loans and the interest on them. The energy crisis has led to closure of thousands of industrial units and many more thousands are going to close due to the excessive power outages, but the government, being oblivious to this crisis, is regularly raising tariffs of national utilities on the instructions of the IMF.
There arises a big question as to whether the IMF and other IFIs are putting pressure on the government only to the extent of raising power rates, withdrawal of various subsidies and imposition of more taxes? Of course, not. They are regularly interfering into Pakistan's foreign policy and are now manoeuvring to limit our defence capabilities, including excess to our nuclear assets.
The sane Pakistanis can well imagine what motives the IMF has behind making Pakistan financially dependent on it. This is also a bitter reality that the government has no escape from the trap the IMF has made in the shape of financial loans coupled with tough conditions.
Total foreign loans have made a major jump of $12.12 billion from the earlier around $43 billion. It means that every Pakistani owes around Rs 27,000 to the IFIs. Pakistan owes $7.5 billion to the IMF alone. And now the humiliating conditions the IMF has attached for more loans would never be acceptable to an independent state. Even poverty and hunger stricken states like Sudan and Haiti would never accept these conditions.
"Now what is the solution to this financial crisis" is a question, which is haunting every patriotic Pakistani. This is also a fact that when there are problems, the Nature bestows a lot of qualities to human kind to solve them. Pakistan, no doubt, can get freed from the clutches of the IMF and other major lenders, but this requires of the Pakistani leadership and the people to adopt a pragmatic approach.
Pakistan is rich in almost all natural resources as well as skilled manpower. We are a nuclear power...we have capability to make satellites and send them into space. So what is the reason of surrendering to the IMF and other IFIs when we are self-sufficient and independent state? Why do we celebrate the approval of Kerry-Lugar Bill like laws? How long we continue compromising our national interests for getting paltry foreign loans?
It is a biting reality that only a hungry person raises begging bowl. Similarly, a hunger-stricken state has to comprise its sovereignty and make its friends as masters to get loans from them. I like every Pakistani, wish that the begging bowl be broken forever, hut the increasing volume of foreign loans indicates that size of the begging bowl has abnormally increased. This pathetic situation forces one to ponder what bigger sized pot the government will use for begging more loans if the volume of current foreign loans increases further and after that.
drnakhan2000@yahoo.com
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