Barking up the wrong tree

Published: October 25, 2010

The writer is author of The Gathering Storm, Pakistan: Political Economy of a Security State (Royal Books, 2008)

Pakistan needs to revive its stagnating economy now and control galloping inflation. The chronic issues of fiscal profligacy and narrow tax base have assumed crisis levels. The government does not have any plan, except to carry around the begging bowl to the western capitals. Our never-ending pleas for more aid are testing the patience of the donors who are openly taunting the elite of Pakistan to ‘do more’ for their country.

Our president is fighting for his survival while the prime minister is bogged down by multiple crises. As for the finance minister he can find the time to travel to Boston and address Harvard students — which clearly reflects on his sense of priorities. Meanwhile, the most powerful person in the country, the army chief, remains India-centric and tactically focused on the Pentagon and the Taliban.

Externally, the western powers are engaged in ‘currency wars’ and have made China and its strong currency the scapegoat for their problems. The drought in Russia, flooding in Canada and parched fields in Kazakhstan and Europe have ruined crops, fueling food price inflation worldwide. Russia and Ukraine, two of the world’s largest producers of wheat, have stopped exporting wheat. Faced with the threat of a supply crunch, India recently increased support prices for wheat and pulses to encourage farmers to grow more.

Many government and even private economists seem to be oblivious of the international context we are operating in. Dr Ashfaq Hassan Khan recently wrote in the The News advocating a freeze in the price of wheat — which is likely to do more harm than good.

The Americans are both begging and threatening the Chinese to devalue their currency to make US exports more competitive. Poverty and inequality in the US are at an all-time high with around half of those currently unemployed out of a job for more than six months. Clearly, we are barking up the wrong tree for a strategic alliance and aid.

The initiative taken by some political parties and groups for the cancellation of Pakistan’s $55 billion of foreign debt is important but unlikely to succeed. But that is just one issue. The two more important ones are taxes on the rich and drastic cuts in military and civilian establishment expenses. We can save about 1.5 per cent of the GDP by making deep cuts in military and civilian expenditures, and by reforming tendering and land auction systems.

It is possible to generate 1.5 per cent of the GDP from taxes on the rich, regardless whether they are urban, rural, landlords or businessmen. Thus we can generate $8-10 billion per annum from debt cancellation, expense savings, and additional taxes or $5billion every year, (excluding debt cancellation).

However, my experience with government officials has convinced me that nobody wants to do anything. The only way to force them is through a mass movement.

Published in The Express Tribune, October 25th, 2010.

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Reader Comments (19)

  • Oct 25, 2010 - 12:48AM

    As long as our poltiicans, bureacrats and generals know that someone else is ready to foot the bill, the structural reforms that are necessary are unlikely to take place. They are not affected by the turmoil that inflicts the vast majority of Pakistani citizens. Electricity doesnt go off in their house, their children dont study in government schools, when their family members are sick the best possible private or state funded facilities are available, and not to mention the izzat they enjoy throwing their weight around.

    A glance out our national statistics paints a dismal picture that no one wants to confront. Everyone gets excited about all the “resources” we have, yet as long as they are not utilized in a sustainable manner their mere presence is pointless. While debt servicing and defence expenditure eat up a massive chunk of our budget, a looming threat to our fiscal position is the size of the pension which continues to grow. Who is going to foot the bill for that 20 years from now?Recommend

  • faraz
    Oct 25, 2010 - 3:39AM

    After the cold war was over, we suddenly lost our “vital strategic importance”. Zionists/CIA simply forgot about the vast resources, trade routes and piplelines than can pass through Pakistan; without the aid or loans our economy grew at 1-2 percent annually. But post 911, we have created a nuissance value that terrorists are located in our backyard which only our army can eliminate! Our “strategists” spare no opportunity of milking the yanks. Recommend

  • Farrukh
    Oct 25, 2010 - 8:27AM

    To the point, crisp, and provocative as usual Mr. NazarRecommend

  • Ishaq Narejo
    Oct 25, 2010 - 2:39PM

    not convincing. Just time killing by reading this. Recommend

  • Meekal Ahmed
    Oct 25, 2010 - 3:01PM

    Yusuf,

    In the light of how smart and able you are, your getting the Chinese currency issue backwards is breathtaking!

    The US does not want China to devalue! It wants China to RE-VALUE. China’s currency is, according to one estimate by the Peterson Institute in Washington, UNDER-VALUED by around 20-30%. I think the IMF’s calculation produces the same degree of under-valuation.

    China does not therefore have a STRONG currency. China has a deliberately WEAK currency which gives it an unfair competitive advantage and leads to large global imbalances.

    Other countries with large balance of payments surpluses also need to re-value their currencies. This would help to correct global imbalances and make global growth more even and self-sustaining.

    China and other surplus countries need to boost domestic demand and slow down the torrid pace of exports.

    The US Treasury Secretary in the recently-concluded G-20 meeting suggested that there should be some sort of a cap on surplus countries — say a surplus not to exceed 4% of GDP. While that side-steps the currency issue, it is unlikely to work.

    The IMF should monitor exchange rate developments and specifically the spill-over effects on other countries. That is what it was set up to do in the first place. It needs to get back to its original mandate. Recommend

  • Sania
    Oct 25, 2010 - 3:31PM

    The problem is our rulers make so much money out of aid that they have no interest in making the country stand on its feet and develop. People are apathetic and chase phantoms. Who will force the rich to pay taxes, reduce deficit and bring inflation under control? Mass movement? We are a timid and gutless bunch of people but yes that is the only way!Recommend

  • Ali Gohar
    Oct 25, 2010 - 3:42PM

    If only the rich start paying taxes and we stop wasting money on the government corruption and its luxuries, we won’t have to borrow so much. This is one of the most important issues but we are so naive that we debate issues like Aafia, supreme court, etc. No wonder Pakistan is such a poor country.Recommend

  • Yousuf Nazar
    Oct 25, 2010 - 4:28PM

    Meekel… I think it is a typo.. of course the US wants China to revalue..that would make US products more competitive as some believe and Chinese exports to the US more expensive

    Best, YousufRecommend

  • Natasha
    Oct 25, 2010 - 4:46PM

    Mr. Nazar, you are right but this country has no hope .. you say a mass movement, we need a revolution here. I hear Pakistan is in a race to become the most corrupt country in the world. Do you think these corrupt rich will pay taxes? Who will bell the cat? We are beyond redemption and political movements. We need a revolution though none is in sight….Recommend

  • Javed Khan
    Oct 26, 2010 - 5:04AM

    what a pity that we are ruled by corrupt and mediocre who can’t think of anything better than to beg and stealRecommend

  • Inayat Sheikh
    Oct 26, 2010 - 10:19AM

    A bankrupt nation can’t fight any war but should focus on the economy but we seem to have lost the ability to voices of reasonRecommend

  • Mohammed Jawad
    Oct 26, 2010 - 10:46AM

    We need to get out of this cycle of fighting wars (jihad in 1980s, kashmir, siachen, kargil in the 1990s, and war on terror since 2001) and wasting money on F16s and nuclear bombs while the rich loot the country and the poor starve. How can we justify lavish spending by the leaders and the generals? It is disappointing that so few voices are raised about what is good for the people and we continue to be bogged down by superficial issuesRecommend

  • Asad Ali
    Oct 26, 2010 - 1:00PM

    We must become more self-reliant economically and generate more revenues. As long as we continue to borrow, we have no choice but to follow uncle sam’s orders even though they may be against our interestsRecommend

  • Naeem Ahmed
    Oct 26, 2010 - 4:02PM

    should we embrace ourselves for another bout of food supply crunch? it is a pity that we have not developed our agriculture.. we should be a big exporter of wheat but we have to be fair to the farmers.Recommend

  • Jehanzeb Malik
    Oct 26, 2010 - 7:55PM

    Yes we are barking up the wrong tree.. as far as people of Pakistan are concerned but the army and govt get money from the US so it works for them.. who cares about the country Mr. Nazar? Recommend

  • narmeen
    Oct 27, 2010 - 6:15AM

    Mr. Yousuf Nazar: you say the local economists seem to be oblivious. That may be right but tell us what choice do we have when highly qualified people choose to live abroad? what have you done for Pakistan which gave you so much?Recommend

  • Meekal Ahmed
    Oct 27, 2010 - 11:28PM

    @Yousaf,

    According to one calculation, a 20% appreciation of the Chinese currency would generate 1 million new jobs in America as its exports become more competitive. There are other estimates floating around.

    I suppose the point is that the impact is not trivial — if all these fancy computer models are to be believed. God knows what kind of elasticities they use.

    To all of you here, Mr Nazar has been offended by my earlier remarks on confusing devaluation with revaluation. I want to make a public apology here to him. I meant no offense; my choice of words was less than optimal and I am profoundly sorry for this indiscretion.

    Mr. Nazar’s calibre as an insightful analyst and the passion he brings to his writing speaks for itself. I have been his admirer for many years after reading his articles and had the pleasure of meeting him in Karachi recently over dinner. Recommend

  • Meekal Ahmed
    Oct 28, 2010 - 1:21AM

    @narmeen,

    Our problem is not that “highly qualified” people have gone abroad.

    Sure, some of our best minds did go off to pastures greener (World Bank, IMF, Asian Bank etc) but even today despite that brain-drain Pakistan still has good policy-makers and good economists. Moreover, our problems are so glaring and so obvious that you really don’t need a hoard of PhD’s pouring over some esoteric, unfathomable econometric model trying to find solutions. There is no magic to raising taxes efficiently and equitable nor in cutting wasteful spending, solving the circular debt issue, restructuring the loss-making public enterprises starting with a 40% cut in their work-force at all levels, reducing inflation, reducing banking spreads, coming down hard on monopolistic, anti-competitive and collusive behavior in the marketplace, cleaning up non-performing loans, giving the State Bank more autonomy, and so on and so forth. You just need a minimum amount of intelligence and a hell of a lot of commitment. Recommend

  • Shazia
    Oct 29, 2010 - 7:23AM

    Narmeen, I agree with you. Ultimately people of calibre and vision can and do make a big difference. Look at India’s top economic planners and compare them with our lot. India too had and does have huge problems. The problem is our governments and politicians can only stomach yes sirs and not independent thinkers. I agree with Mr. Nazar that while the world is looking towards East, we cannot change our US centric mindset.Recommend

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