Discounting what the detractors said at the time (and continue to say) for political point-scoring, the scheme was naive in its conception and infinitesimal in its contribution to debt retirement. Before the launch of the scheme, it did not occur to its proponents that domestic debt is much more expensive than the external debt. At the end of the day, around Rs2 billion were collected. The total debt of the country in 1997-98 was Rs2,672 billion, more than half of it external. An amount of Rs1.7 billion mobilised under the scheme was used to retire domestic debt, which then stood at Rs1,176 billion. To say that that it enabled the retirement of the most expensive part of domestic debt carrying an interest rate of 17.3 per cent, is neither here nor there. The ‘kashkol’ rhetoric was about external debt and our dependence on others; a question of self-respect. As some defunct economists used to say about domestic debt, we owe it to ourselves. It does not compromise national sovereignty.
More recently, Nawaz Sharif has been blowing hot and cold about foreign aid. This stand was taken after the passage of the Eighteenth Amendment, for which the PML-N takes its due credit. Apparently, things were not thought through when the amendment was being deliberated upon. The amendment takes the unprecedented step of permitting the provinces to ‘raise domestic or international loan, or give guarantees on the security of the Provincial Consolidated Fund, within such limits, as may be specified by the National Economic Council. Now the elder Sharif wants to undo this amendment and move further away by amending the constitution to get rid of foreign aid.
If amendments and laws could achieve economic independence, then the Fiscal Responsibility and Debt Limitation Act should have done it by now. The law requires that the total public debt should be no more than 60 per cent of the GDP by June 30, 2013, and less than that in the following years. The goal is to reduce the debt by 2.5 per cent of GDP every year. Failure to do so, requires the finance minister to specify the reasons for departure from the path of debt reduction, the measures the government intends to take to return to that path and the period of time required to do so. A continuous failure to comply can lead to measures “including the curtailment of the sums authorised to be paid and applied from, and out of, the Federal Consolidated Fund to return to the debt reduction path latest by the end of the next two financial years”. Legislators who fail to checkmate the government in terms of this law are no more likely to enforce a constitutional amendment. From being 56.4 per cent of GDP in 2006-07, Pakistan’s total debt rose sharply to 61.4 in 2009-10. One is not aware whether the PML-N held the government accountable in the Parliament for breaching this law.
Economic sovereignty can be achieved only through serious economic management, involving the revival of the economy and at least a doubling of the current tax-to-GDP ratio in a reasonable period of time. Unfortunately, the political class is united in its opposition to raising new taxes. No wonder, the ‘kashkol’ has high life expectancy.
Published in The Express Tribune, October 7th, 2011.
COMMENTS (5)
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During the height of external payment crisis India's leading commercial bank SBI came up with a bond issue, to shore up Indias .foreign exchage reserves so that it doesnot fail to repay IMF / prepay IMF, for USD 2.0 billion and it was subscribed to USD 5.0 billion. It is really surprising to know that the citizens of Pakistan contributed only Rs. 2.0 bil, that too for an emotive issue, at the time of national crisis. This means either the citizens are not interested welfare of the nation or the product was not rightly placed in the market. Either way it only shows that the stakeholders need to be more serious
The article is without any substance. As a professional, Dr. Pervez should discuss if it is possible to break the Kashkol by developing a new strategy of development and debt management, and then spell out the salient features of such a strategy, for the readers to discuss and decide. . .
In 1970s one of the persicuted minority group in Pakistan complained to the then Head of the State about their treatment and asked him to protect them. The answer they got was wait untll you will be holding a Kashkol. That was long time ago but to-day Kashkol has become the most importent part of the daily life in PakistanExcellent PT and you have a good memory. Keep eating those "badaam's" and drink milk.
I love the phrase "defunct" economists! But let is not pick on them needlessly. There are many defunct species in Paki-land.
Your last paragraph says it all. These are all political gimmicks aimed at earning cheap popularity. They are completely without merit or consequence. I have always wondered whether we are an evil people by nature. Who is the person (s) that comes up with these half-baked, hair-brained "ideas"? Who are the morons that fall for it?
And it not that it stops after we have been humiliated. We just come up with some new half-cocked "idea".
I mean you would think that after the Yellow Cabs actually bankrupted the nation and sent us scurrying off to the IMF we would never mention the words again. But NS, later mercifully out of a job, vowed to launch a projet of yellow tractors when he returned and BB chipped in with green one's.
And of course we have the Yellow Cab scheme back in the Punjab. To create jobs, I am told @ how many lacks per person? Is this the only way we can create jobs? Why not employ people to pick up trash? Paint schools and hospitals?
No forget it. They will probably dilute the paint. Bad idea.
With elections looming you can say good-bye to even the 8.6% tax-to-GDP ratio that we hit in 2010-11. Now prepare for more tax cuts, another hefty salary increase and other election-related goodies. And inflation and the fixed-income groups and the poor be damned.
This Kashkol rhetoric is nothing but populism taking advantage of an emotive electorate. It all sounds good, but the problem is not debt itself but how the money is used. The bigger problem in Pakistan is rampant tax evasion and avoidance of paying bills etc, that neccesitates the debt. The constitution requires those in certain income brackets to pay taxes, how about enforcing the law?