‘Kashkol’ and the Constitution

Mian Sharif has come out with a proposal, wants the constitution to be amended to break the ‘kashkol’ (begging bowl).

In the backdrop of the recent crisis, Mian Nawaz Sharif has come out with a fantastic proposal: he wants the constitution to be amended to break the ‘kashkol’ (begging bowl). His truck with the kashkol is as old as his ascendency to the executive power of the country. The Qarz Utaro, Mulk Sanwaro scheme in the 1990s was a voluntary attempt to get rid of the ‘kashkol’. The National Debt Retirement Programme (NDRP), as it was called in English, was launched in February 1997, as a special vehicle to mobilise expat Pakistanis to help reduce the mounting external debt burden. It was inspired by the stories about the enormous wealth accumulated by the Pakistanis abroad and their concern about the economic plight of their home country.

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 7^th, 2011.