Zardari stated that it was the PML-N senator Ishaq Dar who had proposed the tax through 15 amendments sent to the National Assembly.
In a detailed reply, President Zardari said that the PML-N should come up with suggestions on how to deal with issues the country was facing at the moment. He said that the PML-N’s reservations with the accountability bill would also be addressed. The PML-N had insisted that the head of the accountability commission should be a sitting judge of the Supreme Court of Pakistan.
The president also said that the government has nothing to do with petroleum prices as they were linked to the international market. He added that an elaborate business plan was being developed for national institutions, such as Pakistan Railways and Pakistan International Airlines (PIA), to make them more profitable.
The PML-N chief had earlier written a letter to the president, extending full support of his party if the government agreed to the PML-N’s agenda.
Following is the text of the President’s letter to Mian Nawaz Sharif:
Islamabad
18th December, 2010
I would like to thank you, once again, for your letter of 10th November 2010. In my interim letter of 16th November 2010, I had assured you of a detailed reply to the issues raised in your letter.
Let me share with you my response.
Pakistan is passing through one of the most critical periods of its history. As heads of the major political parties we share a great burden of responsibility. Our people expect us to put national interests above partisan ones. They want us to act as statesmen and work together. They want us to fulfill their aspirations. We are answerable to our citizens. Indeed, as I said in my annual address to Parliament, we are all answerable to history.
“Divide and rule, the politician cries; unite and lead is watchword of
the wise.” - Johann Wolfgang von Goethe
Our parties share a history of common struggle for democracy, especially in the recent past. In line with her philosophy of reconciliation, Mohtarma Benazir Bhutto Shaheed invited Begum Kulsum Nawaz Sahiba to join the Alliance for the Restoration of Democracy.
The positive response from your side and our collaboration helped the struggle for political freedom in Pakistan.
Honoring BB Shaheed’s legacy, the PPP has continued the politics of reconciliation and inclusion. It was as part of this policy that we invited your party to join a coalition Cabinet. I am pleased to note that senior members of the Pakistan Muslim League (N) were part of the Cabinet when the Pakistan Peoples Party (PPP) formed the government in
2008. Even now we remain partners in government in the Punjab and
continue to work together within and outside the parliament on national issues.
Allow me now to share with you some of the serious challenges facing our country and our attempts to deal with them.
Militancy and extremism pose the greatest threat to our national security. Our citizens have been targeted. Our troops attacked. Our resources diverted. Our economy hurt. We continue to pay a price in terms of lives, image, and money. However, it is important that our resolve is not weakened. We must remain determined to rid our society of this menace. We must fight to the finish. We will follow a policy of dialogue, deterrence and development. Make peace with those who abandon violence. But use force against those who challenge the writ of the State. In this struggle, let me acknowledge the courage, and resilience displayed by our brave soldiers and police, and above all, the people of our country.
Forging a national consensus on the war against militancy has been a significant achievement of our government. This consensus contributed to the restoration of the government’s writ – and subsequent peace – in the Malakand region. We successfully provided relief to 2.5 million IDPs who were re-settled in their homes in just four months.
As you know, our country has been struck by the worst floods of our history. 20 million people have been affected. An area the size of UK has been inundated. Millions of acres of standing crops have been destroyed; 1.6 million homes damaged. The losses have been estimated at over ten billion dollars. This human and economic catastrophe has disrupted our government’s efforts to stabilize the economy and slowed our plans to bring prosperity to our people. In the face of this unprecedented challenge the government has tried to marshal all resources.
All Federal agencies, including the armed forces, the NDMA, the related ministries were mobilized. An international campaign was launched through the UN system and bilateral governments to secure support. Coordination with the Provincial governments was undertaken through the NDMC, the CCI, and other fora. The combined efforts led to the minimization of casualties, prevented the outbreak of disease and helped with successful rescue and relief on an unprecedented scale.
The federal government has taken the lead – and with cooperation of the provincial governments — in providing support of up to Rs 100,000 per affected family. This citizens’ damage compensation program has been launched through a transparent Watan card mechanism. This has been widely hailed as a model, combining the use of modern technology with local commitment, for transfer of cash to the affectees. About Rs 25 billion have already been distributed in the first phase.
The government has also adopted a program for providing free seed and fertilizer and subsidized credit to the affected farmers to help them in rebuilding their livelihoods and ensuring high levels of production in the coming crop season.
Let me now highlight two landmark achievements of our government, in which the collaboration of our two parties is most manifest. These two achievements are: the restoration of the Constitution to its original purity and the empowerment of the provinces.
The 1973 Constitution remains the symbol of national unity. It was Shaheed Zulfiqar Ali Bhutto’s legacy and reflects the will of the entire nation for the rule of law and democracy. It now stands restored through the passage of the eighteenth amendment.
We have also taken historic steps to transfer greater power and resources to the provinces. Functions and Ministries have been devolved from the center to the provinces. The share of the provinces in the divisible pool has been increased from 50 percent to 57.5 percent. In this fiscal year alone three hundred billion extra rupees are likely to be received by the provinces. The foundations of a new Pakistan – more just, more equitable, more harmonious — have been laid.
We have moved concretely to resolve some outstanding issues related to smaller provinces and regions and to give them a full sense of inclusion in national affairs. We have publicly apologized to the people of Baluchistan for their grievances. Our Government has followed up with tangible constitutional, political, administrative and economic reforms under the package, Aghaz-e-Haqooq-e-Baluchistan.
Our party’s policy of extending political rights and inclusiveness is reflected in the grant of political representation for the first time to the people of Gilgit-Baltistan. The same spirit led us to promulgate the Political Parties Order into FATA, thus giving the tribal areas greater flexibility in self determination.
The empowerment and emancipation of women was central to BB Shaheed’s philosophy. Our Government’s programs reflect this thinking. The Benazir Income Support Program and Behan Benazir Basti Program are platforms for poverty alleviation focused entirely on women in a way, manner and to an extent that was never seen before.
We have also taken steps to improve the welfare of our workers and given them a stake in the state enterprises. Thus, the worker who toils day and night to ensure that profits are earned is no longer forgotten. The Benazir Employees Stock Option Scheme gives the labourer a 12.5 share in the state enterprise where he is employed. To increase the purchasing power of the workers the Government has raised the minimum wage to Rs.7000 and adopted other welfare enhancing measures.
I now turn to the biggest challenges facing us — that of a burgeoning young population, economic stabilization and turnaround.
Let me share with you our efforts, the results achieved, and the collective response required to fully succeed in meeting the economic challenges.
As you well know the economic situation in March 2008, was precarious:
the country was faced with a soaring fiscal deficit; GDP growth had slowed down; foreign exchange reserves were under pressure; the current account deficit was out of control; government borrowing from the State Bank was aggravating inflation. The bleak economic scenario then prevailing was effectively articulated by the first Finance Minister of the coalition government, Senator Ishaq Dar. In his analysis of the situation, Senator Dar had also, correctly, pointed out that policy lapses, including the non-adjustment of prices of imported oil by the previous government were largely responsible for this inherited situation.
The seeds of our economic difficulties can be traced to financial year
2005 when inflationary pressures began to surface. The high growth during the middle years of the present decade was based on external flows, a loose monetary policy and an artificially depressed exchange rate. After the oil price shocks the prices of energy were not rationalized, the fiscal extravagance continued and no serious structural reforms were undertaken. In short, we inherited a dismal economic situation. We had hoped to jointly find a way out of this situation. However, after your leaving the government in the Center, we and our other coalition partners have been left to address the economic challenges facing the country.
Given the worsening crisis, our government exercised the timely option of approaching the IMF and negotiated a Standby Arrangement in November, 2008. This move arrested the imminent slide and moved the tangible economy towards stability. Clear signs of recovery became noticeable when growth recovered to 4.1% in 2009 -10. Foreign exchange reserves which stood at $4 billion when we assumed office today have crossed the $17 billion mark. Remittances have increased to $9 billion from $5.5 billion in 2007. We were targeting a growth rate of 4.5% in 2010 -11. However, the untimely floods have slowed our country’s economic recovery.
Inflation, as you mentioned in your letter, is of equal concern to our Government. Inflation affects the well being of our citizens, specially the most vulnerable groups. The main reason for inflation, as you surely know, is the gap between our revenues and our expenditures. This financing gap is met through borrowings from the domestic markets which raise the rate of interest- the cost of borrowing-thus causing inflation.
In one sense, therefore, an unsustainable fiscal deficit is the main reason for our inflation. There are only two possible ways of reducing the fiscal deficit through cutting expenditures and increasing revenues. It is because of our serious desire to combat inflation, that we have taken significant steps in order to minimize spending and maximize revenue collection.
On the expenditure side the Federal Government has moved aggressively to cut costs. In the budget the Government has curtailed its non-salary current expenditures at the last year’s level. The expenditures of the Aiwan-e-Sadr and Prime Minister’s Secretariat have also been included in this cut. On the PSDP we have also taken bold steps to bring down the size by over 100 billion rupees and rationalize the project portfolio. We are also undertaking a rigorous review of all expenditures to identify further reductions in federal expenditures.
We would expect the Provincial Governments, who have been the beneficiaries of the NFC award to show similar discipline and adopt cost-cutting measures so that the national fiscal deficit is brought close to the target level of 4.7% of the GDP. While realizing the trend of inflation and price hike, the Prime Minister has also addressed a letter (copy enclosed) to all Provinces which are best placed to take appropriate steps to control prices, and they must play their due role.
I hope you recall that our efforts to contain fiscal deficit were stalled in FY 2008-09 when the Punjab Government resorted to excessive borrowing from the State Bank. In a spirit of cooperation, our government condoned this lapse and converted the temporary borrowing into a long term loan to ease the fiscal pressures of the Punjab Government. Our government also assisted the Government of the Punjab by allowing the use of borrowed money and investing Rs 10 billion in the Bank of Punjab which otherwise would have been in acute financial distress. In a further effort to assist the Punjab Government, the Federal Government picked up the cost of excess wheat procured by the Punjab Government and injected Rs 12 billion into the Punjab exchequer. These measures, though adding to the national fiscal difficulties have helped the Punjab, financially. However, given our commitment to austerity in the larger public interest, we would be looking at the Punjab, and the other provinces to pursue a policy of financial restraint.
A historic failure of our country has been the inability to mobilize domestic resources. This has made us dependent on foreign assistance.
Low tax base has also compromised our ability to provide services such as health, education, drinking water and law and order to our people.
We are therefore determined to tackle this issue to reduce the fiscal deficit and fight inflation. In this year’s budget the government levied a tax on equities (stocks) for the first time in our history.
The General Sales Tax Bill 2010 has been introduced in the parliament to revive the process of GST Reform that was stalled for a number of years.
Our Government shares your keen desire for a more transparent economy.
A strong motivation for the reform of the GST is precisely to address your concerns about transparency. It will document the ability of every citizen to pay tax thereby minimizing evasion. This tax, however, will not be applicable to basic food items, health and education sectors, a move clearly designed to assist the common man.
The establishment of the Inland Revenue Service where all taxation will be under one administrative umbrella will complement tax collection and the documentation process. The FBR has also introduced a centralized cheques issuing system for payment of refunds to eliminate corruption. You will be pleased to know that in the last 3 months alone – cheques have been issued in the amount of Rs eleven billion with zero corruption. These measures are the gateway to systemic reform and transparency.
Detailed negotiations were held with the provinces to secure their
support for GST Reform. After the agreement of all the provinces,
the reformed GST Bill 2010 was tabled in the Senate. We were happy to note that your party’s representative in the Senate Standing Committee on Finance and Revenue, Senator Ishaq Dar, along with all the Senators representing all the major political parties – ANP, MQM, PML-Q, JI and Independents – unanimously recommended the RGST law along with 15 minor amendments. The Senate adopted those recommendations along with the Bill, and referred it to the National Assembly. We also hoped for your support in the National Assembly for the passage of this important reform measure.
The coalition government is committed to pursuing an economic reform agenda of stabilization with structural reforms while protecting the poor. I am happy to note that you support the reform of Public Sector Enterprises (PSEs) mentioned by the Finance Minister in his budget speech. A Cabinet Committee on Restructuring of PSE’s has already been formed and a comprehensive plan for restructuring of the power sector companies has been launched with the aim of bringing private sector into the management of the distribution companies. This would bring a saving in excess of Rs. 250 billion in the financial year 2011-12. A restructuring plan of Pakistan Railways has also been approved and work initiated to convert Pakistan Railways over a period of 3-4 years into a profitable organization. Business plans are under preparation for all other loss making PSEs like Pakistan Steel Mills, Pakistan International Airlines, Trading Corporation of Pakistan and Utility Stores Corporation, with a time frame of 4-6 months for implementation. We would be grateful if your party facilitates the government in its restructuring plans for these entities, and extends support to our policy to promote public private partnerships to protect Pakistan’s national interest.
The coalition government is pursing a policy of elimination of general subsidies which tend to benefit the rich more than the poor, and replace these with targeted subsidies for the poor and vulnerable communities alone. The Benazir Income Support Programme has been internationally recognized as a flagship poverty alleviation program with targeted subsidies to the poor. 50 billion Rupees have been budgeted to benefit the targeted poor, under this programme. Support to the poor and lower middle class, extended through multiple platforms like Zakat and Ushr, Bait-ul-Mal and micro-finance credit schemes also remain in place.
Steps have also been initiated by the coalition government to help the middle class by raising the exemption limit of income tax to Rs.
300,000 per annum. This has directly benefitted 780,000 middle class individuals and over 4 million of their family members. Our government’s decision to increase the salaries of the armed forces and law enforcement agencies by 100% directly benefitted over 1 million individuals and over 5 million of their family members. Similarly, our decision to increase the salaries of federal employees by 50% directly benefitted 600,000 individuals and around 3 million of their family members.
The government also moved to benefit the majority of our people in the country side by correcting the procurement prices of wheat and bringing it to Rs 950 per 40 Kg. This move has brought prosperity in large parts of our country and helped the farmers. This policy also led Pakistan to a record production of 24 million tons of wheat and the potential to become a net exporter for the first time in six years. Currently Pakistan has sufficient stocks of almost 9 million tons of wheat. Similarly, the intervention price introduced for rice led to an increase in rice production from 5.5 million to 6.9 million in just one year. Cotton production increased as well from 11.6 million to 11.8 million bales. Therefore, it is clear that all agricultural indicators and the consequent boom in the rural economy have vindicated our original stance despite your party’s skepticism.
Industrial growth, in recent times, has been hampered largely by the energy crisis. Our view is that the seeds of Pakistan’s current energy deficit were sown in the aftermath of BB Shaheed’s second term in power. The PPP led government of the time introduced a prescient power policy which added 5653 MW to the national grid in a record span of three years. The IPPs were given terms that ensured that the Government of Pakistan would be procuring energy from them at a uniform rate of 6.5 cents per KW – a price that would be locked in for a period of 20 years – compared to 18 cents per KW today. The failure of successive governments after the dismissal of ours to attract investment in this sector has created a supply shortage that will take time to clear. Today, unfortunately, there is no magic wand that can be waved to restore investors’ confidence and remove the deficit of 15 years, overnight.
It was also BB Shaheed’s foresight that her government arranged in the 1990s, international funding and initiated work on a major hydel project, Ghazi Barotha. Had the democratic process been allowed to complete its natural course, Pakistan would have certainly been a beneficiary today.
We believe that a more balanced energy mix is essential for Pakistan’s future. Therefore, we are vigorously pursuing alternate sources of energy including the Thar Coal gasification project, the completion of the Diamer Bhasha Dam, and for the first time in our country’s history
– wind power production. The last PPP government had laid the foundations of a new regional energy policy. During my recent visit to Turkmenistan, we signed the historic Turkish-Afghanistan-Pakistan-India gas pipeline which has cemented the future energy corridors for the region.
I do share your concern for the increase in POL and electricity prices. But we need to appreciate that POL prices in Pakistan are linked directly to international market prices, and are free of Government interference. A subsidy can only lead to the fiscal indiscipline that Mr. Dar referred to as Finance Minister, and will contribute to inflation indirectly by increasing the fiscal deficit.
On the issues of accountability and transparency, the sincerity of the Government can be judged by our appointment – for the first time ever
- of the Leader of the Opposition as Chairman of the Public Accounts Committee in the National Assembly. I hope that the Leader of the Opposition has apprised you of all the support and cooperation that the Government extends to his office. We are also fulfilling our constitutional obligation to ensure oversight of public finances by strengthening the office of the Auditor General.
In regard to your concerns about the delay in the passing of the Ehtesab Bill, let me point out that a Bill to repeal the National Accountability Ordinance 1999 and to enact new law of accountability was introduced in the National Assembly in April, 2009. The Bill was discussed by the Committee in more than thirty meetings after it was tabled in the National Assembly. A Report of the Committee was submitted in the National Assembly. However, members of the PML (N) protested on the grounds that their amendments had not been fully incorporated in the proposed law, as was reported by the Committee. In this backdrop, the Chairperson of the Standing Committee decided to reconsider the Bill and to deliberate upon the outstanding issues arising out of the dissenting note of PML (N) members. It is hoped that the matter will be resolved in one or two sittings of the Committee to enable the submission of a final report.
As I mentioned at the outset of my letter, we believe that a serious challenge facing Pakistan today is the menace of terrorism and extremism. It is tearing apart the fabric of our society and hindering progress and prosperity. I would be glad to hear your views and recommendations in dealing with this issue.
Let me conclude by expressing my deep gratitude to you for sharing your concerns as head of a political party that is in government in our largest province. The Pakistan Peoples Party has always maintained that you could have played a more effective role as an elected Member of Parliament and that we would have benefited from your guidance more frequently as is the norm in a parliamentary system.
Reconciliation remains the guiding policy of our Party. And it is in this spirit that I once again extend a hand to you and your party to work with the Government on its reform agenda in the collective national and democratic interest. I propose that you nominate representatives from amongst your senior leadership to carry this dialogue forward so that we can jointly take the difficult decisions required to take our country forward.
I look forward to our continuing cooperation.
With profound regards,
Yours Sincerely,
(ASIF ALI ZARDARI)
Mian Muhammad Nawaz Sharif
Quaid, Pakistan Muslim League (N),
Jati Umra, Raiwind Road,
Lahore.
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