Politics of references

WE seem to be living through an era of references. It began with the March 9 episode which has changed the country’s political landscape. Then there was a reference initiated by the MQM against Mr Imran Khan which has since been filed with the Speaker of the National Assembly. It focuses on the PTI chief’s personal life and was provoked by the cricketer-turned-politician’s crusade in London against MQM chief Altaf Hussain following the May 12 carnage in Karachi. Then Parliamentary Affairs Minister Sher Afgan Niazi, too, has filed his own reference against the PTI chief on the same ground. On Thursday, the opposition in the National Assembly filed a reference against Mr Shaukat Aziz seeking the prime minister’s disqualification on two counts — his alleged role in the 2005 stock market crash and last year’s privatisation of Pakistan Steel, a move that was later rescinded. After the two-page reference, signed by 31 MNAs, had been filed with the Speaker, the opposition said it intended to move more such references against government leaders to start a process of accountability of their own.

As with many other things, so here, too, one can see plenty of flippancy. A reference against a member of parliament is a serious matter. If the MQM move against the PTI chief was a mistake, an opposition reference against the prime minister only replicates the MQM overreaction and does not promote the opposition’s cause or that of accountability. In fact, the belated reference against Mr Shaukat Aziz shows the opposition’s failure to come up with a riposte well in time and betrays its animus against the government in trouble rather than any other concern. As is obvious, the reference against the prime minister two years after the stock market crash is not going to upset the government’s apple cart. The presidential reference against the Chief Justice is not a trivial affair. Its seriousness can be gauged from its fallout. The backlash by the legal community and the media’s coverage of all that followed has rocked the government and put the issue of judicial independence in the forefront. However, the three references — the two against Mr Khan and the one against the prime minister — seem to have trivialised the concept of a reference at a time when the nation is going through one of its worst crises since the 1999 military intervention. By copying the government in the reference business, the opposition seems to be giving an impression as if it has run out of ideas. In any case, the prime minister’s disqualification — if at all it takes place — will, like Mr Khan’s unseating from parliament towards the close of the National Assembly’s five-year term, make little difference to the political situation.

One wonders why our politicians choose to ignore the many economic and social problems Pakistan faces and instead focus on trivial issues. The government ally’s reference against Mr Khan is as much devoid of political fecundity as the opposition’s move against the prime minister. While the government does not lose if it gives itself the liberty of trapping its enemies in non-issues, the opposition must not let itself be confused and, instead, focus on the one issue foremost in the people’s minds — a fair and free general election as early as possible.

Balochistan finances

THE provincial budget for the fiscal year 2007-08 presented to the Balochistan assembly on Thursday is a grim document. With a total outlay of just over Rs63 billion, as compared to the outgoing fiscal year’s Rs59.69bn, the budget earmarks a measly Rs13.35bn for the Public Sector Development Programme. But the PSDP remains unfunded to the tune of over Rs10bn, an amount that matches the province’s sum total of fiscal deficit in 2007-08. Consequently, in the incoming fiscal year Balochistan will have to count wholly on foreign assistance and handouts from Islamabad to meet any of its on-going development needs. No new development schemes are envisaged in a province groaning under abject poverty, long-standing political grievances and massive underdevelopment. In this context, the provincial finance minister’s repeated references in his budget speech to development schemes launched in the province by the federal government meant little break from the past. The Gwadar port, related facilities and development of road networks by the federal government could at best benefit the people of the coastal region. This leaves those inhabiting the rest of the province high and dry, and certainly adds no additional revenue to the squeezed provincial exchequer.

Balochistan’s financial woes remain unredeemed, as the province’s internal debt burden keeps multiplying year after year. All this, while the federal government extracts no less than an estimated Rs78bn annually from Balochistan’s oilfields alone. The revenue accrued to Islamabad from the province’s sizable mineral deposits, of which copper is the latest exploit, is in addition to that. Such factors add to the Baloch people’s sense of deprivation and fan nationalist sentiments, resulting in unrest in volatile pockets from time to time. In an election year, there is all the more reason for the federal government to step in and bail out the impoverished province. This should be done by writing off Balochistan’s debt and injecting more funds into its dismal social sector, where the province continues to make miserable statistics, lagging far behind the rest of the country. Left to its own poor revenue base, Balochistan can neither retire its debt nor fund the social sector in any meaningful way.

The AJK budget

THE Azad Jammu & Kashmir budget presented in the State’s legislative assembly by Finance Minister Raja Nisar Ahmed on Thursday has a total outlay of Rs25.32 billion, 27 per cent higher than the outgoing year’s Rs19.93bn. This is the first budget of the current legislative assembly but second after the October 8, 2005, deadly earthquake, and coincides with the second phase of reconstruction activities. It would, thus, get Rs20bn — instead of Rs30bn this year — separately through the Earthquake Reconstruction and Rehabilitation Authority (Erra) for rebuilding the state’s devastated infrastructure. The budget offers Rs7.8bn development schemes compared with a hefty Rs17.5bn non-development expenditure. Apart from that, the federal government would be implementing a few big projects worth Rs34bn in Azad Kashmir, including the Rs20bn Mangla dam-raising project and the Rs10bn Neelum-Jhelum Hydropower Project. The sixth consecutive budget of the ruling Muslim Conference offers nothing new, not even an increase in salaries and pensions announced by the federal government and adopted by the four provinces.

The centre would extend advances to the state government to meet its Rs5.23bn deficit. The state should talk to the centre to have its share in the hydropower profit of Mangla dam, like the NWFP, instead of relying on the meagre Rs663 million water use charges and ‘ways and means advances’. A few initiatives towards the development of hydropower resources would go a long way towards the state’s enhanced contribution to the national economy and in return yield higher revenues for its development. The master plan for Muzaffarabad was ready for implementation with a total cost of Rs18bn. It is to be seen if Erra’s slogan of ‘build back better’ becomes a reality by the end of the entire operation to regain people’s confidence shattered by the devastating earthquake about 21 months ago.

Ten things this budget ignored

EVERY year in Islamabad, even the most lacklustre parliament comes alive during the budget session. This time, no one, particularly the treasury benches, seemed to care. Budget 2007-08, like the last five presented by the regime, once again bases its unmet targets on a small elite of Pakistani society.

Even after five years of public fury at high inflation and joblessness, there is clearly no understanding of the social unrest that this kind of model has unleashed in Pakistan. Why? Because this is a supply-side model where growth is based solely on benefits trickling down, and for this model to deliver effectively in a developing country one needs 10-11 per cent growth at a bare minimum.

Yet in Pakistan no European-style social nets or American-type domestic protection for farmers cushion the shocks intrinsic to this local variant.

Growth is always a good objective but it needs to be structurally balanced in emerging markets like Pakistan. Yet, the bottom line today is that macroeconomic fundamentals remain weak because Pakistan’s growth is driven largely by household consumption at 7.8 per cent of GDP. High growth in consumer sectors disguises dangerous red lines in poverty and low manufacturing growth.

The 74 per cent who now live below two dollars a day, as per World Bank statistics, have been largely ignored except in piecemeal pockets of “relief” which represent sops for a tiny fraction, but ignore a sea of the vulnerable and the socially excluded.

To prevent Pakistan from sliding into more chaos, to lower the stresses of an unemployed, under-educated population, where regional and income inequalities spark further political unrest, the regime should have focused on the following 10 items.

One, public money should have been better utilised and targeted at higher social spending. As it stands, the Public Sector Development Programme at Rs520 billion is illusory. Not only does the real PSDP stand at Rs427 billion, when foreign loans are deducted, but 86 per cent will go to on-going projects. This leaves only 14 per cent for urgent social investments.

At the same time, the governance of PSDP is so poor that 100 projects stand cancelled by the Asian Development Bank. Education and health continue to be neglected by the regime and get an embarrassingly low allocation of Rs24 billion and five billion rupees respectively. Spending should have gone up to 4.5 per cent and four per cent GDP respectively. Although this is old news, Bangladesh performs better on education than we do.

Second, the defence budget of Rs275 billion should have undergone parliamentary audit. If just military pensions worth Rs37.7 billion are added on, leaving out other assorted military items hidden in the civilian budget, the final figure is way above Rs312 billion.

Given that defence spending makes up more than half the amount allocated for development expenditure and got a boost of 10 per cent this year, it should have been discussed in the defence committee of parliament, as in India and other democracies. Under the circumstances, where the treasury benches are beholden to a general for their seats in parliament, there is no prospect of public accountability or transparency, let alone asking what happened to the Rs60 billion from the US Pentagon.

Thirdly, the windfalls from September 11, namely $ 35 billion, should have been used more prudently, preferably to fuel infrastructure and retire public debt. Instead, the fiscal space gained from remittance and aid inflows has gone into profligate spending.

Right now the country’s foreign reserves of $13 billion don’t amount to receipts for 18 weeks of imports, which given the current balance of payments, takes us back to the same situation as 2001 where lower forex reserves covered the same few weeks of imports. Current account expenditures account for 66 per cent of the entire budget of Rs1.8 trillion, so growth is more illusory than it seems. There is no explanation for why we still borrow $38 billion from external sources when the regime claims we have broken the begging bowl, affectionately known as the “expanding kashkol” in the National Assembly. Balance of payment deficits have grown from $1.4 billion in 2000 to $6.1 billion.

Four, deficit financing should have been used less and less as an instrument of policy. It fuels inflation and crowds out private investment, while jacking up interest rates and pushing up production costs. Right now, almost half the budget deficit is funded through bank borrowing, which the State Bank has warned against. Nobody from the treasury is willing to answer why the current account deficit is expected to be around five per cent of GDP at $7.1 billion.

Five, the dangerously high trade deficit — a constant peril to the stability of the economy — should have been lowered. Despite a record trade gap of $12 billion, up from $1.7 billion in 2000, increased foreign direct investment and workers’ remittances are expected to bridge the gap. The latter may persist after 9/11, but given the collapse of law and order today, such supply-driven factors cannot plug black holes in the economy.

Instead, a proactive diversification and higher value addition of Pakistan’s export base should have been pushed to maximise receipts. It goes against the elitist grain of this government, but the import of luxury items should have been reduced by taxing high-end consumer durables. This item jacks up the import bill by $2.04 billion out of a large tab of $27 billion. This way consumption would not have outstripped domestic production by such large margins.

Six, immediate relief should have been given to the growing number of Pakistanis living below the poverty line. Yet, out of the Rs113.9 billion allotted to subsidies, only Rs2.45 billion go to stabilise the prices of essential items. Food inflation still teeters between 10 and 14 per cent and represents a real threat to the inelastic incomes of the growing poor. The subsidies on food provide relief only at two rupees per head, while an obscene Rs98 billion funds the inefficiencies of Wapda, KESC and others.

Fiscal policy should also have been used to stem tragic levels of unprecedented financial destitution due to which more than one suicide takes place per day. At present, 60 per cent of the regime’s total tax revenue for 2007-8 is based on taxes on items like petroleum, sugar, edible oils and packaged milk and meat, as well as other essential items which burden the poor.

No new taxes on capital gains related to real estate transactions or the stock market have been imposed. The Economic Survey admits that the top 20 per cent gets 400 per cent more than the bottom 20 per cent.

Seven, private investment and job creation merit serious allocations to infrastructure and peace. But political instability has driven away private capital. On May 12 alone, the CBR admitted to losing over three billion rupees plus worth of sales tax in Karachi.

Other factors that cripple investment include the paralysing power deficit. Today, Pakistan needs an additional 8,000-10,000MWs by 2010 to meet energy demands. The present government has not added a single MW beyond the PPP government-commissioned Ghazi Barotha (1,450MW) hydroelectric power project, which went online in 2004. More investments in coal, thermal, solar and wind energy would have added surpluses for the economy to resume its growth.

The MOU signed by the PPP government for the Thar coal project should have been revived long ago. This alone can yield 5,000MW of power and 200,000 jobs. Large scale investments in industry including foreign direct investment cannot move without cheap and reliable electricity. Job creation, the knowledge economy, higher manufacturing and exports, lower inflation and a stronger rupee, all need energy.

Eight, as the largest employer, agriculture merited policy attention. Banks and financial institutions should have been mandated to reserve a percentage of credit for farmers for buying inputs. Focus on farm to market roads, higher investments in water management and food processing units per district would boost employment and higher value addition to this sector. Despite critical desertification and dwindling glacier melt, no allocations were made for water conservation. The destitution in the rural sector should have been addressed by initiating a rural employment programme, as successfully adopted in India.

Nine, regional inequalities should have been brought down by devolving sales tax to the provinces. Today, the government’s failure to announce an NFC award before the budget has created dangerous strains in the federation.

Under the interim NFC award, the provincial share in net proceeds of the divisible pool is 42.5 per cent, while the centre retains a major chunk of resources worth 57.5 per cent. Instead of delaying the award since 2002, a fair distribution of national resources based on more than population criteria was needed.

At the same time, the natural gas and royalty formula of the 1973 Constitution should have been applied immediately in order to stabilise the pressures emanating from the NWFP and Balochistan.

Lastly, to show some commitment to the financial austerity so badly needed to curb deficits, non-development expenditures should have been slashed. But the regime’s priorities reflect no concern for public opinion or institutional accountability.President House expenditures have gone up by Rs25 million to over Rs316 million. The National Accountability Bureau, which was established to hound political rivals of the regime, has nothing to show for its lavish spending. Its expenditures, too, have gone up in this budget to an astronomical Rs2.4 million a day at Rs897 million.

In contrast, the ministry of law, justice and human rights is set to spend only Rs179 million. But then we all know how the Supreme Court Chief Justice’s extra car burdened the economy, don’t we?

The writer is a member of the National Assembly and central information secretary of the Pakistan People’s Party.