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Posts Tagged ‘Economy’

The Weekly Pah-kee-stuhn Musings

NYT/AP. Gilani: I should just Expecto Patronum all of you! All of you! Kayani: Oh God.

The problem with blogging about Pakistan is that there’s no dearth of topics and issues to write about. Turning on the television hits you with drama, intrigue, and conspiracy theories as caricatures scream in vain and to no one in particular.

And that’s just on our news channels.

Rather than be overwhelmed by the multitude of things I could write about, and hence, um, not actually write anything, I decided to spare you the excuses and just package them as a list. With a bow. And a rainbow. You’re welcome.

1. Gilani went all Jadoogar on the military. If you don’t know why Harry Potter should be jealous of Gilani Sahib, check out this past post. This week, media outlets and Twitter feeds alike were abuzz after Prime Minister Gilani fired Pakistan’s Defense Secretary [retired] General Lodhi. (Poof! He was gone. Jadoogar! Ooh!) According to media outlets, the controversy resulted from Lodhi’s statements during his Memogate investigation, claiming the Ministry of Defense (MOD) had no control over the ISI or Pakistan military.

Not surprisingly, coup rumors were abound after said news went public, as the Express Tribune reported Gilani allegedly made a “panicky” phone call to a British diplomat to support the PPP government. The British Foreign Secretary appealed for calm today, urging that all parties respect “the constitution and help ensure stability.” So military coup in the making? The jury’s still out, but I highly doubt it given the proximity (hopefully) to elections as well as the military’s own capacity to perform a coup. Al Jazeera English quoted analyst Moeed Pirzada who further iterated, “The Pakistani military is not the political player it used to be. It knows it’s not in a position to capture political power in Islamabad … not with the Supreme Court being the biggest impediment.”

But why such a high octave of rumors now? There are obviously many reasons, but one factor [purposefully?] upping the notch is…

2. The controversy known as #Memogate. Gah. I recently wrote about the first iteration of the Memogate scandal here, when Pakistani-American businessman Mansoor Ijaz alleged that he was asked by [now former] Amb. Haqqani to pass a memo to former chairman of the U.S. Joint Chiefs of Staff Adm. Mike Mullen, asking for help in reigning in Pakistan’s military establishment. The military, particularly COAS Kayani & ISI chief Pasha claim there is truth to the document & urged the judiciary to investigate its origins. Gilani claimed that Kayani & Pasha were violating the Constitution by submitting statements to the Supreme Court. ISPR responded by calling Gilani’s statements false and could have “very serious ramifications.” Gilani responded by saying the Army’s statements were – wait for it – released with his consent, i.e. “Just kidding, guys! I totes let the Army make allusions to a military coup, that would hence usurp my power!” Hee! [Note: read this great piece by Mohammed Hanif on how the military uses rumors over force.]

As the three-member judiciary panel gears up to for the memo inquiry this coming Monday, “A separate bench of the Supreme Court is scheduled to convene that day to hear the government’s explanation for failing to comply with earlier court orders to reopen corruption cases against Mr. Zardari,” noted the NY Times. Raza Rumi said it well when he noted, “The real threat for the government is a proactive Supreme Court which has taken a serious notice of noncompliance with its orders. The civilian government is stuck between two powerful institutions, which are no longer comfortable with business as usual.”

The ironic thing, though, is that this cacaphony still is business as usual. Politicians are not the only players who reign over politics, they are joined and often challenged by the judiciary and the military. This politicized warring, this blurring between the lines, mean we are also distracted from *real* issues like…

3. The Gas Shortage. Hello, McFly! The gas crisis in Pakistan isn’t so much a shortage as much as it’s the result of horrendous management. Or as Khurram Hussain noted in his piece for Express, it’s the result of an addiction. As CNG stations ran short on fuel and/or shut down in the country, protests broke out as people voiced their discontent. The gas shortage became visual as you would drive past rows of cars waiting at the CNG stations. But beyond the lines, beyond the protests, the crisis goes much deeper. Take away gas, and citizens are immobilized. They can’t drive their cars, they can’t take buses to get to work, they can’t cook their food. This has impacted industries, where, in Punjab, rows of factories have had to shut down. It’s affected jobs and livelihoods. In my opinion, that more than coup rumors is worrisome.

Also while you were watching Memogate

4. The Saleem Shahzad Report came out. And it was inconclusive. The Pakistani journalist was abducted, tortured and found dead outside Islamabad last year, two days after his report on connections between Al Qaeda and the Pakistan Navy was published. Although several facts pointed to an alleged connection to the ISI, the Saleem Shahzad Commission did “not hold any institution or individual responsible for his death,” instead blaming “belligerents” for the incident. Given this lack of accountability, it’s no wonder the Committee to Protect Journalists (CPJ) once again said Pakistan was, for the second year in a row, the most dangerous place in the world to be a journalist. CPJ’s Bob Dietz told AJE,

[The media in Pakistan is] free and vibrant, but let me qualify that with saying that they are under tremendous amounts of pressure from all sides. There’s been a lot of emphasis on intelligence services attacking journalists, but the fact, if you look at the journalists slain in the last few years, is that the ISI is only one of the actors that is putting pressure on journalists, threatening them and responsible for their deaths as well.

The news about Pakistan is, as always, eventful. The negative developments couched in this list are a reflection of the ground reality, but they are also a snapshot of what’s in the news. My work convinces me every day that Pakistan is a country with tremendous potential that has been horrifically managed. We are the victims of poor leadership, institutions that care more about pointing fingers outwards than looking inward, and a number of inefficiencies in our national value chain. Peel back that rotten layer, and you see the positive stories of opportunity, innovation, and energy. It may not completely overcome the bad, but it’s enough to be the silver lining. At least in my opinion.

And if you ever need further proof of change, check out this preview for Pakistan’s Next Top Model (PNTM). Because nothing says “Pakistanis, they’re just like us! Yay!” quite like reality television franchises & model wannabes smizing. What ups, #FAT (Fashion Against the Taliban).:

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Source: Guardian

This week, Pakistan’s Supreme Court ruled that hijras, (transgender individuals) should be allowed to choose an alternative sex when they apply for their national identity cards. The News reported,

The court directed NADRA (National Database and Registration Authority) to expedite efforts for issuance of National Identity Cards (NICs) to eunuchs, besides registering them as she-males. The court observed that eunuchs are Pakistani citizens, but they are deprived of various rights, including the right of having NICs.

The BBC quoted Brigadier Ehsan ul-Haq of NADRA who told reporters after the ruling, “Transgenders wanted recognition for their community. Why not reflect them as having a separate identity?”

According to the Guardian’s Declan Walsh last year [also see this great audio slideshow by Walsh], Chief Justice Iftikhar Chaudhry has been a proponent of hijra rights, warning police “to cease harassment and intimidation.” Prior to this week’s decision, Pakistan’s court also ruled two years ago that this community had the right to refer to themselves as the “third gender.” The shift has caused one leader of the hijra community to comment, “Times are changing. Our community feels good for the first time in 60 years.”

The traditional occupation of the transgender community consists of “begging for alms when bestowing blessings on male babies and at weddings,” noted Nabiha Meher Sheikh in this piece [recommended reading for those who'd like to read more background]. “Most of their songs are about pregnancy and their dances are mostly parodies of pregnant women.” Although many claim to be “professional wedding dancers,” Walsh reported that campaigners say their main sources of income come from begging and prostitution. And despite a degree of cultural acceptance (hijras have been part of this society for centuries, and were courtesans during the Mughal Empire), the transgender community is often persecuted and harassed.

But about two years ago, the government began hiring hijras as tax collectors, going door to door to shame people into paying their taxes. It’s a practice that the Indian government also began in 2006, and transgender individuals would receive 4% of any taxes collected (via the BBC). Sajid Hussein Bhatti, a tax superintendent who gives Riffi, a hijra tax collector, orders every morning, told CNN for a recent report, “Their appearance causes great embarrassment amongst the people.” CNN further noted,

We followed them as they visit a series of electrical appliance shops. The first debtor insists there’s been a mistake and the bill’s been paid. The second is less amenable, so the team threaten to come back 24 hours later, half a dozen strong — and dance in the shop. That just may be enough to get a tax bill settled.

I first read about this tactic last year, in Adam Ellick’s piece for the NY Times, “Tax-Free Living in Pakistan.” He reported, “For many of the TGs [Transgendered people] hired by the Clifton board, tax collecting is their first salaried job, and two of them still work as sex workers…[they] have collected $100,000 in about nine months, 10 times the cost of the program.”

Obviously, Pakistan has an enormous tax issue, with only 1.9 million out of 170 million filing tax returns last year. Some would argue that hiring hijras as tax collectors is novel and a positive step for this community, because it’s engaging them in society and providing them employment. But I have a hard time agreeing with such a notion. If we truly wanted to bring TGs into mainstream society as respected citizens, why give them roles that ultimately exacerbate the stereotypes and stigmas attached to their community? In that sense, should this recent development regarding national identity cards be taken with a grain of salt, seen as a political concession for this tax collection tactic?

Shehzadi, a hijra interviewed by the BBC, told the news agency, “Getting jobs and ID cards is great, but when I die, I know the community will have a party, spend all my money, and then it will be as if Shehzadi never walked on this earth.”

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Source: The Economist

In a lecture in 2009, research economist Abid Ali Abid made a bold statement, noting that hardly any country has suffered more from the ‘brain drain’ than Pakistan. In 2008, All Things Pakistan cited a Gallup survey that found that 62 percent of adults surveyed “expressed the desire to migrate abroad while 38 percent said that they would prefer to settle outside permanently.” It’s an interesting debate, for sure. Below, Abdul Samad, a student at Georgetown University’s School of Foreign Service, delves further into this topic:

The recent past has seen the emergence of a rather disturbing trend. Too often, the talented youth of Pakistan seek their fortunes in foreign lands, in their misguided belief that their country can give them anything but success. This trend, also known as brain drain, is robbing the nation of the next crop of engineers, doctors and economists. In the age of globalization and outsourcing, the West is able to attract the finest minds of the world with ease. This is partly due to the widely held belief that escaping the country is the ticket to prosperity and advancement in life. The one who escapes alive from all the violence and bloodshed has truly safeguarded his future. Visit the villages of Pakistan where poverty and unemployment have brought people to the brink of starvation. Meet the youth in such impoverished areas, and it is striking how badly they want to leave this country.

Is our country that dreadful that people will do almost anything to get a US visa? Is this why the Muslims of the subcontinent demanded a separate homeland, so that after 60 years of its creation escaping from it becomes the method of salvation in life?

The most ironic factor is that the very people who refuse to do any form of work in Pakistan end up getting jobs in restaurants and petrol pumps abroad. For them, just the fact that they get paid in dollars overrides all the relations and bonds they have left behind. Money transcends love. Money overpowers human morality, the innate goodness present in every one of us. By no means, is this a life of happiness. Not by a long shot. The soul is free where the heart is and that undoubtedly is in your homeland. Whatever one does in life, wherever one goes, it is not possible to forget the land that you were born in.

Pakistan has been defiled and tainted by the Western media, and we have come to be recognized as a country of marked people. Not a day goes by without mention of some bomb attack or a suicide bombing. Everything, at once, seems to be going horribly wrong. Ministers are killed in broad daylight; the country’s sovereignty is breached on a daily basis, starvation and suicides have risen meteorically and politicians continue to make a fool of themselves.

Amidst all this madness, it becomes easy to stop loving your country with the intensity that was seen at the time of Partition.

Let me give you my own example. I too went abroad, in the pursuit of education that I knew that even the finest institution in Pakistan could not offer. The opportunity was one that only a fool would reject. So I went. It can be said that you only come to recognize the value of your homeland when you are deprived of it. Although I was psychically distant from Pakistan, my heart was always there. Most people, after going abroad, tend to forget their origins.

Paradoxically, my appreciation only grew when I spent time studying abroad. No matter what happens, my love for my homeland and the inextricable bond with it would never diminish or fade away.

While the current plight of the country makes me sad, it bears telling that there is hope for the future. And it is this very hope that allows so many Pakistanis to wake up each day in the morning, ready to fight intolerance and extremism. If we were to work hard in our own country, and let go of the conviction that one should only work hard whilst abroad, the prospect of rapid change cannot be ruled out. This inexorable infatuation with the West needs to end, for even Pakistan can become the epitome of prosperity and development, but only if we are ready to change ourselves for the better.

The contribution is the sole opinion of the author and does not necessarily represent the opinion of CHUP. If you would like to contribute a piece to CHUP, please email Kalsoom at changinguppakistan[at]gmail[dot]com. Pieces should be no longer than 800 words please. For past contributions, click here.

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Below, Tariq Tufail, based in Karachi, discusses what he calls the country’s “most clear and present danger” – Pakistan’s economic viability (or lack thereof):

Governor Salman Taseer was murdered in cold blood, [see this powerful piece for the NYT by his daughter, Shehrbano Taseer]. What followed will send a chill down the spine of every liberal Pakistani. The murderer has been showered with rose petals, kissed by lawyers, massive rallies supporting him have been held, and the so called “silent majority” is conspicuously absent. The society has decisively taken a turn towards radicalism and intolerance and even political bigwigs are helpless; this is very well highlighted by the fact that interior minister Rehman Malik has asked Sherry Rehman to leave the country, instead of assuring her full scale protection and helping her speak out.

But this post is not about these dire happenings. The clear and present danger to Pakistan as a country lies elsewhere. To sum it up: Pakistan is simply not economically viable. This has nothing to do with patriotism, national pride, Islam, Indian or Jewish conspiracies. It is simply a question of mathematics.

The country is insolvent and the situation is worsening by the day. For  example, Pakistan’s total debt and liabilities of the GDPis 69.5% , i.e. the amount of money spent by the state is far in excess of tax receipts. Pakistan is  kept afloat by repeated infusions of aid from the International Monetary Fund (IMF) and the U.S. and these infusions are under threat: Pakistan is unable to carry out any reform prescription of IMF — the implementation of the Reformed General Sales Tax (RGST) and the fuel price hike has been put off indefinitely, and as a result the release of IMF money has been delayed as well. As far as the United States is concerned,  U.S. aid is likely to come with increasing demands such as carrying out military  operations in North Waziristan. Moreover, there is a great risk that any terror attack in the U.S., if traced to Pakistan will invite military and economic retaliation.

The greatest short term dangers lie in uncontrolled inflation and massive spike in food prices during the summer. If one more natural calamity strikes, it will push the country over the edge. This state of Pakistan’s economy is unlikely to change unless there is a massive restructuring of the economy. However, the social forces unleashed in Pakistan is likely to leave no room for such a restructuring to happen.

It is instructive to study the Asian financial crisis of 1997, especially in South Korea. Overnight, the restructuring of the banks led to about a tenth of the population losing their jobs. However, because they were guided by a strong sense of national purpose, Koreans pledged their gold to the banks, worked harder, saved more and emerged as one of the World’s economic powerhouses. In contrast, in Pakistan the national obsession with religion and of the “other” (India, US, Israel, Ahmadis, Shias) has left no room for a sense of national purpose rooted in economic well-being. Any harsh economic measures needed to shore up the economy will quickly be spun as either an international conspiracy (Like the protests agaist Kerry-Lugar bill) or as an “elite liberals-vs-Conservative economic lower class” struggle (like how Salman Taseer’s assassination is being spun in some quarters).

The time for a grand national and international bargain is now. Pakistan needs a decade of unimpeded growth, political stability, an end to dabbling in terror as a state policy, peace with its neighbors, rational decisions and policy. Something that has never been achieved since the country’s Independence. Only a miracle can make it happen now.

The contribution is the sole opinion of the author and does not necessarily represent the opinion of CHUP. If you would like to contribute a piece to CHUP, please email Kalsoom at changinguppakistan[at]gmail[dot]com. Pieces should be no longer than 800 words please. For past contributions, click here.

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Last week, The Indus Entrepreneurship [TIE] Conference was held in Lahore, aiming to bring together “a mix of leading local and international entrepreneurs, investors and business leaders” to explore the role of entrepreneurship as a change agent. The News’ Mosharraf Zaidi, who wrote about the conference, noted, “Without a generation of innovators and entrepreneurs, job creation in Pakistan will stay dormant, while our population and its appetite for consumption goes through the roof.” Elmira Bayrasli, a writer working on development issues, recently returned from a trip to Pakistan where she explored similar issues, noting in a piece for Portfolio.com that Pakistani entrepreneurs are driven mainly by a desire “to pull Pakistan out of its political and economic abyss.” Below, she delves further into this topic [which first appeared on her blog, Wonderment Woman, as part of a five-part postcard on Pakistan]:

“Welcome honored donors,” read the banner hanging over the passport control counter at Benazir Bhutto Airport in Islamabad.  That, along with hot, musty air, was my greeting to Pakistan, at 3AM two Sundays ago.  I had arrived, along with my colleagues Phil Auerswald and Sara Shroff to assess Pakistan’s entrepreneurial landscape.

Not far from the banner, there also hung a framed black and white photo of a gaunt man in a dark textured and triangular hat, similar to the one that Afghan President Hamid Karzai sports.  It was Muhammad Ali Jinnah, the revered founder of Pakistan – the land of the pure.  Jinnah established the republic in 1947, after gaining independence from the British and breaking from India.jinnah

Jinnah reappeared a half hour later when I entered the lobby of the infamous Marriott Islamabad.  He was there again the next day when we visited the Institute of Business Administration in Karachi.  Jinnah seemed to be everywhere.  The only other place I know of where that happens is… Turkey.  The image of Mustafa Kemal Ataturk, the blue-eyed founder of Turkey, is, like Jinnah’s, ubiquitous throughout Anatolia. Both dominate every government office, school entranceway and public space.

Pakistan and Turkey have a lot in common.  As predominately Muslim nations, both have struggled with secularism and Islam.  Both have had, as a result, numerous military interventions that have overthrown their respective country’s government.  As predominately agrarian societies, Pakistan and Turkey have wrestled with developing their respective economies in order to compete on the global marketplace.  For a long time, it was a tough fight.  Both countries choked under unemployment, debt, run away inflation and rent seekers.  Pakistan still does.  Turkey has broken from that cycle.

It broke as a result of the economic liberalization reforms enacted by late Prime Minister Turgut Ozal in the 1980s.  With less state-control and relaxed trade and banking laws, Turks embraced entrepreneurship.  Overnight, they turned Anatolian cities, more commonly known as “Anatolian tigers,” into textile and manufacturing centers and lifted Turkey’s poor into the middle and upper class.  Today, Turkey holds a seat at the G20 and the UN Security Council.  Despite being continually rejected by Brussels, it has, by the European Commission’s own account, the fastest (and perhaps only) growing economy.  It is an example that beleaguered Pakistan can and should replicate.  It should do so with Turkey’s guidance.

Turkey understands Pakistan’s economic struggles because Turkey once endured them as well. “We have common problems and common solutions,” said Turkish Prime Minister Recep Tayyip Erdogan while visiting Pakistan just last week.  Part of Turkey’s solution is taken directly from Washington in the form of aid.  *Sigh.*  Fortunately, the other part of Turkey’s solution is precisely what Pakistan will help Pakistan develop: investments.

Rather than a money problem, Pakistan suffers from an investment problem.  The money that Pakistanis possess is caged. It’s used to cover day-to-day expenses rather than being used as leverage to create new enterprises and, most importantly, jobs.  Turkey has discussed opening banks in Pakistan, increasing trade and encouraging its private sector to seek collaboration on construction, infrastructure, engineering, energy, agriculture, telecom and textile opportunities.  That is a good start.  But more can be done. 

Here are two suggestions:

  1. From a historical, religious and cultural perspective, Turkish entrepreneurs and investors are ideal role models and mentors for aspiring Pakistanis with start-up ideas.  They can help advise on operating in a Muslim society where entrepreneurship has not traditionally been encouraged or possible, where risk has largely been absent and where failure has always been the kiss of death.  Both countries could develop an entrepreneurship exchange and mentoring program where Pakistani entrepreneurs spend time working in Turkey and Turkish entrepreneurs in Pakistan.
  2. Turkish investors could establish, along with their Pakistani counterparts, a fund, with manageable interest rates and transaction fees, for Pakistani entrepreneurs.  It is an idea that American venture capitalists would benefit joining as well.  This will help unshackle Pakistan’s paralyzed capital that can then provide the leverage to jumpstart enterprise development and job creation.

It is imperative that Pakistan climb out of its current crisis and into prosperity.  There are signs it is prepared to do so.  The absence of Jinnah’s photo in the sleek and modern offices of the several entrepreneurs Phil, Sara and I met with was the clearest. Pakistan’s younger generation, while deeply patriotic, is not straightjacketed by the past.  They know that while Jinnah may have been their country’s founder, they are its keepers.  For now, they’re pushing their black and white past aside in order to keep their focus on what could be Pakistan’s abundantly colorful and high-definition future.

The contribution is the sole opinion of the author and does not necessarily represent the opinion of CHUP. If you would like to contribute a piece to CHUP, please email Kalsoom at changinguppakistan[at]gmail[dot]com. Pieces should be no longer than 800 words please. For past contributions, click here.

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Next week, on June 9th, the Asia Program and the Environmental Change and Security Program at The Woodrow Wilson International Center for Scholars in Washington, D.C. are hosting a one-day conference called, Defusing the Bomb: Overcoming Pakistan’s Population Challenge [click here for speaker/event info and to RSVP]. Below, Michael Kugelman, the Program Associate for South and Southeast Asia at the Asia Program delves into this topic and why Pakistan’s population problem is not just a bomb waiting to go off:

The projections are staggering: 335 million people by 2050, with more than 80 million to be added in just the next 20 years. And if current fertility rates remain constant, there could be nearly 460 million people in Pakistan by 2050.

The combination of soaring population growth, youthful demographics (two-thirds of the country is less than 30 years old), a deeply troubled education system, high unemployment, and poor economic performance poses major risks for Pakistan today and in the decades ahead.

Predictably, debates about Pakistan’s demographics often assume the worst. There is talk of the country’s nonrenewable resources being exhausted by mass demand; of an already-overburdened healthcare system collapsing under the strain of too many sick and infirm; and of millions of poor, unemployed youth succumbing to militancy. Invariably, such debates invoke the “population bombmetaphor . The unstated assumption is that the fuse has already been lit, that this bomb will definitely be exploding, and that we had all better watch out.

However, this assumption is rarely contested—which is a surprise, given that with sufficient time, tools, and access, any bomb can be defused. And demographers are now starting to believe that Pakistan’s population bomb may indeed be defusable.

The message emerging from population experts is this: If Pakistan’s young population can be sufficiently educated and successfully integrated into the labor force, then the country could attain a “demographic dividend” that produces widespread social well-being and economic growth.

When confronted with the charge that such a message represents pure starry-eyed idealism, demographers offer this response: A country’s age structure really can help determine economic success. When the majority of a population is of working age, the population produces more than it consumes, while a minority of the population (consisting of non-working dependent children and the elderly) consumes more than it produces. As a result, fewer investments are needed to meet the needs of dependent age groups, and resources can be released for economic development and family welfare. On a more tangible level, this would mean that Pakistan’s key sectors—from textiles and IT to retail and construction—would enjoy an immense infusion of labor.

To be sure, attaining such an outcome will be an enormous challenge in Pakistan. Not only will birth rates need to fall, but education and economic conditions will need to be sound enough for droves of young people to be absorbed into the workforce. In a nation where less than 30 out of 70 million children between ages 5 and 19 attend school,  and where GDP growth has plummeted below 3 percent in the last year or so“challenge” may be an understatement.

Still, all is not lost. Population experts estimate that Pakistan has a “demographic window” measuring not in days or weeks, but years—30 to 40 of them. The country therefore has several decades to pass the necessary reforms and to institute the requisite policies to turn Pakistan’s demographic situation into an opportunity and eventually a boon.

So even while acknowledging the great magnitude of Pakistan’s population challenge, it is equally important to recognize that the country’s demographic situation is not all about doomsday scenarios. In much of the international media, as well as in Washington policy debates, there is a frequent tendency to see only the bad in Pakistan—to fixate on the worst-case and to ignore the positives, whether actual or potential.

In an effort to move beyond this reductive optic, the Woodrow Wilson Center will be hosting a conference on June 9 [see her for event information] that examines Pakistan’s demographics not from a when-does-the-bomb-explode angle, but instead from a what-if-any-steps-can-be-taken-to-put-the-bomb-out perspective. The event will examine the salient challenges—youth radicalization, reproductive health, educational deficiencies, and economic problems—but will also consider what strategies can realistically be implemented to tackle the challenges.

Pakistan’s demographic realities are indeed gloomy, and the figures alarming. Yet instead of simply provoking fear and resignation, they can also serve as a wake-up call. And for this to happen, Pakistan’s population situation must be recognized for what it is: a challenge that is considerable, yet by no means insurmountable.

The contribution is the sole opinion of the author and does not necessarily represent the opinion of CHUP. If you would like to contribute a piece to CHUP, please email Kalsoom at changinguppakistan[at]gmail[dot]com. Pieces should be no longer than 800 words please. For past contributions, click here.

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APP Image

On December 31, 2009, the federal government and finance ministers from Pakistan’s provinces signed the 7th award of the National Finance Commission, a development that was widely regarded as a positive step in Pakistan’s political and economic progress. Below, Bilquis, a consultant from Lahore, assesses the NFC award and whether it should actually be considered a success:

In December 2009, rallies were held all over Pakistan to celebrate the approval of the 7th National Finance Commission (NFC) Award. In March 2010, President Zardari officially signed and approved the award. Numerous critics applauded the NFC award as a major accomplishment and a product of the democratic process. However, I’ve often wondered if it really is a silver lining.

The NFC is a government body that is responsible for redistributing tax funds that are collected by the government to all provinces. As per Article 160 of the 1973 Constitution, it is mandatory for the government to meet every five years and present a NFC award that allocates resources among the federal and provincial governments (PGs). Provinces then re-distribute revenues amongst themselves, through a revenue-sharing formula.

The 7th NFC award was an enormous success for numerous reasons:

In horizontal distribution (distribution of resources among the provinces), it introduces the landmark multiple-criteria formula for redistribution. The multiple-criteria replaces the single criterion ‘population density’ formula that has been in place since the 1st NFC award in 1974. The single criterion was not only an outdated way of distribution of income, but it also unfairly favored Punjab province at the cost of Baluchistan, NWFP [Khyber-Pakhtunkhwa] and Sindh. Although, these provinces fought for a fairer distribution, a positive conclusion was never reached in horizontal distribution of funds. There was a lack of political will from the federal government and Punjab province to a) relinquish their share and/or b) to hold tangible talks that would resolve the matter. Hence, the multiple criteria is a commendable step forward as it indicates that actual effort was made by the government, especially Punjab, to settle a four decade old debate. Now, distribution is based on 82% weightage to population, 10.3% to poverty, 5% linked to revenue generation and collection and 2.7% to other areas.

Another major accomplishment of 7th NFC award is that the federal government recognizes the rights of the provincial government (PG) over their resources and has agreed to compensate NWFP and Baluchistan for past arrears especially from hydropower profit and on gas surcharges and royalty. NWFP will receive Rs.110 bn. for arrears of hydel profits and Baluchistan will receive Rs. 10 bn. for arrears of GDS. This is one of the main reasons why the 7th NFC was a success. Previously, the government’s refusal to either recognize or offer any type of compensation to the two provinces usually led to a deadlock in discussion and embittered feelings toward the federal government. The 7th NFC award also accepts the right of PGs to retain 5% of their provincial sales tax collection.

Moreover, in the past, when spending funds from the divisible pool, the federal government has been accused of demonstrating an expenditure bias towards Punjab, which continuously disillusioned the other provinces. To address the issue, in vertical distribution (distribution of resources between the Centre and the provinces), the 7th NFC allocates a higher percentage of funds to the provincial governments (PGs) from the divisible pool than to the federal government. As a result:

  1. PGs total share from divisible pool has increased from 47% to 56%.
  2. The award removes the grants and other special awards taken by the federal government. This was a substantial amount—10% out of the total divisible pool.
  3. It has decreased the revenue collection charges taken by the federal government from 5% to 1% and this amount would also be added to the divisible pool.

By providing higher revenue to provinces through increased share and reduced charges, the 7th NFC award directly addresses the past grievances of smaller share in revenue, especially that of Baluchistan and Sindh. It also indicates a move towards provincial fiscal autonomy as PGs will more efficiently allocate resources that best serve and closely represent the provincial wants and needs than the federal government.

On paper, expansion of revenue to provinces in both vertical and horizontal and recognizing rights over resources is a fantastic deal, as it ticks all the correct boxes and appeases old animosities. However, the federal government has taken a substantial cut in its revenue and has overestimated its revenue generation. With rising debt servicing and defence and security-related expenditures, a reduction in its share will result in a large budget deficit for the federal government. Dr. Ashfaque H Khan points out that, “the total expenditure of the federal government on these four items (defense, security, public debt and civil administration) alone will rise from Rs 1,540 billion to Rs 2,075 billion, while resources are projected to rise from Rs 1,337 billion to Rs 2,146 billion.

If other expenditure such as pensions, subsidies, grants and development programmes are added, it is quite apparent that federal government resources will not be sufficient. Secondly, for the NFC to successfully deliver, the federal government needs to add further clarity on defining expenditure assignments to PGs and the PGs need to drastically develop their capacities to spend their resources efficiently and effectively. Otherwise it may lead to the failure of the IMF program which depends on fiscal prudence.

Overall, the 7th NFC award is historic because it succeeded in eliminating an approx 15 year deadlock in discussion and bringing around positive and tangible changes within our federal and provincial revenue distribution. It also highlights the strategic role played by the federal government as it tried its best to ease mistrust between itself and the four provinces. Shaukat Tarin, ex-finance Advisor, stated during the NFC award inauguration speech in Baluchistan, “We asked the provinces to bring forth all of their grievances—such an open house/table of mitigated previous grievances that often resulted in deadlock.” Nevertheless, the success of the NFC depends on the ability to overcome the challenge of fiscal discipline by the federal government and PGs. If the current spending patterns of the PGs are not changed, Pakistan will land in a more difficult fiscal situation, with the country’s debt burden further worsening the situation.

The contribution is the sole opinion of the author and does not necessarily represent the opinion of CHUP. If you would like to contribute a piece to CHUP, please email Kalsoom at changinguppakistan[at]gmail[dot]com. Pieces should be no longer than 800 words please. For past contributions, click here.

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