BUDGET 2009-10 Brief Review: Desperate Voice of a Patriotic Pakistani

BUDGET 2009-10 Brief Review: Desperate Voice of a Patriotic Pakistani

Though it’s very late to comment on the budget when the books are already written on it. I was surprised to see the budget figures and more surprised when I listen to the budget speech that there’s nothing in the budget except for some general figures and salary increase. Though our ranking have been improved from No. 9 to No. 10 in the Failed State Index but it is one of the biggest issue we need to address.
With a negative per capita growth (Dr Nadeem stated in his article in the Daily Times) we might have announced some policies for the manufacturers which help them investing in the country for the long run. There was no as such significant electricity policy was announced which can boost the confidence of investors. Instead after every weak a minister come on TV and said that the load shedding will be finished by the end of this year and there will be cut down on the load shedding in this month etc.
I was surprised not to see any inflation cut policy in the budget, unless IMF asked them to restrict their money supply at 10 percent for the next ten years. However, it would be a stabilization policy but we also need higher growth rate in the long run with lower inflation.
Money for the development projects mainly go into the projects of big cities. It was surprising to see that out of 150 billion PSDP budget for Punjab Assembly, 30 Billion will be spent on Lahore ring road only.
Industrial Clusters which is one of the important things to do was again neglected in the budget. Sahiwal and Sargodha are two examples of Dairy Clusters which we can build and people of that area will get employment in their own area. Moreover, it’s time to build more cities than having only five major cities. If we develop Sahiwal and Sargodha (for example) as the major cities of Pakistan the urbanization will grow. Urbanization will lead to more investment through development of infrastructure and communication systems. This will attract businesses to procure land in the developing area and set-up factories and offices. Employment will be increased when more businesses are established, which increase the quality of living standard.
Tax reforms are being done for the past several years. Due to those reforms direct tax share has increased and custom and excise duties are replaced by sales tax. But overall tax to GDP ratio has declined in the last decade. However, nothing was mentioned about the reforms in the budget. Now we really need to do four things at least; (1) try to increase the base (I know it’s a very general term), (2) Reduce corruption which affects our overall revenues (3) Introduce new taxes which do not harm middle class people and economic growth in the long run and (4) some reforms are also needed for the transparency of income tax returns.
The industrial policy should not be supply driven but we need to look into the demand side as well. Though investors and industrialists always ask for relief (tax cuts, subsidy etc) but there will be some other measures as well which they will ask. For Example, industrialists always complain the policy of exports such as lack of information sharing at every stage. Even the established industrialists complain about the non-availability of freight charges. In this era of IT it is very easy to put all these things online and update daily in the morning.
Terrorism is one the biggest issue Pakistan is facing. Army operation and having 2.5 million IDPs and then spending Rs. 50 billion is not the solution. There are few people who likes Taliban because if they have some issue to resolve they go to Taliban and get it resolved in days, thus they do not have to wait for years in courts. The unemployed people who do not have education praise/like Taliban who give them protection, employment, money and education. Patriotism is secondary thing if the country is not doing significant for the people of the country.
Now I would write something about the five major issues of Pakistan and I guess if we address them parallel to the other issues and try to solve it ASAP that would be the greatest thing for the people of Pakistan.
1. Property rights: It is such a big issue for the last 62 years and it is neglected as it is not present. Benami transactions, file transfers, not recording/registering the title of the land are the problem which should be addressed to reduce the transaction cost, corruption and fights on the properties.
2. Judicial System: We’ve such a great corrupt legal system that even a Stamp Paper vendor asked for bribe is someone goes to him for a stamp paper. For getting a stamp paper worth Rs. 10 sometimes we need to give him Rs.50 and even more depending on the worth of the person. Oath Commissioner sitting in the “Kutchery” of Islamabad asked for at least Rs.100 if someone needs him to sign a simple paper. Reader asks for money to put the file in line. Moreover, most of the people do not know when their case will be listened by the judge and they daily come to the courts in the morning and leave without anything in the evening. It is the worst place for poor people who come from the villages to those courts. It is very easy to send a letter at least two weeks earlier (so that there is no problem of delayed post) that your case will heard by the judge on this date at this time. Moreover, give a specific time for each case.
3. Clean drinking water: The 2nd necessity for life after air is not available in most of the rural areas of Pakistan. Even in Islamabad people use filter to filter the water before drinking it. The feasibility study was conducted in the Planning and development Division on the Filtration plants in each district and they setup in Islamabad as an experimental basis but no idea what happened after that. MNA, MPA and 13 Union Council representatives in each union council who were voted by the people of their area can do this simple task for their own people.
4. Health: Health sector needs special attention. Corruption is everywhere but this sector needs attention beyond corruption thing. As far as my little knowledge is concerned, we need more BHUs and District hospitals. Moreover, before that we need more doctors there, more nurses, more ambulances plus these should be present at all the times. It would be good if Doctors should get more pay than any ordinary government servant, which will be a good incentive to work. There is a special pay scale for the Atomic Energy people and we can introduce very special scale for the doctors as well. The more important thing is to give subsidy for health expenditures who cannot afford. To do this we need to adopt strict documentation procedure which can be done through either issuing social security number which has all the information of taxes, income from different sources, phone bill, electricity bill, credit cards, etc. Through this card it would be easier to identify the needy person.
5. Education: I guess we cannot do anything about this sector. The problem is very chronic. Teachers in the middle and high schools are in habit of giving sample test papers so that their students can pass. “Rattalization” policy is very efficient and effective in the middle and high schools. Free education for everyone till 10th grade or intermediate along with better facilities in school, low teacher student ratio, better pay to the teachers is one way to improve education system. Examination system should be changed from “rattalisation” to conceptualize the issue.
I guess it is a time to invest in these social issues and it is time that investors, intellectuals, policymakers, think tanks sit together and make a sound policy. I wish everyone best of Luck
Pakistan Zindabad

The ECO award of excellence

The ECO award of excellence was conferred posthumously on Dr. A R Kemal of Pakistan in recognition of outstanding research and achievements and meritorious services in the field of development economics. Pakistan’s Ambassador in Iran, M. B. Abbasi received the award from President Hamid Karzai of Afghanistan here at an ECO award ceremony, which was attended by heads of state and government of ECO member states including President Asif Ali Zardari. Late Dr. A. R. Kemal was an eminent development economist. He held Masters Degrees in Economics from the Universities of Punjab and Stanford, and Doctorate from the University of Manchester. He served as Director of Pakistan Institute of Development Economics, Quaid‑e‑Azam University. He held key positions in various important organizations including Chief Economist, Planning Commission of Pakistan. He also remained editor of the Pakistan Development Review and consultant to a number of UN and international agencies. A profile writer, Dr, Kemal authored 12 books and over 200 research articles on the issues of economic and social development of Pakistan and the region.

Swat operation and IDPs

Hey Folks
Some of you are aware of the situation of Malakand Dvision army operation in Pakistan against Talibans. This operation is carrying out in Swat, Buner and Dir Districts. The people of these areas have migrated to different parts of the country. The guess count according to UNHCR of these people are 2.2 million. Currently some of the places have been freed from Talibans and people started moving back to their own places, e.g., bajaur agency. These internally displaced people (IDPs) need our help. Pakistani government recently announce a Rs. 7 billion ($87 million) project for these IDPs. Moreover, people of Paksitan are also doing whatever they can do for our brothers in this difficult time.
As Overseas Pakistanis we have some responsibilities to collect or donate money for IDPs. Some of us gave to one of our friend "Ataullah" who went to Pakistan last week and now One of our other friend "Nasir" is leaving for Pakistan on June 1, 2009. If you want to donate money for IDPs there are few possibilities.1. Give it to me or Nasir and he'll give it to the people in the camps.
2. Give it to us and we'll ask our families to give it to affected people.
3. You can donate at the following organisations

“Prime Minister's Special Fund for Victims of Terrorism” has been changed to the following account number:
Account #: 1001003942
Routing/ABA #: 026004721
Swift: NBPAUS33
Checks made payable to the above account may be sent to the National Bank of Pakistan, 1875 Connecticut Ave. NW, Washington DC 20009 or to the Embassy of Pakistan, 3517 International Court, N.W. Washington, D.C. 20008.

Islamic Relief USA
6131 Orangethorpe Ave Ste 450
Buena Park, CA 90620(888) 479-4968http://cts.dundee.net/t/32179565/135213048/81105/0/info@irw.orgTax ID#: 95-4453134

Minhaj Welfare Foundation (MWF) UK Swat and Buner Appeal: Rehabilitation Programme for Internally Displaced People
To view our poster click: www.mwfuk.org/swat/swat_poster.jpg Read our English letter (includes donation form): www.mwfuk.org/swat/swat_ english.pdf Read our Urdu Letter: www.mwfuk.org/swat/swat_urdu.pdf FOR DONATIONS- By credit card please ring: 01282 723456- Please make cheques payable: MWF, 12 Carr Road, Nelson, Lancs, BB9 7JS
- Direct payment into bank account: Any branch of HSBC Sort Code 40-15-17 Account 21 65 18 03 Swift Code: MIDLGB22Iban No. GB95 MIDL 4015 1721 6518 03
- Please ring MWF Donation Hotline on [UK] (0)1282 723456

Prime Minister Fund for IDPs at Los Angeles
Name of Account: Consulate General of Pakistan, Los Angeles
Bank: Bank of America, N.A., P.O. Box 27025, Richmond, VA 23261-7025
Account #: 2260 0025 1361
For wire transfers: Routing No. 026-009593
Phone (LA) # 310.446.6695, 310.441.5145

Malakand Relief Society
Account Title: Muhammad AshrafAccount No: 0120018853 Branch Code: 0757Branch: Allied Bank Limited Chaklala Scheme III Rawalpindi
Phone (Pakistan) #: Muhammad Ashraf +92 333-9139708

M. Ali Kemal
PhD Student,
Department of Economics,
Colorado State University
Res: 970-492-9227
Cell: 970-690-2815

Recent Increase in Interest Rate by State Bank of Pakistan on Nov 12, 2008

Several things are happening in the government whether they are done from Politicians, Senate, Governor State Bank or Bureaucrats. I was reading the news of 2-percent interest rate increase (13 to 15 percent), which was definitely a difficult decision and I was thinking that SBP should have done it before that.
However, I was thinking that our so called intellectuals are always ready to criticize the economic policies. By intellectuals I do not mean professional economists but those people who always appear in the TV talk shows and take calls of economists.
As written in one of the newspaper that according to bankers and business leaders it is done in response to the preconditions of IMF. This might show a negative image of government but if we look in other way that Government deliberately delayed increase in interest rate in view that IMF will have precondition and they’ll again ask us to increase interest rate.
Now we’ll come to another point. A TV talk show criticized the autonomy of SBP without knowing the background of the issue of autonomy of Central Bank which was started in 1983. The core objective is to control inflation at the minimum possible level. Autonomy to the Central Bank implies that the Governor’s primary objective is to control inflation irrespective of what is going on with the other variables including unemployment, GDP growth etc. Moreover, it is also important that the Governor should be conservative central banker who hates inflation.
In another article in the newspaper it is rightly mentioned that lawmakers criticized the government for bypassing parliament in accepting IMF conditionalties. It would have been nice if we decide these decisions in the parliament and senate and tell them the need or no need of loans either by IMF or other international funds and foreign countries. In this way we’ll build a proper system and we’ll educate our parliamentarians about the economic system as well. Another plus point of this system would be transparency if the loan taken and spending will be evaluated in the Senate and Parliament.
Finally, I was really surprised on the statements by several senators who, I guess, should know that point of autonomy. It is quite possible that this government would want to appoint their own Governor instead of Dr Shamshad as her first term is about to complete.
It is important to mention here that decrease in interest rate increase money supply which directly affects inflation in the long run. This long run could be one and half years to two years. Right now our overall average inflation is too high and this is mainly due to the policies of last government and we cannot ignore the fact that it could be due to interest rate decline two years ago. Increase in interest rate will not affect inflation instantly but it might take inflation one year to come down. Dr Shamshad did the right thing by increasing interest rate, though I believe that it should be done at least 6 months ago, considering inflation expectations.

Earthquake in Pakistan

Dear folks

Pakistan is hit by a earthquake of 6.5 magnitude. The death toll has risen to 236 whereas 391 people were injured. The toll is expected to climb further. Pakistan army, FC, government, political parties and charity organizations are carrying out rescue operations in quake-hit areas. we appeal to you to extend your hand to the affectees in Pakistan.

There are several ways to help them one way to help them is in monetary terms and Zakat Foundation has set up a field office to distribute food packages and packages of blankets and warm clothes to these desperate people. Please make a donation to enable the Zakat Foundation to help the suffering people of Pakistan.

• Food Package Items Quantity Unit Cost
• Flour 10 kg $10.00
• Rice 5 kg $8.00
• Cooking Oil/Ghee 1 liter $2.00
• Sugar 2 kg $1.00
• Chana 2 kg $1.50
• Tea .5 kg $1.00
• TOTAL FOOD PACKAGE COST $23.50
• Your donation of $2,500 will provide Food Packages for 100 needy families.
• Your donation of $1,250 will provide Food Packages for 50 needy families.
• Your donation of $625 will provide Food Packages for 25 needy families.
• Your donation of $250 will provide Food Packages for 10 needy families.
• Your donation of $100 will provide Food Packages for 4 needy families.

You can donate at http://www.thezakat.org/orhttp://www.erra.gov.pk/WebForms/NewsDetails.aspx?id=320

For further information email me at m.alikemal@gmail.com

Cheers

MAK

Recent Depreciation in Exchange Rate: Its Implications

In few weeks Rs/$ exchange rate has shot up to above Rs.69/$ from Rs.62/$, which has some serious implications. Though people might say that these are only short term but as argued by Eichner (1979) that problems in short periods give rise to all the serious problems of the economy thus we cannot ignore the implications which could be very serious in the long run, e.g., with a high debt in dollars, increase in exchange rate means our debt in rupee terms has increased as well.
Increase in exchange rate directly affects prices through increase in prices of imported products, which may include food products. Indirectly it affects through increase in the bill (in Rs.) for oil. Prices of oil are creping up to $127/barrel, which is increasing cost of production and depreciation in exchange rate creates a double impact on the cost of production. Increase in cost of production thus increases the domestic prices. However, how much it will increase prices is a major question.
Increase in cost of production will decrease profitability and investment, which directly affects GDP. Decrease in investment affects employment generation as well, which decrease the wage rate because the unemployment will be involuntary.
Moreover, increase in prices lead to decrease in real wages, and decrease in the welfare level of the people. Decrease in purchasing power leads to decrease in consumption, which has the major share in GDP.
On the other hand, it is good to let exchange rate float in the market which was overvalued for the last three years at least. Because foreign exchange intervention in the open market has its on drawbacks. Theoretically, free float removes the imbalances in balance of payment but it can only be done if there are no market discrepancies but in a country like Pakistan we need to think it twice whether it is true or not given the current circumstances. There are certain other advantages of floating exchange rate, e.g., we can use monetary policy effectively, we do not need to change our trade policy very often etc.
However we need to think whether there is a need to stabilize exchange rate at some par value or within some range or let it float wherever it goes. Does stability in exchange rate in Pakistan has fruitful affects on economy or we need to know some threshold level of stability in exchange rate. In the presence of supply shock, e.g. oil price shock, can we keep exchange rate at some par value or within some range. Above all, Is there any pass – through effect of exchange rate on prices because Hyder and Shah (2004) concluded that there is a moderate effect of exchange rate on CPI but stronger in case of WPI.

Comments are always welcome

References

Eichner, A. S. (1979), “A Guide to Post Keynesian Economics”, Edited by A. S. Eichner, M. E. Sharper, INC, New York
Hyder, Z. and S. Shah (2004), “Exchange Rate Pass – Through to Domestic Prices in Pakistan, Working Paper #5, State Bank of Pakistan.

Democracy or no Democracy: Problems in Pakistan

This answer is in reponse to the post of Akash Jai at Facebook http://www.facebook.com/topic.php?uid=19139865256&topic=3530

Commetns are welcome

Akash's post post reveals different problems which can be eliminated just through democracy. He is very right that we are fighting for out independence after getting indepence in 1947. He mentioned Think Tanks. As far my knowledge is concerned there are many think tanks working in Pakistan and working in their own capacity and I'll be rhetoric here that the policymakers do not listen to those think tanks. Even if they listen their policies are mostly based on their self interest. We, the people of Pakistan, vote the candidates that they'll represent us in the National Assembly but it is quite skeptical that in most of the villages people vote candidate who help those people in different problems or with fear. Feudals are holding most of the things in their hands. So called chaudaries, Waderas, Sardards and Khans are manipulating the things in their favour asking people to vote for certain candidate.Ayres writings are very optimistic about democracy... According to him Democracy is the best way to convince and teach people where they have lack of knowledge but in a country like Pakistan people do not want to listen to what others say. Poverty, Justice and Illiteracy are the three main problems in Pakistan which we need to point out. These three problems can be abolished by making policies in right direction and there should be continuity and consistency in policies.