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Combating terrorism, regional approach

A growing realisation about adopting a regional approach to combat terrorism in the region is a good omen. Signing of Memorandum of Understanding in tripartite meeting between Pakistan, Afghanistan and China in Kabul on Saturday is a big step forward to achieve this extremely difficult goal because one regional power and a distant world power is believed to be sponsoring the dirty business for the pursuit of their agenda in the South Asia. The Memorandum of Understanding was signed by the Foreign Minister Shag Mehmood Querishi, Chinese Foreign Minister Wang Yi and Afghan counterpart Salahuddin Rabbani. Its signing was witnessed by the Afghan President Ashraf Ghani.

In his inaugural speech, the Afghan Foreign Minister Salahuddin Rabbani stated that collective efforts are required to address the common challenges of terrorism. He said, “We desire to strengthen our relations with Pakistan and also appreciated the Chinese One Belt One Road (OBOR) initiative.

Foreign Minister Shah Mehmood Querishi, in his address during a joint news conference, stressed for a joint strategy to eradicate the menace of terrorism from the region. He noted that “only through collective efforts we can wipe out terrorism and achieve the objective of peace and development. The foreign minister assured that Pakistan will extend cooperation to bring all Afghan groups to the table of negotiations. However, he made it clear it is for the Afghans themselves as to they want to achieve the goal of peace. Pakistan condemns terrorism in all its forms and manifestations,” Qureshi stated, adding, that his visit of Kabul is for bridging the trust deficit between the two countries.

In his remarks, the Chinese Foreign Minster Wang Yi said that Afghanistan and Pakistan are friends, and assured to extend every possible cooperation for building trust and confidence between the two countries. China will also assist in establishing connectivity projects, including a railway line between Peshawar and Kabul and Kandahar.

Ever since the US occupation of Afghanistan in the garb of war against global terrorism, both Pakistan and Afghanistan has suffered tremendous losses in terms of human lives colossal damages to the economy. The prolonged war in Afghanistan made it an epicenter of terrorism and a number terrorist outfits have established sanctuaries there for carrying out terrorist attacks in Pakistan and Afghanistan. India is using the soil of Afghanistan for sponsoring terrorist activities in Pakistan, particularly the frontline provinces of Baluchistan and Khyber Pukhtunkhwa. The arrest of a high profile RAW agent Kalboshan Jhadev in Baluchistan and confessional video footage tells it all. After the entry of Daesh in Afghanistan almost all terrorist groups have come together under the umbrella of this terrorist organisation. This development had rung alarm bells in the Central Asian States, Iran and Russia. China is confronted with a threat of militancy in Xinjiang province In the November Peace Conference on Afghanistan in Moscow Russian Foreign Minster Sergei Lavrov rightly drew the attention of the international community to the global threat of Daesh to peace in the region and spillover effect to Central Asia and mainland Russia. In an oblique reference to a western super power, he said that ISIS (Daesh) has been brought by its foreign sponsors from Syria and Iraq into Afghanistan. A few days ago Foreign Secretary Ms Tahmina Janjua has also expressed concern about the increasing strength and activities of this terrorist organisation. It was two days back that 22 Daesh fighters were killed in a gun battle with Afghan security forces in the province of Nangrahar which is close to the Pak-Afghan border.

Apparently, after few rounds of direct talks of Taliban representatives with US Assistants Secretary for South Asia and Central Asia Ms Alice Wells and US Special representative for Afghanistan Zalmay Khalilzad prospects of political settlement of Afghanistan are becoming clear. But the United States is also engaged in a “Triangular” cold war with Russia and China in Asia and Europe. It remains to be seen how the events unfold in future giving impetus to the ongoing process of reconciliation and peace in Afghanistan and purging the war torn country from the terrorist outfits including Daesh.

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Debt rating

In the prevailing scenario of crushing public debt, Fitch rating, one of the three global rating agencies, on Friday downgraded Pakistan’s long term debt rating to B-negative owing to high interest payment and debt repayment, low foreign exchange reserves and fragile fiscal situation. The New York based agency said the downgrading of rating from ‘B’ to ‘B-negative’ reflected higher financing risks, low reserves and elevated external debt repayment as well as continued deterioration of economy, with a rising debt-to-GDP ratio. It is said that successful conclusion of the ongoing negotiations on the IMF support programme could help stabalise external finance, but the programme could then face implementation risks.
A leading economist and former additional secretary in the ministry of finance Dr. Ashfaq Ahmad Khan, who had been dealing with the IMF for 11 years, did not support availing the IMF bailout at this point of time in a private TV current affairs programme and emphasized more on domestic revenue generation measures and plugging its loopholes.
Pakistan’s external and domestic debt liabilities escalated rapidly over the last 10 years because of hevy reliance on borrowing, largely for non-productive expenditures and extravagance in government’s spending. The country resorted to borrowing due to lack of improvement in tax-to gross domestic product (GDP) ratio and fast deckling exports because of losing comparative advantage against the identical products in the international market. During the period of 2000 to 2007 the number of active taxpayers was 2.4 million which dropped to 1.2 million. The present government has also not succeeded to expand the tax net at least to the level of 2007. There is a lack of seriousness and commitment for tax collection in the bureaucracy of Inland Revenue Services Department of the Federal Board of Revenue (FBR) with a result that a shortfall of Rs. 90 billion has been recorded in the target set for tax collection in the first quarter of the current fiscal year.
Lack of fiscal discipline as envisaged in the “Fiscal Responsibility and Debt Limitation Act 2005”and absence of reforms resulted in 400 percent increase in a public debt to Rs. 24 trillion in 20018 as compared with Rs. 4.8 trillion in 2007 as per data released by the State Bank of Pakistan in September. It is pertinent to mention that the World Bank pegged a soft ;loan of $ 400 million in 2017 for implementing fiscal reforms by way removing the lacunae in this Act to ensure maximum fiscal discipline in public expenditure. But the last PML-N government was not inclined to observe the much need and global lending agencies’ suggested fiscal discipline and the World Bank loan lapsed. On the contrary, former Planning Minister Ahsan Iqbal despicably rejected the sane advice about addressing fiscal imbalances of Pakistan’s economy in a press conference in Washington after attending the joint meeting of the World Bank and IMF in September, 2017.
More importantly, Pakistan’s total debt liabilities in creased to Rs.29 trillion by the end of June, 2018 which amounted to 86 percent of the GDP well above the sustainability limit of 60 percent of the GDP. Similarly, domestic debt rose to Rs. 16.4 trillion and its share in the total debt liabilities was close to 55 percent. Likewise, external debt liabilities rose 137 percent to $ 95 billion or 33.6 percent of the GDP, over the past 10 years. With the increased borrowing to finance consumption more than investment, external debt servicing surged to about $ 10 billion or 40 percent of the export earnings in the current fiscal year.
Growing public debt has important implications for debt servicing obligations. The surge in public debt over the last five years has increased the debt servicing burden in terms of interest payment and loan repayment on both foreign and domestic debt. Debt servicing has gone up to 46.4 percent of the current expenditure. This leaves a share of 23 percent for defense, 2.8 percent for public order and safety, 1.6 percent for economic affairs, 2 percent for education, 0.3 percent for health and 0.05 percent for community services.
The estimated interest payment and loan repayment on both foreign and domestic debt will consume 39 percent of the total revenue this year. Clearly, if more than one-third of total revenue of the country is devoured by interest payment and loan repayment, there will be little room to increase expenditure on essential services like health, education and housing. As a result the quality of human capital will adversely decline, impacting the level of poverty.
It will be daunting challenge for the new government to fulfill its promises about education, health and housing while using such meager resources. It will have to allocate huge amount of financial resources for development expenditure to achieve its objectives of poverty reduction and provision of 10 million jobs.

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Pak-US relations warming

After moving on the downward trajectory for the past few years, Pak-US relations are now showing signs of warming. It went down to the lowest level when President Donald Trump accused Pakistani leadership for telling lies and deceiving the United State despite receiving billions of dollars in economic and security assistance. The diplomatic inertia of the last PML-N government also contributed to it in a big way. On the 20th November, the US President again moved his twitter handle against Pakistan and wrote on his social networking site, “We no longer pay Pakistan billions of dollars because they would take our money and do nothing for us. Bin Laden being the prime example.”

In a tit for tat response, Prime Mimnister Imran Khan Khan took to the twitter and wrote: Trump’s false assertions add insult to injury that Pakistan has suffered in the war on terror in terms of lives lost, destabalised the region and caused huge economic cost. He elaborated that it is a historical fact that Pakistan has suffered enough fighting. Now we will do what is best for our people and national interest.

To dilute the impact of President Trump outburst against Pakistan, the US military establishment swung into action for a damage control exercise Pentagon termed Islamabad critical partner to its South Asia Policy. Colonel Rob Manning, Director of defense press operation said in off-camera press conference that the US and Pakistan have strong mutual interest in the region. It was followed then by the President Trump letter to Prime Minister sought Pakistan role in the political settlement of ongoing war in Afghanistan.

Putting stick once again behind the curtain, carrots are going to be offered. US Under Secretary of treasury David Malps, told lawmakers in a congressional hearing on Wednesday that the core purpose of engagement with Pakistan is to ensure that it does not remain in the vicious circle of poverty for long. But in the same breath he made it clear that Trump administration also wants that IMF loan to Pakistan is not used to repay its China’s debt. Pakistan is seeking $ 8 billion extended loan facility from this global lending agency to bail itself out of a sever balance of payment crisis that threatens to cripple its economy.

During the hearing of the House Financial Services Committee on international financial institutions, a number of lawmakers expressed concern that Pakistan may use IMF loans to repay some of the $ 60 billion it is borrowing from China for CPEC. Some congressmen also argued that huge Chinese debt for the economic challenges that Pakistan is facing. The argument seems correct when looked into the context of Capital Expenditure and high power tariff per unit for the completed and ongoing thermal and hydel power projects. Syed Akhtar Ali Shah, a former member of Planning Commission had analysed the negative impact of power projects being financed by China in his vivid write-up published in a leading English daily newspaper on 4th July. He wrote that Capital Expenditure for coal based energy projects is 40 percent higher than the international cost and coal power tariff of 8.4 cents per unit in inflated as compared to coal power tariff of 5 cents in many jurisdictions. Likewise, the Capital expenditures of hydel power projects of Kohal, Azad Pattan, Suki Kinari and Mahal are three times higher when compared with the construction cost of Dasu hydropower project being financed by the World Bank.

In July this year, US Secretary of State Mike Pompepo had said there is no rational for American tax dollars that are part of IMF funding to be used to pay the Chinese bondholders. During the Congressional Committee proceedings a Republican congressman Ed Royce questioned what the administration is doing to prevent this. In response Mr. Palp said that the IMF has been told to ensure that its funding would not be used to repay Chinese loans. “We are also trying to make sure that Pakistan changes its economic programme in future,” he added. Despite the tough grilling questions by several law makers, the US under Secretary articulated his support for Pakistan. He said, “Helping Pakistan is essential to overcome its deficiencies and carry out the important structural reforms.”

Being strange bedfellow both Pakistan and the US had not completely parted ways and had remained allies in the region. The new leadership in Pakistan is keen to mend the ruptures in its relations with its historic but ungrateful ally, the United States. Reciprocating the efforts of the former by the latter can be a harbinger of bringing peace and stability in Afghanistan and the region as a whole.

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Good initiative

        

According a news item published in a Urdu daily newspaper, Khyber Pakhtunkhwa government  is deliberating on a proposal to build its own transmission and distribution system for electricity supply to ensure availability of inexpensive hydel power to domestic, commercial and industrial consumers. The efficacy of local power distribution system for the electricity generated from small hydel power stations has been agitated in these columns a number of times. Under the provisions of 18th amendment the provincial government is allowed to build local power distribution and transmission system for the hydel power stations with generation capacity up to 20 megawatt.

To put in place a viable mechanism for provincially administered power transmission and distribution system and establish a distribution company the services of a consultancy firm shall be hired for feasibility study and report. But it is yet to be divulged as to whether that firm will be foreign or a national one. If past experience is any guide some of foreign firms gave faulty feasibility studies at exorbitant cost. It is the comprehensive and authentic feasibility report that international lending agencies come forward for financing mega projects. It would be worthwhile that the provincial government should keep in mind the BRT fiasco. The cost escalation of Rs. 19 billion was caused by faulty feasibility studies and frequent changes in the already approved design.

NES PAK and some other reputed consultancy companies have rich experience and high caliber expertise to prepare feasibility report for provincial and local electricity transmission and distribution system. Engaging local consultancy firms for feasibility studies will reduce the cost of consultancy charges and accrue a reasonable amount of savings to the cash strapped province which has remained dependent on the federal government for the bulk of its liquidity requirements. It will also diminish reliance on foreign consultants. In our opinion NES Pak for instance has undertaken such projects in the past such as Tarbella Dam Hydel Power Stations which generates and supplies 3000 plus megawatt power to the national grid.

The KPK government has directed its critique towards WAPDA that it is not inclined to purchase the hydel power generated from small and medium power station of KPK for induction into the National Grid. The authority may have informed the provincial government about the technical problems hindering the induction of additional power from the hydel power stations of the province. It is pertinent to mention that former caretaker federal minster for law and energy Barrister Ali Zafar, while dwelling at the reasons of power outages in a press conference on 23rd June, candidly disclosed that weak transmission and distribution system is not picking the additional power generation.

The assessment of the former caretaker minster has now been vindicated by a report released by the World Bank on Wednesday. Estimating about $ 18 billion losses to Pakistan’s economy due to inefficient power, the World Bank has warned the government against increasing power rates as tool to address fiscal challenges. In a report titled “In the dark: How Much Do Power Sector Distortions Cost South Asia” the easily applied recipe of raising power tariff has been described detrimental to the economic growth of the economy. Former Secretary Finance Dr. Waqar Masood suggested this recipe of disaster to the previous PPP government but it was rejected by the then technocrat finance minster Abdul Hafeez Sheikh but later in last PML-N government the accountant finance minister Ishaq Dar accepted it but it neither helped in upgrading the power distribution and transmission system nor addressed the issue of circular debt which has now reached to Rs.1.18 trillion. The World Bank has also suggested some solutions to address the power sector problems, asking Pakistani authorities to prioritize gas allocation to efficient power plants and launch a tariff mechanism that encourages performance.

The bank is already financing certain sections of the transmission system and distribution points. The Asian Development Bank had given nod to provide a concessionary loan for the up-gradation of power transmission and distribution system after the fulfillment of the condition of installation pre-paid meters in the jurisdiction of financially viable power distribution companies including Lahore Electric Supply Company (LESCO) and Islamabad Electric Supply Company IESCO) for which a loan of $ 400 million has already been sanctioned but not yet disbursed due to lack of decision on the installation of smart electricity meters. The government is paying commitment charges on this loan. A memorandum of understanding had been signed by the last PML-N government for the installation of high voltage Mitiari-Lahore section of transmission lines under the umbrella of CPEC but it could not move forward to the stages of letter of intent and financial close.

In the prevailing scenario the KPK government can exercise three options. Firstly, to build its own transmission system and utilize its own generated hydel power at affordable tariff. Secondly, negotiate with WAPDA to make its system capable of taking the additional power load for appropriate transmission and utilisation of power generated by KPK. Thirdly, the central government is under constitutional obligation to help the KPK government with its full means and resources to build it own distribution system for the power generated from small and medium size hydel power stations.

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Bold decision

A top story in a leading English daily news paper says that Federal government has started sending tax notices to big landlords including politicians as it has come to know that three out of four persons who declared agriculture as source of income actually did not pay agriculture tax in their respective provinces. The return of agriculture income is being used as conduit to evade substantial amount of income and corporate tax from business and industrial enterprises in which the landlords of Punjab and interior Sindh have bulk of shares.

According to the news report a former Primer Minster of Pakistan from Baluchistan is among those who have been sent tax notices after he was apparently found making false claim of paying provincial agriculture tax in order to claim exemption from federal income tax, according to sources in the Federal Board of Revenue (FBR). However, it was not in fact the FBR that caught these landlords evading taxes. This difficult job was done by the office of Federal Tax Ombudsman (FTO).

In order to evade income tax, the landlords claimed tax exemptions from the FBR by declaring the source of income as agriculture, revealed a study conducted by FTO office. However, 75 percent of them gave false statements in their annual tax returns as they did not pay taxes in the provinces, according to FTO findings. All over the country, 9352 tax payers have shown and 6668 people have paid provincial agriculture tax. It added only 2384—one-fifth of the total declarations—actually paid provincial agriculture income tax during the years 2016 and 2017.

The FBR was taken off guard when FTO sought replies on sheer negligence about 55 cases where source of income was forestry, fishing, poultry and dairy farming but these were declared agriculture income by the FBR. The development took place in mid-November and after that FBR started sending notices under section 122 (5) A of the Income Tax Ordinance. It remains to be seen whethe this time the Inland Revenue Services department of the FBR has sent tax notices on authentic addresses or the same gimmick of wrong addresses that it played in case of non-filers has been repeated.

The share of the agriculture in the economy is 20 percent but its total share in revenue is less than 1 percent, including huge tax evasion in this sector. In 2013, the FBR introduced an amendment in the section 111 of the Income Tax Ordinance 2001. The amendment was aimed at cracking down on those wealthy people who evaded income tax on other profitable sources of income by hiding behind the wall of agriculture income. However, the FBR did not take action against those landlords who claimed tax exemption on false statements that had paid their due taxes.

The pioneer of 1973 Constitution Z.A Bhutto was a big landlord and after cessation of former East Pakistan in 1971majority of members of the National Assembly were land lords. The authors of the constitution provided protection to the feudal class against the imposition of agriculture income tax. Hence, under the constitution of Pakistan, levying tax on agriculture income is a provincial subject, a lacuna that almost every influential landlord and industrialist exploits to evade tax by claiming income from agriculture land.

According to 2013 amendment, money or valuable articles owned or funds from which expenditure was made, by way of agriculture income, such explanation shall be accepted to the extent of agriculture income worked out on the basis of agriculture income tax under the relevant provincial law.

The FTO findings showed that FBR accepted the declarations of 9,352 people without verification from provincial authorities. The findings further showed that there was no liaison between the FBR and provincial tax authorities. Such revenue loopholes can be plugged by federalizing the imposition of agriculture income tax for which passing legislation from the parliament is synonymous with the proverb ‘asking for the moon.’ It may be recalled that a prominent advocate of federalizing the agriculture income tax, the then Finance Minister Dr. Mahboobul Haq, was not considered for any slot in the cabinet of Prime Minister Mohammad Khan Junejo.

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External balance

Modest increase in exports and gradual decline in imports have not shown signs of improvement in the external balance. The World Bank has cancelled a $ 250 million emergency relief loan for Pakistan after both sides could not converge on new macroeconomic framework due to deteriorating external sector condition. The loan was aimed at strengthening the regulatory and institutional framework to cope with the climate change anddisaster risks in the country and increase financial capacity to respond tonatural disasters.

The decision to cancel policy loans came following postponement of visit of a World Bank team to Pakistan. The bank had planned to send a mission in the third week of November but it suddenly scrapped the trip after bailout talks between Pakistan and the International Monetary Fund (IMF) failed. Pakistan and IMF failed to reach a staff level agreement last month due to harsh conditions proposed by the global lender in return for approving a second bailout package for the country in the past five years. Pakistan and IMF had differences over macroeconomic framework. The Washington based international lender was projecting a low financing gap as compared to $ 12 billion that was worked out by the ministry of finance. At present the finance ministry is more incline to take those policy loans that can be disbursed immediately due to country’s growing balance of payment needs. It is of the view that disaster risk management loan will block $ 250 million out of Pakistan’s quota of concessionary loans under the International Development Association (IDA) credit. The country also had to pay commitment charges on the undisbursed amount of loan.

The country’s gross official foreign exchange reserves stand at mere $ 7.5 billion which are sufficient only for six months import cover. One of the conditions of the World Bank for disbursing policy loans for budgetary support is to have minimum 10 weeks import cover. Pakistan and International Lenders also differ over the country’s exchange rate regime. They are pushing Islamabad to allow a steep depreciation of currency which does not seem affordable in the prevailing macroeconomic imbalances in the economy.

The finance managers appear to be confused how to tackle the liquidity crunch. Pakistan has delayed launching of $ 3 billion worth of Eurobonds for at least six months but it is likely to issue Diaspora bond after its rules have approved by the federal cabinet. The government is now in a position to launch the Pakistani Diaspora bond within a month to raise funds from overseas Pakistanis to meet the country’s hard pressing financial requirements. Pakistan’s central bank reserves have slid to $ 7.5 billion by the end of last month despite availing bilateral assistance of $ 1 billion from Saudi Arabia. The gross external financing requirements were earlier estimated at $ 31 billion by the finance ministry for the current fiscal year but later these requirements were downward revised to $ 25 billion.

The overseas Pakistani workers have remitted $ 9.1 billion in the first five months of this fiscal year which are up by 12.6 percent or $ 1 billion according to the State Bank of Pakistan. In order to increase foreign exchange reserves, the government plans to strengthen banking channels to convince Pakistani expatriates to send remittances through legal means and ultimately discourage other means of transmission. Currently, more than $ 15 billion are being remitted through Hundi system. The government’s vision can only come true if there is an increase in remittance through easy and expatriate friendly banking channels. Every year overseas Pakistanis send over $ 20 billion through proper channels while $ 15 billion are being sent through Hundi system in the country.

Diversification of exports market for the value added items can bring significant improvement in external balance. New markets in Africa and Latin America will help increase the quantum of exports. The country has the potential of additional exports of $ 12 billion plus. Properly cut and polished gem stones and marble products can fetch high value in the export market. Exports of refined quality of surgical goods, sports items and light engineering can boost exports. A comprehensive and long term trade policy has to be put in place without further delay.

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Fighting unemployment

Unemployment and poverty are interlinked. It is the high percentage of unemployment caused by lopsided development policies, rampant corruption of the political elite and top bureaucrats that over 800 million people are living below the poverty line and 1200 million people are confronted with the problem food insecurity. None of the economies in the world can provide bulk of the employment in government departments and public sector entities. It is the private sector that serves asengine of economic growth and creates jobs provided the economic environment is made favourable by the government.

To fight the chronic issue of unemployment and poverty, Prime Minister Imran Khan in his visit to Karachi held separate meetings with the delegations of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Overseas Investment Chamber of Commerce and Industry (OICCI) and Pakistan stock exchange and discussed with them issues confronting the economy and sought their suggestions to cope with them.

The private sector investment flourishes when the cost of doing business is low.  The sky-high prices of electricity, gas and barrage of 56 indirect taxes has pushed the country down to 147th position on the Ease of Doing Business Index of the World Bank. Fast depreciation of the currency again the US dollar and other major currencies, successive increases in the interest rate have further aggravated the environment for domestic and foreign investment. The export subsidy that is being given to export oriented industries has been neutralized by currency depreciation and hiking of interest rate as the imported industrial material has become expensive. The country’s exportable products also consume a lot of imported intermediate goods. The expensive raw material and intermediate goods make exports lose comparative advantage in competition with identical goods exported to the world market by other developing countries including India, Bangladesh, Thailand and Vietnam. A single cotton plant is not grown in Bangladesh but its alone from textiles is $ 27 billion dollar. The reasons are obvious in the shape of low electricity tariff, highly skilled manpower and application of fourth and fifth generation technologies.

In Pakistan private was flourishing by leaps and bounds in the decade of 1960s and it provided numerous lucrative and better paid job opportunities to both skilled and semi-skilled workforce. The entrepreneurial class was always in search of innovations to boost exports. The treacherous political slogan of concentration of national resources in the hands of 22 families misled the people and rallied behind a representative of brute feudal class Z.A Bhutto who after coming into power destroyed the private sector with his policy of nationalization of industries, including small, medium and large scale industries and banks. Till then the industrial sector remained stuck on the second generation technology and other developing countries of the region moved forward by encouraging private investment in industry, introduction of new technologies, and skill development. The governments of theses countries invested in knowledge economy by facilitating acquisition of modern scientific knowledge, engineering sciences and state-of-the-art technologies.

On the other hand, the so called elected governments of feudal and mercantile class oligarchy in Pakistan used to give the worst deal to human resource development. The same attitude is still all pervading as higher education has become unaffordable for the talented students from poor and lower middle classes. Baring a few private sector universities, all public sector and private sector universities do not provide favourable research environment in the field of science and technology. How the country will get benefit from the nine special economic zones when it does not have a big pool of high caliber engineer, scientists, technicians IT professionals and skilled managerial class.

The Prime Minister has cited the success story of Malaysia and said that the private sector started making profits which were reinvested and its leadership went for attracting foreign investment. But it was the vision of Dr. Mahatir Mohammad who provided favourable economic environment to foreign investors in the shape highly skilled manpower, low tariff of energy inpouts, minimal bureaucratic red tap and zero tolerance for financial corruption. Does such an environment exist in Pakistan? It is high time to renegotiate the power sector agreements with IPPs to lower the electricity tariff, make the taxation regime simple and progressive and above all address the issues of inefficiencies in higher education by strengthening the research infrastructure and observing the rule of merit in faculty appointments and admission policy for the enrolment of students. This is what the Asian Tigers including Malaysia, South Korea and Taiwan did to reach the zenith of prosperity.

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Revenue shortfall

After dealing with the external sector deficit, the government’s attention is now being drawn to growing shortfall in tax revenue collection which is beginning to bite. In the first five months of the fiscal year, a shortfall of approximately Rs.102 billion has been recorded in revenue collection, and this week officials of Federal Board of Revenue gave a briefing to the Prime Minister about the grim situation with suggestions, mainly the stereotype regressive taxes imposition, on how the shortfall can be reduced. The FBR bureaucracy has always been fond relying more on the regressive indirect taxes vitiating the economic environment and bringing more miseries for the people.

In the first four months of the current fiscal year the shortfall in tax collection was Rs. 90 billion and hence an addition if Rs. 32 billion has been recorded in the fifth month. This reflects the sheer incomptetence of the high-up and field officers of Inland Revenue Service Department of the FBR. In the briefing to the Prime Minister FBR pointed out some reasons that caused tax base erosion including large cuts announced in the last budget of PML-N government in April as well as the Supreme Court’s decision to suspend collection on prepaid mobile phone cards and also the government decision to slash sales tax on petroleum products. In the FBR view, the slashing of sales tax rate on petroleum products alone has given a revenue loss of Rs. 35 billion to the national exchequer thus far. But the mandarins of FBR did not tell as to why their drive of bringing the tax evaders and non filers into the tax net ended in fiasco. Why, authentic office and home addresses of the tax dodgers were not included in the FBR database? Which Aladdin lamp was in the hands of Dr. Salman Shah , Advisor to President Mushsharraf and the  then Chairman  Ahad Yousaf that the number of active direct taxpayers went up from 1 million to 2.4 million and why the number of taxpayers dropped to 1.2 million during the last 10 years? Do they not have that data which was available with complete addresses of tax payers? Are they hand-in-glove with the tax dodgers? They should have told the real factors of erosion in the tax base.

In February, former Prime Minister Shahid Khaqan Abbasi, in an interview with Bloomberg news agency told about using national identity database to build a comprehensive profile of potential tax payers. Why the FBR did not worked out a viable plan for building the authentic profile of wealthy people who are still out of the tax net.

It is very criminal neglect on the part of the previous two governments and the present one that only 1 percent of 220, million people pay direct taxes. The main source of revenue generation is a barrage of indirect taxes hitting hard the common man and benefiting the rich classes. The International Monetary Fund (IMF) has been repeatedly expressing concern over the lowest tax to GDP ratio which is hardly 12 percent. The feudal class sitting in the parilment also owns industrial and business ventures and they show bulk of their income for industrial and business enterprises in agriculture income to evade direct tax. It gives a strong rational to the business community to either resort to tax evasion with the connivance of tax collectors and oppose the documentation of the economy. It also emboldens them to avoid filing tax returns. In the past two years, the FBR failed even to retain the exiting number of taxpayers. In 2016, 1.4 million taxpayers filed their tax returns but their number dropped to 1.22 million in 2017, showing a decrease of 180000 active taxpayers just in one year. The recipe of botched tax amnesty scheme advocated by the former governor State Bank and now an important member of Economic Advisory Council Dr. Ishrat Hussain did not bring the desired results. The tax amnesty scheme of 2018 could add a few thousand people to the list of active tax payers. Fixing of tax collection machinery with a workable roadmap with more emphasis on direct taxes is needed.

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PM’s candid viewpoint

The Prime Minister Imran Khan in his interview to the Washington Post made it clear that Pakistan wants cordial relation with United States but with dignity and honour and safe guarding the national interest. He expressed his desire to have proper relation ship with US akin to Islamabad ties with Beijing rater than where Pakistan is treated like hired gun. This is clear message the relations between the two countries must be based on quid pro quo and Pakistan will not fight someone else war.
The Prime Minister elaborated that such wars not only cost human lives, devastation of our tribal areas but it also compromised our dignity. Elaborating his version of ideal relationship between the countries the Prime Minister it should be based on flourishing trade, investment and closer cooperation in different vistas of economy. He explained the country was not hedging towards China, implying that it will pursue an independent foreign policy in the multi-polar world. He dispelled the impression that his policy has anti-American slant. This is misperception. However, he defended his tit for tat tweet against the tirade launched by the US President Donald Trump. He said that the attitude that you are with us are against us is acceptable. On Afghanistan the Prime Minister held out assurance of making efforts to persuade the Taliban to come to negotiation table. He cautioned that the US should not leave Afghanistan in hurry as it abandoned this war torn country after the withdrawal of Soviet troops in 1989.
The United States and Pakistan have remained allies right from the cold war era of 1950s but the relationship had a semblance of dignity, mutual benefits and trust although the former did impose embargo on the supply of arms and spare parts when 1965 Pak-India war started. During his US visit in 1961, President Ayub Khan was received at the airport by the President J F Kennedy and his cabinet and hundreds of Americans waved hands and raised welcome slogans on both sides of the road through which his motorcade passed. Prime Minister Mohammad Khan Junejo, in his visit of the US in 1986, was received by the Secretary of State George Shultz. President Musharraf used to receive almost dignified welcome.
It was Zardari and Nawaz Sharif eras that both the leadership and country lost its dignity. The leadership that ruled the country over the past 10 years remained deliberately oblivious of the dignity of Pakistan and even went through the insult of body search at the airports.
The Prime Minister is anxious to restore the lost prestige of the country with independent foreign policy and has the courage and stamina to stand pressure. An analyst who writes daily column in an Urdu daily newspaper has given a piece of advice to Prime Minister to discretely deal with the US and avoid such statements which offend the US administration. He has drawn fallaciously a parallel between Z.A Bhutto and the present leadership. The deliberately pursued disastrous economic policy, and intolerant political philosophy of Z.A Bhutto alienated him from the people coupled with the attitude of collision with state institutions caused his downfall. Moreover, there is a lot of political awareness among the youth which is the mainstay of PTI. The dynamics of multi-polarity and strategic importance of Pakistan will prove decisive factors in the reset in relations between the two countries. There is now growing realisation in Washington to mend the ruptures in relations with Pakistan with a way to find out an honourable exit from the quagmire of Afghanistan.

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Dams’ construction strategy

The Supreme Court ordered the federal government on Thursday to furnish a comprehensive set-by-step implementation strategy for the construction of Diyamer Basha and Mohamand dams in the country. A four member Supreme Court implementation bench headed by the Chief Justice Mian Saqiib Nisar asked the Attorney General Anwar Mansoor Khan to get instructions from the federal government for regular allocations from the Public Sector Development Program (PSDP) for the uninterrupted execution of these projects.

During the hearing the Chief Justice of Pakistan inquired about the fate of tunnel in Babusar Top in Gilgit Baltistan believed to be necessary for logistic purposes reducing the precious time But the Attorney General explained that Frontier Works Organisation had secured a stay order against the construction of the tunnel by Chinese. The CJP however held out assurance that the apex court will take care of the stay order, but cautioned that nota single penny of Rs. 8.4 billion so far collected through public donations would be allowed to go waste or spent on any other projects. The court asked the government to inform about its plan if it intended to create some company and issue bonds for generating funds internationally.

On July 4, the Supreme Court had ordered the opening of an account with a direction to the federal government, WAPDA and the executive authority to take effective measures in the light of the unanimous decisions of the Council of Common Interest(CCI) to develop 4500 megawatt power generation capacity Basha Dam and 730 megawatt Mohamand Dam.

Although the PTI government announced their austerity program with a lot of fanfare and has imposed cut of 10 percent on non-development expenditure. But it has not come out with clear priorities to spend the allocations under PSDP on various projects. The Finance Minister had told that international donors’ response is favourable to the economic agenda of the government. However, he did not disclose as to whether the financing of Diyamer Basha and Mohamand dam has been discussed with the representatives of the World Bank and Asian Development Bank. It was reported in an English Daily Newspaper that the World Bank had advised the Asian development Bank to seek NOC from India before giving nod for providing finances for the construction of Diyamer Basha dam. In the previous PML-N government the ECC decided to provide funds of Rs. 474 billion for Basha and Rs.325 for the Mohanand dams from domestic resources. Previously, the then water and power minister Khawaja Asif and finance Minister Ishaq Dar had held Road Shows in the United States to persuade private banks for financing Basha Dam in 2016. But the exercise did not succeed perhaps due to cr4edibility gap or some other reason which were not disclosed.

In July Chairman WAPDA Lt. General Muzammal Huassian had given an optimistic picture about arranging finances for the dams. He said that an amount of $1.5 to $ 2 billion is required from external sources and the authorities are in touch with Asian Infrastructure Investment Bank and a Swiss Bank for financing requirement of the foreign exchange component of these dams. He also hinted for imposing a special surcharge in the electricity bills. In the same month on Jul 2 an informative article of former member Planning Commission was publishing confirming the financing interest of World Bank in the 2160 megawatt Dasu first stage hydroelectric project. If the World Bank is willing to provide loans for Dasu hydroelectric power project then what are the hurdles in negotiations for acquiring finances for Diyamer Basha dam. The failure of Inland Revenue Services department of the FBR to miss the revenue collection target by Rs.90 billion in the first quarter and media reports that the economic team of the government is in disarray and rumor of replacing the finance minster creates uncertainty about the implementation of mega projects. The government is yet to come out with a clear economic vision.