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Governments’ oblivious attitude

The plight of October 2005 victims laid bare the oblivious attitude of elected leaderships towards humanity over the past 11 years. The remarks of the Chief Justice of Pakistan Mian Saqib Nisar and another honourable judge of the Supreme Court during the hearing of the case pertaining to plight of earthquake victims jolts the sleeping conscience of the ruling political elite. The most tragic aspect of rehabilitation and reconstruction work in affected areas is that bulk of the funds received for the reconstruction of Balakot and other calamity stricken areas were misappropriated and diverted to the projects of political gimmick like Benazier Income Support Programme and a Metro Bus Project in the province of Punjab.

When the earthquake occurred in on 8th October 2005, International Community favorably and generously responded to the call for assistance by President Musharraf in relief, rehabilitation and reconstruction in earthquake affected areas of Khyber Pukhtunkhwa.  He advised the then PML-Q government to turn the calamity into opportunity. Billions of dollars were committed in the donors’ conference which was held in Islamabad and the inflow of foreign assistance immediately started.

The Chief Justice, while presiding over three member bench hearing the case about the earthquake victims said if he should make a four hour journey to visit Balakot and Mansehra why not the Prime Minister. The aid funds poured in from around the world for earthquake victims were entrusted to the government but were misappropriated, he said. The top judge in his remarks said that hands were extended for taking alms after the devastating earthquake but the consecutive governments and authorities continued to plunder the assistance provided by donors. Where is the money that was meant to build houses for earthquake victims he asked the Earthquake Rehabilitation and Reconstruction authority (ERRA) officials? The court summoned its head in the next hearing.

“It cannot be possible to spend winters under tin roof. Once affluent people are now living in shelters, the affected areas are devoid of schools and hospitals,” the CJP said. He said that the court has sent the report of the session judge to the Prime Minister but to no avail. The federal cabinet should sit and look into the matter itself.” If the problems of the earthquake victims are not resolved and the dam is not built, then I will join the people in their protest,” the CJP Mian Saqib Nisar said.

The Attorney General told the court that he had a conversation with the Prime Minster regarding the issue but he was unaware of the matter, to which the Chief Justice of Pakistan said that it was surprising to note that the chief executive of the country was clueless about the situation of victims of earth quake. “The Prime Minister is unaware of the most pressing issues of the province which has given him the most love,” the Chief Justice remarked.

During the hearing, Justice Ejaz ul Hassan said that the money which was meant for the relief and rehabilitation of earthquake victims was instead spent on metro bus project and Benazier Income Support Programme.

The misappropriation of aid provided by donors dinted the image of the country and reputation of the government in the international community. It was because of this credibility gap that donors did not respond favourably in the wake of July 2010 unprecedented devastating floods that brought havoc in the provinces of Khyber Pukhtunkhwa and Sindh despite the repeated requests from the previous PPP led government. It were the local and foreign NGOs, relief organisations and people who performed the necessary relief and rehabilitation work. The people while voting to power PTI in July 2018 elections expected better performance and people friendly attitude keeping in view the honesty of Imran Khan and his people friendly attitude but now they find him not much different than the traditional politicians who belong to the exploitative feudal and mercantile classes.

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Integrating tribal districts

Prime Minister Imran Khan, while presiding over a high level meeting, has expressed firm resolve to integrate the former Federally Administered Tribal Areas (FATA) with Khyber Pukhtunkhwa through speedy completion of projects of socio-economic uplift and accelerating the pace of work on the reconstruction projects. He directed for the provision of health cards to five hundred thousand families of the merged areas at the end of January. The meeting decided that provincial cabinet, in its monthly meetings, would review progress on development works and introduce reforms in these areas.

There were a number of factors that perpetuated the backwardness of former FATA. The development priorities were skewed due to lack of community participation in development planning and pick and choose policy of political administration and FATA Secretariat. Bulk of the development funds usually got lapsed because of capacity issues of nation building departments and there was also lack of transparency in development expenditure.

The proximity of these areas with Afghan border also impacted its people in regard to the provision civic amenities.The war against the soviet forces in the decade of 1980s and then the war on terror after the 9/11 incident devastated them. The reconstruction work and rehabilitation of displaced people went on with a snail pace during the past three years. As in future the development work at the grass root level is carried out by local bodies’ institutions therefore after the elections to local government institutions the era of skewed priorities will end. However, the establishment of a subordinate judicial system and raising a well trained police force will require huge amount of financial resources. It is not yet clear whether the finances required for putting in place a judicial system at the district and sub divisional level and police force shall be provided in the next NFC award or separate allocations will be made in the next year provincial budget.

The physical infrastructure in the tribal districts is in dilapidated form and its rehabilitation will need special development package. The condition of district level hospitals is also not enviable and direly need equipments and specialist doctors. Likewise the condition of existing schools and colleges need improvement. Female literacy rate is very low and has to be enhanced by opening girls’ schools and colleges.

A prominent new story published on the back page of a leading Urdu daily newspaper that the federal governments has slashed the allocations of development funds that were made by the federal government in the Annual Development Programme for the ex-tribal areas. The axe has fallen on the ongoing schemes in education, health and public health engineering. Before the total mainstreaming, of tribal districts reduction in the amount of allocated financial resources is not justifiable. The decision runs contrary to the announcement of the Prime Minister for diverting more resources to social sector development. The uplift of tribal districts is an uphill task and requires comprehensive strategies and long term plan. The previous practice of adhoc measures will not bring improvement in the life of people.

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Need for charter of economy

Two major worrying indicators of Pakistan’s economy are the falling exports and ballooning public debt. The World Bank in its report titled “South Asia Focus Fall 2017”cautioned the previous PML-N government to take corrective measures to overcome these macro economic imbalances but in vain. The incumbent PTI led government has also not initiated the requisite measures to improve the worsening macroeconomic indicators.

There is a need of charter of economy because government’s borrowing is increasing and exports are not growing which are critical for strengthening of the economy. In the past few years, it has been noted that Pakistan is sinking deep into a debt trap and has not been able to strengthen industries to step up exports. The Prime Minister has repeatedly shown concern over the unsustainable public debt that was created by the last PML-N government but the debt management strategy has remained unchanged. The federal government’s recent move in the debt market has raised questions over the debt management strategy as it has rejected Rs. 94 billion long term loan at a relatively lower price but borrowed Rs.86 billion for 10 years at a higher rate of interest. The Finance Ministry acquired on Wednesday this much expensive loan through Pakistan Investment Bond (PIB) at a fixed interest rate of 13.12 percent, which is one of the highest return in recent years.

Exports of Pakistan decreased to Rs. 246.015 billion in November from Rs.248.128 billion in October this year. Decline in exports has increased pressure on foreign exchange reserves. According to Bloomberg, “Pakistan’s dollars reserves are depleting at a faster rate in Asia and may soon have a buffer that is smaller than Cambodia—an economy that is less than 10th of its size.”In order to increase exports and ease pressure on foreign reserves, all political parties need to bring in ideas, discuss them and implement them in short and long run. In the formulation of charter of economy, necessary input should be taken from business leaders, scientists, engineers, technologists, farmers and labrourers.

Declining exports to the United Arab Emirate, Saudi Arabia and Turkey despite having good political relations are quite worrying. There is a dire need to revive economic diplomacy in foreign relations. The point has already been emphasised by the foreign Minister Shah Mehmood Qureshi in his speech at the recent envoys’ conference. The role and effectiveness of commercial councilors in improving relations with trading partners is extremely important. But the postings of these officers are not made on merit with the result that they cannot admirably perform their job.

Pakistan adopted a private sector oriented strategy some what earlier than other economies in the region but was reversed by Z.A Bhutto government. The strategy reversal adversely affected the quest for innovations, productivity and growth in the industrial sector, resulting in a constant decline in exports. There is an urgent need to assist private entrepreneurs who are dynamic, open to innovations and have managerial capabilities by providing favourable business environment with good governance, appropriate institutional and financial support mechanisms, and adequate legal support framework besides provision of physical and social infrastructures. The industrialists have developed a tendency of not maintaining a linkage with public sector institutions of Research and Development and the elected governments used to financially strangulate these important entities and made them redundant, thus wasting the expertise of their manpower and available technical and research infrastructure.

Pakistan may begin by creating a competitive market in labour intensive production of goods and gradually progress to more skilled and technology-intensive activities. There is need to devise policies and strategies to increase production through capacity utilisation, capacity expansion and productivity growth. For productivity expansion diversification of production base of goods and services with greater comparative advantage and global demand is inevitable. Some of these industries are electronics, telecommunication equipments, auto parts, biological pharmaceuticals, renewable energy and petro chemicals. The productivity growth will come automatically from substantially increasing investment in human capital and promoting innovations.

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Energy mix

Ever since the abandoning the construction of big storage dams on river Indus and hydel power stations thereon, achieving the optimal energy mix has remained illusive till date. Prioritizing the most expensive thermal power generation from diesel and furnace oil by the PPP and PML-N governments resulted in higher power tariff increasing the cost of doing business and deteriorating the Ease of Doing Business Index to the 147th position in the ranking of the World Bank. But in the PTI led present government the situation is gradually improving. Despite the looming water crisis and gas shortage, power production from these two cheap sources has gone up.

Hydel power plants made the largest contribution to the total electricity production in the month of November at 2,564 gigawatt hour (GWH) which was 16 percent more than 2,212 GWH in the same month previous year, as reported by National Power Regulatory Authority (NEPRA). Its share in total power production rose to 34 percent in November this year compared to 31 percent in the corresponding month last year. Total hydel production surged by 5 percent to 7,545.6 GWH in November compared to 7170 GWH in the same month last year.

Similarly, combined production from locally produced gas and imported liquefied natural gas (LNG) rose 15 percent to 2,812 GWH compared to 2,448 GWH. Their share in the energy mix surged to 37 percent compared to 34 percent in November preceding year. Separately the contribution of locally produced gas to overall electricity production fell but it surged significantly in the case of LNG.

Hydel production increased after additional two new plants started generation during the calendar year 2018. Tarbella- 4 extension project and Neelum Jhelum hydropower power stations have added nearly 2400 megawatt this year. The relative increase in rainfall improved the water flow in dams which helped the country produce higher electricity from hydel power projects. The Khyber Pukhtunkhwa government had forwarded a number of small and medium hydropower projects with total capacity of 2100 megawatt in 2012. Out of them only one project of 84 megawatt got the approvals from CDWP, ECNEC and ECC. Had all hydropower projects, which could have been completed in few years, got the approval on time the balance would have been tilted toward hydel power in the energy mix?

The skewed priorities of the previous governments in power generation have now been changed. Federal Minister for petroleum Ghulam Sarwar Khan announced the other day that the government has given priority to producing most of the electricity from hydel sources while production from alternative energy sources including wind, solar and bagasse has been placed at second place in the energy mix. Power production from LNG has been given third priority and not environment friendly coal power generation has been ranked fourth. The previous PML-N government had given first priority to environment polluting and health hazardous coal based power generation the first priority by deciding to set up 13 such power plants. Of which two power plants have been operationalised at Shekhupura and Sahiwal. The most expensive furnace oil power generation has now put at the bottom by the present government keeping in view of the disastrous policy of second PPP government while setting up furnace oil and diesel fired IPPs, the major factor of circular debt piling.

Electricity production from furnace oil has dropped to nominal 5.79 GWH in November compared to 648.5 GWH in the same month last year but the agreements that had been made with IPPs binds the government to pay 40 percent charges for the idle capacity of private thermal power plants. Electricity production from coal fired power plants increased by 8.5 percent with a contribution of 1,045 GWH compared to 962 GWH last year. Their share in the total power production remained flat at 13 percent. But coal tariff agreed with Chinese companies is 40 percent higher than the international standard which needs a review. Production from nuclear plants rose over 29 percent to 827 GWH, contributing 11 percent to the power production. The power production from nuclear source increased from 670GWH to 827 GWH after the addition of two reactors in the recent past.

The increase in electricity production from inexpensive sources of hydel and gas should have resulted in proportionate decrease in tariff which has consistently been raised in a futile attempt to resolve the chronic problem of power sector circular debt which now stands at Rs. 1.20 trillion. The World Bank has cautioned against further jacking up of electricity tariff and advised to make the transmission and distribution system efficient and improve the revenue collection by addressing the issue of willful default of electricity bills plus its massive theft. These issues need to be dealt with as first priority.

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Netting non-filers

The Inland Revenue Services Department of the Federal Board of Revenue (FBR), as usual, avoided a determined drive to net the non-filers. After a large exercise of serving 3,121 notices to high net individuals, who are non-filers of tax returns, a weak response has been received as only 220 of them have complied with the terms of notices thus far. It is a matter of great concern that in President Musharraf era the number of active taxpayers was 2.4 million which dropped to less than 1.2 million over the past 10 years. How come that 50 percent of taxpayers skipped out of the tax net? What were factors for such a steep decline in the number of filers? Is it because of the pressure exerted by the political elite sitting in the corridors of powers?
Soon after Pakistan Tehrik-i-Insaf came to power, The FBR identified 3100 high net-worth individuals who were non-filers of tax return and issued notices to them in four batches. However, media reports revealed that most of the notices were sent on invalid addresses which returned undelivered. In the first batch 148 notices were issued to the rich people, followed by another 75 notices, 220 notices, respectively. In the last batch, 2678 people were served with notices asking them to file returns. Tax officials believe the rest of the notices are “under processing” and remain confident that who received notices will file their tax returns eventually. However, the success rate of this exercise depends on the honesty and determination of tax collectors of Inland Revenue Services Department both sitting in offices and working in the field. The tax official did not reveal the quantum of revenue collected from those who have complied by filing their returns thus far.
The FBR has also identified more 3000 more non-filers of tax returns, though notices have not gone out to them. These high net-worth individuals who are non-filers can be identified in the system and have been seen purchasing immovable properties worth 20 million and above, as well as vehicles of 1800 cc engine size and above and are earning rental income of Rs. 10 million and above. On the top of this, the tax authorities have sought and received in formation on 152,518 Pakistani nationals with undeclared assets abroad. The information has been received from 28 countries under OECD Tax Convention.
According to tax officials, notices are being served to initiate process for recovery of evaded taxes, if any, and also determine whether the assets in question have been acquired from legally generated income. The data received was matched with the domestic one.
In its manifesto, The PTI promised deep reforms in the FBR to make it an autonomous body and inducting some professionals from the private sector. These reforms are yet to be initiated and the stereo type bureaucrats have dismally failed to meet the revenue target by Rs. 90 billion in the first quarter of the current fiscal year. The government’s own Economic Advisory Council has advised to bring into the tax net the non-compliant rich people as way to broaden the tax base and promote documentation of the economy. It was the rigidity of tax collectors that the drive of documentation of the economy did not succeed in the year 2000. Council’s members say comparative data from other countries shows large room for growth in direct taxes and with the detailed data available in the database of NADRA, the banking system, and the FBR itself, along with the utility bills and school registrations, it is easy to pinpoint people who have ample resources at their disposal and are not filing returns.
The Prime Minister Imran Khan, while launching the report of 100 days performance of the government, lamented over the botched drive of the FBR to bring non-filers into the tax net. He said that only 72,000 people have declared their income above Rs.200000 per month. Mentioning the paltry number, he said these many people can be found only in Islamabad with income equal or above Rs.200000.
In order to evade income tax, the landlords of Punjab, Sindh and Baluchistan claimed exemption from the FBR by declaring the sources of income from agriculture, revealed a study by the office of Federal Tax Ombudsman (FTO). These landlords club greater amount of their income from industrial and business enterprises with agriculture income to evade hefty amounts of income and corporate tax. The FBR has also shown them the tax evasion rout by declaring income fro forestry, fishing, poultry and dairy farming as agriculture income. The legal lacunae in this regard need to be removed and tax collection machinery must be made accountable for their failure to promote the documentation of the economy.

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Securing national interest

While addressing the meeting of Islamabad Chambers of Commerce and Industry, Advisor to the Prime Minister on Commerce Abdul Razzak Daud admitted that the free trade agreements (FTAs) with China and Malaysia and preferential trade agreement (PTA) with Indonesia had not been beneficial for the domestic industrial sector. He said these agreements shall be reviewed, disclosing that a revised FTA with China shall be signed by June 2019.

The terms of FTA with China Phase-1 were loaded against the national interest as no duty free access was ensured for the exports from Pakistan. On the other hand, zero duty concession was granted to China on 35 percent on import tariff lines. During the last few months of the previous PML-N government, China was pressing hard for zero duty concession on 75 percent import tariff lines which would have converted Pakistan into a trading nation instead of producing and exporting one. The import duty concessions on 35 percent tariff lines flooded the local markets with goods on dumping price and many Pakistani industries producing identical goods could not survive. Pakistan’s exports to China could not grow because of tariff and non-tariff barriers. The deficit in balance of trade with China is $12 billion plus.

China retaliated to Pakistan’s decision to postpone the signing of FTA-II in May this year. It delayed the implementation of the agreement for the digital trade data exchange which was meant to capture the real value of imports from the neighbouring country China. Pakistani authorities believed that imports from China were undervalued by at least $ 4 billion. Pakistan’s record showed that imports from China were worth $ 10 billion but Chinese publication put the figure at $ 14 billion. At times Chinese exporters did overstate the value of exports to get higher rebate from their government.

In addition to under-invoicing and export of goods on dumping price, smuggling of a number of Chinese products is another challenge for the economy of Pakistan. The country is losing a staggering amount $ n2.63 billion of revenue every year due to smuggling of 11 goods that are making their way to the domestic market through porous border, more alarmingly through containerized cargo with the full support of state machinery. The smuggled goods include auto parts, tyres, mobile phones, television sets, plastic, steel sheets, cigarettes and tea. Pakistan sustained a loss of $1.1 billion due to smuggling of mobile phones alone.

Pakistan signed PTA with Indonesia in 2012 which became operationalised in 2013. The situation turned horrible since its implementation in 2013. Indonesia exports to Pakistan increased from $1.2 billion in 2012 to $2.2 billion in 2016-17, while Pakistan’s exports to Indonesia declined from $196 million to 137 million. Pakistan’s major exports to Indonesia include textile, clothing, rice, vegetables and citrus fruits, whereas its major import item is palm oil.

Pakistan’s trade imbalance with Indonesia is its own fault. It has been unable to get access to the Indonesian market to increase its exports like textiles, food grains, fruits and vegetables in which it has an edge over other countries in terms of price and quality. The main problem is with government’s policies and its exporters. According to Waheed Ahmad, Vice President Lahore Chamber of commerce and industry(LCCI), it is our fault if we are unable to increase our exports to Indonesia, which is a fast growing economy whose trade is increasing with almost all countries.

Pakistan’s problem is that it is not ready to explore far eastern markets. Unless our exporters go for innovations and branding, the situation is not going to improve. Moreover, high potential items had been left out of PTA between Pakistan and Indonesia, which include three plastic items with trade potential of $140 million and 16 cotton items with trade potential of $500 hundred million. Inclusion of these export items would have significantly brought down the deficit in the balance of trade with Indonesia.

FTA with Malaysia came into effect in 2008. In 2014 Pakistan’s exports to Malaysia were worth $234 million which fell to $186 million and $152 million in the next two years. In contrast, Pakistan’s imports from Malaysia increased from $911 million to $945 million. The LCCI president had noted that balance of trade has always been in favour of Malaysia and said though the trade gap has been narrowing consistently yet imports from Malaysia were six times higher than exports. There is a huge potential of exporting Pakistani rice, fresh fruits like citrus, mango, apples, peach, pear and apricot. In review of FTAs with China and Malaysia and PTA with Indonesia national interest needs to be secured, which was ignored by the previous governments.

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CPEC debt servicing

The cautioning of the multilateral donator agencies about the Chinese debt to finance energy and infrastructure projects under the umbrella of CPEC has been vindicated. Pakistan will pay S40 billion on account of  loan repayment and profits to the Chinese investors of energy projects within 20 years against the loans obtained worth 21.40 billion. It established the fact that Chinese loans were acquired at a very high rate of interest as compared with loans granted by the multilateral donor agencies for project financing, balance of payment requirements and budgetary support.

The capital expenditure on energy projects was on a very high side and agreed power tariff was also sky high, resulting in the payment of hefty profits to the private investors. Out of 39.83—to be precise—the debt repayment of energy and infrastructure projects amounts to $28.43 billion. The rest of 11.40 billion will be paid in the shape of dividends to the investors, according to the estimates of Ministry of Planning and Development.

This suggests that unlike the claim of $ 50 to $ 62 billion CPEC high interest bearing loans ridden financing, the actual investment is likely to remain half of initially announced investment figures. The only project that will materialise with in the next few years is $ 8.2 billion Mainline-1 project of Pakistan railway. At present the project is not included in these estimates because its PC-1 is yet to be approved. Experts have described the cost of the project inflated and the Railway Minster Sheikh Rashid Ahmad had hinted in an interview with female anchor Gharida Farouqi for a possible reduction of $ 2 billion in its cost.The ADB Country Director Naohong Yang has advised Pakistan to be watchful in handling the mega railway mainline ML-1 project to be financed under CPEC. 

The ADB Country Director is of the view that ML-1 is very expensive mega project and the government needs to explore all possible ways to make sure that the project is financially sustainable. ADB is providing assistance in reviving Pakistan Railway. The ADB and the World Bank has suspended Pakistan’s budgetary support due to deterioration in macroeconomic conditions of the country. Yang shared that all the donors came together on the economic stabilization policies that are to be implemented by Pakistan and it was not only about the International Momentary Fund (IMF).

On the pressure of the International Monetary Fund (IMF), the Ministry of Finance has also shared these estimates with this multilateral to secure a bail out package to overcome the economic woes confronting the country which were left as legacy by the tow previous government to the incumbent government. Pakistan has to return $ 2 billion CPEC debt per year.

These are the first comprehensive estimates that are based on under implementation projects and outflows have been estimated on account of debt servicing of energy and infrastructure projects. CPEC portfolio currently comprises energy projects being set up by private investors and infrastructure schemes undertaken by the government.

The previous PML-N government had signed loans of $ 5.9 billion at an interest rate ranging from 2 percent to as high 5 percent. There were three government loans totaling $ 774 million that have been obtained at an interest rate of 5.2 percent. The commercial loans for setting up power plants had been arranged at an interest rate of London Interbank rate offered at 4.5 plus percent. However, it is the return on equity, which is in some cases as high as 34.2 percent and that will cause an outflow of $11.3 billion. Are such unaffordable energy projects make CPEC a game-changer which was often claimed by the former Planning Minister and senior PML-N leader Ahsan Iqbal?

Capital expenditure (Capex) for coal based energy projects was 40 percent higher than the international cost and power tariff was 8.4 cents per unit as compared to a tariff of 5 cents and below in many jurisdictions. The Capex of hydropower projects under CPEC framework is also very high as compared with that of stage-1 of Dasu hydroelectric power project of 2160 megawatt which being financed by multilateral donor agency. The agreed tariff rate of hydropower plants financed under CPEC is irrationally high. Karot has 2.03 times more the reference cost of Dasu, Kohala 3.31 times, Azad Pattan 3.97 times, Suki Kinari 2.38 times and Mahal 2.50 times. The agreements of energy projects need to be reviewed if possible to bring down the outflow of foreign exchange from cash strapped Pakistan.

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Foreign Minister’s whirlwind tour

The incumbent government has started a proactive diplomacy aimed at securing a political settlement of Afghan conflict. Foreign Minister Shah Mehmood Querishi has completed a whirlwind tour of four nations by visiting Kabul, Tehran, Beijing and Moscow with senior officials of the foreign office as a government policy of outreach in the neighborhood. Pakistan has always emphasised that solution to the conflict lies in Afghan led and Afghans owned peace process. International community’s recent consensus to adopt this as a guiding principle to resolve the 40 years old afghan conflict vindicates Pakistan’s long held view.

In his visit to Kabul, the foreign Minister met Afghan President Ashraf Ghani and his counterpart Salahuddin Rabbani. He apprised the Afghan leadership on Pakistan efforts to facilitate an intra-Afghan dialogue. He stressed the need for greater synergy among regional countries to ensure long term peace and stability in the region. Later, Shah Mehmood Qureshi travelled to Tehran to meet Iranian foreign Minister Jawad Zarif and discussed the dynamics of situation in Afghanistan. Iran is already in contact with the Taliban. Ali Shamkhani, secretary of Iran Supreme National Council made the announcement while on a visit to Afghan capital Kabul.

In his visit of China, the Foreign Minister had deep discussions with his counterpart Wang Yi about new changes to the situation in Afghanistan and reached a broad census about the peace and reconciliation process in Afghanistan in the context of changing scenario. In the Beijing parleys both Pakistan and China reiterated their determination to adopt joint course of action for achieving regional peace and stability. Qureshi on the final leg of his four nations went to Moscow and met Russian Foreign Minister Sergie Lavrov. The two sides discussed the changing situation in Afghanistan and the efforts that are being made regarding the peace process in Afghanistan.

Pakistan last week facilitated a meeting between the United States and the Taliban in Abu Dahabi in a bid to pave the way for reviving the peace process that has remained stalled since 2015 when it broke down due to a news leak that insurgency leader Mullah Omer had long been dead.

The complicated Pak-US ties have been particularly tense since President Donald Trump last year announced his Afghanistan and South Asia strategy in which Islamabad was accused of not acting against terrorists safe heavens. During the course of its bad patch in ties with the US, Pakistan increased its interaction with China Iran and Russia. A trilateral—Pakistan, China and Afghanistan—forum held its second meeting on December 15 and Moscow had hosted last month second peace conference on Afghanistan, involving regional players, the Taliban and Afghan High peace Council.

Now that President Trump in a tactical shift sought support from Pakistan and the latter has happily accepted to help, Querishi visit is meant to reassure the regional partners that Pakistan will remain in touch with them on Afghan reconciliation issue. The US hopes that the Taliban and Afghan government strike a peace deal by April 2019. President Donald Trump plans to withdraw roughly half of more than 14000 troops stationed in Afghanistan at the end of next year—a move that is opposed by Pentagon, which wants to continue to apply direct and indirect military pressure on the Taliban, while supporting nascent efforts for peace.

Pakistan in response to the US President’s request for help with Afghan reconciliation process facilitated talks between the US and the Taliban from December 17 to 19. The talks started in Abu Dhabi with Saudi Arabia and the UAE also present in the room. The Afghan government, however, was not part of negotiations because of Taliban’s refusal to talk to what they call the “US puppet.”Afghan government officials, however, held separate quadrilateral meeting with the US, Saudi Arabia and UAE, and discussed the possibility of direct engagement of Afghan government with the Taliban for planned intra-Afghan dialogue.

Meanwhile, the violence in Afghanistan is on the rise. The Taliban and the Islamic State (IS) group militants have unleashed a series of deadly attacks in the past few months wherein civilian have borne the brunt. In suicide bombing and firing of militants on government’s offices in Kabul 43 people have died and 13 other wounded on Wednesday. That is why the surprised move of President Trump to pull sufficient number of troops has stunned and dismayed diplomats and Afghan government officials in Kabul. They feel that the ill-timed announcement of half of the US troops’ withdrawal may render bleak the prospects of ceasefire between the Afghan government and Taliban. Pakistan’s diplomacy of outreach in the neighborhood appears to ward off a situation akin to the withdrawal of Soviet troops from Afghanistan in 1989.

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Penalising honest gas consumers

Stepping into the shoes of NEPRA, in a controversial move Oil and Gas Regulatory Authority (OGRA) has allowed the state run gas utility—Sui Northern Gas Pipelines Limited—to recover billion of  rupees, which are outstanding against gas stealers and bills defaulters, from the honest consumers on account of gas theft during the last five years with retrospective effect. This decision is the negation of social justice and slap in the face of virtue of honesty. It will further encourage gas theft and the issue will snow ball with the passage of time.

Earlier OGRA had disallowed the gas utility to recover the losses of gas theft from honest consumers who regularly pay their monthly bills before the due date. However, in the review motion the regulator has allowed the gas company to recover additional 2.6 percent unaccounted for gas (UFG) for the period 2012-17. It implies that the massive gas theft started in the previous government of Pakistan People’s Party (PPP) by the political and business elite like the electricity theft and default of monthly bills. It establishes the fact that either gas theft was non-existent or minimal in Musharraf era.

The regulator during the last PPP government had allowed 7 percent UFG to gas companies whipping up a sharp controversy. And now it has allowed 2.6 percent UFG to the gas utility.

The Auditor General of Pakistan had termed the appointment of current OGRA chairman Uzma Adil—who was also former employee of SNGPL– as illegal, saying she had been favouring her parent gas company in her decisions at the expense of honest domestic, commercial and industrial consumers. In the new decision the gas company has once again been favoured, ignoring the political repercussions for the PTI government. The consumers are already complaining against the recent gas tariff hike of 143 percent and are unhappy with the government because of its impact on the poor and middle class people.

In a statement OGRA said the authority with majority approved in principle that variable allowance of up to 2.6 percent on account of claim and allowed by regulator should be staggered in the proceeding five years to be recovered from the consumers so as not to burden them in one go. It also allowed the Sui Southern Gas Company (SSGC) to recover Rs. 779 million on account of late payment surcharge from consumers. However OGRA member finance Noor UL Haq wrote a dissenting note on this decision which raveled the sagacity and impeccable integrity and consumers’ friendly attitude of this officer.

Such like insane decisions has always been counterproductive as it increases the level of theft and default by the dishonest consumers of public utility services. This recipe of doom was suggested by a former secretary finance to a former finance minister Ishaq Dar to shift the burden of power theft to honest consumer to address the issue of circular debt. It did not work as power as steep rise in power theft was recorded, the amount of default by the influential consumers has reached to Rs. 860 billion and power sector circular debt has swelled to Rs. 1.18 trillion. The International Monetary Fund has asked the government to bring a reduction of Rs. 30 billion per month in the circular debt. The World Bank has cautioned against further increase in power tariff and advised to ensure efficiency in the power distribution system and revenue recovery mechanism.

The business leaders have repeatedly voiced their concern against the sky-high tariff of energy inputs because it pints up inflation, vitiate the economic environment and wipes out the comparative advantage of export products in the international market. The focus should be on removing the inefficiencies in the gas utilities, crack down on influential industrial, commercial and domestic gas stealers. There is a free for all in the usage of gas without installing meters in gas producing districts of Khyber Pukhtunkhwa. In the district of Karak alone there is annual gas theft of Rs. 10 billion. Such like loopholes need to be plugged instead of penalizing the honest gas consumers.

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Delay in bailout package

The scale of adjustments being demanded by the International Monetary Fund (IMF) is too large and accession to the programme is likely to be delayed. There is no chance that adjustments a sproposed by the fund can be made because of its political and socio-economic repercussions. It has put the government in a quandary because IMF programme is essential to unlock access to resources from other multilateral lenders like the World Bank, the Asian Development Bank, as well as from global financial market.

In the meantime government has procured some breathing space through bilateral support from Saudi Arabia and Abu Dhabi Fund for Development of another $ 3 billion deposit in the central bank in the coming days. In addition Pakistan may secure $ 2.2 billion from China for which the negotiations are on. But with the current account deficit running at more than $ 1 billion per month, these inflows will buy little more time. Eventually the IMF programme becomes necessary about the tough and immediately implanting condition of which the government is hopeful that something can be done to make them soft in the intervening period. But at the moment the chances seem slim, no matter how tough talk the government holds with the Washington based lender.

The IMF demand of raising the interest rate by 4.75 percent has already been met. But the condition of free-float exchange rate is difficult to be fulfilled. Pakistan’s foreign exchange market is thinly traded with $ 200 to $ 300 business and cannot be left the market forces which are prone to speculative activities which push the rate of exchange between rupee and the US dollar impacting the parity of local currency with other major foreign currencies as well. When Z.A Bhutto destroyed the economy by nationalisation of all types of private enterprises and banks, the succeeding government had to adopt a managed float of exchange rate. There is no country in the world which leaves the exchange rate completely at the mercy of market forces. Instead the government or the central bank intervenes to keep the exchange rate from running amok.

The IMF cites its disappointment in previous dealings with Pakistani governments for justification for upfront actions this time. The commitments made in the past were not fulfilled and the lender now wants the adjustments come before funds are disbursed. In the last programme the previous government obtained record number of waivers for failing to comply with its commitments pertaining to privitisation of bleeding public sector enterprises, expanding tax base and reduction of circular debt.

In the proposed programme, the IMF is asking for an adjustment of around Rs.1600 to Rs.2000 over a period of three to four years. Moreover, the fund wants substantial cut in current expenditure by axing the debt services, defense and subsidies. Previous governments used the recipe of slashing the development expenditure and reducing subsidies. Additionally the government will also be forced to seek partial reversal of provincial transfers under the next NFC Award.

As talks with the Fund sputter on, the government has launched hectic efforts to draw foreign exchange through other means. It hopes that the recent measures may increase remittances by another $2-3 billion and substantial increase in foreign investment. The government is optimistic that an increase in remittances and FDI will reduce the pressure on external front. A steep drop in oil prices is another unexpected windfall. Given some of the new realities opening up, the government expects that current account deficit may go down to $ 13 billion this year from $18 billion last year. But this miracle is only possible when there is continuing improvement in exports for which product sophistication is inevitable to make the exports competitive in the foreign advanced markets. Currently the economy is factor-driven and needs to be transformed into efficiency driven with the induction of latest technologies, skill development and significantly enhancing the level of research and development expenditure as percentage of GDP which has dropped from the value of which has dropped from 0.63 percent in 2007 to 0.22 in 2015.

Unfortunately, considering the exports composition of Pakistan and its evolution over the past few decades since 1972, the country is stuck in the vicious circle of producing less sophisticated products. Research and development is recognized as a vital component for the transformation of the country into producing more sophisticated knowledge intensive goods which have comparative advantage over the identical products of other countries in the international market and fetch high value.