A people adrift
The role of education and health in human capital development cannot be undermined
By Madiha Mujahid
The wealth of a nation is vested in its people. Hence, it is imperative that proper time, energy and resources are allocated for accumulating human capital. At the time of Pakistan’s conception, the economic planners placed emphasis on achieving high growth rates through boosting the country’s GDP, while they allocated limited resources for the promotion of social welfare. Consequently, this had the ill effect of ensuring that the country’s human capital was not developed to its full potential; rather, it was not developed at all.

When a spokesperson of the NWFP government responded to a media query the other day by disclosing that the federal government had not spent a penny to deal with the crisis of extremism, wittingly or unwittingly he was divulging the direction the coming federal and provincial budgets will have to take. One has heard epithets like ‘the common man’s budget’, ‘the pro-growth budget’, ‘the stabilisation budget’, etc. There has even been war budgeting in some years. However, such is the enormity of the internal threat to the state that the Budget 2009-10 will be the first to focus exclusively on national security. True, economic and social development is also a critical element in national security; adequate attention to it along with inter-personal and inter-provincial equity would have prevented the violent gravity of the present situation. In the near term, however, development cannot be the first order of priority.

In fact, development is already a casualty of our fiscal profligacy. In an attempt to bring down the fiscal deficit from its height of 7.5 percent of GDP at the time of formulation of the Budget 2008-09 to 4.3 percent at the end of it, an enormous cut of Rs118 billion has been made in the Public Sector Development Programme (PSDP). On the expenditure side, national security considerations have forced an increase in the defence budget of around 70 percent. Expenditure on law and order is also overshooting; against the budget provision of Rs64.8 billion, an amount of Rs42.2 billion has already been utilised in the first six months (July-December 2008) of the current fiscal year. Relief there is, but in terms of salary raises for police only -- not for teachers/lecturers, clerks, etc. Poverty-related expenditure was budgeted at Rs1.098 trillion, but only about one-third has been utilised in the first six months; the Sasti Roti programme has only selective urban coverage and the Benazir Income Support Programme is not yet making an impact.

The budget gets no fillip from the revenue side. Tax-GDP ratio was almost stagnant around an abysmally low level of 10 percent in the ‘good’ growth days of Shaukat Aziz. In an economy subject to recession, with the large-scale manufacturing sector posting a negative growth of 5.7 percent in the first eight months (July 2008-February 2009) of the current fiscal year, there never was hope that this elusive ratio would improve; Finance Minister Shaukat Tareen’s desire to tax every individual and sector notwithstanding.

Arm twisting by the IMF in this regard has not worked either. The Federal Board of Revenue’s (FBR’s) revenue target has been revised downwards for the second time and any semblance of respectability left in the size of the revenue is the result of the sleight of hand shown by the government in "the heads I win, tails you lose" game of the petroleum prices.

Fiscal deficit will thus be contained, but the achievement is being lauded by the IMF alone. Because of the manner of its achievement, with the major burden of adjustment borne by development without a clear strategy of re-prioritisation, job creation is at a standstill and even going downhill; while the long-term growth prospects have been undermined due to poor investment in infrastructure. A low fiscal deficit, especially when its financing through the pro-inflationary bank borrowing is capped, should provide some relief in the form of reduced inflation. That, sadly, is not the case here.

In spite of the capping, the bank borrowing was recorded at Rs103 billion from July 1, 2008 to April 18, 2009. The so-called ‘headline inflation’, measured by the Consumer Price Index (CPI), has come down but its level remains very high; in July 2008-March 2009, it was 23 percent. The Sensitive Price Indicator (SPI) of 55 items was even higher at 28 percent in the same period. Highs of inflation resulted from the shocking peaks of commodity and energy prices, but the policy to maintain commodity support prices and assured revenue from energy have thwarted corresponding lows of inflation.

Curiously, the non-food, non-energy inflation, the so-called ‘core inflation’ on the fall of which the IMF would permit lowering of the policy rate, continues to be very high and sticky. After remaining at 18.9 percent for four months in a row from November 2008 to February 2009, it only inched downwards to 18.5 percent in March.

Even though the development spending has come down drastically and the private sector demand for credit has fallen to as low as Rs56 billion from July 1 2008 to April 18, 2009, the higher national security requirements and the tendency of the general public to spend as quickly as it earns cash in an inflationary environment, are keeping the aggregate demand high. The demand for money by the underground economy, which has a cash nexus with militant groups, has its own unmeasured contribution to make. So the official expectations that inflation is about to hit a tolerable single-digit are as removed from reality as are the expectations of peace breaking out in Swat any time soon.

The current account deficit, the well-known twin of the fiscal deficit, has also been compressed from its high level of over 8.4 percent at the beginning of the fiscal year. In the first nine months of the current fiscal year, it stood at 4.4 percent; compared with 5.7 percent in the corresponding period of the last fiscal year. This also gives an indication of the falling aggregate demand. There was nothing creditable in the manner of its reduction, as the end justified the means.

In the first nine months of the current fiscal year, the country’s export growth has been negative. The trend could not have been any different from the trend of large scale manufacturing, the mainstay of exports. Thus, the textile exports experienced a negative growth of 7.6 percent in this period. Inflation in Pakistan is very high compared with its competitors, neutralising any gains that might have accrued from the depreciating rupee. Moreover, the ongoing global recession is depressing demand. Besides, energy and financial costs are also unbearable.

Imports have fallen much faster than exports, not because of the crash of energy and commodity prices, because these groups have nearly maintained their level. The impact of higher duties imposed in the budget is reflected in large contraction of import of transport equipment (58 percent), consumer durables (44 percent) and telecom (52 percent). No wonder, the increase in customs revenue was only 3.4 percent and that of general sales tax (GST) on imports 5.4 percent. The only respite has been the ever rising inflow of remittances. First it was believed to be related to the discomfort felt by overseas Pakistanis in the wake of 9/11 and the resulting, rather intrusive, legislation. Now there are fears that high levels of remittances might be reflective of shift of wealth before returning to Pakistan. These fears have been reinforced by the severity of the global recession that is resulting in massive job cuts.

What then are the prospects for the forthcoming budget? Economic growth in the current fiscal year will hardly be above the population growth, while the projections for the next year are unlikely to exceed 4 percent. In this scenario, levying extra taxes will not work. Tax net can only be broadened effectively when the economy re-enters the 7-8 percent range of growth. However, taking advantage of the three-year budgetary framework that the cabinet has approved for future, plans to bring in new sectors should be announced and the process of open, transparent stakeholder consultation started.

On the expenditure side, the country could ill-afford to spend 3-4 percent of GDP on defence, as in the past. However, the present state of affairs is extraordinary and defence would claim an extraordinarily large share of the resource envelop. The US military aid of $600 million per year will supplement, not supplant, the local spending. Law and order will be a close second. A major expense, for which there is provision neither in the national budget nor in the aid package, is likely to be relief measures for the internally displaced people (IDPs). They have been ignored since their exodus from Waziristan to Dera Ismail Khan, Bajur to settled areas of the NWFP, and now from Swat, Buner and other parts of Malakand Division to Swabi, Mardan, Peshawar and even Islamabad.

A rough estimate puts the number of the IDPs at around a million. This number is likely to increase, rather than decrease, in the coming months. Prime Minister Yousuf Raza Gilani’s earlier announcement of Rs500 million comes to only Rs500 per IDP (now the federal grant had been increased to Rs1 billion!). The poorly-resourced NWFP cannot provide even that much.

An integrated approach to root out extremism will involve massive spending on all three -- defence forces, law enforcing agencies and the IDPs. These national security requirements will seriously constrain development. The non-military assistance of $1.5 billion promised by the US is almost equal to the cut in development budget in the current fiscal year. The annual flow of a $1 billion through the Friends of Pakistan (FoP) initiative constitutes an additionality. However, this amount is too meager to cater to the huge rehabilitation needs of Fata and Malakand Division in the post-operation phase.

On the whole, the making of the Budget 2009-10 will be a nightmare. Huge national security spending will be necessary to secure the integrity of the state and ensure rule of law. No asset creation can take place when the writ of the state is threatened. Until then, development will also take a back seat. The issues of the National Finance Commission (NFC) and provincial autonomy, though more important to sustain the federation, will also recede into the background, and overcoming rising poverty will be more rhetoric than real.

MPA Shazia Aurangzeb Khan hails from a noted political family of the NWFP; most of her close relatives are politicians. Born in 1964 in the Dagai village of Nowshera District, she received her early education in Tarbela, where her father was posted. She did her SSC from Peshawar Convent School and later took admission in Home Economics Girls College. During her student life, she was an excellent debater who took part in English declamation contests all over the country.

Shazia, however, could not complete her education due to her early marriage, after which she emigrated to the UK along with her family. There she restarted her education and completed her studies as a software programmer. After spending 17 years abroad, she returned to Pakistan to "serve the people of her area in the best possible manner". However, it took her some time to make a name in politics despite the fact that many of her close relatives, including her mentor Senator Iqbal Zafar Jhagra, are active politicians. It was only after five years that she was able to strike a chord with a mainstream political party like the PML-N. The News on Sunday interviewed Shazia Aurangzeb Khan recently. Excerpts follow:

The News on Sunday: What were the reasons for the change in the PML-N’s stance on the ongoing violence in the NWFP and the tribal belt?

Shazia Auragzeb Khan: The PML-N has always pursued policies that are in the best interest of Pakistan and its people. When the party’s leaders signed the Charter of Democracy (CoD), the purpose was to strengthen the state institutions, which is akin to empowering Pakistan and its people. We are moving towards the goal of independent judiciary and are still striving for the implementation of the CoD to put the country on the right democratic path. As concerns militancy, the PML-N is in favour of dialogue because violence breeds more violence. Our party’s stance is that Pakistan must sort out the problems it faces on its own. Our stance from the day one has been the same: Pakistan must not be used by others for their ulterior motives. We must have friendly relations with all other countries, but our foreign policy must be independent. We reserve our judgment on Gen (r) Pervez Musharraf’s policies, which were driven by his whims to prolong his unconstitutional rule. The PML-N has been urging all the stakeholders to address the issue in a political manner, and arrive at a solution through dialogue and mutual understanding. When the in-camera session of the parliament was held, all the political parties agreed on how to cope with the situation. However, those deliberations failed to bear fruit. As regards violence in the restive Malakand Division, we prefer talks over military operation. Moreover, one has to remember that the people of the area want implementation of the Sharia. The government has adopted the right stance by signing the Nizam-e-Adl Regulation, because the people of Malakand were earlier governed by those very laws. However, the recent statements of Tehrik Nifaz Shariat-e-Mohammadi (TNSM) chief Maulana Sufi Mohammad about the constitution and parliament are worrisome for every Pakistani, including those that belong to the PML-N. We have struggled all these years for the supremacy of the parliament and the independence of judiciary. We are opposed to those forces that challenge the supremacy of the constitution and writ of the state. Remember that the PML-N struggled for eight long years for the restoration of democracy, judiciary and the constitution! The desire of the people for free and fair state institutions was manifested to the whole world on March 15, a day before the Long March. The people clearly demonstrated that they wanted institutions that were based on the principle of justice. Now, to ensure the stability of the country and confront the menace boldly, Nawaz Sharif has floated the idea of national consensus and called for an All Parties’ Conference (APC). However, sadly, the government has not yet responded to this offer. The challenge before us, rest assured, cannot be tackled through foreign dictation; therefore, a national policy on the issue is vital. Obviously, no one should be allowed to push us back into the Stone Age. The PML-N’s motto is peace with dignity, mutual coexistence and cooperation. The party is supporting the government; however, it must come up with a consensus strategy with all the political parties on board. At least, a policy should be chalked out immediately. In a nutshell, whatever the APC decides would be the right course of action, because the whole nation would back the collective wisdom of its leaders.

TNS: What is your vision for the progress and prosperity of the NWFP?

SAK: For the last many years, the PML-N has been struggling for responsible democracy in the country. We want democracy that is based on the principles of justice and social equality for all. We envision a modern democratic Pakistan based on the ideals of Quaid-e-Azam Mohammad Ali Jinnah. We want progress of the people at the grassroots level by exposing them to viable educational opportunities and skills, so that they can lead a dignified life. The same is our vision for the NWFP, which is the country’s richest province in terms of resources. However, proper exploitation of these resources is required to create job opportunities for the forsaken youth and alleviate poverty.

TNS: As opposed to the rest of Pakistanis, the people of the NWFP are opposed to US drone attacks in the tribal areas. What is the PML-N’s policy on this issue?

SAK: The PML-N’s stance was and still is that there should be no US drone attacks at all. There are several dimensions to this issue. First, in US drone attacks many innocent tribal people have been killed. No human being can endorse the killing of children and women. Second, US drone attacks violate the country’s sovereignty as well as the sanctity of its borders. The supporters of such attacks ignore the fact that there was no militant in Bajaur Agency before the US missile attack on the innocent students of a seminary in the Chenagai village on Oct 30, 2006. More than 80 young students were killed in that attack. Had anyone thought that this mistake would force thousands of young people in the area to resort to militancy? Can anyone imagine the feelings of the bereaved families whose children were killed in the attack? Similar attacks made easier the recruitment of militants to wreak havoc throughout the country. The aftermath of US drone attacks has been manifested in the devastating consequences for the Pakistanis, who have been targeted throughout the country in vengeance. So, in both the cases, innocent people in the tribal areas as well as those in the settled parts of the country are being killed. Could drone attacks in Pakistan minimise the threat to Afghanistan? Obviously, the answer is a big no. The PML-N is against the drone attacks and killing of the innocent tribal people who are patriotic Pakistanis. The PML-N’s Women Wing in the NWFP has organised several protests against the drone attacks and we would continue to do so in the future as well.

TNS: How women members of the NWFP Assembly manage themselves in the current situation?

SAK: Sadly, the threats are the same for all the hapless people of the country. However, it also depends on the sincerity of purpose. When you are honestly striving for a cause that is in the larger interest of the people, then threats and intimidations become meaningless -- you cannot serve the people sitting inside barricaded palaces.

TNS: Is this true that PML-N NWFP President Pir Sabir Shah has fled from the province due to the ongoing violence?

SAK: No, it is not true. Pir Sabir Shah is still in the NWFP and this was wrongly reported in a certain section of the press. It is impossible for leaders to abandon their constituents, because they are their source of strength.

TNS: Being in the opposition, how would you sum up the performance of the ANP-PPP coalition government in the NWFP?

SAK: In the last one year or so, the provincial government has done nothing worthwhile for the people of the province. In short, nothing substantial has been done for the welfare of the poor in the areas of health, education, employment generation, provision of social services, etc. Schools and colleges are in pathetic condition. Hospitals are unable to provide proper services to the poor even in Peshawar, what to speak of remote areas in the province. Moreover, the NWFP government has failed miserably to protect the life and property of the people, which is its prime responsibility. Is there a practice anywhere else in the world that ministers would be protected by hundreds of policemen while the public would be left at the mercy of the militants? When it comes to provincial ministers, they say all the development funds have been diverted towards the maintenance of law and order. Then why on earth the law and order situation is not improving? Even the development funds of the opposition members in the NWFP Assembly were reduced by 70 percent, which is a glaring violation of the assembly’s rules of business.

TNS: Is there any hope of peace and progress in the face of unabated violence in the province?

SAK: Hope is the essence of life and we should be optimistic that our law enforcing agencies, with the support of the political dispensation, would succeed ultimately. However, certain things can be achieved in the short-term too. The foremost is winning the hearts and minds of the people, so they have the confidence that the government is mindful of their problems.

I wish it were possible to write about something other than what is going on in Malakand Division. I am hesitant to go down this path for the umpteenth time because I believe firmly that much of what has transpired over the last few weeks, culminating in the expansion of ‘military operations’ into Buner and Dir, is a product of excessive media hype, and reflects an acute lack of informed and meaningful debate about what has happened, what is happening and what will happen in the future. I can only hope that the warmongering will give way to principled analysis and action.

The fact of the matter is that for all of ‘civil society’s’ clamouring for decisive military action against the Taliban in Malakand, the infrastructure of jihad remains untouched. In Muridke, Bahawalpur, Jhang, Dera Ghazi Khan and countless other parts of Punjab and the Seraiki belt, the training camps and indoctrination centres continue to proliferate. In Hazara and Azad Jammu and Kashmir, it is the same. The inability of existing institutions -- formal and informal -- to address the grave social and political injustices that pervade society guarantees that a healthy dose of ordinary young boys and men (and sometimes girls and women) continue to pledge their commitment to the lie that is holy war. If the Pakhtun Taliban are ‘barbarian hordes’ that need to be eliminated whatever the cost, how do we categorise those coming through the assembly line elsewhere?

Our language suspiciously resembles that of British colonial administrators. Unlike them, we are like headless chickens running to put out one fire after the next without recognising that we are doing nothing about the professional arsons behind the scenes. Even if we lived in an imaginary world where the use of unbridled force and the scattering of civilian populations resulted in the immediate elimination of the ‘barbarians’ in Swat, Dir and Buner, what are we doing about the even greater numbers being churned out by the incessant jihadist machine that exists not only in myriad physical spaces across Pakistan, but more importantly in the minds of more young people than we care to admit?

The tremendous power of this machine is to be found in the fact that ‘civil society’ is calling for the military operation to be given public backing, for the sacrifices of our soldiers to be held up as an example of all that is good in this country. In other words, those who choreograph this sick game and produce the ‘barbarians’ have now managed to convince ‘civil society’ that they are actually to be lauded for taking on the ‘barbarians’. And let us not conflate the poor soldiers who are sent into war with those who decide to wage war. Let us not make a mockery of those who die in the name of freedom to protect the interests of those who are hell bent on keeping the common people in slavery.

Consider a list of the principled opponents of the ‘barbarian hordes’ who have distinguished themselves by their unflinching opposition to political solutions and commitment to the military option: Hillary Clinton, Altaf Husain, Ashfaq Pervez Kiyani and so on. Their credentials are impeccable. They have repeatedly called for and, just as often, employed the coercive apparatus of the state to defeat ‘terrorism’. Given the epic language being employed by ‘civil society’ at the present time, it is difficult not to be convinced that Clinton, Husain and Kiyani are ceaselessly pursuing a heroic cause, and that their steadfastness will lead us to decisive victory against the Taliban.

As an afterthought there has been acknowledgment of the hundreds of thousands of people fleeing their homes without anywhere to go. The numbers will continue to rise. Presumably these people -- who have been conveniently transformed into a category (IDPs) sure to excite the donor community -- are suffering in the ‘greater national interest’. This is why ‘civil society’ can call for military operations that kill and maim hundreds of innocents, displace hundreds of thousands more, and then turn around and ask for charity so as to help the unfortunate ‘collateral damage’ of this shameful war.

The master narrative insists that this war has been thrust upon the army, that the ‘barbarian hordes’ are singularly responsible for the misery of the people of Malakand. What about America and the Pakistani army? What is their historic role in creating what Eqbal Ahmad called ‘Jihad Inc, International’? How does the totally disastrous American colonial occupation of Afghanistan fuel militancy? Why does Washington continue to throw dollars at the Pakistani army while simultaneously accusing the latter of covert support to the Taliban? Not a mention.

As I said at the outset, I was reluctant to write about this Great Game, yet again. I find it hard to understand how otherwise thoughtful people can overlook what appear to me to be such basic issues. I wonder what their response would be if I were to take up their position and argue that all of the many indoctrinated young people in Islamabad, Lahore and Karachi represent an existential threat to the Pakistani state and, therefore, should be bombed. Perhaps their answers would depend on whether their homes were likely to be in the firing line or not.

Cleaning up the mess that has been created in Afghanistan and Pakistan requires deep introspection. In the first instance, it is necessary to acknowledge that entire generations of young people want to be part of the Taliban. These young people cannot be dismissed as ‘barbarian hordes’. That is not to say that the actions of those who beat, flog and behead can be condoned. But then how in the world can the actions of those who drop bombs in the name of freedom be condoned?

Terror breeds terror. This is a lesson of history, and it must be relearned by those who have been overcome by the propaganda that is so crucial to the waging and winning of wars. In this dirtiest of wars, in which none of the principal protagonists fight to liberate the common people, there can be no victory; only defeat after defeat. It is only in rejecting war altogether that we can salvage some of our quickly fading humanity.

The achievement of the cherished goal of self-reliance is not possible with the existing outdated, oppressive and unjust tax system, thus it is high time to make a paradigm shift in the existing tax policy. Our revenue potential for 2009-10 is not less than Rs3 trillion, provided the tax base is broadened; pro-growth, equitable and rational policies are devised with the backing of stakeholders; tax machinery is completely overhauled; and all exemptions and concessions available to the privileged sections of society are withdrawn. If we succeed in tapping the optimum tax potential, there will no be no need for any internal or external borrowing; implementation of a rational tax policy can convert our current fiscal deficit into surplus within one year.

Only about a month is left in the presentation of Budget 2009-10, yet no meaningful countrywide debate on the formulation of a pro-growth national tax policy has been initiated. It is a well-established fact that successive governments’ onerous tax and regulatory policies have pushed millions of people below the poverty line. We will have to move quickly and decisively to reverse this trend. We are suggesting some key areas where paradigm shift is needed -- at both structural and operational level -- for ensuring not only substantial revenues for the state, but also social equity and redistribution of wealth.

Countering tax evasion

Ostensibly, money for industrial and business growth and public benefits is scarce, but colossal unaccounted cash supply is circulating in the economy in search of further undercover gains. Our political culture supports racketeering. Tragically, this social evil is doubly compounded, as it necessitates greater tax burden on law-abiders. The most crucial problem faced by Pakistan is devising of astute and stringent measures to curb tax evasion, thus distributing the burden of taxes fairly and justly in society -- the rich should pay more, but they are enjoying tax exemptions. The honest taxpayers are disillusioned by the fact that ruling elite is not only not paying its taxes, but also abusing their contribution for unprecedented luxuries. If we want to bring about any meaningful change in our tax system, the progressive taxes, abolished during the last 30 years, should be restored and regressive ones be abolished forthwith. Tax amnesty schemes are to be dispensed with once for all and unexplained assets must be confiscated by the state for the benefit of the poor.

Positive change in tax policy

There is a national consensus that the existing tax policy needs to be reformulated: to provide an equitable, pragmatic, investment-oriented and business-friendly tax system; and integrate a good tax administration with simplified tax laws that are easily understandable and hassle-free from the implementation perspective. The recent efforts of the government to reform the tax system, through foreign loans / grants, have not yielded any results -- they remain a closed door, bureaucratic exercise lacking any meaningful dialogue with taxpayers, public pressure groups or tax experts. In the absence of a well-designed tax policy, the agenda of tax reform will never succeed. The members of parliament should not allow tax bureaucrats to make any legislative and administrative changes. The power to issue statutory regulatory orders (SROs), being exercised by the Federal Board of Revenue (FBR), is against Article 162 of the constitution and should be withdrawn immediately.

Equity principle

The existing tax system -- a worst expression of colonial heritage -- is highly unjust. It protects the establishment and exploitative elements having monopoly over economic resources. There is no political will to tax the privileged classes. The poor are paying an exorbitant sales tax of 16 percent (in fact, 40 percent on finished imported goods after mandatory value addition and income tax deduction at source) on essential commodities, but the mighty sections of society -- such as absentee landlords, big industrialists, generals and bureaucrats -- are paying no wealth / income tax on their colossal assets. It is tragic that in a country where the rich make millions daily speculative transactions in real estate and shares, tax-GDP ratio is pathetically low at 9.5 percent. The government is least bothered about taxing undocumented economy and benami (name-lender) transactions. There is an urgent need to tax collossal income from lease of orchards, gain on sale of immovable property and gain from short-term trading on stock exchanges. The corporate rate should be brought down to 20 percent to promote industrialisation, but any director or other office holder (having more than 20 percent shares) drawing annual salary exceeding Rs5 million should be taxed at the rate of 50 percent.

Benefit principle

Successive governments -- military and civilian alike -- have failed to convince the people that payment of taxes is their collective responsibility. Since rulers have been engaged in wasteful expenditure -- never bothering to live within their means and failing to even protect the life and property of the people, not to talk of providing them basic needs of health, education and civic amenities -- massive tax non-compliance is the order of the day. The taxes should be for the welfare and benefit of public at large and not for the luxuries of the rulers and state functionaries. The tax policy should be used as a tool of distributive justice. The government should launch programmes, financed mainly through taxes, to solve the twin problems of unemployment and poverty. These welfare-oriented schemes may also include subsidised / free medical and educational facilities, low-cost housing, drinking water facilities, land improvement plans, and employment generation programmes. Once people see the tangible benefits of the taxes paid, there will be better response to tax compliance. Taxes cannot be collected through harsh measures and irrational policies. The rulers and tax bureaucrats have to demonstrate through their actions a clear inspirational model for the taxpayers to believe them and to pay taxes honestly and diligently.

Assignment of tax

Our tragedy is that, on the one hand, we have too many taxes in the country (federal, provincial and local, though the last two only generate a negligible nation’s); while, on the other, benefits of revenue collection are not reaching the poor. A few rich are the real beneficiaries of every luxury that is available. Fiscal gap is increasing every year bringing more miseries for the common people of Pakistan. We have utterly failed to reform our tax system. Taxation is a potent instrument to shape and influence the socioeconomic polices of a country. It is, therefore, imperative for us to formulate a nationally acceptable tax policy, keeping in view our own peculiar conditions and not blindly following prescriptions of the donor agencies. Our Tax policy must take into account: a) present stage of our economic development; b) objectives of economic policy; and c) priorities of economic policy that continually change with the changing economic, social and political milieu.

It is necessary for the government to use the forthcoming budget as a tool for change and not as a protector of status quo. We need to bring fundamental structural and operational changes -- mere amendments here and there in tax codes will serve no purpose. One hopes that in its second budget, the government will announce a new national tax policy for achieving rapid industrial and economic growth that will automatically take care of revenue mobilisation without putting any undue burden on the masses.

(The writers, tax lawyers, are members of visiting faculty at Lahore University of Management Sciences).

Dwindling hope

A number of questions have started to haunt the minds of Pakistanis as the budget presentation phase approaches in another month or so: would the budget provide some relief to the poor or make their lives more miserable? What would find a place in the budget proposals: dictates of the IMF or considerations of the poor?

The budget -- a list of all planned expenses and revenues -- sends shockwaves across the poverty-stricken masses of Pakistan every year in the form of indirect taxes and inflation, whereas the rich manage to save their skin. However, the deprived sections of society are not pinning many hopes on the forthcoming budget due to two reasons: the ongoing global recession and the IMF’s involvement in its preparation phase.

The gap between the ‘haves’ and the ‘have-nots’ is widening at a fast pace. This presents an alarming situation because more than half of the country’s population has lost its purchasing power in the last year, mainly due to the high inflation. The people are crying for help, while the government is trying to reduce the ever mounting budgetary deficit and knocing at the doors of IFIs for budgetary support.

Nowadays, Pakistani officials are busy negotiating with the IMF the next tranche of loan. Thus, there is a growing perception among the common people that the next year’s budget proposals would be framed according to IMF dictates. The IMF is asking for imposition of tax on services, real estate, as well as increase in tax-GDP ratio, besides broadening the tax base across all sectors of the economy by reducing tax exemptions and zero-rating.

On the other hand, during a survey conducted by this scribe, most of the respondents suggested that the general sales tax (GST) should be reduced by five percent, prices of edible oil and petroleum products should be brought down, unreasonable taxes on utility bills should be removed, and salaries should be increased at par with the inflation rate. Importantly, more than 70 percent of the respondents anticipated a tough budget with more taxes on the underprivileged sections of society.

Answering the question whether they are expecting any relief in the forthcoming budget, university student Aliya Adnan said: "I am not expecting any tangible relief in the budget. I can only suggest that our rulers should reduce their unnecessary expenses. Almost all the labourers who answered this question were of the view that the government should focus on controlling inflation, which was eating up their meager resources.

A member of the All Pakistan Clerks’ Association suggested that the government should increase the salaries of clerks by at least 25 percent and regularise those clerks who have been working on contract basis for more than eight years. Social activist Jamila K.Ahmed stressed that the rich should come forward for rescuing the national economy and that the begging bowl should be broken to acquire sustainable economic growth. She maintained that only trade, not aid, could provide the required support to the economy.

Chartered accountant Syed Raza Haider, while suggesting the steps needed for generating additional revenues, said the government could receive sufficient revenues by imposing capital gain tax on immovable property and increasing its rate on the sale and purchase of shares. Islamabad Stock Exchange officials, on the other hand, demanded of the government to withdraw the capital value tax and withholding tax for the development of the securities market.

He also favoured imposition of tax on agricultural income. "Investment friendly policies should be adopted and incentives given to foreign investors for speedy economic recovery," Haider maintained. Economist Dr Masood Ahmed said budget proposals should be drafted on the principles of economic equity and ability to pay.

Zafar Mueen Asif of the Pakistan Institute of Development Economics (PIDE) said the government should provide relief to the common people by decreasing the prices of petroleum products, as this would also help in reducing inflation. He pointed out that the increase in wheat support price from Rs650 to Rs940 per 40 kg had contributed to hike in the prices of food items. "The federal government needs to introduce social safety net for the people who are still struggling to stay alive," Asif added.

Industrialist GA Khan proposed that tax on commercial imports should be increased by 5 percent; however, sales tax and import duties on import of machinery should be abolished for growth of the manufacturing sector. In this regard, the government needed to provide substantial relief to the small and medium-enterprise (SME) sector, he said.

In fact, all sectors of the economy and all strata of the society are asking for relief. The problem is that Pakistan’s economy is in a crisis and demands some surgical measures, such as increasing revenue collection by broadening the tax base; all segments of the society should be brought under the tax net as per their contribution to the GDP. For instance, any gift or inheritance that exceeds Rs1 million should be brought under tax net. Moreover, capital gain value tax should be imposed on the sale and purchase of immovable property and shares. However, some substantial relief must be given to those people who are living below the poverty line.

We can steer Pakistan out of this crisis by harnessing the country’s economic potential in diverse sectors. For sustainable and equitable economic growth, the government needs to reset its priorities and give due attention to all sectors of the economy, while taking into account considerations of all strata of the society. Though the genuine concerns of all economic stakeholders need to be addressed, the budget must be pro-poor. Now, it should be time for the rich to tighten their belt in the supreme national interest.

(Email: sibtainrazakhan@yahoo.com)

As summer arrives, mosquito bites all over children’s faces and bodies become a common sight. Scientists tend to agree that this insect thrives in hot and humid weather. In particular, malaria is a familiar problem for the people living in countries where hot weather combines with poor infrastructure. Pakistan is no exception. This time around, however, there seems to be some hope as the Punjab government has allocated Rs188 million for malaria control in the province. In addition, the World Health Organisation (WHO) has provided Rs880 million for the same purpose (making it a total of Rs988 million).

At the national level, Prime Minister Yousuf Raza Gilani has approved the launch of a five-year malaria control programme worth Rs600 million. Under this programme, the number of post-doctoral staff positions will be increased from two to 53, while new national guidelines will require physicians to administer malaria medication only to patients with confirmed malaria. The government also plans to reopen a formerly closed laboratory in Lahore and establish new laboratories in 30 other districts of the country.

Over the years, especially in the recent past, Pakistan has received sufficient foreign funds for the health sector, particularly for prevention and vaccination. But malaria remains one of the most neglected of the diseases, particularly after increased focus on more serious threats like HIV/AIDS and cancer. However, it is untrue that malaria is not a serious disease; it has been reported that malaria can be very dangerous for babies, and can affect the long-term health and immunity of the patient.

Dr Ikram Ahmed, a child specialist at one of Lahore’s leading hospitals, says children are most vulnerable to malaria in Pakistan. "It is a misconception that malaria is a benign infection that can be treated easily. If remained untreated, malaria can be very serious and can lead to weakness for most of the patient’s life." In some cases, malaria in pregnant mothers also causes miscarriages, besides maternal amentia, foetal loss, premature delivery, retardation and low birth-weight infants, Dr Ahmed informs.

Going by past experience, it is unlikely that the health of mother and child would be accorded high priority in new malaria prevention programmes. About 130,000 confirmed malaria cases are reported annually in the country but the actual disease burden could be significantly higher, because about 80 percent of malaria patients are treated at private hospitals. According to some estimates, the actual number of malaria cases in Pakistan could be as high as 500,000-600,000 per year.

Thirty-year-old Sana suffered from malaria when she was pregnant with her second child. "My second pregnancy was three times more difficult than the first one, because of additional pain and sickness. I kept throwing up and felt sick for the two months that I suffered from malaria during pregnancy. My doctor said this is all because of malaria; otherwise, there is nothing wrong with the baby." Her child, however, was weak and was kept in the incubator for the first few weeks of his birth. The doctors traced the reasons to the mother’s poor health.

Punjab Health Secretary Anwer Ahmed Khan says the government’s responsibility is to ensure that the health of the public is improved and maintained at the best possible level. "However, one of the main issues in this regard is the dearth of facilities. Until we start addressing issues at the systemic level, we will not be able to solve the problems we face all the time." Khan adds that there will be increased focus on the health of mother and child under the new malaria prevention programmes. However, he was unclear about the manner in and the extent to which this was to be done.

Malaria can be avoided by intermittent preventive treatment, insecticide-treated mosquito nets and vaccination. For one, the areas that the government should focus on with these newly-acquired funds are: increased awareness about the problem among communities most vulnerable to malaria; integration of malaria-control tools into other health programmes targeted at pregnant women and newborns; strengthened antenatal care systems, and involvement of midwives and lady health workers where they are part of health service delivery; and, above all, financial investment in both the private and public sector.

According to the Pakistan Demographic and Health Survey, only 6 percent of households in the country have a mosquito net. The percentage of households with more than one mosquito net is even smaller. Interestingly, these nets are available in a higher number in rural areas than in urban areas. The survey says the prevalence of malaria is highest in Balochistan (30 percent), followed by Sindh (27 percent), Punjab (15 percent) and the NWFP (14 percent). These figures clearly show that the province that requires the most immediate help for malaria prevention and cure is Balochistan, while a hefty package has been approved for Punjab.

Whoever said ‘less was more’ was certainly not referring to water resources. Water, like oil, has become an increasingly scarce commodity; but, unlike oil, water has no substitute. Renewable water resources around the world have shrunk rapidly in the last three decades and water shortages are now a global phenomenon. The International Water Management Institute has projected that a third of the world’s population will lack access to water by 2025. The United Nations World Water Development Report reinforced this pronunciation and forecast that the average supply of water per person will be halved within the next 20 years. The causes of the global water crisis are diverse and range from global warming, rapid economic development and changes in climate patterns to growing populations and increasing ratios of rural to urban migration.

The present water situation in Pakistan has become precarious and the throes of a worsening crisis are beginning to be felt. Unpredictable and scanty rainfall, disappointing monsoons, insufficient glacial melting, intensive irrigation, failure to build new water reservoirs since the completion of the Tarbela Dam in 1974, and less flow of water in Chenab and Jhelum rivers as a result of the obstructions built by India on the Indus River Basin have aggravated our water woes.

Our water resources are running out rapidly and many regions of the country have already been classified as arid or semi-arid. Water availability from rivers alone has went down from 104 to 80 million acre feet (maf) in the last five years. In addition, Pakistan is expected to be among the 17 countries that will face a severe water shortfall by 2025. The shift from being a water surplus to a water poor country has not occurred overnight. The symptoms of chronic water deficiency and desertification, which became evident in the far flung areas of Balochistan and Sindh long ago, went unnoticed and loud warnings of an impending water shortage unheeded. Successive governments and regimes failed to gauge the gravity of the water crisis and conveniently overlooked the issue of water insecurity. Persistent neglect caused conditions to exacerbate and a crisis that began at the frays of the country now afflicts the agricultural heartland of Punjab.

A water crisis will not only impact our lifestyles in terms of our cooking, drinking, washing and sanitation behaviours, but due to the subtle backward and forward linkages of water it may have disastrous implications for our economy and environment. A dearth of water may at once impair our agricultural production and so weaken our food security. It can raise food and energy prices, as well as render our water-using industries inoperative, causing a reduction in exports. Moreover, it may accelerate the decline in our basic stocks of ecological capital, endangering our forests, fisheries, and aquatic flora and fauna.

The agricultural sector, which engages 42 percent of Pakistan’s labour force and constitutes 21.6 percent of the country’s GDP, may be crippled by the water crisis. Water plays a pivotal role in enhancing farm productivity, because 80 percent of Pakistan’s arable land needs to be irrigated and frequent watering is essential to overcome the organic deficiency of the soil. Currently, irrigation takes up 90-95 percent of our freshwater resources, but with freshwater declining water apportioned for irrigation purposes will have to be reduced. In such a scenario, crop yields will fall and the ranks of the hungry will expand. Moreover, reduction in irrigation flows, as occasionally announced by the Indus River System Authority (Irsa), may inflame inter-provincial disputes, with Sindh already blaming Punjab for stealing its water.

The upheavals of water scarcity may even extend to the energy sector. Our energy demands will rise consistently on the back of a steadily rising GDP growth rate and an expanding economy. Merrill Lynch has calculated that for every 1 percent rise in Pakistan’s GDP, electricity supplies should rise by 1.25 percent. In 2006-2007, Pakistan imported oil of over $6 billion to meet its energy needs, accounting for 28 percent of the country’s total imports. This had a severe impact on the position of our foreign reserves. If the depletion of water resources is halted and water supplies are properly managed, a possibility of generating 45,000 megawatt of hydroelectric power exists. But if water scarcity endures, oil imports will keep straining our foreign reserves.

Water deficiency can also disturb sociological equilibriums. A relevant example was presented in the lower Indus regions, where a decrease in the water flow over the past years led seawater to intrude up the delta where the Indus meets the Arabian Sea. As freshwater supplies decreased, people migrated to urban areas, increasing dependence on other sources of water and disrupting demographic variables.

In view of the ramifications of the water scarcity, inaction on this front is no longer an option. Fortunately, our policymakers have come out of the slumber and signalled their intention to tackle the crisis. A decision has been made to build a series of small dams, with the Gomal Dam and Mirani Dam being the top priorities. There are also plans to construct Mithan Kot Barrage at Kachhi Canal and to raise the Mangla Dam. Though these projects will create an additional storage capacity of 5.04 maf, the added advantage will be offset by the cumulative loss of 6 maf in storage capacity, due to the sedimentation projected to occur in the Tarbela Dam, Mangla Dam and Chashma Barrage by 2010.

The new dams will not only have a smaller storage capacity, but will also be plagued by several other limitations arising from their small size. Being small and shallow, they will silt up quickly and be of use only to the local populations. Moreover, substantial water will be lost by evaporation. The small dams will definitely be easier to manage and provide flexibility to the water system, but they cannot substitute for large dams that have a greater storage potential.

Considering that water shortfall will be over 8 maf by 2015, the decision to build big dams will have to be taken sooner than later. However, an overriding consideration when planning new big dams should be to ensure that the reservoir does not lie in a seismic zone. Tremors can make rocks beneath the reservoir crack and lead to seepage. Moreover, since sedimentation renders storage useless, all dams and barrages should be built in areas of low sediment flows.

Because it is impossible to build large reservoirs overnight, efficient water management will be the key to getting out of the deep waters of water scarcity. The greatest opportunity to save water exists in the agricultural sector. Farmers can be educated through field schools to use water sparingly and to use new technologies that minimise water usage. In the Potowar plateau, farmers should be encouraged to use terracing techniques, which are akin to carving giant stairways instead of indiscriminate land levelling with bulldozers. This will reduce runoff and maximise water penetration into soil. Water savings can also be made if farmers are guided to use bed and furrow irrigation methods, and to use crop varieties that can flourish under sub-optimal water conditions.

It is heartening to note that drip irrigation systems, which have been used in Israel and Iran since 1970, are now being used in the country’s central regions like Faisalabad, as well as in far flung areas like Sanghar. The drip irrigation system provides spectacular water savings of up to 70 percent and minimises water loss by evaporation, as water is applied to the roots of the plant. A recently begun Subsidised Drip Irrigation Programme worth $1.3 billion will go a long way in maximising productivity per drop of water. Water courses should be brick-lined to ensure that no water is lost in transit from canals to fields. Even though a Rs66 billion lining campaign was launched by the previous regime, reconditioning should be done on an ongoing basis, given the limited lifespan of bricklining.

Given the severe water scarcity in the country, our policymakers should question the prudence of growing crops with intensive watering needs. Strategically it would be better to alter our crop chemistry and to grow crops that consume little water but have high value. Our usual crop offering has a voracious appetite for water to say the least. It takes 7,000-29,000 liters of water to grow a kilo of cotton, while 3,000-5,000 liters are used to grow a kilo of rice. Wheat and potatoes have a relatively lesser craving for water, needing 900 liters and 500 liters per kilo of yield respectively. Maize, bananas, citrus, dates, tomatoes and grapes have come across as the least water greedy crops.

An illustration of how policy should be reconciled with water needs was presented in India when agricultural authorities announced a decision to plant a million olive trees in the Rajahastan desert. Olives are a high value crop and consume little water. In areas like the desert of Sindh, where rainfall is unpredictable, waste of water can be prevented by rainwater accumulation. In Eastern Thailand, house roofs have been modified to facilitate the collection of rainwater, which is stored in containers of reinforced concrete. Stored water can suffice for domestic needs during the dry season.

A crucial step towards resolving the water crisis will be to settle the issue of the Baglihar dam and Wullar barrage built on the Chenab and Jhelum rivers, respectively. The Baglihar dam impedes water flow down the Chenab and is in breach of the Indus Water Treaty and International Water Distribution Law. The Chenab is now only a slow flowing trickle and water tables in areas like Wazirabad have fallen to 100 feet from the previous level of 50 feet. A normal flow of both rivers is imperative for irrigating Punjab and for the general water supply. If the full flow of the rivers is not restored, our plans to build reservoirs at Chenab and Jhelum will be jeopardised.

A people adrift

The wealth of a nation is vested in its people. Hence, it is imperative that proper time, energy and resources are allocated for accumulating human capital. At the time of Pakistan’s conception, the economic planners placed emphasis on achieving high growth rates through boosting the country’s GDP, while they allocated limited resources for the promotion of social welfare. Consequently, this had the ill effect of ensuring that the country’s human capital was not developed to its full potential; rather, it was not developed at all.

Human capital refers to the beneficial investments made in human beings to increase their productiveness. These include qualifications, skills, training and health that add to a worker’s productivity and efficiency. The importance of investing in this area is indisputable, because a large base of efficient human resources is the engine that drives a country’s economic growth and development.

Thus, it can be easily gauged that the two most important factors in any discussion on the topic of human capital in relation to Pakistan, or any other country for that matter, are education and health. These are the two aspects of socioeconomic development that deserve the most accolades for boosting both the general wellbeing of the masses and fulfilling the quest for a more rewarding and satisfying life.

The reason behind this is simple: the human potential needs to be developed and facilitated if genuine development and growth are to take place. And what better way to achieve this than to facilitate workers’ physical wellbeing through investing in their health care and training, and then empowering them through education. Education and health are uniquely and intimately related to each other, because both indicate an investment in a society’s human capital.

Over the last few decades, human capital, in both developed and developing countries, has increased by leaps and bounds. And the impact of human capital investments in developing countries can be quite substantial; in fact, much more than in developed countries. This is because in developing countries such as Pakistan, there is a wide range of population that stands to benefit from an outlay of funds aimed at shoring up the productivity of the people by enhancing their health and skills. This works in a simple way -- health is a vital commodity without which no person can function at his or her optimal level. And it also plays a major role in the attainment of good education, which in turn is required by individuals to absorb new technologies, and become more self-sustaining and economically-efficient entities.

However, despite the incontrovertible importance of human capital accumulation, Pakistan’s record in the area of human resource development is one of the worst in the world. The country spends only a small percentage of its budget on education, health and community services. According to recent statistics, only 1.5 percent of the federal budget is allocated to the health sector in Pakistan. This goes a long way in explaining the deplorable health facilities in the country; there are only 12 doctors, eight dentists and one pharmacist for every 10,000 people in the country.

Women are hardest hit by this appalling state of affairs. Sixty-five percent of women in Pakistan deliver their babies at home and a trained attendant supervises only eight percent of these home births. Consequently, one of every 23 Pakistani women dies in childbirth, compared with only one of every 5,000 women in developed countries. In short, poor reproductive and nutritional health is widespread among Pakistani women. Moreover, Pakistan’s average fertility rate of 4.1 children per woman is one of the highest in South Asia.

The Government of Pakistan’s official population policy recommends that the national fertility rate be reduced to 2.1 by 2020. To achieve this goal, the government needs to facilitate extensive availability of women health workers who can dispense useful advice and birth control methods, such as contraceptives, especially to the lower income strata of society. The government’s basic aim should be to reduce the number of total births and, at the same time, work tirelessly to reduce the high infant and maternal mortality rates, thus ensuring that newborn babies, young children and their mothers are all provided with good health facilities.

More troubling indications about the poor health infrastructure of Pakistan are evident from the fact that tuberculosis remains one of the leading causes of death in the country. In addition, Pakistan is one of the only four countries where polio has not been eradicated (the others are Afghanistan, India and Nigeria). Hence, initiatives are needed to fortify routine immunization, as well as conduct national campaigns to immunise children.

As concerns other related socioeconomic indicators, the total adult literacy rate in the country was 54 percent in 2006, out of which the adult male literacy rate was 65 percent and the adult female literacy rate was 42 percent. This disparity points to the existence of an educational gender gap prevalent in most developing countries. This is a waste of precious economic resources, because it has been proven time and again that an increase in the basic education of women leads to very high returns in the form of their economic contribution. Moreover, education of girls is one of the most cost-effective ways of improving health standards, because educated mothers will almost certainly ensure that the prospects of their children’s health and education are greatly improved.

For this reason, the government needs to realise the interlinked nature of any investments in health care and education, and come up with appropriate integrated policy measures. Simply put, investing in education will yield more positive results if the health of the country’s children is improved. Similarly, with improvements in educational standards, the health of the general public will improve due to a growing level of awareness.

A useful indicator to measure the extent of social development is the Human Development Index (HDI), which was developed by the United Nations Development Programme (UNDP) as an alternative for gauging the level of a country’s social progress or lack thereof than the more routinely used GNP per capita. GNP is the total value added from domestic and foreign sources claimed by the residents of a country. Hence, it is GDP (the value of goods and services produced within a country) plus the net income received by residents from abroad. GNP per capita is the total GNP figure divided by the number of people in the country. Consequently, GNP per capita is simply a measure of national income per person.

As opposed to this, the HDI is a far more complex guide to the real state of affairs related to a country’s socioeconomic development. As the UNDP states, it has three major indicators: 1) life expectancy; 2) educational attainment; and 3) real GDP in terms of purchasing power parity (PPP). Hence, it provides a much more expansive look at the true state of wellbeing of a country’s citizens. According to the 2008 statistical update of the UNDP, the HDI for Pakistan is 0.562, which gives the country the rank of 139 out of 179 countries.

While the HDI measures the average attainment of a good standard of living in a country, it fails to integrate the degree of gender imbalance in these achievements. The Gender-related Development Index (GDI), introduced in the Human Development Report 1995, measures achievements using the same indicators as the HDI, but captures inequalities in achievement between women and men. It is simply the HDI adjusted downward for gender inequality. The greater the gender disparity in basic human development, the lower a country’s GDI relative to its HDI.

In order to measure the influence of gender inequalities on human development achievement, Pakistan’s GDI value of 0.537 can be compared with its HDI value of 0.562. The country’s GDI value is 95.6 percent of its HDI value. Out of the 157 countries for which both HDI and GDI values are available, 148 countries have a better ratio than Pakistan’s. These figures simply highlight the problem, which boils down to a low level of human capital development in the country. In addition, it highlights the perceived lower status of women and the inferior treatment meted out to them.

Often, even rising levels of household income cannot guarantee that women will be better off, because spending on them is mostly considered as a waste. Thus, a sustained effort needs to be made to overcome the prevalent misconceptions about women in the society. This assiduous effort is necessary because such a change in the thought processes of the public cannot be achieved overnight. If Pakistan is to embark on the path of economic reform and development, which will lead it out of the quagmire of its present murky economic conditions, it is imperative that the government places strong emphasis on the development of its vast quantities of human resources. This can be done by improving the social infrastructure, mainly through the provision of a wide-ranging network of publicly accessible programmes and services.