My topic deals with Pakistan, its relationship with the IMF and World Bank, and
its internal problems that are causing unemployment, poverty, economic crisis
and hunger. I shall be analyzing the situation using the neo-classical theory,
as it is what the economists of the Pakistan government and the IMF are using to
alleviate the economic instability of the country. Situated in the
sub-continent, Pakistan is a low-income country, with great promise for growth.
Unfortunately, it is held back from reaching middle-income status by chronic
problems like a rapidly growing population, sizable government deficits, a heavy
dependence on foreign aid, recurrent governmental instability and large military
expenditures. It is to address these fundamental faults in Pakistan’s economy
that the IMF has initiated the Structural Adjustment Programs (SAPs) in the
country. This is discussed in further detail later in the paper. Like all
developing countries, Pakistan’s population is largely employed in the
agricultural sector, which accounts for about 48 percent of the labor force. In
today’s world the Industrial and Service sectors are the largest growing areas
of a developed county’s economy. Yet Pakistan only employs 39 percent of its
population in Service, and a minute 13 percent in Industry. This is a paltry
figure, compared to the employment statistics of a developed country. Pakistan
is also heavily dependent on a single export crop, cotton. Hence the country’s
fortunes rise and fall with the cotton market. It is no wonder that there are so
many poverty stricken people in Pakistan. When almost half the population is
involved in a very volatile market, a lot of the time, a lot of people will be
burnt by price fluctuations. The country is also subject to the mercy of the
weather. Focussing on a major cash crop means very little diversification. This
translates to mass hunger and hard times for the agricultural sector whenever
the agrarian lands are ravaged by floods, or conversely, by droughts. Even more
importantly, Pakistan’s agricultural sector is marked by large landowners,
controlling most of the production. Hence, only a minimal amount of the profit
from exports goes to the poor people working for the large farmers. It is these
people who constitute a large portion of Pakistan’s population. It is also
these people who are living in abject poverty in the rural regions of the
country, devoid of the right to feed their families. This is a great
illustration of a theme discussed in “World Hunger, Twelve Myths.’ Lappe,
Collins, Rosset and Esparza discuss the commonly believed myths about why hunger
and poverty exist. In it they clarify this very important point: hunger does not
exist due to a shortage of available food, but because of ‘fear’ and
‘powerlessness,’ resulting in the ‘anguish, grief and humiliation’ felt
by the hungry and poverty stricken. Pakistan is a classic example of this
theory. Based on a feudal system, especially in agriculture, Pakistani society
is primarily controlled by feudal overlords, (a.k.a. the politicians or
relatives of politicians), who own or oversee most of the agrarian land and
industrial base. Being above the law, due to their political influence, these
corrupt people can literally get away with murder. Thus, keeping their laborers
subdued and underpaid is no hard task. Anyone who dares to complain is used as
an ‘example’ for potential future unrest. As a result, the people in their
‘elakhas’, (controlled lands), remain destitute in the throes of poverty,
unable to help themselves due to their lack of power and the fear of the ‘thekedars’,
(large landowners). By a lack of power, I refer not to a dearth of physical
prowess but to a scarcity of basic human rights. These are the same rights that
people in developed countries take for granted. The right to vote for whomever
one feels like is missing. Instead a lot of villagers are forced to vote for the
local land owner due to a combination of fear and ignorance; a fear of the
repercussions of a potential loss by the feudal lord and the ignorance of any
means to escape this same overlord’s wrath. Very often there is also no choice
of candidates. There are very few people willing to risk their own and their
families’ safety by running against their subjugators. All this goes against
the very nature of the free market economy that Pakistan is supposed to be
running. While the IMF and World Bank are using Neo Classical theory to address
the nation’s problems in the capital, half the country is still being run
under the feudal system. Till this system is broken, and the immense lower
classes are empowered there is not a dent that can be made in the country’s
poverty and hunger issues. Rather the problem will continue to grow right under
the economists’ noses. Pakistan is also set back by ethnic problems, having
numerous groups including Punjabis, Pakhtoons, Sindhis, Balochis and Mujahirs.
Speaking different languages, the different ethnic groups do not get along very
well as is witnessed by the numerous clashes between Sindhis and Mujahirs in the
violence torn city of Karachi. The language barrier also translates to a lack of
mobility of labor, which is a key to economic success under neo-classical
theory. Hence the large sparsely populated province of Balochistan is presently
under utilized. Due to a lack of available labor, industries are tough to set
up. If the language/ethnic barrier could be overcome, the rich lands of
Balochistan could potentially become the saviors of Pakistan’s economy.
Pakistan also has a very week industrial base. Being an ex British colony it
suffers from a similar problem to the one ailing a number of the African and
South American countries. This issue is that the colonists never bothered
building up the necessary base for industrialization. While the rest of the
world was busy building this base, greedy colonists who did not care about the
country and thus paid no attention to its development were exploiting countries
like Pakistan. Hence Pakistan is permanently playing catch up to the rest of the
developed world leaving very little money for social services to help the
situation of the poor. The literacy rate in Pakistan is also very low. In 1992,
the official literacy rate for the adult population was said to be a low 36
percent. Even more dismal was the statistic that listed 45 women being educated
for every man. With this dearth of qualified personnel, there is no room for
economic growth as there are no new minds to head the growth. Women are also the
primary food producers in Pakistan. If they are not being educated, it means
that they are not up to date on the latest production techniques, which in turn
translates to inefficiency and the aforementioned ignorance. Once again it all
ties into the powerlessness that marks the hunger and poverty-stricken. Women
represent 54 percent of Pakistan’s population. If they are not allowed to
exercise their rights to an education and to vote, how can the country be
expected to progress? It is like asking a man with one leg to run. Like other
third world countries, in Pakistan, substandard housing, inadequate sanitation
and water supply, and widespread malnutrition contribute to spread of disease
and to high infant, childhood, and maternal mortality. The leading causes of
death are gastroenteritis, respiratory infections, congenital abnormalities,
tuberculosis, malaria, and typhoid fever, all preventable diseases.
Unfortunately the poor, uneducated lower classes are not given enough attention
by the corrupt officials running the country, which is resulting in their
situation deteriorating year by year. These, along with other economic and
social issues are causing immense hunger and poverty in Pakistan. Presently
Pakistan is passing through an unprecedented economic crisis, made worse by the
global recession. The turmoil in domestic markets and the imbalance between
resources and liabilities threatens to roll back the modest levels of economic
development and industrialization that Pakistan has achieved so far. Had it not
been for a reasonably strong agricultural base, the situation would be much
worse. This ‘situation’ has been caused by a mixture of issues, including
the near sightedness of politicians and their persistence in following
politically popular, but economically disastrous policies. An example of this is
the detonation of a nuclear bomb a year ago. Simply to show off to India and the
rest of the world, as well as to raise their local popularity, the Pakistani
government decided to go ahead with an unnecessary test that brought economic
sanctions against them and also cost them a lot of their aid from western
countries. However, much more important have been the structural reasons
underlying this deterioration, all of which have been contributing to the
growing feeling of desperation the hungry and poverty stricken have been
experiencing. Before this paper begins finding solutions to the problems at
hand, we need to remind ourselves of the key issues. 1) One major problem that
Pakistan needs to deal with is the fact that its expenses are far more than its
revenues. Partly due to decades of lax fiscal management, but more because of
myopic policies in its external relations, the militaristic structure of the
state and the narrow vision of its rapist elite, Pakistan is Rs 100 billion
short of the money to simply keep its existing machinery operational. How is a
third world country supposed to develop an infrastructure when it is spending
more than its net revenues on only two items, debt servicing and defense? In
fact, Rs 18 billion of its defense has to be financed to borrowing. The
Pakistani government has not been governing; it has simply been acting as a
debt-securing agency. 2) Lately the government has been touting the fact that it
has achieved the IMF imposed budget defect target. What it neglects to mention
that it achieved the target through questionable means. Firstly, it drastically
reduced its developmental expenditure from 7.5 per cent of GDP in the early
‘90s to a paltry 3 per cent, which translates to a cutback of 140 billion in
present prices. A cutback of expenditure of such extent in the governments
purchases of private sector goods like cement, pipes and cables and services
like engineering explains why a number of private sub-sectors are at the point
of closing down, operating at a vastly reduced capacity. This is adding to the
issues of hunger, poverty and unemployment being faced in Pakistan. The
government has also reduced the amount it givers to the provinces by Rs 30
billion, transferring some of its debt to the provincial governments. In other
words the government has done nothing to resolve the issue of structural defect.
3) What’s worse is that not only has developmental expenditure been sharply
curtailed, but that the scarce resources set aside for infrastructure works have
been diverted to less productive investments_like the new motorway and the new
Lahore airport. This massive reduction of the public sector’s developmental
activities is causing a contraction in employment opportunities for Pakistan’s
growing number of middle class educated youth. This is particularly serious in
the areas where the private sector is unlikely to locate due to the lack of
infrastructure. Thus the really poor areas continue to live in poverty due to
the government’s inability to provide adequate physical and social
infrastructure or create an environment for private sector investment. It has
also not been able to maintain law and order and is guilty of not living up to
its contractual obligations which is further discouraging foreign and domestic
investment in the country. The treatment of its foreign currency account holders
and IPPs last year illustrates this point. 4) Pakistan suffers from the typical
problems that all third world countries suffer. One of these is massive
corruption at all levels, estimated at Rs 100 billion a year. This means that a
large portion of national wealth has been stolen from the poor. No wonder, the
country is unable to lift itself out of the quagmire of poverty and hunger. 5)
Tax evasion is another issue that the government needs to address. Successive
governments have failed to establish a tax culture due to an inequitable
structure, which taxes different sources differently. An example of this is
provided by the large farmers who, despite now getting higher international
prices for their crop, are unwilling to pay the modest levels of provincial
taxes. The political leadership itself does not pay its taxes diligently. Thus,
unless companies owned by sitting ministers install invoice based systems for
tax accounting, it will continue to be difficult to enforce retail taxes. Also,
the repeated bowing down of the government to shutter-down threats of traders
and the repeated refusal of large land-owners to meet their tax obligations is
increasing the burden of taxes on the helpless poor, the organized sectors, and
the honest people foolish enough to pay their taxes. If the rich are not willing
to meet their responsibilities, how are the poor supposed to survive? 6) There
is the additional problem of a gap of between 5 an 6 per cent of GDP per year
between domestic national savings and investments which translates to
approximately Rs 150 billion being financed from external borrowing. This
further adds to the crippling debt that is allowing the IMF and World Bank to
interfere in the formulation of domestic economic policies. 7) The external debt
of around US$ 34 billion is more than 50 per cent of GDP, and four times the
annual foreign exchange earnings. Pakistan can neither repay nor service this
debt. So far I has only postponed the inevitable, default by piling up further
debts at abominably high rates. 8) Pakistan’s exports compromise 0.2 per cent
of world exports and diversification from a single crop economy has remained an
elusive dream. Therefore to hope for exports to be the driving force of economic
recovery, as the government is doing, would require an astronomical rise in
exports, and the price of cotton. In other words it is impossible. 9) The
country’s ability to export is also affected by sluggish world trade, which
coupled with an over valued currency, is rendering Pakistan’s exports
uncompetitive. With the rise in the price of oil, the gap between import bills
and export receipts is widening. 10) Until now this gap has been met with
remittances and short-term borrowing. But due to a decline in remittances for a
number of reasons and Pakistan’s declining credit, this is no longer an
option. It therefore seems that it is impossible to maintain the present levels
of growth rates and imports as well as meet debt servicing. 11) Public sector
industries are also deeply in the red due to over-manning, corruption, and the
protection given to large defaulters of utilities. The combined debts of just
WAPDA and KESC, (which deal with electricity and gas respectively,) are Rs 91
billion while the loans of 18 public sector enterprises is close to Rs 250
billion. 12) The government is offering 15 to 18 per cent interest rates on its
saving schemes which is far to high for it to be able to generate high enough
returns to service the debt and still have enough left over to finance
developmental activities. 13) Most of Pakistan’s industry faces the issue of
negative or nominal growth, while value-added industry is operating at 30% below
capacity. The limited growth is due to a lack of comparative advantage, the lack
of credit availability and a high interest rate. Despite inflation being well
below double digits, interest rates are as high as 15 to 18 per cent on loans!
This is too high to keep the present economy afloat, let alone raise it to a
maintainable level of growth. 14) There is also a lack of confidence in the
government by the private sector. How can a government that cannot even handle
domestic peace issues be expected to turn around an economy that is in the
throes of a downward spiral? Therefore the private sector has been occupied in
short-term trading and currency speculations which do nothing for growth or the
welfare of the state. 15) An obvious result of this situation is that the
disparity between the rich and the poor has grown. The share of the poorest 20
per cent of households has fallen to 7 per cent while the richest 20 per cent
are receiving over 45 per cent. The low rate of economic growth and the high
rate of inflation over the last few years have left the poor with no buying
power resulting in almost a third of the population living below the poverty
line. There is also anger amongst the poor about the fact that the incidence of
increased taxation has been heaviest for them; expenditures on services for them
have declined. Social tensions are rising with the growth of the absolute number
of poor, illiterate and jobless, as employment opportunities and wages decline
due to the stagnating economy. Such conditions are hardly conducive to political
and social stability, without which growth will remain a distant dream. On top
of all of this, Pakistan is plagued by the curse of the IMF and World Bank.
Constant defects in the current account of the balance of payments and depleting
foreign exchange reserves is causing the extension of credit to become an
exercise in haggling and bargaining. Each time there are negotiations along with
a string of conditions attached to the loan. The release of credit is then
delayed until each and every condition of the IMF has been met. The only way
that Pakistan can now secure loans and vital extensions on its debt is to
institute the Structural Adjustment Programs that have been drawn up by IMF
economists. The problem is that the benefit of these programs is questionable.
Most countries have suffered immensely from them. Instead of improving the
economy, these programs have been destroying them. Unfortunately, like other
countries that have yielded to the them, Pakistan is virtually being taken over
by the IMF, along with the World Bank. There is increasing evidence of this
everywhere:  A few months ago, the IMF opened a resident office in the
capital, Islamabad, to monitor the economic policies and performance. 
Before the budget is presented to the Assembly, it is sent to the IMF scrutiny
team for approval.  Even after the Assembly has passed the budget, the
IMF can amend it, totally against the will of the Assembly and public interest.
 Projects are started, speeded up or stalled at the will of the World
Bank.  Not, only are major projects subject to their approval, but even
small price changes in consumer products are also dependent on their assessment.
 Either the mission is visiting the country and having meetings with
various government departments, or the heads of these departments are rushing
every week to Washington to plead for more time and/or money. This is
reminiscent of countries like Brazil and Russia in the ‘80s and ‘90s when
they were drowning in debt and faced mounting poverty. And did the IMF and World
Bank’s policies help them recover? The answer is “No.” In fact they made
the situation much worse. From 1980 to 1989 Brazil paid $148 billion in debt
servicing on a loan of $ 64 Billion. Ten years later, having paid $148 billion
on the debt, Brazil now owes $121 billion. This illustrates the viscous cycle
that the IMF puts its borrowers into. In Russia, the IMF contributed to
Russia’s collapse in 1998. Competition combined with intelligent privatization
and correctly channeled investments in capital markets could have brought about
the growth that Russia was so desperately searching for, but the IMF never
emphasized competition and economic growth. Instead they imposed their rigid,
set, standard formula_reducing inflation and cutting budget deficits. Insisting
on a fixed exchange rate, it destroyed all prospects for export of oil, gas, and
energy, which earns Russia half of its money leaving the country in tatters.
Whenever the IMF’s policies fail, they give the standard excuse of poor
implementation by government officials, corruption and the lack of political
will. Policies are made within constraints. The IMF refuses to acknowledge these
constraints just as it refuses to make country to country adjustments. No two
situations are alike. How can the IMF expect one standard plan to solve every
type of problem? It is obvious to laymen in economics that it cannot. Yet the
geniuses at the IMF cannot see this. It is not the fault of the IMF that
countries have taken loans and are now in debt. On the other hand, they are
completely responsible for the havoc their policies have caused, and are
causing, in victim countries where hunger and poverty have increased many fold
instead of having been reduced. The particulars of the IMF and World Bank’s
policy in Pakistan were recently announced and by the Government of Pakistan and
were approved by the overseeing organizations. The three-year structural reform
agenda is basically focused on the budget and on the restructuring and
strengthening of the financial position of public enterprises. Substantial
efforts are to be made to broaden the base of domestic taxes, revamp tax
administration, implement the restructuring plans for the energy sector and a
number of other public sector enterprises, and raise the productivity of
government expenditure. The government is also to move forward with the
privatization of financial institutions, trade liberalization, and to make
further progress in the development of the market-based foreign exchange and
payments system. The main points of the agenda are as follows: Agriculture The
government’s strategy in this area is to limit the role of the public sector,
transfer management to the private sector, strengthen local capacity, and assist
in natural resource management and environmental protection. The government’s
control over imports of fertilizers and the remaining restrictions on imports
and exports of agricultural commodities are to be reduced. The wheat subsidy is
to be phased out as well, and the private sector will be gradually allowed to
participate in the wheat market on terms similar to those of the public sector.
The functioning of the agricultural credit market will be improved by gradually
phasing out credit subsidies and directed credit and by developing more
effective, market-based credit institutions. Social policies Pakistan’s Social
Action Program (SAP) was launched in 1992 to expand and improve the country’s
very weak social services in elementary education, primary health, population
welfare, and rural water supply and sanitation. The second part of the SAP (now
underway) emphasizes improvements in the quality of services, particularly
education, and the maximization of the impact of expenditures. The SAP program
will continue to be agreed upon on an annual basis by the government, the World
Bank, and other participating donors. In 1998/99, the government is to ensure
that total rupee expenditure (not including foreign project assistance) for
basic social services will be at least PRs 56.5 billion, including at least PRs
5.5 billion on critical quality-enhancing nonsalary expenditures in the
provinces and federal areas. The focus in education is to be on enhancing the
quality of services through improvements in the teaching environment; provision
of textbooks and materials; and greater access to educational opportunities,
particularly for girls. The objective of the healthcare sector is to be on
strengthening of basic health care and family planning services at the community
level. Transport Pakistan’s growth and export potential depends importantly on
the modernization of its outmoded transportation systems. To improve the
transport system, the government will implement a reform program over the next
three years to upgrade and expand the country’s highways, railways, and ports.
The highways are to be improved through the incorporation of tolls and through
the encouragement of private sector investment while the railway is to be
prepared for privatization by the end of 2000. Infrastructure In Pakistan, the
provision of basic infrastructure and services in the urban and water sector
lags considerably behind the rapidly growing urban population. To improve the
living conditions of the urban population, particularly those of the poor, major
efforts are proposed to improve Pakistan’s water supply and sewerage and solid
waste management systems which include reforms to develop local governments’
capacity to meet this need with private sector participation in urban services
delivery. Power sector In the energy sector, Pakistan’s reform program is to
increase the efficiency and reliability of energy supply and to create a
competitive market structure. The government is to encourage private sector
investment in new energy supplies while initiating the restructuring and partial
privatization of the energy utilities. The government will consider
restructuring and privatization of Pakistan State Oil Ltd., the largest oil
marketing company, while shares of SNGPL, a major gas distribution company, will
be offered for sale to investors. The government is also considering
restructuring the Oil and Gas Development Corporation and natural gas tariffs
will be adjusted to achieve a rate of return on assets as agreed with the World
Bank. Environmental issues One of the most pressing issues in sustainable
development for Pakistan is the strengthening and improved monitoring and
enforcement of environmental protection. The areas of concern include the
inability of provincial environmental protection agencies to design
cost-effective strategies for the enforcement of National Environmental Quality
Standards and other provisions of the Environmental Protection Ordinance, and
the absence of a pollution control system. The steps that are to be taken over
the program period include the development of provincial capacity for monitoring
and enforcement, the implementation of mass awareness programs, the development
of a comprehensive pollution control and environmental impact assessment system,
and the increased enforcement of compliance by the industrial sector with sound
pollution control. Government The effectiveness of the government in public
expenditures is limited and contributes to poor economic performance, low
investment, and inadequate social services. The politicization of routine
decision making has weakened the civil service and diverted expenditures to
lower-priority activities. To prevent this, the government is to downsize itself
to a reasonable number of staff so as to increase its processing efficiency.
Statistical issues In addition to plans for the improvement of the quality and
timeliness of data on public expenditures, the government is to address
remaining deficiencies in the economic database of Pakistan: in national
accounts, through Public enterprise reform During the course of 1997/98, seven
major public sector enterprises developed plans to restructure their operations
and to improve their financial performance so as to increase their efficiency
and/or prepare for privatization. Public debt management Due to the high levels
of public debt and its effects on the budget, the government is to adopt a debt
management policy to reduce the debt and debt-service ratios. Banking sector The
banking reform program has already started to stem the losses from the
politically motivated lending and subsequent operating losses. The efficiency of
the banking sector has been improved through a change in management and by
reducing overstaffing and the excessive numbers of branches. Regulations and
financial disclosure standards have been brought to international levels to
increase transparency. The central bank’s autonomy, especially in monetary
policy and banking supervision, has also been strengthened through the amendment
of the law. This is to lead to the privatization of the rest of the government
controlled banks over the next two years. Reform in the Foreign exchange market
Pakistan is to increase the role of market forces in the process of determining
the exchange rate by developing the spot and forward markets, and by eventually
having a freely floating exchange rate. Tariff reform Plans have been made to
remove the remaining restrictions on exports and imports and to further lower
import tariffs. The elimination of import bans on textile products is expected
to be agreed upon during negotiations between Pakistan and its main trading
partners. Only tariffs applying to automobile imports will remain for balance of
payments reasons. Tax reform The focus of the tax reform program is to achieve
larger revenues from tax collection, while promoting a more equitable
distribution of the tax burden and greater documentation of the economy. To
achieve this, the tax base is to be broadened by including previously untaxed
income and under taxed sectors, and tax administration improved in order to
provide scope for a lowering of statutory tax rates. A comprehensive review of
the income tax system is also to be completed soon, and the recommendations from
the review are to be implemented in the 1999/2000 fiscal year. Expenditure and
civil service reform Improvements in expenditure policy are to concentrate on
maximizing its effectiveness and developmental impact. To achieve this the
government is to reduce spending on lower-priority activities by reducing the
public investment program, lower spending on personnel, allocate resources
toward high-priority and essential operating and maintenance expenditures,
provide adequate money for basic social services which are part of the SAPs, and
improve the planning and monitoring of budgetary expenditures. Pakistan is
currently at the brink of complete collapse. It has got to the point where the
army has stepped in and declared martial law and the people are happy about it!
This shows how desperate the situation is. For many of the poor and starving,
martial law represents their last hope as everyone including their government
and international financial institutions has betrayed their trust. The question
arises as to what the military can do to alleviate the problems and stem the
collapse. The following are some suggestions: a) Until now taxation structure
has been a dependent on import related taxes and excise duties. Along with sales
and income taxes for mobilizing revenues no matter how poor the enforcement, the
speed of imposed tariff reform program effects the capacity of the taxation
structure to raise adequate resources to meet operational expenditures. The
slowdown of industrial activity has also weighed greatly on this factor.
Therefore there is a great need to place a structure which taxes incomes of all
sources equally. b) Contrary to popular belief high rates of return on
government issued instruments do not necessarily increase savings rates. They,
instead, influence the switch from one instrument to the next. This encourages
an outflow of capitol. A more practical proposition for decreasing the deficit
would be for the government to lower yields on its securities and saving
schemes. Taxation should also be brought up to date and been adjusted to levy
new issues rather that old. c) To assist industries interest rates will have to
be cut further in order for these operations to breathe. d) The industry should
weed out the units that do not operate up to a certain efficiency standard so as
to allow the inflow of cash to competent units. Ceasing to provide revival
packages to dying industries as Pakistan has being doing for the last decade can
do this. They need to let the free market take its course and eliminate
non-competitive firms. e) The rupee is substantially overvalued and must be
allowed to float so as to allow exports to sell fairly in international markets
and to make foreign products less competitive in local markets. In turn, a
revamping of the monetary system to correctly assess drawback claims would
greatly improve the financial situation. f) There is one government servant for
every thirty-five Pakistanis. Therefore the government needs to ‘right-size’
itself so as to improve its efficiency and cut back on expenditure on benefits.
The multiple layers of required processing shake the present effectiveness of
policy. A smaller, more efficient government would mean that policies would not
hit the streets after the fact. g) A problem far greater than corruption is the
lack of competence in public sector enterprises. There is a need for more
specialists in key departmental positions instead of the present use of
generalists to man key positions. h) Pakistan currently spends more than twice
as much as India and Sri Lanka do per student at the primary and secondary
levels. Hence there is a need to restructure the social aspect of the public
sector through decentralization, so as to bring about greater efficiency. I)
After the acquisition of nuclear weaponry, Pakistan needs to review its defense
spending and the size of its army. There is no real need to be spending more
than the size of the budget on a defense that could, most probably, never be
required. k) It also needs to establish independent institutions to conduct a
thorough accountability for the government’s actions so as to dissuade corrupt
officials from stealing, evading taxes and mistreating the poor people living
and working on their land. l) The quality of political leadership also needs to
be improved. Decreasing the incentives of holding a seat in senate or assembly
can do this. For example, the discretionary power to give tax breaks could be
taken away. The economy could be further decontrolled and privatized. The income
tax forms for those in office and heir immediate family should be made public
for their time in office so as to control corruption. In this way the
politicians and their relatives, who control a lot of the agricultural and
industrial sectors, would have a harder time evading taxes and mistreating their
labor. m) The government also needs to stop focussing on debt servicing which is
obviously impossible at this point, and start focussing on getting the debt
either absolved or completely restructured with equitable interest rates. Money
saved from the reduction of the annual spending on debt servicing could then be
used for financing re-prioritized infrastructure related developmental programs.
Primarily focussing on deprived areas, particularly in the smaller provinces,
and for financing human development programs and social safety nets for the less
privileged segments of the population, the country could provide its present
lower class with an option that they have not had before. This is the option to
improve their lot through hard work and with the opportunity to break free of
the controlling feudal system. After all, capital is not such a major constraint
if there is an educated labor force that can deploy the existing capital
productively. The major setback to growth is the lack of human capital that can
absorb technology and the experiences of other countries to leapfrog a number of
developmental stages Which is what Pakistan needs to do to undo the damage done
by the colonists. It is people that make the biggest difference, not the capital
hat they are using, since assets are just a means to an end. On the other hand,
expanding good-quality education can create islands of skill wherein important
skills in various key disciplines can be developed so as to push up the growth
rate. To support this, I believe that all investments in, and incomes from
education should be exempt from taxation. Furthermore, money saved from
debt-servicing could be used for public sector investments in agriculture to
enhance yields per acre in essential food production, thereby placing a
constraint on the drain of foreign exchange being used to purchase imports of
agricultural commodities like wheat and edible oils. This would make these vital
food products cheaper and more accessible to the poorer citizens going some way
to reducing hunger. As wheat and ‘ghee,’ (a local edible oil), are major
mainstays of the local diet, they should be made completely tax-free and
subsidized, so as to further cheapen their prices. I feel that this would go
along way towards lightening the burden on the poor. Investments in agriculture
are also critical as it continues to be the mainstay of the economy and provides
a livelihood for a large majority of the population. It can also play a strong
role in supporting small-scale industry and in checking rural-urban migration.
If the military decides to impose these policies, or policies similar to these,
Pakistan may have a hope of avoiding what appears to be an inevitable crash of
its economy. The situation of the poor and under privileged could also be
alleviated eventually as long as the government decides to start spending money
on developing an infrastructure that can help feed the hungry by providing them
with jobs. Nevertheless, there are no easy options left. Only the painful ones
remain. It is, however, important that the pain of reform be distributed
equitably, and not born largely by the poorer classes, as is very often the
case. There are tough times ahead. Unfortunately, there is little evidence that
the Pakistani ruling elite is aware of the gravity of the situation; or that it
has what it will take to steer the country out of its mess.