|
Who will punish beneficiaries of loan write-offs? |
| Huzaima Bukhari and Dr. Ikramul Haq
|
In the wake of February 2008 elections, the people of Pakistan thought that the rulers would respect their mandate by moving towards an egalitarian society—the essence of people’s rule. The ruling elite—unholy alliance of bureaucracy, politicians and businessmen—always resist any such change. When matter comes to surrendering their ill-gotten wealth—the main source of their power—for the benefit of masses, the privileged classes, despite their political/ideological differences, start showing “gestures of reconciliation”. As soon as media start exposing their financial corruption, tax evasion, plundering of national wealth, they “unite” (sic)—immediately meeting at sumptuous dinners and talking about working together for “national interest” (sic) by bridging their differences (sic). They start feeling threatened with open public debates about their tax declarations and figures of loan write-offs.
Tragically, the apex court did not decide the issue of loan-write-offs though suo moto action was taken in 1996 and 2008. In 2008, according to Press reports, the Supreme Court took serious notice of the fact as to how banks wrote off a staggering amount of Rs. 125 billion as “bad debts” during 2000-2006, against Rs. 30 billion written off during 1985-1999. According to reports, larger numbers of loans were written off under Circular No 29/2002, issued by the State Bank of Pakistan (SBP), of which major beneficiaries were leading politicians and industrialists.
During the self-acclaimed “transparent era” of Musharraf-Shaukat, loan writ-offs in just seven years (2002 to 2007) crossed the figure of 125 billion, whereas in the much-publicized “corrupt” era of elected governments (1985 to 1999) it was merely Rs. 30 billion. This comparison speaks for itself and does not require any further comments. The country’s banks and other financial institutions wrote off an amount of over Rs 30 billion during the governments of Muhammad Khan Junejo, Benazir Bhutto and Nawaz Sharif. During the two tenures of Nawaz Sharif (1990-93 and 1997-99) Rs. 22.35 billion loans were written off– during his first tenure, a total of Rs. 2.39 billion were written off and in his second, the amount went up to Rs. 19.96 billion. The written off loans during the two tenures of Nawaz Sharif constituted approximately 74.5 percent of the total of Rs. 30.18 billion, written off between 1986 and 1999. During the two tenures of late Benazir Bhutto, a total of Rs. 7.23 billion loans were written off, constituting 24.2 percent of the total written off loans – Rs. 494.97 million in her first tenure and Rs. 6.74 billion in the second term.
During the Musharraf-Shaukat era, an unholy alliance of bankers, businessmen-turned-politicians and bureaucrats–that included many serving and retired general–managed to plunder public money through amnesty scheme from SBP, whereas banks had assets as collateral to recover the loans. The scheme shamelessly granted tax waiver to these people who could settle loans by just paying fraction of total outstanding amount. The SBP admitted before the Supreme Court that amongst the beneficiaries of its Circular No. 29/2002 were two sitting Chief Ministers of PML(Q) regime. The criminal culpability of successive governments in this matter has tarnished the image of Pakistan in the eyes of global community as a haven for the corrupt, plunderers and tax evaders..
Table A depicts the cumulative non-performing loans and advances of banks and non-banking financial institutions from 1982 to 2008, which have been compiled from annual published audited accounts. This shows how quickly non-performing loans have increased over the period of time, but more significantly, lack of political will to recover them through introduction of a simple foreclosure law. The beneficiaries of loan write-offs are the rich and the mighty. They have increased their wealth through squandering public money lying in the banks. This is high time that this money is retrieved for the welfare of masses and they should be banned for life to take part in politics.
TABLE AYear Quantum1982 Rs. 8 billion 1988 Rs. 39 billion 1993 Rs. 62 billion 1998 Rs. 118 billion 1998 Rs. 140 billion 1999 Rs. 164 billion 2000 Rs. 171 billion 2001 Rs. 185 billion 2002 Rs. 218 billion 2003 Rs. 229 billion 2004 Rs. 241 billion 2005 Rs. 255 billion 2006 Rs. 265 billion 2007 Rs. 272 billion 2008 Rs. 288 billion
The Supreme Court of Pakistan, way back in 1996 (Reference: Dawn dated 16th October, 1996), taking suo moto cognizance under Article 189 of the Constitution of Pakistan, took up this issue of loan write-offs and expressed intention of studying all the governing laws in this regard. The apex court vowed to make authoritative pronouncement that “would eliminate the chances of misusing the laws for siphoning of public money” There is, however, no track as to what happened to that public interest litigation case, it appears the same is still pending even after a lapse of 13 years.
The said public interest litigation originated from a reference filed by then President, Late Ghulam Ishaq Khan against a PPP, MNA, Rao Rasheed Ahmad, who as a member of loan write off committee, blatantly ordered to write off a loan of his wife. There have been many such examples where the rich and mighty managed to plunder the savings of the have-not (small depositors) in a shameless manner. An unholy alliance of bankers, businessmen-cum-politicians and bureaucrats has destroyed the entire banking/financial system.
The politics of writing-off loans in this country requires proper investigation and study as it will unveil may “big names” that are responsible for corruption and failure of the democratic process in Pakistan. The country lost billions of rupees in the form of public revenues because of bad debts written off by the banks on specific directions of SBP. The Government of Pakistan, SBP and Federal Board of Revenue (FBR) never considered the report of Auditor General of Pakistan in this regard issued far back in 1992, showing loss to public exchequer of Rs. 120 billion. It is a matter of record that the Board of Revenue despite this audit report from the Auditor General of Pakistan, issued another Circular instructions on February 4, 1993 vide its letter No. 13(26)/IT-1/79 giving further concessions to the banks. The cases relating to plundering of public money to the tune of billions and blatant abuse of powers by rulers and their henchmen pose a serious threat to our democratic culture.
The unscrupulous businessmen (most of them are now politicians and elected members of parliament), state functionaries and corrupt bankers have joined hands to deprive this nation of billions of rupees of public funds and colossal loss to public revenues. The big bosses of the State Bank and FBR should be taken to task to explain who had asked them to issue “administrative instructions” in gross violation of law for loan write offs and allowing unprecedented tax benefits to the beneficiaries. The inquiry into loan write offs will not only reveal the modus operandi through which public money is siphoned off but will also unveil the real beneficiaries. If we want to establish true democracy in Pakistan, public money looted by these criminals should be recovered, they should be disqualified permanently from holding public offices and all those who facilitated them should be given exemplary punishment. ___________________________________ The writers, tax lawyers and authors of many books, are visiting professors at the Lahore University of Management Sciences (LUMS).
|
Archive for Economy
When the Supreme Court Look into the Loan Write-off Issue?
Punjab is Dragging the Rest of Pakistan to a Snail’s Pace
The lack of common sense in inventing the Sasti Roti Scheme has emptied the coffers of the Punjab Government. What is use of 2 Rupees Roti , when plate of Dal is for 100 rupees to accompany with it .
Punjab is bursting from seems , with its overpopulation, most highly populated cities, with more then 500 persons per square km.
To top it all, there are another nine cities in Punjab, which are above 400 persons per square Km. As a result the tiny country is ranked 6th most populous in the world in such tiny area, which is amazing.
While you compare this with other three Provinces combined, they have only four such cities like Karachi, Peshawar, Mardan, and Nowshera in Pakistan.
This heavy load of population, on infrastructure, and economy, by Punjab is dragging Pakistan to a snail pace and promoting, poverty and terrorism.
As Punjabis fail to follow contraceptive measures, because of their backwardness and rigid religious, beliefs, the rest of the country suffers.
The heavy concentration of people in Punjab, the health and economic matters are getting worse as well as water sources are getting scarce.
Punjab has highest amount of Hepatitis C and B incidences.
Whole Budgets are wasted on useless pseudo socialist projects like providing cheep food (Sasti Rotis) and no real education and development projects. Only way out is by decreasing population.
Shahbaz Sharif is bluffing the people and making a fool of them as they are capitalist in their hearts, and promoting pseudo- socialism, which fails to pay taxes on agriculture, and claims this luxury as its birthright.
From where this money will be brought from snatching from other provinces rights, I suppose ?
Dr Khurrum Shaukat Yusafzai.
Email : Khurrumuk@gmail.com
Defense Spending Goes Up by 20%
Pakistan’s defence expenditures may exceed the budgetary allocation of Rs343 billion by about 20 per cent during the current fiscal year because of the military operation against militants.
The expenditures were estimated to be somewhere between Rs400 billion and Rs410 billion, up by around Rs70 billion against the allocation of Rs343 billion.
The security expenditures had gone beyond Rs40 billion a month much more than the average monthly expenditures.
The security-related expenditures in Waziristan were much higher than during the operation in Swat.
Last year, an amount of Rs296 billion was allocated in budget for defence. This was, however, twice revised upwards, first to Rs311 billion and then to Rs329 billion, up by 11 per cent over the budget estimates.
The security expenditures were higher than expected. Because of higher than estimated expenditures, the revenue target for the current year has increased from Rs1,380 billion to Rs1,396 billion.
Receivables from the United States under the coalition support fund currently stood at $1.4 billion that would reach $2.4 billion by June 2010.
The government was expecting to get about $500 million in about a month.
Pakistan is expectng to get about $874 million during the current fiscal year. Energy-related expenditures had also been higher than anticipated.
Roti More Expensive than a SMS
SMS and ROTI
|
||||||||||||||||||||||||||||||||||||||
Pakistan Needs to End Feudalism
Absence of land reform entrenches poverty
Dotted around Pakistan are vast estates run by feudal landlords who command enormous economic and political power, condemning their tenants to poverty, reform activists charge. On some of these estates, debt bondage has forced 1.8 million people to work the land for no pay, generation after generation.
On others, sharecropping systems are practised, under which landless tenants hand over between two-thirds and half of the crops they produce to the landowner.
Without distributing land among tenants and landless peasants, there is no possibility of progress. The end of feudalism is a must for modernizing society. Until effective land reforms are carried out, poverty can never be eliminated.
Unlike other countries in the region, including India, Pakistan did not carry out land reforms after 1947, and attempts in the 1950s and 1970s to reduce the size of land holdings had limited impact.
Land reform has not taken place because the lawmakers in many cases themselves have large land holdings and will never want to transfer ownership to tenants. There will be no land reform until the people are in control of governance. About 2 percent of households control more than 45 percent of the land area. Powerful farmers have also taken advantage of government subsidies in water and agriculture, and benefited from technological improvements which have boosted yields, according to the World Bank.
Little progress
By 1977 the biggest estates had only surrendered about 520,000 hectares, and nearly 285,000 hectares had been redistributed among some 71,000 farmers. Around 3,529 landowners have 513,114 holdings of more than 40.5 hectares in irrigated areas, and 332,273 holdings of more than 40.5 hectares in non-irrigated areas, according to the government’s annual Economic Survey.
“We manage to earn a little for ourselves by selling the surplus corn and wheat that we take from the land. It is hard work, but despite this we have not been able to escape poverty. None of my four sons is educated beyond the eighth grade. We needed their labour on the land,” said a landless tenant on a farm near the town of Okara.
In Punjab, both sharecropping and fixed-rent contracts – where a rent per acre farmed is paid to the landowner by tenants – are practised.
In Sindh, about one third of the land falls under fixed-rent contracts and about two thirds of the land is sharecropped, government surveys show.
Discontent
The sense of injustice created by the continued hold of feudal landlords and the poverty this gives rise to has been a key factor in rising social discontent – aided and abetted by militant groups. “I am a landless farmer. Last year my teenage son was persuaded by members of an organization engaged in jihad [holy war] to come away with them. They told him it is better to wield a gun and learn to use it than eke out a miserable existence tilling land,” Riazuddin from Vehari said. “My son is only 17. He saw no hope ahead of him, and therefore went away with these people. His mother and I are distraught. But we believe he has gone to the northern areas and we have no means of finding him,” he said.
Many blame this on oppression and misery. Today, governance has collapsed. Extremism has grown and weapons have proliferated. According to the World Bank, 33 percent of Pakistan’s 162 million people live below the poverty line. Farming contributes 21 percent to gross domestic product (GDP) and employs 44 percent of the workforce, according to the government’s annual Economic Survey.
Of the total land area of 80.4 million hectares, about 22 million are cultivated, according to official data. Nearly 65 percent of this cultivated area is in Punjab, about 25 percent in Sindh and 10 percent in the North West Frontier Province and Balochistan.
Refining Imported Sugar
The government is all set to give a go-ahead to the private
sector to set up a sugar refinery at the Gwadar port to meet local
demand in the wake of high prices of the sweetener in the international market.
The Ministry of Industries is considering this.
It is not the business of the government to set up an industry or
run an industrial unit but we will facilitate and encourage the private sector to do business by setting up industrial units.
The federal cabinet has allowed private sugar millers the import of 0.35 million tons of raw sugar before the start of crushing season in October or November as the food and agriculture ministry anticipates a sugar shortfall of 1.5 million tons in 2009-10.
There are 82 sugar mills for crushing cane in the country but no sugar refinery for processing imported raw sugar for public consumption. Imported raw sugar is only processed by mixing it with cane juice during the crushing season.
Besides import of 350,000 tons of raw sugar by the Pakistan Sugar Mills Association (PSMA), the government would import 70,000 to 100,000 tons through the Trading Corporation of Pakistan (TCP) which would be processed either by local mills or a refinery in Dubai.
It is right time that the government gets rid of the shackles of PSMA by allowing the setting up of a sugar refinery for processing raw sugar.
Since last year, India, who used to export raw sugar, “has become a net importer and has set up 10 to 15 refineries on fast track as it sees a shortfall of five million tons in sugarcane production.
During the season in India, the cost of refining raw sugar came to $60 per ton at the most, allowing the refineries to make reasonable margins.
A proposal for setting up a sugar refinery reveals the project requires an investment of $30 million, which could be higher if the refinery wants to export electricity, generated through high steam pressure system. It will reduce the cost of production with revenues from power export.
It is estimated the project capacity at 750 to 1,000 tons per day of
refined sugar based on Phospho-flotation and Ion Exchange technology and annual production at 0.25-0.30 million tons.
The proposal says electricity will cost nothing due to cogeneration of steam and power (as steam will be generated at higher pressure and passed through a turbine). Power requirement is 60 kilowatt hour (kwh) per ton of refined sugar and the refinery can run 330 days in a year, taking 30 days for maintenance.
The interested party also says they have commissioned a refinery for a sugar mill and can build a refinery at a much lower cost and will commission it with their own manpower and hand over the same to the client.
The cost of refining will depend to an extent on fuel cost, but taking
coal as a fuel available at $100 per ton the cost will be less than $60 per ton of refined sugar including both fixed and variable cost.
Only One Percent Pakistanis Pay Taxes
Pakistan IMF loan at risk
By Farhan Bokhari FINANCIAL TIMES
Published: September 3 2009
Pakistan is in danger of disrupting a critical $11.3bn International Monetary Fund loan if it fails to reform its tax collection system, a senior western economist has warned. The IMF loan, secured first for $7.6bn late last year and subsequently raised to $11.3bn, helped to ward off a likely default on foreign debt payments.
Some key economic indicators have improved since the IMF’s intervention. Liquid foreign currency reserves of about $14bn are equivalent to between five and six months of imports, significantly up from $3.5bn late last year, while inflation has fallen to 11 per cent down from about 25 per cent a year ago.
But concern is mounting rapidly over Pakistan’s ability to reduce its fiscal deficit by raising tax revenue, after the latest official data showed the deficit at 5.2 per cent of gross domestic product for the July-June financial year up from a target of 4.3 per cent agreed with the IMF. Part of the rise came from the fallout from a military campaign against Taliban militants in the northern Swat valley.
The deficit shows a chronic problem with the Pakistani economy. The challenge is that of a very narrow base for tax collection. During its last review of Pakistan, the IMF gave a waiver on the fiscal deficit. But going forward, it will be difficult for Pakistan to keep on getting waivers repeatedly. Frankly, we are all getting tired of Pakistan’s repeated failures to improve tax collection.
The country’s tax to GDP ratio last year was 9 per cent – the lowest among its south Asian peers. The target for the present financial year has been raised to 9.6 per cent while the government plans to raise it to 15 per cent in the next five years.
Pakistan’s economy cannot afford further tax relief indicating an end to an era of giving concessions to influential lobbies.
Tax reform is needed to reduce poverty and generate resources for public investment. A good part of the economy is not taxed.
Under 1 per cent of Pakistan’s population of about 175m pays an income tax. The government plans to introduce a value added tax on retail from July next year as a key step to increase tax revenue.
But critics warn that an expanded VAT will unfairly target all income groups alike from the rich to the poor. Unless our rulers decide to take on people who evade taxes including the very rich who are also influential, this situation will not change. At best, the VAT may reduce the fiscal deficit but that will not change the culture of rampant tax evasion.
The World is Dependent on US Consumption for its Growth
“SAVING IS SIN, SPENDING IS VIRTUE”
The Japanese save a lot. They do not spend much. Also Japan exports far more than it imports. Has an annual trade surplus of over $100 billions. Yet the Japanese economy is considered weak, even collapsing. Americans spend, save little. Also US imports more than it exports. Has an annual trade deficit of over $400 billion. Yet, the American economy is considered strong and trusted to get stronger.
But where from do Americans get money to spend? They borrow from Japan , China and even India .
Virtually others save for the US to spend. Global savings are mostly invested in US, in dollars. India itself keeps its foreign currency assets of over $50 billions in US securities. China has sunk over $160 billion in US securities. Japan ’s stakes in US securities is in trillions.
Result
The US has taken over $5 trillion from the world. So, as the world saves for the US , Americans spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2 billion a day, to the US ! Otherwise the US economy would go for a six. So will the global economy. The result will be no different if US consumers begin consuming less.
Who has invested more, US in China , or China in US?
The US has invested in China less than half of what China has invested in US. The same is the case with India . It has invested in US over $50 billion. But the US has invested less than $20 billion in India .
Why the world is after the USA?
The secret lies in the American spending, that they hardly save. In fact they use their credit cards to spend their future income. That the US spends is what makes it attractive to export to the US . So US imports more than what it exports year after year.
The world is dependent on US consumption for its growth. By its deepening culture of consumption, the US has habituated the world to feed on US consumption. But as the US needs money to finance its consumption, the world provides the money. It’s like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won’t have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like the helpless shopkeeper financier.
Who is America ’s biggest shopkeeper financier? Japan of course. Yet, it is the economy of Japan which is regarded as weak. Modern economists complain that Japanese do not spend, so they do not grow. To force the Japanese to spend, the Japanese government exerted itself, reduced the savings rates, even charged the savers. Even then, the Japanese did not spend. Their traditional postal savings alone is over$1.2 trillions, about three times the Indian GDP. Thus, savings, far from being the strength of Japan , has become its pain.
Hence, what is the lesson?
That is, a nation cannot grow unless the people spend, not save. Not just spend, but borrow and spend. Dr. Jagdish Bhagwati, the famous Indian-born economist in the US , said that Indians wastefully save. Ask them to spend, on imported cars and, seriously, even on cosmetics! This will put India on a growth curve.
“Saving is sin, and spending is virtue.”
Petroleum Companies Cartel Not Letting Thar Coal Reserves Develop
Thar coal Reserves
If all the Oil Reserves of Saudia Arab & Iran are put together these will constitute approximately 375 Billion Barrels.
But a single Thar Coal Reserve of Sindh is about 850 Trillion Cubic Feet, which is more than Oil Reserves of Saudia & Iran.Pakistan receives annually 1220 Billion from tax alone.“Petroleum Companies Cartel” always discouraged them in a systematic way.Petroleum Companies Cartel is strong in Pakistan and they are against any other means of power generation except for the imported oil. This lobby is major beneficiary of the increasing oil bill that is estimated above 15 billion dollar this year. Even Government is planning to sell all these reserve to a company at a low price.
These reserves are estimated at 850 trillion cubic feet (TCF) of gas, about 30 times higher than Pakistan’s proven gas reserves of 28 TCF.
Dr Murtaza Mughal president of Pakistan Economy Watch in a statement said that these reserves of coal worth USD 25 trillion can not only cater to the electricity requirements of the country for the next 100 years but also save almost four billion dollars in staggering oil import bill.
Just 2% usage of Thar Coal can produce 20,000 Mega Watts of Electricity for the next 40Years ,without any single second of load shedding.
and if the whole reserves are utilized, then it could easily be imagined how much energy could be generated.
The coal power generation would cost Pakistan PKR 5.67 per unit while power generated by Independent Power Projects cost PKR 9.27.
It requires initial investment of 420 Billion Rupees.
Chinese and other companies had not only carried out surveys and feasibilities of this project but had also offered 100 percent investment during the last 7 to 8 years but the
Is DFID Aid Making a Difference?
UK donor policy stokes concern of overpromising
DAKAR, 8 July - Aid analysts applaud the “courage” of the UK government’s just-released development policy paper, which detailed plans to allocate at least half of all new bilateral funding to fragile states, but question how the government can do the job well without shrinking other aid commitments.
The UK government’s Department for International Development (DFID) White Paper stressed helping fragile and post-conflict states to govern and deliver peace to their citizens by including more support to peace settlements; addressing the causes of conflict and fragility; buttressing security, rule of law and basic services, and; pledging to triple aid for security and justice worldwide by 2014.
Other aid commitments in the 6 July White Paper included education, maternal and newborn health, and a stronger focus on climate change.
“DFID is heading in the right direction,” said director at UK think-tank the Overseas Development Institute (ODI). “But DFID’s desire to extract major savings in operations on the one hand and to support long-term poverty reduction in fragile states on the other is not yet squared away in this White Paper.
“They need to recognize that there are difficult trade-offs here.”
The UK was the world’s third-largest development donor in 2008 after the United States and Germany, committing US$11.4 billion, according to Organisation for Economic Cooperation and Development. This is expected to increase to $14.6 billion in 2010, the aim being to allocate 0.7 percent of GDP to aid by 2013. Over a third of this will be spent on sub-Saharan Africa – almost three times 2004 levels.
..Fragile states account for one billion people and a third of the world’s poor. We will never eradicate poverty unless we tackle the issues in these countries…
Expensive and long-term
Shoring up fragile states is an expensive long-term project, and it is not clear where the additional cash will come from in an era of belt-tightening.
“In the UK, all talk of government spending is currently around cuts and stand-stills. Both [political] parties have said they will increase development spending, but we do not know what is around the corner in the economy or where the new money will come from,” head of policy at NGO ActionAid UK said.
In post-conflict Sierra Leone, British government support for security sector reform, rehabilitating ex-combatants and shoring up health services began in 2003 and is expected to run until at least 2013, according to DFID’s Sierra Leone head. But taking such an in-depth approach in all fragile states can be expensive. There is the potential for this [prioritizing fragile states] to be a risky, costly undertaking. But we can’t fault the government’s courage on this one.
DFID spokesperson said DFID plans to close 10 offices by 2011 in countries that have shown significant improvements due to donor aid, freeing up resources to focus on the most vulnerable.
Fragile states account for one billion people and a third of the world’s poor. We will never eradicate poverty unless we tackle the issues in these countries.
Engaging in fragile states is complicated, warned ODI’s Evans. Too often donors create dependency instead of building capacity in weak state institutions, apply heavy-handed rules that can paralyze fragile states, and in worst-case scenarios, do more harm than good.
If donors practiced better division of labour and each focused on limited sectors, they would have a better chance of success.
Engaging in fragile states [requires] heavy doses of humility. This White Paper attempts to walk the line between humility and hubris.but [the government] needs to acknowledge that the risks of working in these environments are considerable and need to be carefully managed.
