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Archive for Economy
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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.
Improved Farming Rather Than More Food Aid?
JOHANNESBURG, 9 July – President Obama wants the United States, the world’s largest provider of food aid, to focus on agricultural development in the countries it helps support, rather than having them remain recipients.
”Quite simply, this change in mindset is that food security is part of national security,” said a factsheet issued by the US Department of Agriculture (USDA); this new approach had already begun to unfold in strife-torn, food-deficit Afghanistan and Pakistan.
”This welcome and substantial shift of resources into long-term food security programming marks an important break from past policy,” said an expert on food aid who teaches development economics at Cornell University. This “very important strategic shift” towards supporting agriculture “merits widespread applause”.
The move comes hot on the heels of the 2008 food price crisis, which prompted the UN Food and Agriculture Organization (FAO) to call for better governance of food security.
The number of hungry climbed to more than a billion in June 2009 while the economic crisis kept reducing the affordability of food, prompting FAO to urge the G8, a group of eight of the world’s richest countries meeting in L’Aquila, Italy, to devote 17 percent of their official development assistance (ODA) to agriculture in needy countries.
A similar allocation of funds had led to the successful Green Revolution of the 1970s, which prevented looming famine in Asia and Latin America, FAO reminded the gathering.
Grow your own
USDA has appointed agricultural experts to 13 provincial reconstruction teams in Afghanistan since the beginning of 2009, and hopes to more than triple this number if President Barrack Obama’s request for funds is approved by the US Congress.
Political unrest, recurring natural disasters and high food prices in Afghanistan have left 31 percent of the population without enough food, according to the World Food Programme (WFP). Similar events and conditions have also affected food security in Pakistan, where more than 80 percent of the population earn less than $2 a day.
Under a new strategy, led by Obama and US Agriculture Secretary Tom Vilsack, the USDA will help Pakistan and Afghanistan conduct research to improve the production of fruit, nuts, livestock and other agricultural products, and reduce post-harvest loss.
The department will also help develop corridors along the border between Afghanistan and Pakistan, which will not only facilitate cross-border trade but increase the potential for Afghan and Pakistani agricultural products to be exported to other countries.
At the recent G20 Summit in the United Kingdom, Obama announced that he would ask the US Congress to double financial support for agricultural development in poor countries to $1 billion in 2010.
”A portion of the additional resources [in Obama's proposed support package] is designed to support multilateral efforts to provide rapid assistance for farmers and the rural poor,” said the USDA factsheet.
Since January 2008, the G8 has committed over $10 billion to short-, medium- and long-term support of food aid, nutrition interventions, social protection activities and boosting agricultural output. The G8 have affirmed their commitment to support agriculture in developing countries and said $13 billion of the pledged funds had been disbursed.
However, spokesman for the UK-based development agency, Oxfam, said: “We already know that around nine of the $13 billion they disbursed since January 2008 to tackle the food crisis was nothing more than recycled cash. This is unacceptable when more than 1 billion people are going hungry. This G8 must not be ‘business as usual’, and take urgent action.”
End of food aid?
The move towards development does not necessarily portend the end of food aid. A Senior Policy Advisor at the US-based NGO, CARE, one of the world’s largest aid agencies, said the shift was more about taking “A comprehensive approach to food security, which does still include emergency food aid but places increased emphasis on global agricultural development, creating more of a balance of long-term needs with short-term emergency ones.”
He pointed out that funding for international agricultural development had decreased dramatically over the past few decades, and that any successful comprehensive food security initiative would also need to address safety nets, social protection and nutrition programmes.
WFP, which dispenses the largest amount of food aid, said there could not be an “either and or” approach. WFP Executive Director noted in a statement: “It’s a false logic for the world to say that we will either invest in tomorrow’s agriculture or today’s urgent food needs. There is no question that we must do both.”
Food aid has dropped 35 percent since 1995, and global food aid supplies in 2008 were 18 percent lower than in 2005, a 34-year low. “We cannot afford to lose a generation to malnutrition, starvation and despair.” “Addressing immediate hunger needs is a critical long-term investment in healthy, stable societies.”
Food aid can also help agriculture
Emergency food aid programmes – which make up 75 percent of the food aid budget – could be integrated into agricultural programmes. “The question has been: ‘Where we should buy the food aid? In the US or in the developing world, where the purchase by WFP and donor governments can help create demand, increase production, and strengthen markets?’ We should be buying food aid from African farmers for Africans displaced by war and conflict, who are in need of temporary assistance.”
In the series of measures announced to beef up agriculture in Afghanistan and Pakistan, the US administration announced plans for $27.5 million in international assistance under the Food for Progress Program, which raises the money by selling vegetable oil bought in the US markets in the beneficiary countries.
How to Help the Urban Poor?
The Indian Planning Commission estimates the urban poor at some 80 million
Figure for the rural poor is 120 million
Over 98 million people migrate from rural to urban centres
Work is on in India to give shape to an urban poverty alleviation scheme. Officials in the ministry of urban development and poverty alleviation are waiting for President Pratibha Patil to make the formal announcement in her address to Parliament before they draw up a road map for the new scheme. “Unlike NREGS, the scheme for the urban poor will not address the problem by offering an employment guarantee. Instead, it will focus on developing skills through self-help groups and communities,” an official said.
As the majority of the poor are employed in the informal sector, special schemes are being planned for them. These include health insurance, education subsidy, and imparting specific skills, such as in the use of computers and in the marketing of traditional craft products, skills surrounding which floating populations often bring when they migrate to cites. The thrust will be to increase the accessibility to services offered by the government.
The setting up of self-help groups will also be in focus. This will help groups of people better themselves through enterprise and the acquisition of skills, and with several individuals pitching in, new small-scale enterprises, trading platforms or services can be created. The government plans to help set up such groups. So it will be a “we will help you help yourself” kind of package.
There’s nothing new about plans to alleviate urban poverty. In its previous term, the UPA government had thought of a Rs 10,000-crore urban employment scheme covering 10 million families below the poverty line. A plan was also worked out by the National Commission for the Unorganised Sector. About Rs 6,000 crore was earmarked for wages and Rs 4,000 crore for skill development. Broadly, the government had aimed at making a one-time expenditure of Rs 10,000 per person. But the current thinking is that merely providing employment guarantees will not do. Says a ministry official: “We don’t think providing employment alone will work, for poverty in urban areas has more to do with having access to services like housing, water supply, medical care, education and so forth. It is with this in mind that the government is proposing to launch a slew of schemes addressing these issues.”
But who are the urban poor and what are their numbers? The Planning Commission estimates the urban poor at 80 million, in comparison to the rural poor, who are some 120 million. Two studies—by the World Bank and the Asian Development Bank—had fixed the required minimum daily earning at $1.25 and $1.35 respectively per person.
A new framework to assess urban poverty was arrived at by the Office of the Commissioners to the Supreme Court, the Planning Commission, the National Commission for Enterprises in the Unorganised Sector (NCEUS) and NGOs last year. The consensus was that income alone cannot serve as a yardstick of poverty. For, by that token, Delhi has one of India’s highest per capita incomes (Rs 66,728 per annum, against the national average of Rs 29,642), but it also has 15 lakh poor. It was also noted that place of residence alone does not automatically qualify someone as poor. Occupation, nature of employment, whether casual or self-employed, wages, health—all had to be factored in. So when will Manmohan Singh play his urban trumpcard? It may not happen immediately, given the huge fiscal deficit. But the programme will certainly take off, say officials in the urban development ministry.
Defense Budget 2009 – 10
June 13, 2009: The defence budget for 2009-10 has been increased to Rs343 billion from the Rs296 billion allocated in 2008-09 and the actual spending of Rs311 billion.
Of the allocation, over Rs341.62 billion will go under the head of military defence and Rs1.28 billion for defence administration.
Over Rs115 billion has been allocated for salaries, allowances and other employee-related expenses as against the revised estimates of Rs99.15 billion in 2008-09.
Rs92.21 billion has been set aside for operating expenses, a slight increase over the revised estimates of the 2008-09 budget.
Rs107 billion has been allocated for physical assets as against the revised estimate of Rs88.31 billion in 2008-09 while Rs27 billon has been earmarked for civil works.
