Tag Archive: agriculture


Remember the export of wheat about three years ago by Pakistan triggering a very serious food shortage in the country leading to phenomenal rise in food prices? The same wheat was imported back at exorbitant prices. Since then the price of wheat and flour is constantly on the rise. This was perhaps one of the biggest corruption scandals of the Shaukat Aziz government. It seems that the present government has learnt only one lesson from this regrettable decision; do it again and make billions at the cost of millions of hapless “voters” who you will need only in the next season of “democracy”. Interestingly, this decision, which has been taken to be able to pay off central bank loans, has been taken at a moment when wheat prices are at the lowest in the international market.

It is simply beyond comprehension why export is needed to pay off SBP loans which essentially are in local currency. It seems that the driving factor behind this imprudent decision is dollar-lust. Express Tribune has reported that after a ban stretching more than three years, the government on Tuesday allowed the export of wheat in a bid to pay back central bank debt, a move that could result in a serious food crisis since a World Bank (WB) report has already warned of a five-million-ton drop in production in the next crop. The Economic Coordination Committee (ECC) of the cabinet allowed the grain export without imposing any cap on quantity. It is expected that wheat will be exported in massive quantities since Russia, the world’s largest wheat producer, has banned the grain export resulting in price surge in the international market.

The ECC assessed a $300 per ton (Rs1,040 per 40 kilogram) wheat price in the international market, anticipating a further hike in coming days. Although the government has fixed the wheat price at Rs950 per 40 kg in the domestic market, farmers usually receive an average Rs850. Pakistan is the third largest wheat producer. The ban on export of wheat was slapped in June 2007 when because of incoherent policies the country first exported the commodity and then had to spend over $1 billion to import the same for domestic consumption.

The ministry of food and agriculture’s summary to the ECC proposed lifting the ban primarily to pay back debt taken from the State Bank of Pakistan (SBP) to buy wheat, make room for next year’s crop storage and capitalize on higher prices in the international market. Total wheat stocks are estimated at 9.07 million tons, of which 6.1 million tons are in Punjab. “The Punjab government is paying Rs77.5 million per day interest on loans,” obtained for buying wheat, says the summary. The federal government is picking up Rs24.6 million from the amount.

The production target in the pre-flood scenario was also estimated at 25 million tons. According to the Damage and Need Assessment Report of the World Bank and the Asian Development Bank, “wheat production may reach only 20 million tons opposed to an average production of almost 23 million tons in the last three years.”

The report goes on to say that there is concern about the possible impact of reduced wheat output in the coming season on food security. Around 78,000 tons of wheat were either destroyed or damaged in Punjab during the recent floods.

Advertisements

Pakistan is probably one of those few countries where not a single principle of good taxation system is followed. Those who make tons of money remain out of tax net whereas burden of tax is invariably on the poor segments of the society. The rich are thriving on the tax contribution of the poor. Two third of the total taxes is collected through indirect taxes. Tax on economic resources of the rich is just one-third of the total collection. Nearly a month ago, a warning was sounded that Pakistan’s unjust taxation system alone can trigger public revolt. Please read: This system alone can trigger a public revolt….

The present taxation system is also partly responsible for inflation and price hike for which the poor of the country have to bear the brunt. It is also responsible for discouraging economic activities. The rich are becoming richer and thriving on the regressive system of taxation. On the other hand, Pakistan has to beg for its relief activities of the flood victims. The amount required for this purpose can easily be generated at home. Pakistani government was conveniently indifferent to this potential but its plea for billions of dollars to recover from this summer’s floods has sparked pressure on the country to reform its dysfunctional tax system, which collects very little money, even from the rich.

The country’s biggest donor, the United States, has issued one of the strongest warnings, saying the world will only be able to fund a quarter of the tens of billions of dollars it will take to rebuild — and it will be difficult to get American taxpayers to help if Pakistanis aren’t footing their share of the bill. Businessweek has reported that this threat is not being taken seriously because the nuclear-armed country is so important in the war against al-Qaida and the Taliban. The fact of the matter is that American taxpayers could be expected to sacrifice only when Pakistani fat cats shed fraction of their (ill-gotten) wealth. And this fraction will be enough to fund the entire development program.

Despite years of international pressure, Pakistan has one of the lowest effective tax rates in the world, equal to about 9 percent of the value of the country’s economy, according to the Carnegie report. In contrast, the U.S. equivalent is more than three times as high at about 28 percent. Even India’s tax-to-GDP ratio is twice as much as that of Pakistan. One of the reasons Pakistan’s rate is so low is because many people avoid paying taxes. Fewer than 2 percent of the country’s 175 million citizens pay any income tax, according to the report. Also, some sectors of the economy like agriculture — a major money-maker for the elite — are totally exempt from tax, and the rich have pushed to keep it that way.

Ishrat Hussain, former head of the Pakistan central bank, estimated that better enforcement of current tax policies and the elimination of key exemptions should produce an effective tax rate of 15 percent — generating nearly $10 billion in additional revenue per year. That money would go a long way toward repairing devastation from the floods, which affected more than 18 million people and damaged and destroyed over 1.8 million homes. It would also provide the money necessary to begin fixing Pakistan’s crumbling school system and health infrastructure.

“This is a time we have to tell people that we have to all pitch in and mobilize our own resources,” said Hussain. “Why should the international community come to your rescue if you are not doing your part of the bargain?”

He said donors should keep up the pressure on Pakistan, but advised against directly linking reconstruction money to tax reform, predicting the move could backfire in a country where animosity toward the West, and the U.S. in particular, is extremely high. “It wouldn’t be a very smart move because people here would consider this as an intrusion on their sovereignty, and the debate would then be muddied,” said Hussain.

The U.S. and other countries have donated around $1 billion for emergency relief, and international financial institutions have provided about $2.5 billion in emergency loans. Donors are scheduled to meet in New York this weekend to discuss raising additional aid. Washington has promised more money for reconstruction, but the U.S. special envoy to Pakistan, Richard Holbrooke, warned during a visit to the country this week that the international community could only fund about 25 percent of the bill. He said the U.S. would not condition reconstruction money on tax reform, but cautioned that American generosity has its limits.

If Pakistan does not reform its tax system and the donors fail to bail the country out, it is unclear how the nation would come up with the money necessary for reconstruction. The government has proposed a one-time tax on urban property and agricultural land not affected by the floods, but it is uncertain whether it will be implemented and how much money it would produce. Hussain, the former central bank chief, said that even if the one-time tax was implemented, he was worried the elite would simply use their influence to avoid paying anything as they have done in the past. “The system has given power to the thieves to monitor themselves,” he said.

With about two thousand people dead, millions homeless and deadly diseases spreading, mighty Indus is still furious and this death and destruction is only one side of the story. And its only the beginning.  Deadlier still are events unfolding as are the stories of Government’s incompetence to deal with this situation. The floods are an excellent recipe of disaster for Pakistan as a country, if those rich elite who plundered it do not cough up whole of the looted wealth or at least a fraction of it. Pakistan’s already creaky economy has been pushed to the verge of ruin by the devastating floods of the past month. With foreign aid only now beginning to trickle in, the impoverished country has been forced to take out further loans while pleading for outstanding ones to be restructured.

Already burdened by heavy debt, the country’s economy has suffered a major setback. According to the Independent, funds will have to be poured into reconstruction efforts while many sectors of the economy, especially agriculture, will suffer losses for up to several months, if not years.

So far, the floods have covered a fifth of the country, cost at least 1,600 lives, displaced 4.6 million people, destroyed roads, bridges and schools, damaged power stations and dams, and swamped millions of acres of agricultural land. About 150,000 Pakistanis were forced to move to higher ground yesterday as water from a freshly swollen Indus River submerged dozens more towns and villages in the south. Officials expect the floods to recede across the country in the next few days as the last river torrents empty into the Arabian Sea. Survivors may find little left when they return home. Already, 600,000 people are in relief camps set up in Sindh during the past month. The floods have affected about one-fifth of Pakistan’s territory; at least six million people have been made homeless, and 20 million affected overall.

Some officials estimate that the cost of rebuilding infrastructure could be $15bn, money that Islamabad simply doesn’t have. As of July, Pakistan had a debt of $55.5bn. That figure will jump to $73bn in 2015-16, as debts that were rescheduled after 9/11, in As a result of the tragedy, the budget deficit will grow, inflation will rise, and economic growth will slow – all areas where the fund had wanted to see progress in the opposite direction.

At the same time, Islamabad has secured loans of $1bn from the World Bank and $2bn from the Asian Development Bank to help relief efforts and begin the task to rehabilitation and reconstruction. Government officials say that they were left with no option but to approach the banks as foreign aid has generated only a fraction of what’s needed. The disaster has revealed decades of infrastructural neglect that damns successive governments. However efficiently the current government may have been able to mobilize resources, the state’s capacity was woefully lacking in the first place.

Some 17 million acres of agricultural land have been submerged by the floods, which are still raging in the southern province of Sindh. Key crops including wheat, cotton and rice have been affected. Pakistan’s economy has long suffered problems because of its embarrassingly narrow tax base. Broad sections of the wealthy, including senior politicians, pay little or no tax. But Mr Sheikh said that the crisis could be an opportunity to take tough economic decisions the government has long wanted to. “We could push through a sales tax, introduce a flood surcharge on well-to-do people and get some leeway from the IMF.”

Pakistan is one of the richest countries of the world, yet it has to invite IMF every now and then and remains in perpetual domestic and foreign debt. Imagine, the country has the second largest salt mine in the world, fifth largest gold mine, seventh largest copper mine, fifth largest coal reserves, seventh largest wheat and rice production capacity (can be enhanced to be the largest), is eighth in the rankings of fresh water availability with 2,053 cubic meters of water per person in 1995.

Then what are the reasons of the poverty of one of the richest nations on earth? Mismanagement of its resources, poor economic management, greed of a few influential people to plunder whatever they can, its ever-growing population which is in fact multiplying as per Malthusian theory? Please do grumble and criticize as it is your right, but before doing that don’t forget to count your blessings.

Whatever are the reasons of its poverty, it is a fact that world’s one of the richest countries has one of the poorest economies. Look at other examples. Take the case of Dubai. What has it got in terms of natural resources? It is only a trading hub and it has thrived on that, thanks to legendary tribal wisdom of desert people. It has no agriculture, no mineral resources. It does not even have water of its own except, of course the sea water which it exploits to the maximum to become one of the happening economies.

Express Tribune has recently published an interesting analysis titled: Pakistan: poor economy, rich country by Saqib Omer Saeed. Please click Express Tribune to read and enjoy the article.