11/05/2023
IF YOU ARE INTERESTED IN PAKISTANI POLITICS, CONTINUE READING.
OR ELSE CARRY ON WITHOUT READING.
IS PAKISTAN COLLAPSING?
The world is predicting the disintegration of Pakistan in 2023-2024. Economic and political death leading to a breakup of the country. The arrest of IK may be the last nail in the coffin. Remember Pakistan is a Nuclear Power. A collapse will have disatrous world wide implications.
Pakistan’s main economic problem is high Foreign Debt and Trade Deficit.
Inflation is only the result of some underlying problems. Debt repayment accounts for about 42% of our budget compared to 15.2% for defense. However, the second largest item in the budget is the subsidies doled out by the government. Mostly politically motivated subsidies. IK govt. was also famous for this. As too many items in Pakistan are imported, the depreciating currency adds to inflation. Our trade deficit, Exports minus Imports is a whopping $50 billion. Energy imports account for nearly 1/3 of the imports. Solutions are provided below.
I had started writing this article to provide an economic plan for Pakistan. But, I realized that any economic plan is useless if the country collapses.
So as a first step, we need to survive politically. The situation on the political front is much more serious. The arrest of IK can only be the bad decision of the Army. A step, that in the first time in Pakistan’s 76-year history, made the common man become anti-army. I was a 12 year old kid in Dhaka in 1971 and only escaped a week before Dhaka fell. General Tikka Khan, known as ‘Butcher of Bengal” massacred the Bengalis in 1971. But, in spite of this, in December 1971 the Pakistani forces were defeated by the people of East Pakistan and India and the country disintegrated into two (creation of Bangladesh). Tikka was rewarded and made Army Chief in 1972 by Zulfiqar Ali Bhutto. This was the darkest chapter of Pakistan Army. Will the battle with IK be the next dark chapter? Are we going to disintegrate again? The answer is, if IK is permanently removed from politics, we will disintegrate again. 1971 will repeat itself. Although I am not a supporter of IK because his economic team is as weak as the present team, politics takes precedence over economics.
Although the first formal Martial law in the country was in 1958 (Field Marshal Ayub Khan), the army has been deeply involved in the political affairs of the country since 1955. From 1958 to now, 65 years, the Army’s involvement in Pakistan’s politics has directly or indirectly increased. Today, the total military and paramilitary strength including reserves, of Pakistan is about 1.5 million (armed forces). This includes the rangers who arrested IK. This would make us the 10th largest armed forces in the world. Our per capita armed forces strength is about 7.2 per thousand (for comparison, India is about 4 per thousand ).
ARREST OF IMRAN KHAN
I am not sure why the generals are anti-IK , but it seems like they had major differences with his foreign policy as the most important reason.
There are a number of cases/charges against IK. I will not comment on the merit of these. The charge he has been arrested for, is a charge by the National Accountability Bureau (NAB). I am well too familiar with NAB and the Accountability courts run by them. I was convicted BY NAB Courts for 73 years between 2000 and 2004, all in false cases lodged by Nawaz govt. and Pervaiz Musharraf. The general was against me as I refused to give false evidence against Nawaz. Nawaz, Shahbaz and Ishaq Dar were my enemy number 1, but I could not give false evidence in a case which could lead to the hanging of any person. I am tempted now to think I should have and saved Pakistan from Mad men.
The Chairman of NAB is a retired general. Judges are hand-picked judiciary people. There can be NO justice from them. If trial proceeds, IK is guaranteed at least 10 years.
Legally speaking, NAB has to right to arrest people. The people have the right to apply for bail in the Accountability Court, and if rejected, they can appeal to the High Court. But I have a big objection to the manner in which IK was arrested. No political leader has been treated this way. I was arrested by about 40 FIA officers in August 1999. Handcuffed but NOT dragged.
Can IK comeback?
ECONOMIC REFORMS
I am going to pen down some economic recommendations for any Pakistani govt. I had earlier sent some recommendations to the Sharif govt., but they are much too involved in fire-fighting on the political front, and I have totally given up hope on them, not that I had any hope even before. I had also sent an economic reform package to IK. But as I said before, his economic team was as incompetent as Shahbaz’s.
PRECONDITION FOR REFORMS
For any government to successfully implement an economic SURVIVAL (we have passed the stage of REVIVAL) plan, the govt. must be able to enforce its orders. This means the govt. MUST be legitimate and the people must accept the govt. and its recommendations and plans. It has become obvious that Sharif govt. has lost its ability to govern (writ). It appears at this stage that the IK may be able to gather legitimacy if released and elected. HOWEVER, to ensure continuity and legitimacy in all provinces, in future, I recommend that IK form a coalition govt. even if they get 50% + seats, with MQM and BAP (Balochistan Awami Party, the largest party in Balochistan). IK probably has the most popularity in KP already and does not need a coalition there. In Punjab they should continue their coalition with PML (Q). BUT most important, he must reconcile with the Army. Good, Bad or Ugly, for the country we can not afford a confrontation with the Army (yet).
Immediate Measures to be Taken (NOT in order of importance).
1. DEMONETIZATION Pakistan and India carried out partial demonetization in 2016 but it did not work well. What is demonetization? It is the withdrawal of certain large notes or large notes from the economy to curb the black-market economy and the hoarding of illegal money. Pakistan chose the ‘certain large notes’ method. Pakistani currency needs to be replaced. This will require a lot of planning, details of which are impractical to provide in this article.
2. LOWERING INTEREST RATES Interest rates have been continuously raised by the State Bank to control inflation. But raising interest rates does not work in Pakistan. On the contrary it has stunted growth and production, further fueling inflation. Demonetization will also lead to some recession. Thus, interest rates must be lowered to at least 8% to encourage borrowing and growth of our manufacturing sector.
3. TAX REFORMS Individual taxes have been correctly lowered by successive govts. to help the lower income individuals. But the highest bracket is too low at 35%. In Canada for example, the highest personal tax bracket (federal + provincial) is abt. 50%. Pakistan also has supertax for rich individuals where rates vary from 1% to 4%. In lieu of raising the general tax bracket rates, the super tax rate can be raised to 10% to 15% and the brackets redefined. Except for food and medicines, there should be NO exemption of sales tax. Presently, the system is extremely complicated with rates ranging from 0% to 25% and over a dozen categories.
Corporate Taxes. Corporate taxes are high in Pakistan and leads to tax avoidance. A new tax relief should be provided to manufacturing sector based on production and NOT on profit. This will lead to increased production in the country and significantly reduce inflation. The largest manufacturing industries in Pakistan are: textiles, vegetable oil, sugar, fertilizer, cement, chemicals, steel, machinery manufacturing, food processing, surgical equipment and sports equipment. The relief should be targeted to these sectors and maybe a few more. At the same time, tax collection has to be tightened in order that the relief is NOT misused.
Small Business taxes should be eliminated if they show a certain percentage growth each year. I recommend at least 25% growth. This will increase production and employment drastically and consequently reduce inflation.
4. INFLATION Inflation is simply defined as too much money chasing too little goods. Demonetization will help lessen the money supply, while tax reforms will help increase production. Combined, this will significantly reduce inflation as lesser money will chase increased goods.
The other main reason for inflation is petrol prices. The transportation price increase affects the prices of all goods. Even if it does NOT, hoarders and greedy people use it as an excuse to increase prices. Pakistan imports 80% of its oil requirement and is by far the largest component of our imports (one-third). Exchange rate devaluation increases the cost of our imports even more. The following measures need to be implemented to increase our petrol consumption drastically. First, petrol has to be rationed at the pumps. Second, PIA, the largest loss-making public sector company has to be disbanded and Pakistan needs to lease out its air transport operations. PIA is also a big consumer of petrol. But the largest transport sector consumer is road transport. The transport sector also includes Railways and Maritime. I would immediately import petrol conversion kits and make it mandatory for transport vehicles to install (Free).
An immediate increase in the production of Pakistan’s 5 major crops will also significantly reduce inflation and maybe increase exports. These are Wheat, Rice, Sugarcane, Cotton and Maize. I would immediately distribute free fertilizers to farmers and improve transportation facilities to the market.
5. BUDGET/FISCAL DEFICIT
NEXT ARTICLE
Of course, readers must be wondering where will we get the money to implement the reforms that he is recommending. You will be surprised. Please circulate this Article and wait for the next.
Rauf Kadri
Chairman Pakistan Economic Reform Party.
