Dr James J Zogby
Netanyahu’s big new government Benjamin Netanyahu, ever the master manoeuvrer, has done it again. Just moments before the Israeli Parliament was to ratify the call for new elections, the Kadima Party announced that it had completed negotiations with the prime minister and would join the government producing Israel's largest governing coalition in history (including 94 of 120 Members of the Knesset). The announcement sent shockwaves throughout the region and here in the US. Speculation was rife about what this sudden move might mean. In the days that followed, it was fascinating to read the views of Arab, Israeli, and American commentators as they attempted to understand this Israeli development. Many Arab commentators predictably and definitively saw this new Israeli "unity" as a danger, a harbinger of a new regional war. And they didn't mince words. Seeing a precedent in the Israeli coalition government that was formed in the lead-up to the '67 War, one Arab analyst wrote "this is a war coalition" claiming that the target would be Iran or Lebanon. The US press, equally delusional when it comes to all things Israel, largely saw this broader Israeli government as a positive development, with liberals moralising that with this expanded mandate Netanyahu should now be in a position to move confidently to a peace settlement with the Palestinians, saying that "under Netanyahu, Israel is stronger than ever.” This echoed the somewhat subtle chiding of Secretary of State Hilary Clinton who reportedly suggested that the Israel Prime Minister could no longer claim that he would lose his governing coalition should he make peace. He was now in a political position which gave him the space to at least help strengthen the Palestinian Authority. American neo-conservatives, on the other hand, shared the Arab take on the Netanyahu move, but with a twist. While Arab writers dreaded the war they feared might result from this expanded governing coalition, US hawks appear to eagerly anticipate it. Most interesting and sanguine were the Israeli commentators who saw in the manoeuvring of both Netanyahu and his new "partner,” Shaul Mofaz, signs of weakness, not strength. This led many Israeli writers to conclude that far from setting the stage for decisive action, this new government was doomed to paralysis. Netanyahu is facing two immediate internal challenges that were threatening his rightist coalition. Within a few weeks the government must act on two separate court decisions, one which found unconstitutional the law that exempted the ultra-Orthodox from military service, and the other which gave the government until the beginning July to evacuate an illegal settlement built on Palestinian-owned land north of Ramallah. Implementing either one or both would cause a political rupture, causing some members of Netanyahu's coalition to bolt. Meanwhile, the third largest grouping in his government, the Russian immigrant-based nationalist party headed by Foreign Minister Avigdor Lieberman has threatened to leave should the government fail implement the change in the law on military service. All of which put Netanyahu in a bind. By broadening the base of his coalition, Netanyahu has now removed the leverage of these groups to withdraw their support — since they no longer have the ability to collapse the government. His motivation, it appears, was more survival than action, or as one writer termed it "nothing more than an attempt to prolong his own political life.” He is, said another, "a coward who is afraid of elections, afraid of the settlers, and afraid of the ultra-Orthodox.” So rather than lead by taking decisive action, he accepted the life-line offered by Mofaz and can now continue to govern by playing one group against another. The leader of the Kadima group similarly appeared to be motivated by crass political survival. Since winning the contest to lead the party founded less than a decade ago by the personal aspirations and "charisma" of Ariel Sharon, Shaul Mofaz has seen his fortunes dramatically fade. Most recent polls show that in new elections Kadima would win a mere 10 seats in the next Knesset, down from the party's current 28. Entering into a coalition with the man he recently called a “liar,” appeared a safer bet than facing humiliation at the polls. One analyst termed the move “a cynical attempt to extend the life of a spineless party.” Secretary Clinton is right. The game is up. Netanyahu can no longer use the lame excuse he has relied on for years. He has, if he wishes, the numbers within and still outside of his coalition to make peace. But sadly, the Israeli pundits who know him best also have it right, he is a manoeuvrer who uses his wiles to promote paralysis in order to avoid peace at all cost. The best evidence is that his response to the court decision to evacuate the illegal settlement is to propose new legislation to "legalise" what is illegal. So do not hold your breath expecting big things, either bad or good, from this big new government. That was not what brought it into being. Expect, instead, business as usual. And so after all the drama of the past week and the nervous speculation or excited expectation (depending on the lens through which you viewed the events that unfolded) little has changed for better or worse. As my friend MJ Rosenberg wrote, it was all “much ado about nothing.” The writer is President of the Arab-American Institute.

Saleem Shaikh
Spend more, spend wisely Before the budget is decided, proposals are invited from different sectors of economy and meetings are held with the representatives of these sectors including industrial, pharmaceutical, agriculture, banking and textile, but such practice has never been seen as far as education sector is concerned. Experts say that the absence of such process is partly a cause of why the government is unaware of the genuine problems and challenges faced by the education sector, which after the health sector is one of the most critical ones for the country’s overall socio-economic uplift. Poor budgetary allocations are among major causes of dismal state of education system in Pakistan. Poor spending on the sector, which is critical for the country’s overall socio-economic growth, demonstrates that education continues to be low on our priority list. Besides worsening standards, infrastructure of the educational institutions, absence of facilities for research, poor research and teaching capacities of teaching staffs and libraries inundated with subpar research journals and books are outcomes of inadequate budgetary allocations for the education sector. The goal of providing a conducive environment for innovation and research at educational institutions across the country and strong linkages with other institutions of higher learning across the world can never be achieved until adequate investment is made into the education sector. However, education experts link the country’s backwardness in this modern era of research and development because of poor spending on the sector. Pakistan spends less than 2 per cent of its GDP on education and education experts have pressed on government to spend at least 4 per cent of the GDP to boost socio-economic development in the country. Many experts agreed with Higher Education Commission (HEC) Chairman Dr Javaid Laghari, when he said, at a high level meeting of the vice-chancellors of public sector universities of Khyber Pakhtunkhwa at University of Engineering in Peshawar on April 23, that annual budget should be significantly increased to 4 per cent of the GDP from the existing 1.7 per cent to attain the heights of socio-economic glory, boost research culture, fight poverty and unemployment. Another major challenge is positive and maximum utilisation of the allocated budget for drawing maximum output. While a huge chunk of the allocated budget for the education sector goes to salaries and administrative expenditures, little is left to be spent for delivery of quality education services, training and capacity building of the teachers, provision of basic facilities required for imparting quality education (such as laboratories laced with modern equipments, updated libraries, furniture, proper drinking water and sanitation facilities). According to a recent study by the Free and Fair Election Network (FAFEN), nearly 92 per cent of the 154 government girls’ primary schools in 84 monitored districts of the country were without cleaners while about three-fifths did not have peons and security guards. More than half of the schools were without playgrounds while 51 had no clean drinking water facilities. Besides that, 50 schools in the surveyed districts lacked proper seating for students and three-fourths of the monitored schools were without staffrooms for teachers, 43 schools were found without electricity connections and 56 schools had no fans. Unesco’s ‘Education for All Global Monitoring Report 2011’ underlines grave ramifications of inadequate funds allocation for the education sector, saying with 7.3 million children, this country has amongst the highest out-of-school populations in the world. The Unesco report suggests, “investing in education, with attendant benefits for employment and social inclusion, would do a great deal to enhance Pakistan`s long-term national security”. Education and independent policy experts have stressed the need for evolving a policy and budget-making process. There is a need to use education data and translate it into effective policies and budget planning; such a nexus will help in plugging gaps pertaining to education data and reliable policy inputs required for guiding budget makers and economic managers of the country to take precise account of the exact needs of the budgetary requirements of the education sector. The country’s ailing education system has so far fallen short of its goal of equipping the youth with the skills essential for the development of a modern state, society and economy. Although the government-run schools and colleges impart education to the vast majority of children, their performance as contrast to the private sector educational institutions is gruesomely poor. Since education is a provincial subject after the passage of the 18th Constitutional Amendment, many have raised questions whether the provinces have the capacity and necessary resources to manage education in a satisfactory manner in their respective areas. There is no denying the fact that the country has fallen short of delivering on its constitutional obligation to provide universal primary education to every single child. While the demand for education remains high amid galloping population, poorer families, having no choice, will only send their children to a school system that matches to their daily lives and economic needs. However, the failure of the public school system to deliver such education has only contributed to the boom of seminary schools (madrassahs), increasing the dropout ratio, child labor, delinquency and crime. Much of the solution of the problem lies not just in increased budgetary allocations but spending those increased budgetary allocations wisely. For it is equally important to ensure that more and more of the allocated funds are spent on strengthening of facilities at the educational institutions, capacity building and skill development trainings for the teaching staffs for the overall uplift of the education sector.

Malik Muhammad Ashraf
While there are bigger issues at hand We are back to the crass politics of nineties marked by intense polarisation and political vendettas. The brand of politics that not only culminated in the derailment of democracy in the country but also left deep scars on the political landscape which continue to haunt the Pakistani nation. The Sharif brothers enjoy the dubious distinction of starting that despicable drama in collaboration with the establishment in the nineties and now again share the blame. They do not seem to have learnt from their past mistakes. They are crying hoarse from every convenient roof-top to urge the prime minister to abdicate power on moral grounds after the SC verdict but do not realise that it is also their moral obligation not to mislead the people on crucial national issues. Their actions are also politicising the judiciary. True, the PM has been convicted for contempt of court by the SC but that is not the end of the road. The PM has the right of appeal and till such time that the appeal is heard and final verdict given, he remains the chief executive legally as well as constitutionally. The Pakistan Bar Council has also admitted this fact and thrown its weight behind the PM. Islamabad High Court in a petition seeking disqualification of the PM has also observed that the SC in its verdict has not disqualified the PM from holding the office of the chief executive. In the backdrop of this evidence as to the constitutional position of the prime minister, the insistence by the PML(N) that Syed Yousaf Raza has ceased to be the legal PM is absolutely untenable and extremely misleading. The opposition, particularly the PML(N) is so blinded by their lust for power and animosity towards the PPP-led coalition government that it did not even hesitate from asking the British PM not to play host to Syed Yousaf Raza Gilani as prime minister of Pakistan. They were not alone in this sabre-rattling; a section of the media sympathetic to their cause and essentially hostile to the present government also joined this shameful exercise. Nobody would grudge the legitimate right of the opposition to grill the government on issues of national importance but it is certainly not desirable to pull the rug from under the feet of the chief executive embarking on a foreign visit. To an anodyne observer, the visit coming in the backdrop of a row between Pakistan and US regarding resumption of NATO supplies and the continuing deadlock, was of immense significance as the UK is the closest and major ally of US in the war on terror and is in a position to help resolve the stalemate amicably. The issue did come up for discussion between the two leaders and it provided an excellent opportunity to Pakistan to clarify its position on the subject and the stakes that it has in re-engaging with US and NATO in a manner that meets Pakistan’s concerns and is also mutually beneficial. The developments on this issue after the visit do suggest that there is a significant movement towards resolving the conundrum. Pakistan has been invited to the Chicago Conference without any pre-conditions. The matter has been deliberated upon at a high level meeting and also in the DCC. The Foreign Minister Hina Rabbani Khar has also indicated the possibility to re-opening the NATO supplies indicating that the ice has finally started melting and sentimentalism is giving way to prudence. Contrary to the expectations of the PML(N) and its cohorts, the British government extended befitting protocol and welcome to PM Gilani and said that he was working to make democracy strong in Pakistan. These words coming from the leader of the mother of all democracies are indeed very reassuring and an acknowledgement of the leadership in ensuring continuation of the democratic process in the face of an unremitting hostility by its opponents, conspiracies of the elements inimical to the democratic norms and some controversial decisions by the more than independent judiciary. On the bilateral front, the visit has been successful. The two sides agreed to enhance their bilateral trade from the current level of 1.4 billion pound sterling to 2.5 billion pound sterling by 2015 in pursuance to the UK-Pakistan Enhanced Strategic Dialogue launched in 2011. The British leader acknowledged sacrifices made by Pakistan in furthering the objectives of war on terror and also expressed resolve to help Pakistan in meeting security challenges and curbing militancy, terrorism and religious extremists which pose an existentialist threat to Pakistan. The affirmation and endorsement by the UK of the contribution made by Pakistan to the war on terror is very encouraging as it would strengthen its position in regards to any future dialogue with the US and NATO. The UK has also played a pivotal role in ensuring duty-free access of Pakistani products to the EU markets which represents an exponential boost to Pakistan’s foreign trade. The visit therefore was timely and productive. Such summit level interactions are never meaningless as they invariably help to create better understanding and enhancing bilateral cooperation between the countries involved besides affording opportunity for exchanging views on matters of global importance. They also help in resolving issues which cannot be tackled through normal diplomatic channels. The criticism hurled at the PM by the opposition for undertaking this visit smacks of their traditional cynicism rather than an objective appraisal of the obtaining circumstances and the benefits that it will accrue to Pakistan.

Sakina Husain
It has been about a month since the IMF report on Pakistan ‘ingeniously’ highlighted the economy’s fragility. A sense of urgency was incumbent; the PM quickly and quite conveniently replaced the secretaries of finance and FBR. Very few questions were asked; the damage was covered. How and why would the public demand accountability and transparency, or an extenuating correction of seemingly portrayed fudged figures when it has been residing in blissful ignorance with regard to the economy? Or maybe the silence was another extension of the disillusionment with the system. For the purpose of reminiscing, the IMF report in Feb-12 revealed that the (please note: expected) budget deficit communicated by the government for FY12 has been understated by Rs532 billion where in the revenue was overstated by Rs215 billion and expenditures were understated by Rs317 billion. This would imply that the budget deficit for the current fiscal year would arrive at about 6.6 per cent of GDP, instead of the government’s repeated assurances about realising the promised five per cent contingent on promised external inflows which even the sovereign would vouch by…but nevertheless. Given this back drop, the very act of changing secretaries signals that the government is capable of making only cosmetic changes in an effort to please the almighty IMF. The first contention questions why the IMF is so important that the government needs to replace qualified personnel who have served its cause throughout the regime so far. Moreover, current deliberations by the ex-finance minister reveal that domestic debt has exceeded foreign debt, indicative of greater reliance on the domestic financial system instead of lenders abroad. So why is there a need to prove credibility in front of this iffy source of funds? The second contention challenges the autonomy of the ministry of finance as the government’s window into its accounts. If expenditures, especially the larger recurrent ones are being exceeded than the target, is the finance ministry really supposed to suffer blame? There are severe structural deficiencies in the collection and distribution of revenues between the federal and the provincial governments. For instance, the provincial government or the chief minister has the power to undertake expenditures without taking prior approval from the national assembly. This automatically results in a greater than expected deficit in provincial budgets as the latter have limited space to raise revenues, especially, post the 18th amendment which led to the devolution of many subjects that were earlier apart of the federal list. Third, the PM’s alacrity in reading international evaluations of the economy is commendable and therefore must be lauded. Why should he pay heed to weekly caveats published by domestic analysts who have repeatedly tried to inform, challenge or at least warn the government regarding the same macro variables delineated by the IMF? The government is ready to cheer the FBR chairman when he reports higher than target revenue collection, but ever ready to replace the same person when the numbers are challenged by an international body! Why are there no internal checks and balances? And moreover, is the 2-3membered IMF office in Pakistan better equipped to report federal collection of taxes and expenditures? Regardless of whether the answer is in the affirmative, there is only a sense of embarrassment and shame that holds its ground. If the government is ever so concerned about accurate reporting of its accounts and more importantly meeting its target spending, ‘may be’ it needs to address the inefficiencies that exist in its very own government offices. Supposedly, for the provision of government services annually, the government spends about Rs13,000 per capita, leaving out the amount that is assigned for expanding the scope of these services ie the PSDP. And to put an end note: there is little education, very little health and almost no security in the country. The writer is an economic analyst and freelance financial journalist. She can be reached at [email protected]

Javed Gilani
an economy unable to reach its production possibility frontier will always remain vulnerable to exogenous shocks, as in the case of Pakistan. It would have been a different story if the last two-to-three years had seen some sort of visible improvement in handling deficits and improving growth. If we had produced, exported and grown more, we would have had a more stable support base, restricting damage from external shocks our economic and political managers have no control over. In the present circumstances, among Pakistan’s chief worries is rising energy and input cost, the demand-supply dynamics of which play out on a stage and involve actors far removed from Islamabad’s sphere of influence. With our deficits in uncomfortable zones, additional price pressure due to increasing inflation, predominantly higher energy and input costs, is putting unsustainable pressure on the country’s reserve situation. Therefore, even as relevant quarters and analysts calculate a few month elbow room for reserves, their value diminishes every time international pressures bid up oil. Things looked up in the immediate aftermath of the 18th amendment, which transferred increased power and responsibility to provincial governments. Yet with no proper revenue generation framework, and unable to get help from a largely defunct FBR, they have been unable to make any meaningful contribution so far. On the other hand, the federal machinery has not been able to introduce any form of value addition in the present export basket. This means that almost all traditional means of generating national revenue are compromised. That is why we rely on international trends to facilitate our economic engine. We are always in need of improved remittances to defend deficits. We are always praying for international events that push down the price of oil so our own economic managers can breathe easy. And of course, we are always on the lookout of bailout and donor assistance. Sadly, despite the obvious persistence of such trends, we have not moved in manner that the situation merits. It bears noting that persistent growth problems require solvency in credit markets to stimulate the only indigenous option to revive GDP. When the external situation exerts unbearable pressure, economies look inward, prompting private sector expansion which in turn attracts offshore investment. In this case, banks facilitate private sector investment, in some cases ably guided by the official machinery, in a way that the centre does not interfere in market mechanism, only facilitates it. This is where the Pakistani banking sector needs to step up to the plate. For some years now, a proactive lending regime, one that incorporates targeted needs of the time, has been conspicuous by its absence. Whatever little scope the private sector has had has been compromised by heavy government borrowing. This equation requires urgent balancing. The last couple of years of private sector crowding out have left a vast investment field yet to be exploited. Ironically, the laxity of the past might even turn into an attractive opportunity for the present. If properly handled, private sector investment can create jobs, improve infrastructure, create employment and, most importantly, engineer second round market multiplier, with gains for all. We have now come to the point of no return. Both government and autonomous organs must finalise an action plan that will stimulate employment and growth. That means fine tuning both fiscal and monetary policies. Once the finance ministry initiates immaculately targeted fiscal expansion, and the central bank makes credit available to private investors, we may even see a domino effect strong enough to lure bulky foreign investors. Our problems are not existential, but their handling has made them acute. We have the necessary inputs, its just a little toggling of official policy that is required. The recent stock market optimism is an adequate indicator of productive potential across the economy. All that is needed is effective program management. The writer is Chief Manager SME bank and has been a leading banker in the industry for more than 30 years

Javed Gilani
Recent events in Europe have been extremely instructive. Greece accounts for a very small proportion of the main European economy. It comprises but a couple of percentage points of continental GDP. Yet its debt debacle has had the entire continent strung in an awkward position for a good two years now. Germany and France, the two biggest EU economies, have thrown in all but the kitchen sink to keep the debt ridden country from defaulting. What is more, the bailout package just agreed has all but turned the bond market on its head. Ironically, the ECB is saved from the painful haircut all other ‘old’ bondholders have been made to take. Why such desperation? Why must Greece be kept from defaulting, which is what ordinarily happens when a country is unable to meet debt obligations? The reasoning is pretty simple. The minute Greece defaults, exits the EU and abandons the single currency, an untold number of big international financial organisations will immediately go belly up, their position compromised by overwhelming exposure to Greece and other, bigger economies, sometimes in much worse position. And when big money collapses, the financial and political elites on both sides of the Atlantic will be ruined, even though Greece will revert to the drachma, devalue considerably and export and grow out of the subsequent depression. While this partially explains the rush to rescue Greece, it does not nearly save the European project. Portugal, Spain, Italy and even France are hemorrhaging, and not very far from needing substantial help in doses, which will inevitably tilt towards the bailout precedent that the Greece example has set. Counting on Germany to keep filling budget deficits of other, less resilient economies would, of course, border on insanity. Interestingly, financial markets initially greeted the deal with optimism. The euro advanced, crude oil rallied and, coupled with signs of growth returning to the American economy, the European package introduced much welcome risk appetite in global currency and commodity markets. However, it was only a matter of quick time before long term concerns returned to pundits. When that happened, the euro collapsed, reintroducing long-term shorts. The message for other economies, especially Asia’s emerging markets, is obvious. In the post recession era, when capital market solvency is in serious question, sovereign debt is a very serious issue. Once capitals start running serious deficits, financial institutions with the slightest exposure are put at serious risk. And when that happens, the life and blood that oils the international globalised market – credit – dries up, compromising whatever efforts are made to return to growth. For an economy like Pakistan the message is even more serious. Unlike regional economies, our state of stagnancy is acute. Growth is nowhere on the horizon, there is still no value addition in exports, and the rupee is in freefall. While February’s impressive stock market performance deserves credit, it does not reflect critical structural deficiencies in the macro economy that cannot be sustained without serious overhaul of policy. Our deficits are in serious red. With substantial components of international aid also petering out, there will be yet more unforeseen upward revision of the current account deficit, while the development budget, year-end revenue and final GDP are all revised downward. We must immediately introduce policies that check unnecessary leakages and stimulate growth. At present, both fiscal and monetary policies are counter productive, while relevant authorities doing little of intrinsic value. The election is near. Learning from examples of countries destroyed by debt will not only heal the state of the economy, but also facilitate the government’s long term survival in Islamabad. The writer is Chief Manager, SME Bank, with more than 30 years’ experience in the banking industry.