What ails Pakistan’s economy and polity?

Pakistan has still to break free of the shackles imposed by the British

Pakistan’s economy is currently faced with a myriad of problems.  These problems have been compounded by inconsistent and erratic economic policies followed during democratic and praetorian periods. Successive rulers kept taking loans and spending them as if they were grants. Pakistan’s debt burden has a political tinge. The USA rewarded Pakistan by showering grants on Pakistan for joining anti-USSR alliances (South-East Asian Treaty Organisation and Central Treaty Organisation).

Initially Pakistan had a fixed exchange rate that prevented ballooning debt burden. Add to it shrinking exports and foreign exchange reserves.

Is it anathema to look into the origin of land grants or wealth accumulation in public interest? Why not tax them heavily to fund basic needs of the downtrodden? To conclude, factors contributing to Pakistan’s economic malaise are obvious. However political will to grapple them is lacking

In economics there are burden-of-debt models that could help decide how productively the debt should be used so that both principal and debt-service could be repaid. Unfortunately we spent the debt as if it were a non-repayable windfall bonanza. For instance, Domar (1994) stated two necessary conditions for public debt sustainability. One, nominal gross domestic product (GDP) growth rate should be greater than the growth rate of public debt. Two, the real rate of interest should be lower than the real rate of growth.

Odious debts. Apparently, all Pakistani debts are odious as they were thrust upon praetorian regimes to bring them within anti-Communist (SouthEast Asia Treaty Organisation, Central Treaty Organisation) or anti-`terrorist’ fold.

No sustained action for forgiveness of odious debts. Several IMF and US State Department delegations visited Pakistan. But, Pakistan could not tell them point-blank about non-liability to service politically-stringed debts. The government’s dilemma in Pakistan is that defence and anti-terrorism outlays plus debt-service charges leave little in the national kitty for welfare. Solution lies in debt forgiveness by donors (James K. Boyce and Madakene O’Donnell(eds.), Peace and the Public Purse).

No formal application for write-off: Successive Pakistan governments treated loans as freebies. They never abided by the revised Fiscal Responsibility and Debt Limitation Act. Nor did our State Bank clearly warn them about the dangerous situation.

Political parties without economic agenda. Clientelism and patronage is the hallmark of all political parties. A mindless coterie is again and again appointed ministers and advisors. Parties win elections by pandering to the base sentiments of the people. A key element of election slogans is always ‘change’. But, the nitty-gritty of the ‘change’ remains a strictly guarded mumbo jumbo. Sincerity demands that the parties should spell out their policies with regard to various factors of production, i.e. land, natural resources, the socio-economic milieu, labour, capital and organisation. But they keep mum about their agenda.

The taxation proposals do little to squeeze the haves. Nothing is done to reduce inequitable distribution of wealth and economic power. No heed is paid to the structure of our society. How did the filthy rich, the feudal lords and the industrial robber barons come into being? If accumulated wealth in a few hands is rooted in wrongdoing, a considerable chunk of it should be mopped up. Vested interests resist the change.

The British created a class of chieftains to suit their need for loyalists, war fundraisers and recruiters in the post-Mutiny period and during the Second World War. A royal gubernatorial gazetteer states: “I have for many years felt convinced that the time had arrived for the Government to try to introduce some distinction for those who can show hereditary services before the on’ble Company’s rule in India ceased. I have often said that I should be proud to wear a Copper Order, bearing merely the words ‘Teesri pusht Sirkar Company ka Naukar’ (Third generation Company’s servant).” A feudal aristocracy was created whose generations ruled post-independence governments.

Some pirs and mashaikh (religious leaders) even quoted verses from the Holy Quran to justify allegiance to the Englishman (amir), after loyalty to Allah and the Messenger (PBUH). They pointed out that the Quran ordained that ehsan (favour) be returned with favour. The ehsan were British favours like titles (khan bahadur, nabob, etc), honorary medals, khilats with attached money rewards, life pensions, office of honorary magistrate, assistant commissioner, courtier, etc. A Tiwana military officer even testified in favour of O’Dwyer when the latter was under trial.

Ayub Khan added the chapter of 22 families to the aristocracy, a legacy of the English Raj.

About 460 scions of the pre-partition chiefs along with industrial barons created in the Ayub era are returned again and again to the parliaments. They do not allow agricultural incomes, industrial profits or real estate to be adequately taxed.

Economic advisor’s view of the economic malaise.  In his book Growth and Inequality in Pakistan: Agenda for Reforms, Hafiz A. Pasha has unwound the tangled skein of Pakistan’s economic malaise. He laments that income-and-wealth-tax rules and regulations are so drafted as to facilitate ‘state capture by the elite’.

The ‘tax-concession-and-exemption laws’ give special privileges to different vested interests. The privileges are in the form of “preferential access to land, bank credit, etc, which facilitate faster accumulation of assets”. He visualises “elite “as “the conglomeration of rich powerful people in society”.  Among the “elite state captors”, he includes “large land-owners, defence establishment, multinational companies, urban property developers, and owners, and so on” .

Large landowners. To Pasha, this group has, since Partition, enjoyed tax privileges, like exemption from income tax on agricultural incomes (now devolved upon provinces after the 18th Amendment). There are only 13,438 landowners (with average land holding of 435 acres) constituting only 0.2 per cent of the population of farmers in the country. The large landowners own about 11 percent of the whole farm area (Agriculture Census 2010).

Under the pressure of the International Monetary Fund, a tentative agriculture-income tax was imposed in the Punjab and Sindh exempting holdings of 12.5 acres. The maximum tax rate was Rs 250 per acre for farms exceeding 25 acres. It yielded only about five per cent of the average net incomes per year.

Later the tax was imposed on net incomes exceeding Rs 300,000. Income up to Rs 100,000 was tax-exempt. The revenue from this tax during 2017-18 was a paltry Rs. two billion, equivalent to only 0.07 per cent of the net income from crops.

Agricultural income is a tax haven. The potential revenue from agricultural income is Rs. 103 billion (based on 2017-18 Gross Domestic Product), if it is treated at par with urban tax income.

Water charge (abiana). The water charge is one-tenth of the actual cost incurred by the government. (Rs 15 billion).The water charge is less than Rs 100 per acre.

Wheat and sugar subsidized procurement. Procurement price of wheat is higher than the price of imported wheat. The concession on agricultural incomes, low water charges and high procurement price added over Rs 200 billion to the incomes of large farmers’ ‘.

Government barred from undertaking land reforms.  A 3-2 vote judgement of the Shariat Appellate Bench of the Supreme Court of Pakistan in the Qazalbash Waqf v. Chief Land Commissioner, Punjab case on 10 August 1989 (made effective from 23 March 1990) blocked land reforms in Pakistan. It uncannily strengthened feudal aristocracy. Pakistan can’t do away with all jagirs as did India way back in 1948 because of the afore-quoted judgement.  Mufti Muhammad Taqi Usmani writes in his lead judgment: “ (1). … Everything in the world actually belongs to Allah and he has granted humans the right to utilize them within the limits of divine laws. … There are certain obligations on the person who uses the land. The right to property in Islam is absolute, and not even the state can interfere with this right.  (2) Islam has imposed no quantitative limit (ceiling) on land or any other commodity that can be owned by a person. (3). If the state imposes a permanent limit on the amount of land which can be owned by its citizen, and legally prohibits them from acquiring any property beyond that prescribed limit, then such an imposition of limit is completely prohibited by the Shariah.”

The two dissenting judges, Nasim Hassan Shah and Shafiur Rahman argued that a limit on land holdings was necessary to reform society and alleviate poverty.

Could our Parliament reopen the case to align it with its dream of a Medina welfare state? Medina state, like Singapore, owned all land. Are jagirs a divine or a British gift? How did the filthy rich, the feudal lords and the industrial robber barons come into being? If accumulated wealth in a few hands is rooted in wrongdoing, a considerable chunk of it should be mopped up. Peek into the pre-partition gazetteers and you would know the patri-lineage of many of today’s Tiwanas, Nawabs, Pirs, Syed, Faqirs, Qizilbashs, Kharrals, Gakkhars, and their ilk. Taqi Osmani overlooked that a feudal aristocracy was created whose generations ruled post-independence governments.  Is it anathema to look into the origin of land grants or wealth accumulation in public interest? Why not tax them heavily to fund basic needs of the downtrodden?

To conclude, factors contributing to Pakistan’s economic malaise are obvious. However political will to grapple them is lacking.

Amjed Jaaved
Amjed Jaaved
The writer is a freelance journalist, has served in the Pakistan government for 39 years and holds degrees in economics, business administration, and law. He can be reached at [email protected]


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