Ray

Pace of business reforms


By Sultan Ahmed

THE Governor of the State Bank of Pakistan Dr Ishrat Husain is candid in admitting that unemployment and inflation are two key problems which the country confronts.Unemployment and under-employment are, more or less, universal in the world today. They are there even when the economic growth rate is high. In an effort to reduce the cost of production and price of exports in order to withstand international competition industries are shedding their workers to the minimum possible number.

But they seek to achieve that along with a low inflation rate, particularly in the West. But high inflation is not uncommon in many developing countries, particularly now spurred by high world oil prices. But inflation hurts the poor and unemployed much more, particularly those with large families to support, as is the case in in Pakistan. That makes the need for inflation to be curtailed severely.

Inflation rate went above nine per cent in the last financial year and then came down marginally to 8.7100. The government’s efforts are directed at making that rate stay at eight per cent. Even eight per cent is a high rate in monetary terms for the low income groups because of the accumulated inflation of decades in the country. The people calculate inflation in rupees and not in terms of percentages.

Inflation also leads to devaluation of the rupee which is already about Rs 16 lower than the Indian rupee to a dollar. And that enhances the price of imports, particularly oil which is now priced around 64 dollars a barrel.

Sustained higher price of oil means higher electricity prices, heavier transport costs and a host of other higher production costs. Only the exporters are delighted as they get more money for their exports but that will be a short term gain. As they will have to pay far more for their imports for production purposes.

The July-August imports at 1.55 billion showed a rise of 176.3 per cent over the same period last year, while the exports increased by 13 per cent. That shows the increasing deficit trend fuelled by the soaring price of oil and other oil-based items.While the rising oil prices are a matter of continuing concern as the forecasts are that the prices will stay high for quite some time.

Meanwhile, water has become the centre of a national policy debate. That includes both drinking water and water for hydel power generation and irrigation. A very comprehensive national water policy is being prepared. Prime Minister Shaukat Aziz presided over a high powered meeting on Monday to determine the contours of that policy. A National Water Body is also planned to implement and supervise that policy.

The World Bank, too, has come up with outlines of its financial policy to fund the large dams.

While Sindh’s leaders are generally opposed to Kalabagh Dam, and large dams in general, as they fear they would mean less water for their province, the Sindh chief minister Dr Arbab Ghulam Rahim has stressed the need for construction of big dams, without mentioning Kalabagh specifically.

Meanwhile, the water policy draft prepared by the experts committee headed by Sindh’s top expert Abbasi has been returned by the ministry of water with a comment that it should be submitted after consulting the stakeholders. Clearly, President Musharraf who had earlier undertaken the task of taking a decision on the big dams does not want to do that by himself and invite the political odium that will follow, as some provinces will be supporting his decision while others will be opposing it. But it is known that his top priority is for Kalabagh on which a great deal of feasibility studies had already been done, with financial assistance from the World Bank.

Another decision which he is reluctant to take by himself is about the final National Finance Commission award. The centre is now reported to have agreed to part with 48 per cent of the jointly collected revenues. Now the provinces have to agree on how to divide the 48 per cent revenues, if they agree to this share, among themselves.

When the provinces and the centre disagreed on the divisible pool, it was left to the president to decide the issue. But he could not make up his mind.Even now he is evidently trying for a consensus through the good offices of the prime minister.

It is not only the big dams which are at issue but also simple drinking water, which is the source of 60 per cent of the stomach ailments in the country. Over a thousand persons were taken to hospitals for treatment in southern Sindh after consuming contaminated water. Nine or more of the children died. This is a frequent occurrence in Sindh and they pay heavily for the polluted water.

Now the president and prime minister have promised safe drinking water and electric power for all by the year 2007. The commitment has been made repeatedly. And the Karachi Administration has drawn up a plan costing Rs2.4 billion to provide water supply to the city. One hopes the project will come through, and ensures safe and steady supply of water.

Another major development programme is for Balochistan and will cost Rs 134 billion. Prime Minister Shaukat Aziz is confident that the programme will be a success as the pro- development candidates have won the local body elections in Balochistan. He has also promised an airport which can handle international flights at Gwadar.

Now the time-frame for Iran-Pakistan-India gas pipeline has been approved at a meeting of the joint working group between India and Pakistan. Work on the project is to start in 2007. Meanwhile, all the financial and technical issues will be settled. Fifteen months are long enough for that.

Meanwhile a meeting of the officials of Turkmenistan, Afghanistan and Pakistan is to take place in Ashakabad to discuss the three-county gas pipeline in October. India is also interested in the project. But it is not certain if there is enough gas for all the four. So further studies of the gas reserve will have to be made. India can join the project later.

With the oil prices going up and up the more gas we can get from the region the better. Cooperative arrangements with other Muslim countries to achieve that is ever better. And now we are supposed to talk to Qatar with which the discussions began originally. But with Qatar the gas pipeline has to pass under the sea which will be a costly affair.

With foreign investment in Pakistan increasing, a good deal of interest is being shown in reducing the cost of investment, cost of production, doing business and reducing the cost of exports. While the Group of 20 is agitating for an end to the barriers in the West against export of agricultural commodities, the developing countries have to do the best they can to reduce the cost of their products and improve their quality, packaging and presentation.

Foreign investors who want their managerial personnel to live in Pakistan and work there want the quality of life to improve here rapidly.This is possible only after an improvement in law and order and not by spending a great deal on personal and family security. If some people are living too well at a high cost that does not mean that all is well. Better law and order depends on the quality of the police and the efficiency of the judiciary. If the people have no faith in the police and fear them, the quality of life is not good. With all the loans we are getting to improve the quality of the police and the judiciary we ought to have a far better police by now. But they have not improved them.

But in one area — doing business in 2006 — South Asian countries have picked up reform pace. We seem to have done very well. In the pace of the reforms we are among the top ten in the world. A World Bank and International Finance Corporation report says: “South Asian Countries are increasing the pace of reforms to help small and medium business generate more jobs, but heavy legal burdens on business in most countries in the region remain.” It says, Pakistan was the top reformer in the region and is at No.10 globally, making it easier to start business, reducing the cost of registering property, increasing penalties for violating corporate governance rules replacing a requirement to licence every shipment with two year duration licence for traders.

India ranks rather low at 116th,and China is 91st ranking, and behind all South Asian countries except Afghanistan in the overall case of doing business.

Evidently some of the corporate reforms have been taken note of by the international community wanting to do business with Pakistan. India on the other hand is too cautious and slow to move when it comes to dealing with foreigners because of the traditional suspicion.

In the area of transfer of property a great deal remained to be done in Pakistan, beginning with elimination of corruption. There are now a number of radical proposals to modernize the system prompted by prime minister Shaukat Aziz; but the healthy changes need to be carried out quick.
http://www.dawn.com/2005/09/22/op.htm

Sameer

Well you have to also take into account that Pakistan is probably well below its PPF curve and hence even a small scale limited reform programme as we have seen can have a huge impact on productivity.

The same thing happened in India in 1980 when Indira deregulated 20 key industries in the Organized sector, the economy in the 80s averaged a 5.85 growth rate compared to 3.5% the previous decade.

In the case of Pakistan its output to capital ratio stands at 0.36 compared to 0.2 in the 1990s.

However you will need incremental reforms to maintain this level due to diminishing returns to scale.

Neo

It's just the beginning, we're well on track.

Sameer

You will need to in order to maintain such an ICOR level. No country can sustain such a level for more than 2-3 years due to DRS technological constraint

Neo

Valid...

Sameer

The only solution to Islamic fundamentalism is fast economic development, Pakistanis who have a future will not send their kids to die off in some jehadi battle vs evil India.

It is in India's interest to make sure Pakistan grows faster and faster, we cannot ignore them as they are our neighbours.

Withmore economic development in SA, peace will come through a EU union.

GhantooPak

RAW sows seeds of discontent among Pakistanis, why would they suddenly change? India must first withdraw from Kashmir and preferably hand over parts of Punjab, Harayana, Rajistan and Gujrat. Himachal would be a bonus.

indianguy4u

Another flamer & troller !

__________________
Hala Madrid!!

Sameer

It was quiet for a few days, the old trollers have come back in different avatars.