Creeping Economic Anarchy

In order of priority the three major sectors of our economy are, viz (1) agriculture (2) industry and (3) services. Our planners set very ambitious targets for Financial Year 2000-01, most of which cannot (and will not) be met. Because of acute shortage of water (and other reasons including WAPDA’s shift to metered electricity in place of a flat fee), farmers were forced to reduce acreage under cultivation. The output of sugarcane and rice declined by as much as 19.1% and 11.4% respectively. Cotton registered a slight increase of area under cultivation, the overall production remained the same. Punjab harvested more wheat, it was offset by decreases in Sindh due to lack of irrigated water, even if grain production manages to reach 700000 tons if the rains do come, it will be well short of the projected 772000 tons. Given that cotton, rice, sugarcane, grain and wheat account for 94% of the agriculture sector, there will be an overall decline in all the levels forecasted. According to the Islamabad-based dream merchants’ optimistic predictions the people will not starve, shortages will be made up from buffer stocks but even they concede that the overall economic outlook for the year 2001-02 is exceedingly bleak. Given that acute water shortage is imminent, we are well on our way to a creeping economic anarchy.

The shortage of sugarcane contributed to decline in large-scale manufacturing as compared to the previous year. Part of the problem stems from disagreement between manufacturers and growers about the sugarcane prices with manufacturers loath to pass on their profit-benefit to the growers, some mills actually shutting down rather than paying increased cane prices. This sector grew only 3.1% as compared to 7.8% during the same period in the financial year 1999-2000. Overall, only 9 out 14 industrial groups showed positive growth, only 4 out of the 9 improved on the previous year’s performance. Cotton ginning and spinning slowed down, the weaving sector continued its momentum. Of major concern was the fact that while production of compact cars and light commercial vehicles increased, falling sales of tractors dragged down the automobile sector. Chemicals and cement production fell but paper and paperboard showed strong growth because of availability of import from previous years.

As part of the Stand By Agreement (SBA), the IMF insisted on strong financial adjustments in the fiscal sector. The ambitious tax collection target of 24.1% over last year will certainly not be met. Still 13.5% higher than last year, the amount collected is Rs.7.9 billion short of the projected target and Rs.9.1 billion under the budget. Obviously the deficit will be met by bank borrowings. Do the figures include Rs 11 billion under the tax amnesty scheme (TAS). A modest increase of 750000 new tax payers have come into the tax net due to the on-going tax surveys but at what cost to the image of the Army? If CBR does not catch up, we will be more than 10% below our projected figures.

Sales tax had an impressive growth of 36%, it still fell short of the budgeted target of 76.9 billion, as did customs duty, which increased only 4% despite the fact that imports grew 10.5%. A sleight of hand is evident in the figures with respect to govt borrowing. Having borrowed heavily from commercial banks last year, the graph was misleading, it showed a decline only because government turned to borrowing from SBP to pay off the commercial banks, the public debt therefore showed a net increase. Private sector borrowing, which had slowed down considerably because of the uncertainty, was the bright spot showing a significant rise, with textiles leading the pack of borrowers. In the major agriculture sector, credit disbursement was only marginally higher by Rs 74.9 million out of the Rs 18.9 billion disbursed. Less than 20% of the loans given out to agriculture were development loans, criminal neglect for a sector that is bearing the main burden of the economy. Workers’ remittances having increased by US$ 84.6 million in the July-December 2000 period, fell during the quarter Oct-Dec 2000. SBP decreased minimum fees for inward TT charges from US$ 200 to 100 and increased the charges banks would receive for each remittance above US$ 100. Our trade deficit went up to US$ 921.7 million, more than US$ 100 million higher (20.20%). Exports fell disappointingly 10% short at US$ 4.5 billion than the projected US$ 5 billion whereas imports increased by 1.2% despite our best efforts. Obviously the slowdown in agriculture has effected industry but this will mean mini-migration of rural workers to the cities. Very few industries, if any, are being freshly created, in fact sick industries have resulted in a substantial number of jobs being lost. Job creation in industry takes much more time and money as compared to agriculture and services. While not slowing down our efforts for creation of new industrial units, our major effort should revive the sick industries whose skilled and semi-skilled workers are now mostly out of a job. Priority should be given to agriculture, firstly to our cash crops such as cotton, rice, wheat, wheat grain and sugarcane but a major effort is also necessary in fruit and vegetable farming, poultry and livestock projects, etc.

Revenue collection remains our biggest problem but extraneous factors, mainly the resilience of an agri-economy (and to a small extent a vibrant parallel economy) has played a part in keeping the nation going. With both rain and irrigation water almost non-existent and the water in the major Dams dangerously low, purchasing power will become non-existent. This vicious cycle further eroding the foundations of commerce and industry. We badly need increased revenues, more importantly we also need many more jobs on a war-scale. Immediate job creation is only possible in agriculture and services sectors and that also across a broad front. Besides ensuring that the farmer gets adequate return for his crops, we have to give out long-term interest free loans in value addition items like fruit and vegetable farming, poultry and livestock projects with the promise of purchase of the products from the farmers. Transportation from farm to international markets will also involve chartered flights to various world destinations from close to producing areas e.g., the excellent decision by the government to allow direct flights from Multan to Jeddah in the mango season. At the same time we must enhance our capability of extracting juice and juice concentrates. Mechanization of agriculture should not mean loss of farm hand employment, to support mechanization training for farmhands is necessary on a wide range of supporting technical disciplines.

The one sector that is least fashionable in Pakistan produces the most jobs at the least cost, the Services sector creates a wide range of low-paid jobs in cleaning, maintenance, inspections, surveys, data-entry, assessments, verifications, etc. All over the world, individual and corporate security is handled by private security. Even government ministries in many countries are guarded by private security, freeing the law-enforcement agencies (LEAs) to do their own jobs. In Pakistan, many factories and installations are guarded by LEAs, e.g. why should cash-rich Exxon Fertilizer avail services of Frontier Corps (FC) platoons for its plant at Daharki? These FC personnel, who could be used in today’s deteriorating law and order situation are diverted to duties they are not meant for (or paid for by government). One estimate is that at least 200000-250000 personnel of police, FC, Rangers, etc all over Pakistan guard individuals and installations that could be easily taken over by private security, these including ports, airports, pipelines, powerhouses, etc. The other sector that can immediately produce hundreds of thousands of jobs is Information Technology (IT). On a crash program government should train IT instructors who can spread out and impart computer education on a mass basis. We can then short-list several thousands every year for higher computer education i.e. developing software, etc. The SBP has been active in buying foreign exchange from the kerb market, why don’t they create incentives to make the service more efficient and secure, this would increase the foreign exchange remittances by our expatriate workers abroad. As a last drastic measure let us also make contingency plans for “Food for Work” Programs in the rural areas. While on contingency planning have we catered on a 13.8% increase in Indian defense outlays. Peace with India should always be a priority but we should not be guilty of criminal indifference to apparent reality.

The neutron bomb is often eulogized as a “clean” bomb, it kills only living beings but leaves inanimate objects intact. If the unemployment bomb ever goes off in our faces, the creeping anarchy may well turn into an unmitigated disaster that will destroy rural and urban areas both, taking us centuries back to when the only economy was tilling farmland. The SBP’s second Quarterly Report does not mention unemployment at all, almost as if this most potent problem did not exist. We should take immediate steps to defuse this explosive device from destroying the country’s future. The shortage of water has ensured our passage onto an economic minefield. And what are we doing, playing a game of politics and ambition instead of gearing up to face impending absolute disaster.

Mr. Ikram Sehgal is Publisher and Managing Editor of Defence Journal (Pakistan). He was Chairman APSAA for the year 2000, now acting in adhoc capacity pending elections for the year 2001.

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