Pakistan’s PTI Government: A Bumbling Beginning

September 14, 2018 Opinion , OPINION/NEWS , Pakistan , POLITICS

PTI photo

 

By

Mehrooj Rai

 

 

The clumsiness and unpreparedness of the PM and the government is not just shocking for supporters but for opponents and critics as well. It is because no one including the ones who have been criticizing the PTI bitterly in the past expected the PTI government to be showing such a dithering and amateurish behavior to affairs of the state.

 

Pakistan is facing socio-economic, strategic and administrative issues and challenges. But PTI is instead investing all its attention in superficial and symbolic measures in the name of austerity rather than forming a concrete and substantive strategy and agenda for social and human security and reforms.

 

The problem is not with an austerity and simplicity drive but with the fact that Pakistan is facing more serious issues like poverty, unemployment, inequality, exploitation and problems in education and the health sector. In addition, austerity measures can only be effective if they run down to the lavish official residences of senior military and civil bureaucracy and members of the superior judiciary and their lavish allowances and salaries.

 

But the government’s prime focus since its formal induction has been on chai-biscuits in the cabinet, auction of cars and living or not living in the PM House. These things are good for symbolic reflection but too much emphasis, reiteration and drum-beating has not only rendered it meaningless but vain also because people want relief. And it is ironic how certain actions of the government have gone in complete antithesis to this proposition of simplicity. These non-issues becoming issues have resultantly created an atmosphere of uncertainty, doubts and disbelief.

 

It is certainly early to expect results but not early for the government to come up with clear plans and structures. Keeping plans aside, the government has alarmingly not yet come up with a policy direction.

 

The lucrative posts in the cabinet have been awarded to representatives of the status quo and turncoats as 9 out of 15 Cabinet Members and 3 out of 5 advisors are the same as in the Musharraf cabinet. The fact that the technocrats who were part of General Musharraf’s regime and even in the PML-N’s previous government have been inducted raises questions to the credibility of Naya Pakistan that has clearly capitulated to the old traditions, people and practices. The appointment of Usman Buzdar as Chief Minister of Punjab and Fayyaz ul Hassan Chauhan as Information Minister of Punjab struck people further. It seems like Usman Buzdar is just a puppet and the strings are actually in the hands of Jahangir Tareen. As far as Fayyaz ul Hassan Chauhan is concerned, he is the true reflection of the social and political culture introduced by PTI and is the ideal option to take forward social media narrative of PTI.

 

The effectiveness with which Imran Khan used the word “reform” in his verbosity during his election campaign made many believe that PTI had a clear direction, indications and a roadmap and would hence waste no time in deciding and implementing policies to usher in tabdeeli (change) that Naya Pakistan promised. But it seems like the PM is finding it hard to understand state affairs and will find it harder to grapple with the internal and external buffeting and pressures.

 

The Economic Advisory Council was reconstituted on September 1 to resolve the economic crisis of the country. The PM appointed Atif Mian, an Ahmadi, as a member of the Economic Advisory Council. But Imran Khan could not stick to his decision and within days after the formation of the EAC, the PTI government bowed down to bigotry and pressure from the religious right wing and clerics and asked Atif Mian to resign. Similarly, the lack of female representation in EAC and Punjab and KPK cabinets has also received perceptible disapproval by journalists, social activists and women in general. There is no woman in the KPK cabinet and only one in the Punjab cabinet.

 

The PM recently appealed to overseas Pakistanis to contribute $1,000 each to the Diamer-Bhasha Dam. In the past the Musharraf regime’s “President’s Relief Fund” and ex PM Nawaz Sharif’s “Qaraz Utaro Mulk Swaro” schemes were initiated with the cause of paying off the debt of Pakistan through donations as well. For mega-infrastructure projects public donations and crowd-funding is never a pragmatic approach.

 

Populist rhetoric like charity money or bringing back looted money is no substitute for economic policy. Charity cannot thwart economic problems, currency depreciation or debt crisis. No developing country would remain a developing country if donations could prevent economic predicament or meltdown. Economic policy encompassing public finance, global investment, export-oriented industrial base, revival of local production, productive agriculture and trained and skillful human resources is the need of the hour. Furthermore, the defence budget should be cut and spent on systematic and structural reforms.

 

Meanwhile, an amateur diplomatic approach has caused Pakistan embarrassment on a global stage. Foreign Minister Shah Mehmood Qureshi’s misinterpretation of Narendra Modi’s letter to Imran Khan that New Delhi was willing to resume bilateral talks resulted in an embarrassing situation. Not just this, it was reported that the PM refused to take a call from the French president while he was busy talking to a group of journalists. Moreover, the meeting with US Secretary of State Mike Pompeo failed to yield any results for Pakistan as opposed to the perception that was given earlier. Even the ineptness of the current government regarding international contracts like CPEC and LNG contract with Qatar is highly disconcerting.

 

The cluelessness of the government, despite enjoying the support of the military and institutions, is unbelievable. The current government needs to realize that it is not in a dharna or on a container anymore. Mere sloganeering and rhetoric will not be enough. The PTI is in government and should come out of its opposition mode of blaming and criticizing. It is now time for real politics, mature conduct of diplomacy, governance, sound policy, implementation and reforms.

 

 

 

 

Mehrooj Rai

My name is Mehrooj Rai and I am from Lahore, Pakistan. I am studying English Literature from University of London. Writing is a passion and it gives me an opportunity to not only escape but create my own world of opinions, ideals and notions. It encourages me to highlight and stress upon the issues that often go unnoticed. I aspire to not only write but write to fuel a constructive change to the misconceptions that are ingrained in our societal curriculum and to reveal how political ideologies are twisted in Pakistan.

Twitter: @mehrooj_rai

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4 Comments

  1. samir sardana April 13, at 21:05

    Risk in the sugar business ? Y is “Sugar Daddy Jehangir Tareen (SDJT)”, in the Sugar business ? The misconception. It is no risk business.The CEO of the mill can see his raw material in the fields,from his glass windows.The owner of the raw material is waiting to sell ,he has to sell – as there is no storage and storage is not possible, and he has to sell to the nearest mill (to save on freight and moisture)- at the quality and other specs of the mills,and then awsit payments for months. Can there be a better business ? dindooohindoo The users of the end product are in the billions.The user in Pakistan WILL NOT PAY beyond a certain price – and they voted in the govtt.If some sugar mills close down – by strategy – the govtt will fall and there will be a Tahrir,as sugar stock draw down from Govtt warehouses takes time – and in riots – no logistics is possible. Even imports will take months,and then it has to be evacuated from the ports. Tbe user price can’t fall below a certain floor,as then the mills will close down,and there will no cane purchases,and also no cane payments for old bills.This also ensures no large scale imports.The cane growers,are also in the millions,and are another vote bank.So there is a cap-collar option on sugarr prices – for the mill owner.If prices fall,the state has to offset the losses for the mill,and also waive interest and warehouse charges and offer compensation equal to the opportunity cost of capital employed in the operations.Hence,the cost of the cap-collar options is borne by the state.There is no other business like this in the world. Any business which relies on the state,for policies – dooms the industry.As a result, the Pakistani state has no clue of the actual operations of the sugar and cane supply chain and value chain – from costing to manufacturing to stock.That is also to the advantage of the businessmen – as the perception of unviable sugar units,ensures that the sugar units can inflate costs and hide stocks.This ensures that they keep getting subsidies.drawbacks,capital subsidies,soft loans,trade swaps, power export and wheeling incentives etc., and also,they can create shortages and price spikes, at will, in any part of Pakistan. A doomed sugar industry,also,is in the interest of the sugar tycoon – as they can close down the operations of any marginally viable or loss making or vulnerable unit,at will, by choking off working capital,or a truckers strike or diverting the raw material supplies of the unit.This is enough to cause panic and doom,in the sugar wholesale market. Holding stocks of cane,bagasse and sugar for 8-9 months and delays in payment of power exports – has a number to it – in terms of working capital cost.It is not a risk,and is part of the Business Model of a sugar unit,and the cost of working capital,can also be waived off – as interest subsidy or CDR/OTS,as the State has an interest in keeping the polity in power.The fact that,at the time of making the procurement of material,the price of the end product 9 months ahead,is nor known – is also,not a risk,and is,instead an opportunity,as all costs are a pass-through to the state. Since cane is no brain business,there will always be excess cane production and excess sugar stocks,and since the state has to fix the purchase prices of cane and sale prices,in the open market – and also, the terms of loans and incentives to units – the state will always goof it up. When they goof – prices will spike – and that is when the mill owners sell the unaccounted sugar stocks.When there is a reverse goof,id.est,large stocks and working capital shortage – the mill owners push the state to export.At that time,the inflated cost sheets and perceptions of poor manufacturing operations and yields and storage losses,ensures the highest inflated cost.Highest inflated cost ensures maximum subsidy and also maximum ad valorem drawback. Drawback is refund of non vatable taxes acros the supply and value chain,and subsidy is the export price differential (on landed cost basis in a target market). Hence,the state is a PE co-investor in the sugar mill,with a sweat equity stake,and no voting rights and no dividend.What is better than that ? The cane growers are bankers to the mill who give clean credit for 8-9 months and accept all the deductions made by the mill.The Politicians are the “reverse fee clients”to the Consultants (mill owners), WHO PAU THE MILL (IN TERMS OF SOPS AND SUBSIDIES),FOR THE CONSULTING advice, given by the mill owners. In essence,the sugar mill is used by the polity,to make transfer payments to voters in agri areas – as an NGO – except that the NGO makes a CERTAIN INFINTE PROFIT % ON CAPITAL EMPLOUED Sugar mills get project loans at a 4:1 Debt.Equity Ratio,with capital and interest subsidies.If the project cost is inflated by 30% by using a mix of news and used machines, and 5% is paid to bankers and netas – then the equity is nil or negative. The mill owner has 2 income streams – Profit and Bonus.Bonus is selling unaccounted stocks,in price spikes,and earnings on export subsidies and drawbacks (on inflated costs and hawala exports and bogus exports).Profit is the cash profit earned,as the book profit is all bogus,as costs are inflated.A Sugar mill profit has not to be assessed quarterly or yearly,but when the entire supply and value chain of a crushing season,is conclusively liquidated and realised – net of all working capital costs. This makes the ROE,financially incalculable. WW3 or N-War or Covid – U need sugar.A human cannot eat palm oil or wheat or rice – as such – but can live on just sugar for some time.There is no business like sugar..Which is Y “Sugar Daddy Jehangir Tareen (SDJT)”,is in the Sugar business. He has found buyers in the Taliban ? Sugar and Nuts = Ideal food for the mujahid. Bumper cane crop = good news for neta,as farmers happy and cane rates not hiked much for mill owner,and the netas are sure that retail rates are low.Disaster is for the state treasury,as large stock pile will be eaten by rats,or dumped in Kabul,with huge subsidy payments.Neta is happiest Bad Cane Crop = doom for neta and retail and economy.Imports will take time and the state will goof up,and retail will price in hike,3-4 months before import orders are placed.Marginal cane mills are also doomed – farners will just die.But mill owners who have plantations (as all karge units have – on principles of Strategic sourcing and backward integration into plantations) will thrive,as they will have captive supply,and will engineer farm riots and suicides,to rig up cane prices – which is a pass-through to the state – on marginal and imputed costs.Then SDJT will tell media – “How do I gain by increased sugar prices” with a non=plussed expression – only for the cameras. A sugar mill is a power plant,which also,incidentally makes sugar,and the price of the raw material,is a pass-through (to the state – on a loaded marginal and opportunity cost) and the by-product (sugar) supply chain,can be choked at any time,by the mill owners.

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  2. samir sardana April 13, at 21:04

    Solution to Manufacturing in Pakistan – Part 1 Some people lament the “lack of manufacturing capacities” in Pakistan.Had the Pakistan state pushed for manufacturing capacities a few decades ago – it would have had the “NPA disaster of the Hindoo Nation”.The Aggregate of the NPA in the Banking,NBFC,CHit fund,Co-operatives and Unorganised sector,in Hindoosthan,would be around USD 300 billion USD (at the minimum) – which is enough to destroy Hindoosthan. An Oil shock or a 15 day full-scale conventional war,will destroy Hindoosthan – simply by the “geometric expansion of NPAs” and the “physical annihilation of manufacturing”,in North Western Hindooosthan.dindooohindoo History There was no point in manufacturing in SAARC, a few decades ago, as everything was being sold by PRC,at half the total cost of the importing nation,and there was no skilled labour and management expertise in nations like Pakistan,at that point of time.The costs in PRC have now matured and stabilised and the tastes of the Pakistani consumer have stabilised and matured. Current Tenor The situation is ripe for manufacturing in the current times – with the benefit of obviating FX outflows and smuggling and boosting indirect tax revenue. Exanple of “As-Is” Import Let us assume that a product is being imported at a cost of USD 1000/piece or per ton CIF,with the Tariff rate of say 35% – wherein the actual compliance with duty,is only 10%.In this case,the profit which accrues to the trader or maker o/s Pakistan is not taxable in Pakistan,and the same applies to the sea freight and the freight forwarder’s commission.Since, the CIF cargo is misdeclared at Port Qasim – it is obvious that the sale of the said item,in the wholesale and retail market,would be w/o tax. Exanple of “Proposed” Manufacture – Case 1 If the said item is made in Pakistan, the Marginal cost would be say,650 USD and the Total cost (including non cash and amortised costs) would be around USD 900. However, the manufacturer would need to import the materials or the item/component in CKD/SKD condition.Since,this will be a bulk import,in industrial packaging,it would be at a lower cost,and the importer would pay the merit duty applicable – as there will be no duty evasion,no smuggling, no corruption, no hawala and the USD outflow can be deferred. The indigenous cost in Pakistan such as salaries,purchases and power – would be subject to indirect and direct tax (and TDS) which cannot be avoided.In addition,the power consumption will provide a proximate estimate of the actual production of the factory. If the manufacturer has paid the import duty on material imports and has no captive DG set for power – then the sales of the products will have to be on record.Let us say that this factory is in State X , and he sells to a dealer in state X at the 1st point.Ideally the states should have a 1st point tax – and then all sales in the same state of the “said invoice” (of the 1st point of sale) will be exempt from indirect tax.If tax is at the last point – then that last point will never come and the Revenue deptt will keep on doing reconciliations.If there is a multi-point tax,there will be avoidance (as no one will pay tax on financial value addition),and the state will have to prove the sale at each point.So full indirect tax revenue will be realised on the mode of “1st point tax”.In any case, the factory will have all the data w.r.t the last point retailer as part of its CRM and its Dealer/Retailer incentives and Dealer management plans Exanple of “Proposed” Manufacture – Case 2 If the manufacturer decides not to import the materials and purchases the same from local sources (who are the illegal importers) and does not use Grid Power or does not use metered Grid Power – the he would sell the products “off the record/books”.However,in this case, there will at least be some manufacturing in the state and the FX outflow would be “far lesser than before”. Fiscal Levy Model in Exanple of “Proposed” Manufacture – Case 1 In the 1st case, the state should levy the import duty on the material or component imports,in a manner,such that the total taxes accrued to the state,across the supply chain of the manufacture for the unit,and its extended supply chain and staff = 35% (which was the original import duty on the finished product) In other words,the aggregate of the understated components, as under: Import duty on material/component import Tax of staff salaries of factory Indirect tax on local purchases Cess and Duties on SEB power purchases Tax on sale of Products Profit tax on producer and supplier of local purchases Cross Subsidy benefits to state on SEB purchases Should be around 35% of the finished goods price (NSR),which was the original import duty on the finished product Fiscal Levy Model in Exanple of “Proposed” Manufacture – Case 2 In this case,for those products where there is no “on record manufacturing” in the nation, an import duty on materials equal to current deemed duty (hawala charges bribes and the actual duty paid) plus a small premium,can be imposed, to bring the downstream sales of the finished products into the indirect tax net (on the mode of the 1st point sales tax).Once the imported materials are “on record”,then the “downstream production” will also be on record. However,if the production is viable only by power theft,avoiding pollution taxes,doing hazardous manufacturing and evading the indirect taxes on sale of finished products – then the said production can be shut down – by licensing the production to the original manufacturers on a sole license basis with direct tax holidays. Alt Manufacturing Strategy In the Alt, based on import data from Pakistani ports and the export data from load ports, if the overseas manufacturers or traders are offered “sole manufacturing and sales rights”, in Pakistan or parts of Pakistan (by law or by banning imports or charging high duties/TBT etc.), the overseas suppliers will be glad to set up or partner with,local partners to set up manufacturing capacities,for all types of consumer goods (at the minimum) In addition, there will be several types of manufacturing which overseas suppliers/bankers/ entrepreneurs will be glad to outsource to Pakistan on account of pollution effluents, environmental issues,hazardous chemicals,requirements of water,obsolete or phased out technologies in USA/EU,labour intensive technology,2nd hand machinery on the books of cash strapped banks etc – who will be glad to relocate to Pakistan. Export Interface It would be reasonable to assume that the “VA norms” of various trade treaties applicable to Pakistan,would qualify the COO of these manufactured products,as Pakistani and thus,would qualify as “Nil Duty/Concessional Duty access” to export markets (even ignoring, the financial value addition) The manufacturing hubs of the abovesaid products can be located near Ports and also near the SEZ/EOU and within the DTA of the EOU (to lower logistics costs) – so that the manufacturers can offload excess capacities to SEZ and EOU on CMT/Job work or where the suppliers manufacture semi-finished products which are sold to SEZ and then exported – and this is treated as a Deemed/Physical export for the DTA Manufacturer

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  3. Ibne April 24, at 23:01

    The Announced for Diamer Basha Dam that's a Good

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  4. Sohail September 14, at 13:46

    Certainly anger against the PTI is more then visible in this article. I am sure the writter must be knowing the factual position as to why economy is in such a dilipiddila position and within two weeks the new government can use a magic wand to make everything correct. Amazing to see such new writers completely ignore the actual facts and bombarding the new government which is visibily working in a right direction to cut down cost and recover the looted wealth from abroad . I believe actions taken by the new government are not visible to the writer and she is just using her pen to strike some vengeance upon yet to prove anything wrong government of Pakistan. I Completely support imram Khan and his bold initiatives to end corruption which is one of the biggest menance of this country . I hope to see positive results from the initiatives of government just give them a time of 100 days to deliver.

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