Dr. Ashfaque Hassan Khan's latest articles 2013-14

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    Hanging in the balance

    Dr Ashfaque H KhanTuesday, February 04, 2014From rint !dition

    Pakistans overall balance of payment position has deteriorated sharply in the first half (July-December) of the current fiscal year (201-1!) as compared "ith the correspondin# period of thelast year$ %he current account deficit has deteriorated to &1'* million as a#ainst a deficit ofmerely & million' despite the release of over &1$1 billion under the ne" +, pro#ramme$

    .hy has Pakistans balance of payments deteriorated so much/ .hy have eports #ro"n atmuch faster pace (2 percent) in December 201' as compared "ith a decline of nine percent inthe previous month (ovember)/ 3as somethin# etraordinary happened in the month ofDecember as far as eports are concerned/

    Pakistans eports in the month of December 201 sur#ed by almost 2 percent over the samemonth of the last year$ o eplanation has yet been provided re#ardin# the sudden 4ump ineports either by the #overnment' the 5tate 6ank of Pakistan or by the Pakistan 6ureau of

    5tatistics (P65)$

    %here is a #eneral consensus amon# market analysts and economists that nothin# special hashappened in the month of December$ 7eaders "ould recall that Pakistans echan#e rate cameunder severe pressure' fallin# as lo" as 7s110 per dollar in December$ %he finance minister tooknote of this depreciation' met eporters and industrialists in 8arachi and 9ahore' and "arnedthem of dire conse:uences if they failed to brin# their eport proceeds home at the earliest$ 3ealso offered a carrot to the tetile eporters by #ivin# assurances of re#ular supply of #as to thetetile mills so that they could benefit from the likely a"ard of the ;5P Plus status' provided theybrou#ht back their eport proceeds ur#ently$

    .hen echan#e rate comes under pressure and epectation of further depreciation of the rupee#ains momentum' eporters' in #eneral' become reluctant to brin# their eport proceeds$ ,ost

    probably' this "as the case durin# ovemberoalition 5upport und "hich played an important role in

    "orsenin# the current account deficit$

    %he current account deficit has "idened to &1$? billion in the first half of the fiscal year$ 3ad

    Pakistan not received additional one-off eport proceeds in the month of December' Pakistan"ould not have "itnessed a current account surplus in December and the current account deficit"ould have stood over &2$0 billion in the first half$ %he overall balance of payments alsodeteriorated to &1$?2 billion in the first half as opposed to a deficit of &?1 million = adeterioration of &1$2 billion$

    orei#n Direct +nvestment (D+) amounted to a mea#re &!1? million in the first half as a#ainst& million in the same period of the last year' thus re#isterin# a hefty decline of 2 percent$ %hepolitical leadership as "ell as the 6oard of +nvestment (6@+) have been claimin# day in and dayout that Pakistan is an ideal destination for forei#n investment "hile meetin# visitin# Aforei#n

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    investors$ Despite these claims' the D+ continues to ehibit a declinin# trend$

    .hat is more "orrisome is the fact that the country is "itnessin# a massive outflo" of D+$ oreample' the inflo" of D+ stood at &* million in July-December 201' but the outflo" in thesame period amounted to & million' resultin# in net D+ of &!1? million$ + "ould ur#e thepolitical leadership as "ell as the officials of the 6@+ to at least stem the outflo"' if they cannotsucceed in attractin# D+$

    5everal multinational companies have eited Pakistan in the last fe" years$ or eample'5in#apore %elecom' 6ritish Petroleum' >hevron' BC5 >orporation' ;D 5ue' and the 7oyal6ank of 5cotland (765) have already left Pakistan and 356> and oor +nvestment are in theprocess of leavin# the country$ .hat kind of messa#e has been conveyed to the #lobal investorsas a result of their eit from Pakistan/ Do "e think that mere statements from the politicalleadership as "ell as officials from the 6@+ "ill chan#e the vie"s of #lobal investors for Pakistan/

    .e need to do some soul searchin#$ Bre "e talkin# to local and forei#n investors/ +s oureconomic team capable of talkin# "ith forei#n investors/ 3o" many senior level officials'includin# ministers and private-sector representatives from Pakistan attended the .orldCconomic orum meetin# in Davos/ .hat have "e done thus far in improvin# the countrysinfrastructure' reducin# corruption' improvin# #overnance' reducin# la"lessness' stren#thenin#

    re#ulatory bodies' appointin# people in key positions on merit' pursuin# consistent policies'reducin# dependence on forei#n assistance by mobilisin# domestic resources/ ,ere talkin#

    "ould not "ork$ .e have to convert ourselves from talkers into doers$

    inally' + "ould like to dra" the attention of the readers to"ards the current state of the forei#nechan#e reserves$ Pakistans forei#n reserves stood at &$2 billion durin# January 2!' 201!'

    "hile commercial banks reserves "ith the 56P stood at &!$ billion$ .hat is "orrisome is thatthe #overnment has been usin# dollars of commercial banks (from C 2 account) to financeimport in order to protect its o"n reserves and hence stemmin# pressure on rupee$

    %he utilisation of C 2 account for import financin# stood at &1*0 million in Bu#ust 201' but itsur#ed to &0! million by end-December 201$ +n other "ords' had this amount not been used forfinancin# import' Pakistans fore reserves "ould have been less than &2$ billion today = &?1!

    million less$ Bccordin#ly' the commercial banks reserves declined from &$ billion in end-@ctober to &!$ billion by end-December = a decline of &00 million = "hich is very much in line

    "ith the used-up &?00 million from C 2 account$

    %his is a dan#erous development and must be stopped forth"ith' lest' ;od forbid' "e may"itness reoccurrence of the 1**0s situation "hen the then successive #overnments used up allthe money from the forei#n currency deposits (C 2 account) for financin# imports$ .hen thecrunch came' Pakistan had &1$0 billion in reserves "ith &10 billion of liabilities (the deposits ofpeople)E the country had no option but to freee the forei#n currency accounts$

    Bccordin# to the +,' the outlook of Pakistans balance of payments has "orsened and firmaction is re:uired to address the critically lo" fore reserves$ .hat the country re:uires is lesstalk and more "ork$ +t needs to take the economy seriously' avoid #immickry and destruction of

    key economic statistics to achieve +, tar#ets' and appoint people on merit$ %he #overnmentalso needs to avoid bein# misled by those "ho are feedin# it incorrect statistics and paintin# arosy picture of the economy$

    The first re"ie#

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    mention that Pakistans fore reserves stood at &$1 billion at the time of si#nin# the +,pro#rammeE the reserves declined to &$2 billion on January ' 201! = a loss of almost t"o billion$

    Partly the 56P but lar#ely the +, itself is responsible for the fore reserve crisis in Pakistan$.hile the 56P sold the limited dollars it has in its purse in the market to prevent furtherdepreciation of rupee' the +, continued to receive more from Pakistan than it released$

    %he current +, pro#ramme is nothin# but a Aself-servin# pro#ramme$ +t has forced the 56P topurchase dollars from the market and borro" from "hatever sources it can to build its forereserves to repay the +, loan on time$ %he report has once a#ain reminded the 56P that itsfore reserves are critically lo" and that firm actions are re:uired to avoid ne" balance ofpayments difficulties$

    +t has ar#ued that the 56P has failed to #ive sufficient priority to rebuildin# reserves$ +n thecomin# months' Fthe 56P must unhesitatin#ly use every policy fool at its disposal to boostreserves' includin# ad4ustin# the policy rate' intervenin# to purchase reserves from the spotmarket' and allo"in# #reater fleibility of the echan#e rate$G

    rom the +,s perspective' the above stated policy tool is still not sufficient$ 5uch measuresmust be supplemented by #overnment initiatives to increase forei#n inflo"s throu#h borro"in#

    from #lobal markets' steppin# up privatisations' as "ell as acceleratin# disbursement of eistin#official loans and #rants$ .hat is most surprisin# in the report is that even "ith the fullimplementation of the above measures includin# action from the 56P and the ,inistry of inance'Fthe reserves situation "ill remain very ti#ht over at least the comin# 2- :uartersG$

    +t is indeed painful to see the attitude of the +, to"ards Pakistan$ @n the one hand' the 56P isbein# asked to buy the dollar a##ressively from the market and take a hit on the echan#e rate

    "ith all its adverse conse:uences' raise discount rate to prevent capital outflo" or encoura#einflo"$

    @n the other hand' the finance ministry is bein# asked to float all kinds of bonds (euro bond'sukuk' ;D7s etc)' speed up privatisation to #et dollars' and ask multilateral developmentinstitutions and the H5 to accelerate disbursement of loans and #rants$ Cven "ith full

    implementation of these measures Pakistan "ill continue to face a fore crisis in 201! as statedby the +,$

    .hat is the responsibility of the +, then/ +f Pakistan has to do all these thin#s to build reserveson its o"n' do "e even need an +, pro#ramme then/ .hat kind of balance of payments supportis this/ %o meet end-June fore reserves tar#et' the 56P "ill have to add one billion dollars permonth to its reserves$ +s this possible' #iven the lan#ua#e used in the report re#ardin# thesecurity conditions and policy implementation risks (para#raph 10)/

    %he +,s attitude to"ards Pakistan appears to be discriminatory$ Bt the back of the policyrecommendations of the +,' the entire economic policy of Pakistan "ould circle around buildin#fore reserves "ith the sole purpose of repayin# +, loans on time$ .ho "ill then take care of#ro"th and 4ob creation in Pakistan/

    %n to the second re"ie#

    Dr Ashfaque H Khan

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    Tuesday, $anuary 21, 2014From rint !dition

    9ast "eek (January 1!) + "rote on the staff report for the first revie" of the on#oin# +,pro#ramme and hi#hli#hted the contradictory statements of the +, pertainin# to Pakistanseconomy$ Dr 3afi Pasha' an outstandin# economist and a former finance minister of Pakistan'also noted the same in his recent article and ar#ued' Fthe time has come to stop the doublespeakG$

    +t is absolutely clear that the current +, pro#ramme is all about buildin# forei#n echan#ereserves and payin# off the +, loan on time$ Dr ,uhammad Ia:ub' the former #overnor ofPakistans central bank' called this pro#ramme a Aself-servin# pro#ramme and my #ood friend DrChtisham Bhmed = a former senior official of the +, = termed this as Adevelopment lendin#$

    Dr Chtisham believes that the #eo-political environment has chan#ed dramatically "ith thea#reement of the ma4or po"ers "ith +ran "hich opens up an alternative eit strate#y fromBf#hanistan$ Bs such' Pakistan is losin# its strate#ic importance and' therefore' should not epectmuch leniency from the +,$

    Perhaps' the chan#in# #eo-political environment is dictatin# the vie"s of the +, vi Pakistan' a

    development on "hich + have no epertise to comment$ + have al"ays kno"n the +, as aprofessional institution' supportin# the member country financially in a period of distress$

    %he +, mission is epected to arrive in Pakistan by the end of this month for a second revie" ofthe pro#rammeE ma4or issues pertainin# to fiscal balance "ill come under serious discussion$ %hefirst a#enda item is likely to be the recently announced ta amnesty scheme$ %he +,' like manyof us' considers this ta amnesty scheme as somethin# that undermines the principles of self-assessment and poses risks to the inte#rity of the ta system$ 6y offerin# such an amnestyscheme' the #overnment has admitted its inability to ta those "ho refuse to pay their due taes$5uccessive #overnments in the past offered such ta amnesties but failed to broaden the tabase$

    %he +, is likely to discuss the investment incentive packa#e "hich provides immunity from audit

    for those tapayers "ho pay 2 percent more than "hat they paid in the previous year$ +t alsoprovides immunity from ta scrutiny of the sources of fund' if invested in specific sectors$ 6othschemes are anti-ta reforms and should have been avoided$

    %he third issue that is likely to come under discussion is the recently published report A%aation by,isrepresentation' "hich ar#ues that nearly half of the la"makers did not pay their taes

    "hereas 12 percent did not even possess a ational %a umber$ %his is a serious issue andhas brou#ht a bad name to the country$ ,any "orld leaders have casti#ated Pakistan for itsfailure to ta its o"n rich and po"erful classes$

    Blthou#h the finance minister has committed to publish the tapayers directory by ebruary201!' "hich should be appreciated by all' is this enou#h/ o$ 6rin#in# the total income of theparliamentarians under the direct ta net "ill be the real test of the +, mission$

    %he fourth item of discussion "ill be the lo"er-than-tar#et ta collection$ %he ederal 6oard of7evenue (67) has collected 7s1020 billion in the first half of the current fiscal year "hich is 1!$percent hi#her than the correspondin# period of the last f iscal year$ +n order to achieve the tar#etas #iven by the +, = of 7s2! billion (as opposed to bud#eted tar#et of 7s2! billion) = the67 re:uires collectin# 7s12 billion in the second half$ +n other "ords' ta collection mustincrease by 2$! percent in the second half as a#ainst 1!$ percent in the f irst half$

    %his appears to be a tou#h tar#et to achieve$ ,y calculation su##ests that in the absence ofadditional ta measures the 67 may collect 7s220 billion at the most' up by 1?$2 percent over

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    the last year$ %o achieve even this lo"er ta revenue tar#et' the 67 "ill have to collect 7s12billion or 1?$! percent more in the second half$

    ifth' the re-emer#ence of circular debt to over 7s200 billion "ill be another point that "ill comeup$ Bfter clearin# the circular debt "ith 7s!0 billion' the #overnment "as supposed to moveto"ards eliminatin# the sources that caused circular debt to #ro"$ %he #overnment increased thepo"er tariff by an unprecedented proportion in one #o "ithout addressin# the many loopholesthat contributed to the upsur#e in circular debt$

    or eample' little or no effort has been made to curb po"er theft' reduce technical losses'increase recovery of electricity bills (in fact' recovery has declined from percent to percent)'stop free electricity provision to .apda employees' undertake technical audit of po"er plantsand' most importantly' to chan#e the heads of ;enco and Discos$ .ithout addressin# the coreissues listed above' the unprecedented hike in po"er tariff "as bound to #ive rise to circular debt$%his "as nothin# but "ron# se:uencin# of po"er sector measures in the +, pro#ramme$

    5ith' #iven the revenue-ependiture trend emer#in# thus far' bud#et deficit may reach -$percent in the current fiscal year$ %o achieve the bud#et deficit tar#et as a#reed "ith the +, ($percent of ;DP)' the #overnment "ould have to cut the development ependiture drastically'ensure that it receives >oalition 5upport und from the H5' and mana#es to sell ; licences$ +f

    the last t"o sources of funds are not materialised' Pakistan may face serious bud#etary problemseven "ith drastic cuts in development spendin#$

    5eventh' the P5Cs continue to bleed and remain a heavy burden on the national eche:uer'destabilisin# the bud#et and addin# to public debt$ %he present #overnment has embarked on anambitious privatisation pro#ramme "hich is in dan#er and is likely to be derailed for t"o reasonsfirst' there appears to be little support for privatisation from the ma4or political parties of thecountry$ %hey "ill certainly oppose the privatisation pro#ramme$ 5econd' the #overnment itself

    "ill be responsible for its derailment$

    or eample' in an earlier article (@ctober 1' 201) + "rote very clearly that for transparentprivatisation the #overnment needs to stren#then the Privatisation >ommission by inductin#chartered accountants' le#al eperts' bankin# and financial sector eperts' etc$ %o the best of my

    kno"led#e' no efforts have been made in this direction as yet$

    + also "rote that the Privatisation 6oard must be stren#thened "ith competent and professionallyclean personalities and that the #overnment must refrain from inductin# those "ho are evenremotely ali#ned "ith the rulin# party$ @n the contrary' the #overnment appointed all those asmembers of the Privatisation 6oard "ho are politically linked "ith the rulin# party$

    o matter ho" transparent the privatisation process may be' in the presence of a politicallyconnected board' such transactions are liable to become controversial = particularly in thepresence of a vibrant media and an active 4udiciary$ %he current Privatisation 6oard must bechan#ed before any privatisation is undertaken$ .e "ill "ait for the +, to speak on this sub4ectdurin# the second revie"$

    Trans&arent &ri"atisation

    Dr Ashfaque H KhanTuesday, $anuary 2', 2014From rint !dition

    Public-sector enterprises (P5Cs) are #enerally considered inefficient all around the "orld'primarily because they serve as employment bureaus for the political leaderships that controlthem$

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    %he privatisation of these P5Cs is then considered to be the best solution under the belief that theprivate sector produces' distributes and trades #oods and services more efficiently and at lo"ercosts than the #overnment$ %he role of #overnment should' therefore' be limited to policymakin#and creation of conducive environment for businesses in the country$

    Bs part of the +, pro#ramme' the present #overnment has ri#htly embarked on a time-boundstrate#y for privatisin# ? P5Cs$ Privatisation has been the hallmark of this #overnmentsmacroeconomic policies in its earlier stints as "ell$

    .hy should these bleedin# P5Cs' like Pakistan 5teel or Pakistan +nternational Birlines (P+B) beprivatised/ +n simple lan#ua#e' these P5Cs are not only inefficient and poorly mana#ed' but are aheavy burden to the national eche:uer as "ell$ %hey are costin# 7s!00-7s00 billion annually'

    "hile at the same time destabilisin# the countrys bud#et and addin# burden to the national debt$3o" can a financially poor country like Pakistan continue to pay such a hu#e amount from thebud#et to keep these institutions afloat/

    %he issue at hand is the financial viability of these P5Cs$ >an they survive "ithout bud#etarysupport from the #overnment/ Does it make sense to add thousands of "orkers to alreadybankrupt institutions/ 5hould "e continue to oppose privatisation or restructurin# of these

    institutions/ .ill the status :uo "ork in a financially starved country/ Bnd for ho" lon#/

    +t is absolutely clear that Pakistans financial health is not in a position to support these bleedin#institutions anymore$ Pakistan needs resources for educatin# its people and providin# themhealthcare' safe drinkin# "ater' roads' hi#h"ays' electricity' and security$ Privatisation is'therefore' a necessity for prudent economic mana#ement and hence to brin# Pakistans financesin order$ %he :uestion is ho" to privatise the P5Cs in a transparent manner$

    6ased on my discussion "ith some key members of political parties opposin# privatisation' + haveinferred that the reason for their resistance is not political ideolo#y but the #overnments capacityto conduct privatise in a transparent manner$ %hey have no confidence on the capacity of thePrivatisation >ommission to undertake such lar#e-scale privatisation$ %hey have also no faith onthe ne"ly appointed members of the Privatisation 6oard to conduct privatisation in a transparent

    manner or in a manner that is free from any conflict of interests$

    3o" should "e then move for"ard/ %he #overnment may like to consider the follo"in# steps fortransparent privatisation$

    5tep 1 %he se:uencin# of privatisation has to be correct (remember "ron# se:uencin# ofpo"er-sector reforms resulted in the re-emer#ence of circular debtE "e paid 7s!0 billion tovarious private-sector po"er companies "ithout brid#in# the loopholes that #ave birth to thecircular debt)$ Bs a first step' the #overnment must stren#then the re#ulatory bodies like the 56P'epra' @#ra' P%B' >ompetition >ommission' PP7B and 5ecurities and Cchan#e >ommission

    "ith professionals' before undertakin# any privatisation$ ailure to do so "ill #ive birth to ruthlessprivate monopolies' replacin# inefficient public monopolies$

    5tep 2 %he number of units to be privatised or restructured must be consistent "ith the capacityof the institution(s) undertakin# or involved in the privatisation pro#ramme as "ell as theavailability of technically sound manpo"er to run the privatised institutions$

    5tep +t should be to us "hy "e are undertakin# the privatisation pro#ramme$ 6ecause theseP5Cs cannot survive "ithout bud#etary support' they have become a burden on the nationaleche:uer$ %herefore' "e should select those P5Cs for privatisation "hich cannot survive "ithoutbud#etary support = like Pakistan 5teel or P+B$ .hy should "e privatise @;D>9 and PP9' "hichare makin# a net profit of 7s*1 billion and 7s!2 billion' respectively (I201) and "ith acombined e:uity of 7s! billion "ith ero debt/

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    5tep ! Privatisation is a comple eercise$ +t is in this perspective that the #overnment muststren#then the Privatisation >ommission by inductin# thorou#h professionals like charteredaccountants' le#al eperts dealin# "ith the intricacies of transactions' bankin# and financialeperts' etc$ %o the best of my kno"led#e' the Privatisation >ommission is "eak and cannothandle such transactions in a professional manner$

    5tep %he Privatisation 6oard' bein# the most important component of the "hole transaction'must consist of competent and professionally clean personalities$ %he #overnment must refrainfrom inductin# personalities that are even remotely ali#ned "ith the rulin# party$ o matter ho"transparent the privatisation process may be' politically close personalities' if inducted on theboard or seen to be active behind the scenes and passin# sensitive information durin# theprivatisation process' "ill make the transaction controversial$ +n the presence of a vibrant mediaand an active 4udiciary' such transactions are liable to become controversial and hence "ill derailthe entire privatisation pro#ramme$

    3o" do "e address the issue of appointin# credible members to the Privatisation 6oard/ .emust bear in mind that the assets "e intend to sell do not belon# to any political party' ratherthese are national assets$ %he current Privatisation 6oard has already become controversial asmost of its members are associated directly or indirectly "ith the rulin# political partyE this board

    must be chan#ed before any privatisation is undertaken$

    + "ould propose the follo"in# in the lar#er interest of transparent privatisation$ .e mustreconstitute the Privatisation 6oard by invitin# t"o to three ma4or political parties to nominate oneprofessional each for the board$ %his "ill #ive them confidence and most likely they "ill notoppose the privatisation process$ .e must include a retired 4ud#e of the 5upreme >ourt asmember of the board to take care of the le#al matters$ Preferably' "e could ask the chief 4usticeof the 5upreme >ourt to nominate one 4ud#e for the board$

    .e must also include one person from the electronic or print media' "ell versed in economicmatters as a board member besides selectin# non-political professionals' successful corporateleaders' and men and "omen of inte#rity in the board$ Bnythin# short of this "ill make thetransaction controversial and derail the entire privatisation pro#ramme$

    9et us be very clear = the #overnment has no capacity to run the rotten P5Cs anymore$%ransparent privatisation is the only solution$ .e must support the #overnment in this nationalcause' provided the above steps are follo"ed$ %he #overnment' on its part' should be careful

    "hile selectin# institutions for privatisation$ >ertainly' institutions like @;D>9 and PP9 must notbe in the privatisation list$ %he #overnment can use the resources (profits and e:uity) of these t"oinstitutions to undertake various po"er-sector pro4ects$

    +t is in the interest of the #overnment and the privatisation process to keep political personalitiesout of the privatisation process$ Cven a sin#le transaction becomin# controversial "ill derail theentire privatisation pro#ramme$ .e must treat the privatisation pro#ramme as a pro#ramme foreconomic recovery and not as a party manifesto$

    The () lus status

    Dr Ashfaque H KhanTuesday, $anuary 0*, 2014From rint !dition

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    %he Curopean Hnion has #ranted the ;eneralied 5cheme of Preferences (;5P) Plus status toPakistan in December 201$ %his status is likely to increase access to the CH market throu#hduty free imports of ;5P-eli#ible products$ %he #rant of the ;5P Plus status is effective fromJanuary 1' 201!$ %his is indeed a positive development and all those "ho contributed toachievin# this status must be con#ratulated$

    %he CH is not only one of the lar#est tradin# partners of Pakistan' but is actively en#a#ed andcontributin# effectively to socio-economic development of Pakistan$ %radin# relations have'ho"ever' "eakened over the years$ @ne-third of Pakistans eports used to #o to the CH in 1**-*?$ %hese declined to one-fourth in 2000-01 and further declined to almost 10 percent by 2010-11$ %he slo"er pace of economic activities in Pakistan since 200-0 and the emer#ence of theCuropean debt crisis in the aftermath of the #reat recession appear to be the reason behind the

    "eakenin# of trade relations$

    .hile approimately 12 percent of Pakistans remittances come from the CH' forei#n investmentfrom there has declined rapidly in recent years$ Blmost percent forei#n investment ori#inatedfrom the CH in the mid-1**0s$ +t increased to ! percent in 2000-01 but declined drastically to11$ percent by 2010-11$ actors like the economic slo"do"n' less than satisfactory securityenvironment' ener#y bottlenecks' and poor #overnance since 200-0 appear to have contributedto"ards makin# Pakistan a less desirable destination for forei#n investment$

    Curopean countries introduced the ;5P in 1*1 "ith a vie" to helpin# developin# countriesdevelop and diversify their eports$ Hnder the ;5P' the Curopean countries either eliminated orreduced import tariff on specified products eported by approved developin# countries' includin#Pakistan$ %his tariff preferential re#ime has been etended to ;5P Plus throu#h additional tariffreductions to vulnerable developin# countries$ %he ob4ectives of ;5P Plus have been to assistdevelopin# countries in reducin# poverty' improvin# #overnance and promotin# sustainabledevelopment$

    %he tariff advanta#es provided by the ;5P Plus status are po"erful and must be eploited by oureporter and #overnment$ 3o"ever' they are not the only factor that can make Pakistan morecompetitive in the CH market$ %ariff preferences under ;5P Plus are sub4ect to :uantity restraintsand safe#uards$ %hese instruments are not applied to eports under , rates (more than one-

    half of all , tariff lines are set at ero percent and another one-:uarter are belo" f ive percent)$%he CH buyers' therefore' prefer imports cleared under , because they are more reliable andsustainable and are not sub4ect to :uantity restraints and safe#uards as "ell$

    Blthou#h the prospects of duty-free under the ;5P Plus access for tetile and clothin# su##estenormous scope for Pakistans eports epansion' the reality is some"hat different$ %heapplicable :uantity threshold' that is' tariff preferences are not available to a country for a product

    "hose eports eceed si percent of the CHs annual ;5P imports of that product' means thatPakistans tetile and clothin# eports "ill lar#ely remain sub4ect to , imports duties$

    %he applicable safe#uard provision under "hich tariff preferences are "ithdra"n "hen imports oftetiles increase by 1!$ percent and all other products by 1$ percent over a period of threeyears$ Bn authoritative research study has estimated that a total of &?00 million (that is' rou#hly

    &00 million in tetiles' &100 million in leather products and &200 million in all other products) canbe additionally eported to the CH at ero percent duty "ithout attractin# safe#uard action$

    ,any non-tetile products such as sports #oods' sur#ical instruments and 6asmati rice' copperand animal casin#s' already enter the CH duty free under either ;5P or , rates$ or theseproducts' the ;5P Plus tariff preferences "ill have no positive market access impact$onetheless' the #reatest scope for epansion of Pakistans eports lay "ith tetile and clothin#sector under the ;5P Plus packa#e$

    %his preferential duty re#ime "ill not suffice to secure sustainable market access to the CH$ %hey

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    are merely a catalyst$ %he #overnment and industry need to invest in hi#her technolo#y'standards compliance' certification' :uality control and packa#in#' and demand-driven output$%he ;5P Plus status "ill not be there foreverE therefore' investment must be made to make thissector competitive on a sustained basis$

    +t is also to be noted that the ;5P Plus advanta#es perceived to accrue to Pakistan may attractstron# defensive action from CH competitors like +taly' Portu#al and ;reece in tetiles and7omania in clothin#E and offensive actions from non-CH competitors like 6an#ladesh' +ndia and>hina$ 3o" to face these defensive and offensive actions "ill be a real challen#e for Pakistanand its tetile industry #oin# for"ard$

    5ome of the serious impediments to increasin# eports not only to the CH but to all markets arerisin# cost of production' lo" productivity' volatile prices of ra" materials' difficulty in achievin#the re:uired market standards' costs of certification' lack of customer confidence inconsistentlevels of :uality control and supply driven eports that are unresponsive to the CH marketdemand$ %he CH market is lucrative and hi#hly profitable' but at the same time it is also verysophisticated and competitive$ Pakistan must use its ;5P Plus advanta#es to improve upon thefactors listed above$

    %he ;5P Plus status #ranted to Pakistan is conditional on the ratification and implementation of

    2 international conventions in the areas of human ri#hts' labour standards' environment and#ood #overnance$ Bdoption of these conventions "ill assist Pakistan in inte#ratin# into the cross-border supply chain "hich "ill stren#then manufacturin# activity and further promote its eports$Pakistan has ratified almost all the conventions$ %he most critical aspect of these conventions isthat their compliance "ill be strictly monitored by the CH throu#h the unnamed third parties fromcivil society or ;@s$

    Bnother critical challen#e pertainin# to the compliance "ould emanate from the 1th Bmendmentto the constitution$ Bs a result of the 1th Bmendment' there has been a shift of po"er relevant tothe conditions of ;5P Plus = from the federal to the provincial #overnments$ .hile the federal#overnment has "orked hard to #et the ;5P Plus status and is responsible for monitorin# andreportin# of the 2 conventions' implementation of the correspondin# domestic le#islation islar#ely the responsibility of provincial #overnments' perhaps not yet ready for compliance$ %he

    federal #overnment must establish a supervisory body to coordinate "ith provincial #overnmentsin this respect$

    %he etension of the CHs ;5P preferences to Pakistan "ill certainly boost its competitiveness'but ultimately success in accessin# the CH market in #reater :uantities "ill depend on Pakistansability to meet CH consumers demand both in terms of :uantity and :uality' to increase itsproduction efficiency' to invest in technolo#ies and skilled manpo"er' and to be able to "ithstandits competitors defensive and offensive actions$

    ;5P Plus alone "ill not suffice$ %he short-term advanta#es of tariff preferences under ;5P Plusmust "isely be invested for lon#-term #oals' not short-term profit$

    To the go"ernment

    Dr Ashfaque H KhanFriday, $anuary 0+, 2014From rint !dition

    + am happy the #overnment issued a rebuttal in this ne"spaper' throu#h a letter to the editor' tomy column' A5tatistical issues revisited (December 2!)$ +n response' + "ould like to make threepoints$

    irst' + "rote t"o articles (December 10 and 2!) on statistical issues$ +n my first article' + had

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    hi#hli#hted various distortions created by Pakistan 6ureau of 5tatistics (P65) pertainin# to datafor national income accounts' inflation and unemployment$ %he distortions in national accounts

    "ere created as a result of rebasin# the ;DP from 1***-2000 to 200-0?' as "ell as chan#in#the measurement from 5ystem of ational Bccounts (5B) 1** to 5B 200$

    + ar#ued that' "hile these eercises are hi#hly technical in nature' little or no consultation "asmade "ith the users of these statistics or "ith those "ho have an understandin# of it$ Cven theofficials of the #overnments key economic ministries "ere kept in the dark$

    +n their rebuttal' the #overnment failed to respond to the issues raised in my December 10 article$%hey only pointed out that Fthe procedures

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    %hey never intended to release the numbers since the "ork is in pro#ress$ 6ut' someho"' thesenumbers found their place in print and electronic media and our political leadership startedo"nin# them$ %he P65 should not have presented the "ork-in-pro#ress-numbers to the financeminister$ +n doin# so' they have put the minister and other political leadership in an a"k"ardposition$

    + "ould once a#ain ur#e the finance minister to form a hi#h-level technical committee ofprofessional economists' statisticians' academicians and users of these statistics to thorou#hlyeamine these statistics and methodolo#ies$ %he finance minister should also seek assistancefrom the H 5tatistical @r#anisation to assist the committees "ork$ %his "ill be a #reat service tothe nation$

    !ternal "ulnerabilities

    Dr Ashfaque H KhanTuesday, December +1, 201+From rint !dition

    %he li:uid forei#n echan#e reserves of the 5tate 6ank of Pakistan stood at &$1* billion durin#the "eek endin# on December 20' 201$ %he 56Ps fore reserves declined by &2 millioncompared to the previous "eek (December 1' 201) on account of eternal debt servicin#includin# a payment of & million made to the +,$ %he purpose of this article is to see "herePakistan is likely to be by end-,arch 201! in terms of fore reserves$

    Pakistan has lost some &12 billion fore reserve since July 2011' "hen they stood at &1!$ billion$+t has lost &2$0 billion reserve since the si#nin# of the +, pro#ramme$ %he last five years ofeconomic mismana#ement brou#ht the country to the ver#e of default$ %he present #overnmentsou#ht the assistance of the +, to prevent that$ %he +, approved a ne" pro#ramme amountin#&?$? billion on 5eptember !' 201$

    %he +, pro#ramme "as epected to bolster market confidence' open the door for eternalinflo"s from other sources' help build forei#n echan#e reserves and prevent the country fromdefaultin# on its eternal payment obli#ations$ Disappointin#ly' the ne" +, pro#ramme has notimproved anythin# on the #round "ith the eception of preventin# Pakistan to default$ %hispro#ramme has failed to restore market confidence or build fore reserves = in fact it hasdeclined by &2$0 billion$ %he threat of default continues to loom lar#e$ +n short' Pakistan remainseven more vulnerable today than it "as prior to the pro#ramme' despite the #overnment takin#some unpleasant decisions to meet the pro#rammes re:uirements$

    %he overall balance of payments position has deteriorated durin# the first five months (July-ovember) of the current fiscal year as compared "ith the correspondin# period of the previousfiscal year$ %he current account deficit has "idened to &1 million as a#ainst &?! million in thesame period last year$ urthermore' the deficit "as ! percent hi#her than the +, pro4ection of

    &11 million for the entire fiscal year$

    %his "as nothin# but a deliberate attempt on the part of the +, to understate the deficit to sho"a lo"er financin# #ap and build a case for smaller tranches$ +t is this smaller tranche that hasemer#ed as the principle source of deterioration of Pakistans balance of payments and thus ama4or source of its vulnerabilities$

    .hy has Pakistans balance of payments deteriorated so much/ Cports have contracted byalmost one percent durin# the first five months (July-ovember) of the current fiscal year$+mports' on the other hand' have #ro"n by three percent durin# the same period$ Bs a result of

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    these developments' the trade balance deteriorated by nine percent and current account deficitstood at &1 million durin# July-ovember 201 as a#ainst &?! million in the same period lastyear' implyin# a deterioration of 1 percent$

    7emittances are an important component of the current account balance' "hich has been#ro"in# at a hi#h double di#it rate until the last fiscal year$ ,y vie" has al"ays been that this "asnot remittances alone but contained the re-routin# of ille#ally ac:uired money as "ell$7emittances have no" returned to normal #ro"th and are contributin# positively in keepin# thecurrent account deficit lo"$

    Pakistans current account deficit is lo" by normal standards and does not pose any seriousthreat to the economy$ %he capital and financial accounts have emer#ed as a serious threat tothe overall balance of payments' "hich remained in deficit at &20 million$ %his deficit has beenfinanced by dra"in# do"n forei#n echan#e reserves$

    orei#n investment' a ma4or component of non-debt creatin# inflo"s has not sho"n any si#ns ofimprovement durin# July-ovember' 201 despite an a##ressive campai#n from the politicalleadership$ et forei#n investment has declined by 1 percent to &** million compared "ith&!? million in the same period last year$

    5o "here do + see our forei#n echan#e reserves by end-,arch 201!/ ore reserves stood at&1* million on December 20' 201$ Pakistan received &! million on December 2 after thesuccessful completion of the first revie" and in the meantime made yet another paymentamountin# &1! million to the +, on December 2$ %his leaves net fore reserves at &$? billionby end-December 201$

    Pakistans overall balance of payments has deteriorated at an avera#e rate of &!00 million permonth over the last five months$ Bssumin# the same trend continues durin# January-,arch 201!'depletion of reserves to the etent of &1$2 billion may be epected$ %he country "ill also bemakin# a payment of &?!0 million to the +, durin# January-,arch 201!$ 3ence by end-,archthe fore reserve is likely to stand at &1$? billion$

    .hat are the possible sources of inflo"s durin# January-,arch 201!/ %hey may include the

    >oalition 5upport und (>5) amountin# &?00 million' Ctisalat makin# payment to Pakistan to theetent of &00 million' sale of ; licences materialisin# and &1$2 billion bein# deposited in the#overnments account' Pakistan successfully floatin# a soverei#n bond amountin# &00 million'the #overnment borro"in# &20 million from a consortium of forei#n banks led by >redit 5uisse'and the +, releasin# &0 million after the successful second revie" of the pro#ramme$

    .hat are the chances that these inflo"s "ill materialise durin# January-,arch 201!/ %he >5and Ctisalat money are not epected to be achieved$ %he finance minister' "hile talkin# aboutbuildin# fore reserves a fe" days back' did not mention these t"o sources of inflo"s$ %heprobability of the sale of ; licences materialisin# is very lo" and even if it is materialised' thedesired amount (&1$2 billion) may not be available to Pakistan$

    Bs far as soverei#n bond is concerned' Pakistan may successfully float durin# the current fiscal

    year but there is lo" probability that it can be materialised durin# January-,arch 201!$ inally'the country is most likely to borro" &20 million from the >redit 5uisse-led forei#n bankconsortium and the +, releasin# &0 million after the second revie"$

    6ased on the above analysis' Pakistan may #et about &1$0 billion from different sources "hich"ill take the countrys fore reserves to &2$ billion by end-,arch 201!$ .ith the lo" level ofreserve' the echan#e rate may remain under pressure in the January-,arch 201! period$

    .hat needs to be done/ %he first thin# Pakistan must do is en#a#e "ith the +, to increase thesie of the upfront payment$ %he countrys vulnerability to the fore crisis is due mainly to the

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    repayment of the +, loan$ Bn upfront payment of &2$0 billion may substantially ease pressure onthe reserves$ 5econd' the country needs to compress its imports by cuttin# non-essential importsby raisin# duty or cash mar#in re:uirement$

    %hird' "e need to a##ressively pursue a privatisation pro#ramme to attract non-debt inflo"s$ourth' the country needs to attract forei#n investment throu#h a##ressive marketin#$ %hefinance minister is makin# an effort to build fore reserves$ 3e needs to redouble his efforts$

    )tatistical issues re"isited

    Dr Ashfaque H KhanTuesday, December 24, 201+From rint !dition%his article is in continuation of my previous article' A5tatistical issues (December 10)' in "hich +had hi#hli#hted various distortions created by the Pakistan 6ureau of 5tatistics pertainin# to datafor national income accounts' inflation and unemployment$

    ,y analysis indicated that somethin# has #one "ron# "ith Pakistans key macroeconomicstatistics and + had ur#ed the finance minister to form a hi#h level committee of professionaleconomists' statisticians and academicians to thorou#hly eamine the measurement of thesestatistics$ + had also su##ested that the #overnment must re:uest international a#encies like theH to send their eperts to assist the committee$

    +nstead of addressin# these issues by formin# a hi#h level committee' the #overnment createdfurther confusion by releasin# :uarterly estimates of the ;DP "hich su##est that it has #ro"n by$1 percent in the first :uarter (July-5eptember) of the current fiscal year over the correspondin#period of last year$

    Blthou#h no one kno"s ho" the P65 estimated $1 percent ;DP #ro"th in the first :uarter'

    sources in the P65 su##est that a#riculture "as up by 2$ percent' and industry and services#re" by $1 percent and $ percent' respectively$ +t is important to kno" that the :uarterlyestimates of the ;DP have not been approved by the competent authority = the ational +ncomeBccounts >ommittee$ %he P65 cannot "ait till the end of the fiscal year to #et its approval$Kuarterly accounts re:uire :uarterly approval before their release$

    %here is no "ay to check the authenticity of the :uarterly estimates$ Bn attempt is made'nevertheless' to calculate the first :uarter ;DP on the basis of available information and incooperation "ith 67 7esearch$ %hree thin#s need to be noted$ irst' measurin# :uarterly ;DPthrou#h the production approach is hi#hly risky o"in# to the fluctuations in a#ricultural value-added$ 3ence' a better "ay to measure :uarterly ;DP is throu#h the ependiture approach$

    5econd' it is "ell kno"n that #ro"th in services sector is a derived demand = derived out of the

    activities in a#riculture and industry$ %herefore' #ro"th in services is most likely to fall in bet"eenthe #ro"th rates of a#riculture and industry$ Data from the last seven years indicate the same"ith the eception of the last t"o years$ +nterestin#ly' the estimates as reported by the#overnment sho" hi#hest #ro"th for services follo"ed by industry and a#riculture in the first:uarter$

    %hird' the #ro"th rate for lar#e-scale manufacturin#' as released by the P65' sho"s a #ro"th of12$ percent in 5eptember 201 and $! percent durin# the first :uarter$ 5uch Aimpressive #ro"this based on apparently fictitious #ro"th in the production of several items of the sector$ oreample' ve#etable #hee re#istered a #ro"th of 11 percent' foot"ear (!?$1 percent)' deep

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    freeers (222 percent in 5eptember and 100 percent in first :uarter)' air-conditioners (2!percent in 5eptember and 10 percent in the first :uarter)' %L sets (?$! percent)' diesel oil (1percent)' to mention a fe"$ >an anyone believe these numbers/

    Bn attempt is made to calculate ;DP for the first :uarter usin# ependiture approach incooperation "ith 67 research$ %he ;DP throu#h ependiture approach consists of private and#overnment consumption ependitures' private and public sector investment plus chan#es ininventories' and eports and imports of #oods and services$ Cports and imports of #oods andservices are measured by the P65 as "ell as by the 5tate 6ank of Pakistan$

    .e have taken the numbers that #ive better #ro"th$ or eample eports of #oods and servicesas reported by the P65 sho" a ne#ative #ro"th of ?$1 percent in the first :uarter as compared

    "ith the ne#ative #ro"th of 11$ percent reported by the 56P$ .e have taken the number of theP65 "hich sho"s a lesser decline$ 5imilarly' imports of #oods and services as reported by theP65 sho" a decline of 2$2 percent as a#ainst a positive #ro"th of $ percent released by the56P$ .e have taken the 56P number "hich reports positive #ro"th$

    @n the investment side' "e have used the federal and provincial public sector developmentpro#ramme (P5DP) as released by the ,inistry of inance (see iscal @peration Data) for#overnment investment$ ederal and provincial P5DP are do"n by $2 percent and ?0$ percent

    respectively durin# the first :uarter$ %otal P5DP therefore sho"s a ne#ative #ro"th of !$percent$ .hen ad4usted for inflation ($1 percent) to arrive at real #overnment investment' #ro"thrate turns out to be a ne#ative !2$! percent$

    or private investment in o"nership of d"ellin#s' "e have used the sales

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    %he P65 has done a #reat disservice to the #overnment' the finance minister and prime ministerin particular$ %hey should not have presented the numbers to the finance minister "ithoutpresentin# them before the technical committee as "ell as the ational Bccounts >ommittee$ +nso doin#' they have put the finance minister and the prime minister in an a"k"ard position$

    %here is no doubt that the f inance minister is makin# serious efforts to revive the economy butthis process takes time and depends on a series of structural reforms$ .hat is re:uired is hard

    "ork and patience$

    )tatistical issues

    Dr Ashfaque H KhanTuesday, December 10, 201+From rint !dition

    5tatistics speak all lan#ua#es' affect all policies and touch all aspects of peoples lives$ %he

    si#nificance of critical statistics for policymakers cannot be overemphasised$ +n recent years'si#nificant chan#es have taken place in Pakistans statistics "hich have not only distorted somekey macroeconomic statistics but made researchers lives miserable$ 5uch distortions need to beunderstood and addressed ur#ently$

    ational income accounts' employmententral 6ank "ere out of the picture durin#the "hole eercise$ %hey only came to kno" about the chan#e "hen the results of this eercise"ere presented to them$

    5uch an eercise has created enormous difficulties for researchers and has at the same timeposed challen#es for policymakers$ %he reliability of the data has become a serious issue$ %hereeist no consistent time series data for national account prior to 200-0?E hence no meanin#fuleconomic research could be undertaken$ Cvery researcher #enerates his

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    committee of professional economists' statisticians' academicians and the users of thesestatistics to thorou#hly eamine these statistics' the "ay they are measured and compiled andthe technical capabilities of the P65$

    %he finance minister must re:uest the +, to send eperts from its 5tatistics Department to assistthe hi#h level committee in its "ork$ %he sooner' the better$

    Declining fore reser"es

    Dr Ashfaque H KhanTuesday, December 0+, 201+From rint !dition

    Pakistans total li:uid forei#n echan#e reserves stood at &$ billion on ovember 22' 201 of"hich the 5tate 6ank of Pakistan and commercial banks accounted for &$!? billion and &$billion' respectively$ >ommercial banks forei#n echan#e reserves are essentially the deposits ofboth residents and non-residents under the C >ircular o 2$ %hese reserves are' therefore' not

    usable by the #overnment for balance of payments purpose$ 3o"ever' trends in the commercialbank reserves did convey some messa#es for the state of the economy$

    %he 56Ps forei#n echan#e reserves declined to a dan#erously lo" level of &$!? billion onovember 22' 201$ Pakistan also made a payment of &*? million on ovember 2?' 201 to the+,$ +f this payment is accounted for' it "ould mean that the 56Ps forei#n echan#e reservesstood at a mere & billion by end-ovember 201$ %his is the lo"est level of reserves of thecountry in the last t"elve years and is sufficient only to finance three "eeks of import$

    Pakistans forei#n echan#e reserves have been on the decline since July 2011 "hen they stoodat &1!$ billion$ Pakistan has lost &12$0 billion reserves in 4ust 2* months = by end-ovember201$ +t has lost &2$2 billion reserves in 4ust four months (since July 201) and &1$ billion sincesi#nin# the +, pro#ramme$ %he country is scheduled to pay another &200 million to the +, in

    December' 201 and &1$2! billion durin# January-June 201!$ Hnless massive inflo"s are in4ectedfairly soon' "e may "itness a currency crisis in December 201$

    .hy has the country landed in such a vulnerable situation/ 5ta#nant eports' declinin# forei#ninflo"s o"in# to the suspension of the previous +, pro#ramme in ,ay 2010' rapidly declinin#forei#n investment' little or no privatisation proceeds' failure on the part of the #overnment toraise dollars from international debt capital market and declinin# #rant assistance are theprinciple reasons for the rapidly declinin# forei#n echan#e reserves$

    ,oreover' risin# debt repayments and #ro"in# imports in con4unction "ith the fact that Pakistanis continuin# to finance all its eternal payments out of its o"n reserves have also contributed tothe sharp decline in reserves$ 7apidly depletin# reserves create nervousness in the market andencoura#e capital fli#ht' "hich' in turn' puts do"n"ard pressure on the echan#e rate$ %he

    Pakistani rupee' accordin#ly' has lost almost 1 percent of its value a#ainst the dollar since July2011$

    ;iven the state of the economy that evolved over the last five years' Pakistan reached the brinkof defaultin# on its eternal debt repayment obli#ations by June 201$ %he ne" #overnment hadlittle or no choice but to seek yet another +, pro#ramme to prevent the country from defaultin#on its eternal debt payments$ %he +, approved a ne" pro#ramme amountin# &?$? billion on5eptember !' 201$

    +t "as epected that the ne" pro#ramme "ould bolster market confidence' help build forei#n

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    echan#e reserves' prevent the country from defaultin# on its eternal payment obli#ations' andopen the door for eternal inflo"s from other sources$

    othin# has been achieved thus far from the pro#ramme$ +t has failed to bolster marketconfidence and forei#n echan#e reserves have declined to a t"elve-year lo"E the country hasreached dan#erously close to default' and has failed to brin# inflo"s from other sources as "ell$Pakistan remains as vulnerable as it "as prior to the pro#ramme$

    +t is in this perspective that this columnist and other commentators have been hi#hli#htin# the"eaknesses of the current +, pro#ramme$ @ne of the key "eaknesses is the sie of the releaseof tranche itself$ Pakistan has received &! million as the first tranche of the pro#ramme in5eptember but repaid about &* million to the +, durin# the period' implyin# a net outflo" of&!2 million$

    +t appears the +, "as more interested in securin# its o"n outstandin# loan by releasin# littleresources and encoura#in# other multilateral development institutions to lend to Pakistan so as toenable it to continue to repay the +, loan$ %he +, deliberately understated the current accountdeficit to sho" a lo"er financin# #ap to build a case for smaller tranches$

    %he +, pro#ramme is also desi#ned in such a "ay that it forces the 56P to purchase dollars

    from the market and borro" from "hatever sources it can' "ith a vie" to buildin# its forei#nechan#e reserves and continuin# to repay the +, loan on time$ +n the "ords of Dr ,uhammadIa:ub' former #overnor of 56P' this is nothin# but a Fself-servin# pro#rammeG$

    Pakistans forei#n echan#e reserves "ere already on the decline and it continues to follo" thesame tra4ectory even "ith an +, pro#ramme$ +snt that stran#e/ +s this the "ay the +, providesfinancial support to its member states/ 5uch a self-servin# pro#ramme "ill cause more harm tothe economy and the people rather than benefittin# the country$

    .hile the countrys forei#n echan#e reserves are declinin# rapidly and reachin# a dan#erouslylo" level' commercial bank reserves have been risin# steadily in recent years and reflectin# the#ro"in# dollarisation of the economy$ >ommercial bank reserves "ere only 1$2 percent of the56Ps reserves in 200?-0$ %hey increased to !1$ percent in 2011-12' accelerated to $!

    percent in June 201 and reached 1! percent on ovember 22' 201$ .hile Pakistan has lostalmost &12 billion from its reserves since July 2011' commercial banks on the other hand have#ained almost &2 billion in their reserves$

    %he pace of dollarisation has #athered momentum in recent months as people are losin#confidence in their o"n currency$ %he epectations of further depreciation of the rupee areencoura#in# people to hold more dollars$ %he #overnment needs to restore the confidence of thepeople on its o"n currency by minimisin# its recourse to printin# money$ %his is not happenin# atthe moment$ %he #overnment has borro"ed 7s1 billion in 11 days of the current fiscal year or7s$ billion per day or 7s2* million per hour$ 5uch a pace of borro"in# is bound to "eakenthe confidence of the people in the rupee$

    %he #overnment should take the matter seriously$ %here are people sittin# in the 56P "ho

    mis#uided the previous re#ime and are doin# the same "ith the present one by ar#uin# that thereis Ano forei#n echan#e crisis in the country$ 5uch statements are not in the interest of thecountry$ %he fact is that our forei#n echan#e reserves have declined to & billion by the end ofovember 201$ o one can deny this fact$ %his is a dan#erous situation and needs the#overnments ur#ent attention$

    + "ould ur#e the prime minister to take the economy seriously' stren#then the #overnmentseconomic team' ask them to take another look at the +, pro#ramme and listen to the people

    "ith kno"n credentials$ Bre "e "aitin# to taste the flavour of bein# a bankrupt nation/ 5omecountry or institution may come for"ard to bail us out but at "hat cost/

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    The Human -a&ital DebateDr Ashfaque H KhanTuesday, .o"ember 2/, 201+From rint !dition

    %he Population Bssociation of Pakistan' in collaboration "ith the ational Hniversity of 5ciencesand %echnolo#y (H5%)' or#anised a t"o-day conference "ith the theme' APopulation e"7ealities and >hallen#es for 3uman Development on ovember 20-21' 201$

    %he conference "as held at the H5% campus in +slamabad and "as attended by senior#overnment officials' eminent social scientists' parliamentarians' representatives of ;@s andcivil society' demo#raphers' and faculty and students of H5%$ %his "as the second conferenceof its kind' held durin# the last three "eeks' on the broader areas of human developmentor#anised by H5% = reflectin# the universitys commitment to"ards human development inPakistan$

    %he purpose of this conference "as to sensitise the countrys political leadership and senior

    #overnment officials on the challen#es and opportunities that lie ahead on account of the risin#population$ +t is "ell-kno"n that a stron# human capital base makes a country more prosperousEthe concept of human capital is thus more relevant to a labour-surplus country like Pakistan' as itis endo"ed "ith more labour o"in# to the hi#her population #ro"th rate$ %he surplus labour ofPakistan is its human resource "hich can be transformed into human capital "ith effective inputsof education' health and moral values$

    Pakistan is a relatively youn# country "ith nearly 0 percent of its population belo" the a#e of 20years$ Pakistans population at the time of independence "as millionE by mid-201' thepopulation is estimated to have reached 1! million$ %herefore' in rou#hly t"o #enerations'Pakistans population has increased by 10 million' "hich means it has #ro"n at an avera#e rateof 2$? percent per annum$ +nterestin#ly' Pakistan adds one e" Mealand to its population everyyear and one Bustralian in every five years$

    6y 200' Pakistans population is likely to increase to 0 million from the current level of 1!million' of "hich over 2 million "ill be of "orkin# a#e (1-?! years)$ ,ost importantly' Pakistanhas over a hundred million youth today and this number "ill keep on risin# as "e move for"ard intime$ Pakistan stands to benefit from its lar#e population' provided that it transforms them intoproductive citiens by investin# in education and health (popularly kno"n as the demo#raphicdividend)$ Pakistan stands to lose enormously if it fails to invest in its people because the lar#epopulation' particularly the youth' "ill then serve as hi#h-octane fuel' i#nitin# repeated cycles ofsocial and political instability (popularly kno"n as demo#raphic disaster)$

    ;iven its current demo#raphic structure' investin# in people = in education and health = isnecessary for Pakistan$ Cducation develops the capacity in a country to absorb technolo#y andhealth is essential for increasin# productivity$ +t has been observed empirically that countries that

    invested heavily in people and built a stron# human capital base have "itnessed rapid economic#ro"th and prosperity (Cast Bsia as an eample)$

    +t has also been observed that the causality bet"een prosperity and human capital indices runs inboth directions$ .ith hi#her income' people and the #overnment can afford to spend more oneducation and health' thus improvin# human capital "hich leads to hi#her productivity and moreincomes$ 6etter :uality of education and health services are also essential for empo"erin#people' enhancin# resilience to "ithstand adverse shocks' and reducin# vulnerabilities$

    6uildin# human capital base alone is not enou#h$ %he countrys macroeconomic policies should

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