Window of opportunity

AT its annual meeting in Madrid the other day, the Asian Development Bank (ADB) promised to provide two billion dollars in loans in 2008 and 2009 to finance agricultural infrastructure projects such as rural roads and irrigation systems to help boost farm output in countries that already had a large food deficit. The bank has promised one billion dollars to Pakistan as disbursement in 2008 of existing loans. Earlier, the Islamic Economic Forum held in Kuwait late last month saw the host country announcing a contribution of $100m to a fund created to provide staple food to needy Islamic countries and also to finance efforts to increase crop productivity across the Muslim world. Kuwait also asked other Muslim countries, organisations and associations to contribute generously to the fund.

The World Bank at its last annual meeting made similar commitments. These offers of concessional assistance have opened a new window of opportunity for Pakistan that is facing the prospect of coping with high food prices while millions of its citizens are already going hungry. Let us chalk out as soon as possible a comprehensive, technically viable and bankable plan to qualify for this assistance. At the same time, Islamabad should also prospect the world for foreign direct investment in the country’s agricultural sector, ensuring that such investment would bring along with it new technologies for boosting crop production with efficient use of inputs. And in the interim, as the country returns to normality on the food front, targeted interventions to protect the most vulnerable should be undertaken.

Being essentially an agricultural country we were more than self-sufficient in food crops at the time of independence. But soon the country’s ruling elite, unwilling to pay taxes, found an easy way out to balance the budgets with quick cash made available under US aid from the proceeds of the PL480 wheat sold cheaply in Pakistan. This made our farmers lose interest in growing food grains. And by the late 1950s, Pakistan had become a net food importer. In the mid-1970s, after the introduction of structural reforms in the agricultural sector the situation began to be reversed. But by the late 1980s, depleting irrigation water supplies and stagnant per acre yield plus the massive subsidies being given to their farmers by rich countries began once again limiting Pakistan’s ability to produce enough food. Now from the disturbing development of worldwide food scarcity and the subsequent offers of multilateral assistance to help food-deficit countries has arisen an opportunity for Pakistan to regain its lost status as a major food grower. Indeed, with the right kind of investment in the right kind of crops with adequate supply of quality inputs including irrigation water in the right quantity it should not take long for Pakistan to produce even exportable surpluses in food grains.

Disaster in Gaza

THE humanitarian disaster in the Gaza Strip does not appear to be Ms Condoleezza Rice’s concern. On her current visit to Israel, the American secretary of state focused on the situation in the West Bank and asked the Zionist state to ease movement restrictions by removing the more than 500 checkpoints that have stymied Palestinian life in the occupied territory. Israel has recently removed 50 roadblocks, but UN officials say they are of no consequence. While Ms Rice said the Palestinians should tackle the responsibility for security in the West Bank themselves, the situation in the Gaza Strip worsened as the UN announced that it had halted food supplies to the territory because it had run out of fuel owing to the Israeli blockade.

Despite Ariel Sharon’s ‘disengagement’ stunt in August 2005, the Gaza Strip remains for all practical purposes occupied. All land, air and sea exits are controlled by Israel, and every now and then Israeli troops and tanks intrude into the territory or launch air strikes that mostly kill innocent civilians, including women and children. Ms Rice’s indifference to the Gazans’ misery stems from the fact that the Strip is Hamas-ruled. There is, however, a big catch. The 2006 election gave Hamas a majority not only in Gaza but in the West Bank, too. However, this elected government was never given a chance by the US, Israel and the European Union governments to settle down and work for peace. The greater fault lay with the Palestinians themselves, for Fatah and Hamas were not able to develop a modus vivendi. Even the government of national unity brokered by Saudi Arabia collapsed, and the two continued to fight pitched battles, leading to the ‘conquest’ of Gaza by Hamas last summer.

Regrettably, President Mahmoud Abbas, instead of effecting a rapprochement, sacked the Hamas government, appointed an independent leader as prime minister and by decree did away with the need for the premier to take a vote of confidence from the Hamas-majority parliament. Since then, Gaza and the West Bank have existed as two independent units to Israel’s delight. To expect the US to be serious about starting a new round of peace talks between Tel Aviv and the Abbas government is to be naïve. The situation suits the Palestinian people’s enemies ideally, and there is no possibility that Israel will ever stop building new settlements or expanding the existing ones. In the meantime, the Annapolis document, which visualises the emergence of a Palestinian state by the end of this year, has turned into a big joke.

Loan sharks on the march

THAT usurers are heartless is stating the obvious. They are in their business because they have the cheek to make money out of the helplessness of others. It is also not without reason that the worst of them are called loan sharks — willing to resort to violence to get their loans paid back. But holding small children to ransom for their parents’ folly of approaching a loan shark beats even the most callous of them all. The moneylender in Mianwali who advanced the princely sum of Rs8,000 to a hapless farmhand had scant regard for the innocence of the two small girls he held hostage for their father’s failure to return the loan. It, therefore, comes as a great relief that the police decided to intervene when we reported this case and the moneylender was picked up and the children returned to their family. It is also reassuring to discover that humanity is not dead in our society. The response from the public offering to repay the loan and have the girls released was overwhelming.

Mianwali’s loan shark, who has been arrested, should be charged with abduction, illegal detention and harassment. He violated the provisions of a law that the Punjab government passed only last year against private moneylenders operating without official permission and charging more than government-sanctioned interest rates. The government also needs to act against concerned police officials for turning their backs on a crime against helpless children by describing the issue as a dispute between two private parties, which it is not. This is a case of bonded labour which has been banned by law in Pakistan. It is another thing that this horrendous practice continues unabated in Pakistan — in the brick kilns of Punjab and farms in Sindh where entire families are bonded for the sin of taking a loan that never gets repaid because the interest multiplies by leaps and bounds. It is time the case of the little girls was made an example to warn usurers that their days of making cheap money are over.

The mistakes that were made

SOME of us had repeatedly questioned the claim of the previous government that it had put the economy on a high-growth trajectory and that the economy would remain on that track for many years to come.

In spite of our doubts, we did not think that the economic situation would unravel so quickly; that the transition from a sense of great achievement to one of utter despair would happen in about a year.

In March 2007, the Newsweek published a story applauding Pakistan’s economic performance. Another sleeping economic giant was waking up in Asia, said the magazine. Now just over a year later, the economy is in deep crisis. What went wrong?

More than one thing went wrong. The policymakers did not really have a strategy. They made many mistakes. I will discuss three of these today. The first was to unquestioningly follow the advice of the IMF and adopt a sequential approach to economic management.

In the three-year period between 1999 and 2002, Islamabad applied breaks to the economy although in terms of the growth rate it was not charging ahead. The economy then was in a bad shape in large part because of the hard sanctions that had been imposed on the country after the decision to carry out nuclear tests in May 1998. The resulting contraction in the flow of external finance created serious imbalances. Had the imbalances been allowed to persist, the economy would have spun out of control. There was no doubt that serious adjustments needed to be made to public policy.

Accordingly, when a new set of political masters took the reins of government in 1999, it decided to seek support from the IMF which always comes with a number of strings attached. The Fund wanted economic balance to be restored by severely restricting government spending and by using a tight monetary policy to reduce demand. This is standard Fund advice — but it is negotiable.

When Pakistan chose to follow the IMF advice, I was at the World Bank responsible for that institution’s programme in Latin America and the Caribbean. Colombia was one of the many countries for which I had responsibility at the Bank. It too was negotiating with the Fund and that country’s finance minister approached me for advice. I told the Colombians to go to the Fund after developing a strategy of their own.

Armed with a strategy that put emphasis on controlling current expenditures while preserving public sector outlays on social programmes and continued care for the poor, the Colombians went to the Fund and were able to negotiate a programme that did not sacrifice their main economic objectives.

Pakistan’s approach to the Fund was entirely passive. The IMF dictated and the Islamabad policymakers took note. They walked away with a condition-rich and resource-rich programme aided by the Fund. The result was a three-year period characterised by painfully slow growth, increasing poverty and a poorly performing export sector. In 2003, Islamabad changed course and decided to lift its foot from the break-pedal and put it on the accelerator.

Experience has taught us one important lesson. It is never healthy to jolt an economy; to break it hard or to accelerate it rapidly. Jolts hurt and what happened to the economy after 2003 was expected. Even then had the economic managers developed a strategy to bring growth back to the economy, today we would not be watching a disaster unfold. This was Islamabad’s second mistake.

Encouraged by the sharp reduction in the burden of debt which reduced interest payments by the national exchequer, policymakers went on a spending spree. ‘Fiscal space’ became a favourite term in Islamabad as all kinds of expenditures increased. Increases in outlays on social sectors and infrastructure were justified but not a sudden spurt in spending on frivolous activities.

Senior government officials visited scores of countries, accompanied by large entourages. Dozens of heavy, bulletproof cars were imported in the name of security. The new prime minister brought into office a cabinet that had more than five dozen ministers. New office buildings were ordered for the ever-expanding federal government in Islamabad. Pakistan behaved as if it had found an oil gusher without oil; it behaved like a country in the Middle East.

If Islamabad had cared to strategise, it would have realised that a growth spurt increases all manner of demands, especially for energy. Once again we know from experience that the ratio of increase in the demand for energy to the rate of increase in GDP is well above one.

If growth is led by more energy-intensive sectors as was the case in Pakistan, the demand for electricity would increase at a rate 50 per cent higher than that of GDP growth. A rate of GDP increase of seven per cent a year would produce an increase in energy demand of more than 10 per cent per annum. No such calculations were made and, in their absence, no plans were made to increase the supply of power. The result, not unexpectedly, was widespread load-shedding.

In Lahore, where I am these days, power goes six to seven times a day, each time for an hour. There is an incalculable loss in productivity and a calculable loss in total output. I would not be surprised if the loss in output is of the order of one per cent of GDP in the current financial year.

The third mistake by Islamabad was to allow an increase in demand for consumer durables. Most of these were imported or made from imported parts. A significant number of these were financed by the banking system.

For the banks, financing automobiles, motor-bikes, air-conditioners, refrigerators and freezers was an easier undertaking than financing investment. Interest rates were high, the deposit rate remained low. The banks made large profits and, as shown by the performance of the Bank of Punjab, some of them became careless. Not much ‘due diligence’ was done by the banks. Islamabad stood silently by as consumer demand for expensive items of consumption exploded and put additional burden on energy supply and the balance of payments.

In sum, what we are seeing today is the product of many mistakes Islamabad made in the 1999-2002 period. I have counted three of these but there were several more. The new government has been forced to take actions that can’t be popular with the citizenry. But they are necessary. However, learning from past experience, this adjustment must be part of a well-thought-out strategy that does not squeeze growth out of the economy and hurts the poor.

Measures to save energy

THE power crisis that has hit Pakistan does not have any quick solution. Power plants in the pipeline will be commissioned later next year at the earliest. In two to three years, the problem could become less severe if the right steps are taken at this stage. As in other areas, the government’s incompetence and utter failure to carry out its responsibilities in the last so many years is evident in the current electricity crisis.

In the short term, one can only talk about the management of the crisis. Energy conservation is the best way of managing and mitigating the adverse effects on the socio-economic sector. More importantly, energy conservation can also help to ensure a sustainable future for Pakistan. The conservation of energy has to focus on both, a behavioural change towards power consumption and technological upgrades. The latter is generally out of reach for most people as apart from the cost factor it requires reliable information, standardised products and a developed market.

The domestic sector consumes almost half the supplied electricity. A significant portion of this consumption involves lighting. Street and outdoor lighting consume a large share. Air-conditioners, refrigerators and entertainment-related equipment are among the major consumers.

Incandescent bulbs have been the main choice in domestic lighting for reasons of economy. Fluorescent tube lights have traditionally been thought of as an energy-saving option. They are widely used in the urban areas of the country. Fluorescent tube lights do consume less power than incandescent bulbs (they emit the same amount of light) although the quality of magnetic ballast used with fluorescent tubes is often ignored in the context of consumption.

Magnetic ballasts, operating with a 40W tube, consume an additional 10-40W. Solid-state (electronic) ballasts are efficient (consuming two watts approximately), noiseless and flicker-free. If used with fluorescent tube lights, they are as energy-efficient as compact fluorescent lights (CFL or energy-saving bulbs). But electronic ballasts for tube lights did not succeed in the market due to their higher price, lack of promotion and low quality of the products. CFL are essentially compact tube lights with integrated electronic ballasts.

Prime Minister Yusuf Raza Gilani in his inaugural speech announced the free distribution of 10 million CFL. Many experts were sceptical about the idea of free distribution. Apart from fears about corruption and theft, the concern was that many low-income households could have opted for selling CFL. In a household with consumption of less than 50 units, a replacement would only save seven rupees a month on the electricity bill. It was recently announced that the free distribution plan has been abandoned. The alternate proposal is to sell the bulbs to consumers on installments. A maximum of six CFL would be sold per household on monthly installments. Consumers would pay back through the electricity bills. Only charitable institutions would receive bulbs free of cost.

Energy-saver distribution will make a small impact on total energy consumption. As a rough calculation, let us assume that all 10 million energy-saving bulbs (of 18W) get properly distributed and replace incandescent bulbs of 40, 60 and 100W in equal proportion. With an average usage of four hours a day, the total daily energy saving will be 1.9GWh, which is only 0.4 per cent of the average daily electricity consumption. Realistically, power saving will be around 25MW, which is only 0.13 per cent of the total installed generation capacity of the country (19.4 GW).

The actual saving on energy through this action might not be huge, but it is a step in the right direction. The current retail prices of energy savers are far too high. Controlled price distribution of energy savers is therefore necessary to spread the use of energy-saving lamps. Moreover, there is a need to create an atmosphere of behavioural change towards energy consumption. The current tide of political change can be used to propel such fundamental changes in society.

Characteristically, change is only expected from the lower echelons of society. Government officials and the elite go on with their business as usual. One rarely sees energy savers in government buildings (Wapda House, for example). Exuberant consumption by high-end markets and commercial outlets is also commonplace. If change has to be brought about in society, it should necessarily start from the top. Government buildings and big commercial outlets should set an example, not only by using energy-efficient lighting, but also by demonstrating overall energy-efficient behaviour.

There is no local production of CFL. Chinese products almost exclusively govern the local CFL market. With an increase in demand, the price of energy savers has almost doubled in the past few years, according to the Pakistan Electronic and Electrical Manufacturers Association (PEEMA). The smuggled portion of the total market has also gone up to 60 per cent from 40 per cent last year. The current wholesale price of CFLs is around Rs130-140.

According to PEEMA, the government charges up to Rs40 in duties and taxes. In the absence of local manufacturing of high quality CFL, imported products, are the only option in the near term. The government should remove import duty and sales tax to curb smuggling and control the prices of CFL. In the medium term, local manufacturing must be encouraged. The retail price can come down to Rs70-80 (as in India where the production cost per CFL is Rs40). Phasing out incandescent bulbs, which cost only Rs13, cannot be done by government distribution alone. It will require effective market mechanisms.

Lighting concerns should only form a small component of an effective energy conservation strategy. A comprehensive, multilateral and long-term plan for energy conservation is required if Pakistan is to develop a sustainable economy. Cosmetic initiatives will not be enough to improve the situation. A national energy conservation policy is needed with well-defined targets and action plans. In the domestic sector, energy-efficient building designs must be promoted through updates in the building codes.

All buildings in the commercial sector as well as urban residential complexes should have energy-efficient designs. Better buildings consume less energy both in terms of air-conditioning (heating/cooling) and lighting. Other measures like enforcing energy auditing, introducing consumption limits, implementing strict commercial sector timings, lowering weekly working hours and, above all, developing conscientious attitudes with regard to the efficient use of energy and resources are required to turn the tide. n

The writer is an energy and environment consultant at the Sustainable Development Policy Institute, Islamabad.

OTHER VOICES: Sindhi Press

May 12 deadline

Ibrat

APPARENTLY, there is no ambiguity regarding the restoration of the judges of the superior court. But things are not as simple as they appear. Many apprehensions — if and buts — are looming large. Only May 12 will show how the promise made to the nation is fulfilled.

After two days of talks between the ruling coalition partners in Dubai, Mian Nawaz Sharif broke this piece of good news to journalists in Lahore while terming the talks as positive. Nawaz Sharif’s statement was a relief as the judges’ issue had overshadowed all other pressing issues. Now this issue will be resolved and the government will be able to think about other vital issues.

There were rumours that the ruling coalition was on the verge of collapse, but the political wisdom of its leadership saved it from breaking up. The deadline of May 12 was fixed. It was May 12 last year when events relating to the arrival of Chief Justice Iftikhar Chaudhry led to bloodshed in Karachi claiming 50 lives. Karachi was virtually in the hands of armed men and it appeared as if all law enforcers were on leave that day. President Musharraf said that it was a ‘show of strength’ from his side.

What kind of show of strength was it? During this movement for the restoration of the judges, a suicide bomber blew himself up at a PPP reception camp killing seven party activists. An unarmed struggle by the people since March 9, 2007, will come to its logical end on May 12 when the judges are restored. If this does not happen, there will be severe consequences.

How will the presidency act after the judges are restored on May 12? The PPP co-chairman has received some indication that if steps taken by the president after November 3 and the emergency proclamations are not disrupted, the president would have no objection to the repeal of Article 58(2)(b) and the restoration of the judges. …The media has published this news and it has not been contradicted by the presidency as yet. There are also reports that the president sent a special envoy to the PPP co-chairperson. It is a good sign that differences between the presidency and the government are being reduced, otherwise there could have been another crisis.

There are different signals from the PPP and PML-N. Earlier, Nawaz Sharif had been against the constitutional package. But now, he has agreed to it after the restoration of the judges. A committee has been constituted to draft a resolution for the National Assembly. The presidency was reportedly speculating that the judges would not be restored through a parliamentary resolution as constitutional amendments were required. Legal experts dispute this claim and say that the judges can be restored through the resolution or even through an executive order.

People can wait no longer for a resolution because of their pressing problems. They want relief from the price hike and unemployment. This issue has delayed this and should be resolved as soon as possible… — (May 4)

— Selected and translated by Sohail Sangi