Former Finance Minister in the Muslim League government, Sartaj Aziz said that the decline in the growth rate of agriculture had accentuated poverty. Today, perhaps 36 per cent of the population was living below the poverty line.
He said while agriculture growth was absolutely critical for poverty alleviation, pro-poor agriculture policies focussed on small farmers were critical.
He said while growth was a necessity for poverty alleviation many other measures were also necessary to reduce poverty. He said international studies had shown that growth rate should be double the rate of population growth in order to reduce poverty and at the same time there should be a fair distribution of income.
Sartaj said in 1990’s, the average GDP growth slowed down from 6 percent to an average of 4 per cent and that was the main cause of increase in poverty from 20 per cent in the 80s to 32 per cent in 2002. The main cause of this slow growth was the slowdown in large scale manufacturing that came down from 8 per cent in 1980’s to an average 4 per cent in 90’s.
In Pakistan, one of the main factors that has led to achieving sustained growth of 4.5 per cent in agriculture during the last 15 years (one of the highest in the world) had been primarily due to a systematic improvement in terms of trade of agriculture. This has been achieved by maintaining relative stability in the supply of inputs like water, fertiliser, pesticides and ensuring fair prices through the price support system.
Sartaj said the real issue was not only availability of key inputs but ensuring that they were available at reasonable prices and the quality of pesticides was good. In last three years, an attempt was made under pressure from donors to dismantle the support system for the main agriculture crops in Pakistan. This could lead to a serious decline in terms of trade because international prices were subject to violent fluctuations which in theory promote efficiency in the global system but there was no genuine market system because developed countries provide subsidies to the tune of $360 billion to their agriculture sector. This had brought down agriculture prices which were lower than 40 years ago.
Developing countries like Pakistan could afford to provide large subsidies but by continuing with modest prices support programme for crops like wheat, rice and indicative prices for cotton and sugar-cane, it could provide a degree of stability to protect agriculture and the income of farmers.
Sartaj said that today the US farmers could afford $110 a ton of wheat because they recovered a subsidy of $50-60 a ton. Pakistan was an efficient producer of wheat with $120-130 per ton price but to compete with the US farmers it needed a subsidy of $30-40 per ton. If Pakistani farmer does not receive the support price of Rs300 per 40 kg, wheat production at the current level would disappear in no time.
Mr. Aziz supported the computerisation of land record not only for the tax purpose but also for viability of this sector as a whole. He said the documentation of property rights in urban and rural areas is one of the most important problems for Pakistan.
He said in developed countries, 90 per cent people were credit-worthy and could borrow money because their clear title to land and other assets was well established. In Pakistan, no more than 10 percent were credit-worthy because land record system in rural areas was extremely defective.
Sartaj said farmers faced difficulties in borrowing money to purchase machinery, fertiliser, pesticides and because of the defective land record many vulnerable segments like widows and minors were deprived of their rights and livelihood.
Responding to a question on the scope of reduction in current expenditure, the former finance minister said their was little room for doing so as major chunk of public sector spendings was being consumed by debt servicing and defence.
He said the latest estimates suggest our expenditure on debt servicing has already come down from 60 percent of budget to 40 percent following the partial debt rescheduling of foreign debt and partly reduction in interest rates on domestic debt.
He said the defence expenditure has also come down from 6 percent to 4.8 per cent of GDP. While there was some scope of further reduction in current expenditure on debt servicing particularly through privatisation of loss-making units, expenditure on defence would depend on the security situation and relations with India.
He said that apart from the question of reducing non-development budget to release more funds for social sectors, the quality of social spendings is equally important. At present, the increase in social spending on health and education sector did not translate into a corresponding expansion and improvement in terms of enrolment ratio, health coverage and availability of drinking water.
Responding to another question, Mr. Sartaj Aziz said a longstanding demand had been that defence budget should be presented to the parliament as in other democratic countries. He said this, however, was not the right time to raise the issue but a via-media could be found to computerise the defence budget in detail. He said a defence committee of the national assembly or a special select committee should be constituted to examine defence spendings.
Prof. Khursheed Ahmad, chairman of the Institute of Policy Studies (IPS), has called for re-tailoring the defence strategy, financial management, economic policy and business-industry incentives for the social sector rehabilitation and relief to the common man.
He also suggested to rethink the wholesale privatisation and adopt a co-existence of public-private partnership but without bureaucratisation of public sector that should be run on professional management principles.
Prof. Khursheed demanded to make the defence budget subject to parliamentary scrutiny and said that the whole defence strategy should be re-formulated in the light of both the new security requirements and relations between nuclear deterrent and conventional military.
In a world situation where technology was calling the shot and war strategy was changing, we should change our defence arrangements to counter the threat to our security. “No section should be a sacred cow. Defence should be subject not only to in-house and internal check by the defence authorities but also to proper parliamentary scrutiny and even to national debate on defence priorities, strategy and arrangements”, he said.
He added that even fiscal policy should be so formulated that resources flow towards social development and expansion. He said that Pakistan’s economy was surviving only because of the informal sector which was an anathema to the world bank. He said that non-governmental sector’s contribution to the tune of Rs60-70 billion a year over and above Rs4.5 billion Zakat outside the budget was sustaining the poor.
He said that poverty in Pakistan reduced from 30 percent to 18-19 percent during 1970-80s and mid-90s when the growth rate was as high as 5-6 per cent. But real aggravation of poverty took place in 90s because of mismanagement, corruption and total neglect of fundamental issues, like fair distribution of income , job generation and poverty reduction strategy.During the last three years the process of impoverishment continued.
Prof Khursheed said that primary reason of this situation was the obsession with macro-economic stabilisation under the pressure of the financial institutions and the neglect of all other factors of growth mentioned above.
He said that if the inflation was low, it was because of the lack of purchasing power. If foreign exchange reserves were high, that was not because of improvement in production, quality or expansion in exports or other policy variables but because of the changed global situation, leading to the rise in remittances, debt rescheduling and kerb buying by the central bank. He said during last six months the exports have increased but it was not correct to attribute foreign exchange build-up to policy matters. He said that despite the lip-service paid to the poverty reduction, a real and effective strategy had not been evolved and unless there was growth, the chance of poverty reduction were minimal.
Prof. Khursheed insisted that if the continuity was the theme of the present government, then it would not reduce poverty. He gave the credit to the government for macro-stability It was useful and necessary though but not sufficient and should be part of a wide policy and should focus on economic growth of the physical sector,on improved quality of products, job creation and the dispensation of justice.
He said that containing inflation by suppressing purchasing power was a flawed policy and he had strong apprehensions about its success. He said that real success would come from change and he did not see indication of the present administration to creatively address in this direction.
He said they had not learnt the lesson from documentation campaign; saving rate has gone down, rate of investment was the lowest and mere hopes of foreign investment would not deliver.
He was not happy with the increase in foreign exchange reserves when it was realised that the inflow of $3-4 billion was not being absorbed in productive sectors. He said it would only increase real estate prices, stock market indices and conspicuous consumption which was in fact endangering the economy because it was speculative and not creating assets.
The IPS chairman said that real challenge was the provision of quality agriculture inputs but the government had not realised its importance despite the fact that 25 percent of GDP was from agriculture, 70 per cent of exports were related to agriculture and 70 per cent of the population got job in this sector.
He counted a couple of reasons for the failure: absence of consistent and long agriculture policy, neglect of small and medium farmer, absence of land reforms which the prime minister did not see any need for, ineffective delivery system for agriculture products, neglect of micro-finance which should dovetail to supply input and related to capacity and timing of recovery of loans.
He said that privatization of public sector units was alarming and suggested there should be co-existence of public-private businesses but the public sector should not be bureaucratic;it should be professionally run with in-built incentives. He said that failure of the public sector industry had been because of bureaucratisation of its units and political interests. Prof. Khursheed said that during the last 15 years, the development of the heavy chemical and capital goods industry increased our dependence and hampered self-reliant growth. The whole privatization was to be rethought and reformulated because due to WTO, the time was short and we were heading for trouble.
He supported the computerisation of land record system to get it out of the patwari system. Computerised record should be at the district and provincial level and then national land registry. This would lead to documentation and stop corruption by patwaris who protected the powerful and victimise the poor.
He also advocated reduction in non-development expenditure for increase in development budget and suggested that foreign remittance should be invested in the productive sectors of the economy.
On investment, Khursheed Ahmad said that political disturbance of the system was responsible for adversely affecting the image of Pakistan. Law and order situation, consistent economic and investment-friendly policies automatically provide opportunities for revenue generation and this should not be other way round.
He stressed for participatory tax policies saying that if people were involved in decision-making, given incentives to increase production,they would pay taxes,specially when they would see the promise of better living.
Shah Mehmood Qureshi, the former federal minister in the Pakistan People’s Party government, said the defence budget should be put before the parliament and debated there in detail.
He said that an improvement in our relations with India, normalization and reduction in tension would provide an opportunity to divert additional resources to the social sector.
Mr. Qureshi said that computerization of land rights record was necessary.”I had recommended it in my report as chairman of the agriculture task force”, during the second PPP government. It would improve transparency and free people from exploitation of ‘patwaris’ of the revenue department.
He said that under the principle of fair play, all incomes must be taxed regardless of the fact that they were from agriculture or other sources but the system of collection and procedure should be farmer friendly. Shah Mehmood said poverty and growth had a close linkage. We saw a reduction in poverty while Pakistan was growing at the rate of 6 per cent in 1980s.
In his view, the effective measure of poverty alleviation was an improvement in the distribution of disposable income of the vast majority of the population. He said that the disposable income of the majority living in rural areas, small towns and urban slums had gone down because of increase in cost of living.
Drought coupled with poor marketing of agriculture produce plus an increase in the cost of agriculture inputs under the agreements with international financial institutions had not only retarded agriculture growth but reduced the disposable income of the farmer.
The continuously increasing cost of utilities like power, gas etc and petroleum products has affected the budget of average urban household. The inadequate investment, both local and foreign, and a growing population plus downsizing at very high rate have led to an increase in unemployment, he said.
He believed that poor growth and government policies, limited availability of institutional credit, limited access to micro-finance contributed to poverty in Pakistan. He said that timely and affordable availability of agriculture inputs is absolutely essential for an improvement in the productivity of small farmers.
Today, quality inputs are available to a small percentage of the farming community. Increase in prices of inputs has outpaced the increase in prices of agriculture output. The terms of trade have deteriorated for the farmer. Adulteration has become serious menace affecting the farmer.
He said that improvement in governance and investment in the water sector plus a participatory approach to water management can improve availability of water to the small farmers. Incentives to the private sector will improve the availability of seed. Increase in the allocation of funds will improve the disbursement and of institutional credit.
To promote investment, he said it was necessary to improve the law and order situation, provide political stability, and consistency in policies, reform tax collection machinery, and judiciary to protect rights and interests of citizens. This would improve investment climate.
He said that political stability and economic growth go hand in hand. In the last six months, the government has failed to create a stable political environment because of being engrossed in the constitutional crisis and the tug of war between the provincial and local governments. The government has failed to correct all issues of governance which was affecting legislation in the parliament.
Responding to a question he said that millions of acres of cultivable waste land was available but water and technology were the constraints. He said corporate farming would prove beneficial if it brought marginal lands under the plough and introduced modern technology.
Mr Ahson Iqbal, minister of state and the deputy chairman of the Planning Commission in the Nawaz Sharif government, was of the view that the government had created a bubble economy and promoted consumerism where people are doing speculative business in the stock market and not investing in the commodity sectors,
“The people have put project investment on hold and leasing business and stock market investment is on the rise”, Ahson Iqbal said.
He said the Pakistan Muslim League had promised in its manifesto that all administrative unclassified section of the defence budget would be presented to, and debated by, the parliament. He said that block allocation of resources was against the principles of transparency, which Gen. Musharraf was trying to protect. He said if today we did not ensure political stability, even a good team and very good policies could not yield results but political stability could give best results even if we had mediocre economic team and policies.
He said that because of the political instability prevailing in the country on account of the legal framework order, investment, both local and foreign, was on hold, banks are sitting on mountain of liquidity without any project financing and they were doing only consumer financing and leasing business at the moment.
Ahson Iqbal supported computerization of the land ownership record and said it was part of Nawaz Sharif’s information technology policy and the e-government initiative, our government wanted to computerize all records to bring transparency in the system.
He did not favour cut in current expenditure saying we have already overdone this and added that resource mobilization should be the prime objective of an economic policy to provide sufficient funds for project financing and sustained development and growth. Mr. Ahson said that growth is a necessary condition for the economy but this was not enough for poverty alleviation, as growth rate alone could not guarantee achieving that objective.
“The main question is how does the distribution of wealth take place in the society and what is the structure of an economy. If the economy is monopolized by the rich, then it would widen the gap between the rich and the poor but if equitable opportunities are available for sharing the pool then growth rate benefits all” , he said.
Ahson Iqbal said that today Pakistan’s problem was that the growth platform had crashed. Traditionally we maintained 5.5 per cent growth rate during the last 50 years. He said Gen. Musharraf criticized last ten years as the lost decade due to political governments but growth rate averaged 4.5 per cent despite political instability during which we saw over 10 prime ministers come and go.
“Look at the last three years, the average growth rate remained 3.2 per cent despite the so-called stability and all the powers Gen. Musharraf enjoyed where his word was law” he said, adding that GDP growth rate had fallen to 1.7 per cent when Nawaz Sharif had come to power but in the first year (1998), it doubled to 3.5 percent and rose to 4.2 in 1999 despite nuclear sanction which were the severest sanctions Pakistan had ever faced.
But during the first year of Musharraf, growth rate dropped to 3.9 per cent, further to 2.4 per cent in 2001 and then improved to 3.5 percent in 2002.
Ahson Iqbal said that Musharraf’s claims of improving foreign exchange reserves was also not correct because when Nawaz Sharif took over the reserves were only $350 million but improved to $1.5 billion when he left due to debt rescheduling which the Musharraf administration was now taking credit of.
He said that we had to see where the centres of poverty lay; these were rural areas, urban slums and certain regions which were very backward, like FATA, Sindh and Southern Punjab and then there are certain groups which are vulnerable like women, orphans and minorities.
He said that the poverty strategy should be to put it on high priority and then create opportunities for the marginalized and the deprived sections.
Responding to a question as to how to ensure fair share of high growth to all, Mr. Ahson said that the Nawaz Sharif government envisaged through budget allocation to construct 20,000 kilometres of farm-to-market roads and allocated Rs7.5 billion for these roads and Rs7.5 billion for village electrification. These two items would have brought revolution in the country. He said the best thing was to create clusters of high value agriculture production in rural areas through exotic flowers, dates, and vegetable for small land holdings.
He said today the education system had created a big divide. Doors of quality education for the poor have been completely shut by abandoning public sector investment. So the monopoly of the private sector with high fee structure had made quality education out of the reach of the poor section. Twenty years ago, poor could think of becoming doctors but now they could not.
He said the education policy which the Musharraf government had abandoned could have given us 300,000 quality graduates from the poor sections through the smart school scheme. He said the Nawaz Sharif government had turned 200 schools into vocational institutions in the evening shift, which also had been abandoned.
He also enumerated enhanced agriculture credit scheme, campaign against adulterated agricultural inputs, resistance to IMF demand for GST on agriculture inputs, a check on utility prices and small business schemes as tools of growth and poverty alleviation which Nawaz Sharif government had taken in hand.
To restore investment confidence, he proposed national reconciliation and creation of consensus about social, political and economic agenda. He said that all the stakeholders should sit together and decide what code of ethics should they follow in respect of judiciary, military, bureaucracy, political and the civil society and lastly how to ensure that the parliament would complete its tenure by making the system open and inclusive and not exclusive of those not liked by the regime.
