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Pakistan, over the years, has gradually turned itself into an aid dependent and overwhelmingly importing country requiring foreign exchange by the billions increasing further its dependence on donors as our own capacity to earn the needed FE has kept dwindling.
As a result, Pakistan has gradually lost its political and economic sovereignty to the donors very early in the day and therefore, was obliged to do their bidding even if it meant fighting wars on their behalf or doing something totally opposed to its own national interest.
Since Ayub Khan's days the country's official managers have been framing the country's economic policies in a way as to make it impossible for tax culture to take roots in the country.
It was during Ayub Khan's tenure that the major part of our defence budgets used to be financed using the military assistance we used to receive from the US under the CENTO and SEATO defense pacts. This aid used to come in the shape of tanks and fighter planes of Second World War vintage; even a number of cantonments were built with this aid. Again, at the same time, a major part of our civilian budgets used to be financed using the proceeds from sales of wheat received from the US under PL480. This led to almost the total destruction of our wheat production capacity resultantly from granary of the subcontinent we became net importers of wheat.
This was the beginning of the end as far as any attempts on our part were concerned to improve our economic well-being without foreign aid crutches. Ayub did not let legitimate tax culture to develop in the country as he needed the political support of the landed aristocracy and big business created deliberately through the culture of licenses and permits. Friends and politically powerful families used to be obliged with free distribution of these licenses and permits. In many instances industries set up in the public sector by the PIDC were handed over to political favourites for peanuts.
It was state capital not private capital that actually created any assets and/or wealth in the country in those days. Banks were allowed to provide 70 % equity for 30% investment, mostly in textile and chemical industries. The sponsors used to over-invoice the imported machinery recovering almost the entire 30% of their equity and keeping the plunder in foreign banks. Next after launching the unit they would under-invoice their exports making a killing. Thus, money laundering was started way back during the Ayub regime and every businessman worth his salt since is indulging in this 'crime' with complete impunity.
Not only that. They would float shares of their units on the stock exchange, say at the rate of Rs. 10 per share; then they would manipulate the market to depress the share price to half of the original and buy all of them back and keep them, almost 99% in the family. And since they were not genuine entrepreneurs but business men created out of a license and permit culture they would not spread their investments (risk), would not reinvest in upgrading their enterprises with new machinery and innovation. And they would, instead of producing quality goods would instead pilfer utilities like water, electricity and gas, besides taxes due to them to keep increasing their margins.
The interregnum provided by the nationalism spree is another story deserving a separate treatment. But here again there is enough evidence that ZA Bhutto was sent to gallows on trumped up charges because of, among other things, he was all but ready to implement radical taxation reforms with tax on agriculture income as its flagship reform. One must also keep in mind that ZAB did not nationalise any of the privately owned textile mills or those that were set up in the country by foreign investors. And in the short span of four years he had also created assets like Heavy Mechanical Complex, Heavy Electrical Complex, Fertiliser factories, Machine Tool factory and Special Steel factory etc. All essential for setting up import substitution industries.
During Gen Zia's regime with Ghulam Ishaq holding the finance portfolio in his economically ignorant hands the regime not only ate away the assets created by ZAB but they made the country go into the reverse direction by trying to denationalize the units that Bhutto had nationalized but ending up bureaucratising the economy. GIK too would not touch taxation but for running the government would borrow from nationalized banks at rates less than 06 per cent while the banks were mobilizing resources at 10-15 per cent. This was the surest way to destroy the country's banking system and keep a legitimate tax culture from taking roots in the country.
And it was about this time that the term users' charges was introduced in our socio-economic litany. This was the beginning of the end of the social welfare model of economy the first PPP government had tried to follow. We suddenly entered the luxury of free market economy.
And by this time the infamous multilateral aid agency, the Paris Club had started dictating our annual budgets. Successive annual budgets were being framed on the basis of the anticipated project and non-project aid for the year which were chosen keeping in mind the economic interests of the donors and not that of the recipient. Once when the then planning minister Dr Mehbubul Haq was asked about being a consistent client of the Paris Club, his answer was revealing. He said the foreign aid is in fact an expression of confidence of donors in our economic health!
What the then official economic managers had refused to see was that out of each aid dollar, 99 cents would go back to the donors in the shape of consultation fee, imports from donors dictated by transfer pricing system, shipping charges etc. And the residual cent would be pocketed by the corrupt civil-military bureaucracy.
It was soon the end of the 1970s. The then Soviet Union had invaded neighbouring Afghanistan. The donors declared us the front-line state of the so-called free world and made us fight a war that was not ours. But the rent accruing from this war was so lucrative that we went into it as if it was our own. Ironically, in the considered opinion of General Zia the war being fought between two super powers in our backyard would never end and the rent- dollars would continue to pour into Pakistan obviating any need for restructuring our own economy to generate enough resources to stand on our own feet without the donors' crutches.
It is now 2019. Nearly 40 years have gone by. All these years we have been in a state of war. Even before that we had fought two Kashmir-related wars (1948 & 1965) and then the civil war in the then East Pakistan in 1970 that turned into an Indo-Pak war in 1971.
But in recent times our war history has followed an unending pattern: The first Afghan war, the Kargil war, the second Afghan war, the war against TTP, the Rah-i-Raast, the Zarb-i-Azb and Ruddul Fasaad, clearing of South Waziristan and North Waziristan. And since 2005 all three of our four borders - the Line of Control (LoC), the Durand Line and one with Iran - have remained hot with the one on LoC the hottest. The outings of our non-state actors, both into Indian occupied Kashmir and in Afghanistan in the name of jihad were also conducted war footing. And we all know wars are not fought on empty pockets.
Now let us ask ourselves a highly pertinent question. Can a country fight wars for nearly 70 years, or for that matter for the last 40 of which were without break, on empty pockets?
The answer is too obvious. So, how do we fund these wars, then? Again, obviously by borrowing left and right without bothering about what would happen when the time came for repayment. Well, we borrowed more to pay back the past loans and also kept using the residual to fund the wars.
The PTI government would do well to see the elephant in the room rather than wasting time on empty rhetoric. One can see why the debt increased with the pace with which it did from 2005 onwards. Between 2005 and till to date we have been fighting wars of survival, existential wars during which we have lost some 70,000 Pakistanis including thousands of security personnel and in monetary terms may have lost as much as the debt that had accumulated since 2005.
Asad Umar is a fine gentleman and perhaps he was the right man for the right job had circumstances that greeted him when he walked into the ministry were not all that abnormal. He was, indeed, out of his depth. In fact, his Party, the PTI itself appears to be out of its depth in the face of the enormity of the problem facing the country.
And one is not sure even Dr Hafiz Shaikh who already has worked the system in the immediate past, has the insight and foresight to identify the elephant in the room and; even if he did accomplish the miracle, whether he would be able to get rid of it and take the country out of the mess that is at least 40-year-old.

Copyright Business Recorder, 2019


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