It's budget season... the time when every ruling junta's finance minister delivers a performance "full of sound and fury, signifying nothing."
This year's version by Senator Shaukat Aziz was no exception...but for the mirth generated by malapropisms in his dogged attempt to communicate in Urdu.
Some stellar economic achievements cited by him are:
1. QUANTUM JUMP IN GDP TO US $95 BILLION AND PER CAPITA INCOME TO US $652: Never mind the fact that net of rebasing (from '80-81 to 2000) and using a deflated population figure of 146 million instead of actual 153 million (as per ERS.USDA stats.), per capita would have been US $518... well short of what it was 10 years ago!
2. FX RESERVES OF US $12.5 BILLION: All of them, of course, consisting of kerb market purchase of post nine-eleven "foreign-flight" dollars by the State Bank at billions of rupees profit to money changers and a PKR 25 billion loss to tax-payers.
3. 13% GROWTH IN MANUFACTURING: Who cares if a bulk of it represents consumer financed binge on cars and motor bikes behind high tariff walls that are set to crumble next year when WTO obligations decimate this shoddy products domestic industry.
4. 11% GROWTH IN CBR REVENUES FROM PKR 460 BILLION TO PKR 510 BILLION: The fact that this collection represents a measly 9% of GDP with no net improvement in tax to GDP ratio for the last five years is deemed inconsequential.
5. ONLY 7% GROWTH IS BUDGETED FOR DEFENCE EXPENDITURE IN 2004-05: This one's a real gem! Of course, we take the base as what the military has already spent in 2003-04 (a whopping PKR 181 billion against its budget of PKR 160 billion). Actually, the budgeted growth is 21% (up from PKR 160 billion to PKR 194 bullion,). But, who is counting when it comes to our saviours in uniform? And if you did not already know, it excludes the PKR 35 billion annual burden of military pensions that Aziz obligingly shunted from military to civil accounts in 1999-00.
6. A WHOPPING 33% RISE IN DEVELOPMENT SPENDING FROM PKR 152 BILLION (EXPECTED DISBURSEMENT OF FISCAL 2003-04) TO PKR 202 BILLION PROMISED FOR 2004-05: Alas, it will still only be 3.5% of the revised GDP of PKR 5.5 trillion. This ratio was 7% ten years ago. It means that our poverty-stricken masses whose ranks have swelled by 15 million in the past 5 years, must tighten their belts another notch to pamper our inefficient industrialists and urban consumers.
7. A 16% DECLINE IN DEBT SERVICE BURDEN FROM PKR 317 BILLION TO PKR 266 BILLION: Thanks largely to external debt re-profiling and global deflation over the past decade... our interest rates being at par with other countries in our situation... and not due to any shrinkage in total debt which keeps rising and is now over PKR 4 trillion.
But, lest you relax, get ready for it. Interest rates have troughed and are already rising. Before long, we will see double-digit borrowing costs... at least for our PKR 2 trillion domestic debt. That much vaunted fiscal space is about to evaporate! And finally.
8. A WELL SUBSCRIBED INTERNATIONAL DO1LAR BOND ISSUE AND A KSE GONE BERSERK: How do these developments help the 50 million citizens living on one dollar a day, the thirsty masses that died drinking contaminated water the other day in Hyderabad, or the highest birth mortality rate among women in the world? Pray do tell!
The tragedy of this country is that, even after a lapse of 57 years, we have not accepted the fact that our salvation lies in developing our agri-based economy, and that unless our two-thirds rural population becomes well-off, we will remain underdeveloped. None of our foreign trained Emigre' economic managers has seen the inside of a mud-hut. It is a safe bet that if one gave them two ears of foodgrain, one each of wheat and rice paddy, they'd be hard pressed to tell the difference.
And yet, we expect them to show us the way! Hardly surprising then that all they can offer is lip service to the concept of agriculture while waxing eloquent about IT in a largely illiterate nation.
Let us now take stock of our stagnating agri-economy over the past five years. GoP neglect has already lost 800,000 hectares of cultivated land during this period.
The deleterious impact of this on annual production of three major crops where, logically, we ought to have a global competitive advantage is shown in Table 1.
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Table 1
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Key crops 99-00 00-01 01-02 02-03 03-04 +(-)%
Wheat (million tons) 21.01 19.02 18.22 19.18 19.00 (9.6)*
Rice million tons) 5.16 4.80 3.88 4.48 4.85 (6.0)
Cotton (million bales) 11.24 10.73 10.61 10.21 10.05 (10.6)
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-- Pakistan Economic Survey overstates current year's wheat output by 800,000 tons. Figure shown is from FAO.stats.
Now compare this performance with that of India over the past two years:
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Wheat (million tons) 67.00 73.68 10.0
Rice (million tons) 72.70 88.00 21.0
Cotton (million bales) 13.57 16.77 23.6
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OBSERVATIONS:
1. All three key Pakistani crops show secular decline over the past 5 years.
2. By contrast, the same Indian crops during 2002-04 depict healthy double-digit growth.
3. GoP's erstwhile excuse of drought no longer holds "water" (pun intended) as for the last two years its own data (PES) shows irrigation water availability around the historical average of 133-34 MAF.
Obviously, our resounding crop failures can only be attributed to monumental ignorance and apathy (antipathy?) of our economic managers regarding agriculture.
USUAL NOSTRUMS: Your scribe participated in one of GEO TV's budget debates where the root of our weakening agri-sector was attributed to what I believe are significant but non-core shortcomings like:
1. The lack of meaningful agricultural reforms to break up large landholdings... a debatable proposition.
2. The ever-rising cost of inputs like quality seed, fertilisers, and pesticides...generally true in that urea prices went up 28% and DAP 41% over the past 5 years.
Consequently fertiliser offtake fell 12% (325,000 tons), while usage of improved seed declined 23%.
In a typically half-hearted attempt, the finance minister reduced DAP farmgate price by PKR 100 per bag [lowering 5 years DAP price increase to 25%).
3. Enhanced availability of canal irrigation water... that is why we are going to spend PKR 20 billion on dams this year said the minister...tinkering on the edges that will in no way address water storage lost over the past twenty years due to silting at Mangla and Tarbela. If Kalabagh and Basha dam projects are politically explosive issues, why not Katzara dam on Indus (18 km downstream of Skardu) that can add 35 MAF water storage capacity while doubling the existing hydel power capacity?...enough till 2025?
4. Paucity of extension services, training, and the low volume of farm credit that is still abysmal at PKR 50 billion per annum vs the PKR 200 billion growth in corporate and consumer credit during the past one year.
REA1 SOLUTION: While remedying some or all of the above hurdles in the way of agri-growth can yield dividends, it appears that both the Government as well as its detractors have an implicit agreement that they will not broach the real root cause of our agri-malaise.
And, what might that be? Simple, "Not paying the farmers' the true value of their output."
THE PROCUREMENT PRICE REGIME: In every significant agri-producing country, crop procurement prices entail a heavy element of subsidy. For instance, OECD countries in general and the USA, EU, and Japan in particular, lavish US $1 billion per day on agricultural subsidies.
These subsidies enable them to be net exporters against much more competitive Third World countries.
The average farm subsidy in USA is US $400 per acre. 50% of EU's budget goes for farm produce subsidies.
Japanese shell out US $6,500 per acre in subsidies. And, so on.
The finance minister tells our farmers that IMF frowns upon any subsidy to agriculture. Of course it would...it is mandated to ensure that farm output of the developed world does not face "undue" competition.
My argument is entirely different. "Pay a fair market price", no more and no less. That's something our benighted farmer has never received. For proof, let us look at Table 2:
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Table 2
Latest procurement prices:
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Wheat PKR 350 per maund (40 kg)
Rice Paddy (irri-6) PKR 215 per maund (40 kg)
Seed cotton (phutti) PKR 850 per maund (40 Kg)
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The foregoing converted to international equivalents and set against respective current world prices ([email protected]) shows:
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Pak farmer's
loss US$
million
Wheat US$ per ton 150
Delivered price (CNF Karachi) 225
Farmer's revenue loss per ton 75 1,425
Rice US$ per ton 130
Delivered price (CNF Karachi) 190
Farmer's revenue loss per ton 60 291
Cotton (net of) US cents per pound of lint 45
seedcake Delivered price CNF Karachi) 67
revenue loss) Farmer's revenue loss per pound 22 829
Grand total 2,545
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That, my dear finance minister, is equal to PKR 150 billion of our farmers' sweat and toil that you confiscated in just the last twelve months. Now, could you please deduct the PKR 20 billion that you are going to spend in the coming year on better irrigation and refund the balance to the impoverished farmers?
And believe me, once you do, these very same farmers will double their respective crop yields with better seeds, fertilisers, and pesticides, without testing your generosity of PKR 100 per bag of DAP fertiliser or a few paisas per unit of electricity!!!
If the foregoing has not convinced you to give our dirt-poor farmers a break, dear minister, let me give you another incentive. Were they given a fair market price for their produce, and were they to then lift their per acre productivity to the average international levels in the crops under discussion, Pakistan would have the output in these crops as shown in Table 3:
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Table 3
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Current value Value at average
(US$ million) World Mkt yields
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Total 7,649 12,947
Cotton Lint 2,536 7,123
Wheat 4,322 4,832
Rice 790 992
Annual production loss: 5,299 - PKR 310 billion
5.64% GDP
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Now, sir, as noted above, even if you were to refund our farmers the PKR 150 billion you have already unlawfully confiscated, you would be rewarded with twice that amount in terms of accretion to GDP.
We may then see "Real" double-digit GDP growth for perhaps the next ten years. That's like eating one's cake and having it too. Why not go for it and become a national hero to boot?
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