Dr Khan is a former Federal Commerce Minister. Apart from a brief stint at the World Bank, Dr Zubair has been associated with the IMF from 1981 to 1992. Since returning to Pakistan, he has been consulting for the World Bank, ADB, UNDP, JBIC and other international organisations on a range of issues, including macroeconomic stabilisation policies, monetary policy, trade and exchange rate issues, fiscal federalism, tax administration, and poverty related issues.
He has served as Member National Finance Commission, Member Advisory Board Securities and Exchange Commission, Pakistan, Member Provincial Finance Commission NWFP, Member Board of Directors Bank of Khyber for many years. He has a doctorate from Johns Hopkins University in Political Economy. Next time any government puts a ban on inter-provincial movement of goods, somebody should be going to the courts, to raise voice against the infringement of constitutional rights.
"The free movement of goods and people inside the country is the definition of a country. So when you restrict that, you are challenging their right of free movement inside the country, creating artificial borders," says Dr Zubair while criticising the almost yearly exercise of inter-provincial ban on movement of goods, which he views as a violation of fundamental constitutional right.
His argument makes sense because "free movement of goods and services (through people) is how you define a country in economic terms". When asked if the country's new found democracy, one that is credited with the passage of 18th Amendment and the 7th NFC Award, provides an opportunity to fix issues like these, Zubair sarcastically responds: "Are we fixing them? After three years of patience, I think that we are not".
If you look at their debates, no one has talked about human development; they are also oblivious to inflation; even the 18th Amendment works in their interest as it gives their party leaders more power," says Zubair while commenting on "how transparently the politicians have gone against the democratic process". "Now that they cannot vote against the party line, then why do we have 350 odd members in the parliament? Let's let the party heads come and do the things and let everyone else keep quiet. In current conditions, it is not possible for the parties to throw up new, young leaders like we see in the West," he said.
Arguing for "accountable democracy", Zubair says that a democracy without accountability is "just as bad as any dictatorship". So while he does not suggest that dictatorship should come in, "there is no reason for us to believe that these democrats are going to save Pakistan". "Is there one government school in Pakistan that they can say equals a mid-level private school? Name one government hospital where any government official is ready to send his dying child for treatment," he says rhetorically.
THE ASSIGNMENT PROBLEM The way out of this political-economic mess is to have "three tiers of government - federal, provincial and local". "There is no doubt that the present federal and provincial governments are not reaching out to many areas that are naturally backwards.....in a country as large as Pakistan, local governments are essential to provide services for the collective needs of the country," he says.
Should there be more provinces? While Zubair thinks "there is nothing sacrosanct about the present four provinces, he says breaking them up on linguistic and ethnic lines, would be inflaming the divisive forces that have always been at the root of destabilising Pakistan. "These divisive forces are working in Pakistan only because the government is not delivering. It's all about service delivery." And Zubair, who says "the government needs to show that the expenditures are well-spent, before asking for more taxes," asserts that "different services can be provided more efficiently at different tiers of government".
In his view, the Local Government Ordinance of 2001 provided a very good basis to move forward on that. "The restoration of Sindh Local Government Ordinance 1979 by the political government is a sad reflection of their commitment to democracy." "They call the 18th Amendment as devolution but it is not! It is simply concentration of power in the mid-tier, rather than at the lower level, whereas LGs are also our hope for the future", he said adding that democracy will remain faceless without local government system.
Commenting on the approach to the 18th Amendment, Zubair explains that in abolishing the Concurrent List, the centre did not make the decision on the basis of the known principles that ascertain which level of government should have which responsibility. As a result it has created an assignment problem. "In the European Union, there is a principle of subsidiarity, which simply states that no responsibility should be kept by any tier of government which can be better done by the lower one. This is the kind of principle which should have guided our legislators tasked with formulation of the amendment".
Terming the 18th Amendment "a collusion of vested interests", Zubair notes that the reason why the local government system was let go was because the "politicians are more worried about who can control the police, the 'Patwaris' and the electoral process, than about the service delivery".
INTEREST RATE SUPPRESSION Turning towards macroeconomics, the former IMF employee started bashing the central bank for its tight monetary stance. "There was no need to increase the discount rate. If there is a pressure on high rates that are being demanded on government treasury papers, let that be reflected over there. But why increase the discount rate," he said.
Zubair, who thinks that Pakistan will have to reapply for the IMF programme by January 2012 given the schedule of repayments, explains that "you tend to increase the discount rate to control private sector credit, when some investments and credit needs are not worth it. So you can choke that off through this measure, for instance to discourage consumerism".
The situation in Pakistan, however, has been opposite, where "private sector credit has not grown in recent years", and therefore, Zubair says, the central bank should have kept the "discount rate at 5 to 6 percent to allow the private sector credit to grow". He refutes claims that the State Bank is being able to contain the demand-supply gap by keeping interest rates high. "They (the SBP) are not dampening the demand through higher interest rates. What they are doing is increasing the cost of capital for suppliers and bringing the supply further down, thereby aggravating the situation," says Zubair.
"The only argument the central bank has is that real interest rates are still negative, which I think should be set aside. We need to undergo 'interest rate suppression' because there are so many other negative factors which we need to compensate for," he said.
Zubair says the banks should be asked to strengthen their loans securitisation process, and urges the State Bank to impose limits on banks to invest in treasury bills. Had the limit been imposed, he says, it "would have allowed the investment-hungry non-banking sector to invest too through primary markets, (whereas, currently they can only enter through secondary market)". He added that the government's parallel system of National Savings Scheme (NSS) needs to be discontinued, and that competition would eventually lower the rates of Treasury Bills.
RATIONALISING FARM POLICIES Zubair advocates that "no sector should be outside the tax net", and so agriculture is no exception. But he cautions that "to treat agriculture as a business and to define what net income is, would have to be very well done", pointing out that it's not a given in agriculture business that you make any net income at all.
He adds that except for the recent surge in the price of local farm commodities like wheat; agriculture prices have been way lower for the last 63 years of the country's existence. "The industrial class was developed in Pakistan because prices of commodities like cotton, sugarcane etc were kept below the international prices". Highlighting that agriculture is the only sector in Pakistan in which one cannot export without an export permit, Zubair calls for removal of restrictions from the movement of agriculture products. "There is always uncertainty involved in crop production volumes and permission to export depends on surplus stocks. This effectively leads to depressed local prices for agricultural commodities," he said.
"My prescription on agriculture is that we remove all restrictions. The idea is that agriculture has provided huge benefits to the industry so you cannot say that they haven't been income taxed. Farmers have paid for resources in a way that no other sector of this country has," says Zubair.
COMPETITIVENESS & PRODUCTIVITY Zubair says the recent rise in Pakistan's exports has fogged up the picture because of higher prices. "Our exports are higher than ever but are they competitive? If the gains are made through higher prices and we are not maintaining our market share, then that means we are losing our competitiveness," he contended.
Talking about real effective exchange rate (REER), he said that foreign inflows had created a Dutch disease in Pakistan, which appreciated the currency, "hence it is very important to change the exchange rate". "In September/October 2008, the REER hit the same level as pre-9/11...but it has appreciated by more than 15 percent since then," he says pointing to the dichotomy that due to foreign inflow led Dutch disease Pakistan's real economy has been shrinking, whereas inflation has been rampant, yet the exchange rate is doing well.
In other suggestions to increase competitiveness, Zubair asks authorities to work on reducing the non-financial cost of doing business. Elements like reliability, shipment clearing time, and other such factors of non-financial nature affect the businesses, and "get translated into financial nature at the end".
He adds that congestion of ports and roads due to Pakistan's involvement in the war against terror is also adding to the cost of doing business. "CSF inflows cannot compensate for the damages done to Pakistan's road networks by the ISAF containers. Domestic freight charges have also gone high due to this and policymakers do not take a note of this," Zubair says.
When asked if the Planning Commission's new growth strategy will work in addressing these issues, Zubair minces no words in expressing his concerns. "What they are saying in this strategy is irrelevant. They have not even come up with an understanding of why we are not growing in the first place," he said.
"We still have one of the largest and modern irrigation systems in the world but the productivity of land in Pakistan is at 20 to 25 percent of where it can be. We can be a massively agricultural country. But there is no mention of that in the growth strategy. So don't expect that now the growth strategy has been made, Pakistan will suddenly change gear," the former IMF economist concludes. It is hoped that the authorities will take Zubair's views into consideration, and while they are at it, they will also perhaps step on the efforts to rectify national accounts, which in his words are "fudged sloppily" every year.
An interview with DR Mohammad Zubair Khan
INTERVIEW BY ALI KHIZAR & HAMMAD HUSSAIN
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