Relief for the poor
Business Recorder reports1:
Punjab Finance, Planning and Development Minister Tanvir Ashraf Kaira has said poor, salaried class and farmers will get relief in the coming budget for the fiscal year 2008-09, saying, “Our main focus would be to give target subsidy to the poor in the budget.”
The relief would come primarily in the form of price controls. Abid Hasan, a former operations adviser for the World Bank, agrees with the goal, if not the means, in his take on the situation published in The News today2. His plan revolves around the introduction of a “poverty reduction surcharge” (his fancy name for “tax”) on what he considers superfluous luxuries like cars, cell phones, stock trading, and high utility bills.
Actually, at first I was encouraged because he takes the view that government subsidies and price controls have contributed to Pakistan’s economic woes. He argues, for instance, that by letting farmers sell at market prices, smuggling and black market loss would be reduced and farmers would have the resources to increase food production for next year. However, look at what Hasan proposes when it comes to cars:
More generally, tax policy should be used to switch consumption patterns appropriate to the country’s poverty status. As an example, in Pakistan for every one car sold, four motorbikes and four cycles are sold. The ratio for India is six motorbikes and 10 cycles, and in Vietnam it is 25 motorbikes and 10 cycles, for every one car sold. These two countries are almost the same or higher per capita income, and similar poverty profile, as Pakistan. And yet their population uses, relatively, more motorbikes and bicycles. Progressive tax policy – for example, zero rating bicycles, motor bikes and public transportation and high taxes on cars – and correct pricing of fuel would encourage this “pro-poor” switch.
He offers no justification for the implication that India and Vietnam have a healthier ratio of cars to motorbikes and bicycles. Why not tax cars so much that the ratio falls to 1:100? How is the proper ratio determined? Why isn’t it good that more Pakistanis can afford cars? Without the hard numbers, it’s hard to even say that Pakistanis can afford more cars, since it could just as easily be that fewer Pakistanis can afford motorbikes and bicycles, or that bicycles and motorbikes aren’t as useful to Pakistanis.
In the end, I’m just annoyed that Hasan takes the time to rail against socialist economic policies like price controls only to suggest that we solve the problem by introducing new socialist economic policies like high taxes on certain items to get various ratios into what the government determines is most healthy.
1 Budget will be poor-friendly: minister. Business Recorder. May 24, 2008.
2 Hasan, Abid. Spend on the poor to save Pakistan. The News. May 24, 2008.
Karachi stock market reflects political, economic uncertainty
The Karachi stock market closed down over 4.5% on Friday in the largest single-day loss of 2008. According to Dawn1, investors had expected a drop after the State Bank of Pakistan raised the discount rate to 12% from 10.5% on Thursday in a bid to curtail inflation. However, the size of the drop suggests that the rate increase was a pretext for exiting the market as Pakistan faces tough political and economic challenges. Since mid-April, the Karachi stock market has lost about 20% of its value. Inflation has increased dramatically, the government budget deficit has reached record heights, and foreign exchange rates have fallen.
1 Hussain, Dilawar. Billions wiped off on KSE’s ‘black Friday’. Dawn. May 24, 2008. No comments
Pakistan’s credit rating cut
In the past few days, both Moody’s and Standard and Poor’s have cut the credit rating for Pakistan’s government bonds. This is primarily a result of two factors: political instability and a growing trade deficit. The new ratings will have a detrimental effect on foreign investment in Pakistan as investors lose confidence.
(May 22, 2008). Moody’s downgrades Pakistan ratings. Business Recorder.
(May 16, 2008). S&P cuts Pakistan rating on economy, politics. The News.
No commentsFood crisis and Pakistan
For the past few months, food prices around the world have risen dramatically and many are angry and fearful. This article in Pakistan’s “The Post” newspaper suggests that, for Pakistan at least, the government is to blame. Author Jawaid Imam argues that flour is being smuggled to Afghanistan where it can be sold for a higher price and that domestically the flour suppliers are selling flour privately rather than supplying the Utility Stores, where the poor can buy government-subsidized food. The government is turning a blind eye to these activities.
As Imam notes, farmers in countries like the USA, Brazil, and Argentina are profiting from the rising prices. He does not consider the plight of Pakistani farmers — when food prices are low, they must compete with foreign imports; when food prices are high, they are banned from exporting and profiting.
For me, the food crisis has made it clear that food security should be one of the top concerns of any nation. Hopefully when this crisis is over, Pakistan will take meaningful steps to help domestic farmers.
Article: Food crisis and Pakistan
Author: Jawaid Imam
Publication: The Post
Top Taliban leader vows revenge on America
Following US missile strikes on Damadola village, a militant stronghold in Bajur tribal region near the Afghanistan border, Faqir Muhammad, a top Taliban leader vowed revenge on the US. The attacks were also condemned by the governor of the NWFP. The NWFP government has been involved in peace talks with the Taliban and it is feared that these missile attacks will derail those talks. Later Thursday, several thousand protesters attended rallies called by Islamist political parties in Damadola and Khar, Bajur’s main town. Pakistan Foreign Ministry spokesman Mohammed Sadiq denied that Pakistan had given the US permission to target foreign militants on Pakistan soil.
Article: Top Taliban leader vows revenge on America
Author: Habibullah Khan
Publication: The Associated Press