The shadow of servitude - S Iftikhar Murshed - Monday, February 21, 2011

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The day Raymond Davis shot dead two men in Lahore, the Washington-based Pew Research Centre released a study according to which Pakistan is likely to overtake Indonesia by 2030 as the most populous Muslim country in the world. The Davis incident triggered a Pak-US diplomatic crisis which will eventually subside, but the Pew forecast that the population of Pakistan will soar to 256 million within nineteen years is a demographic time-bomb which could detonate even earlier if the economic situation continues to deteriorate.

Aristotle once said: “All who have meditated on the art of governing mankind have been convinced that the fate of empires depends on the education of the youth”. Two-thirds of Pakistanis are below 30 and the government’s priority should be absorbing the expanding labour force by investing heavily in education. But the leadership of the country seems to be either indifferent or oblivious to the gravity of the challenge.

On January 18, the Annual Status of Education Report Pakistan 2010 revealed the outcome of a countrywide survey of 19, 915 children undertaken by various organisations. The findings were as startling as the study conducted by Pew. More than half the children could not read a sentence either in Urdu or in their native language while 56 percent were unable to do double digit subtraction sums.

On a parallel track, the radicalisation of the youth is proceeding apace through the distortion of Islamic tenets in the madressahs (seminaries) where, in 2005, an estimated 1.5 million students were said to have been enrolled. Prime Minister Gilani promised madressah reform in his first address to the National Assembly but, true to form, the pledge has yet to be redeemed. The problem is far deeper because the canker of religious extremism is not confined to seminaries but, since the Ziaul Haq era, has also contaminated secular schools.

In my article titled “Cleanse, not reform, education” carried by this newspaper on July 25, it was elaborated that the prescribed post-1979 text books eulogise jihad and martyrdom. An entire generation has thus been indoctrinated to kill in the name of religion. It is, therefore, not surprising that murderers such as Mumtaz Hussain Qadri should be feted as a hero for shooting Governor Salmaan Taseer last month. So deep-rooted is this mindset that even members of the senate refused to offer fateha for him.

The slow poison of poverty and the appalling standard of education have eroded the hope of a better future for an overwhelming majority of the population. Around 80 to 90 million Pakistanis are under 20 and, according to the Planning Commission, a growth rate of 9 percent is required to absorb them into the labour force. The enormity of the problem is apparent from the current GDP growth rate of barely two percent which, it is claimed, generates only a million jobs per year. It is estimated that by 2030, the number of persons seeking employment will reach 175 million which is roughly equivalent to present size of the population.

The heart of the problem is economic mismanagement, the inability or the reluctance to increase revenues and the squandering of resources. Pakistan’s current public debt inclusive of domestic and external liabilities stands at a staggering 9.47 trillion rupees which is equivalent to 66 percent of the GDP. Though this is way above the internationally acceptable threshold and there is a possibility that the country could default on payments, the Finance Ministry has brushed the issue aside and has claimed that the current level of debt is sustainable. It is least bothered that in the last financial year, public debt in terms of revenue increased to 4.3 times or that the debt servicing to revenue ratio stood at 40.4 percent as against the globally acceptable limit of 30 percent.

Not only does Pakistan have one of the lowest tax to GDP ratios in the world, it also ranks as one of the highest in terms of tax fraud. Incredible though it may sound, in 2005, the government actually refunded 60 billion rupees in sales tax claims against a collection of only 50 billion. Investigations undertaken by the federal tax ombudsman have revealed that the government has lost at least 37 billion rupees in revenues in the last four years because of the pilferage of containers en route to Afghanistan under the transit trade agreement between the two countries.

The extent of fraud becomes evident in the World Bank’s Pakistan Tax Policy Report 2009 finding that tax evasion in 2007-2008 stood at an astounding 796 billion rupees. In addition to this, Pakistan’s tax gap – the difference between the taxes owed and paid in time – reached 79 percent as compared to 9 percent in Britain and 22 percent in the US.

Against the paltry collection of revenues, the government has yet to drastically cut its expenditure. The recent downsizing of the federal cabinet to 23 inclusive of a minister of state is inadequate. Even the two biggest economies of the world, namely, the US and China make do with a much smaller cabinet.

Nevertheless, the reduction in cabinet size is welcome, though it is only a small step in a journey of a thousand miles. In the first three months of the current fiscal year, the government has already borrowed 579 billion rupees which has been justified on account of the damage caused by last year’s devastating floods, rising global fuel and commodity prices as well as the financial resources the federal government has had to transfer to the provinces as per the National Finance Commission award.

Despite all the talk of national pride and sovereignty, the bitter truth is that the Pakistan economy is on life support and is heavily dependent on international assistance. The International Monetary Fund has extended Pakistan’s Standby Agreement till September 2011. It has yet to release the last two tranches of 3.6 billion dollars and has indicated that the fifth review, which will result in the release of another tranche of 1.8 billion dollars, will be held in abeyance till the government imposes the Reformed General Sales Tax (RGST). The problem for the government is that the imposition of the RGST requires significant amendments to the Finance Bill and has to be passed by parliament and this is unlikely to be forthcoming.

The bottom line is that the international financial institutions and donors are increasingly reluctant to assist Pakistan if it does not take immediate measures to substantially increase its revenues. Should Islamabad default on payments, the country will no longer have access to international capital markets and foreign investment will come to an end. Much of the external assistance, which currently comes in the form of project aid, will be terminated thereby affecting the building of infrastructure with disastrous implications for long-term growth.

The problems are daunting especially with a population set to increase to 256 billion in less than two decades. The government has to move fast and generate its own resources. Only then, will Pakistan be able to move away from the shadow of its servitude to international donors and reclaim its sovereignty. Inaction fosters decay as Leonardo da Vinci said “Iron rusts from disuse; water loses its purity from stagnation, even so does inaction sap the vigour of the mind”.

The writer publishes the Criterion quarterly. Email: iftimurshed@gmail. com

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