Ten Obvious Policy Changes That Pakistan Needs to Make – Ali Hashim


If one was to ask what are the main policy changes that Pakistan needs to make to take itself out of the security, economic, and social morass that it finds itself in today, I would list the following:

(1) Recognize the Pluralistic nature of Pakistani Society to ensure national integration

Although Pakistan is a predominantly Muslim country its people have diverse religious and cultural and ethnic traditions. In order to ensure national integration, policy formulation within Pakistan needs to recognize the pluralistic nature of our society and needs to ensure that all segments of our society including religious minorities enjoy the same freedoms and have the same access to opportunity without any barriers to entry designed to exclude any particular group. We cannot impose any particular type of Islam on all our inhabitants, as we cannot ask them to give up their cultural traditions.

(2) Normalize relations with India

To achieve normalization a reset is necessary in Pakistan’s Kashmir policy. This is required not as a concession that needs to be given to India to achieve peace, but as a result of changed ground realities.

Two major opinion surveys conducted on both sides of border in Kashmir over the period 2007-2010 have shown that less than 5% of the Moslem population of Indian Kashmir would like to join Pakistan. Likewise Pakistani Kashmiris do not want to join India.

Given the low desire of the Moslems of Indian Kashmir to join Pakistan and the uncertainty of the political disposition of an independent Kashmir vis -a- vis Pakistan and even Pakistani Kashmiris, it appears that while Pakistan and the Pakistani Kashmiris will lose control over Pakistani Kashmir, they will gain very little in return, if an independent Kashmir were to be created. Also note that the rivers on which Pakistan depends for the bulk of its water supply originate in Azad Kashmir. Giving up Azad Kashmir to an independent entity would reduce Pakistan’s water security situation. It is therefore NO LONGER in the interest of Pakistan and Pakistani Kashmiris to press for a UN plebiscite or an independent Kashmir. Therefore a division along the LOC, i.e. a formalization of the status quo, is in the best interest of both India and Pakistan.

This should be the primary thrust of Pakistan’s policy, not because it is the best deal that it can get, but since the alternative is not in its interest.

(3) Make the Afghanistan policy Pakistan Centric

We need to realize that a Pashtun majority Afghanistan will always consider a border that divides the Pashtun population into two parts as an artificial construct and would make efforts to unify the two parts of the Pashtun population even though the Pashtun population on this side of the border may no longer share these sentiments. It seems that the linguistic and cultural affinity trump religious affiliations. This is borne out by past events which include: (a) Afghanistan’s vote in 1947 against the Pakistan’s membership application to the UN in 1947; (b) Its non-acceptance of the Afghanistan- Pakistan border based on the Durand line; (c) despite the fact that all major Afghan politicians, enjoyed the hospitality of Pakistan for several years during the time of severe unrest in Afghanistan, their posture and policies do not remain friendly to Pakistan after their return home. (d) Even the friendliest Afghan Government has always kept their own interests, as they see them, first and Pakistan has been able to exercise very little leverage with them.

Therefore, our policies with regard to Afghanistan need to more Pakistan centric and we should stop interfering in Afghanistan’s affairs at the behest of super powers and right wing forces in our own country.

(4) Internal Security Policy- Stop playing favorites when it comes to Terrorist groups.

Our security policy should be based on only one criterion. A particular group or organization should be classified as militants or terrorists if the basic objectives of the group are not compatible with our national interest. Please note that the job at hand is not to develop an understanding of the morality of the objectives of the various militant groups or to make abstract value judgments as to whether they are good or bad in an absolute sense. In fact the militant groups active here use this very logic and behave very rationally and completely without regard to any altruistic religious or national affiliation, when it comes to the achievement of their own objectives and act accordingly.

(5) Privatize State Owned Enterprises (SOEs)

The thinking behind SOEs has proved to be flawed, with inefficiency and corruption running rampant in the public sector. The World Bank, in a study estimates that “the fiscal drain of public enterprises, together with the losses of the financial system, can reach 8 to 12 per cent of GDP, two to three times the spending on health care and education”. The problem is that the only true criterion of success of a commercial enterprise – the bottom line – is never applied strictly. Under one excuse or another, the Government bails these enterprises out once they have run through the previous tranche of investment and have again run up huge losses. In the private sector they would be closed down the first time around. Thus, SOEs enjoy many of the advantages of the private sector corporations but are not accountable in the same way for their bottom line.

The overall problem of management of SOEs is systemic and cannot be solved in the public sector. Pakistan’s SOEs together run up a huge annual operational deficit of Rs. 500 billion with an additional Rs. 500 billion of annual financial losses. These numbers are consistent with the World Bank study findings mentioned above. This is a serious hemorrhage on our fiscal resources and if we get rid of a major part of this overhang, it could make a serious dent in the fiscal deficit. The argument that these SOEs provide seriously needed employment opportunities does not stand scrutiny. They do provide employment but at what cost? A simple calculation shows that the annual payroll of all the SOEs in Pakistan put together is one half to one third of the annual subsidy that these enterprises require annually. It would seem to be less costly to just pay these individuals to stay at home and purchase the goods and services they produce from the market!

Therefore the correct course for the government to adopt is that the majority of the State enterprises be privatized as soon as possible.

(6) Pay for what you Consume

This principle should be applied uniformly across all items such as Water, electricity, gas, fuel, telecom bandwidth. This means that subsidies on these items should be removed. In addition pilferages in their use need to be stopped and inefficiencies in delivery systems removed.

One of Pakistan’s main problems today is the shortage of power. Even though the government spends about Rs. 18 per unit to produce electrical power it charges Rs 9 from consumers. The difference results is a huge subsidy which translates into a circular debt if the government does not pay this off as it has done recently. It is obvious that the payoff will only provide temporary relief since the debt would build up again as the unpaid subsidy accumulates. The problem with subsidies is that unless they are targeted properly they benefit those groups who do not deserve them. Thus in our case an untargeted subsidy would benefit those consumers who consume the largest amount of energy, not the poor people who consume only small amounts.

To reduce the cost to the consumer the Government needs to ensure that pilferage which amount to 25 % should be stopped. People need to pay for what they consume. If they do not pay usage of electricity, gas, water, telecom services should be shut off.

The cost of power generation needs to go down. This will happen if the fuel mix is changed and the country increases its Hydel capacity and explores the use of Coal as fuel. It will also need to carry out an audit of the cost of production by the IPPs. They are responsible for some 8000 MW of generation. The recent pay out to them to erase the circular debt is Rs 500 billion. This is excessive and represents the cost of a fresh installation capacity of 8000 MW.

(7) Fix the taxation system

In Pakistan the situation of low tax collection is dire and progressively getting worse. The only people who pay taxes are the salaried class whose taxes are deducted at source. Large corporations and importers enjoy complex exemptions which give the FBR staff tremendous leverage for rent seeking. One solution that has been put forward is instead of levying and collecting (or in our case not collecting) direct and indirect taxes on income and expenditure, it is possible to implement a system that levies taxes on money flows. An automatic system can be introduced so that all financial transactions carried out through a bank are taxed at source. We can, for example, put in a system whereby all financial transactions through a bank above a threshold, say Rs 0.1 million or so, are automatically taxed at a graduated tax rate by the bank.

This means if somebody makes a purchase above this amount through a bank transaction, then the system will collect tax at say 15pc (15pc is just used as an example) on the value of the transaction. All deposits and withdrawals above this amount will also be taxes at this rate. All banks operating in the country can be made to apply this tax and deposit it periodically with the central bank, consolidated fund account. Since the majority of large financial transactions is now done through banks, this will catch most of them. It will be a just system since only the people who should pay tax will be transacting amounts above this value. We should let smaller transactions go by untaxed.

The system should keep a record check for all transactions above, say Rs75,000, for say a week and if repeated transactions are made from/to an account at this value or above, then the tax should be levied on the total value. In this way all money flows for or all types of income, be it agricultural or capital gains or others, and all expenditure transactions will be taxed. If we know the value of the total money flow (the State Bank maintains monetary indicators for this), then we will know the correct level at which to set the threshold and the total tax yield from the system.
It is possible to stop all corruption at the FBR and all leakages at one shot with this system.

(8) Reduce the size of Government and make greater use of the private sector for service delivery

In corrupt governments, only a small fraction of the total allocation of resources for health and education finally trickle down to the end user. The rest is lost to leakages due to corruption. This means that increasing the budget allocations in these sectors in such countries will ONLY RESULT IN INCREASED OPPORTUNITIES FOR CORRUPTION and loss of resources unless the service delivery mechanism is changed.

To cite an example, INDUS HOSPITAL in KARACHI, a fully funded charitable 150 bed facility financed through donations, which I visited recently, operates on an annual operating budget of US $ 10 million per year and has been set up at a capital cost of approximately $50 million. It delivers world class health service facilities to about 1500 patients per day free of cost. There are several other facilities such as this operated by NGOs in Pakistan. In fact, in some Government Hospitals, such as the Civil Hospital in Karachi, NGOs operate key facilities such as an operations theater complex, through donations, very efficiently, while other facilities in the same hospital are in a dire state.

In the education sector also several NGOs operate good quality schools in the country that provide quality education. The government builds schools that are frequently used to house cattle by zamindars and waderas and suffer from perpetual shortages of teachers and other basic facilities. Various TV programs in Pakistan say this repeatedly. The answer to this conundrum is that the service delivery mechanism needs to change. We observe that when funds are put at the disposal of NGOS with a good track record one achieves good results. Perhaps, the Government needs to outsource the service delivery to NGOs with a good track record who have the credibility to manage that operate these type of facilities. Government and civil society, together, can set up mechanisms to ensure that the service delivery is up to standard.

(9) Change the Provincial Quota System

The existing quota system leads to centrifugal tendencies and is bad for national integration. A provincial quota system only exacerbates provincial feelings. The main recruitment to all Government jobs should be on merit. At present only 7.5 percent of all recruitment to Government jobs is on merit- the rest is through quotas reserved for various provinces, groups etc. This is the only way you can ensure that the best people get the jobs. While most countries have sub-national levels of Government based on States or Provinces, no other country in the world to my knowledge, has a recruitment system based on a quota for these sub-national levels.

The whole idea of the quota system when it was first instituted in the 1950’s was that it would ensure that candidates from underdeveloped areas in the country would get a fair chance at government jobs. We can still achieve this by reserving a percentage of all recruitment for under developed areas. However, all under developed areas, be they in Sindh, Baluchistan or KPK or Punjab should be lumped together into one and candidates from the different provinces belonging go these under developed areas should compete for the seats reserved for these areas. This will ensure that candidates from underdeveloped areas get a fair shot at the jobs without introducing a provincial bias in the system.

We can look at the example of India. They have a quota system for scheduled castes and underdeveloped areas but these quotas are not divided by State. All people from the scheduled castes etc. from all the provinces compete for positions reserved for this caste. The same is the case for underdeveloped areas.

(10)Implement Strong Local Government systems and empower citizens to manage their own affairs

Pakistan has recently had elections for the national and provincial legislatures. However we are still waiting to see how power is further delegated downwards that would enable people to manage their own affairs. This is normally done through Local government systems.
We are already seeing resistance to this further delegation of powers by the political parties who are in power at the provincial level. This is most pronounced in Sindh and Punjab. The problems of Sindh are particularly dependent on this aspect due to the arbitrary division that exists in this province between Urban and Rural Sindh. This needs to be addressed.

The basic problem in Sindh is that it is the only province in Pakistan where a distinction has been made between Urban and Rural areas. This has been done ostensibly as an affirmative action measure to level the playing field for the rural Sindhi population which is less developed against the more educated Urban areas where other ethnicities reside and constitute a majority.
The consequence of this is that no matter how the Urban votes are cast, the management of all of Sindh including Urban Sindh, will always lie with the representatives of the Rural areas, since the rural seats in the provincial, assembly are more than those for the Urban areas.

The people who have the responsibility to address local issues for the Urban areas have no interest in doing so, since their vote bank comes from the rural areas.

Further as a result of the recruitment quotas the state bureaucrats and the law and order agencies who are responsible to implement the policies made by the rural politicians are also largely staffed from areas other than Urban Sindh.

So as a consequence the people of Urban Sindh have little or no voice in either the formulation or the implementation of the policies that affect them directly.

It is obvious to an outsider that the real solution is that the governance system be modified so that the political representatives of the people are made responsible for all areas that affect the lives of the people living there and the necessary resources are allocated to them. They will have a direct interest in doing so. If they do not, they will be thrown out in the next elections. This will be possible only if either, the division of the province, which is currently half done, is completed and two separate provinces formed with separate electorates, assemblies and budgets.

A second less drastic option is that responsibility and resources are devolved to a third tier of Government and implement a strong local government system where the local representatives are given extensive responsibility and the resources to manage all local affairs.

We see that when responsibility was actually devolved to this level, as was done during General Musharraf’s time, Karachi witnessed tremendous progress and the law and order situation was also much better.

Concluding remarks: We need to realize that national policies have to be consistent with the primary objectives of government which are to ensure social justice and economic growth in a secure environment. These policies should be based on justice and fair play and may need to be adjusted with time as ground realities change and should be willing to make these changes.



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