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Global Go To Think Tank Index (GGTTI) 2020 launched                    111,75 Think Tanks across the world ranked in different categories.                SDPI is ranked 90th among “Top Think Tanks Worldwide (non-US)”.           SDPI stands 11th among Top Think Tanks in South & South East Asia & the Pacific (excluding India).            SDPI notches 33rd position in “Best New Idea or Paradigm Developed by A Think Tank” category.                SDPI remains 42nd in “Best Quality Assurance and Integrity Policies and Procedure” category.              SDPI stands 49th in “Think Tank to Watch in 2020”.            SDPI gets 52nd position among “Best Independent Think Tanks”.                           SDPI becomes 63rd in “Best Advocacy Campaign” category.                   SDPI secures 60th position in “Best Institutional Collaboration Involving Two or More Think Tanks” category.                       SDPI obtains 64th position in “Best Use of Media (Print & Electronic)” category.               SDPI gains 66th position in “Top Environment Policy Tink Tanks” category.                SDPI achieves 76th position in “Think Tanks With Best External Relations/Public Engagement Program” category.                    SDPI notches 99th position in “Top Social Policy Think Tanks”.            SDPI wins 140th position among “Top Domestic Economic Policy Think Tanks”.               SDPI is placed among special non-ranked category of Think Tanks – “Best Policy and Institutional Response to COVID-19”.                                            Owing to COVID-19 outbreak, SDPI staff is working from home from 9am to 5pm five days a week. All our staff members are available on phone, email and/or any other digital/electronic modes of communication during our usual official hours. You can also find all our work related to COVID-19 in orange entries in our publications section below.    The Sustainable Development Policy Institute (SDPI) is pleased to announce its Twenty-third Sustainable Development Conference (SDC) from 14 – 17 December 2020 in Islamabad, Pakistan. The overarching theme of this year’s Conference is Sustainable Development in the Times of COVID-19. Read more…       FOOD SECIRITY DASHBOARD: On 4th Nov, SDPI has shared the first prototype of Food Security Dashboard with Dr Moeed Yousaf, the Special Assistant to Prime Minister on  National Security and Economic Outreach in the presence of stakeholders, including Ministry of National Food Security and Research. Provincial and district authorities attended the event in person or through zoom. The dashboard will help the government monitor and regulate the supply chain of essential food commodities.

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Pakistan’s Climate Agenda

Abstract:

(This article seeks to review the major policies evolved by Pakistan and the institutions established by it to promote efforts toward mitigation and adaptation of climate change and mobilize financial resources to implement its climate programs and projects. It also offers some ideas on enhancing the success of its climate agenda in the short and longer terms. – Author)

Unless the deadly coronavirus pestilence continues to defy the all-out global efforts to contain its spread within the next few months, thousands of representatives of the international community will assemble in the Scottish city of Glasgow at the end of October for two weeks of intense discussions on stepping up concerted actions to ward off the looming climate crisis for which there can be no vaccine.

The Glasgow climate conference (officially known as the twenty sixth meeting of the parties of the international agreements on climate change or COP 26), hosted by Britain and jointly run with Italy was slated to take place in November 2020 but was put off for a whole year due to Covid -19.

COP 26 is being convened against a deeply sobering backdrop. The year 2020 was found to be the hottest year of the decade and it saw an increase in climate induced extreme events in all regions of the world. During this year, there were devastating wildfires in Australia, Siberia, the American West and South America and as many as thirty storms in the Atlantic, leading to a “hurricane season”. According to the latest climate report of the World Metrological Organization, global temperature had already risen to 1.2°C and there is a 20% possibility we might see an annual average above 1.5°C before 2024.

The special report of the Inter-governmental panel on climate change had warned that reaching the goal of limiting temperature rise to 1.5°C enshrined in the Paris Agreement (2015) would require “rapid, far reaching and unprecedented changes in all aspects of society, especially in land, energy, industry, buildings, transport, and cities”.

The central message of the IPCC report was that “global net human emissions of carbon dioxide (CO2) would need to fall by about 45%from 2010 levels by 2030, reaching net zero around 2050” (Net Zero means any remaining emissions would need to be balanced by removing CO2 from the air.).

The 2020 Emissions Gap report of the UN Environment Programme had stated: “Despite a brief dip in carbon dioxide emissions caused by the Covid-19 pandemic, the world is still headed for a catastrophic temperature rise in excess of 3°C this century—far beyond the Paris Agreement’s goals of 2°C and 1.5°C”.

The main objective of the Glasgow climate conference would be to secure commitments of carbon emission cuts matching the above warnings from the participating countries.

As a country that is vulnerable to all the negative impacts of climate change, Pakistan has an existential interest in the outcome of COP 26. How can Pakistan utilize the Glasgow meeting to secure greater appreciation of its vulnerability to climate change and increase support for its efforts toward the twin objectives of adapting its economy to the adverse effects of climate change and contributing to the global endeavor to reverse it?

The Road to Paris (COP 21, December 2015) from Rio de Janeiro (the UN Conference on Environment and Development- UNCED-, June 1992).

In a remarkable example of policy being defined by science, leaders of more than 195 states adopted an agreement—the UN Framework Convention on Climate Change or UNFCC—in June 1992 at the conclusion of the UN Conference on Environment and Development (UNCED, also called the Earth Summit). The agreement was culminated after more than a year and half long negotiations aimed at implementing the recommendations of the first assessment of the Inter- Governmental Panel on Climate Change (IPCC), the prestigious assessment panel established by the UN in 1987 to investigate all aspects of climate change, including international cooperation to address the newly identified global threat.

The Climate Change Convention upheld the scientific consensus that the huge increase in heat-trapping Greenhouse Gases (GHG), especially carbon dioxide (CO2) released from burning of coal, gas and, later, oil for generating energy since the Industrial Revolution has upended the natural balance of the planetary climate. It also confirmed that although developing countries had not contributed to the historic buildup or new releases of carbon, they would likely bear the major brunt of the disruptions wrought by a heating planet such as high surface and ocean temperatures and extreme weather events like floods and droughts, coastal hurricanes, rapid melting of Ice and snow stored by the planetary glacial system, rising sea level and ocean acidification flooding coastal regions, tsunamis and life threatening heatwaves.

The Convention stated the obligation of developed countries to lead the efforts to restore climate stability as well as assist developing countries, through financial and technological support to cope with the negative effects of climate change. The UNFCC stressed that climate change, being a global threat, could only be addressed through concerted actions by the international community and instituted annual ministerial level meetings of countries that had ratified the Convention to consider cooperative measures for restoring climate stability. The Convention embraced the ‘principle of common but differentiated responsibilities and respective capabilities’ (CBDR) in regard to actions to roll back climate change.

The third meeting of Parties (COP3) of the UNFCC, held in Kyoto (Japan) in December 1997, adopted an agreement called the Kyoto Protocol requiring the thirty–eight (38) developed countries identified in the Convention to reduce their carbon emissions by 5% compared to 1990 levels in an effort to mitigate global warming and its consequences. The United States Congress rejected the Protocol. The implementation of the Protocol was uneven because several rich countries reneged on their commitments.

The UNFCC and the Kyoto Protocol led to the establishment of scores of climate change research stations and advocacy forums to advance scientific research on all aspects of climate change, especially the drivers and impacts of climate change as well as mitigation efforts such as promoting better management of forests, energy efficiency and conservation and developing cleaner, non- fossil-based sources of energy. However, both developed and developing countries continued to spew growing amounts of carbon and other GHG due to their fossil fuel powered industrial development and energy intensive lifestyles.

In 2006, China replaced the United States as the largest emitter of CO2 although the US and other OECD countries continued to release huge quantities of CO2. Russia and a few developing countries in different regions also increased their GHG emissions, thanks to their rapid industrial and agricultural development.

Anticipating the expiry of the Kyoto Protocol in 2012—while climate change was getting worse—COP 13, held in Bali (Indonesia) in 2007, decided to initiate negotiations for a new agreement on sharper reduction in the ever-increasing global carbon emissions. Developed countries jointly demanded commitments by the fast-developing countries to curtail their carbon emissions in order to promote climate change mitigation. Developing countries initially resisted but eventually conceded whilst linking their emission cuts to financial and technological cooperation and support by the developed countries.

COP15, held in Copenhagen in December 2009, was expected to adopt a new climate agreement. Negotiations were plagued by evidently unbridgeable differences between the developed and developing nations. At the last minute, a group of world leaders, including President Obama and President Xie Jinping, jointly drafted a short 2-page document captioned the ‘Copenhagen Accord’, containing key elements of global climate action concerning Mitigation, Adaptation, Finance, Technology support, and Capacity Building. They were able to secure the support of a large number of developing and least developed countries for the Accord. However, the statement was turned down by the concluding plenary of the Conference.

Despite the formal rejection of the Copenhagen Accord, its major elements were elaborated during COP 16 and subsequent conferences which formally approved the arrangements, including the Green Climate Fund, the Adaptation Fund, the Technology Support Network, etc. The Paris Agreement adopted at COP21, held in Paris in December 2015, consolidated all the previous decisions and added new elements.

 

For details Visit: https://criterion-quarterly.com/pakistans-climate-agenda/

Not a formula budget

Looking at the ruckus in the National Assembly at the start of the budget session, many had thought that the government would find it extremely difficult to get the Finance Bill 2021-22 passed. However, the finance minister addressed the opposition’s concerns by withdrawing almost all the controversial budget proposals: powers of the FBR to arrest tax evaders, tax on medical bills reimbursement, internet, and zero-rated regime on dairy, etc. In apparent reciprocity, nearly two dozen members of a major opposition party remained absent from the house at the time of voting on the finance bill. Resultantly,the government got a walkover and managed a smooth approval of the budget.

One has to admit that the budget, after the incorporation of the opposition’s suggestions, could not have been better under the given circumstances. The ground realities have not changed much for the last five decades. Each fiscal year starts with plans for more spending than the expected revenues. The fiscal deficit is met through internal and external resources (read loans). New loans are sought to pay the previous debts.

This year too, the federal government, with Rs 4.49 trillion in its pocket (after paying the provincial share from the federal divisible pool), is aiming to cater for an expense of Rs 8.48 trillion. This means that the fiscal year started with a deficit of Rs 3.99 trillion. The government can compromise on one source of revenue but would have to compensate the loss from another head, borrow more, or curtail its expenditure to remain within the fiscal deficit target.

Finance Minister Shaukat Tareen has managed to send positive vibes to all sectors of the economy, i.e., manufacturing, services and agriculture. The budget has been called a confidence booster, and its approach not to use commerce and industrial policies as revenue collection tools is widely appreciated. The good feeling is not confined to the industrial sector. Big businesses and corporate houses are also happy with some of the budgetary measures. Relief for cars (up to 1,000cc) in the budget got extended to big cars as well due to a progressive auto (vehicle) policy.

Agriculture, too, is on policymakers’ radar. The prime minister is giving special attention to food security and transformation of agriculture. Considering that agriculture is a devolved subject, the federal government has used its influence on the Punjab and the KPK to allocate substantial amounts for agriculture in their budgets.

In the social sector, the focus is on social safety nets (with a record allocations for Ehsaas initiatives), Covid-19, health (steps towards universal health insurance provisions through federal and provincial budgets) and afforestation/climate change. Compared to last year, the PSDP allocation has increased and there is a renewed focus on utilising the funds effectively. An increase in minimum wages and salaries/pensions for government officials, subsidised loans for SMEs, low-cost housing, farmers and the youth are commendable measures.

On revenue collection, the finance minister seems to have adopted a dual strategy. First, to reduce the cost of doing business and improve ease of doing business. These measures will enhance economic activities that will increase the size of the pie for tax revenue collection. Second, he sounds committed to broadening the tax net through data, technology, and administrative measures.

The bad news is that some of the feel-good factors in the budget, especially small loans on subsidised markups for the masses and the SMEs, will not get disbursed due to institutional inertia. Our commercial banks are not tuned to serve the credit needs of small account holders. Their reluctance to provide housing loans is a major hurdle in the success of PM’s small housing scheme. The SMEs, farmers and the youth will face similar problems in availing of subsidized loans.

Another bad news is that the budget may not contain inflation. An increase in demand, especially for oil is affecting prices. The experts are already warning of inflation in the developed world and stagflation in the developing world.

Between October 2020 and January 2021, global petroleum prices went up by 32 percent; soybean oil prices rose by 70 percent and palm oil by 20 percent. The prices of refined sugar, pulses and tea increased by 56 percent, 32 percent and 6.6 percent, respectively. Since we are dependent on imports to meet our demands for edible oil, pulses, and tea, their global prices affect their selling prices in Pakistan.

The government is trying not to pass on the entire impact of international oil prices to domestic consumers. However, there is a limit to what it can absorb. If the Saudi Arabia-UAE dispute on increasing the supply of oil by OPEC (plus Russia) continues then the oil prices may touch $90 per barrel over the coming months. The government will then have to raise the petroleum prices. Any increase in petroleum price will trigger cost-push inflation. Moreover, with no cushion to apply additional levy, the government may miss its budgeted petroleum levy revenue target of Rs 610 billion. The deficit will either be compensated through other taxes or increase the fiscal deficit.

A hike in crude oil prices will also affect the rates of gas and furnace oil. This will jack up the cost of electricity generation. The IMF is already asking Pakistan to contain its energy circular debt by increasing electricity tariffs. Higher energy cost will have a ripple effect on inflation.

A factor responsible for food inflation is the fluctuating prices of perishable commodities, such as tomatoes, onions and other vegetables and fruits that keep changing with their supply. Due to a lack of storage facilities, they are sometimes sold below their cost of production when their supply is abundant. Their prices rise steeply when their supply dries up. Although there are concessions for silos manufacturers and allocation for warehouses in the federal budget, during 2021-22, prices of perishable food items will continue to fluctuate.

The Rs 10 per kilo and Rs 15 per kilo increase in support price of wheat in the Punjab and Sindh, respectively, will cause a proportional rise in wheat’s issue price to the flour mills. This will mean an increase in wheat flour prices too.

The government may not contain inflation. However, it can control exorbitant increases in prices through better governance and the use of data and technology to curb hoarding. The government has tried to improve the purchasing capacity of the consumers in the federal budget. Payments provided through the Ehsaas programme, an increase in minimum wages and an increase in salaries and pensions of government officials are steps in that direction. It is also planning to shift to targeted subsidies (through technology and data), departing from the existing across-the-board subsidies model. Improved social safety nets and a targeted subsidy regime will provide significant relief to the most marginalised groups. However, during this transition, the middle-income earners will suffer.

The finance minister has prolonged Pakistan’s negotiations with the IMF. It seems that the sixth and seventh review of the Fund for release of subsequent tranches will be clubbed together and take place at the end of September, i.e., at the end of the first quarter of this fiscal year.

The next three months will be crucial for Pakistan to prove to the IMF that its strategy for revenue collection is effective. If we can achieve the revenue targets for the first quarter of the year, it will be easier to persuade the IMF that we should be allowed to fulfill the programme conditionalities at our own pace and sequencing.

The writer heads Sustainable Development Policy Institute. He tweets at @abidsuleri

Time to rethink economic governance

Broadly speaking, economic governance is a process of decision making that affects economic activities. In many studies it refers to capability in government to achieve stable economic conditions. Evidence, in general, suggests that economic governance has a positive impact on economic performance and development through improved economic efficiency and macroeconomic stabilisation. Poor economic governance, on the other hand, leads to inefficiencies and instability.

Pakistan has been trapped in policy uncertainty and serious macroeconomic challenges, including, but not limited to, volatile economic growth, balance of payment crises, eroding external competitiveness and low investment inflows.

While many solutions have been proposed to get out of the trap, the debate on rethinking and restructuring economic governance has been relatively limited.

The first and foremost challenge in Pakistan is the very concept of economic governance. Economic governance in Pakistan, mainly starts and ends with announcing policy changes. Governance reforms, therefore, largely focus on end product and ignore improving the process of choosing and implementing these reforms.

Recent examples of this include the reforms agenda agreed under the current IMF programme and SBP Amendment Act 2021. The new economic management team has retreated from the former and the latter has encountered resistance largely because it came as a surprise.

Transparency and broad-based participation of stakeholders in setting the IMF reform agenda and formulation of the SBP Amendment Act would have avoided many of the problems and most of the resistance.

Further, a disproportionate focus on fiscal policy — as an exclusive tool of economic management — led to ignoring supporting reforms needed in other sectors of the economy. This created a bifurcation in macro-economic policy on one hand and compromised the effectiveness of reforms on the other.

Pakistan must learn that an enhanced understanding of economic governance after global financial crisis in the past and most recently Covid-19 involves coherent fiscal, monetary and trade policies formulated and implemented with improved participation, transparency and accountability.

The treasury-only model of economic governance in Pakistan has a background. First and foremost, Pakistan followed an inward-looking policy for growth and relied on import substitution. Tariffs, duties and tax exemptions have been the major tool for managing imports.

Second, there is a misplaced focus on revenue collection – call it revenue extraction rather – as the single major success criterion of economic management added extra weight to fiscal policy to the extent that it emerged as substitute to economic governance.

Third, the country, as expected in an inward-looking growth model, generated a consumption-based economy with trivial focus on investment. Consumption, including government expenditure, emerged as the major policy to boost economy.

These, and many other factors, led to neglecting the importance of trade policy in general and monetary policy in particular. The role of monetary policy got limited to financing deficits and keeping the rupee overvalued to artificially stimulate consumption.

Fiscal policy, particularly tax policy, therefore, emerged as the single major tool of economic management. Research from the academia and civil society to a large extent limited itself to tax policy. Annual budget, setting high revenue targets and changes in taxation policy, emerged as the single most important tool of economic management. All in all, treasury, enjoying fiscal dominance backed by a structure of economic policies became the only face of economic governance.

The Covid-19 crisis and the increasing role of financial markets in shaping the policy outcomes have put fiscal-policy-only economic governance approach to a severe test.

Now that Pakistan is recovering from Covid-19 and moving towards export-led growth, the idea of economic governance needs a new think. A coherent and efficient economic governance structure is required.

The present model of economic governance in Pakistan has failed to take account of diverging price, productivity stagnancy, negligible wage growth and external imbalances. Macro-economic crises, soaring trade imbalances, balance of payment crises and escalating public debt have occurred routinely over the last 70 years. Also, every new crisis beats the previous one in scale and severity.

Treasury-led governance has focused exclusively on the domestic revenue-expenditure gap. To properly handle and focus on external imbalances, monetary and trade policies need to have improved coordination with treasury without super-imposing the fiscal dominance.

At the same time, the SBP needs a rethink on two fronts, at least. A global financial crisis has already challenged the conventional view that monetary policy has a short-run objective only. Experts agree that Covid-19 has demonstrated that monetary policies pursuing short-run fine tuning created monetary and financial imbalances.

Monetary policy decisions affect medium and long term outcomes, such as inequality and climate action. These and similar other concerns earn the central banks a key position in economic decisions-making and governance. The SBP needs to align itself with modern thinking on the conduct and scope of monetary policy.

Further, decision-making in monetary policy in general and setting transformative agenda, like SBP Amendment Act, need to be more open and broad-based in seeking opinions. Public opinion must carry a greater weight in agenda setting.

Finally, monetary policy communication needs to go beyond announcing decisions, such as monetary policy statement. It must provide information behind these decisions and conclusions. Many central banks now publish minutes of meetings of monetary policy committee meetings. Such a practice can help the SBP improve policy effectiveness and create an audience for monetary policy.

Transparency of government accounts and transparency of economic and regulatory environment for private sector activity are fundamental ingredients of good economic governance. The reforms, therefore, must also be put in place to ensure independent economic and fiscal analysis with standard quality and enhanced transparency of economic statitstics. Arrangements should also be made to standardise economic statistics reporting across the provinces.

The writer heads the Policy Solutions Lab. He tweets @sajidaminjaved

Quitting tobacco through therapy

Tobacco took the world by storm for almost 100 years. Multi-national tobacco industries have grown into powerful giants capable of dictating policies to the governments, especially in the low-and-middle-income countries (LMICs).

Pakistan has been a signatory to the World Health Organisation’s Framework Convention on Tobacco Control (WHO FCTC) since 2005. The treaty calls for policies that can limit and ultimately end the use of tobacco products.

WHO’s cost-effective, tested and high-impact MPOWER measures are guideline for the signatories. M is for monitoring tobacco use, P is for protecting people from tobacco use, O is for offering help to quit tobacco use, W is for warning about the dangers of the tobacco, E for enforcing a ban on advertising, promotion and sponsorships, and R is for raising taxes on tobacco products.

Pakistan has been working on most of these measures barring O – offering help. In line with Article 14 of the WHO FCTC, in May 2021, the Tobacco Control Cell (TCC) at the Ministry of National Health Services Regulation and Coordination inaugurated the Tobacco Cessation Clinic, to fulfill this obligation. This was a long-awaited step in the right direction.

Cessation help has been visibly absent from the implementation of the FCTC guidelines in Pakistan. In 2007, only 10 countries provided these services to their citizens. By 2019, almost 2.4 billion people were covered by the facility in 23 countries.

By becoming a participant in the effort, Pakistan has added a whopping 24 million tobacco users to the list, many of whom have been willing to quit and have already tried. The WHO claims that due to severe impact of Covid-19 on the health of the tobacco users, almost 780 million people around the globe are willing and eager to quit. Pakistan’s health system is struggling to cope with the coronavirus pandemic. Tobacco users continue to add fuel to the fire.

As per the FCTC recommendations, Pakistan, through this TCC aims to integrate tobacco interventions into primary care, offer counselling services, bring forth a quit helpline to the rescue and facilitate access to and affordability of smoking cessation medications and therapies that can cut the craving and ease the physical discomfort of nicotine withdrawal.

Tobacco industry is fully aware of these and many more impending policies and continues to plan and implement addictive methodologies in anticipation, mostly with impunity.

Introduction of Velo, and vaping as cessation or replacement therapies can be taken as a pointer. British American Tobacco (BAT) has identified Pakistan and Kenya as the two target countries to spread these products and then market them with the help of social media and electronic media influencers. The BAT has spent up to $1 billion in marketing these products despite the Tobacco Advertisement and Point-of-Sale Ads ban promulgated in February 2020. Since this ban does not prohibit online advertisements, the BAT and Philip Morris are targeting the youth through social media and getting away with it.

Tobacco industry proposes vaping heated tobacco products, E-cigarettes, and chewable products, such as Velo, Lyft and Zyn, as quit or replacement therapies. A majority of studies or advertisements showing these products as safe or as replacement products are sponsored by the tobacco industry.

There is no credible scientific evidence that vaping products are safer than smoking products. It is only commonsense to understand that vaping or chewing tobacco products can never be a replacement for smoking. These are tobacco industry’s ploys to attract young tobacco users.

A clear and unequivocal case has been made in a research titled, Deconstructing Disruptive Industrial Technological Models: Concord between Smoking and Vaping. The research has been published in the Journal of Development Policy, Research and Practice by the Sustainable Development Policy Institute. The study argues that tobacco industry manufactures products that kill 50 percent of its users. It wants attract new users, who are much younger and will continue to use these products for many decades, ensuring profitability.

WHO Director General Tedros Adhanom Ghebreyesus said, “to truly help tobacco users and to strengthen global tobacco control, governments need to scale up policies and interventions that we know work”. He suggests that the governments need to intervene with the “tried and tested” pharmaco-therapies to promote cessation.

Pakistan’s tobacco control advocates have appealed many times for policy interventions to double down on preventing the tobacco industry from promoting such products and narratives. E-cigarettes were once starting to make their way in Pakistani market. Within a very short span of time, the markets have been infested with the chewing tobacco products, such as Velo by the BAT and E-Cigarette in uptown markets across Pakistan. Absence of an online advertising ban, weak vendor licensing regulations (especially for E-Cigarette vendors), and unchecked imports are all facilitating the tobacco industry keep its hold the youth.

It is important to reiterate the need to strengthen the Tobacco Cessation Clinic at the Ministry of Health. There is a need to support the WHO’s year-long Commit to Quit campaign. This campaign aims to help more than 100 million users stop using tobacco products and banks on its powerful publication “More than 100 reasons to quit tobacco”.

“Covid-19 has devastated communities and is presently decimating much of South Asia, but there may be a silver lining to this pandemic as more people embrace the importance of lung health and the urgency to stop using tobacco,” said Gan Quan, director of The Union’s Tobacco Control Department. “The WHO’s Commit to Quit campaign provides evidence-based, digital tools to help users stop using a lethal product. In the past year, LMICs have taken important steps to limit novel product availability. Combined, the campaign and policy changes can be the one-two punch to turn the tobacco epidemic around.”

Syed Ali Wasif Naqvi heads the Centre for Health Policy and Innovation, Islamabad.

Syeda Aneeqa Hassan is a Food Safety Officer with Punjab Food Authority, Rawalpindi

Gwadar gateway of rapid growth

ISLAMABAD: Gwadar, once a backward and destitute area, is emerging as a hub of connectivity and development.

Multiple studies have established that after the completion of China-Pakistan Economic Corridor (CPEC) route, Gwadar will be one of the most competitive connectivity hubs in the region and beyond.

China, the Middle East, North Africa and many Western countries will be the major beneficiaries.

The Advanced Journal of Transportation published a study in 2019, which analysed the possible impact of Gwadar on competitiveness and trade of China with six countries namely Oman, Saudi Arabia, France, Kuwait, Germany and the Netherlands.

Findings of the study suggested that travel time would be reduced by 20 days for Oman, 21 days for Saudi Arabia, 24 days for Kuwait, 21 days for the Netherlands, Germany and France by trading through Gwadar.

Furthermore, results of the study underlined that trading through Gwadar Port would assist the trading partners in saving $1,857 for Oman, $1,457 for Saudi Arabia, $1,457 for Kuwait and $1,357 for Holland, Germany and France on every container. It will enhance the competitiveness of each trading partner in external markets. Trade through Gwadar will also create economic opportunities for Pakistan. It has been predicted that Pakistan can earn revenue in the range of $7-8 billion to $10-12 billion annually in the form of services and fee.

The local industry and services sector along the route will also benefit. Job creation will be the additional benefit. Moreover, the Central Asian states are also looking to connect with the world through Gwadar Port. They have shown extreme interest in Gwadar Port and allied facilities.

According to an analysis of the Asian Institute of Eco-civilisation, Gwadar will offer an opportunity to Pakistan to attract foreign investment, especially in the Special Economic Zones and Free Economic Zones in Gwadar.

The analysis highlighted that by establishing industrial units and businesses in Pakistan, Asean countries would be more competitive.

The major contributing factor would be a substantial reduction in the travel time. For example, the travel time from Port Klang (Malaysia), Bangkok Modern Terminal, Pulau Sebarok (Singapore), Bekapai Terminal (Indonesia) and Port of Hanoi (Vietnam) to Hamburg (Germany) is 39.4 days, 43.7 days, 40.1 days, 45 days and 47.1 days respectively.

On the contrary, by using Gwadar, the travel time will go down to only 29.4 days, which will help to reduce the cost of transportation and enhance competitiveness.

Pakistan can also urge Middle Eastern countries to invest in the South Asian country, especially in the fields of oil, refinery and allied sectors. It will be a win-win proposal.

At present, Saudi Arabia is the biggest oil supplier to China and Kuwait features among top eight oil sellers to China. By establishing a refinery and other facilities in Pakistan, both Saudi Arabia and Kuwait can enhance their profit margins.

It will also create opportunities for Pakistan to develop the refinery and allied business. China will be benefiting from importing oil and other products at a lower cost and through a safe route. In a nutshell, the investment from Asean and Middle Eastern countries will help Pakistan on multiple fronts. It will be a good source of jobs for the locals and the youth as Pakistan is home to a large young population.

It will also provide opportunities to enhance exports of goods from Pakistan and add to the foreign currency reserves, which are required to pay back loans of international lenders. These are only a few examples and one side of Gwadar. On the other side, Gwadar presents excellent opportunities for national development, especially in Balochistan. Pakistan is fully cognisant of the fact. Hence, in recent years, it has stepped up its efforts to develop Gwadar and other parts of Balochistan.

A few days ago, Prime Minister Imran Khan visited Gwadar, inaugurated many projects and witnessed the signing of MoUs. The important projects, which were launched, were the Gwadar Expo Centre, a fertiliser plant, an animal vaccine plant, the Henan Agricultural Industrial Park, Hengmei Lubricants Plant and Gwadar Free Zone Phase-2.

Federal Minister for Planning Asad Umar stressed that the Gwadar Free Zone Phase-2 was 35 times bigger than the free zones in phase-1.

Agreements for a 1.2-million-gallon-per-day desalination plant and solar generators grant from China for south Balochistan were also signed.

These all initiatives will create hundreds and thousands of jobs for the local people. Jobs are direly needed in Balochistan as there are not many employment opportunities. These projects will also contribute to improvement in agriculture and livestock sectors in Pakistan through the provision of quality and timely inputs.

The animal vaccine plant will be helpful in controlling diseases among animals, which are hampering export of meat and dairy products.

However, to benefit from all these opportunities and the potential of Gwadar, Pakistan needs to work on two areas.

First, the country should strengthen the CPEC Authority for smooth cooperation, planning and execution of plans. The authority has proved its worth even during the Covid-19 pandemic and has continued to deliver.

Thus, it is suggested to strengthen it by delegating powers of decision-making and implementation.

The government should make it a focal point for international business and investment opportunities. It should have authority to facilitate in getting the required services, licences and permissions. Second, equal job distribution among the youth and talented people will be another area that requires dedicated efforts.

The government will have to make sure that there is no elite capture of jobs, especially by the retired government personnel and relatives of the ruling class. The engagement of the youth is extremely important, especially in the context of fifth generation warfare. Unemployed youth deprived of opportunities will be a real challenge, which will be beyond the capacity of state to control.

Thus, the government should establish mechanisms, which ensure fair competition and considers special needs of the marginalised people.

The writer is a political economist

FATF Choosing to be Unfair

There is an old story of a man with a long beard. He lived in a village where somehow his neighbours did not like him. They all wanted to expel him from the village. However, they could not find any valid excuse. One day, a genius came up with a genius idea. He assured villagers that the man with the beard would now have to leave the village. He raised the objection that whenever that man spoke, his beard moved, which was a great sin. So, the man should immediately leave the village. All the villagers applauded his wisdom. In a nutshell, this is what happened with FATF’s recent verdict on Pakistan.

Pakistan is struggling hard to come out of the grey list and has already satisfied 26 action points from the given list of 27. Its score is even better than in some of the most advanced countries. Thus, it is pathetic to note that some advanced countries with a score lower than Pakistan are still on the white list. It is ridiculous that these same countries are leading the propaganda against Pakistan. This episode urges us to look at the history, evolution and working of the FATF. Created as a result of the G-7 recommendation, it is a club of the powerful elite of the world. Since its inception, it has acted as a tool for G-7. It is an institutional form of an economic hitman. It has double standards. Rather, multiple standards.

The FATF has miserably failed to name the most powerful money launders and facilitators, leave alone take action against them. The most shocking but commonly known fact is that paradises of money laundering are running the show of FATF. It is a slap on the face of the so-called international rule-based system of the West. FinCEN leaks are the most recent event, which has jolted the whole world. The leading banks of the West are the main facilitators of money laundering, knowingly or unknowingly. JP Morgan, HSBC, Standard Charted Bank, Deutsche Bank, UAE Central Bank and Barclays Bank are just a few examples. Besides, according to the FinCEN leak, London is the hub of major money laundering activities. It was reported to have links with about 3000 such companies. Already, a report by Transparency International, UK, has flagged around 86 UK banks and financial institutions for assisting dirty money holders in buying assets.

The FATF was created as a technical institution, but it is now trying to behave as a political organ of the G-7

In this context, few questions require serious consideration. First, is FATF a global institution? No, certainly not. It is a club of few powerful countries. It was established by the G-7 after the fall of the USSR to pursue the dream of being powerful forever and dictating the world. Since its inception, the G-7 has used its economic muscle to dictate its terms, which is evident from the lack of action against leading facilitators of money laundering. Second, is FATF a fair body? The evidence suggests it is not. It is selective in its actions. Clearly, it missed the opportunity to take action against the banks mentioned in FinCEN leaks.

FATF also remained silent over the Uranium sale in India. It rang the alarm bells among the wider diplomatic, defence community and experts. Uranium is extremely lethal and can play havoc with human lives, even countries. Terrorists can use it against civilians, which would be a huge disaster. It is not the first time that Uranium is being made available in the open market across India. It has already happened before. Unfortunately, the FATF could not take an effective move. Although it has direct relevance with terrorism, rather, terrorist attacks, India is still enjoying immunity. The reason remains simple: the political alliance of India with the West. The West wants to use India against China and thus, the immunity. Otherwise, the sale of Uranium is a huge threat to peace.

Third, is it a technical or political organisation? It was created as a technical institution, but it is trying to behave as a political organ of the G-7. Pakistan is observing the worst impacts of political manipulation. The G-7 is using it as an economic hitman. The media is using this opportunity to malign Pakistan and undermine its status. It also has economic implications for us as the international business community avoids doing business with grey-listed countries. There is a broader consensus among independent scholars that the FATF is being used against Pakistan as an arm-twisting tool. It is being used to compel Pakistan to bow down in front of the US and Western demands.

It is no secret that Pakistan has been pursued and pressurised to leave the China-Pakistan Economic Corridor (CPEC). Mr Trump and his administration were hell-bent on convincing Pakistan to part ways with the gamechanger project. It was even discussed at the highest levels. Think tanks, media and digital space were all used to fan propaganda against the CPEC. Mr Biden’s administration is no different from Mr Trump. Rather, it is trying to further complicate the situation for Pakistan. However, Pakistan has refused to accept this pressure. Pakistan has made it clear that the CPEC is our need and there would be no compromise on our relationship with China.

As we know, the US is leaving Afghanistan without any meaningful conclusion of its adventure. It definitely needs support from Pakistan. Pakistan, being a peace-loving country has offered its cooperation. We have already helped the US negotiate with the Taliban and other Afghan stakeholders. Unfortunately, the wish list of the US keeps on inflating, as always. It is the true depiction of the saying, “Old habits die hard.” Now, the US is asking Pakistan to provide air bases to conduct an operation in Afghanistan. Pakistan is refusing to do so. Pakistan is asking a simple question. The US, NATO and Allies could not control the Taliban by physical presence in Afghanistan for 20 years despite deploying the best defence technology of the world. How would it then be possible for the US to control them from the bases in Pakistan?

However, the US is still insisting on the provision of airbases. In Pakistan, many people consider that the US, in collaboration with Allies, is playing a leading role in the FATF. They are all trying to pressurise Pakistan. In this context, it seems that the FATF is behaving like a political organisation, which is not good for anyone, especially for the FATF. It will definitely impact the credibility of the FATF.

To sustain its position and create credibility, the FATF needs to change its course of action. First of all, the FATF should grey-list countries that have been mentioned in FinCEN and other leaks. Secondly, it should also include destination countries in its investigation. Thirdly, the selling of Uranium should be considered the most urgent threat and ergo, the responsible countries should be brought to justice. Lastly, the FATF should immediately stop playing politics.

The writer is a political economist.

The B3W plan and Pakistan

The Group of Seven (G-7) recently announced a plan to launch a $40 trillion programme —Build Back a Better World (B3W). It has presented an infrastructure development initiative. The G-7 has defined the core principles of B3W as: 1) value driven, 2) good governance and strong standards, 3) climate friendly, 4) strong strategic partnership, 5) mobilising private capital through development finance and 6) enhancing the impact of multilateral public financing.

It is good to see that the G-7 has realised that there is a need to invest in development and infrastructure. There is no denying that the world is in dire need of investment to bridge the widening gap of investment for infrastructure development.

The McKinsey Global Institute (MGI) in 2016 reported that the world is in need of $3.3 trillion investment for infrastructure on an annual basis. The report also said that the world is not able to meet the estimated needs of infrastructure. There is a $350 billion gap yearly. Unless serious efforts are undertaken to address the issue, the gap will reach $5.3 trillion by 2030. The projections do not include the needs for climate change adaptation. Moreover, the financial requirements to achieve the targets identified under the SDGs were not included. The MGI study underlined that the inclusion of SDGs will triple the gap so that it will be around $15.9 trillion till 2030.

The Global Infrastructure Hub (GIH) in 2020 also rang the alarm bell. It formulated projections on the basis of data from 56 leading countries. The results showed that the participating countries will be in need of $94 trillion till 2040. The current trends show that the real investment will be around $79 trillion so that the gap will be around $15 trillion till 2040. In this context, the B3W announcement raise hopes.

The success of the B3W programme will hinge upon the two fundamental pillars, 1) it must be inclusive and 2) it must follow the principles of investment, not politics. Unfortunately, that may not be the case. The G-7 has already described the plan as a rival to China’s Belt and Road Initiative (BRI). The objective of the plan apparently is to contain China at any cost. The G-7, led by the US, will use this plan to counter the BRI and Chinese investment. This is an alarming situation for the developing and the least developed countries.

Pakistan will likely face pressure on account of the China-Pakistan Economic Corridor (CPEC). The CPEC is already on the West’s radar. The US, its Western allies and financial institutions are pushing Pakistan to re-think the CPEC. They have called the CPEC a debt trap.

Pakistan should clearly tell G-7 that Pakistan will not be available for a new Cold War. Pakistan has already suffered immensely due to the Cold War and the war on terror.
It is expected that the launch of B3W will further complicate the situation for Pakistan over the coming days. The G-7 may ask Pakistan to join the plan and dump the CPEC. Although Pakistan has always welcomed investment, the conditionalities attached with B3W may make it extremely difficult for Pakistan to join it.

The US recently approved and launched the Strategic Competition Act, 2021. There are many points which require elaboration but the most important areas of interest are, 1) enabling the society to act against the perceived threat of CPEC, 2) creation of institutions to counter the imagined influence of China and 3) undesired interference in other countries.

The law states that the US will enable all sections of the society, including the civil society and think tanks, to counter the imagined influence of CPEC. Every department and agency of the US will create an office of undersecretary to keep a close eye on the perceived influence of China.

The US has declared that Chinese investment in infrastructure are a threat to its national security. So, the US will urge its allies, friends and other countries to not allow Chinese investment. It is feared that this will result in a 21st Century Cold War.

The US might ask Pakistan to be either “with us or against us”. The US and other Western countries can also deploy international financial institutions for arm twisting. Pakistan needs financial resources and cooperation at this point. The IFIs can turn this situation into an opportunity for the G-7.

Pakistan should be able to tell the US that it will never forgo its relationship with China. Pakistan should also clearly tell G-7 and other countries that Pakistan will not join a new Cold War. It has already suffered immensely due to the Cold War and the war on terror.

Pakistan should, however, welcome investment from the B3W as long as there are no conditionalities.

The writer is a political economist based in Islamabad

Uncertainty around the budget

While much has been said on the character of the budget, including revenue targets, growth and size of public spending, it is good to review the underlying foundations upon which these estimates have been built. While the budget has a feel-good focus on SMEs, IT sector, social spending and tax reforms, a deeper dive into the assumptions around which the budget has been built suggests that it is inflationary in nature and will likely face serious implementation challenges.

The first and foremost challenge following the budget is the uncertainty about negotiations with the International Monetary Fund. It is still unclear what stage the government’s discussions with the IMF have progressed to and where it faces a deadlock. Pakistan is already experiencing several setbacks. The World Bank (WB) and the Asian Development Bank (ADB), two of the largest lenders to the country, have deferred their approval of $1 billion worth of loans, for which, failing to meet certain loan conditions and a deadlock in discussions with the IMF, have been cited as major reasons.

This has created uncertainty around budget proposals, particularly their implementation. Whether or not the IMF agrees to the proposed budgetary measures, will have serious implications for the economy. If it does not, will the government decide to exit the programme? Pakistan’s past relationship with the IMF warrants such concerns. For now, however, an exit appears unlikely, given the serious economic repercussions of such a decision, which go far beyond mere budgetary support. An exit will affect the country’s recovery from the Covid-19 disruptions and may wipe out the stability achieved so far.

If the IMF gains a footing in negotiations and the government accepts its conditions (the more likely case), the question of how such conditions will affect budgetary targets and measures, will arise. Will a supplementary budget be announced? How will this effect electricity prices? These and other questions have created uncertainty around the budget, despite several welcome announcements. A well-read market reaction to the budget may indicate the impact of this uncertainty in the coming days. The government must take steps to clear the air around its talks with the Fund.

The second major challenge is the assumptions around which many of the budget targets have been set. First, the budget indicates an extra Rs 570 billion will come from the provinces. The amount in the previous budget was around Rs 242 billion. Receiving an additional Rs 300 billion in FY22, will be very difficult as not much has changed. Second, raising Rs 250 billion from privatisation will not only be a challenging task, but seems rather unlikely, given the country’s history on the matter. Till date, Pakistan has not been able to fully implement privatisation or control SOE losses. The proposal adds to existing pressures, as experts consider the target to be off by Rs 500 billion, when adjusted for last year’s trends, inflation and GDP growth target for FY22.

Fourth, the pro-growth policy measures laid down in the budget are likely to face serious challenges. Let’s begin with the SMEs. The sustainable and inclusive growth proposed by the finance minister will not be possible without economic inclusion of people and businesses, particularly SMEs. While the budget claims to target increasing the financial inclusion of SMEs, it does not lay out a roadmap nor offers any specific measures to achieve this transformation. Measures like opening village banks may not fully address structural barriers that SMEs face.

In addition to its traditional reluctance to lend to SMEs, the banking sector now faces an additional risk of growing bad loans extended to the SME sector during the pandemic, under SME-support measures. In fact, the banking sector fears a default on most of the loans extended to SMEs. Establishing a risk fund would have been helpful in motivating the banking sector to lend to SMEs.

The growth dividend of the budget will also depend on future energy prices. Which, in turn, depends on the outcome of IMF-government negotiations. Any hike in energy prices can compromise growth gains. The expected hike in petrol prices in order to meet the petroleum development levy (PDL) target of Rs 620 billion, will further decelerate the economy.

The fifth challenge, is the tradeoff between budget targets and inflation. The budget is inflationary in nature. Experts predict the government may have to increase petrol prices by Rs 20-25 per liter, if it is to meet the PDL revenue target. This simply means a cost-push inflation. If the IMF does not budge on its demand for energy price hikes, inflation may increase further.

Double-digit inflation during FY22 is therefore likely and may diminish the feel-good factors seen currently. People are already under an unbearable inflation burden. Higher inflation in the upcoming year will not only compromise growth targets, but may also create social unrest. If this happens, the government may be forced to choose between inflation and a budget deficit.

A lower than required raise in petroleum prices, less than expected surplus from provinces and lower collections from privatisation may inflate the budget deficit beyond the given target of 6.3 percent, possibly touching 7 percent or higher. In other words, public debt may balloon further – which happens to be the sixth challenge the government may face. According to State Bank data, Pakistan’s public debt and liabilities in March 2021 increased to Rs 45.470 trillion from 42.804 trillion in March 2020, rising to 97.4 percent of the GDP in March 2021. If the trend continues, public debt and liabilities may surpass the GDP in FY22.

According to the Budget in Brief document, the government has budgeted public debt at Rs 1,166.527 billion for FY22. This, however, may go well beyond the given figure, if history is any guide. In the outgoing year, the government increased public debt to Rs 1,517.064 billion against the budgeted Rs 1,178.886 billion. Assuming the end year fiscal deficit stands at 7.3 percent, against the 6.3 percent budgeted for FY22, an increase of 1 percentage point will create additional public debt of Rs 538.67 billion. Total public debt in FY22 will increase to Rs 1705.197 billion.

While Covid-19 related expenditures have understandably added to the debt burden, a continued rise in debt on the back of poor tax collections can disturb the government’s medium to long-term plan to manage public debt. The government had not been able to raise revenues considerably, even before Covid-19. Overall fiscal deficit in 2018-19 stood at around 9 percent of the GDP. Do not forget that nominal GDP in 2018-19 increased on the back of higher inflation, leading to a lower deficit estimate.

Similarly, in the outgoing fiscal year, revenue collection was mainly financed by an 8.6 percent inflation and a depreciation of rupee against the dollar. Experts consider around Rs 500 billion in revenue to have come from depreciation alone, with a higher rupee value of imports leading to higher tax collections.

The government must seriously work on increasing tax revenues by expanding the direct tax base. However, if the 2021 budget is any indication, it seems that the government remains more focused on raising revenue through indirect taxation. In fact, it is budgeted to collect Rs 3,647 billion from indirect taxes, with a key share worth Rs 2,506 billion coming from sales taxes. Progressive taxation remains a distant hope.

With the budget now having been presented and relatively well-received, the government must recognise these and other challenges and lay out a clear plan to overcome them. Each of these challenges, if left unaddressed, can adversely affect the government’s agenda of a sustainable higher growth level and higher economic inclusion, in addition to disturbing the budget plan.

The government must understand that sustainable and inclusive growth comes from sustainable and inclusive foundations. Effective and efficient fiscal planning to support such an agenda, is not possible without admitting the underlying challenges. In this regard, a realistic and contextual analysis is the first pre-requisite – the government needs to work on it.

The writer is an economist with interest in social content in macroeconomic policy. He regularly writes on structural issues facing the economic policy in the country. He tweets @sajidaminjaved

General impact

Historically, budgets in Pakistan have been interpreted differently by different stakeholders. All governments claim the budgets presented by them are pro-people and pro-growth. The opposition parties always find these budgets to be “anti-poor.” The masses complain that the expenses that pinch them the most (i.e., electricity tariffs, petroleum prices, cost of living, cost of transportation etc) are never dealt with transparently. The story of the budget 2021-22 reads familiar.

One of the salient features of public policy measures is that there are always some beneficiaries. Conversely, the best possible public policy will cause some stakeholders to do less well. The objective of the public policymakers should be to ensure that the beneficiaries of their policies outnumber those losing out. Let us look at the federal budget’s good and bad sides.

Good news first: the government has abolished a dozen withholding taxes. It has reduced the general sale tax (GSTs), regulatory duty, import duty, additional import duty, federal excise duty (FED), and value-added tax for many industries and sectors. Some of the beneficiaries (subject to conditions) of the above-mentioned measures include manufacturers/importers of cars up to 850cc and those of electric vehicles, manufacturers of medical and surgical apparatus, local fruit juice manufacturers, paper industry, wood industry, yarn industry, shoe industry, machine-made carpet industry, ready to use supplementary foods (RUSF) and ready-to-use therapeutic food (RUTF) producers/importers. The list goes on to include telecommunication services, warehouse services, travel and tour services (domestic air travel), and oilfield services etc. Duty and tax benefits for these industries will reduce the prices of some of the goods and services of these industries.

Another good news is that through this budget, the government has tried to enhance the purchasing power of the citizens (based on their eligibility for different initiatives). To this end, it has increased the salaries and pensions of government officials by ten percent. After three years, it has raised the minimum wage. There is a large allocation also for the government’s flagship social protection programme, Ehsaas (through which cash is disbursed to targetted beneficiaries). There are plans to provide loans to the agricultural sector, urban households and small and medium entrepreneurs.

The third good news is that the health sector is on the policymakers’ radar. Provision of funds for procurement of Covid-19 vaccines, and allocations for measures to contain Covid-19 are steps in the right direction.

The fourth good news is the allocation of a substantial amount for subsidies. However, a large chunk of this amount will be spent on payment to independent power producers.

The fifth good news is a promise by finance minister to end FBR’s discretionary powers, the introduction of third-party audit and confidence-building measures to reduce the trust deficit between tax collectors and citizens. The corporate sector will benefit from reduced taxes. However, these will not directly benefit the masses.

Now let us turn to some of the potentially bad news. The proposal to give FBR officials the power to make arrests for tax evasion is not consistent with the stated objective of building trust between the taxpayers and the FBR. The government will do well to be more consistent in its messaging to the people.

The government plans to fetch an additional Rs 85 billion (12 percent higher) through custom duties, an additional Rs 579 billion (30 percent increase) through sales tax, and an additional Rs 81 billion (29 percent increase) through FED. It also plans to fetch an additional Rs 392 billion (22 percent more than last year) through taxes on income. One may argue that tax on income will pinch those who have income above a certain threshold and will not affect the masses. However, Rs 745 billion is to be collected through indirect taxes. The indirect taxes are regressive and hurt the low-income earners more.

These taxes will raise the price of sugar (Rs 7 per kg GST added in the retail prices), processed and packed dairy products (subject to GST now), online shopping, LNG, silver, gold jewelry, tyres, and many other items.

The elephant in the room is energy prices which are linked to the crude oil prices in the international market. These are nominally determined by the Oil and Gas Regulatory Authority (in case of oil and gas) and the National Electric Power Regulatory Authority (for electricity) and not discussed in the federal budget. The sale price of petrol to the consumer includes refineries’ costs, oil marketing company’s and dealer’s margin, inland freight equalization cost, general sales tax (which is shared with the provinces), and petroleum levy (which is the federal government’s revenue). The upper cap for petroleum levy is Rs 30 per litre in the case of petrol. Government compromises on income to be collected through petroleum levy to safeguard the domestic consumers from an abrupt increase in petroleum prices globally.

The prices of crude oil are increasing. Currently they are hovering around $74 per barrel (almost double the low a few months ago). The OGRA has been recommending an increase in domestic prices of petroleum products. The prime minister rejected the OGRA recommendations for several weeks until the prices were raised earlier this week.

For the next year, the government has budgeted a Rs 600 billion collection through the petroleum levy. Currently, the levy charged is Rs 4-6 per litre. To meet the ambitious target of Rs 600 billion, it will have to be increased significantly. Meanwhile, crude oil prices are expected to touch $90 per barrel by the end of 2021. Fuel inflation will, in turn, trigger cost-push inflation.

Likewise, the electricity tariffs will likely be revised upwards to contain the so-called energy circular debt. The tariff revision will include a ‘rationalisation’ of subsides.

The subsidies will likely be diverted mostly to lifeline consumers.

The budget has many pro-growth measures. The down side is that while these may increase purchasing power, inflation will be hard to contain. The lower-middle-income and middle-income groups will bear the brunt of inflation as well as the impact of diversion of subsidies. The poor apparently have nothing left to lose; the rich are largely immune to the price-hike shock.

The writer heads the Sustainable Development Policy Institute. He tweets at @abidsuleri

Cooperation of all nations, not rivalries, needed now

The world’s huge infrastructure gap is widening with every passing year by about $350 billion, with the total gap projected to hit $5.3 trillion by 2030, according to the McKinsey Global Institute. The projected gap will triple to around $15.9 trillion if the needs of the United Nations’ Sustainable Development Goals are included.

In 2020, the Global Infrastructure Hub, a G20 initiative, projected that the gap would be around $15 trillion by 2040 on the basis of data from 56 countries.

China has realized the worrisome situation and extended its hand in cooperation. It began efforts long before the sustainable development goal commitments and the aforementioned projections through its Going Global policy. In 2013, the China-proposed Belt and Road Initiative was launched, and China also pitched programs to help poor and less-developed countries.

Unfortunately, while the Chinese have invested in helpful projects, the United States and some other Western countries immediately started anti-China campaigns of one name or another.

Now the G7, the group of seven industrialized nations, proposed its own program, called Build Back Better World, or B3W.Investment is good in any form, especially if it helps to bridge the gaps and bring the world closer.

Unfortunately, it is not so in this case, since the G7 has termed the B3W a program to rival the BRI and Chinese investment. The G7’s intentions are clear: undermining China through coercive diplomacy and action.

However, the B3W will find it hard to compete with the BRI for multiple reasons.

First, the Global Infrastructure Hub projected that 56 countries including those in the G7 will need $94 trillion for infrastructure through 2040. The American Society of Civil Engineers said this year that the US will face a gap of $2.6 trillion in the next 10 years in meeting the needs of infrastructure investment. Thus, the B3W’s $40 trillion will not be able to meet the needs of leading countries, let alone other nations.

Inclusion of developing and least-developed countries will further complicate the situation. For example, the World Bank said in 2014 that South Asia would need $2.5 trillion through 2024 to meet development goals. Independent experts concluded that South Asia would not be able to invest the required financial resources.

Second, the B3W is exclusive in nature, as it has been designed to counter China. It is hard to understand how the world could sustain growth by excluding China, the world’s second-largest economy and biggest trader and market of the future. It is estimated that around 600 million Chinese will join the middle-income group by 2049, presenting huge potential not only for China, but also the world.

Third, the B3W is not the first rival program. The US also launched the Better Utilization of Investments Leading to Development Act in 2018 with the hope that the private sector will chip in and lead the way.

In addition, Australia launched the $1.46 billion Pacific Fund, while Japan and India established the Asia-Africa Growth Corridor.

Moreover, it is important to highlight that Western powers developed by exploiting less-developed countries in the past. They colonized Asian and African countries, plundered their resources, and treated indigenous people with inhumane cruelty. They also did not hesitate to resort to the genocide of indigenous groups.

The new era allows no room for colonization. Keeping this reality in mind, the West has invented new tools and means to maintain control of resources. China has challenged their hegemony with better alternatives, but the West is trying to renew the hegemony, which is one of the objectives of the B3W.

Now the pertinent question is: Will the B3W be successful? Yes, it can be successful if the G7 tries to build cooperation with China and say goodbye to coercive policies.

For that purpose, the G7 would first of all have to abandon the words and intention of “rivaling or countering” and look for ways to build connections with the BRI and other initiatives. Second, it would need to accept that China cannot be singled out. Third, it needs to realize that the West can no longer prolong hegemony.

So it’s better to live with the new dynamics than to beat the drum of the past.

The world needs cooperation, not rivalries, in the face of multiple challenges. On top of everything, climate change has threatened the planet’s very existence.

China is not only ready to cooperate, but calling for cooperation, with President Xi Jinping noting that the world is a community with a shared future for humankind. The world should study his idea.

 

 

 

The author, a political economist, is director of the Asian Study Center at the Sustainable Development Policy Institute based in Islamabad, Pakistan.