Nov 11, 2014(Tuesday).

Economic Issues of
Pakistan.
Submitted to: Maam Amnah Imtiaz
POST-MID ASSIGNMENT NO: 1 &
2.
Group Members:
Tehniat Zafar
Nabiha Masood
Rabail Shahid
Maria Faisal
Zainab Rehman
Major: BBA (Hons.)
Semester: 5 Sec: B.

ASSIGNMENT NO. 3 & 4

1. What is the role of NFC commission in the
sustainability of provinces? Debate.
Ans:

The National finance commission of Pakistan (NFC) is an economic

development programme initiated in 1951 to promote, balance and

control the financial disparities and discrepancies and the proper
distribution of resources to all the four provinces i.e. Punjab, Sindh,
Balochistan and KPK to meet their financial needs and to fulfill their fiscal
imbalances.
National finance commission (NFC) constitutes a 5 consecutive year plan
consisting financial formulas for proper financial and monetary distribution
to provincial and federal government. A government must generate higher
revenues in order to promote and stabilize the economy and the survival
or elevation of its provinces and higher revenues can be generated
through taxation and National Finance Comission (NFC) simplifies 5 types
of taxation in the forms of:1. Income tax
2. Property tax
3. Sales tax
4. Wealth taxes
5. Custom duties
NFC is established under the President of Pakistan who surpervises the
readings and calculations steered by Economists, Financial advisors,
Finance specialists and professional mathematicians for promoting the
four provinces of the country. In 1991, With the help of NFC 63.13% of
revenues were collected which were directed to federal government and
and the remaining 36.5% were distributed in the four provinces for the
growth and deleopment.

In 1997 after the determination of the NFC formula: Major taxes were
generated from Punjab and Sindh provinces and all the custom duties
were collected mostly from port of Karachi. Total taxation and revenue
generated were 65% from Sindh, 25% from province of Punjab and 7%
from KPK and only 3.8% were collected from the province of Balochistan.
The NFC award cannot be declared of the four provinces fail to institute
consensus.
The 7th NFC award stated the following issues in respect to function and
development and they are as follows:

Opposite population decline and exponential rate.

Urban solidity factor.

The derived modification of poverty and communal backwardness.

Regional Growth Domestic Product and revenue generation.

The significant pronouncement of the 7th NFC Award in March 2010 has
fixed the long term dispute of funds between the Federal Government
and Provinces of Pakistan. The portion of Provinces in vertical circulation
has increased from 49% to 56% during 2010 and 57.5% throughout the
continuing ages of the time.
The federal govt decreased its collection charges which resulted largely in
the benefit of the four provinces. Under the new formulation in the 7th nfc
award Punjab got 51% revenues Sindh 24.55% , Balochistan 9% and KPK
14% . The Provinces have been granted the permission to collect sales
taxes on facilities. The Provinces should advance their taxation by
efficiently taxing the agriculture sector and real estate attaining the 15%
tax generation to GDP rate by the year of 2014-15.

2. What do you understand by MFN status? In 2012

there was a debate on MFN issue ongoing between
India and Pakistan. What is MFN? Its history? What
benefits and dangers Pakistan face if its given MFN
status to India?

Ans: In international economy, MFN stands for Most favoured Nation. It is

term or agreement tied upon fair trade between two or more states or
countries. A MFN enjoys low tariff and transaction costs, reduction in
trade barriers and quotas. MFN is a status given by one country to another
under the clause of WTO world trade organization. The countries who
achieve the status of most favored nation are rewared with more trade
benefits as
compared to non-favored nations. MFN is significantly important for
developing countries because it can help them in icreasig their source of
competitive advantage and lessens the costs of their exports.
History:
The earliest verson of Most favoured Nation (MFN) can be found in the 11th
century and now the concept which we have about the MFN is from the
18th century. If we take a look at the early eras of International economy
and trade MFN was treaty between two countries or states. In 1794 U.S
granted the Most Favoured Nation status to Britain. After the 2nd World war
all the trade tarrifs and barriers were negotiated by all the countries
through GATT which is General Agreement on Tariffs and Trade. GATT after
a certain time converted into WTO World Trade Organization in 1994.
WTO call for participants to award one another "most favoured nation"
status after a certain time period.
MFN Issue between Pakistan and India:
In 2012, Pakistan has promised India to give their state the status of Most
Favoured Nation by the end of the year but still havent done so, India has
granted the status of MFN to Pakistan in the start of 1999. The main issue
between the both states were that this step will promote the sovereignty
between the two states and the both countries trade relations will get
better. Both the countries will enjoy equal trade benefits from each other.
From 2009-10 the official trade between both the states showed higher
volumes of approximately

$2 billions.

One misconception about this MFN treaty between the two countries is
that the history suggests that the old enmity can be eliminated by trade.
And other misconception is that the Indian products will cover the market
and the local producers will be in loss but thats not true WTO has
imposed safeguard restictions so that the local producer wouldnt get
harm.
In a recent press conference in July 2014, Pakistan Foreign Secretary Aizaz
Ahmad Chaudhry said that Pakistan will resume process to Grant the
status or reward Most Favoured Nation to Indian state.
Benefits and dangers for Pakistan:

Pakistan and India are neighbouring states and trading with each
other will give the benefit of savings and decreasing transaction
costs and time.

Both of these countries do not trade directly with eacth but with
through third parties like Dubai, Sri lanka etc and when these two
countries will trade directly this will decrease many intermediary
costs.

As the both countries are near to each other geographically there will
be less legal trade restrictions and will result in illegal activities i.e
smuggling etc. and thus legalizing this illegal activity will result in
increased revenues for both countries especially Pakistan.

One more benefit Pakistan will get is that Pak imports same products
that it exports from many western far flung countries and this will
result in consumer interest as the prices of the products will be lesser.

Low price raw material will be available for Pakistani insudtrial areas
and can be reached in the country in the very less time.

Both the countries goodwill ties will get stronger and Global peace
would be encouraged.

As Indian economy is far more competitive and stronger than the

Pakistans weak and struggling economy giving them the status of
MFN will result in total wipeout of our economy in current
circumstances.

Indian non-tarrif barriers and quotas will countinue hindering Pakistani

export and the trade deficit of Pakistan with india will rise more.

The inflow of cheaper goods just for the sake of consumer interest is
not always recommendable. A state should find an equibirum
between whether to be the manufacturing country or the trading
state.

Trading with india is not only the case of TRADE FOR PEACE history
has shown that the trade didnt succeded in building trust between
the two nations as the hatred for each other is still deep-rooted inside
of them. Trade cannot be fully from the political issues evolving
between the two states or countries.

3. Explain Trade policy in general and for Pakistan.

ANS:- A Trade Policy is also known as Commercial Policy. It means a set
pattern of instructions or rules that are used to control the inflow and
outflow of international trade. This policy focuses on limiting the volume
of imports. Every country has set their own most suitable trade policies
which they think it is most applicable for their public. Every country aims
to increase trading activities with other countries in order to achieve
mutual trade benefits. Trade policy also implements such barriers that
will help increase purchase and sale of local product by minimizing the

volume of imports such as; Voluntary Export Restraint (VER), Tariffs,

Quotas, Subsidies, Antidumping Penalties, Embargos and Boycotts. The
purpose is to limiting the options for the consumers.
Following are the main objectives of Trade Policy:

Establish friendly terms with foreign countries for trading purpose.

Use protectionism or barriers to protect home country from host

countries.

Export certain items or products that will help in expanding home

market.

Protect Infant Industries so that they will be given a chance to

expand.

In order to avoid the negative impact on Balance of Payment,

countries must limit or even eliminate (if necessary) imports.

Exchange Controls is another type of barrier implemented by

countries in their trade policy that helps in controlling the volume of
imports and exports through Blocked Currency, Differentiated
Exchange Rates and most important Government Approval.

Most underdeveloped countries lack resources, capital and technology so

much that they depend on foreign market because of their potentials and
high quality of output. Ultimately, the home market and producers and
manufacturers are not given rightful opportunities to offer their own
products and services because imported products are top on the list
these days. Hence, there are several barriers and protectionism that
reduce foreign competition. This will give consumers limited options to
purchase. In the end they will go for local product instead of the foreign
product.
Following are the benefits for using protectionism in Trade Policy:
1) Production of Infant Industries: Giving new industries a chance to
improve their product, thus making it more desirable as compare to
imported product.

2) Protection of Home Market: Depends on economic development. This

protection is needed so that countries are capable and self-sufficient
to produce home product.
3) Reduction in Unemployment: Establishing more industries means
reduction in the level of unemployment. This barrier is need when
industries are capable enough to produce local product in order to
reduce imports.
4) Need to keep Money at home: This barrier will help in keeping foreign
exchange at home by cutting imports.
5) Conservation of natural resources: Utilization of ample resources that
are untapped will result in decrease in imports and increase in exports.
In addition to that, the balance of trade will get better.
6) Industrialization of low-wage nation: Increase in purchases and wage
power will result in powerful industrialization.
7) National Defense: Entrance of foreign market and less use of home
product results in foreign market penetration. Therefore, this barrier is
used to protect National defense.
8) Increase in Business: Depends on capital, ample resources,
technology, equipment and required strategy will eliminate foreign
market penetration.
In the history of Pakistan, the trade policies in first three decades have
been altered many times to advance the economic development. In first
decade Pakistan was considered a model economy because of its
consistent 6.7% GDP rate. Ayub Khans regime was the decade of
development but unrest in East Pakistan and West Pakistan caused
Income and Regional Disparities. As a result of this confusion and chaos,
Government of Yahya Khan, Bhutto and Zia-ul-haq arose. After Ayub
Khans regime, Bhuttos era is said to be the worse because they suffered
low growth rate and inflation. The conversion merchant capital into
industrial capital, breakdown of Korean War, falling export prices,
devaluation of currency, decline in Balance of Payment, control on import,
all lead to the formulation of Trade Policy.
The Trade Policy of Pakistan focused on 3 things:

1) To control the flow of Pakistani currency.

2) To keep smooth flow of imported goods by using Quantative Method
3) Different structure of Tariffs on imports and export.
The Government imposed tariffs on luxury items to promote
industrialization and easier access to industrial and capital goods. As a
result a protective policy was engaged that focused on production at
domestic level but it should be at same product line to save foreign
exchange. This policy was successful as industries were able to gain
direct access to resources and factor for production. There was another
policy called Import Licensing scheme, in which the authorities had the
right to inspect imported goods and what sort of industrial development
should take place. Moreover, import licensing also stimulated relative
prices.
As today, the Strategic Trade Policy Framework (STPF) 2012-2015 was
planned by Ministry of commerce to meet the economic challenges for
Pakistans economy. Following are its objectives:

Provide trading opportunities those regions that are isolated so that

they can contribute in economic development.

Promote production on domestic level.

Increase exporting activities.

Increase exports from those areas that are less or not developed.

Check mechanisms for exporting goods on regular basis to increase

efficiency.

Promote investment at local and foreign level.

Impose tariffs on imported items/goods.

Enable such environment where everyone has the opportunity to

grow and increase industrialization.

The policy should cater the changing needs of consumers.

Necessary cooperation across borders will increase the volume of

trade.

The government should solve security issues in order to make land

ports into efficient facilitators of trade.

EXIM bank especially made for export and imports and it is

supported by the government to provide easy access to the credit
along with guarantee or assurance.

4. Express your opinion in regard to which political

leader has greater potential for saving Pakistan from
Economic Depression and plight. Concrete opinion
required.
ANS:- According to my opinion the Era of President Pervaiz Musharraf
had a great potential for saving Pakistan from economic depression and
plight. Following are the reasons to justify the statement :

Pakistan was ranked third in the world banking profitability.

Nine world class engineering universities were developed and 18

public universities further developed.

The IT industry was valued at around $2 billion including $1 billion

in exports and employed around 90,000 professionals.

The CNG sector attracted over $70 billion in investment in the past
five years and created 45,000 jobs

The telecommunications sector attracted around $10 billion in

investments and created over 1.3 million jobs

Industrial parks were set up throughout the country for the first
time.

Foreign reserves increased from $700 million to $17 billion

The Karachi stock market went from 700 points to 15,000 points

The literacy rate improved by 11 percent

Poverty decreased by 10 percent

Four dams were built ; Miarani, Subakzai, Tangi & Khuraam

Seven motorways were completed or were under construction.

Gawadar , an advanced sea port was developed

650 kilometers of coastal highways were constructed

The industrial sector registered 26 percent growth

The economy was third fastest growing economy after China and
India

The institute of Space technology was established

The university of Hazara, IT, Education, Media were founded

The Pakistan economy was worth $160 billion in 2007

GDP purchasing power parity was $475.5 billion in 2007

Exports in 2007 were worth $18.5 billion

Foreign direct investment in 2007 was $8.5 billion

The poverty level in 2007 was 24 percent

The literacy rate was 53 percent

Pakistan development programs in 2007 were valued at Rs520

billion

Pakistan now has a total of 245,682 educational institutions in all

categories including 164,579 in the public sector and 81,103 in the
private sector according to NEC (NATIONAL EDUCATION CENSUS)

In total 99,319 educational institutions increased in Musharrafs

era.

This was some of the good Musharraf delivered to Pakistan during his
martially democratic rule from 1999-2008. Strange how quickly we forget
his foreign policy efforts , which helped elevate the image of Pakistan
globally added acceptance value to our green passports.