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BOOK REVIEW: Our development inequalities —by Khaled Ahmed

Trade Liberalisation and Regional Disparity in Pakistan
By Muhammad Shoaib Butt and Jayatilleke S Bandara
Routledge 2009
Pp244; Price £85
Available in bookstores in Pakistan

Targeted assistance on per capita basis is recommended by the authors in the NWFP and Balochistan and “there is a compelling need for increasing public expenditure on health and education, particularly in Sindh”

This is a clear-headed and precise account of how Pakistan has developed as an economically lopsided federation, by Dr Muhammad Shoaib Butt, an acting Assistant Director at the Policy and Evaluation Branch of the Australian Government Department of Health and Ageing, Canberra, Australia; and Jayatilleke S Bandara, an Associate Professor at the Department of Accounting, Finance and Economics, Griffith University, Brisbane, Australia.

As the nation looks forward to the NFC principles of distribution of resources in the country, the book surveys the the major economic conflict between the three smaller regions on the one hand and Punjab on the other, based on the regional distribution of the tax revenue collected by the federal government.

The National Finance Commission (NFC) is where the federal government and the four provinces agree on a formula to share federally collected financial resources. Since the creation of the 1973 Constitution, seven awards have been distributed, all of them solely on the basis of population. While favouring Punjab, it disadvantaged the smaller regions, particularly Balochistan, which have lower population densities than Punjab.

Sindh wants revenue generation to be the basis of tax-collection; the NWFP would like the population and backwardness of the region to be the basis; and the vastest region of Pakistan — resource-rich Balochistan — wants area of the region, share of natural resources and level of development to be the basis of the revenue allocation. (p.63)

In March 1991, brawling provinces agreed to the signing of the Water Apportionment Accord by the democratically elected federal and regional governments. The Accord establishes water entitlements for each region and provides the basis for sharing water shortages and surpluses. It also specifies how flood supplies and future storages will be allocated to each region. However, the dispute between Sindh and Punjab over water sharing has remained unresolved.

The Sindh-Punjab dispute has mainly arisen from partisan misinterpretations of the various clauses of the Accord. The Indus River System Authority (IRSA), which is responsible for the distribution of water under the Accord, meets before the irrigation period each year and decides on the share of water in each region. But bad faith between Sindh and Punjab makes it hard to reach a consensus. (p.64)

Water is reduced by river-bed silting and the shallowing of dams, which is actually going to worsen in the years to come. It has been estimated that Pakistan will need at least one big dam on the Indus in the near future to meet the growing water demand. Punjab has been pursuing the Kalabagh Dam but Sindh and the NWFP will simply not listen after aligning their sub-nationalisms behind their positions.

In Balochistan, natural resources have given rise to another problem. Natural resource-based separatist nationalism is not uncommon in the world. The bulk of mineral and natural resources such as zinc, copper, gold, iron ore, coal, marble and natural gas are located in Balochistan. Balochistan supplies natural gas worth Rs 365 billion per annum but receives only Rs 3 billion in gas royalties. It also claims that 75 percent of the profit from the excavation of gold in Balochistan is awarded to the federal government, 23 percent is handed over to China and a mere 2 percent is given to Balochistan. (p.65) But that hopefully will change from 2009.

National security problems in Balochistan force Pakistan to think of new cantonments in the province but Baloch nationalism doesn’t even want police in the province. Military operations in Balochistan have resulted the displacement and homelessness of around 84,000 Baloch, which includes 59,000 women and children. Pakistan is supposed to have detained over 2000 alleged terror suspects without legal process since 9/11. (p.67)

Pakistan’s pursuit of jihad has left behind dangerous deficits in the smaller provinces. Social indicators show that Sindh had the highest literacy rate (30.20 percent) in 1972; it was also the only region whose literacy rate exceeded the national literacy rate of 21.70 percent. At that time, the literacy rates for Punjab, the NWFP and Balochistan were 20.70 percent, 14.50 percent and 10.10 percent. Today, in 2009, if you talk to the Sindh education minister Pir Mazharul Haq, education is crisis number one in the province. The intra-regional inequalities arising from the unequal distribution of land ownership in Sindh is characterised by the highest land ownership by the fewest people, resulting in the highest value. (p.70)

The book says: “Perhaps the nature of military governments in Pakistan has been such that trade liberalisation under them tends to aggravate regional disparities and income inequalities by benefiting mainly the richer regions and affecting the poorer regions adversely. If the above explanation is correct, it would appear from theoretical reasoning and, to a degree, past experiences, that under a truly democratic government, trade liberalisation may lead to a reduction in such disparities.” (p.78) Some may find this too speculative.

The authors anticipate great friction between the NWFP and Balochistan on the one hand and Punjab on the other from the quarrel over regional disparities. But slowdown of the crucial cotton sector (currently accounting for around 60 percent of total exports) may hurt the country even more after wide-ranging tariff reductions. (p.170) Unless steps are taken to increase the competitiveness of the cotton and textile-related industries by using domestic reforms and strengthening institutions, the country will probably not be able to take full advantage of the increased international market access.

Targeted assistance on per capita basis is recommended by the authors in the NWFP and Balochistan and “there is a compelling need for increasing public expenditure on health and education, particularly in Sindh”. This may increase not only the marginal product of labour but also the size of the labour force in the long run, thus reducing the employment losses. (p.170) The book notes poor governance, rampant corruption, deteriorating law and order and weak institutions as contributing factors in incomplete and unsustainable trade policy reforms in Pakistan.

Conclusion: “The Pakistan example shows that military regimes disrupt not only trade policy reforms, but also other reforms, and they create unrest and political violence in economies. This has been the case under many military regimes in Africa.” (p.172) *

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