Our financial fragility

Three convergent reports about money, its use, abuse and availability come together to illustrate our extreme financial fragility. The Supreme Court on Tuesday questioned the authority and jurisdiction of the State Bank of Pakistan to write off loans worth Rs256 billion over the thirty-nine years between 1971 and 2009. This has been going on for over half the life of the nation and spreads across military and civilian regimes alike. It appears that the write-off of a loan depends on the interpretation of section 33B of the Banking Companies Ordinance which sets out the pre-requisites for write-offs.

The chief justice noted that SBP policy appeared ‘open-ended’ and that the relevant regulations were variably interpreted by successive managements of the SBP. The write-offs by state-sector banking were not alone, as the private sector has been merrily tearing up wads of money as well, with Rs50 billion written off in the last two years. It was further noted that the private banks are not paying their taxes on the massive profits that they are making.The second area of convergence is around the remarks made by US Secretary of State Hilary Clinton at the US Global Leadership Coalition Conference. Speaking bluntly, she said that either Pakistan started to tax its elites — hitherto untaxed or minimally taxed — or the US would review its aid commitments to us. This position had already been laid out a week ago, with aid now conditional upon a range of compliances, and unless the rich are finally brought into the tax net we are going to find ourselves in the ranks of the undeserving poor — and a lot poorer as a result. The third fiscal convergence concerns the reality coming down the tracks like a runaway train — after making payments for defence, subsidies, interest on loans and pensions there is nothing left in the bank to run the federal government. It is not the overheated imagination of financial correspondents and hyped-up anchors telling us this, the word is coming from the Asian Development Bank in its Outlook 2010 report of Tuesday. The combined outlays for these sectors were gobbling up the taxes collected by the Federal Board of Revenue, which means that the operating costs of the federal government at 2.9 per cent of GDP were only sustainable via foreign aid and loans. Taking the three together — fiscal irresponsibility by the banks, a tightening of aid conditionality linked to revision of the tax system, and the imminent bankruptcy of the federal government — our financial crisis acquires a new depth. Sadly, most of the population never learned to swim – Thenews