Foreign debt accumulation and its implications

The Debt Collection

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Foreign debt accumulation and its implications

By Tahir Ali Khan

The News 16-5-2100

With grave threats to the economy such as terrorism, deteriorating law and order situation and recent floods, the government has resorted to obtain foreign loans that amount to billions of dollars. In such difficult state of affairs, should the government consider to seek a debt waiver from the international community?

Pakistan’s external debt has doubled in the past four years and the government is currently spending more than four times as much per person on servicing external debt than on healthcare.

Latest loans from IMF ($7 billion), World Bank ($1 billion) and Asian Development Bank ($2 billion) will further increase the country’s present foreign debt of about $58 billion. Its external debt will go up to about $73 billion in 2015-16, as debts that were rescheduled after 9/11 in return for Pakistan’s support in war on terror are effective again. The ratio of debt servicing will also expand as a result. This may lead to an already debt-trapped country to face even more predicaments in a few years time. The country is currently paying on average over $3 billion on debt-servicing. It means payment of Rs710 million a day and Rs30 million every hour to lenders.

The government’s inability to adopt austerity measures and curtail its burgeoning expenditure has left it with no choice but to seek costlier foreign loans and thus overload the people with more taxes to repay these borrowed funds.

The reconstruction and rehabilitation of militancy and flood-battered areas require billions of dollars. In addition, the ruling leadership has limited finances to run the country’s affairs. If the government’s scarce financial resources are utilised on repaying loans, then what will be left for poverty alleviation and social sector development? These areas have clearly been neglected by successive governments in the past and even today things have barely changed for the better.

Though the UN made a historic appeal to the international community last year (after Pakistan was hit by ravaging floods) to wholeheartedly provide assistance funds to the country for the reconstruction process, promises of loans have so far failed to materialise. Last year international aid agencies, Oxfam and ONE International called upon international finance institutions (IFIs) and lending countries to cancel all of Pakistan’s external loans.

It is an ironic fact that France received more than fifteen times, Japan more than five times, South Korea four times, and China three times money in debt payment from Pakistan last year as compared to their respective flood donations, as calculated by Oxfam. Consuelo Lopez-Zuriaga, Oxfam’s Head of Humanitarian Campaigns had dubbed it madness and absurdity and urged that Pakistan’s debts were written off so that reconstruction was started in full swing. Pakistan, however, could not capitalise on the aforesaid case.

There was contradiction in the narratives of two federal ministers at the Pakistan Development Forum last year. While the Interior Minister Rehman Malik requested for waiver of Pakistan’s external debt, Finance Minister Dr. Abdul Hafeez Shaikh disowned the call made by Rehman Malik, saying that asking for a debt write-off was never an option before the government and that it was a grave issue with serious consequences. This could negatively affect the country’s sovereign credit rating and make it difficult for it to raise money from the capital market in future.

He argued that most of the foreign debts were obtained from multilateral agencies and Pakistan had made commitments to these institutions while seeking loans, therefore being a sovereign nation, Pakistan should/would fulfil its commitments.

The government has announced measures to restrict its internal borrowing to 10 per cent of the previous year’s revenue collection and provincial borrowings at an equivalent of six-week expenditure of the previous year, but nothing of this sort has been done on the front of foreign loans.

It seems that the economic managers of the country are more interested in creating money to repay foreign lenders than to take Pakistan out of its present quagmire. Out of the total loans received from the US, almost 85 per cent of the aid money goes back to Washington.

There are numerous laws and resolutions which support the notion of writing off debts. Article 25 of the International Law Commission stipulates that “in case of an actual threat or a prospective peril to a state’s essential interests, the state is excused for not performing an international obligation”. A number of democratically elected governments -Argentina, Burkina Faso, Peru, Mexico, Paraguay, and Ecuador for example- have had refused debt payments on the basis of this rule. Pakistan can also decline to pay back its loans under this principle.

Pakistan’s current debt-to-GDP ratio is around 62 per cent, exceeding the 60 per cent limit set under the Fiscal Responsibility and Debt Limitation Act. Pakistan is fast approaching the debt-to-GDP ratio of 80 per cent, which according to the World Bank is default stage.

According to a 1980 resolution by UN commission on international law, a state cannot be expected to close its schools, hospitals and universities, abandon public services to the point of chaos, simply to have money to repay its foreign debts.

IMF had cancelled all its debt ($268 million) to Haiti, after a catastrophic earthquake hit it earlier this year. The cancellation was given through a newly established Post-Catastrophe Debt Relief Trust Fund, set up for this purpose. Pakistan, hit by a similar calamity, could have also resorted to the same measure.

Beginning in 1996, developed countries, under the Heavily Indebted Poor Countries and Multilateral Debt Relief Initiative, cancelled debts amounting to $110 billion and $93 billion, which belonged to African countries. The facilitated countries agreed to channel their debt savings to poverty reduction.

The success story of these nations can be replicated in Pakistan where expenditure on health and education combined stands at less than 2 per cent of the GDP. The foreign debts incurred by various regimes did not benefit the people of Pakistan. Therefore, Pakistan should appeal to the international community and the IFIs to cancel these loans, as they did in the case of Haiti.

In long term perspective, foreign loans become a source of poverty, backwardness and economic subjugation. New loans are taken to repay old ones and most debtors in turn have to spend more on debt servicing than they do on health and education combined.

If the rupee is devalued or dollar gets stronger, the rupee cost of the foreign debt goes up. At the moment, the government is buying dollars at almost Rs85 to service foreign loans obtained at Rs9.90 for a dollar or a little more in the 1970s and 1980s.

Foreign loans should be taken only for development projects in the country. A debt audit commission should be established to make an inquiry into all the foreign loans attained thus far and how these funds have been utilised. On a final note, the government needs to restart a national self reliance scheme for self-sufficiency and to get rid of the debt burden.

ensuring fair price for farm produce

Improving the support price system

By Tahir Ali Khan

DAWN April 25, 2011

http://www.dawn.com/2011/04/25/ensuring-fair-price-for-farm-produce.html

“RATHER than bringing my tomatoes to this far away market to sell it at a price which even cannot cover the transportation expenses, I better destroy the crop in the field,” said a farmer who had brought the commodity from Sindh to the vegetable market in Mardan.

A truck-load of tomato could fetch him barely Rs35,000 while his expenses on its transportation were Rs65,000.

This is often witnessed in case of most crops in Khyber Pakhtunkhwa, especially those which are not covered by support price mechanism.

To get the badly needed money or sell perishable items, small farmers try to dispose of their produce quickly. The agro-based mills/factories and commission agents, who usually work as cartels, reduce demand to depress prices. Farmers are forced to sell their crop below the cost of production in times of prices crash.

Without minimum guaranteed support price for some crops, farmers suffer in years of good crop as well.

The scope of price support system should be enlarged to cover more crops like maize, horticulture. The support price should be determined after consulting all stake holders and taking into account multiple factors—-the cost of production, domestic and world prices, parity prices, domestic and international demand and supply situation, comparative economics of competing crops, real market prices, profitability of input use, impact of support price on other sectors of the economy and the incidence of poverty in a particular region etc.

An agricultural costs and prices commission is needed to be set up in all provinces to provide data and the basis for fixing support and procurement prices of agricultural commodities.

The support/procurement price system is needed to promote equity, productivity, price stability, and agricultural development and to ensure a fair return for the produce.

Initially eight crops – wheat, cotton, rice, sugarcane, some oilseeds, gram, onion and potato – were covered by the support price system. However, under the pressure of international lending agencies, it was restricted to four crops – wheat, cotton, rice and sugarcane in 2001. The procurement prices for wheat and rice are implemented through Passco, for cotton through Trading Corporation of Pakistan, and for sugarcane through sugar mills.

Support price is the minimum guaranteed price which the growers are offered when the market price tends to fall following a bumper crop. And if the market price is better, they could sell their produce elsewhere. This policy usually encourages farmers to grow price-supported crops.

Support price in the country was determined by the Agriculture Prices Commission from 1980 to 2000. The commission was initially an autonomous body. Then, under goading from the lending agencies, it was made an attached ministry of agriculture ministry and later converted to Agriculture Policy Institute (API). The Agricultural Development Commissioner has the additional charge of API Chairman. The reports prepared by API, however, are hardly considered by the government.

After the Cotton Export Corporation and Rice Export Corporation of Pakistan, responsible for cotton and rice respectively, were closed, the task of implementing the support price of cotton was left to the Trading Corporation of Pakistan and that of rice to Pakistan Agricultural Services and Storage Corporation (Passco). After the disbandment of Agricultural Marketing and Services Limited, there is no agency to procure potato and onion. Same is the case with oilseed crops after the closure of Ghee Corporation of Pakistan.

Despite trends of liberalisation and deregulation, the system of guaranteed minimum price is used in many countries to stabilise prices of farm produce. India too has the Agricultural Costs and Prices Commission, set up in 1968, to ensure a minimum guaranteed price to growers for their output.

The support price system needs to be revamped. While big farmers benefit disproportionately and consumers are often badly hit, the poor farmers do not benefit much from it.

Tobacco is an important cash crop. But its weighted average price (Wap) is dismally low. According to Haji Niamat Shah Roghani, a farmer, calculated the cost of production of tobacco in 2010 at Rs165 per kg while its Wap notified by the Pakistan Tobacco Board was Rs98.

“The price should have been over Rs200 per kg on the back of escalating prices of inputs. Tobacco growers should be meaningfully involved in price determination. While the cost of production of per hectare tobacco was fixed on the basis of 3000kg per hectare yield, companies made purchase agreements with farmers on the basis of 2100kg PHY which goes against the interest of the growers,” he argued.

Maize is another staple food crop which doesn’t have a support price and public procurement mechanism. The government should announce a minimum support price, and procure maize from farmers.

Again, though the official minimum support price for sugarcane was Rs125 per 40 kg, local millers offered up to Rs338 per 50 kg to farmers.

“It speaks volumes of the government’s indifference and lack of information on the ground realities. Look at the price fixed by it and the one offered by mills,” said a farmer.

Globally, five types of prices – monopoly, procurement, support, free-market, and administrative prices – are being used for agriculture produces.

Monopoly prices are fixed by the government below the market prices and the producer is compelled to sell his produce to government or its designated/authorised agencies. This policy is rigid and harms the farmers but is pro-consumers.

From 1950 onwards, Pakistan opted for the procurement price system in which the farmers were free to sell their produce in the open market but the government reserved the right to purchase the produce anytime at a fixed price. The price thus fixed is generally lower than the market price.

Free market prices are beyond government control and are fixed by the dynamics of supply and demand. In this system, the farmers benefit in a poor crop year when supply decreases and demand increases, but invariably suffer in a bumper crop year when the supply and demand position is reversed.

Administered prices: These are the prices which the government administers for the benefit of producers as well as consumers.

livestock breed improvement

Jersey cattle being judged at the West Show, S...

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Lag in

livestock breeding

By Tahir Ali Khan

IMPROVING livestock breeding is a critical issue in raising milk and meat production but not enough is being done to increase productivity of farm animals.

The livestock sector is characterised by delayed puberty, low reproductive efficiency and low production of milk and meat. Better breeding is included in the federal livestock department’s programme, but there is no sign of it being taken up any time soon.

High reproductive efficiency requires more semen production units, increased artificial insemination (AI) centres, embryo transplant technology (ETC) and provision of quality feed to animals which necessitates investment both by government and private sector. Ironically, there is only one ETC at a military farm in Islamabad.

Reproductive efficiency could be achieved in two ways: by utilising semen from proven bulls through AI and/or through embryo transplantation technique wherein embryos from best female are collected and implanted in other female animals.

AI is extensively being used for genetic up-gradation worldwide. Through AI, a bull can produce more than 500,000 calves in his lifetime. In Pakistan, AI began in 1954 but currently it covers only about 10-15 per cent of cows and buffaloes in the country.

As far as ETC is concerned, experts say, both surgical and non-surgical methods are used for embryo transplant but the latter is preferred in cattle and buffaloes. Embryo transfer increases reproductive capacity of female animals. Generally, official data says, 15-30 calves per annum can be obtained from a genetically superior female cow/buffalo against getting the normal one calf per 12-18 months as usual.

Delayed puberty and reduced progeny level is mainly caused by poor feeding. These factors reduce milk production/duration. It is estimated that during the productive life, each animal losses two to three lactations due to poor reproductive efficiency.

Khyber Pakhtunkhwa has 5.97 million cattle, 1.93 million buffaloes, 3.36 million sheep and 9.6 million goats, but none of the species have been utilised to produce genetically superior and high yielding species with high reproductive efficiency on mass-scale so far.

Dr Ghulam Muhammad, a local livestock expert, says: “Breed improvement can tackle the problem of low productivity. The local breeds attend puberty fairly late – in about 24-36 months as against the cross-bred ones which reach puberty in about 9-12 months. Similarly, the average milk production of local breed is 900 litres per lactation while that of crossbred ones is 1740 litres/lactation (an increase by 93 per cent). Besides, the latter are heavier and healthier than the local ones. This can substantially increase the income and prosperity of farmers.”

Pakistan is blessed with the best buffalo/cattle breeds of the world –Azikheli, Nelli-Ravi and Kundi buffaloes and Achai, Sahiwal and Red Sindhi cows- which can be utilised for their reproductive efficiency. Similarly, the cross bred Friesian and Jersey cows also can be adapted.

The livestock, particularly cows and buffaloes are mal-nourished and millions of animals die of it in the country each year. To overcome this problem, wastelands should be developed into pastures and communal grazing should be evolved, small enterprises for compound feed manufacturing should be introduced and research institutes may be asked to develop and inseminate high yielding fodder varieties.

The Khyber Pakhtunkhwa department of livestock has 1,042 veterinary institutions, 361 AI centres, two SPUs and two liquid nitrogen plants, four demonstration and breeding farms, one each for cattle, buffalo, sheep and poultry, in the province. But breeding programme is still in its infancy here. Because of weak coordination and communication between farmers and the department, the former have scarcely benefited from these facilities.

Rethinking agriculture policy

Rethinking agriculture policy

Availability of farm inputs has to be adequately increased to increase productivity

By Tahir Ali

In an effort to improve agriculture growth and increase income of farmers in the province, the Khyber Pakhtunkhwa government

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intends to reconsider provincial agriculture policy that was enforced in 2005. The review and reshaping of agriculture policy is the need of the hour as it has failed to address major issues confronting the farmers and farming in the province.

The main goal of the agriculture sector, as per the 2005 agriculture policy, is to ensure food security and alleviation of poverty, but the low per acre yield, land erosion, negligence of livestock, especially milk/meat-farming, failure to prepare and disseminate better animal fodder, outdated farming and lack of water/soil conservation practices and poor agricultural marketing and lack of a crash programme for the uplift of agriculture have made it impossible.

The sector has been ignored and allocated insufficient funds — ranging from one to two percent — in the provincial Annual Development Programmes (ADPs) by successive provincial governments despite the fact that it accounts for over 20 percent of provincial gross domestic product, accounts for 45 percent of the total labour force and it is the main source of income for about 80 percent of its population.

Gul Nawaz Khatak, chief planning officer in KP’s agriculture ministry, says they now would assess the performance and identify the achievements, shortcomings and bottlenecks in the policy’s implementation and requirements for the future, “The re-examination will help us reshape the agriculture policy, bring in improvements in it as per requirements and take remedial measures to develop agriculture, livestock and other sub sectors in the province.”

Khatak agrees that the main problem confronting the agriculture sector in the province was poverty and inability of small farmers to buy quality inputs. “They have been neglected in the 2005 policy. They will now be listened to and empowered,” he adds.

To a question, Khatak says prices of inputs were beyond the jurisdiction of agriculture ministry as these were determined by the market forces and inflation. “We will ensure timely and easy availability of the commodities to farmers. For this purpose, farm services centres have been established and more such bodies would be formed in the hitherto uncovered areas,” he informs.

To enable them buy inputs at their hour of need, Khatak says, the banks are already providing agriculture credit to small farmers at 8 percent mark up in the province to buy inputs and services.

“And the provincial cooperative bank and its cooperative societies have also been revived this year. The government would provide Rs1 billion seed money to the bank to give easy farm and non-farm loans to small farmers and rural women to increase their incomes. The Bacha Khan Poverty Alleviation Programme (BKPAP) has also been started in some districts which would provide farm inputs and financial, technical and educational support to thousands of farmers,” he explains.

Farmers’ income can be increased by ensuring improved marketing of their products, “We intend to establish more regulator markets province-wide. At present, these markets function only in two districts. These markets will have market committees comprising 6-10 farmers plus one official. They will weigh, assess and sell farmers’ produce. Farmers will get good price for their produce and hard work,” Khatak hopes.

Niamat Shah, Vice president of Anjuman-e-Kashtkaran Khyber Pakhtunkhwa, says cost and unavailability of farm inputs is one of the major problems, “Though the seed research farms have developed quality seeds for different crops but their timely and easy availability has always been a problem. About 80 percent farmers have no access to quality seeds and modern agriculture technology,” he claims.

“The government has so far failed to streamline input distribution. Mass availability of under-weight and fake fertiliser/seeds varieties will have to be checked as these are adding to problems of farmers,” he points out.

The department seems to be focussing on the Farm Services Centres (FSCs) for improving input availability. But unless these bodies are expanded to each union council or village and their number and membership is increased — there are only 60 FSCs province-wide at present which have only around 45000 members while millions of farmers are out of its ambit — and their weaker financial position of the bodies is improved by giving them financial support as they have to buy and sell inputs through their revolving funds, the idea may not work.

The BKPAP can solve some of the basic problems of farmers but more funds will have to be allocated to increase its area of application. Shah argues that the agriculture sector should be allocated five percent of ADP for the time being, which should be gradually increased later as without funds and robust attempts nothing can be achieved.

“Sufficient money should be earmarked to do research on, and development of, seeds. High-yielding seed varieties must be imported as was done during Ayub’s era. Also, easy and timely availability of seeds and other inputs should also be arranged for through improved distribution network,” he suggests.

“To cope with decreasing agriculture land for its unprecedented consumption by real-estate sector, the government will focus on bringing vast cultivable wasteland under cultivation by leveling and developing it through bulldozers and tractors,” Khatak explains.

Increasing the acreage demands more irrigation water which is already scarce. “This problem will be tackled by efficient management of available water for which schemes have been suggested and through extension of irrigation infrastructure in the province by building new dams which is what the irrigation department is doing,” he adds.

“The department is also working out on how to cope with new and bigger responsibilities following the devolution of the some departments to the provinces,” Khatak says.

Lack of coordination between farmers and the government and non-governmental organisations has also affected the farmers, “First, we will be identifying and removing problems in inter/intra departmental coordination and then it will be worked at with farmers and their associations,” he says, adding, “Rs240 million have been earmarked for the purpose which would be paid to farmers soon through district coordination committees as nominations have been made.”

If expert advice, machinery and marketing support are provided to farmers, it will shift their farming from subsistence to commercial/modernised one. Household farming should be developed. The role and impact of the middle-men in agri-businesses must be minimised to increase farmers’ incomes.

Livestock accounts for 50 percent of provincial gross domestic product but it continues to be neglected. It still has no separate secretary and is being supervised by agriculture secretary. There should be special plan for livestock farmers in rural areas.

Promotion of agriculture is the most effective tool for eradicating poverty and, therefore, terrorism and extremism. But traditional methods, paltry allocations and weak commitment cannot develop the sector. The government will have to opt for out-of the-box solutions to develop the sector.

Improving veterinary drugs’ sales

Veterinary Hospital
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Regulating veterinary drugs sale.

Regulating veterinary drugs sale

By Tahir Ali

Dawn, Monday, 7-02-11

THE responsibility entrusted to the Khyber Pakhtunkhwa health department to authorise, monitor, control and check the sales of veterinary drugs and services in the market is creating problems in ensuring quality drugs and managing livestock healthcare.

The livestock and dairy development department is well equipped, trained and capable of performing such duties better than the health sector, says an expert.

The provincial Director General (DG) Livestock and Dairy Development, Dr Sher Muhammad, confirmed that there was no separate animal drugs registration and regulation authority and that the sector was being supervised by the health department officials at both federal and provincial levels.

“We intend to legislate and request the government to hand over the responsibility of checking and monitoring veterinary drugs and services to the livestock department. Devolution of departments to the provinces is under way. When this process completes, we will come to know which components of the department are assigned to the provinces. Then we will seek government support to prepare and get a legislature passed by the provincial assembly.

“The health official may be a competent person vis-à-vis human drugs but only a veterinary expert can know well as to whether a particular animal-specific drug, equipment and service are standard and permissible or otherwise,” argues Dr Ghulam Muhammad, a former livestock department officer and veterinary expert.

“A separate veterinary drug inspectorate under the livestock department is, therefore, urgently needed and the government should legislate for the purpose. The posts of veterinary assistants could be upgraded and they could be authorised to ensure availability of quality animal drugs and services to farmers,” he stresses.

According to Muhammad Arshad, president of All Pakistan Veterinary Medical Council, the health department registers, monitors and checks veterinary cases and issues licenses to animal druggists which is not right.

“These responsibilities should be handed over to the livestock or food and agriculture department. Everyone does his own business best. There are highly qualified specialists with the department who know the anatomy of drugs and the nature and requirements of veterinary ailments and they can ensure effective monitoring and checking of the sector,” he added.

There is a need to shift the onus of legislation and regulation of the sector to its parent and concerned livestock department.

But unfortunately, the health department has taken advantage of its clout and outreach to first take and later maintain the sector under its ambit,” he added.

According to him, there are over 100 lawful veterinary manufacturers and about 200 veterinary drug importers in the country. And the illegal ones are in thousands and are manufacturing and supplying animal drugs under the garb of herbal drugs throughout the country. There are laws to stop the practices but as their implementation has been left to officials from an irrelevant (health) department, how can the situation be improved,” Arshad argued.

“Unfortunately, the manufacturing and selling of substandard veterinary drugs and unauthorised services to farmers continue openly and the health department has failed to stem the process,” said Haji Naimat Shah, a farmer leader from Mardan.

“There is the problem of weak coordination between the two livestock and health departments and communication between the two that causes delay in decision-making and actions against the culprits, selling fake veterinary drugs and working as animal quakes unlawfully. Conversely, the livestock department would be taking action quickly benefiting the farmers,” he added.

The health department cannot carry out its responsibility efficiently for being engaged also in human drugs and for lack of expertise.

To add to farmers` woes, there are countless livestock quakes providing unauthorised diagnosis, therapy and prescription services to farmers with the result that livestock suffer from low productivity of milk and meat and ailments for wrong prescription,(overdose and low doze) he argued.

The veterinary medicines are supporting a vital segment of the economy even though these cover just about 10 per cent of the total livestock industry potential in the country. With a very large livestock population and progressing poultry industry, the demand for veterinary medicines is very much there. In fact the total veterinary drugs sales in the country exceed billions of rupees per year.

The livestock and dairy sector accounts for 53 per cent of agriculture, 11 per cent of GDP, around nine per cent of exports, and feeds around 50 to 60 million people in rural areas. It counts for 51 per cent of provincial gross domestic product.

Increasing pharmaceutical exports

Boosting pharma exports
By Tahir Ali

(DAWN, Monday, 18 Oct, 2010)

http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/boosting-pharma-exports-800

PAKISTAN’S low exports of pharmaceutical products at about $100 million can be significantly increased provided the local pharma sector is given incentives and relieved of regulatory burdens, industry sources say.

Though pharmaceutical exports have become the seventh largest manufacturing-based export segment, highest infrastructure and operating cost, inconsistent government policies, high duties, lack of research and development facilities, high interest rates, energy shortage and the poor security situation have obstructed efforts to raise exports to their potential.

Khalid Mehmood, chief executive of a national pharmaceutical company says the pharma industry was made to pay one per cent of its profit before tax (PBT) for the central research fund (CRF).

“We have been paying CRF for years without getting a single short or long-term benefit. No such thing is being levied on any other industry. Conversely, they are given support for setting up laboratories and R&D centres. The CRF must be eliminated if the industry has to grow,” he said.

Export insurance policy is required for protecting exporters from payment risks. While governments of the competing countries have devised protection mechanisms for their exporters, Pakistan has not. This should be done immediately,” he added.

Exports of pharmaceuticals are dependent on the capability of the manufacturer to obtain certification from WHO and other regulatory agencies of the importing countries.

“A pharmaceutical facility to qualify for accreditation by these agencies, requires at least Rs3-5 billion of capital expenditures and Rs200-300 million of operating expenses annually. This necessitates huge capital and profitability for the company,” he said.

“To be able to do that, prices of medicines should be deregulated. Ever since the Indian and the Bangladeshi authorities have done that, manufacturing plants in India and Bangladesh have gone up to 90 and four respectively while none has been set up in Pakistan, ” he informed.

Pakistan’s pharmaceutical exports are just around $100 million as against India’s exports of $11 billion which are expected to surge to $40bn by 2012.

To the fear that deregulation will increase the prices of medicines, he said, essential drugs, recommended by the WHO, should be regulated and their prices controlled. “This is being done in India and Bangladesh where only 74 and 109 molecules are on the controlled list of drugs. For all other products, the price is deregulated. Standard pricing should be adopted in the country,” said another expert.

“Some importing countries require a certificate of prices from the exporting country to establish price for imports. It harms exporters who cannot charge the higher prices prevailing in the external markets as the prices of drugs are low here and are mentioned on the registration letter. Higher price certificates should be provided to exporters only for exports,” he suggested.

Sources said exports can be increased if the quality of the products and the country’s regulatory framework are in line with the global and regional practices. “Drug regulatory requirements must be harmonised with those in ASEAN region provided prices of locally manufactured drugs are increased to their level and are deregulated. But how does Pakistan formulate a regulatory policy which is in line with the international best practices and yet it does not penalise the industry? One way is to form a pharmaceutical regulatory authority,” he suggested.

Pharmaceutical exporters need one-window fast-track facility.

“About seven days and sometimes weeks, are required for getting NOC for a consignment. Exporters would greatly benefit if one-window operation for export clearances and to expedite drug registration and clearance process is introduced,” he added.

The pharma industry also complains they have to pay five per cent workers’ profit participation fund (WPPF), and two per cent workers’ welfare fund (WWF). “Though it was meant for benefiting workers, they have least benefited from it. Industries in other countries are not taxed with the WPPF or the WWF. These should be eliminated as the tax slabs for the industry are already the highest in the world- around 35 per cent. On an emergency basis, at least the export revenue should be exempted from the two levies,” he added.

The industry will also benefit if the export freight subsidy (EFS) is introduced for it. “The EFS has been introduced for other industries in the trade policy but pharma industry has been ignored. Export development surcharge at 0.25 per cent should also be withdrawn immediately. Export refinance facility is currently in the ratio of 2:1. Performance requirement should be 1:1 as a number of countries in the region have this facility,” he desired.

As per regulation of State Bank of Pakistan vide circular No15 of August 15,, 2003 and subsequent circular No.9 of August 28, 2008, every exporting pharma company can retain 15 per cent of its sales proceeds in foreign currency account which can subsequently be used for foreign remittances and reimbursement of expenses etc.

“It is impossible to cater to huge international expenses with this amount. This is practically impossible in the initial years when expenses are high as against returns. Hence retention from 30—40 and 25—30 per cent of sales proceeds should be allowed for an exporting company having sales up to $10 million and more than $10 million respectively. This extension will not only help local exporters compete and survive in international market but also boost their exports,” he added.

As per regulation of FBR vide Sec No 152 (2), reimbursement of expenses by an exporting company to its representative office abroad is subjected to withholding tax at the rate of 30 per cent on every payment and in the case of double taxation treaty between Pakistan and exporting country, at 15 per cent of payment.

“Being reimbursement of expenses, these payments should be exempted from withholding tax and an appropriate provision be inserted in relevant section of the income tax ordinance to this effect,” he argued.

Pharmaceutical industry is providing direct and indirect employment to nearly four million people. It fulfills over 90 per cent of the country’s drug requirements. It saves huge foreign exchange as only less than 10 per cent of the medicines need to be imported. And it is fast moving towards 100 per cent self-sufficiency.

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