Rich Elite, Poor Country?

Rich Elite, Poor Country?

Pakistan owes over $100 billion in foreign debt. It has had over $375 billion in the current account deficit since 1947. Pakistan imports around $10 billion worth of food items annually. This is just a sad glimpse of Pakistan’s economy.

However, it is also a fact that Pakistanis are the second largest investors in property in Dubai. Around six daily flights to Dubai are all jam-packed, with first class and business seats occupied by Pakistanis. Tens of thousands of expensive animals are slaughtered during festivals. Most of the mosques in the country are well equipped with large halls and usually thronged with worshippers. Yet, prostitution and pornography are constantly on the increase as society degenerates.

Pakistanis purchased a large number of four-wheel drive vehicles during 2020-2021 and there remains a growing appetite for them. Such luxury vehicles are all booked in advance — from two to four years. In all the big cities of Pakistan, middle- and high-end restaurants require at least an hour’s waiting time to be seated for dinner. The average attendance in a middle class wedding, with at least two functions, is around 400 people, with lavish food and excellent arrangements.

All these facts, and many others, reveal a massive contradiction between the Pakistan we see in numbers given by the state, and the Pakistan we see if we move around in the upper- and upper-middle class segments of society.

However, my analysis of Pakistan’s social, economic, and political structures reveals that this is all part of a well thought-out scheme. This kind of society has been established by design, and it suits the people, who matter, whether they are bureaucrats, politicians, members of the armed forces or professionals. In a nutshell, the ruling elite.

This sad state of affairs is the result of the long journey that started at the creation of Pakistan in 1947 and continues to date, in which a small coterie under various guises monopolises both power and resources. Yes, this is an elitist state, made predominantly by the elite, ruled by the elite, for the elite. Those who challenge this arrangement are mere spectators standing outside the pavilion.

This is perhaps the reason that no right-wing person or movement has ever been punished by the state, whereas those who wanted to bring a genuine change in society, especially many idealist leftists, had to pay the price, starting from Hasan Nasir to many other middle and lower-middle class politicians — all were kept out of the power equation. Many of the leftists of yesteryear now live in posh neighbourhoods, including Defence Housing Societies and gated communities, just like me, writing articles like this, and yet they remain very much part of the system designed to protect the financial, legal and political interests of the privileged.

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In spite of endemic poverty at home, rich Pakistanis live the high life abroad, owning some of the most expensive properties in London.

Pakistan may be the only country in the world that has effectively legalised this disharmony and installed sensitive tripwires, which ring the alarm on the arrival of any intruder or outsider in the system. Pakistan is the only country in the world that has placed foreign exchange regulations against documented and organised companies and opened the free movement of currencies by individuals.

Legally, prior to 2018 an individual was authorised to buy foreign currency without any limit in the open market from the so-called exchange companies, without any practical documentation about the source of funds.

This is a unique system created in Pakistan. This money can be deposited in the foreign currency account of the individual and sent anywhere in the world without any probe. ‘No questions asked’ is an attribute propagated by court economists of the political elite. Availability of the rupee without any source is guaranteed by the cash economy in the country, which consists of around 40 percent of its GDP, amounting to roughly $150 billion per year. This means that around 20,000 billion rupees are injected into the economy every year, which remain unaccounted for. This sum is earned from trade, agricultural income, real estate, and all other sectors, including some industrial sectors that are undocumented.

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Asif Ali Zardari is among many politicians who have been accused of amassing wealth through illegal means.

For example, around 30 percent of the tobacco industry falls in the undocumented economy. The entire sugar industry is undocumented after the production stage.

The 20,000 billion rupees is used to buy luxuries. The story would have been satisfactory if the money had remained in Pakistan. But it is not so. A vast majority of businessmen and bureaucrats want to enjoy their money in London and Dubai. Therefore, Ziaul Haq and Nawaz Sharif designed systems whereby such sums became available in US dollars. The Protection of Economic Reform Act, 1992 was promulgated for this purpose. It amounted to doling out poison to an already ailing patient. However, Nawaz Sharif is not the only person to be blamed. Afterwards, Zardari and the PPP, Musharraf and his Chaudhries and Imran Khan’s friends — all enjoyed the largesse of the system. Why should anyone want to change it? This suits all political parties and the people who matter as they need money for their elections etc, and their children do not want to spend life in Pakistan. Many politicians, when not in power, live in Dubai, London or New York, as there is not much to please them in Pakistan. This happens just as much with the middle class party, the MQM. It is a disease that is inflicted when political recognition is achieved. I hope it may be cured.

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Over Rs 730 million seized from the residence of the finance secretary of Balochistan: Pakistan’s lax regulatory environment allows the elite to embezzle funds with impunity.

There are very few people who have actually seen all aspects of this wild game. I am one of them. Since 1988, in all my annual speeches at the Institute of Chartered Accountants of Pakistan’s budget seminars, I have been saying that we are following the Dubai-model of economy, whereas the survival of the common man lies in adopting the Korean model. I was the person who coined the term ‘Misaq-e-Maeeshat’ (Charter of Economy). I was the person who instituted the Foreign Asset Declaration Law after the revelations of the Panama Leaks. Nevertheless, the lesson I have learnt is that stakes are so huge in this country that there is strong resistance to crossing this tripwire. A whole generation has been nurtured which is accustomed to no documentation, no taxes, and a life of luxury in Dubai and London. This reasonably educated generation is confident that the future is guaranteed. Just like their parents, they too, will have substantial assets and properties outside Pakistan, which serves just as a second home for leisure and to promote corruption or play politics.

In my view, the Panama Papers, Paradise Papers and Pandora Papers — all are deliberate leaks instigated by western governments. There is no effort on the part of the ICIJ, which is merely being used as a fig leaf to release the papers. After the economic shocks that western societies sustained due to the Chinese economic tsunami and the events of 9/11, it has become difficult for the western governments’ protected tax and regulatory havens to distinguish between funds that can be used for terrorism and those accumulated there by corrupt rulers and bureaucrats of undeveloped or developing countries.

So, there is a deliberate attempt to unveil that system, leading to these leaks. Rich citizens of poor countries are being incentivised to park their declared and undeclared wealth in these tax haven jurisdictions, from where these funds end up in New York and London capital markets. New York and London are happy as long as the funds are not related to terrorism. Markets in London and New York run on the capital transferred from old Soviet countries, oil rich Gulf family emirates and corrupt countries like ours. Now an attempt is being made to distinguish funds related to terrorism out of that. This is what is called FATF.

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Luxury government cars being auctioned in Islamabad.

Nevertheless, those Pakistanis who are parking their wealth in these jurisdictions, including the Gulf Emirates, are warned that I foresee a time in the near future when such assets would be frozen in these jurisdictions. This will be the ultimate cost of a second passport. Such freezing may take any name or mode including restrictions on moving the funds out of a restricted place. I hope this time does not come too soon. However, the speed of events reflects that such a time is not very far off.

My support for the asset declaration law was for this reason, as I did not want my peoples’ wealth to remain unnamed. However, those who want to keep funds outside Pakistan without proper records and documents may regret it in the near future. This is the result of greed and unfaithfulness to the society that has given every benefit to these people. Malta, Cyprus, Hungary etc. are not the places to keep assets that can be used for generations. One can earn a real income only at the place where there is a natural network.

The question to be answered is whether these Dubai-style luxury mafias demonstrating their untaxed wealth in Pakistan can be taken to task. The apparent answer is negative. However, the history of civilization reveals that there is always a time when ordinary civilized manners fail and anarchy prevails. The uncivilized manner is demonstrated by the TTP, the TLP and other extremist elements, including the MQM. We consider that these organisations are products of the establishment. But we forget that the establishment can only initiate the idea.  Public popularity can only be due to organic and inherent reasons. There are many people who justify the trends adopted by these organisations. As an informed citizen, I am seeing organic recognition for these elements. This will be suicidal for society.

The immediate solutions on the economic side lie in fundamentally correcting the foreign exchange system, incentivising companies against individuals, taxation of all Pakistanis on the basis of citizenship, prohibition of dual nationality like India and Singapore and compulsory declaration in the CNIC record of all UAE Iqama holders, to at least identify the few ex-ministers, who are honoured to work as assistants and accountants in UAE companies. This hypocrisy cannot continue. Let us get together to enlighten the society against intellectual corruption, in addition to financial corruption.

Shabbar Zaidi | Featured, Insight from Narratives Magazine
S. Shabbar Zaidi
The writer is one of Pakistan’s best-known chartered accountants and a senior partner in A.F. Ferguson. He served as the 26th chairman of the Federal Board of Revenue.
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