PIPFA JOURNALpipfa.org.pk/Downloads/Journal/PIPFA Journal (Jan-Mar 2012).pdf · Mr. Sajjad Ahmed Chairman Mr. Shahzad Ahmed Awan Member Syed Imtiaz Hussain Bukhari Member Mian Muhammad

Messages:

President 5

Chairman, Publication’s Committee 5

Articles:

The resources which would never been used for benefit! 6

Transparency International's Corruption Perception Index 2011 8

Economy – The islamic paradigm 11

Asian Development Outlook 13

News Updates:

State Bank of Pakistan News 16

Securities & Exchange Commission News 17

Federal Board of Revenue News 18

IFAC News

a) International Accounting Standards Board (IASB) 18

b) The International Accounting Education Standards Board 18

c) The International Public Sector Accounting Standards Board 19

PIPFA News 20

PIPFA Affairs 22

Entitlement to use Designatory letter APFA or FPFA and distinction of membership.

Continuing professional development through publication, seminars, workshops etc.

Eligibility for Chief Financial Officer or Company Secretary of listed company.

Entitlement for qualification pay etc. to PIPFA Public Sector qualified.

Opportunities to inter-act at the national level with elite accounting community.

Exemptions in examination of ICAP, ICMAP, CIMA-UK, ACCA etc.

Professional activities like election of representatives etc.

We are aslo pursuing Higher Education Commission of Pakistan to grant PIPFAqualified / member equal to B.com Graduate.

Dealing also with Federal Broad of Revenue (FBR), Pakistan to allow PIPFAmembers for Tax Practicing.

Why PIPFA?PIPFA’s Membership entails many Advantages like: Salient features of PIPFA Qualification:

On qualifying Final Stage, one may apply forthe management level jobs like FinancialAdvisor / Financial Officer.

Elevation in Audiotor General of Pakistan forBPS -17 is possible after qualifying PIPFA.

Students may join Audit firms as AuditTrainee or intership in Financial Institutes/Organizations.

PIPFA JOURNALVol. 6 Reg. No.: SS-1112 Jan-Mar 2012

Karachi, Head Office:

M1-M2, Mezzanine Floor,Park Avenue, 24-A, Block 6,PECHS, Shahra-e-Faisal, Karachi.Tel : 021-34380451-52,Fax : 021-34327087E-mail : [email protected]

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Publication Committee:

Mr. Sajjad Ahmed ChairmanMr. Shahzad Ahmed Awan MemberSyed Imtiaz Hussain Bukhari MemberMian Muhammad Shoaib Member

Editorial Office:

M1-M2, Mezzanine Floor,Park Avenue, 24-A, Block 6,PECHS, Shahra-e-Faisal, Karachi.Tel : 021-34380451-52,Fax : 021-34327087E-mail : [email protected]

CONTENTS

VIEWS EXPRESSED HERE DO NOT NECESSARILY REPRESENT THE OFFICIAL POLICY OF THE INSTITUTE

Compiled by: Zubair Muhammad

E X E C U T I V E C O M M I T T E EMian Muhammad Shoaib ChairmanSyed Imtiaz Hussain Bukhari MemberMr. Shahzad Amad Awan MemberMr. Adnan Zaman Member

Mian Muhammad ShoaibPresident(Elected)

Syed Imtiaz Hussain BukhariVice President

(Nominee of AGP)

Mr. Shahzad Ahmad AwanSecretary

(Nominee of ICMAP)

Mr. Adnan ZamanTreasurer / Joint Secretary

(Nominee of ICAP)

Mr. Muhammad SharifMember(Elected)

Mr. Rashid Rahman MirMember

(Nominee of ICAP)

Mr. Sajid HussainMember(Elected)

Mr. Sajjad AhmadMember

(Nominee of ICMAP)

Syed Turab HyderMember

(Nominee of AGP)

Mr. Rafaqatullah BabarMember

(Nominee of ICAP)

Mirza Munawar HussainMember

(Nominee of ICMAP)

Mr. Muhammad Azam KhanMember

(Nominee of AGP)

Pakistan Institute of Public Finance Accountant

BOARD OF GOVERNORS STANDING COMMITTEES

B O A R D O F S T U D I E SMr. Sajid Hussain ChairmanSyed Imtiaz Hussain Bukhari MemberSyed Turab Hyder MemberMirza Munawar Hussain MemberMr. Adnan Zaman MemberMr. Sjjad Ahmad MemberMian Muhammad Shoaib MemberMr. Rafaqatullah Babar Member

E X A M I N A T I O N C O M M I T T E ESyed Imtiaz Hussain Bukhari ChairmanMr. Sajid Hussain MemberMr. Muhammad Sharif MemberMr. Sajjad Ahmad MemberMr. Adnan Zaman MemberMr. Rafaqatullah Babar Member

PIPFA SECRETARIAT

REGULATION & DISCIPLINARYCOMMITTEE

Mr. Muhammad Azam Khan ChairmanMr. Shahzad Ahmad Awan MemberMr. Adnan Zaman MemberMr. Rafaqatullah Babar Member

PUBLICATION & SEMINAR

COMMITTEEMr. Sajjad Ahmed ChairmanMr. Shahzad Ahmad Awan MemberSyed Imtiaz Hussain Bukhari MemberMian Muhammad Shoaib Member

Ms. Rana Nazir Fatima Executive Director / Director-Examination

Mr. Imran Ahmed Additional Director Examination& Members Affairs

Flt. Lt. (R) S. Yawar Abbas Zaidi Additional Director EducationMr. Atiq ur Rehman Deputy Director EducationMr. Jamshaid Riaz Deputy Director ExaminationMr. Shahid Mahmood Chief AccountantMr. Naeem Akhter Executive Incharge (Faisalabad)Mr. Meraj Ali Jan Education Officer (Islamabad)

PIPFA Quarterly Journal

I am pleased to present this edition of PIPFA Journal: the first being issued, following myelection as the President of your Institute.

A combination of grossly adverse factors, such as limited economic freedom, mountingspending, ever increasing national debt and inflationary pressures, have collectively poseda hindrance to the government's ability to revitalize the economy. Nothing, but pursuingthe obvious remedies comprising of a vigorous hunt for greater fiscal consolidation throughdomestic resource mobilization, accompanied by a reduction in the size of the governmentand a significant improvement in the efficiency of public sector spending, can get the economyout of its prevailing downhill descent.

Any improvement in the macroeconomic position of the country, in the near future,continues to pose a tough challenge to the policy makers. To make the matters worse,the global economy too is not showing any signs of coming out of its existing state ofchaos, leaving no room for betterment in the prospects for any increase in the demand forPakistan's exports. Additionally, the energy and water shortages and the worseninginternal security situation are likely to pose severe constraints for growth in FY 2011_12. However, the economy could benefitfrom large initial productivity gains as capacity utilization begins to increase from a low base. For the longer term, it can bestated that, without a resolution of Pakistan's perpetual structural challenges, such as raising the level of domestic resourcemobilization or promoting higher productivity in the economy, growth and investment will continue to stay under pressureand the prospects unpredictable, if not gloomy.

This is a time of extraordinary economic depression. Uncertainties in the country are forcing the local entrepreneurs to shifttheir investment to neighboring countries, especially to Bangladesh. A country, which is around twenty-five years younger thanour own homeland, but whose GDP growth rate in 2011 was twice as much as that of Pakistan.

This justifiably is the time, when Public Accountants are more important than ever to the future success and health of thePakistani Economy. Current financial problems, particularly in the public sector departments, demand a changeling role tobe played by Public Accountants of the country. In my capacity, as the President of your Institute, I firmly believe that anyimprovement in the performance of our Public Sector, in the future, lies in the professional input made by our Public Accountants.

President’s Message

Messages

5

Boosting our export is a short term imperative, but it is also important in the long termbecause it supports thousands of jobs for Pakistanis in times when unemployment isa national concern. Pakistan's ability to execute in terms of boosting its export potential hasbeen proven with the historic records of the past few months of 2011. These figures despitea crunch in global trade make the future trajectory for Pakistan promising as wellEnhanced exports, both in terms of volume and the price that Pakistani commodities andservices fetch in the international markets are important in creating a positive businessclimate.

Foreign Direct Investment plays a very important role in boosting of exports.Pakistan's current investments of USD 1.6 billion in 2010/2011 reflects not just the realcapital coming into the country but also assist in creating the surge in production througheconomies of scale. Foreign investment also plays a crucial part in technology transfer andthe achievement of international export standards. Over the last quarter century,foreign investment has accelerated at a fast pace and shifts in the flow of investment arenow reshaping the global economic landscape. Inward FDI stock roughly tripled worldwideover the past decade and that holds true especially for developing countries.

Today there are about 80,000 multinational corporations (MNCs) are operating worldwide and this has more than doubledsince 1993. Foreign investors not only bring fresh capital, technology, competitive spirit and ideas to new markets such asPakistan, they also bring jobs. Investment not only drives jobs and innovation, but it also increasingly drives trade.

Finally, I would like to commend the PIPFA Journal Team for this milestone achievement. I also look forward to PIPFACommunity achieving greater success in promoting Pakistani Accountancy expertise and resources internationally in theupcoming years.

Chairman Publications Comittee’s Message

PIPFA Quarterly JournalArticles

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Pakistani people are dying while sittingin a land full of riches. Perhaps this is thehorrid yet true picture of reality in mostdeveloping countries in the world.

Pakistan covers an area of 796,095 km2(307,374 sq mi), approximately equalingthe combined land areas of France andthe United Kingdom. It is the 36th largestnation by total area although this rankingvaries depending on how the disputedterritory of Kashmir is counted. Apartfrom the 1,046 km (650 mi) coastlinealong the Arabian Sea, The country isstrategically located between South Asia,Central Asia, and the Middle East. Landis a valuable natural resource which includean extensive natural gas supply, some oil,hydro power potential, coal (although nothigh quality), iron ore, copper, salt, andlimestone. Agricultural products are wheat,cotton, rice, sugarcane, eggs, f ruit,vegetables, milk, beef, and mutton. Primaryindustry includes textiles, food processing,pharmaceuticals, construction materials,shrimp, fertilizer, and paper products.Major exports are textiles, rice, leathergoods, sports goods, carpets, rugs, andchemicals. Pakistan imports petroleum,machinery, plastic, edible oil, iron, steel,tea, and paper.

Many Pakistanis are proud of theirmotherland. Every elementary schoolstudent is taught that the country is richin natural resources. The citizens' pride isrooted in the fact that the country isgeopolitically important and can surviveon its own - unlike Singapore, for example,which basically lives from its neighbors'resources.

Ironically, these same children have togrow up witnessing or experiencingextreme poverty. This is more painful giventhe dreams they hold after being taughtabout the richness of their land.

There is a long list of cases in whichcorporations - local and foreign - exploitedand polluted the land, leaving toxic wastebehind for the local people. From thehuman rights violations and destructionof peoples' livelihoods caused by miningcompanies, to the environmental damage

by the leather industry in Karachi, to aplethora of cases of mercuric materials indrinking reservoirs, corporations havebrought evil consequences to Pakistanipeople.

Joseph Stiglitz, the 2001 Nobel Prizerecipient for economic sciences, famouslyremarked, “Most countries with large(production) of natural resources do morepoorly than those without, which is anirony.” The film “Blood Diamond” depictsa related situation in Africa, whereexploration for diamonds institutes a civilwar, disrupts a nation's political stabilityand subjects its people to torment andanguish. One character vividly remarks,“I hope they do not find any morediamonds, otherwise we will start killingeach other”. The same is for Pakistanwhere we would not find any more naturalresources, otherwise we will start killingeach other again.

Though it may sound treacherous, at somepoints I almost wish this land were poor- and that may indeed be the wish of manyPakistanis. The very inception of economicprinciples stems from resource scarcity;that is why their core mantra is oneadvocating efficiency in modes ofproduction.

Imagine if the world provided sufficientnatural resources that people could simplypick basic necessities - food, water, housingmaterials and clothes - f rom theirimmediate surroundings. In that scenario,economic principles may not even beneeded. There are several caveats to ponder.

First, is it even true that our world doesnot provide sufficient resources to makethis a reality? Is it even the case thatresources are scarce, or is it human activity- greed, pure and simple - that makes itso? Humans always want to have whatothers have, even if they have more. Is itaxiomatic that nature cannot naturallyreproduce resources that humans haveconsumed?

Secondly, assuming that natural resourcesare scarce by nature, not by human greed,is it morally acceptable to suggest thatthose who are the most efficient at

production get the biggest share of naturalresources, while others who are less eficientshould live at their mercy?

This is not to suggest that there is noplace for economic principles, but theyare not without flaws and not withoutvested interests. I would argue that thosedeficiencies manifest as the root cause ofthe torment many developing countries

The resources which would neverbeen used for Benefit!By: Shabbir Ahmed Pasha, APA


7

are suffering.

The very idea of insufficiency, or “resourcescarcity,” pushes those with so-called“technology and capacity” to take over themanagement of the world's resources; theidea of not having enough makes themlook elsewhere. Natural resources becomethe prima donna, and everyone fights overher.

Without the technology and capacitydeveloped countries command, developingcountries will always lose in a game ofresource management and accumulation.That is why in the fields of oil, gas andmineral extraction, developing countriesrabidly engage in joint venture agreementswith foreign corporations from developedcountries. The popular myth is thatwithout foreign corporations, developingcountries would not be able to extractthese resources.

Do you know that;

• Pakistan recently discovered one lowand four low-to-medium quality coalseams in the Punjab. Low sulphur coalwas recently reported at theBaluchistan and near Islamabad.Bituminous, sub-bituminous, andlignite coal have been found inPakistan.

Coal reserves are estimated at 175billion tons. This would equate to 618billion barrels of crude oil. Whencompared to oil reserves it is more thantwice the amount of the top fourcountries. If at KSA's current usage,the reserves would last more than 200years.

• Natural gas production is at a highlevel in Pakistan. Estimated reservesare 885.3 billion cubic meters (as ofJanuary 2009). Gas fields are expectedto last for another 20 years. The Suigas field is the largest, accounting for26% of Pakistan's gas production. Dailyproduction is 19 million cubic metersa day. Under the barren mountains ofBalochistan and the sands of Sindh,there are untouched oil and gasreserves.

• Forests are limited to 4% of Pakistan'sland; nonetheless the forests are a mainsource of food, lumber, paper, fuelwood, latex, and medicine. The forests

are also used for wildlife conservationand ecotourism.

• Pakistan has large gold/copper oredeposits at Saindak. There are largedeposits of rock salt in the PothoharPlateau. Pakistan's mineral resourcesinclude reserves of gypsum, limestone,chromites, iron ore, rock salt, silver,precious stones, gems, marbles, tiles,sulphur, fire clay, and silica sand.

• About 28% of Pakistan's total landarea is under cultivation. Pakistanboasts one of the largest irrigationsystems in the world. According toWikipedia, “the most important cropsare cotton, wheat, rice, sugarcane,maize, sorghum, millets, pulses, oilseeds, barley, fruits and vegetables,which together account for more than75% of the value of total crop output.”The fertile lands of Punjab are readyto feed a population twice that ofcurrent Pakistan.

• Pakistan has a long history of exportingsmall amounts of uranium. In 2006Pakistan produced about 45 tons ofuranium.

• The fishing industry plays a role in thenational economy of Pakistan. Thecoastline is 814km and fisheryresources still have room to grow.Fishing in Pakistan is a major sourceof export earnings.

But for every exploration we have to looktowards other countries. Perhaps it wouldremind you about the Saindak Metals andmany more alike.

According to economic schemas importedby developed countries, developingcountries would not be able to extractthose things “efficiently.” In reality, theuneven playing field is exploited by hugecorporations that wield mighty bargainingpower in their domestic econo-politicalarrangements - which in Pakistan arecalled “corruption” and dictate the sharedivision of natural resources and theprocedural rules for their extraction.

The practical implications are not onlyfrowned upon, but also suffered by manypeople in Pakistan. That is the cancer ofthe irony, purely because of unrestrainedhuman greed.

Quots of the Quarter"It sounds extraordinary, but it's a factthat balance sheets can makefascinating reading."Mary, Lady Archer(1944-), British scientist

The economy depends about as muchon economists as the weather does onweather forecasters.Jean-Paul Kauffmann

The waste of money cures itself, forsoon there is no more to waste.M.W. Harrison

In the old days a man who savedmoney was a miser; nowadays he's awonder.Author Unknown

Inflation is taxation withoutlegislation.Milton Friedman

When written in Chinese the word"crisis" is composed of two characters- one represents danger and the otherrepresents opportunity.John F. Kennedy,Address, 12 April 1959

When a man is in love or in debt,someone else has the advantage.Bill Balance

The government's view of theeconomy could be summed up in afew short phrases: If it moves, tax it. If it keeps moving, regulate it. Andif it stops moving, subsidize it.Ronald Reagan

If all the economists were laid end toend, they'd never reach a conclusion.George Bernard Shaw

We musalmans in general andyoungmen in particular do not knowthe value of money. A paisa savedtoday is two paisa tomorrow, fourpaisa after that and so on and so forth.Because of our addiction to livingbeyond means and borrowing moneywe lost our sovereignty over this Sub-continent.Quaid e Azam Muhammad Ali Jinnah(In Ziarat Balouchistan, 1948)


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By: Prof. Dr. Khawaja Amjad Saeed

Transparency International's corruptionperception index 2011

Global & Regional Analysis

PRELUDE

The general perception in the world isthat corruption is rampant with varyingdegrees of its level. With the presence ofstate machinery, courts, anti-corruptionlaws, social activists, civil rights champions,on-watch organizations and otherstakeholders corruption continues and thecorrupt elements, some instinctively andsome due to compulsion - socio-economic,consider corruption as their birth rightand outsmart the existing anti-corruptionsystem. Their moves are smarter andprompt. They achieve their objectives inaccumulating corrupt money throughvarious techniques. Some are due toloopholes in the laws. Others createopportunities for plunder and lootinnovatively, leaving no evidence to provein a court of law. No wonder the normaltechniques require radical changes by newthinking of tackling the corrupt anduprooting the corrupt systems. For thisnew fully trained breed of persons andbodies, bejeweled with Forensic approach,are needed to crack at the corruptelements. Their affluence bounces withfew exceptions in which case the level ofcorruption is low. However, in the pastthe theory of corruption was based on twofactors namely, Need and Greed.According to wor ld renownedPsychologist namely, Maslow, there arefive hierarchy of needs of an individual.The first level of needs consists of basicneeds (normal food, shelter, clothing,water, health, education and relatedaspects). It is the call of the day that everystate must meet these basic needs. In the1973 Constitution of Pakistan, underArticle 38, these needs have been describedas meeting: “Well-Being” of the socialand economic conditions of the people.However, if these basic needs are not met,

people resort to corruption and try to meettheir basic needs to keep their soul andbody together. The governments in theworld have introduced several measuresto help alleviate poverty so that peoplemeet their basic needs and come out ofthe poverty trap. However, there is a needto start innovative income generatingschemes and help develop a frameworkfor self employment to alleviate poverty.

During the current democratic set up ofPakistan, inflation has been increasingand announcements were made by theGovernment of Pakistan to providecushion against it by increasing the salariesof government employees. Several politicalparties in Pakistan have fought theirelections basically with one slogan, inoriginal or modified shape, that basicneeds of the people will be met. However,this dream appears to be the agenda oftomorrow. The earlier these issues areaddressed, the better. Consequently, thedividends are going to be in the shape ofsocial stabilization, higher standard ofliving, prosperity, visible signs of all aroundfeeling of happiness and self-satisfaction.The government in power should focustheir attention in this respect as this willbe the first step toward developing aframework with stakeholders support forreduction in the level of corruption.

People in Pakistan are living under highsocial tensions. The dream to providebasic necessities of life to them, what totalk of targeting higher standard of livingacross the board, has not yet crystallizedand appears to be an agenda of tomorrow,if not distant tomorrow. Under Article38 of the 1973 Constitution of Pakistan,it is obligatory on the part of theGovernment of Pakistan to ensure well-being of the people. The concept of well-being has been visualized to mean thatthe basic criteria for Happiness Index

which was developed by Nobel Laurate,Joseph Stigler, who, on the invitation ofMr. Sarkozi, President of OECD,developed it in 2010. The presentdemocratic government ought to acceptit on self-accountability basis and deliverthe goods in a befitting manner so thatthe basic needs of the people which istheir Constitutional obligation are ensuredand provided. Present democraticgovernment deserves congratulations forrestoring the above Constitution ofPakistan in its original shape. However,its implementation in all walks of lifeunder various Articles of the 1973Constitution of Pakistan is the cryingneed of today. In this respect, theGovernment is urged to carefully studyand later develop strategic plan to fulfilltheir obligations under Articles 03, 16,37 and 38. Accordingly, corruption causedthrough need will be watered down andconsiderably reduced. In this respect, thetop leadership is urged to follow simplelife and serve as model of austerity for theNation as a whole. This will have positivedomino impact.

The second factor is greed which needs adifferent solution. A positive solution liesin inculcating the spirit of contentmentand with a firm faith that every body isto stay temporarily in this world and everydeed performed is being accounted forand recorded and on the Day of Judgmentone will be facing accountability for frauds,financial defalcations and all other actionswhich fall within the purview ofcorruption.

It is generally believed that, in Pakistanthere are 26 Accountability Institutions.However, those who indulge in corruptionhave outsmarted these institutions throughthat intelligent and tricky by-passapproaches. They defeat the Rules andRegulations, resort to corrupt malpractices


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and have believed in their understandingof PWD (Pakistan Works Department)to mean “plunder without danger”. CPI2011 continues to highlight these aspects.Enough material is available on theinternet regarding the wealth of plunderersfrom several developing and developedcountries. They have kept the untaxedand illegal wealth abroad. Some of theplunderers leave their countries. Somehave been killed. Some are under trial.Some are enjoying scot free life. Most ofthe people who resorted to high corruptionare enjoying luxurious life in Switzerlandacross the lake in Geneva. It is surprisingthat Switzerland claims to be a neutralcountry but is a safe heaven to plunderers,looters and financial dacoits. Theirfinancial malpractices are primarilyresponsible for the poverty in severalcountries of the world. It is high time thatwealth plundered and looted money outof the countries is brought back to originalcountry so that social stability can beensured and high standard of living canfollow through alleviation of poverty andnarrowing the gap between rich and thepoor.

The height of misfortune is that unlikethe above two factors resulting incorruption, the world has seen a risingcurve of corruption supported by a thirdfactor namely, lust. The unending desireof getting extra rich overnight and withan electronic speed has been instrumentalin adding fuel to the fire. No wonder,corruption continues to be upswinging.Even, based on CIP 2011, corruption hasbeen increasing in several countries.

Divine guidance againstcorruption

Allah has provided magnificent guidancefor not resorting to corruption. This aspecthas been covered in various QuranicVerses. The perception of those who takegraft and think that it is their right to doso is also being exposed. In this respect,some references from Al-Quran are quotedbelow:

“Do not cause corruption on thisearth. They say we are but

reformers”. [Al - Quran: 2-10]

Based on above Quranic verse, those whocause corruption and accept it think thatthey are reformers. They are sadlymistaken in this respect.

Similarly, another Quranic versestrengthens and reinforces the abovemessage as per another Quranic Verse:

“Unquestionably, it is they who arecorruptors, but they Perceive it not”.(Al-Quran: 2-11)

In Al - Quran, Allah has categoricallyexpressed that He dislikes corruption andhuman beings on this earth must fulfilltheir obligations in the right manner. TwoQuranic Verses in this respect are quotedbelow:

“And Allah does not like corruption”.[ Al - Quran: 2 - 205 ]

“And fulfill the measure and weights anddo not deprive people of their due andcause not corruption upon the earth afterits reformation”. [Al - Quran: 2 - 11]

Allah has admonished those who arecorrupt that they will be destined to hell.In this respect, relevant Quranic Verse isquoted below:

“Those who …… spread corruptionon earth - for them is the curse andthey will have the worst home”. [ Al- Quran: 13 - 25 ]

ConstituentsThis piece presents introduction toTransparency International (TI) and CPI2011. Topics included are vital factsrelating to CPI 2011. Statistical Analysisof CPI 2011, Regional Analysis of G-8and SAARC and some recommendations.These aspects are briefly reviewed now.

Transparency InternationalTransparency International secretariat islocated in Berlin, Germany. TI wasfounded in 1993. It is a civil organizationleading the fight against corruptionglobally. It has several chapters located

throughout the world. Lot of informationabout TI can be accessed from its website:www.transparency.org

In December 2011, TI releasedCorruption Perception Index (CPI) 2011relating to 182 countries. Every countryin the world has anti-corruption laws,regulations, rules, and institutions. Despitethese, corruption exists in every countrywith varying degree. Various governmentalagencies, international foundations andcorporations are funding TI.

CorruptionPerceptions Index

CPI is a composite index that draws amultiple expert opinion surveys that consistof poll perception of corruption. CPI 2011covers 182 countries. It scores countrieson a scale from zero to ten. Zero indicatesthe highest level of perceived corruptionand ten indicates the lowest level ofperceived corruption.

Vital Facts: Cpi 2011The higher the scale of CPI, the lesser isthe corruption. The lower the scale, thehigher is the level of corruption. The leastcorruption was seen in three countriesnamely, New Zealand (9.5) Denmark andSingapore (9.4) and the highest wasobserved in Somalia and North Korea(1.0), Myanmar (1.5), and Afghanistan(1.3). Pakistan earned 2.5 whichfortunately is higher than Kenya (2.2),Russia (2.4) and Venezuela (1.9).

CPI 2011 results have been drawn from17 surveys. This is based on perceivedlevels of corruption by TransparencyInternational. One may or may not agreewith the results.

Some of the following countries showedimprovement in CPI 2011 as comparedto 2010:

Japan, United Kingdom, Belgium, France,UAE, Bostwana,

Taiwan, Rwanda, Cuba, Bangladesh, Iran,Pakistan, Russia etc.

The deterioration from 2010 Slovenia,Oman, Saudi Arabia, Czech Republic,


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South Africa and many others.

Statistical AnalysisOur calculated average of 182 countries relating to CPI 2011is 4.4 against a scale of 10. The range is very high i.e. 8.5, thehighest being 9.5 and the lowest being 1.0. This represents1.91 times the average and shows that some countries have leastcorruption and many have high corruption. This is a disturbingfactor - resulting in social destabilization, high crimes, presenceof social evils and steadily rising street justice.

The frequency table presents a comparison of CPI 2001 to CPI2011. The calculated average for 2011 is 4.4 and Pakistan'sCPI is 2.5 out of 10.0

Regional Position

In this respect, two regions have been selected by usnamely, G-8 and SAARC.

G - 8

G-8 constitutes the richest group in the world in terms ofeconomic power. It originally consisted of all seven (7) countriesand later Russia was also included. Therefore, the total numbertoday is eight. The least corruption was observed and perceptivelyperceived in Canada (8.7) and the highest level of corruptionwas perceptively received in Russia (6.6). G-8 countries averageis 6.51 against the calculated aggregated average of 182 countriesof the world of 4.44. The range is namely, 6.3 which is 0.95times the average - showing high variation in CPI 2011 for G-8 countries. Canada (8.7), Germany (8.0), Japan (7.8), UnitedKingdom (7.8), United States (7.1), France (7.0), Italy (3.9),and Russia (2.4).

The above released data by TI through CPI 2011 reveal thateven amongst the richest countries of the world which are popularlyknown as G-8, corruption does exist, although, it is below theoverall average. However, Italy got 3.9 which is less than theoverall average of 182 countries of the world and Russia has lowerrank (2.4) than the global average of CPI 2011 which is 4.44.

SAARC

The least corrupt country in SAARC is Bhutan (5.7) and thehighest corrupt country is Afghanistan (1.5). Its average is 2.93.Except for Bhutan, all other SAARC countries are below theglobal average 4.44. This speaks volumes of high rate ofcorruption to the detriment of the socio-economic systemsobtaining in these countries. Their position is: India (3.1), SriLanka (3.3), Bangladesh (2.7), Pakistan (2.5), Maldives (2.5)and Nepal (2.2). It is high time that these issues be given afocused attention in the next SAARC Summit and an actionplan is initiated to ensure declining curve of corruption whichbased on CPI 2011, is increasing. Rather than reacting to CPIannouncement, a pro-active approach be followed to ensure

the declining curve of corruption in future.Accordingly, CPI for 2012 may present adifferent outlook which hopefully shouldbe better the one of 2011.

RecommendationsCorruption is a complex problem. Someascribe it equivalent to a spreading cancer.Consequently, the problem first needs tobe tackled at three levels, such as:

1. The first level is moral reformation.For non-Muslim countries accredited valuesystem need to be enforced for strictcompliance by changing the mindset of the

people regarding corruption. In Muslim world divine valuesystem contained in Al-Quran (16: 90) needs to becommunicated, indoctrinated and implemented.Consequently, the change of mindset will be the beginningof reducing, if not uprooting corruption from the society.

2. It is obligatory on the part of every state in the world thatbasic necessities of life are met so that their Constitutionalobligations are complied with and people live with a senseof contentment. Austerity backed life style in all walks oflife should be operationalized. The lead should be providedby our democratic government at the highest level.

3. Logistical efforts by all stakeholders as mentioned above needto be undertaken for developing a disciplinary code governingcorrupt malpractices. According to Global Integrity Index2008, a positive tribute was paid to Pakistan, stating that ithad strong anti-corruption legal framework. However, it wasreported that implementation was lacking and, therefore,corruption was rampant and growing. Based on CPI 2011,Pakistan had a score of 2.5 out of 182 and 10.0 against theaverage of 178 countries of the world which has been calculatedby us as 4.44. This shows that we are still below the averageand there is a need for strong implementation of at least theexisting anti-corruption framework to reduce the level ofcorruption so that we can achieve a higher score and thusmay move to lesser corrupt countries bracket.

Frequency TableTable 1: CPI 2001 TO CPI 2011

Group CPI 2011* CPI 2010 CPI 2009 CPI 2008 CPI 2006 CPI 2003 CPI 2002 CPI 2001

9.7 - 8.0 14 14 14 12 16 15 14 13

7.9 - 6.0 18 18 20 21 17 13 13 13

5.9 - 4.0 34 34 32 32 25 25 22 20

3.9 - 2.0 102 98 92 86 92 68 46 41

1.9 - 1.1 14 14 22 29 13 12 07 04

Total 182 178 180 180 163 133 102 91

* The highest grade is 9.5 out of 10.0 Source: Computed from data downloaded from: www.transparency.org


11

Islam is not only a religion; it is a completecode of life which guides its followers inevery matter whether petty or importantand covers absolutely all facets of humanlife. Islam, as compared to other religions,does not separate religion and worldly life.It entails that all worldly activities i.e.social, political, economical etc must beperformed and done according to thetenets & guidelines given by Islam throughthe glorious Holy Quran and Sunnah(sayings and actions) of the Holy Prophet(Sallallahau Allaihaye Wassallam). TheQuran says: “My Prayer, and all my (other)acts and forms of devotion and worship,and my living and my dying are for Godalone, the Lord of the worlds” [6:162].The idea of Islam, being a way of life, canbe comprehensively understood by lookingat the exemplary and ideal life of theProphet of Islam Muhammad (PBUH)who guided the believers of the religionon all aspects of human life from personalhygiene to social behavior, from familylife to work ethics, from business dealingsto fulfilling contracts. The life of the HolyProphet (PBUH) - the ideal human being,ratifies this very fact that Islam is a “deen”and not merely a “madh'hab”.

As discussed above, we can clearly realizethe brilliance of Islam as a comprehensivecode of life that covers all facets of humanlife including all spiritual, personal,economical, social, political and intellectualissues. And when we analyze precisely theeconomic system that is based on the lawsand principles of the Holy Quran andSunnah of the Prophet (PBUH), we cometo know that it is actually a perfect systemof economy that emphasizes universalstandards of economic justice, socio-economic welfare and, equitabledistribution of wealth/resources to allsections of society. Islam discouragesconcentration of economic resources inall its forms. Prohibition of Riba,imposition of Zakat and other suchobligations play a vital role to prevent thisaccumulation of wealth in few hands andhence lead towards an economy thatbenefits both the poor and the rich. The

Islamic economic system is perfectly poisedand balanced as compared to othereconomic systems such as Socialism orCapitalism. The economic system derivedfrom the Islamic principles has somedistinguished features such as right toownership (subject to some conditions),free but regulated market forces, Zakatand other levies imposed by Shariah andlaw of the land, interest-free transactions,and above all, the just and equaldistribution of wealth which ultimatelymitigates the gap between the rich andthe poor and keeps this gap withinacceptable natural limits. When this gapwidens as a result of economic disparities,the society is threatened by many socialevils because the poor consider the richas their enemy and the sense of deprivationis so severe that the poor can go beyondall limits. The Holy Prophet (PBUH)himself sought refuge from poverty.Islamic economic system emphasizes thatan economy should be regulated andadministered in such a way that both, theones who have the primary right (oneswho directly contribute in the productionprocess, factors like labor and enterpriseetc) to wealth and the ones who have thesecondary right (the poor and the needywho do not participate in the productionprocess), as discussed by MuhammadImran Ashraf Usmani in his book 'Guideto Islamic Banking' , must get their dueshare. When there is inequality andinjustice in resources distribution, therewill surely be problems like poverty, crime,corruption etc. To sum up, it can be saidthat the focal point or one point agendaof an economic system based on IslamicShariah is the equitable and justdistribution of wealth and then there areother significant aspects like prohibitionof Riba (Interest), Zakat, right to ownand operate business etc.

If we analyze profoundly we can list downthese five chief attributes of an Islamiceconomic system and their difference withconvent ional economic sys tem:

(i) The Ultimate Objective is Not theFulfillment of Human Desires:

The main objective of Islamic economicsis not the satisfaction of human wantsthrough the best utilization of scarceresources whereas this is the ultimate goalin conventional economics. The wholeeconomic setup revolves around thephenomenon of meeting unlimited humanwants with limited resources throughefficient resource allocation andconsumption under the conventionaleconomic paradigm. However, the Islamiceconomic stance leads towards anotherultimate objective of attaining the pleasureof God while meeting the humaneconomic needs as a parallel rathersecondary objective.

(ii) Collective Welfare:

Islamic system of economy emphasizesthe collective well being of all individualsin a society but the conventional economicsonly believes in individual welfare orindividual interest. The materialistic orconventional economic setup assumes thatthe individual welfare focus willautomatically lead to the collective well-being of all the individuals which isinherently flawed.

(iii) Money has No Value in itself:

According to Islamic economics, moneyhas no value of its own but it is a measureof value and operates as an exchange ofvalue. This feature of money makes itincapable to be traded as a commoditybecause something which has no valuecannot be sold or bought and hence cannotearn anything on its own i.e. any rewardor return in any shape like profit or interest.According to both Islamic andconventional economic viewpoint,anything which does not carry anyeconomic value cannot be considered asubject matter of any economictransaction. But the conventionaleconomic stance ignores this fact to earnundue consideration on money.

(iv) Money has No Time Value:

Islamic system of economy does notrecognize the concept of time value ofmoney which is a foundation of interestbased transactions. In contrast,

By: Muhammad Aqib Ali, APA

Economy - The Islamic Paradigm


12

conventional economic system thrives onthis concept. As a result of this conceptholding primary importance inconventional economics, many ills areinserted into the economy like interest,risk free earnings and so forth. The kingpinof conventional economy i.e. the interestor 'riba' is based on this very principle oftime value of money.

(v) Independent but RegulatedMarkets:

The conventional economic systemoperates on the assumption that theinterests of individuals will converge bythemselves within an economy andencourages free and totally independentoperation of market forces, but the Islamic

economic system opposes this theory andcalls for a degree of regulations to makesure that these market forces are not givenas much liberty that they can disrupt thenatural and smooth functioning of thewhole economy.

Tip of the Quarter

Take small steps : It's your wayto a better future

Small steps are often overlooked inthis speed crazy world whereeverything must be fast, needed nowand the faster you achieve your goalthe better. And you cannot really sayslow is better and that some thingstake time in this age of speed. If youdo, you are at risk being looked uponwith scornful eyes. How you dareeven suggest that, they say.

1. Small Steps, Not Giant Leaps

Well, I am here to tell you to takesmall, steady steps. I am sure youwant success fast. The faster thebetter, right? As I get older, I am notreally sure if there is a finish line.Because if there is a finish line, whatthen? I tend to see career or life as aseries of marathons now. So, takelittle steps instead of one giant leap.There is no such thing as a giant leapto career success.

2. Distance Is A Series Of Small Steps

You must remember that distancecan be covered by a series of smallsteps. It can also be covered by aflutter of fast paced sprints. But thedifference is, if your finish line isfinite - then well, you know the typeof stamina you need in order to coverthat distance. Do you? That is animportant question.

When I first started working, I didnot know where I will be 17 yearslater. You may have a general ideabut life takes you on many surprises.Do not be shocked this race you areparticipating in takes many forms anddetours.

I am in favor of small steps as it allowsyou to cover a greater distance whileconserving energy and being able toenjoy the view at the same time!

3. Patience

Sure, easier said than done. Patiencesome say is an over rated virtue. I amnot sure I agree. You need lots ofpatience on your journey to careersuccess. And if you buy into the smallsteps philosophy then you will needeven more patience. Things take timeto reveal themselves to you. Especiallygood things that appear bad initially.

4. Keep Walking

So long as you keep walking, there isno stopping you from where you wantto go. The image of ForestGumprunning comes to mind. Ofcourse that is an exaggerated examplebut do imagine, if you take small stepsand do not stop, how far can you goin the span of time you have? Peoplewho think about sprinting do notknow that you can run out of staminabefore the finish line reveals itself.Worst of all, the finish line theyimagine for themselves is actually a

mirage. Then what?

5. It's Ok To Detour

When you take little steps, it is ok totake a detour. Such is life and suchis work too since work is a big partof life. So, it's ok to explore a little.Make wrong decisions and learn fromit. Most times, what we like, whatwe are good at, and our talent doesnot reveal itself when we do the safething. It rears it's head when we leastexpect it.

6. Potholes, Humps and UnevenSurfaces

It is also easier to navigate the roadwhen you take little steps. Especiallyone that is filled with potholes, humpsand uneven surface, which appearsto never end. But it's ok, becausewhen you take small steps you beginto understand the character of theseroads.

7. Who Knows What's Ahead

You don't. At best you have an inklingof what you want and you pursue it.The secret is so long as you take smallsteps, conserve your energy and bepatient; eventually the finish line willbe worthwhile.

That is how it is; you make a decisionand take a risk. Who knows whereall your effort to plan, to act uponthe plan will take you? But with smallsteps you know you will get there.


13

PAKISTANThe economy was under pressure inFY2011 from the aftermath of extensiveflood damage, energy shortages, securityissues, and a burgeoning fiscal deficit-aswell as persistently high inflation, despitemonetary policy tightening. Still, thecurrent account moved to a small surpluson strong exports and remittances. Growthis expected to pick up modestly in FY2012,largely on agriculture. However, to get theeconomy back on a high growth trackPakistan must overcome its long-standingmacroeconomic and structural imbalances.

UPDATED ASSESSMENTFor the fourth year running, Pakistan wastrapped in low growth in FY2011 (ending30 June 2011). Severe floods in July-August 2010, higher oil prices, powershortages, and security pressures heldGDP growth to an estimated 2.4% (Figure3.7.1), slightly lower than the 2.5%projected in the Asian DevelopmentO utlook 2011 of Apri l . Sectorperformance was uneven. Agricultureshowed growth of only 1.2%, despite apickup after the floods. Solid growth inlivestock and minor crops as well as goodwheat and sugarcane crops was offset by

a fall in cotton and rice harvests.

Increasingly severe and unpredictablepower outages undermined industry, whichvirtually stagnated (down 0.1%). Thisoutcome was due to a large fall (aboutone-fifth) in electricity output, in partcaused by a sharp drop in natural gasproduction and flood damage. Powersupply problems in turn hit production inareas such as cement, metal industries,electronics, and textiles, as well as exporters'ability to deliver on schedule. Agro-basedindustries were less affected, bolstered bythe good wheat and sugarcane harvests.Growth in large-scale manufacturing camein at 1.1% (Figure 3.7.2). Finally,

construction eked out a mere 0.8%expansion as public spending shifted fromprojects to flood relief, and reconstructionwork started only after a delay.

Services (up 4.1%) accounted for most ofthe growth. The expansion was led bypublic administration and defense (13.2%)as well as social services (7.8%), whichwere partly supported by external financing

for flood relief. Growth slowed sharply intransport, storage, and communicationsservices, partly on weakness in key publicenterprises, including Pakistan Railwaysand Pakistan International Airlines. Theirperformance-as with so many publicenterprises-remained impaired by lack offiscal discipline and governance issues.

From the demand side, public and privateconsumption provided the only impetusto growth in FY2011 (Figure 3.7.3).Investment declined for the third straightyear, taking the investment-to-GDP ratioto only

13.4% in FY2011, from 22.5% in FY2007.The poor showing stems from severalfactors, including the downdraft in theeconomy, weakness in the investmentclimate, and security issues.

Inflation surged after the summer 2010floods, due largely to food supply shortagesand higher transport costs. Food priceinflation eased somewhat during thesecond half of the fiscal year, falling froma peak of 21.2% (year on year) inSeptember to 15.7% by June, averaging18% for FY2011. Overall inflationaveraged 13.9%, up from 11.7% in theprevious year (Figure 3.7.4). Inflationpressures are widespread, with more thanhalf the items in the consumer basketposting double-digit increases during theyear. Core inflation also stayed in doubledigits all year, underscoring the broad-

based inflation pressures entrenched inthe economy.

The State Bank of Pakistan (the centralbank) kept interest rates high in FY2011.In July 2010, it raised the discount rateby 50 basis points to 13%. As inflationpicked up and the fiscal position weakened,it increased the rate in September andNovember 2010. It then maintained that14% rate in its next three successive policy

announcements ( January, March, and May2011), as the current account strengthenedand government borrowing from thecentral bank fell off. In response to anexpectation of easing inflation, the centralbank reduced the rate to 13.5% in July2011.

The provisional fiscal deficit for FY2011is estimated at 6.2% of GDP, about thesame as in FY2010. It surpassed the 4%of GDP budget target for FY2011announced in June 2010 before the floods.Higher costs for subsidies and security,unforeseen flood-relief spending, andadditional borrowing to ease liquidityshortages in the power sector contributedto pushing out the deficit. Current outlayswere about PRs300 billion over budget,equivalent to 1.6% of GDP.

Estimated spending on defense (2.5%

Asian Development Outlook


14

GDP), interest payments (4.0%), subsidies(2.2%), and pensions (0.5%) exceededfederal tax and nontax revenues by 0.6%of GDP. Adding government operatingcosts (1.1% of GDP), there is a gapbetween Federal Board of Revenue receiptsand current spending of about 1.7% ofGDP.

Development spending was cut to provideresources for flood relief and to containthe deficit. The public sector developmentprogram was set to increase by nearly 30%to PRs663 billion at the time of theFY2011 budget, with a federal allocationof about two-fifths of the total and thebalance for provincial budgets. Spending,however, fell well short of target asresources were released for federal andprovincial relief operations.

Estimated total development spendingcame to only PRs462 billion, or 2.6% ofGDP (Figure 3.7.5).

The 16.7% estimated increase in federaltax revenue fell short of the 20% target,as a variety of revenue measures-includingrevocation of sectorwide exemptions inthe sales tax scheme-proved politicallydifficult to enact. In response to slowerthan projected receipts, a surge in currentspending, and a fall in foreign inflows,

various short-term measures were putthrough for March-June 2011 (includinga 15% income tax surcharge, an increasein special excise rates, and removal of thesales tax exemption for domestic andimported agricultural inputs such astractors and fertilizers). They wereexpected to raise PRs56 billion (about0.3% of GDP). But despite them, taxrevenue is estimated to have fallen relativeto GDP, from 9.0% in FY2010 to 8.6%in FY2011 (Figure 3.7.6).

Broad money growth accelerated to 15.9%from 12.5% in FY2010, largely owing toincreased government borrowing. Thisitem-all from commercial banks-jumpedby 46% in FY2011 to PRs579.5 billion.Credit to the private sector inched up byabout 4%, constrained by the economicslowdown. With investment activity inthe doldrums, the credit growth largely

reflected the additional working capitalrequirements of higher prices for keyinputs and trade finance (in light ofincreased exports).

Buoyed by higher commodity prices(especially for cotton and textiles), a surgein workers' remittances to $11.2 billion,flood-related assistance, and inflows fromthe US Coalition Support Fund, thecurrent account posted an unexpected,small surplus of $436 million (Figure3.7.7).

Merchandise exports recorded a rise of29%, half due to textiles, and the otherhalf to food (surplus wheat stocks wereexported) and a strong gain in othermanufactured exports (Figure 3.7.8).

Imports, reversing the decline of theprevious 2 years, climbed by 14.5%. Withtheir estimated volume up by only about1%, nearly all the import increase reflectedhigh prices for petroleum products, food,and intermediate goods, including large

postflood requirements of raw cotton.Imports of machinery fell by about 5% ashigher imports of telecommunications

and textile machinery were outweighedby a decline in imports of powergeneration, office, and electrical equipment(reflecting weak investment activity).

The financial account surplus fell to only$1.9 billion in FY2011-from $5.1 billionin the previous year and $9.9 billion inFY2007-largely due to a large drop inofficial borrowing. Modest inflows ofportfolio investment partly offset the slightreduction of direct investment inflows (onlower telecommunications and oil and gasexploration), which slowed to $1.6 billion.

Foreign exchange reserves strengthened

to $18.2 billion and, with positivedevelopments in the external account,helped stabilize the exchange rate vis-à-vis the US dollar: the Pakistan rupeedepreciated by only 2.0% in FY2011, aftera 6.3% drop the year before.

Domestic public debt rose by 29.2% toPRs6.0 trillion (33.3% of GDP) by end-FY2011, while external public debt roseto $56.3 billion (PRs4.8 trillion), or 26.6%of GDP (Figure 3.7.9). The average

3.7.1 Select economic indicators (%)

2011 2011ADO Update ADO Update2011 2011

GDP growth 2.5 2.4 3.7 3.7

Inflation 16.0 13.9 13.0 13.0

Current acct. bal -1.7 0.2 -2.3 -1.3

( share of GDP)

Source: ADB estimates.


15

maturity for domestic public debt hasfallen to 18 months and, with interestrates above 12%, interest costs wereequivalent to about 35% of federal taxrevenue in FY2011. The shorteningmaturity for domestic debt raises bothrollover and interest rate risk. Mostexternal debt is, though, contracted at amodest average interest rate and relativelylong tenors.

PROSPECTSThe economy is forecast to strengthenslightly in FY2012 from FY2011, to 3.7%,buttressed by agriculture's expectedrecovery (albeit depending on weatherconditions) and continued expansion ofser vices . Growth in large-scalemanufacturing is likely to be muted, giventhat power supplies are unlikely to improvemuch. Repairs to the transport networkshould provide some relief from hightransport costs.

Pakistan must average 7% annual growthto absorb the 3% increase in its labor forceeach year. Its population is young, withmore than 65% under the age of 30. Yetrecent experience-with average economicgrowth of less than 3% in FY2008-FY2010-has been too little to takeadvantage of these favorable demographics.The National Economic Council recentlyendorsed a Framework for EconomicGrowth to guide efforts to improve future

growth and employment prospects (Box3.7.1).

Slow growth in agriculture in recent yearsreflects the general decline of the sectorsince the rapid growth of the 1980s, whenit expanded by more than 5% a year onaverage. Water shortages and lowinvestment in irrigation infrastructureover the years have led to a general declinein agriculture productivity. Agricultureneeds structural reforms to bring abouthigher productivity, transformation, and

diversification, but with the sectoraccounting for 44% of total employment,such reforms would reduce laborrequirements, and so other sectors wouldhave to create jobs to absorb agriculture'sreleased workers.

Inflation is expected to stay high, easingback only slightly to an average of 13.0%in FY2012 because of the planned upwardadjustments in domestic electricity prices,the restoration of automatic pass-throughof fuel price increases to consumers, andstrong inflation expectations built into theeconomy.

Realizing the budget for FY2012-with alower deficit of 4.0% of GDP-largelydepends on containing subsidies (Figure3.7.10) and boosting revenues. The budgetis expected to gain from steps to cut powerand other subsidies by 57% relative toFY2011. While efficiency gains in thepower sector have somewhat reduced theneed for tariff differential subsidies, ending

subsidies depends on the pace of powersector reforms. Revenue receipts areprojected to increase by 23% f romFY2011, relying primarily on efforts tocurtail tax evasion. The FY2012 budgetended sales tax exemptions for 500 items,but reduced the sales tax by 1% to 16%.

Net external financing (excluding grants)for FY2011 is expected to be limited toonly PRs8 billion, as repayments due onshort-term loans amount to more than $1billion. Given forecast external financingand grants of PRs127 billion, the rest ofthe targeted deficit (PRs716 billion) wouldneed to be financed f rom domesticborrowing. Since the government hasagreed to limit borrowing from the centralbank in FY2012, commercial banks andnonbank institutions will need to providefinancing of about 3.3% of GDP, as inFY2011.

The budget for FY2012 projects the publicsector development program to expand toPRs730 billion, an increase of 58% overthe FY2011 provisional figure. Achievingthis ambitious target, in view of limited

external resource availability, will dependon fully mobilizing budget resources andpushing through measures to containcurrent expenditure.

The current account is seen weakening inFY2012 because of slower export growthof 8% (mainly reflecting less favorableexport prices) and import growth of 14%(mirroring still-high commodity pricesand some economic strengthening).Workers' remittances are set to stay strong,providing a buffer for the larger tradedeficit and limiting pressures on foreignexchange reserves as external debt servicepayments climb sharply. The currentaccount deficit is projected at 1.3% ofGDP, lower than the Asian DevelopmentOutlook 2011 projection of 2.3%.

3.7.1 Framework for Economic Growth

The National Economic Councilendorsed a framework for economicgrowth in May 2011 to exploit theeconomy's expanding labor force.

The framework takes a holisticapproach promoting competitivemarkets, higher productivity, bettergovernance and public service delivery,innovation, and entrepreneurship. Itaims to restore Pakistan's annual GDPexpansion to 7%-the estimated rateneeded to absorb new labor forceentrants-by streamlining the publicsector and fostering private sector-ledgrowth.

For the latter, it prioritizes addressinggrowth-inhibiting rigidities in the legaland regulatory framework (includingzoning laws, land ownership issues);improving governance and cultivatingappropriate incentives; and shifting thegovernment's role to one

of regulation and strengthening thebusiness environment.

The framework acknowledges thei m p o r t a n c e o f r a i s i n g t h ecompetitiveness of cities (as hubs forcommerce) and building better

physical connectivity-with a greater rolefor the private sector-as importantchange drivers.

“Source: Asian Development Outlook 2011 Update: Preparing for Demographic Transition”

PIPFA Quarterly JournalNews

16

STATE BANK OFPAKISTAN

Pakistan holds enormous potentialfor economic g rowth despitech a l l e n g e s : Y a s e e n A n w a r

Mr. Yaseen Anwar, Governor, State Bankof Pakistan (SBP) has said that Pakistanholds enormous potential for economicgrowth. 'I am, personally, optimistic aboutthe country's future, and confident thatour economic managers - who have steeredthe country through much choppier seas- will guide this resilient economy to thepath of stability and prosperity,' he added.

Delivering his key_note address on “TheState of Pakistan's Economy” at a seminarorganized by the Management Associationof Pakistan (MAP) at a local hotel inLahore, he emphasised that our economy'sresilience may well be unparalleled as wehave survived two major floods; onecatastrophic earthquake; a war on oneborder; and a balance of payments crisis- all in the past decade without any boutsof hyperinflation, a run on bank depositsor a deep recession. 'This only goes toshow the enormous potential for growththat the country holds,' he added.

He said that while Pakistan's economy isgoing through some testing times, thechallenge in front of us can scarcely beclassified as daunting. 'Our twin deficitsare, in my opinion, the most significantchallenge at the moment. Even then, it isnot the size that's the problem; it's thesituation.

And unlike the problems that engulf theeconomies of the West, we know preciselywhat needs to be done. In that regard, weare extremely fortunate,' SBP Governoradded.

Mr. Anwar said: 'we know what ourproblems are. Unlike many othercountries, the solutions to our problemsare straightforward. All they require is agood measure of willpower and thedetermination to see reforms throughthese interesting and challenging times.'

He said that despite the fiscal deficit, thecountry's debt to GDP ratio has notincreased substantially; in fact, it has

declined in the last three years. 'To putthis in perspective, Pakistan's debt to GDPratio is half that of most Europeancountries and one_third that of Japan, hesaid, adding that most of the country'sdebt is denominated in rupees and theexternal debt is long_term in nature. Thus,I believe there is absolutely no chance thatPakistan will be facing a Greece_like debtcrisis anytime in the near future,' Mr.Anwar added.

SBP Governor said that the resilience ofthe economy manifested itself in the paceof recovery that was witnessed after theflooding in Sindh in the early part ofFY12. The improvement in food supplieshas already dampened food inflation,which has been edging down continuously,he said, adding that this is especially goodnews for the lower strata of society, whichspends roughly half of its income on food.'Headline inflation has followed suit andfell to less than ten percent for the firsttime in two years,' he said.

Mr. Anwar said that our textile and sugarindustries are expected to do well this yearand added that construction activity hasalso picked up with support from the risein remittances; a growing population; andthe initiation of public sector developmentprojects.

He pointed out that growth across thereal sector has been constrainedsignificantly by our energy problems.However, the government is very wellinformed about the energy situation andhas been taking steps to alleviate theproblem, he said, adding that such stepwas the debt swap that was recentlyconducted to free up liquidity forcompanies across the energy sector,increase power generation and reduce thelevel of circular debt in the energy sector.

SBP Governor said that all stakeholdersare conscious about the challenges thatthe economy faces at present, anddiscussions have been extremely frank andstraightforward. To help manage thedeficit without too much of an impact oneconomic growth, the State Bank hasramped up efforts to broaden and deepenfinancial markets - both primary andsecondary, he said and added: 'we have

undertaken an initiative with the SECPto develop debt markets in Pakistan, andwe believe that this will go a long waytowards mitigating the negative effects onthe economy of government borrowingfrom commercial banks.

Mr. Anwar said that we are workingtowards the development of the CorporateDebt market that would lead to asecondary market, thereby creating ampleliquidity to absorb the circular debt as along term remedy. 'The depth and breadthof the market comprising both institutionaland individual investors, would alsoalleviate government borrowing from SBPand the commercial banks, he said, addingthat naturally monetary policy would thenbecome more effective in managinginflation.

He said that SME, agriculture andhousing finance are engines of growth.Our banking structure currently is notperforming its key role as a financialintermediary as none of these sectors havebeen adequately penetrated, he said andadded that we are working to develop theCorporate Debt market to facilitatefinancing.

SBP Governor said that it is the financingof the current account deficit that willremain a challenge this year. 'Net financialinflows have slowed down to only $1.9billion in FY11 after peaking at $8.7 billionin FY07. To manage the situation, theBank (SBP) has entered into currencyswap agreements with Turkey and Chinain order to mitigate the pressure of anyadverse development in the developedworld on our external accounts andreserves,' he said, adding that other sucharrangements are in the pipeline withother countries that could relieve pressureon our external accounts.

'Aside from the currency swaps, the largestbank in the world, Industrial CommercialBank of

China (ICBC) opened its branches in2011 in Karachi and Islamabad. Soon Iwill be announcing another foreign bank'sentry into Pakistan that reflects offshoreinvestor confidence improving. Clearly,there is much to be optimistic about,' he


17

added.

SBP Governor said that our reservemanagement policies are transparent andthe State Bank has not experienced anysubstantial pressure on its reserves yet -despite the recent repayment of a $400million installment to the IMF as we startpaying our loans. 'The foreign exchangemarket did not react adversely to this largeoutflow, reflecting the confidence it placesin SBP's policies and procedures,' he said,adding that the State Bank managed tosuccessfully manage market expectationsand avoid any untoward movements inthe exchange rate.

He said that the State Bank also remainsdedicated towards managing excessiveexchange rate volatility, while clampingdown on speculative pressures on therupee, to provide a stable exchange rateenvironment for the domestic industry.'SBP's efforts to incentivize thetransmission of remittances, throughformal channels, has also borne fruit, asremittances have increased markedly inthe past few years, and supported ourexternal accounts, he added.

SECURITY &EXCHANGE

COMMISSION OFPAKISTAN (SECP)

SECP frames code of corporategovernance for public sectorcompanies

ISLAMABAD, March 24: The Securitiesand Exchange Commission of Pakistan(SECP) has formulated the draft PublicSec to r Compan ie s (Corpora t eGovernance) Regulations, 2012 in orderto improve the governance framework ofPublic Sector Companies (PSCs). Thesedraft regulations have principally beenbased upon the Code of CorporateGovernance, which has been customizedin the context of PSCs in the light of theOECD's Guidelines on CorporateGovernance of SOEs.

PSCs are public sector enterprises,operating in corporate form, which aredirectly or indirectly owned and controlled

by the government, whether federal,provincial or local. The draft regulationshave been placed on the SECP website(www.secp.gov.pk) for soliciting theopinion, comments and suggestions fromstakeholders and the public.

These regulations have been designed inview of the distinct governance challengesfaced by the PSCs in Pakistan. Theinefficiency of such companies is chokingthe economy and draining fiscal resources,necessitating urgent restructuring of theiroperations. Various recommendationshave been made in the draft regulationsaimed at optimizing the efficiency,enhancing the transparency in operations,and providing a mechanism foraccountability of those charged withgovernance.

The Federal Government had constituteda Cabinet Committee on Restructuringof Public Sector Enterprises (PSEs) inJanuary 2010 to improve their overallcorporate governance and service delivery,and to move to a structural surplus andincreased public sector savings.

Subsequently, in October 2011 the FederalGovernment formed a task force oncorporate governance of PSEs with themandate to examine the prospects ofdeveloping a regulatory mechanism forimproving the governance of PSEs andenhancing board effectiveness andempowerment through a range ofmeasures.

The measures to improve the governanceof PSCs include undertaking boardcomposition reforms by including a certainnumber of independent non-executivedirectors on the boards of such companies,ensuring continuity in the tenure of boardmembers, separating the roles of chairmanand chief executive, forming specializedboard committees, undertaking trainingand capacity building of the boardmembers, strengthening the internalcontrol mechanism, augmenting thedisclosure and transparency requirements,and undertaking periodic performanceevaluation of the board members, etc.

Federal Board of Revenue

FBR Performance Reviewed -Revenue efforts are on track,Advisor.

A meeting on FBR's performance washeld on 20th February 2012 under thechairmanship of Dr. Abdul HafeezShaikh, Advisor to Prime Minister onFinance and Revenue. The meeting wasattended by the Deputy ChairmanPlanning Commission, Chairman FBR,Secretary Finance, Secretary Planning andofficials of the Finance Ministry and FBR.The meeting concluded that the revenueefforts are on track with the expectationof meeting the budgetary target of Rs.1952 Bn for FY11-12. Analysis of monthto month performance figures for the firstseven months and for the remainingmonths of the year were reviewed.Chairman FBR apprised the meeting thatFBR's net collection for the first 7 monthswas around Rs. 975 Bn which is a growthof more than 26 percent over same periodlast year. Administrative revenue effortsof FBR were also thoroughly scrutinized.In the first seven months theseadministrative measures generated aboutRs. 40 Bn. Advisor on Finance andRevenue outlined additional administrativeefforts of Rs. 50 Bn which will be neededin the remaining four months of FY12.These efforts would focus on audits,broadening of tax base, and collectionfrom demands created, stuck-up arrearsand recovery of illegal sales taxadjustments. A detailed presentation onprogress on broadening of direct tax basewas made. The Advisor on Finance andRevenue instructed FBR to accelerate thepace of registration of new taxpayers. TheAdvisor reviewed the performance of eachtax region laying out a plan for theChairman FBR to further strengthen theperformance of the concerned ChiefCommissioners to ensure fulfillment oftheir targets. Advisor on Finance andRevenue while commending FBR's effortsfurther emphasized the need to continuefocus on broadening of tax base, taxcompliance and enforcement of taxreturns. The Advisor also laid out theprinciples for the forthcoming budget. Hedirected that the tax system should besimple, transparent, consistent andpredictable.


18

IFAC News

International Accounting StandardsBoard (IASB)

Economic Conditions Continue toChallenge Preparers and AuditorsAlike; Focus Must Include GoingConcern Assumption and Adequacyof Disclosures

(New York, December 28, 2011)-Theglobal economy continues to experiencedifficult conditions as the effects of thefinancial crisis-for example, on corporatecash flows and access to credit-persist.Volatility in capital markets, and issuesincluding measurement and disclosure ofexposures to sovereign debt of distressedcountries, continue to create uncertainty.The impact of these issues and uncertaintyhas wide-ranging financial reportingimplications that often extend beyondnational borders.

These and other current economicconditions present unique challenges formanagement of entities, those chargedwith governance, and auditors in meetingtheir responsibilities, including assessingan entity's ability to continue as a goingconcern and making relevant disclosuresin the financial statements and, asappropriate, the auditor's report.

In light of the current environment, theInternational Auditing and AssuranceStandards Board (IAASB) remindsauditors of their important responsibilitiesunder the International Standards onAudit ing (ISAs) and that theappropriateness of management's use ofthe going concern assumption is a matterto be considered on every auditengagement.

Prof. Arnold Schilder, Chairman of theIAASB, commented, “Difficult economicconditions give rise to many importantaudit considerations, but none moreimportant-or more difficult-thanevaluating management's assessment ofan entity's ability to continue as a goingconcern and determining the appropriateauditor reporting in the circumstances.”

“Auditors must remain alert throughoutthe audit for evidence of events orconditions that may cast significant doubton an entity's ability to continue as a goingconcern. We cannot stress enough theimportance of professional skepticism andjudgment in evaluating financial statementdisclosures and the implications for theauditor's report when a materialuncertainty exists relating to events orconditions that, individually or collectively,may cast doubt on the entity's ability tocontinue as a going concern.”

The 2009 IAASB Staff Audit PracticeAlert, “Audit Considerations in Respectof Going Concern in the CurrentEconomic Environment,” highlightsmatters relevant to the consideration ofthe going concern assumption in thepreparation of financial statements.Among other matters, it addresses factorsrelevant to the assessment of goingconcern; the period of time considered inmaking a going concern assessment;financial statement disclosures; formingan opinion on the financial statementsand the implications for the auditor'sreport.

“While this Audit Practice Alert wasreleased in context of the 2008-2009 creditcrisis, many of the matters addressed init are equally relevant today. For example,an entity may be experiencing a declinein its financial health, or may have materialuncertainties arising from direct or indirectexposures to sovereign debt of distressedcountries. Auditors are thereforeencouraged to review the Alert and,importantly, the relevant requirements inthe ISAs,” emphasized Prof. Schilder.

IAESB

Revision of the InternationalEducation Standards

The International Accounting EducationStandards Board (IAESB) is stillprogressing in its project to revise andredraft its suite of eight InternationalEducation Standards (IESs). Recentdevelopments include the following:

• The redrafted IES 7, ContinuingProfessional Development, wasapproved at the IAESB at its October

2011 meeting, and will be issued uponapproval of due process activities by thePublic Interest Oversight Board.

• Redrafted and revised IES 1, EntryRequirements to a Program ofProfessional Accounting Education;IES 4, Professional Values, Ethics, andAttitudes; IES 5, Practical ExperienceRequirements; and IES 6, Assessmentof Professional Capabilities andCompetence were released for exposurein 2011, with comments received frominternational stakeholders of the IAESBand the global accountancy profession.They are expected to be approved in2012.

• The remaining three IESs, IES 2,Content of Professional AccountingEducat ion Programs, IES 3 ,Professional Skills and GeneralEducation, and IES 8, CompetenceRequirements for Audit Professionals,are expected to be released for exposurein 2012. The IAESB looks forward toreceiving comments from theinternational education community andIFAC member bodies on thoseproposed revisions.

IESBA Proposes Changes to Code ofEthics Def inition of EngagementTeam

The International Ethics Standards Boardfor Accountants (IESBA) today releasedfor public exposure proposed changes tothe definition of “engagement team” inthe IESBA Code of Ethics forProfessional Accountants (the Code).

The proposals address comments receivedby the International Auditing andAssurance Standards Board on itsExposure Draft (ED) on ISA 610, Usingthe Work of Internal Auditors. A numberof respondents to that ED pointed outthe perceived inconsistency between theindependence requirements for externalauditors under the Code and the use ofinternal auditors to perform external auditprocedures.

“Through this Exposure Draft, the IESBAseeks to ascertain whether the proposedchanges to the definition adequately clarify


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the term "engagement team" and eliminatethe perception that the Code and the ISAare in conflict. The IESBA believes thiswill contribute to more consistentapplication of the Code, which is criticalto our mission to support the globaladoption and implementation of the Codeof Ethics,” said Ken Dakdduk, chair ofthe IESBA.

How to comment

The IESBA invites all stakeholders tocomment on its proposals in the ExposureDraft, Proposed Change to the Definitionof “Engagement Team.” To submit acomment, visit the IESBA website atwww.ifac.org/ethics. Comments on theExposure Draft are requested by May 31,2012.

IPSASB

IPSASB Publishes InternationalPublic Sector Conceptual FrameworkConsultation Paper For Comment

The International Public SectorAccounting Standards Board (IPSASB)today released for comment a consultationpaper as part of its project to develop aconceptual framework for the generalpurpose financial reporting of public sectorentities. The Conceptual Framework isthe IPSASB's key strategic objective from2010 through 2012, and is of fundamentalimportance to the future of global publicsector standard setting for at least the next10 to 15 years.

The Consultation Paper, “ConceptualFramework for General Purpose FinancialReporting by Public Sector Entities:Presentation in General Purpose FinancialReports” (CF-CP4), explores conceptsapplicable to the presentation ofinformation in the general purposefinancial reports of public sector entities.It is not limited to the financial statements.

The Consultation Paper describes whatis meant by presentation of information,and explains that presentation covers bothdisplay and disclosure. It reviews anapproach to presentation of informationthat involves: presentation objectives basedon user needs; application of the qualitativecharacteristics to presentation decisions;and three presentation concepts. The three

presentation concepts are: selectinformation that meets user needs, satisfiesthe cost-benefit test, and is sufficientlytimely; locate information in a way thatmeets user needs; and, organizeinformation to make importantrelationships clear and to supportcomparability.

“The Conceptual Framework providesthe set of principles that underpin theIPSASB's standard-setting activities overthe long-term,” explained IPSASB ChairAndreas Bergmann. “CF-CP4 breaks newground by considering presentation fromthe broader perspective of financial

reporting rather than adopting a narrowfocus just on the financial statements.Given the central role that the ConceptualFramework will play in the IPSASB'sfuture standard-setting activities, I stronglyurge all stakeholders to submit commentson this Consultation Paper."

How to Comment

To access the Consultation Paper and theAt-A-Glance document, which providesa summary of the Consultation Paper, orto submit a comment, please visit theIPSASB website at www.ipsasb.org.Comments on the Consultation Paper arerequested by May 31, 2012.


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IPSASB

IPSASB Publishes InternationalP u b l i c S e c t o r C o n c e p t u a lFramework Consultation Paper ForComment



The Consultation Paper describes whatis meant by presentation of information,and explains that presentation covers bothdisplay and disclosure. It reviews anapproach to presentation of informationthat involves: presentation objectives basedon user needs; application of the qualitative

characteristics to presentation decisions;and three presentation concepts. The threepresentation concepts are: selectinformation that meets user needs, satisfiesthe cost-benefit test, and is sufficientlytimely; locate information in a way thatmeets user needs; and, organizeinformation to make importantrelationships clear and to supportcomparability.

“The Conceptual Framework providesthe set of principles that underpin theIPSASB's standard-setting activities overthe long-term,” explained IPSASB ChairAndreas Bergmann. “CF-CP4 breaks new

ground by considering presentation fromthe broader perspective of financialreporting rather than adopting a narrowfocus just on the financial statements.Given the central role that the ConceptualFramework will play in the IPSASB'sfuture standard-setting activities, I stronglyurge all stakeholders to submit commentson this Consultation Paper."

How to Comment

To access the Consultation Paper and theAt-A-Glance document, which providesa summary of the Consultation Paper, orto submit a comment, please visit theIPSASB website at www.ipsasb.org.


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MR. MUHAMMAD SHARIFMr. Muhammad Sharif is a Fellow Member of PIPFA andICMAP. Currently he is associated with Punjab University asAdditional Treasurer. He is serving PIPFA as a member of theBoard of Governors since 1998. He has been actively participatingand making contributions to the Institute's activities since 1999as Chairman and member of various committees. He remainedPresident, PIPFA during the year 2008-2009. He had alsoassociated with ICMAP as a Member Branch Committee,Lahore.

MIAN MUHAMMAD SHOAIBMian Muhammad Shoaib is a Fellow Member of PIPFA andan Associate Member of ICAP. Currently he is associated withPak-Gulf Leasing as Chief Financial Officer and CompanySecretary. He has been serving PIPFA since 2005 as a memberof the Board of Governors. He has been actively participatingand making contributions to the Institute's activities since 2005as member of various committees.

PIPFA Quarterly JournalPIPFA News

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NEW ELECTED MEMBERS OF BOARD OF GOVERNORS, PIPFAThe following three members have been elected as member of Board of Governors, PIPFA in its 18th Annual GeneralMeeting for a term of 3-year

MR. SAJID HUSSAINMr. Sajid Hussain is a Fellow Member of both PIPFA and ICAP.After becoming member of ICAP in 1990 he started practice in hisown name and in 1995 established SKANS School of Accountancyand served as Principal till 2000. After then Mr. Sajid is workingas Chief Executive Officer of SKANS Education Network. He servedas a member of the Board of Governors of PIPFA during 1993-97and then 2005 to 2011. He has been actively participating and makingcontributions to the Institute's activities since his association withthe institute as Chairman and member of various committees.

PIPFA New Office Bearers For 2012Pakistan Institute of Public Finance Accountants in its 91st Board meeting, has elected new office bearers for 2012.Mr. Mian Muhammad Shoaib has been elected as the President of the Institute for the year 2012. Further, Syed ImtiazHussain Bukhari as Vice President, Mr. Shahzad Ahmed Awan as Secretary and Mr. Adnan Zaman as Treasurer/JointSecretary have been elected for the same term.

PIPFA Quarterly JournalPIPFA News

21

Seminar on“PERFORMANCE MANAGEMENT” at Faisalabad

In the view of contemporary world requirement and for Continued Professional Development(CPD) of its members, studentsand other professionals, PIPFA a leading Professional Accounting Body of Pakistan has paved a hallmark for fraternity by arranginga seminar on “Performance Management” at Faisalabad which got a significant success, applauded by the participants (Members,Non Members and Students. The topic of “Performance Management" was found very much relevant with current requirementsof Professional Accountants in Industry and Practice which has become a cause of large attendance in seminar.

The Seminar Presented by Mr. Ahmad Saleem, FCA

PIPFA Quarterly JournalPIPFA Affairs

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PIPFA'S CAREER COUNSELING SEMINARSIn continuation of PIPFA awareness campaign and marketing strategy a couple of Career Counseling Seminars were arranged atIslamabad & Karachi for awareness of the Accountancy Profession as another option for students in selecting their career path.

Documents

PIPFA JOURNALpipfa.org.pk/Downloads/Journal/PIPFA Journal (Jan-Mar 2012).pdf · Mr. Sajjad Ahmed Chairman Mr. Shahzad Ahmed Awan Member Syed Imtiaz Hussain Bukhari Member Mian Muhammad