BY: Shaukat Masood Zafar

Email Address: smzafar101@gmail.com

Flight of Capital from Pakistan---How to restore it?.

Capital flight erodes the financial basis of a country. The role of banks and
financial institutions in facilitating capital flight is almost acknowledged; we
should review the role of banks and financial institutions in capital flight from
Pakistan. There is no other economic condition that is so damaging to the poor as
hyperinflation which at times go on for a pretty long period upto decades, but it’s
nothing like illegal flight of capital which goes on for generations. It is a one-way
flow of money from Pakistan to developed western countries which never comes
back. There are several components of flight of capital—corruption and trade
mispricing being on top; corruption continues to plague both the country and its
ability to develop free and fair institutions to monitor and charge corrupt
officials. The capital flight due to elements of Corruption, non-transparent
privatization, tax evasion, and black economy (bribery, employment of
professional criminals and commission from not only government projects but
from hidden contracts with foreign companies) are leading Pakistan to more
economic troubles. There is another serious issue of banks having written off
loans of more than Rs250bn, which, obviously, would have flied to some other
destination. The tax evaders are frightened of being caught are shifting their
money to EU countries. Billions of dollars are flying out of Pakistan due to
growing fears of terrorism and worsening economic situation are finding their
way into London’s slumped property market. Politicians and senior army
generals siphoning off huge funds and buying property abroad is not a secret. As
per reports, Pakistani politicians and military officers have been investing in
areas around the prestigious Park Lane and Mayfair in central London, which are
historically the most sought after areas by the rich and famous Pakistanis. It is a
tragedy that billions of dollars are finding their way out of Pakistan when
remittances from expatriate community have almost dried up. Poor governance
leads to and encourages and breeds corruption in a number of ways, for instance
through bribery, extortion, nepotism, fraud and embezzlement. It reduces the
efficiency on which the economy of a country depends upon, and by increasing
the cost of investment, lowers the potential return. It also reduces the
government’s resources and hence its capacity for investment. Corruption in
Pakistan is unique because it occurs upstream; it has wings which encourage
flight of capital rather than wheels which encourage reinvestment. National
procurement systems handle a substantial share of total government
expenditures in Pakistan. If the public procurement systems in Pakistan were
improved, there would be substantial positive effects on public services, private
enterprise, economic growth, and the legitimacy and effectiveness of public
authority. The theft of funds and disappearance of resources out of Pakistan
closely resembles what has been occurring in connection with Latin America
throughout the 20th Century, in and out of Africa since the years of
independence in the late 1950s and early 1960s, and in the Middle East long riven
with wealth disparities and ideological shifts. We did not know how to meet our
foreign exchange expenses beyond a certain day. Our debts are technically in
default. investment is virtually non-existent, flight of capital is rampant, currency
is depreciating its value very fast. There are other factors, too.

Pakistan comes first and it is the responsibility of all of us to love this country and
should be patriotic. The only secret is that if you are professional in your
approach, if you are transparent, if you have no hidden agendas, people in the
end will respect what you are doing and of course nothing pays better or helps
better than producing results. Surely there are a lot of challengesin Pakistan but
we should rember Rome was not built in a day; it takes a long time. But what this
shows is that if you can have a clear approach, a clear vision, a clear strategy, and
you execute it professionally and transparently, results can be achieved, even the
worst cynics gradually come to appreciate this. Wise stewardship by country's
leadership helps reduce the severity of the economic cycles and GOOD
governance best flourishes only in a corruption-free situation. The confidence of
business and investor community in the economy also plays a significant role. If
the businessmen and investors feel the government and central bank is managing
the economy well, they continue to play their role to maintain economic health.
On the other hand, if they lose confidence in government's economic team, they
begin to slow or even withdraw their investments which hit the economy hard.
The businessmen who do this are not malicious, they are not trying to derail you,
they just have genuine concerns and a different point of view. As long as you
know what you are doing and you can explain what you are doing, the system
would not obstruct you. To get rid of corruption and other allied evils the
foremost requirement is proper education. It should be on top priority. To restore
the confidence of the businessmen and investors ultimately leading to return of
capital and further investment is transparency, honesty and strict enforcement of
Rule of Law. To save our Society and our country, urgent and stringent measures
need to be taken some of which are recommended as under:

1. Education (At least 7 to 10 % of GDP may be reserved for education for

next 10 years);

2. Building strong institutions having no political interference;

3. A national anti-corruption commission should be set up as an

independent watchdog;

4. Treating all ‘illegal’ money and property transactions in industrialized

countries at par with drug money.
 5. Strict enforcement of Rule of law and safeguarding the interests and
life of ordinary citizens;

6. Political stability and ending 'one man show' in political parties;

7. Ending all discretionary powers/ laws;

8. Involving common man in diagnosing corrupt systems;

9. Restoring foreign investors confidence (including overseas Pakistanis

who have a huge role to play but are discouraged);

10. The problem of corruption is quite severe at the lower judiciary and a
system of alternative dispute resolution needs to be worked out
urgently;

11. Poverty alleviation and economic reforms should be focused on;

12. Provision of energy (electricity, gas, petrol) to industry and agriculture

at subsidized rates;

13. Research and development in niche industries including agriculture be

promoted;

14. Effective management and steering of economic plans;

15. Development of infrastructure, storage, shipping, ports; and

16. Proper development of human resources.

These are the building blocks for the bridge that will lead Pakistan into the better
future Inshallah.

Shaukat Masood Zafar,

House No.1060, Street No.95, Sector I-10/1,
Islamabad.

Cell: 0333-5499592.