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Unfinished Agenda of ReformBy Hafeez Shaikh

Conference at the Lahore School of Economics

24th April 2008

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3 Lessons of Development

• Exports

• Education

• Private sector

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Big Facts of Pakistan

1960s 1970s 1980s 1990s 2000s

6.97 4.58 6.09 3.86 Approx. 5.0+

1st Aid Episode

Aid stoppage 2nd aid episode

Afghan war ends --Aid cut-off

3rd aid episode/ rescheduling

Factor accumulation Populism remittance boom

incomplete IMF prog/ FCD crisis

post 9/11 remittances

Growing disparities

Industry Takeover

Institutional deterioration

Democracy / Instability

Successful IMF program/macro consolidation

Political polarization

decline of civil service

Increase in Military Expenditure

Perceptions of Mis-governance

Growing disparities

War and civil disturbance

77 + Military Rule

Missed opportunity/reform postponed

Banking reform /privatization efforts

Privatisation Results

Planning /PIDC

Government Projects 

expansion of public sector

Infrastructure and IPP

Unsettled politics/limited institutional reform

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Salient Features

• Growth episodes max… 4 to 5 years

• Growth Spurts driven by aid

• Growth with disparities

• FDI and DI always low

• Structure of economy largely unaltered

− dependence on agriculture

− limited export

− limited industrial diversification

• Revenue mobilization weak (tax/GDP < 12%)

• Neglect of education and HR development

• Excessive role of government

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Recent Past – 3 Phases

• Reformist

• Mixed period – some reforms

• Drift reversal/inaction

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Emerging Difficulties

• Fiscal deficit > 7%• Increase in expenditure: 33%

−Interest on domestic debt 60% increase

• Decrease in direct taxes: 8%• Inflation > approaching 10%• Current account deficit increased by 47%• Decline in textile exports 3.4%• Declining FDI • Stalled privatization • LSM growth declined 50% (8.4% – 4.2%)• Widening regional disparities• Country wide power outages • Unchecked bloated (and growing) government

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Privatization

0

10

20

30

40

50

60

70

80

90

91 99 '00 '02 '03 '04 '05

Avg Proceeds03-05

Avg Proceeds99-02

Avg Proceeds91-99

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All Pervasive Government

Sector Policy Regulation Ownership Management

Telecom

Electricity

Steel

Aviation

Banking

Gas

Water

Petrol Stations

Insurance

Manufacturing

Retail Shops

Extraction

Ports

Airports

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All Pervasive Government (Continued)

Sector Policy Regulation Ownership Management

Real Estate Management

Land Management

Asset Management

Tourism/Hotels

Provincial Banks

Trucking

Construction

Railway

Farms/Agriculture

Shipyard

Shipping

Holding Corporations

Consultancy Services

Engineering Goods

Electrical Equipments

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All Pervasive Government – Agencies in One Sector: Fisheries

• National Level− Planning Commission− Environment & Urban Affairs Division, (MoE)− WAPDA− Federal Institutes− Federal Govt (EEZ beyond 12 n.m)− Ministry of Communications − Port Authority − Pasni & Gwadar Port Authority − Maritime Security Agency − National Institute of Oceanography − Indus Water Authority− Environmental & Urban division (MoHW)

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All Pervasive Government – Agencies in One Sector: Fisheries

• Local Level− Environmental Protection Agency− Karachi Development Authority − Sindh Dept of Forestry Fisheries− Balochistan, Dept of Forestry & Fisheries− Balochistan Development Authority − Government of Sindh− Government of Balochistan − Sindh Fisheries Dept− Balochistan Fisheries Dept− Provincial Dept− Karachi Fish Harbour Authority − Karachi Port Trust

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All Pervasive Government – Agencies in One Sector: Fisheries

• Local Level− Environmental Protection Agency− Karachi Development Authority − Sindh Dept of Forestry Fisheries− Balochistan, Dept of Forestry & Fisheries− Balochistan Development Authority − Government of Sindh− Government of Balochistan − Sindh Fisheries Dept− Balochistan Fisheries Dept− Provincial Dept− Karachi Fish Harbour Authority − Karachi Port Trust

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All Pervasive Government – Agencies in One Sector: Fisheries

Local Level (cont.)− Korangi Fish Harbour authority − Port Qasim Authority − Sindh, Environmental Protection Agency − Balochistan, Environmental Protection Agency

Gov’t of Sindh, Min. of Fisheries & Coastal Development − Gov’t of Sindh, Irrigation Dept− Water & Sewage Board− Gov’t of Balochistan, Min of Fisheries & Coastal

Development − Sindh Board of Revenue − Gov’t of Sindh Planning & Development

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Net Result

News item

EU BANS SEAFOOD FROM PAKISTAN

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What to do

Many things have to be done right

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An Important Lesson

“(an) overwhelming lesson….. We have learned in the 1990s, is … the transcendent importance of the quality of institutions and …..the efficacy of political administration.”

Larry Summers

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Where to Start

Signal intentions

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Some Actions are Better Signals

• Tackle bloated government

• Decrease government spending

• Reform ADP

• Privatize

• Deregulate

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Follow Up Actions

• Poverty inequality issues

• Infrastructure

• Go back to slide one