EXTERNAL ACCOUNT IMBALANCES, ACCUMULATION AND … · THE PERENNIAL BALANCE OF PAYMENTS PROBLEM •...

EXTERNAL ACCOUNT IMBALANCES,

ACCUMULATION AND PRODUCTIVE

INVESTMENT

ASAD SAYEED AND RASHID MEHMOOD

30th October 2018

THE PERENNIAL

BALANCE OF PAYMENTS

PROBLEM

• Since the 1980s Pakistan Gets into a Balance of Payments

Trap that Shakes its Economic Foundations

• Pakistan is Unique in the Frequency of Recourse to the

IMF

• Demoralization (or elation as the case might be) because

of ‘beggary’

• Perhaps the most commented and analysed economic

issue is Pakistan; both in terms of causes of the BoP

Crisis and outcomes of the IMF Programmes

• Attempt here to go beyond the symptomatic to the

Structural and address some underlying Issues

CURRENT ACCOUNT

DEFICIT

TRADE DEFICIT IS THE

LARGEST COMPONENT OF

THE CAD

DISMAL EXPORT

PERFORMANCE

• Exports are not only important because of balance of

payments;

• More Importantly they demonstrate competitiveness levels

in the economy

• In turn it is a good measure for productivity growth and

technology diffusion

• Depending on what is exported, indicates level of

integration with the global economy

Source: World Development Indicators

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

% o

f G

DP

Exports of goods and services (% of GDP)

Pakistan

India

Bangladesh

Thailand

Veitnam

Turkey

DIVERGENCE IN EXPORTS:

LOG RUN

Source: Atif Mian. “What are Pakistan’s Long-run Growth Prospects?” IGC Presentation. 2014

EXPLAINING LAGGING

EXPORTS: OVERVALUED

EXCHANGE RATE

COMPOSITION OF

EXPORTS MIRROR LACK OF

STRUCTURAL CHANGE

GEO POLITICS TRUMPS

ECONOMIC INTERESTS

IMPORTS

• Imports can be disaggregated across three main

categories

• i) Inelastic (or necessary imports)

• ii) Imports that demonstrate lack of (doable) import

substitution

• iii) Demonstrative of High (and increasing) Inequality

• iv) Luxury Consumption

INELASTIC IMPORTS

IMPORTS OF FOOD,

CLOTHING AND CARS

TRAVEL

0

500

1000

1500

2000

2500

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17R FY18R

Mill

ion

US

$

Years

Travel (Million US $)

Travel (Million US $)

IMPORT SUBSTITUTION

POSSIBILITIES

• Pulses

• Edible oil

• Chemicals?

• Ready Made Garments

• Even Travel if PIA gets its act together

ACCUMULATION –

PRIMITIVE OR

OTHERWISE

• Pakistan’s Import Profile demonstrates that there is a lot

of money around

• Accumulation is Outcome of high levels of rent-seeking

and outright loot and plunder

• Not Unique to Pakistan

• The story of successful capitalist development (amongst

other things) is one where accumulation has been

channeled into productive investment.

PRIVATE INVESTMENT

IN PAKISTAN

0

2

4

6

8

10

12

14

16

% o

f G

DP

Years

Gross Fixed Capital Formation as a % of GDP (at constant prices 2005-06)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

% o

f G

DP

Gross fixed capital formation, private sector (% of GDP)

Pakistan

India

Bangladesh

Thailand

Source: World Development Indicators

EXPLANATIONS FOR LOW

LEVELS OF PRIVATE

INVESTMENT

Less Substantive Reasons

• Energy Bottlenecks

• Human Capital

More Substantive Reasons

• Land Speculation

• Increasing International Isolation

• Misplaced Economic Consensus Around Neo-Liberalism

• Underpinned by State Fragmentation and Political

Polarization