Economic Policy ManagementCore objectives of Economic Governance

• Increase capital accumulation• Improve social and

macroeconomic stability • Upgrade human capital • Protection of environment and

natural resources. • Targets

Remove macroeconomic imbalances Growing public sector indebtness Bring down inflation rate Overcome structural weaknesses

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Economic Policy Management

– Effects of Weak Governance• Policy ineffectiveness• Poor targeting of policies of relevant groups• Stagnant economic production• Low social indicators• Environmental degradation• Corruption• Social conflicts, instability and insecurity.

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Economic Policy Management

– Sound management must focus on economic revival :• Through tackling debt• Revival through reducing budget deficit. • Reviving through Agriculture. • Reviving through Industrialization• Reviving through enhancing exports• Revival through Good Governance• Revival through Social Sector Development.

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Economic Policy Management

• The predominance of subsistence and commercial activities;• Narrow, disarticulate production base with ill-adapted

technology;• Neglected informal sector;• Degraded environment• Uneven development due to the urban bias of public policies;• Fragmented economy;• Openness and excessive external dependence.• Weak institutional capabilities.

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Economic Policy Management

• Economic Governance Models– Neoliberal/Neoclassical or monetarist.

• Market oriented• State has no business in direct economic activity• No nexus between politics and economics.

– Neo-Keynesian Economic model• Govt. managed economy because of inherent instability in the

market system• It believes in closer nexus between politics and economics• Govt. must interfere to accelerate growth and development

– Structuralist Governance Model. • It mediate between the two – neoliberal and Keynesian model.

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Economic Policy Management

• Economic revival strategy consists of four key goals1. Macroeconomic stability and restoration of

working relationship with Int: Financial Institutions (IFI) like IMF, World Bank and ADB.

2. Structural Reforms3. Improving governance, especially economic and

reviving key national institutions. 4. Poverty alleviation measures

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Economic Policy Management

• External Debt as major economic problem causing macroeconomic instability. – It is due to rampant fiscal deficit – Can be tackled either through

• resource generation at domestic front• or cutting on the lavish expenditure, including defense• Or borrowing from external sources – IMF, ADB and

friendly countries.

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Revival through reducing budget deficit.

– Adoption of austerity measure to cut down on lavish, wasteful and unproductive expenditure

– Withdraw of subsidy– Downsizing – Small but efficient and effective government

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Revival through reducing budget deficit.

– Tax reforms – • Revenue generation by bringing more people under tax net. • Strengthening Tax Administration• Promoting self-assessment • Eliminating corruption• And reorganizing CBR

– Also there is need for reforms to improve and enhance volume of trade.

– By offering exports financing facilities. – Privatization to dispose of the sick and parasitic public

sector industries, which are considered to be the burden on govt. exchequer like Railway.

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Reviving through Agriculture.

• Reviving through Agriculture. – Contributes 25 percent to GDP– Employs 50 percent of total labour force – Provided livelihood to 63 percent of the

population– It is the major source of forex exports– Cotton contributes 63% to national exports– Rice is another major source of forex earnings.

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Reviving through Agriculture.

– Despite such major contribution, its potential remains unexploited because of • Lack of unavailability of credit• Bad quality seeds & lack of pesticides• Poor management of irrigation water and

pollution

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Reviving through Agriculture. – According to some studies, performance of the

agriculture can be improved if GST from fertilizer & pesticides is removed.

– Other reasons could be water loss and is said to be the major cause behind the decline in agriculture growth.

– According to same study, 90% of the agriculture is dependent on irrigated water but water released from canal is lost due to absence of cement/brick lining.

– Seepage is another problem which in turn causes water logging and salinity, resulting into the crop productivity.

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Reviving through Agriculture.

– Reforms• Should infuse more investment • Need for introducing scientific farming• Stabilizing market through direct intervention as and

when necessary. – Efforts should be made to promote livestock industry,

especially in the underdeveloped areas.

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Reviving through Industrial sector

• Reviving through Industrial sector– Govt. must take initiatives to encourage private and

foreign investment to generate surpluses by enhancing exports

– Should establish industrial parks– Should extend credit facilities– Offer relaxation in tax and duty free imported

machinery in order to decrease the cost of production– Establishment of industry in the backward areas in

order to create job opportunities can help in reducing poverty level

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Reviving through Industrial sector

– Create infrastructure – better roads and communication facilities.

– Invest more in technical education in order to create skilled labour.

– Must make efforts to overcome the energy crises– Must strive for improving law and order situation – Reorganizing Export Promotion Bureau and eliminating

rent-seeking practices.

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Reviving through Exports.

Reviving through Exports.

– Pakistan is more dependent on imports such as

• Petroleum• Heavy machinery• Petroleum products• Chemicals• Transport equipment

• Edible oil• Iron & steel• Fertilizer and tea• These eight categories of

imports account for 75.2 percent of total imports.

• In comparison to this Pakistan exports less

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Reviving through Exports…

• Reasons– Lack of diversification in exports– Domestic resource scarcity & shortage of skilled

personnel compounded by network of outdated vocational education

– Lack of adequate economic infrastructure & low investment

– Lack of professionalism in civil bureaucracy– Ineffective and inefficient Export Promotion Bureau– Massive corruption

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Reviving through Exports.

• Diversification of exports, including reliance on the high value added exportable industries such as – Engineering products, chemicals electronics and software. – Should base its exports from agriculture to industrial

products. • Also should focus on value added crops like fruits, oil

seed and fodder for dairy cattle which can give high financial returns.

• According to one study, diversification can eliminate 60-70 billion rupees being spent on import of edible oil and wheat each year.

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Revival through Good Governance.

– Poor economic governance is considered to be the main cause of underdevelopment.

– Emerging as rallying cry in the country.– To improve the governance system, Int: donor agencies

are extending lot of assistance to Pakistan in terms of training and equipment

– Good economic management is considered to be a key to poverty alleviation.

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Revival through Good Governance.

• Good governance envisages the– Rule of law– Separation of administration from politics– Devolution of power– Improved public financial management with accountability– Fighting corruption– Civil service and judicial reforms.

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Revival through Good Governance.

– Under Musharraf reforms for good governance were taken with the following objectives

• Improve and increase public sector efficienty through enhanced competition.

• Shared power• Decentralization of authority• And greater accountability.• He also established NAB and NRB.

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Revival through Good Governance.

• According to one study suggesting that there is a need to overhaul the key sectors such as – Civil service, police, judiciary, CBR and money

losing public sector, particularly WAPDA.

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Reviving through social sector.

• Reviving through social sector. – Increasing spending on health, education,

population related issues. – Human capital – Poverty reduction must focus on

• Health• Education • Population welfare• Enhancing the role of women in developmental

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Reviving through social sector.

– Education – development requires new technologies and new technologies can not be used with skilled labour which can not be produced with education.

– low population– Employment.– Introduction of SAP

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Reviving through social sector.

• Other measure to address the social sector development include

– Social safety nets

– PPP and Microfinance

• Institutional Reforms – free different institutions dealing with economic issue from the influence of ministries.

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Economic Policy Management

• Conclusion– All these reforms must concentrate on

• Strengthening institutions • Improving industrial competitiveness• Building robust financial system• Strengthening Tax Administration.

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Conclusion• Further suggestions• Pakistan economy must be structurally transformed

through economic strategies and programmes conceptualised, formulated and implemented by Pakistanis.

• Regarding implementation, there is the need to seek genuine assistance from bilateral and multilateral institutions.

• Consequently, debt overhang, corruption, nature of political leadership, human capital development and foreign investments are issues that must be re-examined, re-evaluated keeping in view economic needs of the country.

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