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