The Pakistan Development Review
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The Pension Bomb and Possible Solutions
Full text linkPublic sector employment remains an attraction for two
important reasons: job security and a guaranteed pension (Dixit, 2002).
Unlike other countries, Pakistan has not reformed its public sector
pension system and has maintained a pay-as-u–go defined benefits type
pension system which has resulted in build up of unfunded liability for
the government. Pakistan practices a legacy pension system where
pensioners are paid directly from the revenues as part of the current
expenditures. This practice is inherently unsustainable as pension
expenditure growing at around 25 percent, cannot be provided from an
economy growing at a significantly lower rate. The pension burden is
therefore bound to grow, doubling every four-years. In the fiscal year
2018-19, federal superannuation and pension expenditures were almost 78
percent of the value for PSDP expenditures and it increased in FY
2019-20 to 87 percent (463,419 million Rupees and 533,220 million Rupees
respectively). The share of pensions as a percentage of current
expenditures is also increasing overtime (for FY 2019-20 it stood around
7.6 percent).
Nadeem Ul Haque. Looking Back: How Pakistan Became an Asian Tiger by 2050
Full text linkThe book is about development economics and, at the same time,
a work of fiction, which predicts the future of Pakistan as a developed
country. Though the book is written and conceived on a strong
theoretical basis, that is, ‘complexity analysis,’ it remains a
fictional work. Because the book is based on complexity analysis, it
would fall under the rubric of ‘speculative fiction’, as it attempts to
speculate the future development of Pakistan. As far as speculative
fiction is concerned, it is of two types, namely, dystopian and utopian.
The book is indeed a ‘utopian speculative fiction’ as it presents
Pakistan as a very developed country, contrary to current conditions
where Pakistan is striving hard for its survival. Thus, the book equates
to the likes of ‘Orwellian’ works, such as “1984”. Right at the
beginning of the book, the author argues that conventional economic
analysis has failed to yield any sound analysis of the economy that can
be employed for development economics. He further adds that both
macroeconomics and microeconomics are inherently insufficient to lead to
any meaningful policy analysis and recommendations. Thus, the author
presents complexity analysis as an alternative tool for development
economics
Modelling Foreign Exchange Risk in a Managed Float Regime: Evidence from Pakistan
Full text linkWe study the implications of the exchange rate regimes
(managed vs. floating) for implementing risk assessment models using
Pakistan data; the country seems to manage its currency mainly against
the US dollar, but to a lesser extent against other hard currencies. We
test five variations of the Value-at-Risk (VaR) model, including models
based on the Extreme Value Theory (EVT). Our results indicate that these
models do not perform as well for the currency pairs with the managed
float (USD/PKR and JPY/PKR). It implies that the managed float regime
imposes additional risk and cost on economic agents. The findings of
this paper provide additional support for following a free float policy,
and underscore the importance of the role the exchange rate regime plays
in facilitating management of risk by economic agents. Keywords: Value
at Risk, Risk Management, Managed Float, Extreme Value
Theory
Understanding Business Cycle Fluctuations in Pakistan
Full text linkNotwithstanding the level of improvement in understanding the
complexities of an economy, it is now well accepted that the ultimate
incidence of various policy interventions leads to varied outcomes in
terms of magnitude and persistence depending upon the structure of the
economy. The objective of the present study is to disentangle the
relative contributions of various exogenous and domestic shocks that
contribute to business cycle fluctuations in Pakistan. The study is
based on the New-Keynesian Open economy model, which is an extended
version of (Gali & Monacili 2005). Keating’s two-step approach
(1990, 2000) is employed to capture the dynamic behaviour of the
variables of interest. Impulse response functions, along with forecast
error variance decomposition analyses, are used to gain useful insights
into the understanding of the transmission mechanism of policy and
non-policy shocks. It is observed that fiscal policy does matter, at
least in the short-run. The interest rate shock leads to the exchange
rate appreciation thereby confirming the exchange rate puzzle. In
response to adverse supply shocks, the Monetary Authority responds with
a monetary contraction that prolongs the recessionary periods.
Furthermore, it has a limited power to control inflation as inflation in
Pakistan stems from supply-side factors as well as fiscal dominance. JEL
Classification: C32, E52, E62, F41 Keywords: Open Economy, New Keynesian
Model, Rational Expectations, Exchange Rate Puzzl
Doing Taxes Better: Simplify, Open and Grow Economy
Full text linkTaxes have been the cornerstone of IMF-led adjustment programs
for Pakistan for over four decades. During this period, long term growth
and productivity have declined while the tax policy has become more
contentious and fragmented. Measures multiply as unrealistic targets are
chased with mini budgets every quarter. The following arose from a
high-level conference arranged by PIDE to outline future directions in
tax policy
Tax Structure in Pakistan: Fragmented, Exploitative and Anti-growth
Full text linkTaxes are involuntary charges levied on individuals or
corporations and enforced by a government entity—whether local,
subnational or national—in order to finance government activities. As
such, the prime objective of the taxes is revenue generation. However,
for sustained stream of revenues, the tax policy also needs to be growth
facilitating. These dual objectives can only be achieved if the tax
policy reduces the deadweight loss resulting from imposition of taxes,
and help transactions grow. Higher number of transactions is associated
with higher economic growth and more employment. Increased growth
enhances the taxable capacity of the economy and therefore generate
sustainable streams of revenues
The Impact of Political Regime and Institutions on Government Size in Middle-Income Countries
Full text linkThis study analyses the impact of political regimes and
institutions on government size while controlling for socio-economic
factors for a group of 56 middle income countries over the period
1986-2014. The empirical analysis shows that the institutional quality
index has a negative impact on government size. Furthermore,
institutions have a positive impact on “productive” government spending,
while having a negative impact on “unproductive” government spending.
The analysis also shows that institutional democracy, political regime
and stability of political system are the key political determinants of
government size. A stable democratic system backed by well-defined
institutions could help to manage government size. It ensures
transparency and political contestability which leads to control over
the use of public resources. The analysis further shows that the GDP per
capita has a positive and significant impact on government size at all
stages of development. It implies that there is a natural growth of
government size due to economic development. This analysis provides
useful insights for policy makers to manage government size. A stable
political system supported by good quality institutions is a
prerequisite to managing scarce public resources. JEL Classification:
E13, O43, O47 Keywords: Political Regime, Institutions, Government Size,
Middle Income Countrie
Exploring Spatial Patterns and Determinants of Poverty: New Evidence from Pakistan
Full text linkThis study aims to explore two types of spatial determinants
of district level poverty in Pakistan: factors that have direct effect,
and indirect or spillover effect, on poverty levels of neighbouring
districts. The Spatial Autoregressive (SAR) model has been applied to
estimate previously mentioned objectives. Data of 148 districts were
collected from the National Socio- Economic Registry (NSER), and
provincial development statistics. The Small Area Estimation (SAE)
technique provides district level poverty estimates. Empirical results
reveal that spatial autocorrelation arises owing to the lag effect of
outcome variables, and autocorrelation of error terms with neighbouring
districts. Moreover, results are suggestive of factors that have direct
influence on poverty levels of respective districts. These include
urbanisation, population growth rate, average family size, education,
road infrastructure as well as climatic factors (i.e. monthly
temperature and rainfall). Apart from direct effects, some determinants
of district level poverty have spillover or indirect impact on poverty
levels of neighbouring districts. Such factors include level of
employment, road length, literacy rate, and climatic factors. Poverty in
one district itself has a spillover impact on determining poverty level
of adjacent districts. The findings of this paper suggest that the
government should enhance regional connectivity, which may be helpful in
exploiting the spillover effect of road, health, and education
infrastructure to reduce regional poverty levels in Pakistan
Developing Research and a Research Culture: Results from a Pilot Project in Pakistan
Full text linkThis paper argues that successful public policy requires
engaged research developing ideas and evidence from diverse vantage
points. Pakistan’s social science research remains fragmented,
under-resourced and dependent on external agendas. We describe a
five-year pilot programme to enhance Pakistan’s research culture.
Seventy-two crowd-sourced and competitively-selected projects at 46
geographically dispersed institutions were supported. Provincial
universities were empowered and networking with the better-placed
metropolitan institutions proved mutually beneficial to scholarship.
Substantial research outputs were completed in important areas of
policy. We conclude that such multi-year commitments to review and
network engagement are vital to strengthening policy capacity. Keywords:
Pakistan; Research Community; Social Sciences; Networking; Competitive
Grant
Doing Development Better: Analysing the PSDP
Full text linkThe Pakistan Institute of Development Economics (PIDE)
organised a conference on the development policy of Pakistan with a
focus on planning and public investment policy. At the Conference, a
PIDE study entitled, Doing Development Better1 was launched and
discussed. The key findings of the conference are listed
below