By: Suleman Ahmad - 10254

Presentation Part: 1
HISTORICAL PERSPECTIVE
Nineties - A lost Decade
Each Government, in reality, adhering to similar
short term, and short sighted, approach to
economic management with similar results.

Still in the Ricardian era of saving/investment
deficiency rather than in the Keynesian period of
idle capacity and lack of effective demand.
Natural Calamities
Floods failure to build dams

Earthquakes a lost opportunity to utilize the
foreign aid flows.
IMF and World Bank
Showed support of short term economic policy
patchwork - accommodated lapses in policy
promises and commitments.

Additional Foreign Loans provided support
but took Pakistan in deeper long term debt
difficulties. The conditionality varied from time
to time.

IMF and World Bank
Resulted in increasing foreign debt servicing
liability, without a corresponding expansion in
foreign exchange earning capacity.

The way to economic welfare is through
concessional rescheduling, restructuring and
write offs but the Government should first
decide and demonstrate determination to move
on a self sustaining, and self respecting, path of
economic and social development.
Good Governance
One of the biggest problems of the country.

There can be no real breakthrough in the
economic management of the country without
the emergence of good governance and stable
institutional foundation.
Presentation Part: 2
MACRO ECONOMIC
PROBLEMS OF PAKISTAN
Introduction
Implementation of difficult policy choices, and not
their diagnosis, is the real problem of economic
management in Pakistan.

Poor governance is giving birth to mismanagement
of public finances which, in turn, has become the
mother of all economic ills.

Savings and Investments Relation with GDP
Savings and Investments Relation with GDP
If we see the graph, it could be seen easily that the three are
positively correlated. The slopes where the GDP growth has
fallen are those periods when the saving and investment have
gone down as well.

For example in 1981-82, with GDP growth rate of 7.56% the
simultaneous growth rates of savings were 9.9% and that of
investment were 19.62% (7.71% growth of GDP in 1991-92,
combined with a growth rate of 41.91% for Savings growth
and 26.16% for national investment).

This correlation is stronger between GDP growth and
investment and less strong for national savings growth rate
where more lagged relation is present.
Gross Domestic Savings (% of GDP)
Gross Capital Formation (% of GDP)
Saving and Investment Stimulus
The saving and investment are the stimulus which is
lacking in Pakistan for its desired economic growth.

In 60s Pakistans Domestic investment was almost
the same as that of Korea, Malaysia and Thailand.
Only Japan had 29.1% of GFC as a percentage of
GDP, then in 1965 still Pakistan was ahead of them,
but afterwards it dropped. In 1995 Pakistans closest
country was almost spending twice as much as
Pakistan for her investment expenditure (Indonesia
with 28.4% of GDP vs. Pakistans 17.1% of GDP).
Saving and Investment(% of GDP)
Aggregate Investment Gap with
Competitors
3.14%
-9.18%
-0.91%
-6.81%
-0.26%
-6.31%
0.93%
-2.75%
2.92%
-3.54%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
Pakistan-
Bangladesh
Pakistan-India Pakistan-
South Asia
Pakistan-Low
Income
Pakistan-Low
Middle Income
1982-1991
1992-2001
TRENDS IN PRIVATE INVESTMENTS
Figure 2.2b: Trends in Private Investment (% of GDP)
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India
Pakistan
Bangladesh
POLITICAL INSTABILITY
A systematic approach has been adopted by these
countries to isolate Pakistan in the global arena. But
instead of unity, our political parties are playing dirty
games against one another.

These parties are least bothered about the security
situation of Pakistan. Their vision is just to secure the
supreme office for next five years; they are unaware of
the agendas of the foreign powers who prepare plan for
next 50 years.

Political stability in the country will attract the foreign
investors and boost our national economy
LAW AND ORDER - TERRORISM
Foreign investors are afraid of investing their
money in establishing new industries. On the
other hand, those who have well-established
businesses try to withdraw their money.

Statistical data shows that
damage to the Pakistani economy
is estimated at $68 billion over
the last ten years.
NEED OF ENTREPRENURIAL INITIATIVES
The role of the entrepreneur in economic development is central; he
starts businesses and provides jobs. In Pakistan this sector provides
80% of non-farm employment, contributes 40% to GDP and has a
25% share in the country's exports.

In the case of Pakistan, the green revolution in agriculture, the
industrialization of the '60s and the development of the textile
industry in the 80s and '90s are some of the examples of
transformative entrepreneurial activity.

The quality of entrepreneurial activity in Pakistan will improve as
the overall context will become better, the quality and spread of
education being the primary driver and the development of the
physical infrastructure a very important element.
INFLATION
INFLATION
FISCAL IMBALANCE
FISCAL IMBALANCE
A large part of the fiscal slippage was due to a
heavy payment for the resolution of the circular
debt that was not initially budgeted for.
Excluding these payments, the budget deficit for
FY13 declines to 6.6 percent of GDP, slightly
lower than the 6.8 percent deficit recorded in
FY12.
REASONS FOR THE IMBALANCE
(1) underestimation of subsidies
(2) underestimation of interest payments; and
(3)overestimation of FBR tax revenue.
Tax to GDP Ratio
Expenditure and Debt Servicing
External Imbalance
The current account posted a deficit of US$ 2.5
billion in FY13, which was nearly half the deficit
seen last year. As mentioned before, this
improvement can be traced to the CSF inflows of
US$ 1.8 billion in FY13.

Workers Remittances continued their upward
trend by posting a figure of 13.9b$ for the FY13
almost meeting the target of 14billion$.
EXTERNAL IMBALANCE
FOREIGN DIRECT INVESTMENT
Foreign investments picked up in FY13 to reach
US$ 1.3 billion, compared with just US$ 0.6
billion last year. This is a welcome increase, but
the level of FDI remains glaringly low due to:
election-related political uncertainty; security
concerns; and the vulnerability of Pakistans
external account. In addition to domestic
factors, the global investment environment was
not conducive: FDI in both developed and
developing countries has struggled to recover.
DOMESTIC AND EXTERNAL DEBT
Despite the one percentage point reduction
during FY13, Pakistans public debt is still 63.3
percent of GDP higher than the ceiling of 60
percent under the Fiscal Responsibility and Debt
Limitation Act (FRDL) of 2005.

Pakistan is already involved in a debt trap.
FURTHER IMPLICATIONS
More importantly, the mounting domestic debt
(which now makes up around two-third of the
entire public debt, compared to 59 percent last
year) entails significant risks to Pakistans fiscal
and debt outlook. Two of the most important
issues are:
(1) Rise in the debt servicing burden
(2)Worsening maturity profile increases roll-
over and interest-rate risk


TOTAL DEBT
IMPLICATIONS OF OVERBURDENING
DEBT
Such mounting debt will have adverse
consequences for the economy:
it will hold back economic growth
limit the scope for discretionary (monetary and
fiscal) policies
increase vulnerability to exogenous shocks
raise the tax burden on captive payers, which
will discourage investment
create more uncertainty in the economy.
IMPACT OF RECESSION
The surge in commodity prices that preceded the
recession had taken its toll on Pakistan and
precluded the use of a comparable stimulus package.
The then regime in Pakistan had chosen not to pass
the full impact of the rise in commodity prices in
2007 to the consumers. This among other policies
had contributed to a sudden increase in the fiscal
deficit for FY 2007-08. When the recession set in
the fiscal deficit was already high and the external
account was in poor shape. Pakistan requested IMF
financing to stay afloat and in turn agreed to
implement fiscal tightening.
Presentation Part: 3
POLICY ALTERNATIVES
RECOMMENDATIONS
Mobilization of Domestic Savings
The country needs to have a policy framework to sustain an
annual rate of growth of 6- 8 per cent with growth impulses
emanating from all the productive sectors of the economy,
and fruits of growth being shared by all segments of society.

It can ensure an environment of relative price stability,
soundness of the financial and fiscal systems, balance of
payment viability, and efficient resource utilization that
increases agricultural yield and improves industrial efficiency.
The real long run policy issue, therefore, is as to what can be
done to raise the domestic low rate of saving, which in
combination with external non debt creating inflows, can
match up with the required rate of investment.
RECOMMENDATIONS
Implementation of a sound Budget
Budgetary measures should include mobilization
of additional revenue resources, severe
curtailment of inessential and unproductive
government expenditure, and honest and
efficient use of development expenditure to
facilitate economic development and improve
the economic wellbeing of the majority of the
population.
RECOMMENDATIONS
Tight Monetary Policy:
The SBP should implement a prudent monetary policy
that is not hostage to the financing needs of the
government.

Fiscal Reforms:
In order to raise revenues, restructure loss-making
PSEs, and contain untargeted subsidies. In this regard,
one of the key areas to focus on is the energy sector.
Untargeted energy subsidies were responsible for the
persistently large fiscal deficits in the past several years,
and growth in the countrys domestic debt


RECOMMENDATIONS
Taxation Reforms
To increase the revenues the tax to
GDP ratio must be increased and
tax base broadened to include more
tax payers.

Implementation of Policies
Whatever policy is made, good governance and
implementation is required to make any kind of
change in the present scenario of the Pakistan
Economy.
RECOMMENDATIONS
Tight Monetary Policy:
The SBP should implement a prudent monetary policy
that is not hostage to the financing needs of the
government.

Fiscal Reforms:
In order to raise revenues, restructure loss-making
PSEs, and contain untargeted subsidies. In this regard,
one of the key areas to focus on is the energy sector.
Untargeted energy subsidies were responsible for the
persistently large fiscal deficits in the past several years,
and growth in the countrys domestic debt


RECOMMENDATIONS
Bring down the Interest Rate Spread
The SBP has the institutional responsibility and legal
authority to bring down this spread within the normal
limits obtaining in other countries and on that basis to
ensure a higher nominal rate of return on deposits and
lower cost of borrowing of the private sector.
Increase Private Sector Savings
contributory retirement schemes
Tax incentives
Austerity in government expenditures
Development of capital markets and discouragement of
conspicuous consumption

CONCLUSION
Pakistan is rich in human and material resources
but poor governance of the country has impeded
the process of exploitation of these resources.
Among macroeconomic problems faced by the
country, budget mismanagement is the mother
of most economic ills in Pakistan. Pakistan has
the potential to change, it just needs the will and
the leadership needs to set the trends.
Thank You!