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Unfinished Agenda of Reform
By Hafeez Shaikh
Conference at the Lahore School of Economics
24th April 2008
1
3 Lessons of Development
• Exports
• Education
• Private sector
2
Big Facts of Pakistan
1960s
6.97
1st
Aid Episode
Factor
accumulation
1970s
1980s
1990s
2000s
4.58
6.09
3.86
Approx. 5.0+
Aid stoppage
2nd
Afghan war ends -Aid cut-off
3rd aid episode/
rescheduling
incomplete IMF
prog/ FCD crisis
post 9/11
remittances
Populism
aid episode
remittance boom
Growing
disparities
Industry
Takeover
Institutional
deterioration
Democracy /
Instability
Successful IMF
program/macro
consolidation
Political
polarization
decline of
civil service
Increase in Military
Expenditure
Perceptions of
Mis-governance
Growing
disparities
77 + Military
Rule
Missed
opportunity/reform
postponed
Banking reform
/privatization
efforts
Privatisation
Results
Infrastructure and
IPP
Unsettled
politics/limited
institutional
reform
War and civil
disturbance
Planning /PIDC
Government
Projects
expansion of public
sector
3
Salient Features
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Growth episodes max… 4 to 5 years
Growth Spurts driven by aid
Growth with disparities
FDI and DI always low
Structure of economy largely unaltered
− dependence on agriculture
− limited export
− limited industrial diversification
• Revenue mobilization weak (tax/GDP < 12%)
• Neglect of education and HR development
• Excessive role of government
4
Recent Past – 3 Phases
• Reformist
• Mixed period – some reforms
• Drift reversal/inaction
5
Emerging Difficulties
• Fiscal deficit > 7%
• Increase in expenditure: 33%
− Interest on domestic debt 60% increase
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Decrease in direct taxes: 8%
Inflation > approaching 10%
Current account deficit increased by 47%
Decline in textile exports 3.4%
Declining FDI
Stalled privatization
LSM growth declined 50% (8.4% – 4.2%)
Widening regional disparities
Country wide power outages
Unchecked bloated (and growing) government
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Privatization
90
80
Avg Proceeds
03-05
70
60
50
Avg Proceeds
99-02
40
30
20
Avg Proceeds
91-99
10
0
91
99 '00
'02 '03 '04 '05
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All Pervasive Government
Sector
Policy
Regulation
Ownership
Management
Telecom
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Electricity
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Steel
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Aviation
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Banking
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Gas
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Water
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Petrol Stations
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Insurance
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Manufacturing
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Retail Shops
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Extraction
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Ports
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Airports
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All Pervasive Government (Continued)
Sector
Policy
Regulation
Ownership
Management
Real Estate Management
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Land Management
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Asset Management
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Tourism/Hotels
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Provincial Banks
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Trucking
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Construction
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Railway
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Farms/Agriculture
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Shipyard
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Shipping
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Holding Corporations
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Consultancy Services
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Engineering Goods
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Electrical Equipments
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All Pervasive Government – Agencies in One Sector: Fisheries
• National Level
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Planning Commission
Environment & Urban Affairs Division, (MoE)
WAPDA
Federal Institutes
Federal Govt (EEZ beyond 12 n.m)
Ministry of Communications
Port Authority
Pasni & Gwadar Port Authority
Maritime Security Agency
National Institute of Oceanography
Indus Water Authority
Environmental & Urban division (MoHW)
10
All Pervasive Government – Agencies in One Sector: Fisheries
• Local Level
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Environmental Protection Agency
Karachi Development Authority
Sindh Dept of Forestry Fisheries
Balochistan, Dept of Forestry & Fisheries
Balochistan Development Authority
Government of Sindh
Government of Balochistan
Sindh Fisheries Dept
Balochistan Fisheries Dept
Provincial Dept
Karachi Fish Harbour Authority
Karachi Port Trust
11
All Pervasive Government – Agencies in One Sector: Fisheries
• Local Level
−
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Environmental Protection Agency
Karachi Development Authority
Sindh Dept of Forestry Fisheries
Balochistan, Dept of Forestry & Fisheries
Balochistan Development Authority
Government of Sindh
Government of Balochistan
Sindh Fisheries Dept
Balochistan Fisheries Dept
Provincial Dept
Karachi Fish Harbour Authority
Karachi Port Trust
12
All Pervasive Government – Agencies in One Sector: Fisheries
Local Level (cont.)
− Korangi Fish Harbour authority
− Port Qasim Authority
− Sindh, Environmental Protection Agency
− Balochistan, Environmental Protection Agency Gov’t of Sindh, Min. of
Fisheries & Coastal Development
− Gov’t of Sindh, Irrigation Dept
− Water & Sewage Board
− Gov’t of Balochistan, Min of Fisheries & Coastal Development
− Sindh Board of Revenue
− Gov’t of Sindh Planning & Development
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Net Result
News item
EU BANS SEAFOOD FROM PAKISTAN
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What to do
Many things have to be done right
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An Important Lesson
“(an) overwhelming lesson….. We have learned in the
1990s, is … the transcendent importance of the quality of
institutions and …..the efficacy of political
administration.”
Larry Summers
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Where to Start
Signal intentions
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Some Actions are Better Signals
• Tackle bloated government
• Decrease government spending
• Reform ADP
• Privatize
• Deregulate
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Follow Up Actions
• Poverty inequality issues
• Infrastructure
• Go back to slide one
19