1 Unfinished Agenda of Reform By Hafeez Shaikh Conference at the Lahore School of Economics 24 th April 2008

2 3 Lessons of Development Exports Education Private sector

3 Big Facts of Pakistan 1960s1970s1980s1990s2000s Approx st Aid EpisodeAid stoppage2 nd aid episode Afghan war ends - -Aid cut-off 3rd aid episode/ rescheduling Factor accumulationPopulismremittance boom incomplete IMF prog/ FCD crisis post 9/11 remittances 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 War and civil disturbance 77 + Military Rule Missed opportunity/reform postponed Banking reform /privatization efforts Privatisation Results Planning /PIDC Government Projects expansion of public sector Infrastructure and IPP Unsettled politics/limited institutional reform

4 Salient Features 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

5 Recent Past – 3 Phases Reformist Mixed period – some reforms Drift reversal/inaction

6 Emerging Difficulties Fiscal deficit > 7% Increase in expenditure: 33% −Interest on domestic debt 60% increase 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

7 Privatization

8 All Pervasive Government SectorPolicyRegulationOwnershipManagement Telecom Electricity Steel Aviation Banking Gas Water Petrol Stations Insurance Manufacturing Retail Shops Extraction Ports Airports

9 All Pervasive Government (Continued) SectorPolicyRegulationOwnershipManagement Real Estate Management Land Management Asset Management Tourism/Hotels Provincial Banks Trucking Construction Railway Farms/Agriculture Shipyard Shipping Holding Corporations Consultancy Services Engineering Goods Electrical Equipments

10 All Pervasive Government – Agencies in One Sector: Fisheries National Level −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)

11 All Pervasive Government – Agencies in One Sector: Fisheries Local Level −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 −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

13 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

14 Net Result News item EU BANS SEAFOOD FROM PAKISTAN

15 What to do Many things have to be done right

16 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

17 Where to Start Signal intentions

18 Some Actions are Better Signals Tackle bloated government Decrease government spending Reform ADP Privatize Deregulate

19 Follow Up Actions Poverty inequality issues Infrastructure Go back to slide one