IIIE Conference on Economic Challenges Faced by Pakistan

IIIE Conference on Economic Challenges Faced by Pakistan Concludes Ahsan Iqbal, Dr. Anwar Siddiqui, and others addressed

The two day National Conference on Economic Challenges Faced by Pakistan arranged by the International Islamic University, Islamabad (IIUI) Concluded here. Former Federal Minister for Education Ahsan Iqbal was Chief Guest in the concluding session. He said that Pakistan is faced by tremendous problems summarized in 3 Es that is Education, Energy and Enterprise. He was of the view that continuous dictatorship has harmed the country a lot. He also advocated early construction of small, Medium and Large size dams to get rid of present Energy crisis. About Education he said that it should be linked with industry to cater its requirements.Dr. Anwar Husssain Siddiqui, President International Islamic University, Islamabd (IIUI) was also present on the occasion. He announced that the university has realized this need of the hour and for that it has devised long term policies. Leading economists and scholars presented papers and delivered lectures on various aspects of the economy of Pakistan.

The economists and scholars who spoke on the second day of the conference included Dr. G. M. Arif Dean Faculty of Development Studies Pakistan Institute of Development Economics, (Islamabad) on "infrastructure and poverty nexus: the case of Rural Pakistan", Mr. Muhammad Naveed Iftikhar Research Associate Ministry of Finance, (Islamabad) on "Economic reforms, WTO and export competitiveness: A case study of Pakistan", Ali salman, Economist and entrepreneur & Jawad Aslam, Activist and Entrepreneur, Saiban-NGO (Lahore) on "property Rights: Ensuring well being through low income housing". In the second session on the same day speakers to include Dr. Ather Maqsood Ahmed Member (Fiscal research & Statistics) federal Board of Revenue (Islamabad) on a "critical appraisal of taxation Reforms in Pakistan: challenges and future prospects", Dr. Mumtaz Anwar, Assistant professor (Economics) University of the Punjab, (Lahore) on "fiscal imbalances and inflation: A cases study of Pakistan", Dr. Shahid Hasan Siddiqui, research institute of Islamic Banking & Finance (Karachi) on "performance of banking sector in Pakistan". In the third session on same day speakers to include Dr. Abdul Salam, Professor of Economics, Federal Urdu University of Science & Technology, (Islamabad) on "food security, current situation, challenges and opportunities", Dr. Abid A. Burki, Professor of Economics and Dr. Mushtaq Ahmed Khan, Associate Professor of Economics, LUMS (Lahore) on "Price support and wheat market policy in Pakistan: Futuristic of Food security", Saima Ayaz, Zakir Hussain, Sofia Anwer and waqar akram, University of Sargodha, (Sargodha) on "producers and consumer subsidy equivalents of wheat crop in Pakistan".In the fourth session on the same day speakers to include Dr. Syed Tahir Hijazi, Dean Faculty of Social sciences, IIUI on "Pakistan Current Energy problems", Javed Anwar Lecturer, IIIE, IIUI (Islamabad) on "Energy security and the developing country: Issues, strategies and options", Dr. G.M Arif presented the issue of infrastructure and poverty Nexus: The Case of rural Pakistan. He said that the absence of physical and social infrastructure and lack investment in human capital are the main causes of poverty in many areas. Mr. Naveed Iftikhar, Spoke on economic reforms, WTO and export competitiveness: A Case of Pakistan. He mentioned the economic reforms introduced in Pakistan which include reduction in tariff rates, autonomy of state bank of Pakistan and securities and exchange commission and privatization of public owned institutions. He suggested that to improve our exports we should reform our support institutions, try to diversify our exports and improve the quality to gain competitiveness in the world market. Ali Salman spoke on property rights: ensuring well being through low income housing. He presented picture of housing needs in Pakistan especially in the middle class. He estimated that the potential demand for low cost housing is around US $ 15 billion. Dr. Ather Maqsood Ahmed, Member Federal Board of Revenue of Islamabad Presented a critical appraisal of taxation reforms in Pakistan. He said that besides being simple and fair, the taxation system should be growth promoting by enabling flow of domestic and foreign saving towards productive investment. Since such a system cannot be sustained, a change is absolutely inevitable. Dr. Shahid Hassan Siddiqui, Chairman, research INtitute of Islamic Banking and finance, Karachi presented a brief account of performance of banking sector: impact and Pakistan's Economy. He said that this is an alarming situation that resources are being transferred from poor to the rich on the one hand and leaving harmful impact on the economy on the other. He also recommended appointment of a commission to thoroughly examine various malpractices/mismanagement of resources, particularly since 1997, to arrive at the root cause, at the same time to save from repeating the same experience. Ayesha Serfraz and Mumtaz Anwar jointly spoke on fiscal imbalances and inflation: A case study of Pakistan. They take stock of history and states varying trends in inflation. Dr. Zubair said that the major macroeconomic indicators relating to monetary and fiscal measures have not been aligned to achieve the viable results. He was particular to the influx of funds consequent to 9/11 which could not be productively utilized. He pointed that high tax/GDP ratio in developed counties was result of volunteer-ship indicative of people's confidence upon their governments with respect to utilization of such resources. Finally, he was conclusive of the fact that the poor were sharing the tax burden of the rich people in Pakistan's case which needed appropriate reforms. Dr. Abid A. Burki and Dr. Mushtaq Ahmed khan spoke on impact of higher wheat prices on poverty in Pakistan futuristic of food security, Dr. Abdul Salam on current situation, challenges and opportunities and Saima Ayaz, Dr. Zakir Hussain, Dr. Sofia Anwar and Dr. Waqar Akram on producers and consumer subsidy equivalents of wheat crop in Pakistan. Other Speakers touched upon other basic issues faced by Pakistani economy.

Here are some glimpses and highlights of speeches made during the conference. Sales Tax on manufactured goods must be lowered as the imports are facing lower tax rate as compared to domestic manufactured which are facing higher sales tax thus a level playing field is provided to the domestic products. New methods to impose sales tax on retail trade services must be introduced. For example levying taxes o the basis of square feet area of the business premises must be introduced so that competition to manufacturing sector can be reduced.The average import duty has been brought down to even below that what is required by WTO regulation and has contributed to domestic industry loosing market share within the country. This duty must be increased to at least 5% point. Another policy that can be adopted to increase the competitiveness of the manufacturing sector is to impose the import restrictions on the luxury items. It will though reduce the import revenue but it will serve to rein the rate of growth of the trade deficit. Under invoicing of imports is a serious problem to domestic industry. A measure equivalent to the concept of the "right of first purchase" may be helpful. This can be done by placing the invoice of arriving goods consignment on the web site and entitle any party within a 3 to 5 working days period to purchase the consignment by paying say a minimum 25% premium. The capital gain tax must be introduced. This tax may be exempted if the shares have been held for a period of at least 6 months. This measure will reduce profitability compared to manufacturing sector. There has been lot of profitability in buying and selling of land. This has discouraged investment in manufacturing sector as the profitability is low in the sector. To reduce the profitability in land business, consideration may be given to completing the process of computerization of land records and to introduce the concept of right of first purchase to enable the government to purchase any property for sale at a premium of say 20 to 25%. It will curb speculating trading in land thus lowering the profitability in this business.Luxury housing competes with manufacturing for investment funds. A tax on luxury housing will raise its cost thus by raising the relative profitability of manufacturing sector. The sectors which are enjoying the windfall gains like oil & banking may be subject to high taxes. This will not only raise the revenue to the exchequer but also increase the relative profitability in manufacturing sector.Gas prices to domestic users and to industrial users must be the same, if not higher for the domestic consumers. Net resource flows to the public sector both from abroad and domestic private sector tend to crowd out savings in the public sector. Private savings are crowded out by net foreign resource flows to the private sector. The perception that Pakistan has reached the current state because most of its borrowing is used for consumption rather than development activity does not find support from the data. The shrinking of development activity in Pakistan during the 1990s was the result of shrinking foreign resource flow and rising debt servicing cost. Although there are many instances of misappropriation of public resources, unfortunately such instances somehow overshadow the positive side. Pakistan is a unique country in the sense that it has achieved respectable economic growth despite poor social indicators such as education and health.Foreign aid has played a positive role in its economic growth as is evident from high GDP growth figures during the 1960s, early 1980s and mid 2000s. During the 1960s, Pakistan borrowed at ease because it was a newly born country, had ambitious development plans and above all had no immediate pressure of debt servicing. The debt position in the 1980s remained mostly under control due to generous American aid as a reward for Pakistan's logistic support in the Afghan war against the then Soviet Union.The debt crisis of the 1990s got reversed because of the events that unfolded after the September 11 event, especially Pakistan's active role in the fight against terrorism. The major economic hurdle for Pakistan to come out of the crisis was its inability to service the outstanding debt and the drying-up of net resource inflow from abroad, in addition to shrinking foreign investment and workers' remittances.Although institutional weaknesses, public sector inefficiency and corruption cannot be ignored, these have to be addressed in the overall context of management in public sector rather than economic management alone, let alone debt management. Poor record of debt management in Pakistan is the outcome of weak institutions and addressing this issue has to become a larger objective. Domestic borrowing in Pakistan is mostly from individual lenders or financial institutions that lend voluntarily in return for high interest rates and are not organized to impose preconditions for lending. On the other hand, most of foreign borrowing is directly or indirectly linked to international institutions and their motive for lending is not interest earning. In order to justify further lending, Pakistan has to satisfy the lenders that the borrowed funds are used productively. There are two objectives of the monetary policy, Economic growth and price stability. To achieve these objectives central bank has two targets, real GDP growth and controlling the inflation. It is shown that most of the time monetary authorities have not been successful in achieving the target inflation rate. It is also shown that there is an intermediate target to achieve inflation which is broadly defined money supply. Historically, monetary authorities have been relatively more successful in achieving target money growth broadly defined. It is concluded that relatively less success in achieving inflation target has been due to instability in the velocity of money. It is also shown that there is almost two years lag between policy interest rate and deposit and lending rate which makes monetary policy implementation difficult. The paper concludes that inflation in Pakistan can be cured by sufficiently tight monetary policy. The formulation of monetary policy must consider the development in the real and financial sector and treat them as constraints on the policy There should be coordination between SBP and Federal Government to use fiscal and monetary policy effectively.