The article provides an overview of the Pakistani economy and addresses various sectoral issues currently being faced by the economy. The first and the most critical problem highlighted concerns the protection of the poor. Other issues highlighted relate to education, healthcare, housing, taxation and energy. This paper discusses how the current account deficit needs to be tackled by higher tariffs, exchange rate adjustments, and possible export duties. The paper also discusses the need to reduce the cost of production for industry and upgrade governance through an emphasis on the local government system. Regarding public sector investments, the paper explains how the government needs to be transparent about the Public Sector Development Programme, and allow projects to be executed by the provinces.
KEYWORDS: Pakistan, Balance of Payments, Fiscal Deficit, Education, Health, Poverty, Public Investment.
JEL: I32, D33.

As a result of policy inaction in addressing structural issues over a protracted period and a wrong set of economic priorities followed over the past several years, Pakistan’s economy faces a grave set of challenges. Among the many issues, which range from high inflation to power deficits and water stress, the most immediate and pressing is the need to restore fiscal order. While pressure on the coalition government to reduce the economic hardship of the electorate is understandably intense, the policy response needs to balance the alleviation of palpable hardship in the short term, with the ability to provide sustained benefits over the longer term. Given the sharp constriction in available fiscal space, adopting a policy course in the short run that raises expectations of “relief” may not be wise, in either political or economic terms. In the longer term, however, it is a misconception to view the available choices in purely binary terms, i.e. that “macroeconomic stability” (a much-maligned term, loath to politicians not just in Pakistan) is mutually exclusive to “pro-poor” agendas. Raising revenues by broadening the tax base meaningfully, in conjunction with rationalizing bloated government/public sector expenditures can free fiscal resources, which can be diverted to targeted subsidy programs. Ignoring macroeconomic stability, on the other hand, will eventually also undermine the ability of the government to influence economic growth, as growing fiscal and monetary constraints limit its ability to run appropriate policies. As experienced in the 1990s, this will slowdown both investment as well as growth, hurting the poor.
KEYWORDS: Pakistan, Macroeconomic Stability, Fiscal Policy, Monetary Policy.
JEL: E62, E52.

Public policy is aimed at increasing the efficiency of the industrial sector in Pakistan. This paper looks at four issues. Firstly, it looks at the adjustments the new government needs to make to restore macroeconomic balance. Secondly, it discusses the global changes that have occurred in the industrial sector and how these could be incorporated into Pakistani policy making. Thirdly, I have briefly discussed the history of policies implemented in Pakistan. Lastly, I have discussed the importance of decentralized industrial policy making. This paper also conducts an empirical analysis of the impact of industrialization on poverty. It is concluded that industrial development in Pakistan has historically been heavily dependent on government intervention and there was poor growth in this sector as compared to other Asian economies. The paper also presents five proposals aimed at achieving higher growth in the industrial sector.
KEYWORDS: Pakistan, Public Policy, Industry, Competitiveness, Poverty.
JEL: F44, D33, H32, L12, L13.

This paper gives a brief overview of Pakistan’s economic growth over the past decades and critically examines the economic policies of the last government. It draws attention to the unchecked state dominance across all sectors of the economy and emphasizes the need for further privatization. The paper concludes with some suggestions on the way forward towards growth and economic prosperity.
KEYWORDS: Privatization, Economic Policy, Economic Growth.
JEL: O43, L33, Q58.

The objective of this paper is to set out the key components of a development strategy for Pakistan. A fundamental premise of our analysis is that the world economic environment is changing dramatically and a development strategy today must position itself to take advantage of the changes taking place. The paper is divided into five sections: First, we provide a brief review of Pakistan’s experience with development strategies so far. Next, we discuss the changes that have occurred, or are taking place in the global economy, which have strategic relevance for Pakistan. In the third section we look at the current situation in Pakistan with regard to the potential drivers of growth, based on the earlier discussion of the global developments. In the final section key elements of an alternative development strategy for Pakistan are outlined.
KEYWORDS: Development Strategy, Growth, Globalization.
JEL: O40, O20, O11.

This paper explores the past 50 years of data on inflation, growth rates of money and real GDP. It is found that inflation is primarily a monetary phenomena; however, the quantity theory of money does not hold in Pakistan below money supply growth rates of 9 percent. A simple monetary rule is also derived by inspecting the maximum probabilities of keeping inflation low (at most 6 percent); this rule is simply to keep money growth rates below 12 percent. This paper also finds that food inflation too is a monetary phenomena and there is no trade-off between inflation and growth, which are independent in the sense of probability measures. The findings are confirmed by the application of Fisher’s Exact Test. The policy implication is that monetary policy should be pursued independently of growth policies of government.
KEYWORDS: Pakistan, Inflation, Monetary Policy.
JEL: E52, E41.

Pakistan has seen strong economic growth in recent years accompanied by a reduction in poverty. However, growth has been concentrated, which has meant that regional and inter-personal disparities are on the rise. In a contestable political environment, this casts a shadow on the sustainability of high growth. The budget, a corrective instrument, has been subject to boom and bust cycles because of rigid claims, poor tax effort and external shocks, rendering it ineffective in addressing long term priorities. This paper argues that robust budgets for sustained and inclusive growth require government programs to be credible (monitoring and evaluation and public information) and cost effective (streamlined budget cycle, public-private partnerships); this will help increase citizen willingness to pay for public programs via improved tax compliance.
KEYWORDS: Pakistan, Budget, Growth.
JEL: E22, O43, E23.

The dramatic increase in international food and fuel prices in recent times is a crucial issue for developing countries and the most vulnerable to these price shocks are the poorest segments of society. In countries like Pakistan, the discussion has focused on the impact of substantially higher food and fuel prices on poverty. This paper used PSLM and MICS household level data to analyze the impact of higher food and energy prices on the poverty head count and the poverty gap ratio in Pakistan. Simulated food and energy price shocks present some important results: First, the impact of food price increases on Pakistani poverty levels is substantially greater than the impact of energy price increases. Second, the impact of food price inflation on Pakistani poverty levels is significantly higher for rural populations as compared to urban populations. Finally, food price inflation can lead to significant increases in Pakistani poverty levels: For Pakistan as a whole, a 20% increase in food prices would lead to an 8% increase in the poverty head count.
KEYWORDS: Pakistan, Poverty, Inflation, Household Budget, Food, Fuel.
JEL: D33, R21, E3.

The main focus of this study is Rural Punjab and it contributes to regional poverty research in two ways; first, using a more recent household survey data, carried out in August 2007 by the Pakistan Institute of Development Economics (PIDE), it provides fresh poverty estimates for the rural areas of the Punjab. Second, the poverty differential across the agroclimatic zones of Punjab have been explained by urbanization, overseas migration and the labor market structure operating in these zones. This study shows four major factors that explain inequalities in poverty levels. First, the rural areas of two zones, barani and rice/wheat, are well integrated with urban settings. This integration has allowed their rural populations to work in the industrial sector of Central Punjab and the services sector in North Punjab primarily Rawalpindi and Islamabad. Second, the belt from Lahore to Attock in the Punjab has benefited the most from overseas migration. The flow of remittances has helped in reducing poverty levels. Third, the cotton/wheat and low intensity zone still largely depend for employment on the agricultural sector while this dependency is very low in the barani zone, which has good opportunity to seek job opportunities for its labor force in the armed services and government departments. Finally, demographic and social factors including education are less favorable in the cotton/wheat and low intensity zones which negatively impacts on a breakthrough in poverty reduction.
KEYWORDS: Pakistan, Poverty, Migration, Labor Market.
JEL: D33, J20, J61.

The article is the first comprehensive attempt at estimating the variation in the incidence, intensity and severity of poverty in the Punjab at the level of sub-provincial regions and districts. This estimation has been made possible because of the availability of the Multiple Indicators Cluster Survey (2003-04), which has a sample that is representative at the district-level. Estimates suggest the existence of a high poverty enclave in the south and the west regions of the Punjab. The incidence and severity of poverty in a majority of districts in this enclave, with a few exceptions, is extremely high with one out of every two households being poor on average. The high levels of poverty in this enclave contrast with the relatively low poverty in the more urbanized north, where households are well integrated into the national and international labor market. The paper also argues that there is tremendous variation in the poverty experience of the districts in the centre. Poverty incidence in the more urbanized and industrialized northern districts of the centre contrasts sharply with the experience of Kasur, Okara and Pakpattan, where the incidence and severity of poverty is extremely high. Finally, we find that in nine districts rural households do much worse in terms of poverty incidence than their urban counterparts. The gap between urban and rural poverty incidence and severity is highest within the district of Lahore suggesting that urbanization co-exists with a large poor population that inhabits the periurban areas of the district. An important aim of development policy and poverty targeting is to bridge these multi-faceted divides in the geography of poverty.
KEYWORDS: Poverty, Pakistan.
JEL: I32, D33.