The paper addresses the structural rigidities in the fiscal system. The fiscal rigidity has resulted in a fiscal overhang over the monetary policy of the SBP. The author contends that policy should be geared to reduce the fiscal tax burden on the formal sector and to reduce the fiscal domination over monetary policy.
KEYWORDS: Fiscal system, Pakistan, structural rigidities, monetary policy.
JEL: N/A.

The paper highlights strong gains in the macro area. The author also shows how total debt as a percentage of GDP has declined from 100% in 2000 to 61% in 2005. This had resulted from a debt restructuring with the Paris Club in 2001 and also due to the re-appraisal of GDP, which has lowered the debt burden as well. We should first focus on the external account, which is very topical in both newspapers and TV. The trade deficit has widened significantly. It is therefore very appropriate to understand what is the external balance. Should we worry about it widening? Should the country across our border also worry, because they are also facing a greater deficit?
KEYWORDS: GDP, Pakistan, foreign debt, debt burden.
JEL: N/A.

The focus of this paper is on inter governmental resource transfers. The question of these transfers crops up because of an asymmetry between revenues and expenditures. Since the federal government earns 90% of the revenues, while the provincial governments spend 25% of the revenues, this calls for transfers from the federal to the provincial governments under the aegis of the National Finance Commission. The allocations through the NFC have increased substantively over time. Pakistan is a federation of four provinces, unequal in area, population and levels of economic and social development. The ethnic distinction of provinces makes horizontal equity in development vital to political stability and national cohesion. The separation of East Pakistan from the federation in 1971 was rooted in a perception, right or wrong, of economic injustice. The adoption of the 1973 Constitution with unanimous1 support of all remaining provinces, by addressing many of the contentious economic issues, provided the country another opportunity to address regional economic disparities and to strengthen the federation. Unfortunately, violations of the Constitutional mandate as well as partisan interpretation of various Articles of the Constitution over the last 33 years have aggravated economic disparities between the provinces and rekindled perceptions of economic injustice among the provinces.
KEYWORDS: intergovernmental resource transfers, federal government, expenditures, Pakistan.
JEL: N/A.

The author here looks at problems in the manufacturing sector. One macro enigma is that while growth had recently risen to 8%, investment levels as a ratio of GDP seem to have fallen. One reason for this is the re-evaluation upwards of the GDP. But the same issue emerges in manufacturing with very high growth rates coinciding with falling investment levels. The declining investment levels could be due to a number of factors including high production costs, transaction costs, policy continuity risks, skills and wages and changes in the demand structure.
KEYWORDS: GDP, Pakistan, industrial growth, manufacturing sector.
JEL: N/A.

The author emphasizes in this paper that this was the moment in Pakistan’s economic trajectory for it to learn to leap frog technologically from a labor intensive economy, by passing the intermediate stages of resource based and scale based activities, to a knowledge based economy. A knowledge based economy is one that bases its growth not on increasing capital or land or labor inputs, but on knowledge. The transition required is considerable, the author points out. There is growing recognition that the global economy is increasingly driven by “knowledge” rather than the traditional factors of production. Pakistan’s Medium-Term Development Framework (MTDF) 2005-2010 and Vision 2030 Approach Paper both recognize the key role of knowledge in economic growth when they describe the goal of transforming Pakistan by 2030 into a “Developed, industrialized, just and prosperous Pakistan through rapid and sustained development … by deploying knowledge inputs”.1
KEYWORDS: Pakistan, knowledge economy, trajectory, technology.
JEL: N/A.

The paper calls for financial devolution from the federal and provincial levels to the local level. The author argues that the present high degree of centralization has failed to deliver an adequate level of social services. In addition, while the more important services such as education, health and water supply had devolved to the local level, higher levels of government imposed constraints on their expenditures.
KEYWORDS: Pakistan, local government, financial devolution.
JEL: N/A.

This paper discusses the institutional structures of the civil service. The author traces four periods in this service, pre-1971, 1972-1977, 1978- 1999 and 2000 onwards. In the first time period the author maintains the service worked well. In the second, the paradigm was vitiated. In the third period the anarchy continued by default. And in the last period the anarchy continued by accident. The author attempts to illustrate the growing disincentives in the paradigm for efficiency.
KEYWORDS: service worked well, paradigm was vitiated, anarchy continued by default.
JEL: N/A.

This paper investigates the relationship between exports and economic growth in Pakistan by utilizing the analytical framework put forward by Feder (1983). The hypothesis that marginal factor productivities are not equal in export and non-export sectors of the Pakistan economy is tested by using time series from 1973 to 2005. The estimation results indicate that marginal factor productivities are significantly higher in the export sector. Moreover, the difference seems to derive, in part, from inter-sectoral positive externalities generated by the export sector. In broad terms, therefore, the results of this study are supportive of the export oriented, outward-looking approach to trade relations adopted by policymakers over the past decade.
KEYWORDS: Pakistan, economy, developing countries, growth rate.
JEL: F1, F21, O53.

Unrestricted trade stimulates economic growth and bridges socio-economic gaps existing in different countries of the world. Pakistan has adopted trade liberalization policies since the late 1980s with the same expectations. This study has empirically analyzed how trade liberalization has affected economic development in the country. Its effects have been examined with respect to four measures of economic development: per capita GDP, income inequality, poverty and employment over the period from 1960-2003. The main analysis is based on a simultaneous equation model. Keeping in view the simultaneity of the chosen development measures, the model is estimated with the 2SLS technique of regression analysis. The analysis shows that, over the study period, trade liberalization has not affected all the chosen indicators of development uniformly. It has affected employment positively but per capita GDP and income distribution negatively. However, it has not affected poverty in any way. The obvious message is that trade liberalization has not affected all the indicators of development favorably in Pakistan. It thus implies the need of a cautious move towards liberalization. The focus of trade liberalization should be to bring about improvement in the performance of mediating factors and to focus exports on labor-intensive products.
KEYWORDS: Trade Liberalization, Economic Development, Poverty.
JEL: F41.

This study is designed to assess the macroeconomic performance of fund-supported programs, and the sequencing and ordering of macroeconomic policies in the context of the Pakistan economy. The generalized evaluation estimator technique has been used to assess the macroeconomic impacts of the IMF supported programs. GDP growth, inflation rate, current account balance, fiscal balance and unemployment are used as the target variables in order to gauge economic performance during the program years. The vector of policy variables (that might have been adopted in the absence of programs) and the vector of foreign exogenous variables are also taken as explanatory variables in the model, so that the individual effect of the IMF supported programs could be assessed. The result suggests that as the IMF prescriptions were applied, the current account balance has worsened, the unemployment rate has significantly increased, and the inflation rate has increased during the years of fund-supported programs. Only the budget balance has shown signs of improvement. Furthermore an inadequate sequencing of reforms has contributed to the further worsening of the economic scenario during the program period.
KEYWORDS: Pakistan, IMF, macroeconomic, policy conduct, policy variables, unemployment rate.
JEL: N/A.