"The biggest challenge is to find out the dynamics of the Pakistan economy," VC PIDE

BR Research: Please tell us about the history of PIDE and its current organisation!
Dr Rashid Amjad: PIDE is one of the oldest research institutions in Asia and has been home to outstanding economist. It conducts theoretical and empirical research in Development Economics in general and on Pakistan's specific economic issues in particular. Over the past 50 years, PIDE has earned an international reputation and recognition for its research. Our faculty is rich and the advisory committee consists of world renowned economists such as Nobel Laureate Robert A. Mundell.
We are trying to revive the PIDE spirit. In the last four to five years, PIDE has transformed itself into a degree-awarding research-cum-teaching institution. We have up to 40 Ph.D. students, and about 150 M. Phil. students. We hope that these students will go on to become the young lot of economists who should now be taking over from the older generation. We are trying to increase their capacity to do good research.
Our journal, the Pakistan Development Review, is perhaps the oldest development journal in the world, and it remains our flagship journal. We continue to carry out research on different issues and frequently publish our viewpoints on various economic issues.
BRR: Coming first to the economic issues, why do you think the current government has not been able to stick to one economic framework?
RA: In four years, the current government has approved many frameworks, but implementation is not there. First, they started the nine-point programme, and then came the tenth 5-year plan. And now, we have the new growth framework, which has identified drivers of economic growth. The challenge is to get a buy-in from all segments of society into the policies proposed by the NGF. The real challenge is to make it operational. And for that, you need not just the framework but a detailed plan of policy and programme action.
BRR: So what you are saying is that there is no silver lining on the horizon yet?
RA: Pakistan's economy is very vulnerable right now, as there are multiple crises going on. But, within this vulnerability, there is some room for optimism. For instance, the rural areas are more prosperous now. If you take the GT Road, you will see what is happening in the inner cities and towns. The 'Golden Triangle', which starts from Sialkot and Gujarat and goes down to Kharian, is a clear example of the dynamism of the local economies which are thriving due to the SME businesses. Similar economic dynamism is apparent on the outskirts of Lahore.
BRR: But such dynamism is not apparent in the rest of the country.
RA: The biggest challenge for Pakistani researchers is to find out the dynamics of the economy of Pakistan. I must tell you that ours is not an easy economy to read. Foreign experts come here and say that Pakistan's is a 500-billion-dollar economy. We have been trying to understand it for the last 40 years and we don't have all the answers. We also need to look at the labour markets as to where and how the new jobs are being created. There is a need to do research on what we call 'Ribbon Development', which means that the semi-urban pockets are generating lots of jobs.
What have not been sufficiently picked up are the areas and forces of dynamism in the economy. Therefore, what is not understood is the macro-dynamism of the economy. So, researchers and policymakers need to look at the forces of economic dynamism in small areas.
Of course, there are challenges and pressures. The biggest bomb, in my view, would be the results of the Population Census. I would not be surprised if population is over 190 million. And I hope not because that would mean that the fertility curve is not coming down. Secondly, the labour force is growing at over 3.5 percent per annum and we need sustained economic growth to absorb that.
BRR: What is your viewpoint on how our recent engagement with the IMF turned out?
RA: Between 1988 and 2011, Pakistan pursued eight IMF programmes. For the last 16 years, we have been under one programme or the other. Unfortunately, IMF, as a bailout source, has become sort of a moral hazard, because the policymakers know that they can fall back to the Fund whenever crisis becomes unmanageable. Ironically, the reforms which IMF suggests are the reforms which get delayed due to this.
BRR: But IMF has little to do with the delayed reforms.
RA: I feel that Pakistan is caught in a maelstrom. Interest-groups in Pakistan are very well-organised. Whenever you try to set things right in the economy, the stock exchanges and other major sectors, there is pushback from the vested interests. Rightly or wrongly, they are interested in just their own interests.
The word in vogue is 'Resilience'. We should use this resilience as strength, and not as an excuse to not bring about reforms.
BRR: How do you view the central bank's tight monetary stance in recent years?
RA: I believe that the monetary stance has been far too restrictive as it has been preoccupied with inflation and has ignored economic growth. Our basic position is that macro-stability is a pre-requisite for global and domestic confidence in the economy. But we need to revive growth, which the preoccupation with macro-stability has slowed down. To ignite it, two pivots would have to be looked at. One is linking the revenue generation with expenditures, as the increase in revenues should allow an increase in the PSDP. Two, create space from the monetary side and don't make the interest rates a manoeuvring tool.
BRR: So should the rates be further brought down?
RA: I would recommend reducing the interest rates further. The point is that, in our economy, inflation is not being driven by the interest rates or the money supply. While oil and commodity price increases can spike inflation, the real cause for sustained double digit inflation is the high budget deficit. Only if this is reduced will inflation come down. SBP is using the interest rates to prop up the exchange rate, and that is not doing anything good to the economy. High interest rates are hurting the SMEs more than the big corporates.
So, there is no point holding the economy hostage to monetary policy. There are trade-offs, yes, but we need to focus on reviving growth. We need to find ways to create space for growth to take hold. I am very much aware of the macro-stability issues, yet I believe that the priority of growth revival has to move up a number of slots. Achieving macro-stability and then moving to growth is a difficult proposition. You have to build into your macroeconomic stabilisation programme the path to growth.
BRR: What is required for Pakistan to get back to its potential growth rate?
RA: There are many areas which have far-reaching impact on the growth dynamics of the economy, and which, unfortunately, have taken a huge hit during the last three years. First is private investment, which has continued to decline after reaching a peak in FY08. Public investment has collapsed as Federal PSDP has come down sharply. This has negative impact on growth and long-term competitiveness of the economy.
Secondly, the supply-shocks from the energy crisis have weighed heavy on the economy. Shortage of energy has sort of become a binding constraint, as so much growth has been forgone. In my view, the rental power project should have gone ahead. That way, the utilities crisis would not have been this severe.
Thirdly, the revival of the PSEs is of paramount importance to the economy. Moreover, on the revenue side, there is a lot of room for raising revenues at the provincial level, eg, through property tax. My own feeling is that even if the government does not tax the agriculture income, at least it should start documenting it, and build a system.
BRR: How can the private sector be incentivised and capital attracted to the economy?
RA: We have a large economy. There are areas where profits are high, but the private sector wouldn't go there due to the unresolved energy crisis. Then there is enormous potential in agro-based products, and private sector can really benefit from this. However, underlying all these are the security and energy issues.