Vice Chancellor Pakistan Institute of Development Economics (PIDE), Dr Asad Zaman has stressed the need for a new consensus to define prosperity. Addressing the 33rd Annual General Meeting & Conference of the Pakistan Society of Development Economists (PSDE), which concluded here on Thursday, he said that the society is prosperous to the extent that it creates capabilities and characters, and develops a caring and sharing economy as in such a society there can never be scarcity.
By building strong communities and taking collective responsibility, Zaman said, "What we need is an economic theory that focuses on 90 per cent of the population instead of the one the current theory that focuses only on one percent. This can be done by applying the Islamic solution that emphasizes generosity, equality, forgivingness, kindness and compassion and discourages excessive accumulation of wealth."
In a panel discussion on social capital and economic growth, different facets of tolerance, harmony and trust were discussed. The panel was chaired by Pakistan Ambassador to Australia Naela Chohan. Expressing his views about the topic, Former GM AKRSP Izhar Ali Hunzai said that it is with the integration of different forms of capitals - social, human, financial, natural and physical - that real development takes place. Hunzai said that social capital has both positive and negative implications. Jirga is one such example in which social cohesion operates as an institution of social control to dominate human beings.
Member Social Sector, Planning Commission Asma Hyder said that trust is very important for the creation of social capital and for well-being of individuals and society.
Dr Atiq-ur-Rehman giving the cost benefit analysis of devaluation of Pakistani currency said that during FY 2016-17, Pakistan imported petroleum and its products worth $10.7 billion, which in terms of Pakistani rupees become Rs 1123 billion at an exchange rate of Rs 105/$. He said if the currency is devalued and the new exchange rate is Rs 125/$, the amount of rupees needed to purchase the same quantity of fuel would become Rs 1337 billion with an addition of Rs 214 billion to the trade deficit. The other major imports of Pakistan include machinery, metals and chemicals; the demand for which are also highly inelastic and the imports under these categories were recorded to $13 billion during FY 2016-17. If the exchange rate goes from Rs 105 to Rs 125, this would increase the import bill of these items by Rs 260 billion. Therefore, in order to maintain the trade balance at the current level, the export must increase by at least Rs 474 billion which seems extremely unlikely.
Dr Rehman said that in past devaluation has created worse trade imbalances for Pakistan as Pakistani currency lost its value in 1981-82 by about 20 per cent and the exchange rate changed from Rs 9.9/$ to Rs 11.84/$. The average annual trade deficit for four years before this depreciation was about Rs 24 billion and for four years after this depreciation was recorded to be Rs 46 billion. Similarly, rupee lost its value during 2007-09 by about 35 per cent and the trade deficit increased after this episode of depreciation from Rs 352 billion to Rs 1085 billion. This clearly indicates that the depreciation didn't help in improving balance of trade in the past.
The devolution has serious impacts on many other economic indicators including external debt, debt servicing, tax revenue, budget deficit, current account deficit and the distribution of resources. He explained if a person borrowed $1000 at the current exchange rate, he would need Rs 105,000 to pay this debt. In case the currency is devalued and the new exchange rate is PKR 125/$, the amount payable will become Rs 125,000 and the debt on the person will rise by 20,000, he argued. In this case if a person is able to repay the debt by selling 105 units of the goods produced in an industrial unit, now he needs 125 units of the same good to repay the same amount of loan.
Quoting a statement of Caderic Tille, an ex-member of Board of Director of Federal Reserve, the professor went on saying that in 2001, the United States' net debt to the rest of the world jumped to $2.3 trillion, a level double that recorded in 1999. Much of the increase reflects the new borrowing undertaken by the country to finance its mounting current account deficit. A third of the change, however, can be traced to a simple accounting effect - the impact of a rising dollar on the value of US assets held abroad.
The statement of Tille unveils very alarming fact, the US debt to the rest of world increased by 33% just because of rising dollars in only two years. He added, "If we calculate impact of this 'simple accounting effect' over a period of 30 years, how much would it be."
The same phenomenon applies to macro level as well. Pakistan owes about $75.7 billion dollars as external debt as of March 2017. At the current exchange rate, the amount of external debt would be Rs 7948 billion. Suppose the rupee is depreciated and the new exchange rate is Rs 125/US$, the amount of external debt would become Rs 9462 billion with an increase of Rs 1514 billion. This additional debt was never borrowed by the country, yet it had become the liability of entire nation.
As a result of depreciation, the amount needed for immediate servicing on external debt would also increase which will put pressure on current account deficit and budget deficit. In addition to all these, supposing that the depreciation improves trade, the depreciation policy would help exporters and will increase their earnings, on the other hand the ordinary taxpayer would face the burden of increased debt servicing. Therefore, the depreciation has serious implications for the distribution of resources as well. Therefore, devaluation policy must not be used if the expected improvement in balance of trade does not supersede the surplus debt that could emerge due to fluctuation.
In the second panel discussion on industrial development, job creation, special economic zones, and urban development chaired by Naeem Y Zamindar, Chairman Board of Investment (BOI), Shahid Rashid, Executive Director Center of Excellence CPEC, highlighted the fact that Pakistan needs to keep a balanced approach to development and not forget the key role of agriculture in the past. He said that the key to transformation of society is a change in mindset towards constructivism, adding that no doubt the manufacturing sector requires SEZs and history has shown that countries have leveraged SEZs for stimulating growth. Pakistan can capitalize on the opportunities provided by CPEC to set up new SEZs successfully. In this regard, development of hard and soft infrastructure, branding and marketing of SEZs and product diversification is the requirement of the day.
Dr Tariq Banuri, Executive Director Global Change Impact Studies Centre, raised several pertinent questions: "Will SEZs in Pakistan deliver on their promise?; what is the revenue generating resource and any source of trade competitiveness we want to capitalize on?; Which are the dynamic firms that can become growth poles; Are there any gaps that policy can fill?"
Anjum Asad Amin, Additional Secretary Ministry of Commerce, believed it was important to investigate the correlation between industry and trade and what the deficiency was in the industrial base that was constraining Pakistan's ability to benefit from many FTAs it have signed, and whether the provisions in FTAs correlate with the ground realities or they are merely a wish list.
In another panel discussion, several interesting papers were presented. According to a paper on child poverty, the researchers said that 51% of children in Balochistan are deprived of 4 out of 5 poverty indicators, which are nutrition, health, housing, sanitation, and child development. In a paper on the impact of institutional trust on subjective wellbeing, the authors revealed that enhancing the level of trust will not only increase the subjective wellbeing of individuals but will also improve the government performance. The presenter said that fairer institutions bring happiness and life satisfaction.
In a study on the effect of social capital on economic growth, the researchers found that along with trust and institutional development, the interaction of human and social capital has positive affect on economic growth.
In a study that examined the food consumption patterns in Pakistan, the researchers found that in rural areas of Pakistan, the share of wheat in food consumption has decreased since 2001. Discussing farmers' access to finance, a study showed that the farmers' and dealers' demand for finance is Rs 5,464 million and Rs 252 million respectively. However, high transaction costs and high risks are the main reasons that keep the financial institutions away from extending financial services to the agriculture sector.
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