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Pakistan economy: Continuity or


change
Written by {ga=nawab_naqvi}

Policy Perspectives, Vlm 1, No.1


The present paper discusses three related topics. First, it carries a
brief review of the existing development policy. Second, the areas
where the present policy is inadequate. Third, the ways are
suggested to overcome these deficiencies in the light of our own
development experience in the past 40 years or so, and keeping in
view the evolving academic consensus.
In the process, a sketch of writer's own thinking on how best a fertile
development policy should simultaneously pursue high rates of
economic growth, macroeconomic stability, distributive equity, and
poverty reduction is also presented.

The Existing Development Policy


The existent economic strategy has focused almost without
exception on restoring macroeconomic stability and sustaining it to
infuse confidence about the economy's long-run financial viability.
This is intended to lower the inflation rate, build up foreign exchange
reserves, reduce the domestic and external debt, cut down the
budgetary deficit, and decrease the imbalance in the balance of
payments.
Central to the economic strategy is, however, a reduction of the
domestic and external debt to a sustainable level, on a priority
basis, by regulating the twin deficits. Raising the growth rate of GDP
takes a back seat in this economic regime.
The reason for this neglect is the anticipation that it will take care of
itself once the budgetary and current account deficits are back on
an even keel. A government report states: "There exists a strong
negative relationship between fiscal deficit and economic growth". In
this scenario, poverty comes down once economic growth revives
thanks to a lowering of the twin deficits and the implementation of a

Pakistan economy: Continuity or change


Written by {ga=nawab_naqvi}

Policy Perspectives, Vlm 1, No.1

The present paper discusses three related topics. First, it carries a brief review of the existing deve

present policy is inadequate. Third, the ways are suggested to overcome these deficiencies in the l
40 years or so, and keeping in view the evolving academic consensus.

In the process, a sketch of writer's own thinking on how best a fertile development policy should sim
growth, macroeconomic stability, distributive equity, and poverty reduction is also presented.

The Existing Development Policy

The existent economic strategy has focused almost without exception on restoring macroeconomic
about the economy's long-run financial viability. This is intended to lower the inflation rate, build up

and external debt, cut down the budgetary deficit, and decrease the imbalance in the balance of pa

Central to the economic strategy is, however, a reduction of the domestic and external debt to a sus
twin deficits. Raising the growth rate of GDP takes a back seat in this economic regime.

The reason for this neglect is the anticipation that it will take care of itself once the budgetary and c

government report states: "There exists a strong negative relationship between fiscal deficit and ec

down once economic growth revives thanks to a lowering of the twin deficits and the implementatio

Although not stated thus, it follows as a logical corollary that employment will also eventually increa
unwarranted.

For, in all stabilization programs a let-up in the growth rate, an addition to the unemployment rate, a

necessary correctives of the economic "distortions" caused by financial profligacy. For instance, in E

deliberately sacrificed in the 1970's to achieve stabilization. Pakistan's case is no different. As inten

current account deficit has turned into a surplus of 2.6 per cent of GDP, for the first time in Pakistan

The inflation rate averaged at only 3.5 per cent in 2001-02, which too is the lowest level in the last 3

upsurge in domestic and external debts has been reversed: the domestic debt declined from 51 per

2001-02, and the external debt climbed down from 62 to 59 per cent of GDP during the same perio

This may not look too impressive. But because debt increases at a compound rate, even seemingly

cap it all, foreign exchange reserves have soared to a little over 10 billion US dollars, well beyond w

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