Pakistan’s economics and political mess….

Couple of interesting speeches by State Bank of Pakistan Governor  Yaseen Anwar..

One on fiscal and monetary policy in Pakistan and the other on Banking sector.

In the first, he starts with fisc-monetary policies in the world and then comes to Pak:

In Pakistan, however, the situation under which the fiscal and monetary policies have to operate is fundamentally different and far more complicated. First, we have not had sustained periods of political and economic stability in recent history. We have been at the forefront of the war on terror for over a decade now. Besides damage to life and property, this participation has resulted in a huge strain on our country’s meager resources, which has not been fully compensated for. Second, the power sector crisis has crippled a significant part of economic activity. Inappropriate policies, which offered guaranteed equity returns and disregarded what is an appropriate fuel mix for the country, 1 price distortions, expensive and poorly targeted subsidies, inefficiencies in the energy supply and distribution, and low recoveries have resulted in a crisis gripping the power sector. Persistent energy shortages have resulted in a decline in the productive capacity of our industrial sector which has lead to an increase in unemployment. Third, lack of diversification and innovation in the economy combined with scarcity of entrepreneurial talent has made us depend on a few sectors for economic growth and export earnings, such as textiles.

Fourth, instead of exploring and developing abundant natural resources in the country, we import a number of essential goods like crude oil, that are, to a large extent, price inelastic (FYI every $5 reduction in price saver us $750 million in FX for the year). Fifth, from general public to higher echelons there is a general culture of tax evasion which limits the ability of the government to raise an appropriate amount of revenues. Sixth, a sizeable chunk of our economy is in the informal sector which remains undocumented and therefore beyond the tax net. Seventh, public sector enterprises instead of being a source of revenue for the government eat up scarce resources every year.

Finally, we have had the misfortune of sufferings due to natural disasters i.e. floods and earthquakes in the recent past. All these endogenous and exogenous factors have resulted in domestic and external sector deficits with the private sector unwilling to invest and limited participation of foreign investors.

If you notice much of this is with because to politics. And then he lists the data and the policies to save Pak from yet another crisis.

On banking, he says banking has emerged as the best sector in Pak…

Nice bit of economics on a country which is rarely in news on economic front other than crisis..

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