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Negotiating with the IMF


Dr Rashid Amjad

Almost three years ago in an op-ed in this paper, I wrote: “The IMF medicine has provided short-term relief, but after 25 long years it has failed to deliver. Let us not reinforce a failure and, if not wish them goodbye, then say ‘au revoir’ and hope we meet again in better times.”

Better times indeed! The fact is, we are fast running out of foreign exchange reserves. And with friends reluctant to bail us out, another IMF programme seems increasingly inevitable. Indeed, the finance minister has now declared after meeting with the IMF Chief that we will be starting negotiations on a new programme.

An important question to ask is why, after over a dozen IMF programmes in the last 30 years, we invariably end up with an unsustainable fiscal and current account deficit and a run on our foreign exchange reserves?

Here, opinions may differ, but two conclusions are remarkably clear. The first is the gross macroeconomic mismanagement of the economy by the last three governments (since 2005), especially towards the end of each one’s term in office and a lack of political will to undertake structural economic reforms. The second is an IMF that repeatedly prescribes the same economic policy package, which we are then forced to follow.

Yet one is forced to admit that given the stark realities of a fast deteriorating economic situation — dwindling international reserves, a sliding exchange rate that was becoming extremely difficult and costly to hold, and a panic-like situation in the stock market — the government had little choice but to turn to the IMF.

The real challenge now is to prepare ourselves extremely well to negotiate an agreement with the IMF that is politically acceptable and does not place an unbearable burden on the living standards of the vast majority of the population.

To be able to do so, first and foremost, the government should come up with a credible and consistent homegrown economic roadmap, a strategic three-year plan covering the coming years from 2018 to 2021. The plan should start with a macroeconomic framework, with concrete steps for restoring macro­economic stability and building upon the measures already announced in the revised budget. This should be followed by outlining the major economic reforms it plans to undertake (eg reducing the cost of doing business, igniting industrial growth, reducing the circular debt) to improve efficiency and competitiveness with timelines and performance indicators. The strategic plan must also include projections over 2021-24 on paying back the IMF loan.

On the stabilisation front, this plan should target a staggered decline in the fiscal deficit from the current expected 7.2 per cent in 2018-19 (excluding measures in the revised budget) to near 5pc over the next three years, supported by steps to gradually reduce subsidies — including in the energy sector — and new initiatives to increase tax revenues. The government should include in this plan the general direction and savings it hopes to generate through the major initiatives it has or plans to undertake — as, for example, measures to curb wasteful expenditures. While some immediate adjustment in the exchange rate may be needed to calm the markets, it should be very cautious in using it as the major tool given its adverse impact on inflation and the fact that we are a heavily indebted economy with repayments in foreign exchange. This does not mean that the exchange rate will not be adjusted if there is a persistent demand and supply imbalance.

The real challenge will lie in designing a stabilisation package that does not completely lose the little growth momentum we have built up in the economy. We must never forget the terrible impact of a sudden steep decline in the fiscal deficit agreed on with the IMF in the 2008 programme, which led to a collapse in the growth rate from 5.5pc to around 0.7pc (and a cut in subsidies, which resulted in food inflation of over 25pc). The economy never quite recovered from this.

Most importantly, the strategic plan should be supplemented with the outline of a medium-term development plan that serves as a framework for cuts in development expenditure, projects shelved or reduced, and funds reallocated, including those under CPEC. An important objective of this plan must be to divert government development expenditures to those priorities the new government has set for itself: improving the quality of education and health services, and launching a housing initiative that will generate new jobs. This overall exercise could be carried out by reworking the draft 12th Five-Year Plan (2018-23) already prepared by the Planning Commission.

In our negotiations with the IMF, the government needs to make clear that any stabilisation programme agreed on must rest on a gradual reduction in the fiscal deficit and cuts in subsidies at a bearable pace — not one that results in economic mayhem. In the first instance, it would be sensible to agree to a 24-36 months, $8-9 billion fund programme — frontloaded with the release of a sufficiently large initial tranche to calm the markets and restore business confidence.

It is worth emphasising that the more convincing and well worked out the government’s strategic three-year plan (as well as its resolve to implement it) is, the more successful it will be in getting a credible agreement with the IMF.

One would also hope that the IMF will have learnt some lessons from its experience of the last 30 years and rethink, or at least show some flexibility towards, its basic approach to helping Pakistan move to a more sustainable growth path. It must reduce its previous strong emphasis on opening up the economy far too quickly so that we do not end up, as we have done in the recent past, with another balance of payments crisis soon after the IMF programme ends.

But can a leopard ever change its spots?

The writer is professor at the Lahore School of Economics and former vice-chancellor of the Pakistan Institute of Development Economics.

Also in Dawn

Copyright Dawn, 2018

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posted by S A J Shirazi @ 10/15/2018 11:20:00 AM,

Lahore School of Economics wins 1st position in Policy Case Competition

A team of senior year students from the BSc Economics and Finance Program competed in Kinnaird College’s Policy Case Competition at the Annual Economics Tutorial alongside other prestigious universities. The students were Ameera Khan, Fizza Rahman, Maria Syed, Muhammad Musa Faraz.


In this year’s competition, the policy brief was based on the government’s notion of “Creating 10 million jobs in the next 5 years”. The team from Lahore School of Economics devised a framework based on the government’s 11 point agenda targeting labour-centric sectors.

Based on this framework, the team developed programs such as “Imran Khan Brigade” (an initiative to promote education, health and sustainability), “Darakht Ugao Paisay Banao”, “Online Platforms for Informal Sectors”, “Promoting technopreneurship” and “Improving agro-industrial policies for SMEs” which were judged to be creative, pragmatic and sustainable.

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posted by S A J Shirazi @ 10/10/2018 11:29:00 AM,

How to promote industrial growth

Maryiam Haroon

Evidence of the benefits of industrial clusters has attracted interest among policy makers. These benefits have been used to justify cluster policies in various countries like Korea, Spain, Brazil, Japan, and France. Interestingly, the development of industrial estates is one of the main strategies in the Punjab Industries Sector Plan 2014-2018, which includes development of Industrial estates in Chunian, Gujrat, Rawalpindi and Jhang and a special economic zone at Pind Dadan Khan and Quaid-e-Azam Apparel Park. Researchers at the Lahore School of Economics have identified the role of firm clusters in the productivity improvement of firms and have recommended specific locations for clusters in different sectors.

Analysing the spatial distribution of firms and sectors across districts of Punjab, the researchers found that firms and sectors are more concentrated in a few districts, and there is an unequal distribution of activity in Punjab. Most of the activity was found to be concentrated in the central part of Punjab, with the highest activity being located in Lahore, Gujrat, Sialkot, Gujranwala, Faisalabad and Kasur. Following these districts, a moderate level of activity can be witnessed in some districts of Southern Punjab including Bahawalpur, Rahim Yar Khan and Multan. On the other hand, West and North Punjab have the least level of activity present in terms of firms and sectors. This clearly gives us a picture that firms, employment and sectors are not evenly distributed across Punjab, with Central Punjab considered as the main hub of economic activity at present.
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posted by S A J Shirazi @ 10/03/2018 11:46:00 AM,

Challenges and Possibilities for Environmental Sustainability with a focus on Pakistan

27-28 February 2019

Department of Environmental Science and Policy, Lahore School of Economics

Call for Papers

The social metabolism reproducing society in the modern era is upsetting Earth’s natural equilibrium, which until recently, had maintained relative stability for millions of years. Marking this shift in the planet’s biogeochemical processes due to human activities, scientists recently declared the emergence of a new geological epoch, the ‘Anthropocene’. This new global shift is characterized by severe (1) socio-environmental crises, including climate change, degradation of air, water, soils and habitats, rapid extraction of finite freshwater and mineral reserves, deforestation and desertification, and growing quantities of wastes that cannot easily be absorbed into the environment. Such processes are being experienced unevenly across space on a scale never before witnessed in human history, producing impacts that are becoming increasingly critical for our own species as well as others (2).

Aiming to understand the environmental, social and economic dimensions of these crises, particularly in the context of Pakistan, as well as to engage critically with the contemporary debates regarding possible ways to safeguard and/or restore ecologically sustainable systems to the extent possible, this conference will serve as a site for grappling with the multiple and complex sources of these crises, the ecological and social impacts experienced, and the technological, economic and policy interventions being attempted at local, national, and international scales.
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posted by S A J Shirazi @ 9/26/2018 04:27:00 PM,

Lahore School of Economics International Conference on Applied Development Economics

Lahore School of Economics hosted its first International Conference on Applied Development Economics on 12-13 September 2018 at the Lahore School’s Burki Campus. The aim of the conference was to expose researchers and policy makers in Pakistan to on-going research on key issues of relevance to economic development and poverty alleviation in Pakistan and contribute to improving research capabilities of young researchers in the country. The conference highlighted frontier research that is being conducted in Pakistan with the aim of economic development and poverty alleviation. 


The first day of the conference started with welcome remarks by Dr Shahid Amjad Chaudhry, rector of Lahore School of Economics. Professor Imran Rasul, Professor of Economics at the University College London delivered the Plenary Address was focused on new research on Bangladesh and Pakistan that aims to broaden the agenda on understanding how to optimally design social protection programs for the poor and whether such programs should entail providing transfers in kind or in cash. He showed that asset transfers reduced engagement in casual wage labour, increased work in capital-intensive sectors as well as labour supply hours.
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posted by S A J Shirazi @ 9/14/2018 03:55:00 PM,

Orientation for class of 2022


Lahore School of Economics is organizing Orientation for the Class of 2022 on 3-4 September 2018. Following departments will set up information booths in Garden Cafe for new students in order to acquaint them with the opportunities available on campus:
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posted by S A J Shirazi @ 9/04/2018 09:31:00 AM,

Intrahousehold Consumption Allocation and Demand for Agency: A Triple Experimental Investigation

Uzma Afzal, Giovanna D'Adda, Marcel Fafchamps, Farah Said

NBER Working Paper No. 24977
Issued in August 2018
NBER Program(s): Development Economics

We conduct two lab experiments and one field experiment to investigate demand for consumption agency in married couples. The evidence we uncover is consistent across all three experiments. Subjects are often no better at guessing their spouse's preferences than those of a stranger, and many subjects disregard what they believe or know about others' preferences when assigning them a consumption bundle. This confers instrumental value to individual executive agency within the household. We indeed find significant evidence of demand for agency in all three experiments, and this demand varies with the cost and anticipated instrumental benefit of agency. But subjects often make choices incompatible with pure instrumental motives – e.g., paying for agency even when they know their partner assigned them their preferred choice. We also find female subjects to be quite willing to exert agency even though, based on survey responses, they have little executive agency within their household. We interpret this as suggestive of pent-up demand for agency, and indeed we find that female demand for agency falls as a result of an empowerment intervention.
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posted by S A J Shirazi @ 9/04/2018 09:31:00 AM,

‘Pakistan can address payment woes by curbing GDP growth’

Shahram Haq 

Pakistan can tackle its balance of payments woes by slowing down gross domestic product (GDP) growth through fiscal and monetary contraction as currently it is the only short-term solution for the country’s economic managers, suggested a research conducted by the Lahore School of Economics (LSE).


For the long run, Pakistan’s policymakers needed to develop an industrial strategy aimed at producing higher value-added export goods, it said. The argument presented by researchers was that it was the high GDP growth that caused the recurring balance of payments problem.
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posted by S A J Shirazi @ 8/20/2018 10:17:00 AM,

Independence Day Celebrations - 2018

As per our tradition, 71st Independence Day of Pakistan was celebrated at Lahore School of Economics with national zeal and fervor. Dignified flag raising ceremony was attended by students, accompanied faculty and staff.


Dr Shahid Amjad Chaudhry, Rector Lahore School of Economics who was the chief guest hoisted the flag and smartly turned out contingent of guards presented a salute. Addressing the enthralled audience, Dr Shahid Chaudhry threw light on the deeper history of Pakistan, some of the sacrifices that our ancestors had given to make it happen, and how Lahore School is contributing to it's economic development. Pakistan Day thematic cake was also cut. Lahore School Libraries and Document Center set up book stall where rare books about Pakistan Movement were displayed.
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posted by S A J Shirazi @ 8/16/2018 10:24:00 AM,

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