Lahore School of Economics: Lahore School of Economics Annual Conference on Management of Pakistan Economy

Lahore School of Economics Annual Conference on Management of Pakistan Economy
April 22, 2024

The Lahore School of Economics, Annual Conference on the Management of the Pakistan Economy, held in Lahore on the Burki campus (18-19 April 2024).

The Rector, Dr. Shahid Amjad Chaudhry, opened the conference, by highlighting key policy messages that emerged from the 17 papers being presented.

Dr. Moazam Mahmood, Seemab Sajjid, and Amna Noor Fatima presented evidence of that the Pakistani economy will grow at a rate of 2.3% in FY 2024 and showed that a combination of this low growth and high inflation will significantly increase poverty this year and in the coming years. They then showed that approximately 10% of taxes would have to be spent on transfers to lower income households to eliminate this poverty and that this would become larger over the coming years which implies that there must be a significant increase in transfers to households this year, through programs like the Benazir Income Support Program) and in the coming years to address poverty in Pakistan. Pakistan’s economy was projected to grow at 2.3% over FY2024.

Dr. Naved Hamid of the Lahore School of Economics and Dr. Murtaza Syed of he Asian Infrastructure Investment Bank discussed how high interest rates are necessary to combat inflation. They addressed common arguments against and said that even if inflation was a result of supply-side factors and if government borrowing was relatively less responsive to high interest rates, one of the most important ways to curtail inflation is still through interest rates. They also discussed that interest rate changes will be critically influenced by the amount of the fiscal deficit and the level of international commodity prices.

Dr. Rashid Amjad and Almazia Shahzad of the Lahore School discussed how the stop-go cycle of economic growth in Pakistan is caused by unsustainable fiscal deficits coupled with foreign borrowing. They then proposed that the only way to achieve growth and stabilization in Pakistan was to reverse the roles of the federal and provincial governments. The federal government should concentrate on meeting the external financing gap, accelerate economic reforms and manage the fiscal deficit while the provinces should engine for growth and job generation. He said that the provinces to incorporate growth and job generation targets into their annual development plans and also engage in private public partnernships to increase productivity and growth.

Dr. Azam Chaudhry, Gul Andaman and Aymen Junaid discussed how the most binding constraint in Pakistan was stagnant exports and presented a proposal for an export-led industrial policy. In particular, they talked about policy prescriptions like providing more credit to exporters, using Pakistan’s trade and investment officers to promote products and reducing import tariffs on intermediate goods used by exporters. They then provided a template for identifying high value-added export goods for future exports.

Dr. Mujtaba Piracha and Dr. Muhammad Irfan of the Government of Pakistan discussed how Pakistan played a key role in the They explained how the WTO works and how Pakistan can use the forum to work in the country’s favor keeping in mind Pakistan’s macroeconomic situation. They discussed how to WTO framework stimulates investment and transfer of technology from abroad to stimulate growth and how research and stakeholders are essential to trade negotiations.

Dr. Theresa Chaudhry and Dr. Nida Jamil discussed the role of trade and trade policy in the regulation of CO2 emissions in the Pakistani textile sector and the possibility of transition to renewable energy sources solar energy.

Day 2 of the Lahore School of Economics Annual Conference on Management of the Pakistan Economy focused on issues related to innovation, female employment, skills development of workers and Pakistani trade.

Dr. Waqar Wadho and Dr. Azam Chaudhry of the Lahore School of Economics looked at the how family control of management in Pakistani textile firms affects productivity. They found that family controlled firm engaged in management practices that were as good as the management practices of non-family controlled firms and that better management practices led to greater labor productivity in firms. They also found that better management practices led to higher exports which is critical for Pakistan as it tries to increase exports. But they also found that family-controlled firms only benefited from better management practices if they delegated responsibility within the firm to professionals which provides important lessons for the business community as it attempts to expand production and increase exports.

Dr. Rabia Arif of the Lahore School of Economics looked at how innovation in the textile sector, the light engineering sector and the automotive sector differs. She found that most of the textile manufacturers surveyed were exporters and they engaged in product innovation to increase revenues and decreases costs. In the light engineering sector, firms engage in process and marketing innovations but this led to higher costs and lower revenues. In the automotive sector, larger firms engaged in product and marketing innovations to increase their revenues. The results showed that innovation in the textile sector, which is an export intensive sector, tend to be different from innovations in the light engineering and automotive sectors which mostly cater to the domestic market.

Dr. Hamna Ahmed and Zunia Tirmazee of the Lahore School of Economics and Rebecca Wu of the University of Chicago discussed the impact of a training initiative by the Punjab Skills Development Fund which focused on providing access to online training courses for workers in rural and urban Punjab. She found that workers who had completed the online training courses transitioned into work more than those who did not, and also gained more income after completing the courses. She found that the most commonly chosen courses were related to IT or finance related skills and that those who completed this most demanded courses tended to salaries of between Rs 40,000 and 75,000 per month. She then discussed the importance of incorporating online training to develop skills in Pakistan and how these skills can increase employment in Pakistan as well as potentially increase IT exports.

Dr. Zunia Saif Tirmazee of the Lahore School of Economics and Sakina Shibuya from the University of Wisconsin discussed the factors that may hinder firms from hiring women. They looked at the impact of social norms as well as economic factors like the cost of transportation for women and the cost of training for women in firms. Their results showed that social norms were less important in the decisions of firms on hiring women but rather it was economic factors like transportation costs that had the greatest impact on the willingness of firms to hire women. They explained how it was critical to increase female labor force participation in Pakistan and how addressing some of the constraints of the firms can impact female hiring and economic growth.

Dr Jamshed Uppal from the Catholic University of America discussed the institutional factors that have hindered investment and exports in Pakistan. He discussed the negative impact of the overvalued exchange rate in Pakistan over time and the fact that many export related initiatives have been taken advantage of by the most politically connected businesses. He also discussed how efforts to control capital flows out of Pakistan to contain capital flight tend to have the opposite effects since it scares away foreign investment which has happened for the last 30 years. Finally, he discussed how taxation can only be increased if there is increased participation by people in the decisions made in Pakistan.

Dr. Aadil Nakhoda from IBA Karachi discussed the potential impact of the Innovation Technology Agreement (ITA) would have on Pakistani imports. He started his discussion on the types of IT related goods being imported to Pakistan and found that the most commonly imported goods were cell phones and solar panels. He also discussed the trade barriers that exist in Pakistan on the import of IT related goods and found that these levels of barriers were higher than some countries like Vietnam but lower than countries like Bangladesh. He also discussed that imports could increase by up to USD 1.5 billion if Pakistan signed the ITA (with more than USD 1 billion of these imports coming from China) which could have adverse impact of the trade balance in Pakistan but that these IT imports could also make Pakistani workers and firms more productive which would make them more competitive which in turn could increase exports by up to 2%.

The Rector of the Lahore School of Economics, Dr. Shahid Amjad Chaudhry, concluded the conference with a discussion of how the dramatic fall in Pakistan’s growth rate, with almost 0% growth last year and an expected growth of only 2% this year, has led to an increase in poverty and how transfers to low income households through programs like the Benazir Income Support Program (BISP) must be significantly increased to help lower income households. He also discussed how the provinces must take the lead role in development and economic growth, by investing in health and education and increasing productivity, while the federal government must focus on delivering macroeconomic stability and managing foreign debt during this period of stabilization. He pointed out that Pakistan has been susceptible to significant geopolitical instability over the last 3 decades while the other countries in South Asia have benefited from stability over this time period but that Pakistan needs to change its investment priorities to focus on delivering education, health and jobs to its people and also must develop a coherent industrial strategy combined with structural reforms to increase exports.