Lahore School of Economics

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Cooperation Between Lahore School and Bahcesehir University

Lahore School of Economics, Lahore Pakistan and Bahcesehir University, Istanbul Turkey have agreed to establish long term cooperation in the areas of Faculty Exchange, Joint Research and Student Exchange. Dr. Shahid Amjad Chaudhry, Rector Lahore School and Prof. Dr. Suheyl BATUM, Rector Bahcesehir University signed the Memorandum of Understanding on May 17, 2006 at Bahcesehir University.

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posted by S A J Shirazi @ 5/25/2006 02:06:00 PM,

HEC – Japanese Need Based Merit Scholarship

Higher Education Commission (in collaboration with Japanese Government) has offered 16 scholarships (8 for undergraduate and 8 for graduate programs) for the students of Lahore School of Economics (for session 2006-07 onwards). Eligibility criteria are as under:

Last date for collection of Financial Assistance Forms along with supporting documents is May 29, 2006.

posted by S A J Shirazi @ 5/19/2006 05:00:00 PM,

Violin Recital

M. Aslam of Lahore Chitrkar will perform in Main Campus Café on Saturday (May 20, 2006) from 12 to 2 PM. You are invited.

posted by S A J Shirazi @ 5/18/2006 10:52:00 AM,

Admission in Lahore School

This is an admission season at Lahore School of Economics (Applications dead line: Jun 30, 2006). Students are looking for best university and making decisions to join best programmes that suit them. How can students and parents make an informed decision? Here is my suggestion.

You are probably on summer vacations anyway. Why not visit LSE Campuses? Feel the environment, meet members faculty or listen to admission managers. After you have been there, you can make a more careful appraisal and more informed decision.
More details here

posted by S A J Shirazi @ 5/18/2006 10:50:00 AM,

Saudi Pak Bank Team's Visit to Lahore School of Economics

Team from Saudi Pak Bank visited Lahore School of Economics on May 17, 2006 and gave a presentation to graduating students. Mr. Asir Mansur, HR Head gave an introductory lecture on their Management Associate Program and after the presentation Mr. Babar Ahmed, the Vice President and Recruitment Head answered questions by students.


posted by S A J Shirazi @ 5/17/2006 08:39:00 PM,

Full Text Journals provides direct links to over 7000 scholarly periodicals which allow some or all of their online content to be viewed by ANYONE with Internet access for free (though some may require free registration). The issue(s) which are available for free are indicated for each title on the alphabetical periodical lists. The design of this site is optimized for users seeking specific articles for which they already have the citation. If some of the articles you need are not available for free online, you may obtain them for a fee through a document delivery service, such as Pinpoint Documents. If you wish to "search" for articles on a particular topic, please use a bibliographic database such as PubMed. This site does not attempt to list ALL periodicals on the Internet, only those which offer free full-text content. Titles will be removed from this list if they cease to offer any free full-text content.
Also see United Nations Common Library, Islamabad.

posted by S A J Shirazi @ 5/16/2006 10:53:00 AM,

Lahore School of Economics Second Annual Conference on Management of the Pakistan Economy Concludes

Conclusion and Recommendations by Dr. Moazam Mahmood

The Rector of the Lahore School of Economics Dr. Shahid Amjad Chaudhry opened the conference, recalling a good bringing together of policy makers led by the Governor of the State Bank Dr. Ishrat Hussain, the private sector comprising bankers and industrialists, and academia in the First Cconference last year. The dialogue generated on public policy had been both intense and diverse, ranging across macro, sectoral and institutional issues, especially edifying for the student body of the School. Th Annual Confrence has been institutionalised and the tradition had also been set for the Governor of the State Bank of Pakistan to deliver the inaugural address at the Cconference.
The Macroeconomy and Policy

At this second conference the Deputy Governor of the State Bank, in the absence of the Governor delivered the inaugural address on the state of the economy. He emphasized that GDP growth was fundamentally on track although a little below the expected 7% target due to commodity sector weaknesses. The rising trend in unemployment had been reversed over ’02-04. Longer trend growth over the decade was expected at over 6%. However three macro imbalances needed to be managed while they still could be handled at their present relatively lower levels.
One, the current account had gone from a surplus of 1.9% of GDP in ’04 to a deficit of 1.4% in ’05, fortunately financed by the high capital flows. The surge in oil prices have contributed to the rise in the import bill, but so have capital and intermediate goods, and curtailing the second will affect growth.

Two, there is a widening savings investment gap, resulting from sluggish savings, financing the surge in imports from capital inflows, and the widening current account deficit.Three, inflationary pressures continue, although falling from 12% in ’05 to an expected 8% in ’06. This inflation threatens incomes, competitiveness and savings incentives. The reduction in inflationary pressures has been brought about by a tight monetary policy, although aggregate demand remains strong, private sector credit falling from 25% last year to a still substantive 18% this year.
Fiscal prudence is also needed, with fiscal deficits creeping up after several years of discipline. Revenue side risks include a nearly fifty percent dependence on import taxes, which could fall, and the volatility of non tax revenues.
The future outlook for ’06 was a growth rate of between 6.3%-6.8%, inflation between 7.7%-8.3%, a CA balance of 4.7%, while the tight monetary stance will continue, and structural rigidities addressed.

Mr. Saquib Sherani the Chief Economist of ABN AMRO Bank addressed these structural rigidities in the fiscal system. The primary fiscal rigidity of course lay in the narrow direct tax base, focused on industry for nearly 2/3rds of its revenues, and services for another quarter, while agriculture contributed only 1%. Mr. Janjua, former Deputy Governor of the State Bank pointed out that agriculture’s share of indirect taxes was enormous. Further the personal tax base was limited to 2.5 million people, with wage earners having been found to account for a half in past surveys. As a result Pakistan’s tax GDP ratio of 9% was amongst the lowest in the world. Subsequent discussion also clarified that Pakistan’s revision of its GDP upwards to $800 per capita had simultaneously lowered the tax GDP ratio.

This fiscal rigidity resulted in a fiscal overhang over the monetary policy of the SBP. The SBP was torn between the opposing objectives of price control and growth. And it was also torn between lending for government needs and non government needs, albeit that from the mid 90s onwards the non governmental sector had not been so squeezed fro credit. His policy conclusions accordingly were to reduce the fiscal tax burden on the formal sector and to reduce the fiscal domination over monetary policy.

Mr. Sartaj Aziz the former Finance Minister set the context between these three often opposed objectives of public policy, growth, price stabilization, and exchange rate stabilization. All three objectives could not be met simultaneously and had to be juggled. In Pakistan’s case he attributed the current dynamic to an exogenous shock of remittance increases from $1 billion to $billion per year due to the 9/11 effect. The excess liquidity forced banking credit for consumption to increase, which raised demand for manufacturing and led to its growth. Since growth was import intensive this led to a deficit in the current account balance. The liquidity also fuelled inflation through speculative investment in land and the stock market. To beat this exogenous impact on prices, he recommended stronger real estate taxation.

Dr. Ashfaq Hassan Khan, Economic Advisor to the Ministry of Finance on Debt Management pointed to strong gains in this macro area. He estimated Pakistan’s total financial requirements for the current year to be $6.8 billion, while total inflows amounted to $8.5 billion. This gives a comfortable BOP surplus of $1.7 billion, which would be added to the current reserves of $13 billion. He also stressed that the total debt as a % of GDP had declined from 100% in 2000 to 61% by ’05. This had resulted from a debt restructuring with the Paris Club in 2001 which postponed non ODA for 23 years and ODA for 38 years, giving a NPV reduction of 27% or $2.7 billion. The discussion pointed to some of this debt reduction being due to the re-appraisal of the GDP, which also lowered the debt.

The macro debate was rounded off with the continuation of the fiscal question, with Dr. Zubair Khan former Commerce Minister addressing the question of inter governmental resource transfers. The question of these transfers arises because of an asymmetry between revenues and expenditures. Since the federal government earns 90% of the revenues, while the provincial governments spend 25% of the revenues, this necessitates transfers from the federal to the provincial governments under the aegis of the National Finance Commission.

The allocations through the NFC had increased substantively over time. However there were always competing criteria for the awards, for instance between revenue capacity which favours the richer provinces and improving equity which favours the poorer provinces. He illustrated the differences between the provincial and federal governments through two cases. The NWFP contested earnings by WAPDA which was under independent arbitration. And Balochistan and Sindh which contested the formula for the gas development surcharge which was paid to them as the difference between well head price and cost. The provinces contested that the well head prices used did not favour them.

Sectoral Issues

The presentations and discussion then moved from the macro context to sectoral issues. Dr. A.R. Kemal set problems in the manufacturing sector against some of the conundrums emerging from the macro policy discussion. One macro puzzle was that while growth had recently risen to 8%, investment levels as a ratio of GDP appeared to have fallen. This is partly explained by the re-evaluation upwards of the GDP. But the same issue emerges in manufacturing with very high growth rates of 12%-18%, coinciding with falling investment levels coming down to 2.9% of GDP. While part of the problem may be an accounting one, at least part was real sector issue. The declining investment levels could be due to a number of factors including high production costs, transaction costs, policy continuity risks, skills and wages, and changes in the demand structure.Manufacturing now accounts for 18% of GDP. The high growth in manufacturing has been based very interestingly on domestic demand accounting for 75%, and exports for the remaining 25%. So the reflation of the economy through increased liquidity seen at the macro level has fed through to increased aggregate demand for manufacturing.

However there are major issues of competitiveness that the sector confronts. The Domestic Resource Cost which is one measure of protection, for the entire sector is 1.2 implying a degree of protection, though not high. Within the sector however consumer goods are very highly protected with a DRC of 6.0, while capital gods and intermediate goods are not with DRCs of 0.2 to 0.8. Therefore one policy implication that emerges is that consumer goods protection could decrease while some protection could be afforded to capital and intermediate goods. Second, Total Factor Productivity growth, which measures technical change has gone down from 3.2 to 1.5. And Pakistan’s reliance on food and textiles continues to be very high with 40% of the Value.

Added in the sector

It is this high dependence on cotton and textiles which Dr. Rashid Amjad from the ILO calls cottonomics that becomes the priority challenge to be confonted. Dr. Rashid emphasized that this was the juncture in Pakistan’s economic trajectory for it to learn to leap frog technologically from a labour intensive economy, skipping the intermediate stages of resource based and scale based activities to a knowledge based economy. A knowledge based economy being one that bases its growth not on increasing capital or land or labour inputs, but on knowledge. While the MTDF for ‘05-‘10 declares its objective to be the development of a competitive, technology driven knowledge economy, the leap required is considerable.

At present Pakistan’s exports of technologically intensive products is very low, much below India, Malaysia or Thailand. Further our enrollement in higher education to feed this technology driven economy is also commensurately low at 4%, although planned to increase to 8% by ’10. As a result Pakistan produces barely 8000 ICT professionals per year, and another 5000 graduates in ICT. Compared to thisIndia produced 1 million ICT professionals per year.The solution then lies in both increasing the supply of technology professionals, but it also implies improving conditions in the labour market. Two factors which militate against investment in HRD while on the job are the high levels of contract labour whith no affinity to the enterprise and labour mobility and security. If labout has sronger links to the enterpise through greater security, investment in their HRD will also pay off for the firm.

Local and Insitutional Development

The presentations and discussion then moved very logically from the meso sectoral level to the local level. Mr. Shahid Kardar, former Finance Minister for the Panjab made a strong plea for financial devolution from the federal and provincial levels to the local. His argument was that the current high degree of centralization had failed to anywhere near an adequate level of social services. Further while the more important services like education, health and water supply had devolved to the local level, higher levels of government imposed constraints on their financial expenditures. For instance waters supply schemes had been transferred to the LGs in Balochistan, but the budget was kep by the provincial government.

As a result LGs were constrained by three factors: their own taxes were extremely limited at 0.1% of GDP, with Pakistan much below most other comparable countries. Two, their tax base was very narrow and inelastic. Three, LGs had no incentive to increase their revenues, because this increase had t be surrendered to provincial governments.

His major policy recommendations were that agricultural income tax be transferred to the district government and property tax to the TMAs. There should be increased resources for LGs. There should be award incentives for DGs performing well. And that LGs should be protected from the imprudence of DGs.
Mr. Javiad Hsan Ali, former Secretary Establihement Division talked about a the institutional structures of the civil service. He essentially traced four periods in this service, pre 71, ’72-77, 78-99, and 2000 onwards. In the first time period the service worked well. In the second period the paradigm was vitiated. In the third period the anarchy continued by default. And in the fourth period anarachy continued by accident. The typology was meant to illustrate the growing disincentives in the paradigm for efficeincy.

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posted by S A J Shirazi @ 5/03/2006 06:15:00 PM,

Management of Pakistan Economy

Read full stories about Lahore School of Economics Second Annual Conference on the Management of the Pakistan Economy at: Dawn Nation The Daily Times The Daily Times The Daily Times The Daily Times The Daily Times and other national newspapers of May 3 and 4, 2006.

posted by S A J Shirazi @ 5/03/2006 08:52:00 AM,

Key Challenges in Economic Management of Pakistan

Text of inaugural address by Tawfiq A. Husain, Deputy Governor State Bank of Pakistan at the Second Annual Conference on Management of Pakistan Economy at Lahore School of Economics. Pakistan’s economy continues to remain on a high growth trajectory during the current fiscal year, though the real GDP growth rate for the year seems likely to be lower than the 7 percent target.
The expectation of the slowdown, relative to the FV06 annual target owes principally to the (estimated) weakness in the commodity producing sectors of the economy, the impact of which will be partially offset by an anticipated above target performance of the services sector.
Here it is important to note that the forecast deceleration in economic activity during FY06 does not indicate a weakening of future momentum of the trend growth of the economy. With the substantial investments in the currents (and preceding) year, strong domestic demand, buoyant exports and a relative improvement in FDI (even after excluding privatization receipts), the economy is poised to deliver growth rates in excess of 6 percent through the decade, provided that progress is made towards removing infrastructural bottlenecks, implementing second generation reforms to improve institutions and governance, as well as to further liberalize the economy. Moreover in the short run it would be necessary to address emerging macroeconomics imbalances while these are still small and manageable.
Some of the key macroeconomic imbalances include rise in the current account deficit, widening saving investment gap and a weakening in fiscal indicators (even after adjusting for exceptional earthquake related spending). Also, while inflationary pressures show a very welcome decline, there is a need to ensure that the downtrend persists in future until inflation rate comes down significantly.
While inflation has declined from double digit near term highs in FY05 and is expected to fall to the 8 percent levels by end FY06, it must be recognized that reducing it further is necessary for a host of reasons. These include the need to encourage a rise in savings (by keeping real returns of savings positive), maintaining the purchasing power of incomes, making exports more competitive (by holding down the cost of production) etc.
It is also important to realize that while the tight monetary posture of the state Bank of Pakistan, (supported by the government’s administrative measures) has contributed to a reduction in inflationary pressures, aggregate demand remains strong. During July-Feb FY06, private sector credit growth was a very substantial 18.1 percent –although weaker than the 25.3 percent rise seen in the comparable period of FY05, and while growth in large scale manufacturing also decelerated, this appears to owe more to factors other than a weakness in demand (e.g. capacity constraints, high base effects, technical problems, etc). In this background, a reduction in the rate of inflation and establishment of a clear downtrend will be important priorities for the State Bank, and therefore, there is a clear need to continue with monetary tightening.
However, the monetary policy will need to be supported by fiscal prudence. While fiscal discipline had been good in recent years, there appears to be trend deterioration in fiscal indicators during FY05 and FY06. The revenue balance is in deficit in both years, and even the primary balance deteriorated significantly in FY06. Going forward, not only does the government need to maintain low fiscal deficits, these should primarily be caused by developmental rather than current expenditure. While development spending generates economic activity to pay off the debt, current spending only adds to the debt burden. The risk of a further deterioration in fiscal performance also needs to be guarded against. Some key risks include: 1) heavy dependence on import- related taxes, accounting for nearly half of the share in collections (receipts could therefore slowdown if, as expected, import growth falls back to historical norms); and 2) dependence on potentially volatile non tax revenues.
Thus, there is clear need for further tax effort to raise the tax-GDP ratio substantially over the next few years. In this context, the reported plan of the CBR to seek a one percentage point increase in the tax-GDP ratio in the next five years needs to be vigorously implemented. Particular attention needs to be given to the broad basing of the tax net and improving collections from under-taxed areas of the economy such as agriculture, the services sectors, and stock market.
Moreover, the mode of financing the fiscal deficit is also important. Borrowings from domestic sources other than SBP simply result in a shift of demand from the private sector to the government, but borrowings from SBP are more inflationary as they add to aggregate demand, and therefore financing of the deficit should be through a healthy mix of bank and non-bank borrowings. It should be recalled that the large Rs. 178.2 billion increase in budgetary borrowings from SBP during July-Feb FY06 was an important driver of monetary expansion in the period. A part of the government’s greater reliance on SBP borrowings was driven by weak non-bank receipts, but another contribution was also due to the non- issuance of long term government bonds; almost half of the Rs. 31.0 billion net retirement of government borrowings from scheduled banks was due to maturities of these instruments. It is important that the government make fresh PIB issues to lower dependence on SBP borrowings and to provide a market driven benchmark, which is needed for the development of the corporate bond market. While low inflation would help providing impetus to growth in years ahead, a disappointing level of national savings and low investment need attention. Specifically, during FY03 and FY04, imports were financed through current account flows. Unfortunately, thereafter imports continued to grow; the growth in non-debt creating forex inflows was no longer keeping pace with the growing needs of the economy. This is reflected in the widening current account deficit, and resulting in a raising savings-investment gap. This means, that in years ahead, the country will be increasingly constrained in its ability to meet the growing consumption and investment needs without generating inflationary pressures and an accelerated growth in the country’s debt stock, unless there are substantial policy revision and sustained reforms to meet the challenge of increasing both investment (to increase productive capacity) and savings (to fund Pakistan’s investment needs).
One of the current economic issues facing Pakistan today is the sharp deterioration in the current account from a surplus of 1.9% of GDP in FY04 to a deficit of 1.4 percent of GDP in GY05 that has been, fortunately, financed by the high capital flows. The persistently higher oil price in the international markets is one of the key reasons for the increase in country’s import bills.
Interestingly, imports excluding oil are also showing significant rise during recent years. Despite the easy availability of capital flows, it would be desirable to focus on current account sustainability. In this context, the recent increase in the current account deficit, though seems sustainable in the short run, as it reflects the increase in domestic economic activity (which would lead to a higher export growth in future) and also because it is financed by the low-cost external sources. But, in the long run, export growth must keep pace with the surge in imports. Unfortunately, the growth in imports, and therefore the current account deficit, cannot be easily contained. Data suggest that much of the growth in imports comprises of either capital goods or input for industries. Curtailing these directly would therefore result in significant fall in economic activities.
Moreover, some further growth in imports is inevitable for a developing economy such as Pakistan, particularly as it seeks to address infrastructural shortcomings. The large current account deficit can be sustained in FY06, but hard choices will have to be made in future years, it continues to persist. The policy options available will revolve around reducing the need for imports by containing the growth in aggregate demand, promoting exports, and attracting non-debt creating flows (e.g. FDI). Less desirable options would be to und the current account deficits through a mix of privatization receipts and higher debt levels or a significant drawdown of the country’s foreign exchange reserves.
Macroeconomic stability and strong economic growth during the last few years has enabled the country to show some progress in social sector development as well. In particular, the rising trend of the rate of unemployment since FY93 has been reversed during FY02-04, despite a faster growth in the labor force.
Similarly the relative improvement in the fiscal position, through sustained efforts in recent years, has allowed the government to substantially increase spending in health, education and other social sector areas. As a result the positive trends in most of the social indicators have gathered pace during the last few years. However, the social indicators still do not show a satisfactory picture. It is, therefore, important to speed up the progress on human development in Pakistan, and the acceleration has to continue consistently to catch up with the backlog and meet the needs of new entrants. In this regard, the sustainability of macroeconomic stability and maintaining the current growth momentum remain essential. Moreover, the government should significantly augment development spending, increase efficiency of expenditures, and foster better partnerships with the private sector to improve delivery of services. The government’s efforts could be complemented by the increased access to financial services of the populace (especially to the until recently neglected SME and microfinance sectors).
Now let me offer some comments on the future outlook of Pakistan’s economy: Current SBP forecasts indicate that real GDP growth will be in the range of 6.3-6.8 percent during FY06. Headline inflation (in terms of CPI) is projected to be in the 7.7-8.3 percent range during FY06. While the deceleration is certainly welcome, the downtrend in inflation needs to be firmly established to maintain macroeconomic stability. SBP will therefore continue to retain a tight monetary stance. However, it is important to note that monetary policy alone will not be able to contain all of the rise in inflationary pressures. In particular, there is an urgent need for the government to supplement its very laudable supply side measures with policies to address market structure problems. Specifically anecdotal evidence clearly suggest that in recent years, speculative hoarding and collusive price setting have been significant contributors to domestic inflationary pressures in markets for many key commodities. Such pressures respond more to legal and administrative measures, and are less sensitive to monetary tightening.
In contrast to the welcome decline in inflation, the external balance has deteriorated significantly in FY06. Although remittances are expected to show reasonable growth and exports are likely to remain strong, the current account deficit is expected to increase to 4.7 percent of GDP by end FY06. While this is not low it is quite sustainable in the short run. In the longer run, however, large current account deficits cannot be sustained, as these would initiate a vicious circle of debt creation, exchange rate deprecation and inflation.
Let me conclude by saying that given the fast growing trends of aggressive globalization and increasing regional competition. Pakistan, need to continue with sound macroeconomic policies, which are the lynchpin of restoring both domestic and foreign investor confidence. Macroeconomics management today is complicated by Pakistan’s need to continue growing which does require it to stretch its resource base, and the country will have to carefully gauge its priorities in seeking to meet these challenges.

posted by S A J Shirazi @ 5/02/2006 10:59:00 AM,

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