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Focus on socio economic problems.

Focus on Socio Economic Problems

Development economics is now widely accepted. For the academicians, it is now an individual discipline. Important contributors to discipline were Chemery (1965) and Stern (1989). Latter traces the contribution of development economics to economic knowledge. The discipline has also experienced ups and downs but now it has come of age as an industry and three fields, namely social profitability private profitability and publishing industry have taken advantage of it. The subject has attained its peak because of 40 years experience, massive production of cross-country and time series data about numerous development variables, construction of large macro-economic models, fast-running computers and application of mathematical methods.

Pakistan is an underdeveloped country in all respects and the most important reason is the underdevelopment of education, science and technology along with backwardness in research and development in most of the social and scientific fields. There are a few disciplines, where some early efforts have been made. Development economics is one of these. Pakistan Society of Development Economists is doing some useful literary work to provide some guidance to the Government and the public in the complicated field of economics. The Society tries to mix indigenous and foreign economic advice about various national socio-economic problems in its Annual Conferences. In January 1991, 7th Annual General Meeting was held. This is a brief report on it.

The meeting was inaugurated by Mr. Sartaj Aziz, Minister for Finance and Economic Affairs. In his Address he described briefly the socio-economic situation of the country at this critical juncture. Initially, he appreciated the efforts of the society to the cause of development economics and understanding of the development process in Pakistan. The meeting was being held at a crucial time, being passed anxiously due to Gulf situation and the emerging world economic recession. Within the country, the newly elected Government, despite restraints, have embarked upon a bold programme of socio-economic development.

Last year, the terminal decade of the century began with hopes but soon these were replaced by uncertainty and pessimism. Global economic trend is toward recession. Earlier, encouraging signs were witnessed due to renewed East-West cooperation, induction of democracy and free enterprise system in Eastern Europe, unification of Germany and integration of Europe but were soon overshadowed by the failure of 4 year long GATT Round of Trade Talks, apprehensions of trade conflicts, retaliatory actions and renewed protectionism. Pakistan is feeling the impact of Gulf crisis due to rise in oil prices and reduced inflow of workers' remittances. Recession in Western economies resulting in country's reduced exports and reduction in foreign aid increase economic pressure.

The high economic growth rate during 1980's was financed from domestic and foreign borrowings. The overall budget deficit as percentage of GDP increased from 5.3 per cent in 1981-82 to 8.5 per cent in 1987-88. To some extent it has been reduced but it needs to be reduced further. Domestic debt increased more than sixfold between 1980-81 and 1989-90 and the foreign debt reached $ 16 billion. Major portion of Government revenues and foreign exchange receipts is used to finance debt servicing. Major cause of the problem is failure to mobilise domestic resources and have an efficient tax system. During 1980's, total tax revenue was around 13 per cent of GDP and in 1989-90, direct taxes were 14 per cent of total taxes and less than 2 per cent of GDP.

The balance of payments is under pressure due to slower growth of exports than imports, decline in home remittances and excessive import of consumer goods and decline in the share of capital goods. As a result, investment efforts and development tempo have showed down. Inflation pressure is the other problem. Social infrastructure has lagged behind rising population and demand. Afterwards, the Finance Minister suggested a six point strategy to overcome economic crisis. This included long-term high economic and per capita income growth rate along with check on inflation, encouragement to the development of agriculture, industry and informal sector high rate of investment in material and human resources, greater emphasis on domestic resource mobilisation, decline in dependence on foreign borrowings and more equitable distribution of national income.

To achieve above objectives, the Government have initiated a bold programme of economic and social reforms, which aims at (i) the creation of a just society and the removal of regional and urban-rural disparities, (ii) to ensure food, shelter, clothing, education, health, and gainful employment to every citizen, (iii) eradication of poverty, backwardness and exploitation, and (iv) to accelerate pace of economic development to double national income in a decade. Some of the economic policies being initiated are (i) to convert the economy from inward looking to open one, (ii) to accelerate privatization, (iii) to deregulate economy and promote market mechanism, (iv) to develop physical and social infrastructure, (v) to correct fiscal and balance of payments imbalances, (vi) to promote export industries, (vii) Decentralize economic power from Centre to Provinces and local bodies, (viii) to improve quality of public services, (ix) to promote general education, scientific and technical education, (x) to improve health, supply of clean water and sanitation and control preventable diseases, and (xi) promote employment.

Presidential Address

Presidential Address was read by Prof. Syed Nawab Haider Naqvi, President of the Pakistan Society of Development Economists and the Director Pakistan Institute of Development Economics Islamabad. The 67 page long Address traced the theoretical trend of the development economics which exhibits the command of the speaker over the subject. The period covered is the last 40 years. Development economics is now widely accepted. For the academicians, it is now an individual discipline. Important contributors to discipline were Chemery (1965) and Stern (1989). Latter traces the contribution of development economics to economic knowledge. The discipline has also experienced ups and downs but now it has come of age as an industry and three fields, namely social profitability private profitability and publishing industry have taken advantage of it. The subject has attained its peak because of 40 years experience, massive production of cross-country and time series data about numerous development variables, construction of large macro-economic models, fast-running computers and application of mathematical methods.

But there are some intellectual reactionary activities against development economics. Free economy is being mentioned as more appropriate than development economics as it provides competitive efficiency and actual developments of recent months in Eastern Europe, the USSR, China-Japan and South East Asia are cited as examples. But the Speaker does not agree with this contention. He refutes the charge that development economics "constitutes in itself a major obstacle to development in backward region."

Dr. Naqvi emphasises the importance of development economics in Pakistan and India where it is taught and its better performance is visible in South Korea. He says that the economic system of Eastern Europe has broken down as development economics is neither taught nor practiced there. Development economics, at present, is not that used to be in 1950's and now it is undergoing a dynamic process of consolidation and change. The very meaning of development economics is being investigated and it has become more comprehensive. It is no longer confined to maximization of GNP alone, but maximization of mixed bag like literacy, longevity, and income. The controversy of balanced and unbalanced growth has died down and the growth of agriculture, industry and other sectors receive equal attention.

Dr. Naqvi advocates for further development of the discipline. He asks to steer clear of the supply-side economics and associated magic of the market, and to continue mixed-economy philosophy. Informational base of the discipline should be strengthened. Ethical considerations should be attached more importance and distributional aspect strengthened. It will make the discipline a progressive scientific research programme.


A large number of papers of very high standard were read in the Conference by Pakistani and foreign economists to highlight theoretical and practical aspects of development economics. Unfortunately, all of these cannot be covered here. A brief outline of only a few papers is given.

Dr. Sarfraz K. Qureshi, Joint Director, PIDE read a paper on "Some Aspects of Fiscal Federalism in Pakistan - A Preliminary Analysis in which the allocation of fiscal and administrative responsibilities between the Centre and four Provinces are analysed. In public finance, it is the most complex aspect and is influenced by many considerations such as political, constitutional, administrative and others. Most important aspect of fiscal relations between the Centre and the Provinces is the command over resources, expenditure responsibilities, and fiscal flows between different layers of Government. Generally, lower levels of Government are short of resources to meet their expenditure needs. In Pakistan, the situation is similar to above mentioned situation.

Dr. A.R. Kemal, Joint Director, PIDE read a paper on "Options For Financing the Budgetary Deficit, Money Supply, and Growth of Banking Sector." Fiscal deficit has become a serious problem in Pakistan and is now 7.4 per cent of the GDP. The impact of fiscal deficit on monetary expansion, output growth and price stability has been analysed in numerous studies. In Pakistan high growth rate has been realized along with price stability. In this paper the speaker explains that how Pakistan was able to maintain high growth rate and price stability by containing the monetary expansion despite huge fiscal deficit.

Dr. B.A. Azhar, a former Joint Economic Adviser of the Federal Ministry of Finance read a paper on "Taxation of Agricultural Income - A Holistic View'" The issue of agricultural income tax has become controversial in recent years and it has been thoroughly debated. Unfortunately, however, the debate has lost objectivity and the vested interests are using all types of arguments against one another. Scholarly analysis too shows sometimes remnants of ingrained subjectivity. Even the National Taxation Reforms Commission could not analyse the issue objectively under the cross fire of arguments and counter arguments. In this paper an attempt has been made to analyse the question objectively.

Prof. Dr. Faiz Mohammad of the International Institute of Islamic Economics, International Islamic University Islamabad read a paper on "The prospects of Poverty Eradication Through the Zakat System in Pakistan". Zakat meaning growth extension and purification is a yearly premium on all forms of accumulated productive wealth and on a variety of agricultural produce and is due to the needy of the Muslim community. It is one of the five basic tenants of Islam and in addition to an act of worship, a Muslim Society can eradicate poverty and eradication through it. Upto June 1980, it was practiced voluntarily in Pakistan and the State was not involved. The system in present form was introduced in June 1980. Zakat on non-agricultural assets started in June 1980 and Ushr on agricultural produce was commenced from Rabi 1983.

Mr. M. Framurz Kiani and Mr. H.B. Siyal of PIDE read a paper on "Dimension of Urban Growth in Pakistan." The urban population of Pakistan increased fourfold from 6 million to 23.8 million between 1951 and 1981. It is projected to increase to 55.5 million by 2000 A.D. This increasing trend may accelerate by migration from rural to urban areas, particularly major urban centres where returning overseas Pakistanis prefer to settle for better opportunities of employment.

Miss. Faiz Bilquees of PIDE read a paper on "First Women Bank - Why and For Whom?" The first Women Bank was set up in December 1989 and upto December 1990, branches were set up in Karachi, Islamabad, Lahore, Rawalpindi, Quetta and Peshawar in posh localities. In the light of the performance of the Grameen Bank of Bangladesh which served the poor women well, the Women Bank of Pakistan was anticipated to do the same. However, these promises were not fulfilled as these banks were beyond the approach of the needy women and were meant to cater for the rich elite women.

Mr. Khawja Sarmad of Institute of Social Studies, the Hague Netherlands read a paper on "Is the Private Sector More Productive than the Public Sector" In recent decades public sector has grown fast in developing countries as it is considered a precondition for overall economic growth. However, its contribution to growth has been below expectations despite its major share of total production and investment. Due to large Government subsidies for public enterprises, there is big burden on national economies. It has lead the people to believe that private sector is more productive than the public sector. Some empirical work done in this field also supports the contention.

Mr. Istaqbal Mehdi, General Manager, Expert Advisory Cell of Federal Ministry of Production read a paper on "Privatization and Performance Improvement Efforts of Public Sector Enterprises in Pakistan." Large claims of public enterprises on government budges in developing countries including Pakistan have been a matter of great anxiety. There have been two reasons, namely increase in public enterprises and less operational efficiency and increasing losses. Till recently, more emphasis was laid on increasing enterprises than improving their efficiency. Now, more attention is being paid to latter. One of the instruments used in this connection has been privatization.

Messrs Nasir M. Khilji and Earnest Zampelli of the Catholic University of America read a paper on "The Effect of US Assistance on Public and Private Expenditures in Pakistan." The Gulf crisis and stoppage of US assistance to Pakistan for 1990 are likely to have deep economic and political consequences for the country. Due to former, there has been a loss of remittances, higher prices of imported oil, and the return of thousands of workers from the Gulf states. As a result, balance of payments and unemployment problems are likely to emerge immediately and the long-term economic growth is to suffer. In case, Gulf crisis is resolved soon long-term impact is likely to be limited. However, the termination of US assistance to Pakistan appears to be real and not a temporary phase. This is due to the reason that the end of cold war has reduced Pakistan's geo-political importance to the USA and the flow of aid has been diverted to Eastern Europe. The pressure on US budget has added to this trend and in future Pakistan will receive reduced aid and on harder terms than before.

Messrs. Muhammad Anwar and H.J. Jamil B. Osman of the International Islamic University Malaysia and Rosli Bin Yaaqop of Central Bank of Malaysia read a paper on "The Role of Islamic Financial Institutions in the Socio-economic Development in Malaysia". It is admitted that financial institutions contribute towards socio-economic development through effective mobilization of saving and intermediation between savers and investors. Malaysia has a well developed financial system and conventional and Islamic institutions exist side by side. The performance of Islamic institutions is impressive although their share in total transactions is small. According to the authors of this paper, Islamic financial institutions have the potential to play a leading role in serving the Muslim Ummah and contribution towards socio-economic development in Malaysia.

PHOTO : Prof. Syed Nawab Haider Naqvi

PHOTO : Sartaj Aziz - Finance Minister
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Author:Khan, Abdul Majid
Publication:Economic Review
Date:Mar 1, 1991
Previous Article:Food and agriculture in Pakistan - analysis of socio-economic issues.
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