Deputy Chairman, Planning Commission, Dr Nadeem ul Haque emphasised the importance of understanding implications of global financial crisis for sustained economic growth. Chairing the lecture on the third day of the annual conference of the Pakistan Society of Development Economists he said in Pakistan’s context the underdeveloped financial system has made it immune to the international financial crises but at the same time it is not conducive for its long term economic growth.
The conference also honoured eminent economist Dr Parvez Hasan. He said Pakistan could not grow until saving culture was introduced instead of foreign aid and loans. He said development of infrastructure was necessary for rapid economic growth along with increasing the local investment in the export oriented sectors. However, he stressed that improvement in governance was required to achieve these aims, as without good governance economic progress was not possible. He said the world is passing through turmoil due to financial crisis but international trade will not collapse, it will grow. The government should focus on enhancing export oriented sectors as the share of other major developing countries in international trade have grown four times during the last few decades. He said upto 80 per cent of new labour force will come from South Asian and Sub-Sahara African countries. Factors of productivity have remained low and new areas of trade should be focused to provide employment to the entry of new labour force. He said Pakistan was witnessing fifth year of double digit inflation and it was due to the high borrowing of government. He warned that if faith in currency vanishes then it was difficult to revive. He said there was no need to be emotional about exchange rate and let the market make correction.
Earlier, delivering the distinguished lecture, Professor Atif Mian of University of California said great recession in US, has to offer important lessons. This recession was triggered by massive accumulation of debt on US household balance sheet. US households borrowed more and more for every dollar of income, which increased dramatically from 2000-2001. He pointed out that this was not accompanied with high growth. Professor Mian argued that when credit comes into an economy it results in two different affects. On the one hand, when it comes into geographical regions where more houses are built housing prices do not increase a lot while on the other hand, in areas where more houses cannot be built, it shows up in increasing housing prices. When housing prices increase, the households borrow more against value of their houses, which creates bubble. And one important consequence of which is that the first people to default are the ones who were last to borrow because they had little income. Consequently, the net worth of US households started to decline. Macro impact of this situation is that aggregate demand decreases and employment to population ratio declines, which has social and political consequences. Professor Mian, chalking out lessons that can be learnt from the financial crisis, said the first lesson that we can learn from this is that debt matters should be given priority in theory formulation. When you have debt it translates into huge distributional shock as well, but nothing happens to that lending class. The way around this problem is to reverse the distributional shock, which is difficult due to political reasons. Therefore, financial contracts should be reformed ex ante, he concluded. A panel discussion on a very important theme of entrepreneurship was also held on the third day of the conference. The discussion was chaired by Dr Rashid Amjad, Vice Chancellor, PIDE. The panelists included Azam Chaudhary, Dean, Lahore School of Economics, Lahore; Zafar Mueen Nasir, Dean, Business Studies and Chief of Research, PIDE, Islamabad; Thomas Morris, Chief Economist, USAID, Islamabad; Shoaib Z. Malik, Director, Kausar Group of Companies, and Omer Saeed, Chief Executive, Service Industries Limited, Lahore. The panelists tipped entrepreneurship as key to private sector development and economic growth in Pakistan. They addressed issues such as factors hindering entrepreneurship in Pakistan and how it can be promoted. They said entrepreneurial skills do not fully transfer to the next generations. Further, they said entrepreneurship curriculum taught at educational institutions in Pakistan is not up to par and it should be revised according to the needs of the domestic economy.
