Academic journal article The Lahore Journal of Economics

Editors' Introduction

Academic journal article The Lahore Journal of Economics

Editors' Introduction

Article excerpt

Over the last few years, the Pakistani economy has faced a variety of challenges which has led economic managers to focus more on immediate problems at the expense of long term structural issues. The purpose of the Lahore School's Tenth Annual Conference on the Management of the Pakistan Economy was to help policy makers take a step back and look at some of the critical issues that Pakistan needs to face if it is to achieve growth in the medium to long term. Thus the central theme of the conference was 'Pakistan in the Global Economy - Opportunities and Challenges' and a range of key structural issues was discussed by a variety of experts. What made the conference unique was that many of these issues have not been discussed and debated thoroughly before in the Pakistani context. Some of the highlights of the conference were Asma Khalid's (from the State Bank of Pakistan) extremely insightful analysis of the parallel foreign exchange market in Pakistan (which has not been analyzed in depth before) as well as the call by many of the presenters for a well-formulated industrial policy in Pakistan. Similarly, the conference also focused on some key export sectors (such as garments) as well as strategies for improving Pakistan's export competitiveness and diversifying exports. Finally, some of the participants noted that in a rush to access new markets, Pakistan must tread carefully when agreeing to trade agreements with potentially large trading partners. As Pakistani policy makers sit and decide on economic strategies, it is absolutely critical that they pay very close attention to these issues.

The conference was divided into seven sessions, each with a distinct theme:

The first session of the conference looked at the foreign exchange market. Asma Khalid of the State Bank of Pakistan presented a comprehensive analysis of the parallel foreign exchange (FX) market in Pakistan. The paper focused on the importance of workers' remittances to the country and explained how the bulk of this inflow is transacted through the hundi/hawala network of informal moneychangers. The paper went on to place this network within the context of the larger FX market and showed how it interfaces with the interbank market. Finally the paper discussed how many hundi\hawala agents have evolved into formal exchange companies spelled out the importance and resilience of the parallel FX market emphasizing the need to push toward full amalgamation of this market with the formal FX market, and the key role of workers' remittances in Pakistan's macro-economy. This was followed by a paper by Rizvi, Naqvi, and Mirza who analyzed the exchange rate policies and exchange rate behavior of the Pakistani Rupee from 1961 to 2013, pointing out the divergence between stated exchange rate policy and behavior of the monetary authorities in practice. The authors find evidence of significant intervention up until 2007, which was followed by a period of 'benign neglect' since market forces led to a dramatic depreciation of the exchange rate and deterioration of economic conditions. Based on this history, the authors suggested that Pakistan return to a peg, or more realistically, a more managed float. Finally Rahim examined the issues that arise out of the depreciation of the Pakistani Rupee which include heightened expectations of future depreciation, capital flight, falls in the U.S. dollar-deflated wage, higher inflation, higher cost of foreign debt and interest rates, increases in the replacement cost of capital (complicating amortization), and lowering of the real value of savings. He emphasized the role of the exchange rate depreciations on the prices of tradable and nontradable goods and concluded that depreciations, by keeping down real wages, keep economies like Pakistan competitive in existing industries, but do not stimulate innovation.

The second session looked at the issue of Pakistan's competitiveness. The session began with a paper by Haque which examined the reasons for the poor growth of Pakistan's exports despite the extensive liberalization of the economy and its relative openness. …

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