Pakistan Journal of Applied Economics

17-36

Authors: Tony Killick

All economies continuously need to adapt to changing circumstances and opportunities, and countries which have adapted along lines promoted by the Bretton Woods institutions (BWls) have achieved strongly improved economic performance. However, the results achieved by structural adjustment programmes (SAPs) in developing countries is patchy, at best, The paper seeks to explain this paradox, emphasizing the adverse effects of the BWIs' narrow perception of the development-adjustment relationship, and of their over reliance on a conditionality of limited revealed effectiveness. The BWIs need to re-think how they can best contribute to adaptation in developing economies.

57-76

Authors: Mark McGillivray & Howard White & Afzal Ahmad*

This paper looks at the impact of structural adjustment on the macroeconomic performance of Pakistan. After a brief description of the broad characteristics of the various policies implemented under Pakistan's 19805 adjustment programme, it provides a methodological review of pre-existing studies of the effects of adjustment on macroeconomic performance in Pakistan. A number of methodological shortcomings of the methods used are identified, including the problem of controlling for non-adjustment factors. An alternative analysis is then proposed, which involves simulating an error correction model using time series data for inflation and investment. Model simulations based on a number of alternative scenarios suggest that adjustment has had a negligible indirect effect, if any, on investment. Inflation would on average have been higher in the absence of adjustment, though this difference has diminished in recent years.

95-112

Authors: Oliver MORRISSEY*

Trade policy reform, in the form of liberalisation or removal of restrictions on trade, has been a predominant feature of World Bank: Structural Adjustment Programmes (SAPs) undertaken, to various degrees, by some 60 developing countries since 1980. The early Iiterature of SAPs concentrated on the types of economic reforms required, and more recent literature addresses the political and institutional dimensions of economic policy reform. This paper addresses the latter issues and presents a framework for analysing the role of institutional change, encompassing the building of both political consensus and administrative capacity, in implementing trade policy reform, and how this relates to domestic political considerations. Pakistan's current trade liberalisation proposals are discussed to illustrate how the framework can be applied. A number of general conclusions are drawn regarding the design of trade liberalisation programmes so as to accommodate political considerations and enhance institutional capacity.

129-154

Authors: Hafiz A. PASHA*

Pakistan's tax system is characterized by a number of structural problems. First, the overall level of fiscal effort is low and the tax-to-GDP ration has remained, more or less, stagnant at between 12 to 13 per cent. This is one major explanation why budget deficits .have been high, generally in excess of six per cent of the GDP. Second, there is over dependence on indirect taxes, which until recently accounted for a share in revenues of over 80 per cent. This has increased the regressivity of the tax system and imposed a higher excess burden of taxation. Third, within indirect taxes there is domination of taxes on international trade, which has promoted inefficiency, distorted the allocation of resources and encouraged illicit trade. Fourth, the effective tax bases of most taxes is narrow due to wide ranging exemptions and concessions and rampant tax evasion. For example, there is less than one income tax assessee per 100 persons and less ~an 60 per cent of imports actually pay duty. Consequently, tax rates have had to be pitched at high levels which has created a vicious circle of more tax base erosion and higher tax rates. Fifth, tax administration is characterized by primitive and out moded procedures, complex laws and considerable arbitrariness and discretion. The common perception is one of high levels corruption and inefficiency. Despite these problems which have been manifest for a long time Pakistan has been slow to embark on the path of tax reforms. In the 80s, higher fiscal effort was substituted for by large bank and non-bank borrowings. However, the extremely rapid growth in debt servicing clearly indicated that the task of resource mobilization from taxes could not be postponed indefinitely. The commencement of the decade of the 90s coincided with the induction of a newly elected (IJI) government

167-186

Authors: Rainer Tetzlaff*

In the past - until the epochal year of 1989 - the thinking of many African governments has been dominated by the dichotomy between capitalist and socialist development models. Thank God, this era with all its errors is over - a long time which cost the developing world expensive detours and dangerous illusions. Foreign aid helped the African governments to finance expensive development plans which were based more on wishful thinking than on realistic expectations. With the end of the cold war a new healthy realism in international politics came up, including a more pragmatic attitude by the donor community towards the necessary reforms in highly indebted countries. Although this new "unfriendly" policy of a greater realism came as a shock to some governments, in my view it had the advantage of forcing the governments and the peoples in Africa and elsewhere in the Third World to think about new ways to overcome their present economy as well as political crisis and to reduce their heavy dependence on foreign donors. The democratization of nearly all societies in Africa since 1985 (the coup d'etat against President Numeiri in Sudan) can be seen as a direct reflection of this new situation after the end of the cold war.