Vaqar Ahmed

Public Infrastructure and economic growth in Pakistan: a dynamic CGE-microsimulation analysis

The role of infrastructure in economic growth and welfare has been studied extensively across the literature over the past three decades. We use a dynamic CGE model linked to a microsimulation model to estimate the macro-micro impact of public infrastructure investment. Two approaches to public investment are considered in our simulations. In the first, production taxes finance the additional public infrastructure investment and in the second, foreign borrowing provides resources. Our results reveal that public infrastructure investments have the same direction of impact whether funded by taxation or international borrowing, particularly when looking at macroeconomic gains and poverty reduction in the long run. However, in the very short run, tax financing puts a strain on output in the industrial sector and thus reduces economic growth in the short run. The financing from international borrowing has a Dutch disease-like impact in the short run, as indicated by a decline in exports.

Informal Flow of Merchandise from India: The Case of Pakistan

This chapter aims to update past estimates on informal trade between India and Pakistan. This survey-based study captures the informal merchandise flow from India through the various routes identified by Pakistani traders. The quantitative estimates provided by the wholesaler and retailer community were validated through clearing agents and customs officials. We found that the key sectors in which informal flow from India takes place are fruits and vegetables, textiles, automobile parts, jewelry, cosmetics, medicine, tobacco, herbal products, spices and herbs, paper and paper products, and crockery. The major routes from where these goods are channeled into Pakistan are Dubai, Kabul, Kandahar, Chaman, and Bandar Abbas. The minor routes include several places in the adjoining border region. Our estimates show that the value of this informal flow from India to Pakistan is US

Taxation Reforms: A CGE-Microsimulation Analysis for Pakistan

1.79 billion annually. While such flows have narrowed the demand-supply gap in various product categories and created livelihoods for several in the poor regions, we also observe that this expansion in informal trade is hurting the manufacturing community. Pakistani producers end up competing with items on which duty has not been paid and, thus, are cheaper in the local market. There is also a loss of revenue to the government, as these goods are not subjected to the usual customs procedures. In the case of food, herbs, and pharmaceutical items, the merchandise is not checked for health and safety standards, which poses risks to human health. We argue that given the large volumes of informal trade, it is in the interests of the government to move fast and adopt measures that lead to the formalization of trade. The overall process of India-Pakistan trade normalization can certainly help this endeavor.

Decomposing Change in Energy Consumption of the Agricultural Sector in Pakistan

This paper provides an ex ante assessment of taxation reforms being considered in Pakistan, in order to widen the tax base and rationalise the rate structure of different taxes. Amongst the main proposals, those focusing on sales tax and agricultural direct taxes seem relatively more attractive. The former has the highest share in indirect taxes and is also easier to collect, while the latter is intended to bring the presently exempted agricultural incomes into the tax net. As a first step, we study the general equilibrium effects of existing taxes by removing them from the system one at a time. In the second step we study the micro-macro impacts of four policy experiments: a) increasing sales tax rate by 33 percent; b) applying a 10 percent sales tax on presently zero-rated goods; c) increasing sales tax rate by 33 percent and bringing the services sectors in the sales tax net; and d) increasing sales tax rate by 33 percent, bringing the services sectors in the sales tax net, and imposing a 5 percent flat tax on agricultural incomes. In the third step we calculate the lost revenue due to evasion and avoidance. Results from experiments indicate the tough choices for policy makers in trying to improve the currently low tax to GDP ratio in Pakistan. Almost all simulations result in a decrease in investment levels, reduced consumption, and an increase in poverty. We thus recommend a gradual approach to tax reform that can make the adjustment process less painful.

Strengthening South Asia Value Chain

The agricultural sector provides the majority of employment in Pakistan, especially among the poorest segments of the population. Energy provision affects production and livelihoods, especially with the advance of mechanization in agriculture. Changes in gas and electricity prices affect the income of farmers significantly, thereby reducing the agricultural growth rate over time. Agriculture also has a positive impact on industrial sector exports. The dependence of agriculture on electricity consumption in Pakistan has increased over time, while power generation has not kept up with demand. This article decomposes energy consumption in Pakistan and analyzes the behaviour of change in agricultural production, energy intensity and structural changes over the time.

FDI in India: Prospects for Pakistan

This article discusses some key constraints in the way of developing South Asian value chains. Using a qualitative approach we have surveyed private sector representatives from Bangladesh, India, Pakistan and Sri Lanka. The article, among other challenges, particularly notes, (a) lack of functional economic corridors in the region; (b) conflict zones brewing mistrust between neighbours; (c) slow progress on trade facilitation and free trade agreements in the region; (d) and non-tariff barriers that prevent skills and technology transfer in the region, as some of the most important issues requiring policy response. In order to strengthen the region-wide value chains, the article recommends priority implementation of pending agreements related to transport, energy, connectivity and dispute resolution. Second, in order to bring down the cost of doing business, trade facilitation measures across the region may be expedited. Third, government-to-government contact needs to be enhanced and institution-specific connectivity is important to resolve issues such as compliance with product standards, visas for business community and technical staff, harmonization of licenses and permits (for example, at the state level in India), and opening up of bank branches.

Remittances and Household Welfare: A Case Study of Pakistan

As India has liberalized its FDI regime for investment from Pakistan, new opportunities have opened up for investment between the two countries. This chapter aims to highlight Pakistan-specific investment opportunities in India. A sectoral approach is employed in this chapter whereby consultations are held with the business community in Pakistan already engaged in outward investments in sectors such as leather, sports, surgical, engineering, auto, education, textiles, and steel about their willingness to invest in India.