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Pakistan does not currently mobilize sufficient tax revenue to finance essential public services, including healthcare and education, on which the poor rely the most. Consequently, these services remain inadequate, hampering efforts to reduce poverty and address extreme inequalities., Furthermore, the current tax system in Pakistan is seen by many as unfair and inequitable. Two-thirds of tax revenue is mobilized through indirect taxes, which are regressive in nature and unfairly burden those least able to pay them., Against this backdrop, this paper explains the four basic elements necessary for a fair and just tax regime, which, if implemented, would strengthen the domestic revenue base, increase equity and improve overall development outcomes, as the public sector will have more resources at its disposal to spend on human and social well-being.

Supplemental material for Gender Analysis of Education Budgets in Pakistan: Case Studies of Punjab and Sindh by Rabia Manzoor, Rabia Tabassum, Vaqar Ahmed, Abdul Rauf, and Junaid Zahi in Journal of Education

The auto sector in Pakistan has been a persistent opponent of trade liberalisation in the country. This has entailed losses to consumers in terms of higher prices, low safety and quality standards, and lack of innovation in this sector. The deletion programme, which was to result in indigenization of final output, has also failed to deliver expected results. The market structure of this sector, particularly in the case of cars, is narrow with only three Japanese companies monopolising the market. Even when import of older vehicles was allowed in Pakistan, it was used Japanese vehicles that were imported the most. This has prevented competition in this sector, and many respondents in our market survey have revealed that if cheaper auto sector inputs and raw material are allowed and imports are facilitated from China and India, new entrants (both domestic and foreign) may enter production. Pakistan also has a comparative advantage in several auto sector components/classifications. However, these do not find their way, for example, to India due to what the industry describes as non-tariff barriers, state-specific levies and unconventional environmental standards required by Indian authorities. This paper proposes a way forward whereby the commerce ministries of India and Pakistan can address the concerns of Pakistan's auto sector and create a win-win milieu. However, this alone will not be enough. We explain in this paper that several institutions in Pakistan such as the National Tariff Commission, Ministry of Industries, Engineering Development Board, Federal Board of Revenue, and PSQCA will also have to play their role in challenging domestic manufacturers and opening up the auto sector for competition, which will help consumers in Pakistan and lead to job creation.

This paper attempts to evaluate the possible gains and losses arising from the gradual opening up of pharmaceutical trade between India and Pakistan. We explain the comparative advantages of both countries at a disaggregated level, followed by a qualitative analysis of various perceptions and experiences of Pakistan's pharmaceutical manufacturers with respect to trade with India. We find that a gradual opening up of pharmaceutical trade with India may allow Pakistan to enhance the quality of locally produced medicines through raw material, intermediate inputs, knowledge, and skills transfer from India. Pakistan, in the medium to long run, may also be able to diversify its pharmaceutical export base, reduce cost of production and achieve higher competitiveness through the development of value chain linkages with India. Such linkages are important to cater to the projected rise in demand for pharmaceuticals in Pakistan, Afghanistan and abroad.

This paper examines the relationship between foreign assistance and economic growth for the period 1972 to 2010. Past literature indicates that due to low domestic resource mobilization Pakistan had to resort to various forms of foreign assistance on a regular basis. Using time series data since 1972 and employing Johansen maximum likelihood procedure we show that foreign assistance in the absence of macroeconomic stabilization and structural reforms has a negative relationship with real per capita GDP. However national savings as percentage of GDP show a positive relationship with real per capita GDP. Pakistan has a long history of dependence on multilateral and bilateral development partners. Over the decades the share of grants as percentage of total foreign assistance has declined forcing the country to procure loans at harsh conditionalties. Given the positive impact of national savings on economic growth there is an urgent need for improving the tax base, promoting instruments that encourage savings culture in the private sector and attracting remittances from abroad. These increased savings would then have to be channelized towards productive investments which in turn require pro market reforms.

Today South Asia is host to a large youth bulge which is entering the labor market every year posing challenging questions for the national governments in the context of employable skills, space for entrepreneurship, innovation and economic freedom. SME sector provides an opportunity for the young to exercise their ideas and ideals. However a prerequisite for the young to be innovate is the how countries produce and retain a high end human capital. This study provides a review of national socio-economic policies in South Asian region - which answer such challenges.

Pakistan is a developing country bracing for significant economic growth and development in the future. In this regards, the country is poised to shift towards an increased reliance upon its indigenous coal reserves to fuel its development in the 2010-2050 time frame. Although this will significantly raise its projected greenhouse gas emissions, the present study has identified numerous measures which can be taken to shift this future development pathway on to a lower carbon and more climate friendly trajectory. The country, however, requires this shift to be supported through the access and transfer of appropriate technologies and finance. The ensuing “additional” financial needs for mitigation for a cleaner development future range from between U$ 8 billion and U$ 17 billion. These have been identified in this report along with a potential of 18% and 40% reduction of emissions between below “Business As Usual” scenario which is possible with a shift towards cleaner technologies. These clean development investments, however, need to be made in the near future as otherwise the energy future of Pakistan will get locked into the lower cost - higher carbon options. This mitigation costing estimate will, however, need to be refined and focused further as Pakistan identifies not only the specific technologies that it needs for this low carbon shift (through carrying out the “Technology Needs Assessment”) but also the programmatic, sectoral as well as project specific NAMAs (Nationally Appropriate Mitigation Actions) in the near future. Pakistan is also highly vulnerable to the impacts of climate change and faces immense associated challenges in coping with its unavoidable effects and economic implications. This study has highlighted the need to treat adaptation to climate change as a primary development issue for Pakistan. The potential impacts and sectors demanding prioritized adaptation have been identified in this study and the, associated, costs of adaptation have been estimated utilizing three diverse modeling methodologies – using GDP projections, per-capita figures and “flood” disaster modeling. The resulting adaptation cost figures range from between U$ 6 billion to U$ 14 billion/year that Pakistan would have to spend at an average in the 2010-2050 time frame to cope with the effects of climate change while it will be also left to, unavoidably, bear significant “residual damage” costs induced due to climate change. The top-down adaptation costing analysis applied in this report is aimed at providing a reasonable first approximation that can be refined over time as relevant and reliable local data becomes available especially from research focusing on sector specific adaptation costing. Most significantly the report reinforces the fact that the issue of climate change is, thus, not only an environmental issue challenging the country but an issue which will directly impinge upon the country’s economic, financial and development future as it deals with its extreme vulnerability to climate change. The significant climate costs identified in this study inextricably shows that climate change is an issue which Pakistan can ill afford to ignore in the future. Finally the report has identified the major financing options available for climate change related activities in Pakistan as well as the significant unilateral climate resources, U$ 4.5 billion in 2007-2009 alone, that the country is already committing to climate change without getting any global recognition for its efforts. In future, global financing will need to augment and leverage such national financial commitments. Also, as climate finance becomes increasingly available at the global level, it would be essential to enact appropriate assimilative national capacity in Pakistan to direct this finance towards nationally identified priorities as well as channelize it transparently and efficiently through consolidated financial mechanisms like a National Climate Change Fund which has been proposed through this study.

Connectivity in developing countries has traditionally been viewed in terms of investment in transport and communications. This papers makes an effort to go beyond this traditional view and conceptualizes connectivity as networks between people and places. We split the overall national reforms agenda for connectivity into three prongs: a) transportation and related services, b) ICT, and c) social capital. We try to see the state of each of these three in case of Pakistan and then propose reforms keeping in view the current political economy milieu.

While Pakistan has taken several steps to promote competition in its markets, further reforms are required in improving domestic commerce, agricultural markets and industries. With increasing risks and cost of doing business due to deteriorating law and order situation as well as massive energy shortages, Pakistan needs to compensate its entrepreneurs and investors by enhancing its investment and business climate. By adopting certain administrative and legal reforms, Pakistan can considerably lessen the burden on its businessmen and help lower the costs of exogenous factors. The main reforms needed to promote competitive and vibrant markets need to be initiated at the domestic commerce level. For promoting domestic commerce, city zoning laws and building regulations should be reformed to allow land to respond to market demand. The legal framework must also be strengthened to support the complex needs of diverse markets. Moreover, there is a need to push for openness and competition to bring international quality goods to the market and promote innovation. For agricultural markets, the Agricultural Produce Markets Act 1939 must be reformed to introduce competition such that private sector involvement is encouraged. Government involvement in storage and transport facilities, especially for agricultural produce, needs to be reconsidered so space can open up for private sector involvement. For reforms in the industries, consistency in policy is required along with reduction in government involvement in certain areas. It is only through minimising the heavy government footprint from markets that the private sector can be allowed to function competitively and efficiently, emphasising the role of markets as a major driving force behind economic growth.

The Afghanistan – Pakistan Transit Trade Agreement (APTTA) was signed in 1965 with the objective of granting and guarantee to both parties the freedom of transit to and from their territories . The routes that were identified included: a) Karachi – Peshawar – Torkhum, b) Karachi – Chaman – Spin Boldak, and c) Port Qasim was included subsequently in 1998. The provision to include additional routes was also incorporated in the agreement. Even after revision of this agreement there is no comprehensive quantitative study on the costs and benefits of this agreement. The paper highlights the importance of indulging in economy-wide research in order not only to assess the impact for Afghanistan and Pakistan, but also for neighboring countries.

This paper assesses the pre and post Free Trade Agreement (FTA) pattern in bilateral trade between Pakistan and Sri Lanka. Besides the usual direction of trade analysis we also use general and partial equilibrium approaches in order to evaluate the true potential of this FTA. Our results reveal an increase in welfare and efficiency for both countries. However export basket has not changed much since pre-FTA period. This calls for creating awareness about the FTA and putting in place a consultative mechanism with trade community that can identify the manner in which both countries can accrue maximum benefit from the free movement of tradable goods. Similar suggestions follow in our perception survey carried out for this study.

Pakistan being a frontline state in the war against terrorism has also remained one of the highest recipients of foreign aid. This paper analyses foreign assistance through four main facets namely: the link between aid, security and growth with special reference to Pakistan, general equilibrium impact of foreign resource inflow on economic growth and poverty, aid effectiveness in Pakistan, and priorities for aid policy reform in the country. The empirical literature on the impact of aid on economic development in Pakistan is inconclusive due to aid being fragmented and volatile. The donors have remained poorly coordinated with a weak follow up mechanism. Pakistan for its part has seen mixed experiences in aid absorption. While a decade long nation-wide social action program could not translate into improved social and welfare indicators, there are some success stories such as: rural support networks, microfinance opportunities, cluster approach for earthquake relief and recovery. While the economic implications of prolonged reliance on aid indicate Dutch disease effects at the macroeconomic level in Pakistan, there are more concerning effects at that micro level where society has started to perceive aid as a compensation (and not assistance) for Pakistan’s involvement in wars led by developed nations. This behaviour besides corrupting the elite also promotes rent seeking where agents gaining from war have a vested interest in keep the conflict intensified. Pakistan along with its development partners has taken measures to move towards the directions indicated in Paris Declaration. The EAD is in the process of finalizing Foreign Assistance Policy Framework which is governed by principles that ensure compatibility and convergence of aid with national plans and improve quality, effectiveness and efficiency of foreign assistance. Having a national aid policy is all the more important at this stage when Pakistan is in the process of seeking assistance from the FoDP consortium and Kerry – Lugar arrangement with US. The improved mechanism should include appropriate amendments based upon the lessons learnt from past experiences. Finally as the reconstruction work takes off in the war-torn areas, there will be increased need for regular quantitative and qualitative analytical work by both government and donors. The research dissemination should then translate in to a process of effective dialogue between all stakeholders.