Catastrophic Health Expenditure and Poverty in Pakistan

The current study has estimated the incidences, intensity and impacts of catastrophic health expenditures for Pakistan. For the analysis, two thresholds are used to define catastrophic health payments (1) if health expenditures are 10 percent or above of household consumption, and (2) if they are 40 percent or above of household non-food consumption expenditures. The Pakistan Panel Household Survey (PPHS) 2010/11 is used for the analysis. The findings reveal that a significant proportion of the population in Pakistan has been facing catastrophic health payment issues. The presence of children, the elderly and sick/disabled persons in the home raises the risks of catastrophic health payments. The availability of improved drinking water sources and toilet facilities reduces the risk of catastrophic health payments. Households with female heads incur more catastrophic payments as compared to households headed by males. Across the provinces, Khyber Pakhtunkhwa and Balochistan have faced a higher incidence of catastrophic payments. Catastrophic health payments have an impoverishing impact on headcount poverty, measured under various methods of propensity score matching. JEL Classifications: I13, I14, I32 Keywords: Out-of-pocket Payments, Health, Consumption, Poverty, Health Polic

Competitive Structure and Bank Loan Rate in Pakistan’s Banking Industry

This paper estimates the relationship between loan price and the number of banks in the corporate loan markets of Pakistan. An original data set is constructed that includes loan price (interest rate) and market structure (number of banks) in more than 300 geographical markets across Pakistan. Variation in market structure (number of banks) along with variation in borrower and lender characteristics is employed to identify the factors that affect interest rates in loan markets. The findings based on regression result show that a competitive structure influences market price as loan rates decline when the number of banks increase in a market. Although the statistical evidence goes in favour of the structure conduct hypothesis, the findings are not robust across various functional forms. The detailed analysis of the Credit Information Bureau data and institutional details documented in this paper will be a useful reference for further research on the Industrial Organisation of Banking in Pakistan. JEL Classifications: L10, L11 Keywords: Price-concentration, Loan Price, Industrial Organisation, Bankin

The Tariff Tripod of Pakistan: Protection, Export Promotion, and Revenue Generation

This paper gives an overview of tariff structure of Pakistan. The protection of local industry, export promotion and revenue generation constitute the triangular tripod of Pakistan tariff. The said three objectives are achieved mainly through imposition of high tariffs on output goods (protection of local industry), duty- exemption schemes and SROs for exporters (export promotion), and multiple levies at import stage on tariff-inclusive price (revenue generation). About half of the revenue of FBR is collected from imports. Protection to sectors like auto and textile is high and consumer welfare is totally missing from the entire scheme of tariff. Despite high protection and multiple export promotion schemes, local manufacturing is weak and exports are stagnant. The revenue has, however, increased manifold over the years and interestingly revenue witnessed big upward jump when MFN rates of tariff fell. Revenue generation is the major consideration in tariff setting. Tariffs are set as an exercise in accounting with the assumption that rates and revenue have got a positive linear relationship. Income effect, substitution effect and volume effect hardly enter into the mental calculations of tariff setters. Due to high incidence of taxes at import stage, incentives for smuggling, under- invoicing, misdeclaration, and evasion are high. Smuggling is rampant and hard to control due to peculiar geographic situation of Pakistan. Under-invoicing is clear from the trade gap between China and Pakistan. As regards misdeclaration, evasion and corruption at ports, I calculate a hypothetical value of CD based on TWA and CEF for the period 1997-98 to 2018-19. These calculations provide interesting policy insights. First, evasion through misdeclaration is high when tariff rates are high and evasion goes down in percentage terms with reduction in tariff rates. Second, CEF increases as a result of reforms in Customs like simplification and automation of clearance processes and procedures. After detailed discussion, paper suggests that protection provided to the local industry should be time-bound with clear sunset date and accountability against rent -seeking. Based on cap-cape equation, paper further suggests that exemptions and concessions in import duties should preferably be provided through tariff code and not through SROs and difficult-to-use export-oriented schemes. In order to put the country on the trajectory of long term growth, import tariffs on input goods and machinery should be phased out in the short to medium term and instead of relying on increase in tariff rates and imposition of additional levies on imports, better policy option is to enhance CEF through reforms aimed at risk based automated clearances. Keywords: Tariff Structure, Protection, Under-invoicing, Misdeclaration, Smuggling, Input goods, Output goods, Collection Efficiency Facto

Does Gold Act as a Hedge or a Safe Haven? Evidence from Pakistan

This paper seeks to determine whether in Pakistan gold protects investors against the risks associated with the exchange rate, oil shocks, and stock returns by testing the hedging and safe haven properties of gold returns for the period from August 1997 to May 2016. The analysis has been done to understand the relationship between moderate (normal) and extremely tumultuous conditions through least squares and DCC-GARCH models. The key results indicate that gold acts as a hedge against exchange rate risk only whereas it acts as a safe haven in terms of the risks associated with the oil, exchange rate and stock market shocks—thereby indicating that investors can potentially invest in gold to hedge against losses emanating from the exchange rate, while they may avoid potential losses originating from turmoil conditions in terms of the exchange rate, oil, and stock markets. JEL Classification: E32, F31. Keywords: Gold Returns, Safe Haven, Hedge, DCC GARC

External Debt and Capital Accumulation Nexus: Evidence from Pakistan

The rising public debt burden is a common feature of developing countries like Pakistan. This study is an attempt to empirically analyse the external debt and capital accumulation nexus for Pakistan from 1972 to 2016. The ARDL bound testing technique was employed to estimate two models which incorporate different indicators of external debt. Results indicate the existence of a negative relationship between external debt to revenue ratio and stock of capital that supports the debt overhang hypothesis for Pakistan. The debt overhang hypothesis states that large accumulated debt leads to a decrease in overall capital accumulation in an economy. Similarly, other indicators of external debt, namely, external debt service to revenue ratio, external debt to export ratio, and external debt service to export ratio tend to bring a fall in stock of capital in Pakistan. Based on its findings, the study suggests the need for better and productive use of external debt in public sector development projects to foster the capital accumulation process in Pakistan. JEL Classification: H63; H71; E24; H63 Keywords: External Debt; Capital Accumulation; Human Capital; ARDL

Tax Structure in Pakistan: Fragmented, Exploitative and Anti-growth

Taxes are involuntary charges levied on individuals or corporations and enforced by a government entity—whether local, subnational or national—in order to finance government activities. As such, the prime objective of the taxes is revenue generation. However, for sustained stream of revenues, the tax policy also needs to be growth facilitating. These dual objectives can only be achieved if the tax policy reduces the deadweight loss resulting from imposition of taxes, and help transactions grow. Higher number of transactions is associated with higher economic growth and more employment. Increased growth enhances the taxable capacity of the economy and therefore generate sustainable streams of revenues

Strengthening Pakistan’s Trade Linkages: A Case Study of Regional Comprehensive Economic Partnership (RCEP)

This paper explores Pakistan’s trade potential because of Pakistan’s possible inclusion in the proposed Regional Comprehensive Economic Partnership (RCEP). Using a variety of analytical tools including the trade-cost augmented gravity model, indices of trade complementarity and revealed comparative advantage, the paper demonstrates that FTA between Pakistan and the proposed RCEP will increase bilateral trade, on average, by a factor of 1.84. Trade complementarity indices reveal that Pakistan’s import pattern tends to match over time with the export pattern of RCEP countries indicating that Pakistan can benefit from sourcing its imports from the RCEP countries. Moreover, there exists significant potential for Pakistan’s trade expansion with ASEAN members as well as other potential trading partners in RCEP. Whereas Pakistan can export cotton, made-up textiles and clothing, fish, cereals, leather products, pharmaceutical products, sugar and sugar confectionary, and light engineering manufactures, the proposed RCEP countries can export basic raw materials, machinery and equipment, steel products, and miscellaneous manufactured goods, to Pakistan. The study recommends that Pakistan should pursue its FTA arrangements actively with the ASEAN, as it is a prerequisite to get membership in the proposed RCEP. Greater integration with the proposed RCEP region will help Pakistan boost trade and investment and promote sustainable growth

The Impact of Political Regime and Institutions on Government Size in Middle-Income Countries

This study analyses the impact of political regimes and institutions on government size while controlling for socio-economic factors for a group of 56 middle income countries over the period 1986-2014. The empirical analysis shows that the institutional quality index has a negative impact on government size. Furthermore, institutions have a positive impact on “productive” government spending, while having a negative impact on “unproductive” government spending. The analysis also shows that institutional democracy, political regime and stability of political system are the key political determinants of government size. A stable democratic system backed by well-defined institutions could help to manage government size. It ensures transparency and political contestability which leads to control over the use of public resources. The analysis further shows that the GDP per capita has a positive and significant impact on government size at all stages of development. It implies that there is a natural growth of government size due to economic development. This analysis provides useful insights for policy makers to manage government size. A stable political system supported by good quality institutions is a prerequisite to managing scarce public resources. JEL Classification: E13, O43, O47 Keywords: Political Regime, Institutions, Government Size, Middle Income Countrie

Volatility in Discretionary Public Spending and Economic Growth: A Cross Country Analysis

Volatility in discretionary public spending has diverse implications for the overall economic performance of economies. In this study, we examine the impact of volatile non�systematic discretionary public spending on economic growth. By employing cross-country data of 74 developed and developing economies, we find that volatility in non-systematic discretionary public spending has an adverse impact on economic growth. In particular, such impact is severe in the case of less developed economies. Our findings are robust to the problem of endogeneity. In order to ensure the accuracy of the results, we conduct sufficient sensitivity analysis by incorporating a bunch of potential control variables. In most of the cases, the results with regard to the policy volatility remain intact. This suggests that effective spending rules, i.e. permanent numerical limits, should be imposed on budgetary aggregates to restrain governments from the volatile use of discretionary spending. JEL Classification: H3; H5 Keywords: Volatility in Discretionary Public Spending, Economic Growth, Effective Spending Rul

Bangladesh and Pakistan: The Great Divergence

There was a time when Bangladesh lagged behind Pakistan in the quality of life measured by any of its major indicators, except for adult literacy and schooling of children. But it is a different story today. Bangladesh is ahead of Pakistan in almost every respect. I intend to present the facts (data) to support this proposition first and then explore the reasons for the great divergence. I am far more certain about the evidence than I am of my explanation since some of it is guesswork, though hopefully not too off the mark