Using economic policy to improve environmental protection in Pakistan

The author studies Pakistan's major environmental problems, both green and brown, and assesses the extent to which economic policies affect incentives to protect the environment. Experience in other countries shows that nondistortionary economic policies that promote economic growth by improving the allocation of resources also create appropriate incentives for protecting the environment. Sound economic policies alone are not enough, of course. Environmental policies designed to correct market failures are also necessary. Pakistan, like many countries, has relied mostly on command-and-control environmental policies, which have often failed because its regulatory institutions lack the resources to monitor compliance. Pakistan would be better off using incentive- or market-based policies, which use prices to encourage pollution abatement and the appropriate use of resources. Failures in economic policy contribute significantly to Pakistan's"brown"environmental problems, which include industrial and domestic wastewater pollution, as well as air pollution (especially from motor vehicle emissions). Pollution problems exist both in urban and industrial areas, as well as in marine and coastal zone waters. Failures in economic policy also contribute to"green"environmental problems, affecting behavior in forests, rangelands, and both rainfed and irrigated agriculture. Subsidies for irrigation water, for example, encourage farmers to overuse water, exacerbating the problems of waterlogging and salinity that plague irrigated agriculture. Lack of property rights in communal forests and the failure to give local communities incentives to participate in forest-management decisions have contributed to the problems of deforestation and the degradation of Pakistan's rangeland.Water and Industry,Environmental Economics&Policies,Water Conservation,Sanitation and Sewerage,Water Resources Law,TF030632-DANISH CTF - FY05 (DAC PART COUNTRIES GNP PER CAPITA BELOW USD 2,500/AL,Environmental Economics&Policies,Water and Industry,Energy and Environment,Water Conservation

Strategic Reforms for Accelerated Agricultural Growth in Pakistan

Agricultural growth rates in the 1960s, 1970s, 1980s and 1990s show that strong growth during the 1960s was driven by several factors, including greater certainty in the use of irrigation water (as a result of an agreement with India), the introduction of productivityenhancing fertiliser-seed packages, the introduction of tubewells and the electrification of rural areas, and policy changes that improved the profitability of farming. Growth during the 1970s dropped to 2.3 percent as a result of the uncertainty created by land reforms in 1972 and 1977, severe climatic shocks, a cotton virus that depressed production for most of the decade, and political instability. The recovery in the 1980s and early 1990s can be attributed to the introduction of new cotton varieties and improved management techniques, as well as to a gradual improvement in economic incentives. Closer inspection of the nature and sources of this growth raises concerns about its sustainability and casts doubt on the ability of the sector to grow by more than 3–4 percent a year in the future. Many of the past sources of agricultural growth in Pakistan appear to have been fully exploited. Strategy for the future must effectively address the followings. Allowing the market to Operate, policy reforms that support the ongoing structural adjustment should be given top priority. To address the crisis in irrigation management market-determined incentives must be allowed to determine resource allocation within the irrigation system. Reform in extension should include establishing closer links with research institutions and reducing the number of front-line extension workers and replacing them with fewer, bettertrained workers who are more responsive to the needs of farming systems. Full-fledged land reform is difficult to enact and can be considered only after a comprehensive study of costs and benefits. Some important measures can be implemented immediately, however. Foremost is providing security of tenure to many farmers, especially tenants-at-will, thereby improving responsiveness to incentives and creating better incentives for long-term investments.

Exchange Rate Pass-Through in the Euro Area

Exchange rate pass-through in a set of euro area prices along the pricing chain is examined in this paper. First, a vector autoregression (VAR) approach is used to analyze the joint time-series behavior of the euro exchange rate and a system of area-wide prices in response to an exchange rate shock. Second, the impulse response functions from the VAR estimates are used to identify-in a "new openeconomy macroeconomics model"-the key behavioral parameters that best replicate the pattern of exchange rate pass-through in the euro area. A key finding is that traded goods-both extra-area exports and imports-behave as though they are predominately priced in euros. The area-wide findings are compared with those for other major industrial economies. Copyright 2006, International Monetary Fund

Research on land markets in South Asia : what have we learned?

The authors review the literature on land markets in South Asia to clarify what's known and to highlight unresolved issues. They report that: (1) We have a good understanding of why sharecropping persists and why it can be superior to other standard agricultural contracts. We have less understanding of what determines the relative efficiency of sharecropping in different environments and why other apparently superior contractual relationships are rare. (2) Insecure rights to land adversely affect production and investment incentives in areas outside of South Asia, but in South Asia strong evidence linking investment and rights to production is scarce. (3) An inverse relationship between farm size and output per unit area is a recurrent feature in data from South Asia, apparently related to land-labor interactions. (4) Although small farms seem to be more efficient than large ones, small farmers have trouble raising their profitability and enlarging their holding, largely because of credit constraints, but also because of poverty and policy that discriminates against them. (5) Misguided land reform in the past has made tenancy unattractive to landowners, so large capital-intensive farms have developed. Political economic analysis is needed to explain the failure of past land reform, as well as distortions in agricultural input and output markets in (6) South Asia. Land fragmentation (as distinguished from farm size) has caused productivity losses. Those losses have not been quantified and the reasons fragmentation persists are poorly understood. (7) Transaction costs are a significant impediment to functioning land markets. In South Asia, transfers of land rights are complicated by lack of explicit title to land, and by informal and customary rights. (8) One pressing research problem is gender discrimination, an important factor in land market imperfections -especially (within the household) the separation of land management and its control. Research needs include more systematic regional comparisons, the use of more panel data, and an investigation of how agricultural productivity is affected by gender problems and land fragmentation.Banks&Banking Reform,Environmental Economics&Policies,Agricultural Knowledge&Information Systems,Land Use and Policies,Public Sector Economics&Finance,Environmental Economics&Policies,Banks&Banking Reform,Agricultural Knowledge&Information Systems,Rural Land Policies for Poverty Reduction,Land Use and Policies

Improving water resource management in Bangladesh

As populations expand and make various uses of water, its growing scarcity becomes a serious issue in developing countries such as Bangladesh. Water can no longer be considered a totally free resource and plans must be developed for its efficient use through better management and rules that preserve everybody's access to it and interest in its development. Because it is a common resource, its development and management should involve all beneficiaries. The government's role in this process is to establish the ground rules for water use and conservation through a policy and legal framework and a monitoring system that ensure its continued safety of supply to--and responsible water use by--every sector and user in the economy. National water policy must set the ground rules for allocation to different users, water rights, pricing, and environmental safety. Bangladesh's water strategy should start with a national water policy that spells out key objectives such as priority of use by critical economic sectors, approaches to water pricing and cost recovery for development, and shared public- and private-sector water management. An apex public planning organization is needed to perform overall planning for water resources and to advise the National Water Counsel on policy and legislation. Also needed are agencies to implement public water plans for the development of infrastructure, the monitoring of water regimes, and the enforcement of regulations.Water Conservation,Water Resources Law,Water and Industry,Environmental Economics&Policies,Decentralization,Water Supply and Sanitation Governance and Institutions,Town Water Supply and Sanitation,Water and Industry,Water Conservation,Environmental Economics&Policies

Rural finance for growth and poverty alleviation

Pakistan's rural sector accounts for more than 70 percent of employment, and roughly two-thirds of rural employment is in agriculture. Less than a third of rural households get loans, only 10 percent of which are from institutional sources. Pakistan's credit institutions are not helping the country accelerate agricultural growth and reduce poverty. To improve performance in the rural economy and efficiency in financial institutions, rural credit markets must be liberalized. The government needs to initiate the following reforms: 1) produce and price controls must be replaced by prudent regulation and supervision, combined with policies to stabilize the economy; 2) commercial banks must operate in a competitive environment. They must be allowed to set interest rates for rural lending that cover their transaction costs; 3) credit must be available to support productivity growth for agricultural smallholders and small producers of the rural nonformal sector, where Pakistan's growth potential lies; and 4) credit must be available to women and to the rural poor for consumption-smoothing and for sustainable income-generating activities. Policy should be directed at developing a market-based financial system for rural finance, but because of market failures to support disadvantaged groups, a special-priority program may be needed to get credit to women, smallholders and the rural nonformal sector. Subsidizing interest rates is not the way to help marginal borrowers. Instead, they can be helped through fixed-cost subsidies and self-selected targeting. Nongovernmental organizations (NGOs) should be encouraged to help. Commercial should be encouraged to lend on other bases than the mortgage and passbook system. They could experiment with wholesaling credit through input suppliers, marketing agents and NGOs. They should consider lending for such downstream agricultural activities as agroprocessing. The biggest challenge facing rural finance is the restructuring of cooperatives. The next important step for the Agricultural Development Bank of Pakistan would be a portfolio audit - the results of which will determine next steps, such as major restructuring of its portfolio and changing its ownership. To improve rural financing, the system of property rights, title and default enforcement must also be strengthened, among other reforms.Environmental Economics&Policies,Banks&Banking Reform,Payment Systems&Infrastructure,Financial Intermediation,Economic Theory&Research,Financial Intermediation,International Terrorism&Counterterrorism,Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research

The impact of farm credit in Pakistan

Both formal, and informal loans matter in agriculture. But formal lenders provide much more in production lending, than do informal lenders, often at a higher cost than what they can recover. The Agricultural Development Bank of Pakistan (ADBP), for example, providing about 90 percent of formal loans in rural areas, incurs high costs on loan defaults. Like other governments, the Government of Pakistan subsidized the formal scheme on the grounds that lending to agriculture is a high-risk activity, because of covariate risk. Because farm credit schemes are subsidized, policymakers must know if these schemes are worth supporting. Using recent data from a large household survey from rural Pakistan, the authors estimate the cost-effectiveness of the ADBP loans. To estimate credit's impact, they use a two-stage method, which takes into account the endogeneity of borrowing. Clearly, formal lenders are biased toward larger farmers with collateral. Large landowners, who tend to represent only four percent of rural households, get 42 percent of formal loans. Landless, and subsistence farmers, who represent more than 69 percent of rural households, receive only 23 percent of formal loans. ADBP loans improve household welfare but, although large farmers receive most of ADBP finance, the impact of credit is greater for small farmers than for large farmers. Large landowners use formal loans unproductively. Because the ADBP scheme is subsidized, it is not cost-effective for delivering rural credit. It would be more cost-effective is small farmers were better targeted instead.Financial Intermediation,Payment Systems&Infrastructure,Banks&Banking Reform,Economic Theory&Research,Environmental Economics&Policies,Strategic Debt Management,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation

Future of Irrigation and Drainage in Pakistan

The future of Pakistan’s agriculture depends on the future of its irrigation and drainage system, which currently faces major problems. Increasing water logging and salinity, overexploitation of fresh groundwater, low efficiency in delivering and use, inequitable distribution, unreliable delivery, and insufficient cost recovery are some of these problems. These problems, however, are only symptoms of a deeper problem—the treatment by the government of irrigation water as a public good. Such a treatment has caused inefficient pricing of water, misallocation of resources and widespread rent-seeking behaviour. The future strategy for irrigation and drainage will require a major change in the public sector’s approach. An efficient self-sustaining irrigation and drainage system can be achieved only by promoting market-determined incentives for improved management of the irrigation and drainage services and giving the private sector a greater stake in the system. The process could begin by developing commercially-oriented public utilities on a canal-command basis, developing suitable farmer organisations around distributaries/minors, formalising water rights, developing autonomous provincial water authorities, and developing provincial regulatory bodies for regulating public utilities, water rights, and groundwater resources

Role of Economic Policies in Protecting the Environment: The Experience of Pakistan

Economic policies that ensure efficient allocation of resources is a necessary, but not a sufficient condition for creating appropriate environmental incentives. Environment-specific policies are also needed to correct market failures leading to environment problems. Two types of policies can be used to deal with environmental problems—command and control policies and incentive- or market-based policies. Command and control policies involve government mandating of environmental quality standards on emissions, technology type, or input use. Incentive- or market-based policies use prices to try to affect pollution and resource use. Despite the advantages of marketbased approaches, Pakistan, like many other countries, mostly followed control policies. But these policies have often failed to achieve results because regulating institutions lack the financial and technical resources to implement these policies effectively. Pakistan’s brown environmental problems include industrial waste water pollution, domestic waste water pollution, motor vehicle emissions, urban and industrial air pollution, and marine and coastal zone pollution. Economic policy failures are contributing significantly to many of these problems. Green environmental problems affect irrigated agriculture, rainfed agriculture, forests, and rangelands. In irrigated agriculture, economic policies, such as subsidies on irrigation water, have provided incentives for farmers to over use water in their production practices, thereby exacerbating the problem of waterlogging and salinity. Deforestation and rangeland degradation have resulted, in part, due to lack of property rights in communal forests and lack of incentive for local communities to participate in forest management decisions

The Initial Impact of the Crisis on Emerging Market Countries

macroeconomics, crisis, foreign debt, exposure, capital mobility, financial flows, international, open economy model