Why Civil Service Reforms Do Not Work

Public sector reform (PSR) efforts in developing countries have been less than successful in the past. Motivated by budgetary considerations, they have focused on downsizing and procedural changes without radically altering the outmoded incentive system, which, in many countries, is now characterised by declining real wages, wage compression, and a non-merit promotion and reward system. Using results from the incentives literature, this paper argues that, for a reform effort to succeed, public sector human resource management (HRM) will have to be reformed at an early stage to establish productivity incentives in the public sector. These will include introducing substantial autonomy to organisations in their work, incentive schemes, and HRM along the lines of the now well-accepted concept of central bank independence. Past PSR efforts have also attempted to conduct a unified reform effort led centrally by the ministry of finance. A continuous process like PSR—spread out over a considerable period and involving many different people and organisations—might need to build in decentralisation, local leadership and local incentives, and HRM. PSR must be based on the recognition that people are at the heart of public service. As a result, managing human resources must be at the centre of any effort. The people who are at the center of this change can either be its architects and beneficiaries or its losers and therefore opponents of change. Design and implementation of reforms must, therefore, be sensitive to this important fact. It is essential that the reform is led by individuals at the organisation level who understand the vision as well as process of change. Governments must empower such leadership to guide, initiate, innovate, and manage change.Civil Services, Reforms

Incentives and Human Resource Management in the Design of Public Sector Reform

We, in Pakistan, should be very happy that the global development community has finally accepted the centrality of public sector reform (also known as improved governance) in the quest for improved living standards in poor countries. Development economics is a subject that is based on the interpretation and observation of some Western academics and Western donor-based agencies. We should have some sympathy for these leaders of development thought and policy for they have struggled with integrating the prevailing theme (fad) in Western thought and philanthropy with learning about the societies and economies that they were supposed to be prescribing for. Using the principle of “ends justifying the means”, they defend their reliance on the current “fad” as well as on the only clearly visible, organised and powerful actor—the government, no matter how inefficient—they would. The result is that this approach led to a long era of government-led development, which centralised policy- and decision-making, initiated planning, and created a wide range of public-sector institutions. The role of the government was thus extended into areas that were conceptually indefensible. In this manner, the public servant grew into her new much more lustrous and looser robes. A bloated, over-centralised, and a private sector inhibiting government was created to be the observation and implementation outpost of the development word. This was the first step in the transformation of the public sector in the direction of misgovernance.

Awake the Sleeper Within : Releasing the Energy of Stifled Domestic Commerce!

Policy in Pakistan has been fairly path-dependant, placing a higher weight on export promotion and domestic industrialisation development than on domestic commerce. Yet domestic commerce is growing rapidly, and quite possibly is the largest sector in the economy. This paper argues that a more holistic policy, with no favourites, that allows for all sectors to grow leads to better long-term economic results. A vibrant domestic commerce sector is the core of the economy facilitating intermediation between supply and demand, entrepreneurial development, risk-taking, innovation, and competitive markets. Such an economy moves beyond commodity exports to brand name, process, and capital exports, all of which command a higher rate of return. Pakistan could therefore achieve a higher and a more sustainable growth rate by adopting a more balanced growth strategy.domestic commerce, policy

Impact of Export Subsidies on Pakistan’s Exports

Throughout Pakistans history, policy has sought to promote exports through government support and incentives. The government machinery is geared to export promotion especially through direct and indirect subsidies. Surprisingly, these policies have been continued without serious examination. This paper makes a first attempt to evaluate these policies by estimating the impact of two such schemesexport financing and rebate/refund schemeson export performance. Our analysis shows that, over the long run, the export financing scheme had a negative effect on exports while the rebate/refund scheme affected exports insignificantly. Subsidy schemes clearly do not seem to work, yet they have been retained for many years.Rebate, Duty Drawback, Export Financing, exports, trade, exchange rate, co-integration, Vector Error Correction, Pakistan

Beyond Planning and Mercantilism: An Evaluation of Pakistan’s Growth Strategy

Through the nineties Pakistan remained preoccupied with crisis management. All debate and policy was, as a result, involved with current policy and our coping with the IMF programmes. Adjustment was the main theme leaving little room for growth initiatives.1 A lively debate has raged on the distributional impacts of adjustment policy on which the government and the thinking community have adopted opposing stances, often with much emotion. With this focus of economic and political discussion on critiquing of the current government and its policies, there has been little effort put in understanding and reviewing the country’s growth strategy. This paper attempts to assess the evolution of Pakistan’s long-term growth strategy.2 It is my contention that the growth strategy remains inertia-ridden because of the lack of an academic community and debate.3 The paper will also attempt to identify the actors who influence and shape this strategy. This will be followed by what changes should be made in that strategy, based on more recent developments in economic thinking and experience in the world. For long-run sustained growth that will lead us to join the club of the more advanced countries, a new strategy based on the latest research findings will be needed. Finally, I shall point to the factors that impede the adoption of such a strategy, and especially to our owning such a strategy.Economic Growth

Why Civil Service Reforms Do Not Work

Public sector reform (PSR) efforts in developing countries have been less than successful in the past. Motivated by budgetary considerations, they have focused on downsizing and procedural changes without radically altering the outmoded incentive system, which, in many countries, is now characterised by declining real wages, wage compression, and a non-merit promotion and reward system. Using results from the incentives literature, this paper argues that, for a reform effort to succeed, public sector human resource management (HRM) will have to be reformed at an early stage to establish productivity incentives in the public sector. These will include introducing substantial autonomy to organisations in their work, incentive schemes, and HRM along the lines of the now well-accepted concept of central bank independence. Past PSR efforts have also attempted to conduct a unified reform effort led centrally by the ministry of finance. A continuous process like PSRspread out over a considerable period and involving many different people and organisationsmight need to build in decentralisation, local leadership and local incentives, and HRM. PSR must be based on the recognition that people are at the heart of public service. As a result, managing human resources must be at the centre of any effort. The people who are at the center of this change can either be its architects and beneficiaries or its losers and therefore opponents of change. Design and implementation of reforms must, therefore, be sensitive to this important fact. It is essential that the reform is led by individuals at the organisation level who understand the vision as well as process of change. Governments must empower such leadership to guide, initiate, innovate, and manage change.Civil Services, Reforms

Awake the Sleeper Within: Releasing the Energy of Stifled Domestic Commerce!

Policy in Pakistan has been fairly path-dependant, placing a higher weight on export promotion and domestic industrialisation development than on domestic commerce. Yet domestic commerce is growing rapidly, and quite possibly is the largest sector in the economy. This paper argues that a more holistic policy, with no favourites, that allows for all sectors to grow leads to better long-term economic results. A vibrant domestic commerce sector is the core of the economy facilitating intermediation between supply and demand, entrepreneurial development, risk-taking, innovation, and competitive markets. Such an economy moves beyond commodity exports to brand name, process, and capital exports, all of which command a higher rate of return. Pakistan could therefore achieve a higher and a more sustainable growth rate by adopting a more balanced growth strategyCommercial policy

Inaugural Address

My fellow social scientists, economists, scholars, thinkers, observers. Welcome to the 26th Annual General Meeting and Conference of the Pakistan Society of Development Economists—a society that prides itself on being the only “professional association of economists and other social scientists” in the country. This annual event serves many purposes: it is an intellectual exchange allowing a stock taking of research and ideas; it is a showcase of fresh understandings and analyses of the Pakistani economy and society; it is a place to review policy and develop constructive policy debates to improve economic management; and it is also a place to develop economists and prepare them to lead development thinking in the country. I was happy to see that the agenda contains a number of panels with leading Pakistani economists discussing a burning issue of the day—fiscal federalism which we are facing with the 18th amendment and the NFC award. We will all await ideas that are generated from the PSDE

Inflation Everywhere is a Monetary Phenomenon: An Introductory Note

Inflation

What macroeconomic policies are"sound?"

Most people agree that the soundness of macroeconomic policies should be judged by their efficacy in meeting the objectives of steady growth, full employment, stable prices, and a viable external payments situation. What people debate about are the links between macroeconomics and economic structure--and in the current environment, the openness to foreign capital flows. As developing countries become more integrated into international financial markets, volatility may become an increasing fact of life. Faced with such volatility, how should these countries frame their macroeconomic policies? What broad principles should guide their macroeconomic management? In many developing countries, the openness of the capital account has been significant. Many countries have made the transition toward an open-economic paradigm. As a result, fluctuations in international capital and currency markets, as well as shifts in foreign investors'attitudes and confidence, have greatly affected local stock market prices, the level of foreign exchange reserves, and the scope for monetary and interest rate policy. Capital controls and foreign exchange restrictions have been significantly dismantled in a number of developing and transition economies. In 1970, only 34 countries--or 30 percent of the International Monetary Fund's membership-had assumed Article VIII of the IMF Articles of Agreement, declaring their currency convertible on current account transactions. By 1997, this figure had increased to 77 percent. Does financial integration make it more difficult to achieve macroeconomic stability? Apparently not, on the whole, although at times large short-term capital flows can lead to misaligned asset prices, including exchange rates. What financial integration does do is limit how far countries can pursue policies incompatible with medium-term financial stability. The disciplining effect of global financial and product markets applies not only to policymakers-through pressures on financial markets-but also to the private sector. Rather than constrain the pursuit of appropriate policies, globalization may add leverage and flexibility to such policies, easing financing constraints and extending the time during which countries can make adjustments. But markets will provide this leeway only if they perceive that countries are undertaking adjustments that address fundamental choices.Economic Theory&Research,Fiscal&Monetary Policy,Payment Systems&Infrastructure,Banks&Banking Reform,Environmental Economics&Policies,Banks&Banking Reform,Environmental Economics&Policies,Financial Intermediation,Economic Theory&Research,Macroeconomic Management