Macroeconomic Resilience

Building Capacity for a “New Normal”

Sakib Sherani

CEO Macro Economic Insights (Pvt) Ltd.

Former Principal Economic Adviser, Ministry of Finance

PSSP-IFPRI Conference │ April 2015

Macro Economic INSIGHTS

Definition

What is “macroeconomic resilience”?

“The ability of an economy to cope with a shock or

crisis, such that welfare losses for the affected

population are minimised and/or quickly

recouped”.

[Provisional/proposed. Sakib Sherani]

Context

• Pakistan generally described as a “resilient”

or “hard” country

• Has faced numerous shocks and crises

• However, on most parameters, “resilience

buffers” appear to be thinning

Elements of Macro-resilience

• Demographics

• Human + social capital

• Level of internal resource mobilisation

• Domestic savings

• Forex generating capacity

• Quality of leadership/policymaking

GDP growth

• Slowing growth, rising inflation

0.0

5.0

10.0

15.0

20.0

25.0

Inflation

Growth

Source: FBS

GDP growth

• Secular decline + greater volatility

2.0

3.0

4.0

5.0

6.0

7.0

8.0

5yr MA

10yr MA

Source: FBS; Sakib Sherani

GDP growth

7

6.8

4.8

6.5

4.6 4.8

2.9

0

1

2

3

4

5

6

7

8

1960s 1970s 1980s 1990s 2000s 2009-2013

By decade …

Growth Incidence

-10

0

10

20

30

40

50

60

I II III IV V

Cu

mu

lati

ve

% G

row

th o

f R

ea

l In

co

me

Quintile of Households

GROWTH INCIDENCE CURVES (2001-02 to 2011-12)

OF POST-TAX INCOME

Rural

Pakistan

Urban

Pakistan

Urban

Rural

Source: Dr. Hafiz Pasha

Private Investment

9

13.5

8.9

5

10

15

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% GDP

Declining fiscal space

Source: MoF

3.3

4.3 4.3

7.6

5.3

6.36.6

8.6 8.8

0

2

4

6

8

10

2005 2006 2007 2008 2009 2010 2011 2012 2013

Fiscal deficit as % GDP

Declining fiscal space

Source: SBP; Sakib Sherani

Change:

Rs billion, end-June 2008 2014 Absolute Multiple

(x)

Total public indebtedness 6,422 17,385 10,963 2.7

External 2,937 5,619 2,682 1.9

Domestic 3,485 11,766 8,281 3.4

Macroeconomic crises

• Frequency + magnitude of ME crises has risen

• Recourse to IMF resources

– 12 Fund programs since 1988

– Approved resource use 2008 and 2013:

US$ 18 billion

Source: IMF; Sakib Sherani

Sources of LT stress

• Population growth

• Urbanisation

• Low fiscal resource mobilisation

• Fx constraint

• Declining water availability

• Climate change vulnerability

Sources of LT stress

• Fraying social cohesion?

• Weak institutional framework

Concluding thoughts

• Policymakers operating with antiquated

mindset: “resource-rich” environment

• Stark reality: rising “resource-scarcity”

• Resilience buffers declining

• “New normal” needs to be disseminated

– A “State of Resilience” report or index for

Pakistan needed

Thank You

Macro Economic INSIGHTS