Moving on to Export-Led Growth – Some Financial and InstitutionalIssues for Pakistan

Following Pakistan's recent Stand-By Arrangement with the International Monetary Fund (IMF) there is a growing realization that the country needs to identify and implement appropriate restructuring measures that can break the recurrent cycles of economic crisis. Several economists have advocated shifting the economic policies' emphasis to export-led growth from the traditional import-substitution. Such a reorientation would not only require economic adjustments, but also political, social, and cultural changes. The paper focuses on the implications of such a transition for the political, economic and financial institutions. I lay out the institutional changes necessary to effectively support the economy’s reorientation toward export-led growth. The paper focuses on the following areas in which public policy can create a supporting and complementary environment for export growth: (1) exchange rate policy, (2) trade and long-term financing for upgrading export capacity, (3) strengthening country’s competitiveness, (4) capital flows and foreign direct investment (FDI) and (5) fiscal discipline. The political and cultural dimensions of the needed policies for each area are discussed. The paper concludes that to enable export-led economic growth, Pakistan needs an integrated long-term strategy that incorporates measures to strengthen financial, political, and social institutions.