1.1 An Overview of macroeconomic performance of Pakistan According to the Economic Survey of Pakistan, the decade of 1990s was a lost decade as far as Pakistan’s economic progress was concerned. Recurrent political adjustments and lack of permanence in policies, poor governance and the 1998 developments had created very difficult economic conditions in the country by October 1999. Per Capita economic growth rates had dropped to between 1 and 1.5 percent. Investment rates had fallen down from 20 to 15 percent of GDP, poverty had doubled to 34 percent while external debt had doubled from USD 18 billion to USD 36 billion, debt servicing had increased to a height where it asserted 56 percent of revenues, fiscal deficits averaged about 6 percent of GDP, Development expenditures, particularly on education and health, were reduced by one half from 6 percent of GDP to 3 percent. In 1996, Pakistan was acknowledged as the second most corrupt country in the world. The challenge of prevention of such a status and to move the economy out of such critical conditions therefore was extremely intimidating. The mission was made even trickier by the initial response of the international community to the adjustment in the government and the contradictory demands of a range of segments of population. Accountability, whereby all those found culpable of corruption and misconduct in the earlier period, was one of the major demands expressed by the public at large and the media. This produced tension with the purpose of economic stimulation as the businessmen and bankers felt susceptible by such moves.
The 2000s was a period of sound improvement. During the first half of the decade, economy boomed. However, soon afterwards the Global Economic Crisis got a grip on the entire World Economy in some way or the other. As per information on Pakistan economic environment in the financial year 2008, the value of Pakistani rupee had decreased because of political and economic volatility. Pakistan was one of the fastest developing economies in world. Even though it is a poor country, economic state of affairs in Pakistan point out that growth rate had improved than the worldwide standard rate of growth.
Fiscal deficit in 2009 was benchmarked at 5.5 percent of GDP. This value was 7.4 percent in fiscal year 2008 (Economic Survey of Pakistan). Pakistan’s economic surroundings were not going to get enhanced in 2009 as it had been anticipated that inflation will decline to 20 percent by mid 2009. In the first quarterly review it was found that the situation became stable and an enormous sum was borrowed from central bank.
Pakistan economic conditions did not get any better in 2009 as it had been projected that inflation will get down to 20 percent by July 2009. It had been found out in the first quarterly review of the year that situation became steady, though an enormous sum was borrowed from central bank.
1.2 Business expectations: Relevance of adaptive expectations view for Pakistan In modern economic theory, particularly in macroeconomics, expectations are given an essential place. The overt account of individuals’ expectations qualifies the endings of the static analysis. To an extent this important place is well founded, since expectations of prospect events do encourage present actions and hence influence social phenomena as they come about in actuality. However, contemporary macroeconomics goes further. It also maintains that a precise model of the development of expectations is vital in order to evaluate the function played by expectations and eventually to build economic theory all by itself.
Adaptive expectations have been defined as follows;
‘The economic-behavior observation that people form their expectations of economic trends solely on the basis of what was the past magnitude and direction of those trends. If these expectations seem erroneous then, depending on the degree of the error, people revise and adapt their future estimates accordingly’. (Business Dictionary).
The pull of the Adaptive Expectations channel is the simplification of its formulation which gives room for a variety of interpretations according to the worth given to the coefficient of review.
‘When we state that expectations affect reality, if he assumes them to be adaptive, he is ultimately assuming that history, not expectations, affects the future. Adaptive expectations always boil down to a hypothesis of how past variables affect current variables. Therefore, formalizing expectations adaptively is contrary to the very purpose of building a theory of expectations. No model based upon the AE hypothesis can portray the autonomous influence of expectations on current or future variables. We can even make the more universal criticism that any hypothetical explanation of expectations by other observable variables can but obfuscate their supposedly independent importance the model purports to exhibit’. (Gertchev, N, 2007)
This study stresses on the impact of social unrest and disharmony that have been plaguing the Pakistan economy since its conception as an independent country. This has impacted business activity significantly with altering expectations for the future time periods. An analysis into the causes and consequences of such fluctuations of business activity due to societal distortions, based on past data on macroeconomic and social variables, may be particularly helpful in drafting a successful public policy for Pakistan, which will lessen the social gap and promote social stability in the country. With a unique blend of business expectations and ‘social’ disharmony, unrest and inequality in Pakistan, the growth of the economy seems to be at stake and needs to be addressed.
1.3 Rational expectations and formulating business expectations: MNCs perspective Expectations matter immensely for businesses and transformation of business outlook have important macroeconomic impacts at different phases of the economic cycle. The study of the business cycles dates back to the Classical Economists, beginning late 1700s, paving way for Neoclassical Economists and Keynesian Economists to further develop the concept. Contrary to the ‘Adaptive Expectations’ theory, the ‘Rational Expectations’ school of thought is considered when evaluating and forming such expectations.
Robert Lucas, a renowned economist and a 1955 Nobel Prize winner puts forward the following Rational Expectations theory;
‘On average, people can quite correctly predict future conditions and take actions accordingly, even if they do not fully recognize the causal relationships basing the events and their own thinking. Thus, while they do not have perfect foresights, they construct their expectations in a rational manner that, more often than not, turn out to be correct. Any error that creeps in is usually due to random (non-systemic) and unforeseeable causes’. (Business Dictionary)
The main inspiration behind the rational expectations hypothesis is to time and again extend the standard of individual rationality from the dilemma of the allocation of resources to that of the creation of expectations. The individual is expected to use all of the accessible pertinent information when designing his forecast of prices, interest rates, and even public policies.
It is widely observed that MNCs take rational actions to their investment environments, revising investment assessment in the face of new information. Even in the theories of international finance, we see that the motivation from the parent company to give an initial helping hand to its subsidiary is limited by rational expectations. According to this view, rather than send back future income and pay taxes, multinational corporations prefer investing subsidiary income in supplementary expansion.
Moreover, factors that influence the inflow of Foreign Direct Investment (FDI) in any country are the rate of return, tax system, the size of the fiscal deficit and interest rate and exchange rate regimes, to name a few macroeconomic variables. These have to be ‘rationally’ assessed and taken into consideration to evaluate the investment climate of the host country. However, according to the theory of rational expectations, it is quite impossible to estimate, for instance, the consequence of deficit-financed government spending on demand exclusive of specifying how people anticipate the deficit to be paid off in the future. This might affect the FDI decisions, even if slightly, but the theory does give an insight into the assessment of various factors used in such decision-making.
Of the purposes of the study, it becomes imperative to look into the specific economic theories from different schools of thought, connect them to the real world state of affairs and current circumstances of the country, hence relating the theory to the harsh realities of realistic economy of Pakistan.
1.4 Data Vendors and the Investment Climate in Pakistan François Bourguignon, Senior Vice President
Affordable Housing In Scotland Economics Essay
Introduction The aim of this essay is to compare and contrast the Scottish and Greek planning policy and practice regarding Affordable housing. To have a better understanding on the subject there is an urgent need to examine a variety of factors that have effected the birth and implication of such policies in these countries; such as economical, political, cultural and historical factors. The interest of this comparison stems from a huge diversity in policy and practice between two countries that are both part of the European Union. Although the EU, have set certain goals and legislation, it is very often hard for them to be achieved and implicated due to the differences that countries have. Therefore it is unlikely that what seems to work for one country will certainly work for another. A productive comparison though, can help us understand the state each country is at the moment, the gap between policy and practice, and what is yet to be done.
CECODHAS Housing Europe, is the federation of public cooperative and social housing in Europe. A non profit organisation based in Brussels with a vision to “provide access to decent and affordable housing for all in communities which are socially, economically and environmentally sustainable and where all are enabled to reach their full potential.” (CECODHAS Housing Europe 2012, available:http://www.housingeurope.eu/about/our-vision). CECODHAS is a multi-membered organisation. within which smaller divisions operate to deliver affordable social houses in Europe. It is linked with Scotland’s SFHA (Scottish federation of Housing Associations) and was almost entirely involved with the provision of affordable houses in Greece. Therefore it would be interesting to examine their view on the matter of affordable housing.
Affordable Housing in Scotland The major economic crisis that started on the beginning of 2008 and still progresses, fueled the need for a different perspective regarding affordable housing. The crisis in the credit system and the general economic difficulties, forced the UK government to implicate huge cuts to public spending.
That put the whole housing market in struggle. As the crisis deepens and the wages lower year by year, the need for affordable houses grows bigger. The Scottish government driven by the above factors, felt the need to adjust previous housing policies and development schemes to fit the latest circumstances. On February 2011, the Scottish government published “Homes Fit for the 21st century, The Scottish Government’s Strategy and Action Plan for Housing in the next decade: 2011-2020.Based on the above document, Scotland’s population is constantly rising in numbers but also in age. Whilst, the size of households and the number of existing owners is falling continuously. Housing supply is crucial to reform in a way that will meet the public needs. One of the key objectives of this plan is to encourage the building of more new affordable houses designed
with high quality principles. The amount of new houses provided by the private sector is decreasing and combined with the ongoing reduction on public funds by the central government creates a need for new methods of funding. Homes Fit for the 21st century(2011) action plan, clearly identifies that this could be achieved with the collaboration of different councils, housing associations investors developers and the private sector. According to the above document, Scottish government will continue to support multi-tenure developments, focused on private sale to help and relieve the social sector. Furthermore, housing associations ,developers and investors will be encouraged to cooperate in shared-funding housing developments under the name Innovation and Investment Fund in an attempt to expand the funding for affordable homes. This together with National Housing Trust (a strategic plan for the development of new houses) and the New Supply Shared Equity scheme is expected to deliver 18.000 new affordable houses until 2014. An increase of council taxes on long term empty households is expected to generate a certain income that will help the provision of new affordable homes (Homes Fit for the 21st century, 2011). In this action plan, it is mentioned that new houses must meet high quality design principles to satisfy the needs of the people today but also in the future. An increase in supply of affordable households though, must not have a negative impact on quality. In addtition, new housing units should be designed in a way that also serves the special needs that older and disabled people have. The SPP(Scottish Planning Policy) 2010, identifies different types of affordable housing. “Affordable housing may be in the form
of social rented accommodation, mid-market rented accommodation, shared ownership, shared equity, discounted low cost housing for sale including plots for self build, and low-cost housing without subsidy”(Scottish Planning Policy, 2010, p17). Affordable Housing and Housing Land Audits PAN (2/2010) identifies that homes can be social rented, low cost subsidised for buying, unsubsidised low cost houses for sale and intermediate rented. In the case of social rented, tenants will pay a considerably lower rent which will be estimated by the RSL (Registered Social Landlords). In the case of low cost subsidised houses available for sale, buyers are able to choose between houses sold in an affordable price, share ownership by purchasing a part of the unit while paying an amount to the RSL or purchasing the majority of the dwelling with the ramaining part belonging to the RSL. Unsibsidised low cost houses for sale can be either units available for buying at an affordable price without public subsidy or with shared equity where the buyer and the developer share different parts. There is also the possibility of dwelling rented in a price lower than the market levels. According to the SPP (2010), 25% of house units in every new housing development should be affordable. This is a general rule though and the actual amount of affordable houses could vary according to the needs of the local communities and the demand of the market. Further issues regarding affordable housing are assesed in the Scottish Planning Policy 3: Planning for Homes (Revised 2008). It is stated that in cases were there is a shortage of affordable houses, the provision of them must be part of the general housing development plan and if possible, they should be located within the local housing market limits. According to the above document, specific land areas must be allocated by the local planning authorities for the development of new affordable house units. This policy mostly refers to developments inside or around villages.
Affordable Housing in Greece Greece right now is one of the countries that are affected the most by the economic crisis that started in 2008. With an economy struggling to survive and the majority of jobs being low-wage nowadays provision of affordable housing is urgent. Urgent but extremely difficult for the Greek government to satisfy the peoples needs. One fundamental difference with the Scottish planning system, is that all action on the matter of affordable housing were exclusively done by the public sector. That means that provision of affordable houses in Greece was always a government’s task. As the Federation of Public, Cooperative