Gonzalo Varela

Senior Economist at the World Bank

Compiled from 2 recorded interviews. Every statement below is drawn from the passage cited beside it.

Gonzalo Varela is a Senior Economist at the World Bank. He leads the World Bank's trade engagement with Pakistan. He has said that import duties are, in effect, export taxes, and that a depreciated real exchange rate is typically good for long-term growth.

Early life and background

Varela has said he comes from Uruguay. He has also described his home as a country in Latin America. He has said exporters in his home region pay close attention to the exchange rate. [1][2]

Education

Varela began studying economics with an interest in how countries develop. He completed a degree in Uruguay and did his PhD in the UK. His PhD studied how a type of uncertainty linked to the real exchange rate affects production decisions. [2]

Career

While Varela was doing his PhD, the World Bank approached him for an assignment in Indonesia. He took a summer off from the PhD to work in Indonesia. He became excited about a career in development at the World Bank and joined the bank after finishing his PhD. [2]

He first worked in the World Bank's global trade unit, which covers trade without a country focus. He later moved into country-specific work and ended up working on trade in Pakistan. He began coming to Pakistan on short assignments in 2017, and he has since moved to Pakistan. [2]

Varela has said the World Bank had just released the fall 2021 issue of its Pakistan update. According to Varela, the update has a specific focus on reviving exports. [2]

Views on growth and productivity

Varela has said that the premise of a report is that Pakistan's growth has been stunted by poor allocation of talent and resources. He has described Pakistan's growth as volatile, with boom and bust cycles linked to balance of payments crises. In his view, low productivity growth is at the core of Pakistan's growth challenge. [1]

He has said Pakistan's macro investment rates are very low. The report looks at three crucial factors for resource and talent allocation, and his team presented a roadmap of reforms for Pakistan in it. [1]

Varela has said the time to act on some reforms is now, while other reforms should wait because of fiscal and current account constraints. He has said Pakistan needs a gradual reduction in its fiscal deficit so the government stops being the key borrower. On policy design, he has said policy should experiment, scale what works, and stop what does not. He has also said subsidized firm training interventions show promising results in several countries. [1]

Views on taxation and real estate

Varela has said incentives make real estate more profitable than investing in productive tradable sectors. He has said taxes on income from productive sectors are higher than taxes on real estate and land. In his view, tax policy should bring all sectors into the tax net with harmonized rates. [1]

He has said Pakistan recently introduced a super tax on firms that were not exporting. He has also said Pakistan could introduce progressive property taxes. [1]

Views on banking and formalization

Varela has said state borrowing from banks crowds out credit for the private sector. He has said slow collateral recovery makes banks less willing to lend to the private sector, and that Pakistan's insolvency laws should be brought to international good practice. [1]

He has said more transactions move through banks as countries develop. He has said complex regulations and systems in Pakistan reduce incentives to bank, and that Pakistanis are capable of handling banking processes and should not be underestimated. In his view, the important thing is to increase the costs of cash-based transactions. [1]

On formalization, Varela has said it is a complex process with no silver bullet. He has said it is not an area in which he specializes, and that he has not seen a good impact evaluation of formalization policies. [1]

Views on firms and management

Varela has said family-owned firms perform a little worse on productivity than non-family-owned private firms. He has said family ownership may reduce the incentive to invest in human capital. He has said managerial practices in Pakistan are below average for countries at a similar level of development, and that exporters and foreign-owned firms have stronger incentives to professionalize management. [1]

He has said Pakistan's firms do not grow large as they age, and that there was no single case of a firm that moved from small to large. He has said Pakistan struggles to grow firms compared with Turkey, Bangladesh, Mexico, Ethiopia and Egypt. He has said that firms which incur losses for a long period of time are called zombie firms. [1]

Varela has said state-owned enterprise reform is a crucial reform for Pakistan right now. He has said Pakistan has state-owned enterprises in fisheries and questions why the state is involved there. He has said he would estimate 70% of Pakistani workers are in small and medium enterprises. [1]

Views on women's employment

Varela has said female labor force participation is a first order condition for growth. He has said it is around 21% in Pakistan and over 38% in Bangladesh. He has said Pakistan's GDP would increase up to 23% if female labor force participation matched Bangladesh's. [1]

He has said women outside the labor force do a lot of unpaid work at home. He has said female labor force participation follows a U-shape across education and income levels in Pakistan, and that female employment in manufacturing in Pakistan is 4%. [1]

Varela has described the drivers of women's employment in manufacturing as a coordination problem. He has said it is expensive for a firm with no female employees to hire its first woman. He has said Bangladesh shares many cultural features with Pakistan and is much better integrated into global value chains than Pakistan. [1]

He has said public transport is crucial for female labor force participation. He has said that without public transport, people are locked into their communities for work, which misallocates talent. [1]

Views on the exchange rate

Varela has said the exchange rate is a key price in the economy. He has said currency depreciation makes imported and tradeable goods more expensive, which raises inflation. He has said the exchange rate is being fixed too low, and that Pakistan does not have a large enough stock of dollars to fix the exchange rate. [1]

He has said there is no good international experience of exchange rate rationing followed by an economic boom. He has said deciding who gets scarce dollars is arbitrary and intrinsic to exchange rate rationing. He has said a long overvalued rupee shrinks Pakistan's export capacity, and that exporters will expand over time after a real depreciation because they respond to incentives. [1]

Varela has said developing countries face much more uncertainty. He has said the real exchange rate adjusts the nominal rate for changes in domestic prices, and that it is a very important determinant of reviving exports. He has said exporters watch the exchange rate closely because it drives their profitability. [2]

He has said the rupee was about 171 to the US dollar at the time. He has said a depreciated rupee is good news for exporters, and that a stronger dollar raises the cost of Pakistan's debt. He has said a rapid depreciation feeds into inflation. [2]

Varela has said countries that have a relatively depreciated currency for long periods typically end up growing faster, and that this empirical regularity was set out in a paper in 2008. He has said a depreciated currency makes imports more expensive. [2]

He has said exports fall quickly when the rupee appreciates, and respond more slowly when the rupee depreciates. He has said that in the long term, Pakistani exports respond to the exchange rate. He has said a 1% real depreciation raises exports by about half a percentage point. He has said exports of homogeneous goods react quickly to exchange rate changes, unlike differentiated goods. [2]

Varela has said a trade deficit can be a sign of a healthy economy, and that it is harder to sustain when dollars are hard to get or come at high interest rates. He has said the size of the US economy gives investors confidence to fund its trade deficit. He has said Australia runs a persistent trade deficit that investors keep financing. [2]

He has said the State Bank of Pakistan moved to a float or managed float regime. He has said that before the float, the nominal rate was held while prices kept growing. He has said that under the earlier regime imports became cheaper and exports harder to sell abroad. [2]

Varela has said a sustained rupee appreciation over several years eroded export profitability. He has said exports fell from about 16% of GDP in 2000 to under 10% at the time he spoke. He has said the export sector lost competitiveness for a long period, with long-term implications. [2]

Views on import duties and protection

Varela has said average import duties of about 20% place Pakistan among the top five most protected economies. He has said Pakistan's high import duties apply across consumer goods, machinery and intermediates. He has said import duties combine a customs duty, a regulatory duty and an additional customs duty. He has said Pakistan applies cascading tariffs, with higher duties on final goods than on inputs. [2]

He has said Pakistan has the second highest effective rate of protection in the world. He has said protection makes exporting a residual option for firms, and that in Pakistan export surplus means output that the domestic market does not absorb. He has said Pakistan's high import duties in practice cause export substitution rather than import substitution. [1][2]

Varela has said high import duties encourage smuggling. He has said tariffs protect domestic producers but not exporters, and that tariffs impede competition and innovation. He has said a trade deficit is more likely to be corrected by depreciation than by higher import duties. In his view, Pakistan needs a competitively priced currency and lower cascading import duties together. [2]

Views on exports and trade policy

Varela has said Pakistan should make it as easy as possible for exporters to export. He has said exports are the genuine source of foreign exchange needed to pay for current account deficits. He has said duty drawback in Pakistan depends on an input-output coefficient organization, and that FBR sales tax data could be used to calculate input-output coefficients by sector. [1]

He has said Pakistan's denim exports to the US grew 60% in the first quarter, and that Pakistani denim producers report they are close to full capacity. He has said Pakistan is already gaining from shifts in production structures in China. He has said countries keep adding more products to their export baskets as they develop. [2]

Varela has said most FDI into Pakistan is market-seeking rather than export-oriented, and that market-seeking FDI exploits protected markets in Pakistan. He has said Pakistan does not have many free trade agreements. He has said the only comprehensive trade agreement Pakistan has is with China, and that Pakistan can take more advantage of it. He has said smaller Pakistani firms need public sector support to use trade preferences. [2]

He has said the loss of export competitiveness is completely self-inflicted. He has said Pakistan should integrate more into regional value chains with Chinese firms. He has said firms that look outwards learn more. [2]

Views on services, garments and decarbonization

Varela has said knowledge-intensive services exports are growing fast and are partly hidden in the statistics. He defines them as software developers, architects and engineers who sell abroad. He has said outsourcing from Pakistan has been happening for a very long time. He has said knowledge-intensive services were about 10% of Pakistan's services exports in an earlier period and are now about 50%. [2]

He has said many services exports are under-reported because the money does not come into Pakistan. He has said policymakers should let firms move money in and out of Pakistan, and should attract big companies as well as freelancers. He has said outsourcing employs people at both low and high skill levels. [2]

Varela has said sectors will need to decarbonize to stay competitive, and that developed countries will likely impose carbon border adjustments. He has said the private and public sectors should think together about decarbonization and certification. He has said Pakistan's garment sector has a comparative advantage that will continue, and that garment jobs should pay better and adapt to new developments. [2]

Timeline

2021
The World Bank releases the fall 2021 issue of its Pakistan update, which focuses on reviving exports.[2]

Appearances

DateTitleWhere
2023-02-27 Why Pakistan keeps choosing real estate over growth Thought Behind Things
2021-11-03 Pakistan's import duties are, in effect, export taxes Thought Behind Things

Frequently asked questions

Who is Gonzalo Varela?

Gonzalo Varela is a Senior Economist at the World Bank. He leads the World Bank's trade engagement with Pakistan.[1][2]

What does Gonzalo Varela do?

Gonzalo Varela is a Senior Economist at the World Bank and leads the bank's trade engagement with Pakistan. He first worked in the World Bank's global trade unit, which covers trade without a country focus. He later moved into country-specific work and ended up working on trade in Pakistan.[1][2]

Where did Gonzalo Varela study?

Gonzalo Varela completed a degree in Uruguay and did his PhD in the UK. He began studying economics with an interest in how countries develop. His PhD studied how a type of uncertainty linked to the real exchange rate affects production decisions.[2]

Where is Gonzalo Varela from?

Gonzalo Varela has said he comes from Uruguay. He has also described his home as a country in Latin America.[1][2]

How did Gonzalo Varela start at the World Bank?

While Gonzalo Varela was doing his PhD, the World Bank approached him for an assignment in Indonesia. He took a summer off from the PhD to work in Indonesia. He joined the World Bank after finishing his PhD.[2]

What has Gonzalo Varela said about import duties in Pakistan?

Gonzalo Varela has said that import duties are, in effect, export taxes. He has said tariffs protect domestic producers but not exporters. He has said average import duties of about 20% place Pakistan among the top five most protected economies.[2]

What has Gonzalo Varela said about Pakistan's exchange rate?

Gonzalo Varela has said a depreciated real exchange rate is typically good for long-term growth. He has said a 1% real depreciation raises exports by about half a percentage point. He has also said a rapid depreciation feeds into inflation.[2]

References

  1. Why Pakistan keeps choosing real estate over growth . Thought Behind Things , 2023-02-27.
  2. Pakistan's import duties are, in effect, export taxes . Thought Behind Things , 2021-11-03.
Show the source passages (149 statements)
  1. Gonzalo Varela is a Senior Economist at the World Bank. Gonzalo Varela is the Senior Economist from The World Bank.
  2. Varela has said he comes from Uruguay. in the country where I come from, that is Uruguay
  3. Varela has said the report's premise is that Pakistan's growth has been stunted by poor allocation of talent and resources. the premise of this report is that Pakistan's growth, economic growth has been stunted by the inability of Pakistan to allocate its talent and its resources to the best possible uses
  4. Varela has said Pakistan's growth is volatile, with boom and bust cycles linked to balance of payments crises. the reason for those boom and busts and and these busts are typically related uh with balance of payments crisis
  5. Varela has said incentives make real estate more profitable than investing in productive tradable sectors. it is more profitable to allocate resources, to put your money in real estate than it is to put your money in productive activities related to tradable sectors
  6. Varela has said taxes on income from productive sectors are higher than taxes on real estate and land. taxes have been predominantly much higher on the income of the productive sectors, right, in manufacturing or in productive services, than it has been if you park your money in real estate or in land
  7. Varela has said Pakistan's high import duties in practice cause export substitution rather than import substitution. in principle, they are supposed to do import substitution, but in practice, they do export substitution
  8. Varela has said low productivity growth is at the core of Pakistan's growth challenge. Uh and that is at the core of the growth challenge, the fact that productivity hasn't been increasing
  9. Varela has said tax policy should bring all sectors into the tax net with harmonized rates. So we need to bring all sectors into the tax net and we need to have rates that are harmonized
  10. Varela has said Pakistan recently introduced a super tax on firms that were not exporting. a few months back, there was an introduction of a super tax on firms that were not exporting
  11. Varela has said Pakistan could introduce progressive property taxes. So thinking about introducing, uh, property taxes that could be progressive
  12. Varela has said state borrowing from banks crowds out credit for the private sector. the state absorbs a lot of the borrowing from the banking sector, what happens is that it crowds out credit that could go for the private sector
  13. Varela has said Pakistan's insolvency laws should be brought to international good practice. Insolvency laws need to be brought to uh international good practices
  14. Varela has said slow collateral recovery makes banks less willing to lend to the private sector. to get hold of the collateral and regain the value of the of the loan they gave in the first place is is is very long or very cumbersome. Then firms are banks are going to be less prone to lend to the private sector
  15. Varela has said family-owned firms perform a little worse on productivity than non-family-owned private firms. family owned firms perform a little bit worse than uh that than non-family owned private firms
  16. Varela has said family ownership may reduce the incentive to invest in human capital. if if you are if your family owns the firm, perhaps you don't need to invest so much in human capital to get that job
  17. Varela has said managerial practices in Pakistan are below average for countries at a similar level of development. managerial practices are on average uh be are below average in Pakistan, uh you know, compared to countries that are similar level of development
  18. Varela has said exporters and foreign-owned firms have stronger incentives to professionalize management. being integrated into the global marketplace, being an exporter or being foreign owned, uh that gives incentives of their own to professionalize management
  19. Varela has said Pakistan's firms do not grow large as they age. in Pakistan, the line is flat. As firms grow old, they don't grow large
  20. Varela has said there was no single case of a firm that moved from small to large. We have no single case that moved from small to large
  21. Varela has said Pakistan struggles to grow firms compared with Turkey, Bangladesh, Mexico, Ethiopia and Egypt. when you do the international comparison with Turkey, with Bangladesh, with Mexico, with Ethiopia even and and Egypt, what you see is that Pakistan struggles in that respect
  22. Varela has said that firms which incur losses for a long period of time are called zombie firms. Uh we call those zombie firms. Firms that for a long period of time, they they incur losses
  23. Varela has said state-owned enterprise reform is a crucial reform for Pakistan right now. So I think that SOE reform is a crucial reform uh these days
  24. Varela has said Pakistan has state-owned enterprises in fisheries and questions why the state is involved there. There are SOEs in fisheries, for example. Why is the state of Pakistan involved in uh in the fishery sector?
  25. Varela has said Pakistan should make it as easy as possible for exporters to export. make it as easy as possible for exporters to export
  26. Varela has said exports are the genuine source of foreign exchange needed to pay for current account deficits. At the end of the day, to pay for the accumulation of foreign liabilities that Pakistan has incurred over the years with current account deficits, what you need is exports
  27. Varela has said duty drawback in Pakistan depends on an input-output coefficient organization. to get a duty drawback, you need an organization that is called the input-output coefficient organization
  28. Varela has said FBR sales tax data could be used to calculate input-output coefficients by sector. FBR sits on a lot of data that could be using to use through sales tax declarations, calculate what are the input-output coefficients in those sectors
  29. Varela has said the time to act on some reforms is now. And if you know, the time to act, we say the time to act is now
  30. Varela has said some reforms should wait because of fiscal and current account constraints. there are other recommendations that right now we know with constraints on the fiscal side, constraints on the current account side, there are some reforms that perhaps we need to wait a little bit
  31. Varela has said Pakistan needs a gradual reduction in its fiscal deficit so the government stops being the key borrower. you need a reduction, gradual reduction of fiscal deficit so that the government doesn't continue being the key borrower
  32. Varela has said policy should experiment, scale what works, and stop what does not. experimenting implies that you need to try and if it works, scale up and if it doesn't, learn from the mistake and stop doing it
  33. Varela has said subsidized firm training interventions show promising results in several countries. increasingly there are interventions uh that are part partly subsidized by by government agencies uh across the world with some promising results
  34. Varela has said female labor force participation is a first order condition for growth. female labor force participation is a first order condition there
  35. Varela has said female labor force participation in Pakistan is around 21%. female labor force participation in Pakistan is around 21%
  36. Varela has said female labor force participation in Bangladesh is over 38%. female labor force participation in in Bangladesh is over 38%
  37. Varela has said Pakistan's GDP would increase up to 23% if female labor force participation matched Bangladesh's. if female labor force participation in Pakistan were to match the level of Bangladesh and if we had labor uh you know, labor policies that would encourage, that would facilitate these women getting jobs. And then what we find is that GDP of Pakistan would increase up to 23%
  38. Varela has said women outside the labor force do a lot of unpaid work at home. Actually, women that do not participate in the labor force work a lot. They work at home
  39. Varela has said female labor force participation follows a U-shape across education and income levels in Pakistan. What you see is a U-shaped relationship. At low levels of education or low levels of income, what you see is that females participate much more in the labor market
  40. Varela has said female employment in manufacturing in Pakistan is 4%. When you look at female employment in manufacturing, it's at 4%
  41. Varela has described the drivers of women's employment in manufacturing as a coordination problem. And when you start looking at uh the drivers of women employment in in in manufacturing, what you see is a what economists call a coordination problem
  42. Varela has said it is expensive for a firm with no female employees to hire its first woman. it is expensive for a firm that has zero female employment to hire one
  43. Varela has said Bangladesh shares many cultural features with Pakistan. Bangladesh is a country that shares a lot of features from a cultural perspective with Pakistan
  44. Varela has said Bangladesh is much better integrated into global value chains than Pakistan. Bangladesh is much better integrated in global value chains than Pakistan is
  45. Varela has said public transport is crucial for female labor force participation. So public transport is crucial for female labor force participation, for sure
  46. Varela has said without public transport, people are locked into their communities for work, which misallocates talent. if you don't have public transport, you're going to get uh people locked in their communities to uh to work there
  47. Varela has said Pakistan's macro investment rates are very low. Investment rates at a macro level are very low
  48. Varela has said the report looks at three crucial factors for resource and talent allocation. we looked at three things that we think are crucial into this issue of allocation of talent and of resources
  49. Varela has said his team presented a roadmap of reforms for Pakistan in the report. in our report, in that from swimming in sun to to high and sustainable growth, we we uh present a a roadmap
  50. Varela has said the exchange rate is a key price in the economy. The exchange rate is a key price in the economy
  51. Varela has said currency depreciation makes imported and tradeable goods more expensive, which raises inflation. When the the currency gets depreciated, imported products get more expensive, tradeable goods in general get more expensive
  52. Varela has said the exchange rate is being fixed too low. I think the the issue is that we are fixing it too low
  53. Varela has said Pakistan does not have a large enough stock of dollars to fix the exchange rate. But if you think that's the way to go, you know, but can you do it? Can Pakistan do that now? Does it have a large amount of dollars? No, it doesn't
  54. Varela has said there is no good international experience of exchange rate rationing followed by an economic boom. there is no good experience across the world in which there has been exchange rate rationing and then, you know, the economy booms
  55. Varela has said deciding who gets scarce dollars is arbitrary and intrinsic to exchange rate rationing. that arbitrariness around who gets the dollars and who doesn't, that is intrinsic to the rationing of exchange rates
  56. Varela has said a long overvalued rupee shrinks Pakistan's export capacity. If the exchange rate has been uh overvalued for a long time, so if the Pakistani rupee has been overvalued for a long time, what happens is that the export capacity of the economy shrinks
  57. Varela has said exporters will expand over time after a real depreciation because they respond to incentives. But if you give them enough time, they will expand because exporters, like anyone else, respond to incentives
  58. Varela has said formalization is a complex process with no silver bullet. the process of formalization is a complex process and there's no uh silver bullet here
  59. Varela has said formalization is not an area he specializes in. So let me for full disclosure, this is not an area in which I specialize
  60. Varela has said he has not seen a good impact evaluation of formalization policies. I haven't seen to date, uh, a good impact evaluation on formalization
  61. Varela has said the important thing is to increase the costs of cash-based transactions. The important thing is to to increase the costs of doing transactions, uh, that are cash-based
  62. Varela has said more transactions move through banks as countries develop. So as as society, as as as countries move up in the development ladder, what happens is that you get more, uh, bancarization of transactions
  63. Varela has said complex regulations and systems in Pakistan reduce incentives to bank. if regulations inside Pakistan or or or systems inside Pakistan make processes extremely complex, then that's going to reduce incentives to bancarize
  64. Varela has said Pakistanis are capable of handling banking processes and should not be underestimated. I would not underestimate the Pakistani people
  65. Varela has said he would estimate 70% of Pakistani workers are in small and medium enterprises. A lot of the people, or I would say 70% are working in small and medium enterprises
  66. He leads the World Bank's trade engagement with Pakistan. I lead the trade uh the trade engagement of the World Bank with Pakistan
  67. He began studying economics with an interest in how countries develop. I started studying economics with a quite a a defined interest in uh the the challenge of development of countries
  68. He completed a degree in Uruguay. what I did a a degree in Uruguay and then I moved to the UK to do a PhD
  69. He did his PhD in the UK. and then I moved to the UK to do a PhD
  70. His PhD studied how a type of uncertainty linked to the real exchange rate affects production decisions. where I studied how um a particular type of uncertainty that relates to to how the real exchange rate frequently moves
  71. He comes from a country in Latin America. And I come from a country um and and from a region in Latin America
  72. While doing his PhD, he was approached by the World Bank for an assignment in Indonesia. I got approached by by the World Bank to work on a specific assignment um in Indonesia at that time
  73. He took a summer off from his PhD to work in Indonesia. I took a summer off uh from my PhD, went to Indonesia, worked on that
  74. He became excited about a career in development at the World Bank. got very excited about the the prospect of a career in in in development in the World Bank
  75. He joined the World Bank after finishing his PhD. when I finished the PhD, I I started uh working for the bank
  76. He first worked in the World Bank's global trade unit, which covers trade without a country focus. First, uh in the in the global trade unit, that is a a unit that looks at at trade issues uh without a specific country focus
  77. He later moved into country-specific work and ended up working on trade in Pakistan. I moved into more country specific type of engagements and and I ended up in in Pakistan actually working on trade
  78. He began coming to Pakistan on short assignments in 2017. Particularly when I was coming at the beginning in 2017, that I was coming on on on short assignments
  79. He moved to Pakistan. when I moved in here and I I had a little bit more time to look at these things in detail
  80. He said the World Bank had just released the fall 2021 issue of its Pakistan update. we just released uh last Thursday actually, the Pakistan Development Update. Uh it's the fall issue for 2021
  81. He said the World Bank's fall 2021 Pakistan update has a specific focus on reviving exports. it has uh a specific focus in this case that is a focus on reviving exports
  82. He said developing countries face much more uncertainty. in developing countries there's much more uncertainty
  83. He said the real exchange rate adjusts the nominal rate for changes in domestic prices. how the evolution of domestic prices affect that parity
  84. He said the real exchange rate is a very important determinant of reviving exports. the real exchange rate actually is a is a a very important determinant of reviving exports
  85. He said exporters watch the exchange rate closely because it drives their profitability. exporters look look quite closely at what is happening with with the exchange rate because it's a crucial element in their profitability
  86. He said the rupee was about 171 to the US dollar at the time. the exchange rate now is about 171 to 1
  87. He said a depreciated rupee is good news for exporters. for exporters, a depreciated rupee is good news
  88. He said a stronger dollar raises the cost of Pakistan's debt. a dollar increases the burden of increases the price of the dollar, increases the burden of the debt
  89. He said a rapid depreciation feeds into inflation. a rapid depreciation, then that's going to translate to some extent into what is happening with inflation
  90. He said a depreciated real exchange rate is typically good for long-term growth. typically, not always, but typically, a depreciation of the real exchange rate is going to be in the long term good for growth
  91. He said countries that have a relatively depreciated currency for long periods typically end up growing faster. countries that have a relatively depreciated currency for long periods are countries that uh typically are going to end up growing faster
  92. He said this empirical regularity was set out in a paper in 2008. So this is this is an an empirical regularity that Rodrik unveiled in this paper in 2008
  93. He said a depreciated currency makes imports more expensive. what a depreciated currency does is it makes imports more expensive
  94. He said exports fall quickly when the rupee appreciates. exports fall very fast when the exchange rate appreciates
  95. He said exports respond more slowly when the rupee depreciates. But when the exchange rate depreciates, right? The growth of exports is slower
  96. He said that in the long term, Pakistani exports respond to the exchange rate. in the long term, Pakistani exports are sensitive to the exchange rate, just like everywhere else in the world
  97. He said a 1% real depreciation raises exports by about half a percentage point. A 1% depreciation of the rupee in real terms increases exports by half a percentage point
  98. He said exports of homogeneous goods react quickly to exchange rate changes, unlike differentiated goods. the exports of what we call in economics homogeneous goods react fast, react quickly. But the exports of differentiated goods don't
  99. He said a trade deficit can be a sign of a healthy economy. that trade deficit is is actually if anything, it's a sign of of a healthy economy
  100. He said a trade deficit is harder to sustain when dollars are hard to get or come at high interest rates. if instead, it's difficult to get this these dollars or these dollars come at a really high uh interest rate
  101. He said the size of the US economy gives investors confidence to fund its trade deficit. the US economy is among the is the largest economy in the world and so it it gives a little bit of of confidence to investors
  102. He said Australia runs a persistent trade deficit that investors keep financing. Australia is another another case, yeah, that has a run an an endemic uh trade deficit, but investors are happy to to to continue investing in in Australia
  103. He said the State Bank of Pakistan moved to a float or managed float regime. the State Bank Pakistan moved to a regime in which we can say that we have a a float or a managed float
  104. He said that before the float, the nominal rate was held while prices kept growing. Before then, there was a uh uh let's say the the the the exchange rate was preserved at a certain level, uh the nominal, and because prices kept on growing
  105. He said under the earlier regime imports became cheaper and exports harder to sell abroad. imports became cheaper gradually and exports became uh more more more difficult to to compete internationally
  106. He said a sustained rupee appreciation over several years eroded export profitability. By an appreciation of exchange rate during three, four, five years, uh quite sustained that eroded the profitability of the export sector
  107. He said exports fell from about 16% of GDP in 2000 to under 10% at the time he spoke. we moved from uh having about 16% of GDP explained by exports uh in 2000 to have today less than 10% explained by by by exports
  108. He said the export sector lost competitiveness for a long period, with long-term implications. the export sector lost competitiveness for for a long period of time, had long-term implications
  109. He said exporters in his home region pay close attention to the exchange rate. And I come from a country um and and from a region in Latin America, uh the exporters pay a lot of attention to exchange rate
  110. He said a trade deficit is more likely to be corrected by depreciation than by higher import duties. it's more likely that a trade deficit will be uh corrected with a depreciation of the currency than with import duties increasing
  111. He said most FDI into Pakistan is market-seeking rather than export-oriented. most FDI uh is is is is in in the market seeking segments
  112. He said market-seeking FDI exploits protected markets in Pakistan. that it will exploit the fact that markets are very protected in Pakistan
  113. He said Pakistan needs a competitively priced currency and lower cascading import duties together. you need a you need a competitively priced currency, but you also need less cascading
  114. He said average import duties of about 20% place Pakistan among the top five most protected economies. On average, they are at 20% and that places Pakistan among the top five most protected economies in the world
  115. He said Pakistan's high import duties apply across consumer goods, machinery and intermediates. These high import duties are not for a specific type of product. They are across the board
  116. He said import duties combine a customs duty, a regulatory duty and an additional customs duty. there is something called a customs duty, but on top of that, there is a regulatory duty and on top of that, there's an additional customs duty
  117. He said Pakistan applies cascading tariffs, with higher duties on final goods than on inputs. the tariff is much higher on the final good than it is on the intermediate or raw material that you need to produce it
  118. He said Pakistan has the second highest effective rate of protection in the world. Pakistan has the second highest in the world rates of effective protection
  119. He said protection makes exporting a residual option for firms. exporting becomes only a residual option for firms because it's so profitable to sell in the domestic market
  120. He said in Pakistan, export surplus means output that the domestic market does not absorb. In Pakistan, export surplus means whatever you produce and you don't sell domestically
  121. He said import duties are, in effect, export taxes. this is why import duties are called import duties, but for all purposes, they are export taxes
  122. He said high import duties encourage smuggling. It will incentivize smuggling, but even in a world without smuggling
  123. He said tariffs protect domestic producers but not exporters. Tariffs only protect the producer that chooses the domestic market. Tariffs don't protect the exporter
  124. He said tariffs impede competition and innovation. What the tariff does is it impedes competition, right? Impedes innovation
  125. He said Pakistan's denim exports to the US grew 60% in the first quarter. exports out of Pakistan to the US of denim mark were growing at 60% in the first quarter
  126. He said Pakistani denim producers report they are close to full capacity. they are going to tell you that they are close to full capacity
  127. He said Pakistan is already gaining from shifts in production structures in China. Pakistan is already gaining from these shifts that we see uh in in production structures in China
  128. He said countries keep adding more products to their export baskets as they develop. as countries develop, they they keep adding more products into their baskets
  129. He said sectors will need to decarbonize to stay competitive. sectors will need to start decarbonizing to be able to be competitive
  130. He said developed countries will likely impose carbon border adjustments. that developed countries will start imposing to avoid this carbon leakage
  131. He said the private and public sectors should think together about decarbonization and certification. you want the private sector and the public sector to start thinking together, how are we going to move into decarbonization
  132. He said Pakistan's garment sector has a comparative advantage that will continue. Pakistan has a comparative advantage, right? And it will continue having a comparative advantage
  133. He said garment jobs should pay better and adapt to new developments. you want them to be better paid and you want them to adapt to the new uh developments that are happening
  134. He said knowledge-intensive services exports are growing fast and are partly hidden in the statistics. the knowledge intensive services exports that come out of Pakistan that are growing very fast and that are uh sometimes overlooked and and in part hidden because of problems with statistics
  135. He defines knowledge-intensive services exports as software developers, architects and engineers who sell abroad. I mean software developers, I mean architects or engineers that sell their products abroad
  136. He said outsourcing from Pakistan has been happening for a very long time. Outsourcing has been happening for a very long time
  137. He said knowledge-intensive services were about 10% of Pakistan's services exports in an earlier period. exports of knowledge intensive services were 10% of services experts
  138. He said knowledge-intensive services are now about 50% of Pakistan's services exports. Today they are 50% of services experts
  139. He said many services exports are under-reported because the money does not come into Pakistan. a lot of these services experts are under reported because the money doesn't end up coming in
  140. He said policymakers should let firms move money in and out of Pakistan. then you give them the freedom to move money in and out of Pakistan
  141. He said policymakers should attract big companies as well as freelancers. It's great that you have a lot of freelancers, but also that you have big companies coming in
  142. He said outsourcing employs people at both low and high skill levels. a lot of the outsourcing happens at relatively low skills, a lot of the outsourcing happens at really high skills
  143. He said Pakistan does not have many free trade agreements. Pakistan uh doesn't have many free trade agreements or preferential trade agreements
  144. He said the only comprehensive trade agreement Pakistan has is with China. The one that it has that is comprehensive is with China
  145. He said Pakistan can take more advantage of its agreement with China. a lot of uh low hanging fruit is in taking more advantage of that agreement
  146. He said smaller Pakistani firms need public sector support to use trade preferences. that will require support from the public sector also, support to firms, particularly to smaller firms uh that could be taking advantage of those preferences
  147. He said the loss of export competitiveness is completely self-inflicted. the fact that export competitiveness uh has has faded is is is completely self-inflicted
  148. He said Pakistan should integrate more into regional value chains with Chinese firms. integrating a little bit more in a regional value chain with Chinese firms
  149. He said firms that look outwards learn more. Firms when they look more outwards than inwards, they end up learning more