Efficiency Analysis of Projects in the Pakistan Economy

Abstract

The analysis of projects can be undertaken in three stages; the ftrst stage looks at the ftnancial aspects; the second stage examines the projects from an economic aspect and the third stage appraises the project from a social perspective. For the uninitiated reader it is important to distinguish between these three types of analyses. Financial analysis is the initial stage of examining a project with respect to its viability. The analysis is undertaken from the point of view of the sponsoring agency or individual and the prices used for valuing inputs and outputs are those prevailing in the market, in other words, current prices. These prices naturally include taxes and subsidies which may and do act as a distorting feature. Also, in ftnancial analysis the objective is more or less straightforward and simple - that is maximize proftts. For a government planning offtcer or for one who is concerned with looking at the macro economy in particular, the picture that emerges is more complex. This is so because the government planning offtcer has to satisfy himself that the aims and objectives of development projects mesh in with the economic and social aspirations of the country as a whole and are not the objectives of a single particular group of persons. For this, the pricing and valuing system has to be different from the one that examines projects from a ftnancial point of view. Economic or efftciency analysis, therefore, looks at the beneftts and costs of a project from the broader viewpoint of its impact on the economy. The major differences between economic and ftnancial analysis lies in the fact that prices used to value inputs and outputs are net of taxes and subsidies; these latter reflect simply transfer payments and not real cost. Also, in an economic analysis, funds received from outside agencies are not treated as beneftts and interest and principal repayments are not treated as cost.