History of Pakistan Economy PDF

# Chap. 1 Overview of Pakistan Economy ## THE GROWTH WITH LIMITED DEVELOPMENT IN PAKISTAN Before we discuss the limited economic development associated with the economic growth we differentiate between Growth and Development. Simply, "economic growth represents the increase in goods and services...

# Chap. 1 Overview of Pakistan Economy ## THE GROWTH WITH LIMITED DEVELOPMENT IN PAKISTAN Before we discuss the limited economic development associated with the economic growth we differentiate between Growth and Development. Simply, "economic growth represents the increase in goods and services of a country which is due to increased efficiency of factors of production". Whereas, economic development not only represents increase in national income of a country in long run, but during this process the technical and institutional changes also occur in the society. This, shows that economic development is wider than economic growth as it includes social, political, cultural, ethical and economic aspects. It is said that in case of Pakistan economic growth took place, but economic development could not be observed. This makes the developmental process doubtful. To see it all we keep in view different phases of economic history of Pakistan. ## 1. 1st Plan Period Since partition to launching II five year plan the industrial strategy adopted was concerned with import substitution, Therefore, in this period govt. made available the lands, tax holidays and foreign exchange to industrialists. Accordingly, in this period due to the efforts of private investors and PIDC the textile, jute, sugar, ghee and cement factories were set-up in the country. Moreover, in this period when Korean war broke-up Pakistan earned a lot of foreign exchange by exporting cotton and jute. This led to favourable trade balance. But the foreign exchange earned in Korean Boom was wasted in liberalization of trade as big vehicles and luxurious goods were imported without any restriction. In these days the economic managers of the country attached the country 's development with western block. At that time Prof: Najraj, was the chairman of Indian Planning Commission, he initiated the strategy of simultaneous development of agri. and industry, as he stressed upon making small implements for agri. sector. But ours chairman Mr. Zahid Hussain followed the policy of importation. As a result, we failed to have a strong agri. and industrial base. ## 2. II Plan Period In October, 1958 Ayub Khan came to power. He also invited the western influence in the decision making machinery. The economists from Harward University started playing a major role in economic planning of the country. They depended upon market economy approach or planning by inducement. M. Shoib was finance minister at that time, while Dr. Mahbub-ul-Haq was the chief economist. Thus the economic strategy followed at that time was known as Ayub-Shoib and Haq strategy whereby the industrialists were given a *lot* of concessions regarding taxes, loans, imports, exports, provision of foreign exchange, wages and payment of agri. raw material. In this period, rather import substitution the export-promotion strategy was pursued. As a result, those industries were set-up which produced exports. However, the protectionist policy was also adopted whereby heavy tariff was imposed on a number of imports, particularly used by consumers. In agri. sector the Green Revolution was taken up where agri. outputs were boosted by using better seeds, fertilizers, water machinery and credits. The II plan is said to be the most successful plan of Pakistan. As during this period, the national income increased by 30% instead of targeted 24%, agri. production increased by 17.5% rather 14% and there was a 60% increase in industrial outputs. ## MAJOR ISSUES IN PAKISTAN ECONOMY But despite marvellous apparent growth it was observed that in 1960, the 60 industrial groups of the country had the control over 60.6%, industrial assets and 43.5% of industrial sales of the country. Out of these 60 groups, there were 7 groups who were the owner of 24.4% assets. Thus following the Haq strategy of economic growth the incomes and wealth of the rich increased, while the poor became miserably poor. In other words, the economic model based upon market economy led to grow inequalities, unemployment, diseases, insecurity, monopolistic practices, palacious houses for the rich, the conspicuous consumption, inadequate health, education, water supply and residential facilities for the poor. Simply, in this period the *Growth without Distribution'* was observed. The artificial exchange rate was maintained and sectoral terms of trade went against agri. sector. The rich were provided facilities and benefits but they did not use their resources to increase employment. While the poor were taxed, they were given lower wage, they were kept deprived of education, health, medical care, water supply and conscious regarding the human rights. The crude capitalism remained in operation and the privileged class was made powerful. ## 3. Third Plan Period It was the strategy of II plan that without caring for income distribution, the GNP of the country be increased. But in the III plan it was realized that the social welfare cannot be ignored. Moreover, in III plan the emphasis was laid upon import substitution alongwith export promotion, redressing poverty in East Pakistan, establishment of small and medium scale enterprises, boost agri. outputs and controlling population. But due to 1965 war, drought in West Pakistan, cyclones in East Pakistan, political agitation against Ayub Khan in 1968-69, and then separation of East Pakistan in 1971 due top civil war in East Pakistan in 1970, no big break-through in the III plan was observed. The II plan strategy was accorded a bad politics, as people rejected growth without distribution. ## 4. The Period From 1971 to 1977 This is the period of Z.A. Bhutto where all the banks, ghee mills, large scale manufacturing units and educational institutions were nationalized. This was quite opposite to II plan's strategy. All this led to shatter the confidence of private investors. The private and public sector became each other's rivals. An atmosphere of hatred was displayed against capitalists at official level. Consequently, private investment declined and state owned enterprises went on showing losses. The country faced severe inflation due to fiscal deficits. However, the economy went on moving on the basis of fiscal deficits, foreign aid, inflow of remittances, increase in public investment, provision of social services and lessening of income inequalities. ## 5. The Period From 1978 to 1988 This is Zia-ul-Haq's period where all of the growth is furnished with inflow of foreign remittances, increase in agri. outputs, foreign assistance due to Afghan war and de-nationalization of industries. In order to dethrone Bhutto, the business and religious class played their role. Accordingly, Zia-ul-Haq wished to win their support. The confidence of private sector was restored so that they could participate in economic growth. Thus Zia govt. fully assisted its allies or the enemies of Bhutto. In this way, the growth process was attempted to re-start. However, this govt. too did not pay much attention on education and social welfare. In such period all of economic growth also took place without economic welfare. The public was not allowed to participate in decision making processes. The income distribution was not given due importance, the corruption and inefficiency went on increasing. ## 6. The Period From 1988-1999 In 1988 Zia's plane crashed. Therefore, after elections Benazir came into power in 1989, then Nawaz Sharif in 1991, then Benazir in 1993 and finally Nawaz Sharif in 1996 became Prime-Ministers. The last period of Nawaz Sharif lasted from 1996 to 1999. This decade remained furnished with political conflicts, care-taker govts, intervention by IMF, initiation of privatization, movement towards free enterprise economy, budget deficits, trade deficits and misgovernance. During this decade the growth rate remained between 3 to 4%, The private class gave more stress on speculative activities, rather manufacturing. The trading, commerce and services sector became the leading sectors of the economy. Heavy fluctuations were observed in exchange rates and actual shortage of foreign exchange was found out. Again trade deficits, fiscal deficits, corruption, financial mismanagement, increase in unemployment, poverty, shortage of water, fall in agri. output and inflation were the common features of the Pakistan economy. The private sector was completely liberalized. But the growth rate did not get better. Govt. had to face the problem of revenue shortage. The desirable amounts could not be spent on education, health, water supply and recreations. The burden of public debt went on increasing. Macroeconomic instability was found out. However, a greater emphasis was laid upon provision of means of transportation and communications, as they were considered most important growth drivers. In this period, the growth was given more importance, though welfare was not ignored. ## 7. The Period From 1999 to June 2016 In the late 1999 General Musharaf took the power. In this period greater dependence was laid upon restructuring and economic reforms alongwith increasing the role of private sector. The industrialists were given facilities, as the rate of interest was lowered and exporters were encouraged. The support prices were implemented in agri. sector. The farmers were given the facilities regarding seeds, fertilizers, credits and consultancy. The unproductive expenditures were controlled. The taxation system was improved. The sales tax system was effectively implemented. But in this situation, poverty increased, as about 30 to 35% of the population is living below poverty line. Though in this period the growth rate went upto 6% but the unemployment also went up to 9%. In this period, the *Elite culture* prevailed upon. The posh residential areas, exalted constructions, public schools for the rich, fast food shops, flood of imported dresses, foods, electronics was observed alongwith rising unemployment, rising poverty, defective facilities of health care and falling caloric standards. Such all cannot be associated with economic development. In the year 2005 - 06, it was said that the poverty had decreased to 25.8% while the unemployment had also fallen to 6.25%. These official figures show the success of Free-Enterprise Economy. But practically the people has to face the rising cost of living due to ever increasing prices of sugar, wheat, vegetables and edible oil. The growth rate of the economy was 6.6% on the year 2005-06 alongwith per capita income of $ 847, but the sufferings of the common man could not decrease. The monopoly capitalism was prevailed upon on the basis of sugar kings, cement cartels, property dealers and speculators. This would hardly represent economic development. In the year 2006-07 the growth rate was 7%. The growth rates of agri. and industrial sector were also remarkable. The total production of wheat was 23 million tons and production of cotton was 13 million bales. February 2008 the social and economic crisis developed. The inflation rate went toe 11% along with shortages of wheat and oil on the one side the number of mobile phones increased while on the other side the number of factories was decreased. Particularly in May the activities and suicides went up. During the year 2008-09, particularly activities shrank alongwith construction of shopping plazas. The number of cell phones increased but not development. The same situation was observed in the years 2010 and 2012 when along with increase in poverty. This can be accorded growth but not development. The same situation was observed in the years 2010 and 2012 when along with increase in poverty. This can be accorded growth but not development. The same situation was observed in the years 2010 and 2012 when along with increase in poverty. This can be accorded growth but not development. The same situation was observed in the years 2010 and 2012 when along with increase in poverty. This can be accorded growth but not development. The craze to purchase mobile phones, construct shopping plazas and activities of fast food went on increasing. The growth rate was 3.7% alongwith poor allocations for health and education during the year 2011-12. As a result, we neither got growth nor development. In the year 2013, the amount of fiscal deficit was more than Rs. 1600 billion, whereas total public debt was of the amount Rs.13626 billion. The interest paid against such loan was Rs.936 billion. The energy crises worstly affected the production activities. The unemployment rate was 6.2% and saving rate was just 13.5%. While total consumption expenditures were 88% of GDP. The growth rate was 3.6%. In this year, both low growth and low development went side by side. In the year 2014, nothing of new was observed. The tax-GDP ratio remained 9.5% of GDP, the public debt went to Rs.15534 billion and Rs.1325 billion were specified for interest charges in the budget 2014-15. Efforts could not be made to increase tax payers. The budget deficit was above Rs.1400 billion. Because of load-shedding and law and order problems industrialization could not flourish. The era of commercial activities went on getting strong, particularly because of rising population, and limited industrialization. In the year 2014-15 we failed to attain neither growth non development. The growth rates of agri. and industry were missed. The terrorism along with poor law and order and bad governance was observed. In the year 2015-16, the growth rate of the economy was 4.7%. This shows revival of economy in terms of growth. But still we find that economy is surrounded by load shedding, terrorism, low investment, fall in exports, rising unemployment, falling savings and growing inequalities. It is neither growth nor development. ## QUESTIONS 1. Evaluate economic performance of Pakistan Economy during 1950s. 2. Evaluate economic performance of Pakistan Economy during 1960s. 3. Evaluate economic performance of Pakistan Economy during 1970s. 4. Evaluate economic performance of Pakistan Economy during 1980s. 5. Evaluate economic performance of Pakistan Economy during 1990s. 6. Discuss economic performance of Pakistan Economy from 2000 to April, 2016. 7. What are major economic issues of Pakistan, how they can be removed? 8. In Pakistan, economic growth is furnished with limited development, analyze it with reference to different periods. 9. Give the overview of Pakistan's economy. 10. Discuss the main features of Pakistan's economy.