Transcript Economy of Pakistan

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Introduction
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Nature of the state and political system
Pakistan adopted typical Mercantilist approach
Political turmoil
Growth and Development debates
 Illiterate, uneducated and unhealthy population
represent no progress
 On the other hand country with low income growth but
with high social and human capital, with literate,
healthy and education population represents progress.
 Vietnam and Cuba - have not impressive stats in
terms of growth but eradicated illiteracy and have stats
in health sector comparable to most developed
countries.
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Major problems confronting Pak-Economy
According to Dr. Ishrat Hussain, there are five
major problems being confronted by Pakistan
economy.
Domestic economic structure and the institutions
supporting the economy are fragile.
Human resource and skill base is less developed
compared to other countries in the region.
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The forces of globalisation and integration of the
world economy impose severe penalties or conditions
for poor internal economic management.
The competition form other developing countries for
market share in international trade, and to attract
foreign direct and portfolio investment and aid flows,
have become fierce.
Finally, glaring income and social inequalities since
independence, resulting into the polarisation and
political instability, scaring away the foreign and local
investors.
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In addition to these problems, according to
some economists Pak-economy is also faced
with some gray areas which invariably
undermines. These are.
Population:
◦ It was 32 million in 1947
◦ 65 million in 1972
◦ Now it is touching the figure of 180 million.
◦ It has put pressure on the scarce national resource
◦ High growth rate of population has led to low level
of labour participation which is around 51%
◦ It has led to low level of literacy (which is around 26
to 30%) and contributing alarmingly to the
germination of unhealthy and uneducated
population.
◦ It also leads to inadequate facilities for health and
other social needs, like access to clean drinking
water, sewerage, adequate housing, etc.
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Economic Models
◦ Shared Growth Model: It is a kind of development
model in which the gains of growth are shared with
the people at the grassroots level. It is a model in
which growth is tied with redistributive justice.
 Most of the East Asian Countries followed this model
and achieved phenomenal growth rates and economic
and social development.
 It is a kind of model which has social dimension and
development is seen as tool to achieve the social
development of the society.
◦ Elitist Growth Model: Most of the developing
countries have adopted this model. The countries
like Brazil, Mexico, Kenya, Nigeria and Pakistan are
leading example of this model.
 Under elitist model, there is complete reversal of the
traditional state and market.
 Economic and political power is held by small coterie
of elite, the market is rigged and state is high jacked
in order to deliver most of the benefits of economic
growth to this small group.
 According to Dr. Ishrat Hussain, the market under
elitist development model produces inefficient
outcomes that are detrimental to the long terms
sustainability of growth.
 Further, state through its irrational action exacerbates
the inequalities in the system and further divides the
society in two classes haves and have nots .
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Economy of Pakistan: it is like roller coaster ride with
certain ups and down at certain point of time.
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It is a story of success and story of failure
◦ Success in way economic growth and per capita income have more
than doubled or trebled despite fast increase in the population
◦ Incidence of poverty declined sharply
◦ Structural transformation has taken place from predominantly
agrarian economy to more diversified industrial production
structure.
◦ Today Pakistan is well integrated in the world economy –
liberalisation, privatisation and deregulation have started.
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Failures: failures actually outweighs than the
success in terms of spill over effect of the
economy.
◦ Human Development indictor are poor in
comparison to other Asian Countries
◦ Literacy rate, infant morality rate and life
expectancy are much below in the region (reason
less spending on education and health,
accompanying by bad governance and corruption)
◦ Fiscal and Monetary policy has been lax.
◦ Poor Physical Structure
◦ Poor quality of human recourses
◦ Limited technological and scientific progress.
◦ Evolution of Pak-Economy has been uneven
thorough out the sixty years of its life.
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Periodisation of Pak-Economy.
◦ First Period: 1947 to 58.
 It was the period of political instability and economic crisis.
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Main features of Ayub era
It is said to be the period of roller coaster ride as
far as the development of Pak-economy was
concerned.
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It was characterised with certain paradoxes
◦ On the one hand it had biggest growth rate in the
history of Pakistan
◦ And on the other hand it produced large increase in
income inequalities, intra-regional difference and the
concentration of economic power in the hands of few
which distorted the fairer allocation of resources.
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Economic indicators
◦ Agriculture growth was about 41.5%
◦ Manufacturing 9.1
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According to some critics, despite such robust expansion
in the economy, the investment in the critical sectors
remained very poor and population remained high in spite
of much touted family planning
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However, the centrepiece of his economic strategy was the
commitment to rapid industrialisation
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And for that he chose private sector to play important role
under the patronage of his govt.
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For that he consolidated his rule to make it more
authoritarian as thought that not democracy but
authoritarian rule could only lead to the nation towards
economic development.
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To realise the goal of economic development, he centred his policy on
private sector and offered it more incentive such as issuance of licence
to set up businesses, credit on low interest and etc.
In order to achieve this goal, the second five year plan envisaged the
removal of administrative controls and the maintenance of monetary
discipline and price stability to provide a macroeconomic environment
conducive to private sector.
Further, Pakistan Industrial Development Corporation (PIDC) was formed
with a view to spearhead the industrialisation drive by providing the
critically-needed capital.
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As a result of this policy, new entrepreneur class emerged reaping high
profits.
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This class served as vehicle in the process of industrialisation.
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To further exacerbate the process of industrialisation, Ayub
regime took more steps such as introduction of the Export Bonus
System (EBS), under which premium was given to exporters,
access to credit and series of fiscal incentives were part of a
policy package to give Pakistani exporters international
competitiveness.
Overall the main thrust of Ayub policy was to create
diversification in the industrialisation.
According to critics, in spite of the success in industrial
diversification and export performance, Ayub policies had
several shortcomings.
One such was the over protectionist policy, whereas the East
Asian Countries had judicious use of protection (Dr. Ishrat
Hussain).
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According to Amjad, one of the more negative features of
Ayub industrial and trade policy was deliberate
suppression of wages and ban on the labour activities
which prevented country to acquire critical mass for
industrial take-off. This was key factor in the down fall of
Ayub regime and popularity of first PPP regime under ZAB.
The impact of 1965 war on the economic development.
◦ The immediate impact was the reduction in the foreign aid flows
as result of sanctions imposed by US.
◦ Defence budget had to be increased.
◦ Re-imposition of foreign controls and tightening of foreign
controls
◦ According to Dr. Isharat, Pakistan’s policy of protectionism was
not planned and well though out.
◦ According to him the paradox of the ISI policy was that,
contrary to claims of reduced dependence on imports, ISI
regime resulted in a progressive worsening in the
balance of payments, with the increase in machinery and
raw material imports outweighing export performance.
◦ According to Dr. Mahbub ul Haq, the Chief Economist of
the Planning Commission, that twenty-two families
controlled 66% of the industrial wealth and 87% of the
banking and insurance in the country.
◦ Such accumulation of the wealth stir up the public
resentment which culminated in the down fall of Ayub
regime in 1969 (Burki and LaPorte, 1984)
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Ayub’s Agriculture policies.
◦ His agriculture policy was the robust one with the
aim to increase agriculture productivity.
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◦ Two factors were watersheds as far as the
development of the agriculture was concerned.
 Green Revolution, characterised by high-yielding
varieties of rice and wheat
 Mechanisation and diffusion of technology among
agriculture producers.
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Seventies of Socialist developmentalism.
◦ Intro.
◦ Bhutto took over amid trauma
◦ His period marked the broad restructuring of the country’s industrial and
agriculture sector.
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His major decisions of his regime were
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◦ Trade liberalisation by removing bonus scheme in order to unify the
exchange rates.
◦ Nationalisation of large private manufacturing and financial institutions
which are said to be the main cause for huge downward trend in growth.
◦ However, according to S. Akbar Zaidi, in the 1970’s, GDP grew by close to
5%.
◦ Critics of Bhutto dubbed his economic programme total failure.
◦ One of the major cause was the loss of East Pakistan to which
West Pakistan exported 50 percent of its goods and acquired large
amount of foreign exchange form its raw material exports.
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◦ Devaluation of rupee in 1972 brought significant dividends in
terms of export growth.
◦ However, OPEC 1973 oil increase played havoc with import bill
and created balance of payment.
◦ Also 1973 witnessed world wide recession of global oil crisis.
◦ Recurrent cotton crop failure and floods in 1973, 74 and 1976
affected Pakistan’s main exports.
◦ Nationalised units were the most inefficient in the industrial sector
because they were being run by bureaucracy.
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Sunny side of the Bhutto regime.
◦ It laid down the foundation for future growth.
◦ Basic industries were established and a base for
capital goods industry was established
◦ Middle East Boom was created due to his policies to
export labour to Middle East. According to some
figure around 2.2 million labour force was exported
to Middle East and remittance they sent contributed
significantly towards the growth.
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The Second Military regime.
◦ Zia adopted liberal economic policies.
◦ Economics and religion
◦ State was more of renting seeking.
◦ New class of entrepreneurs, especially from civil and military
emerged.
◦ Because of invasion of Soviet Union of Afghanistan, Pakistan
emerged as front line state. There was massive flow of aid to
Pakistan which contributed in enhancing the domestic demand.
◦ Also revolution in Iran that toppled Shah enhanced the geostrategic importance of Pakistan.
◦ Remittances from Middle East also contributed considerably.
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Era of Structural Adjustment:1988 and onwards
◦ Post Zia democracies
◦ Period from 1988-1999 is called the ‘lost decade of development’
◦ Characterised by political instability and economic inconsistencies.
◦ It was the period determined more by economic conditions and Pakistan
was virtually under IMF tutelage.
◦ During this period, there were four election and two caretaker prime
minsters – Moeen Qureshi and Meraj Khalid, who had Shahid Javed Burki (a
serving World Bank Vice President) as Finance Advisor.
◦ IMF and World Bank forced to Pakistan to implement neoliberal economic
policies of liberalisation, privatisation and de-regulation and structural
adjustment.
◦ These policies were made in Washington and imposed upon
around hundred countries around the world, including
Pakistan as per dictates of ‘Washington Consensus’.
◦ The main focus of SAPs has been the fiscal deficit.
◦ And through different agreements Pakistan has been told to
take measures to lower the fiscal deficit to 4 percent of
GDP.
◦ Ways to achieve involved tax reforms and decrease in public
expenditure, especially development.
◦ According to S.Akbar Zaidi, in the period of 1994-97,
additional taxes of Rs 140 billion had been imposed on the
people without a significant widening of the tax base.
◦ Further, large cuts were made in development expenditure which
fell from 9.3 in 1981 to less than 3 percent form 2000 onwards.
◦ In 19996-97 original development expenditure of Rs 105 billion
was slashed to Rs 85 billion.
◦ According to Zaidi, another key area of SAPs has been the tariff
area, which otherwise is major source of revenue. It was reduced
to mere 25 percent from 125 percent in 1992.
◦ Withdrawal of subsidies and increase in the rates of basic utilities
such gas, electrify and petroleum products has been another
feature of SAPs.
◦ The consequence of these policies has been the inflation,
unemployment and de-industrialisation.
◦ The impact of privatisation has also been negative
as far as employment of the people concerned.
◦ According to Zaidi, almost all the agreements with
IMF have been signed by caretaker governments,
even in 2001 $1.2 billion Poverty Reduction and
Growth Facility agreement was signed by unelected
military regime.
◦ Recent agreement with IMF under Extended Fund
Facility (EFF), under which IMF has approved $7.6
billions. This loan is for three years.
conclusion