Transcript Document

Industrial Policy
Objective
• Study the process of industrialization during:
– The Zia period; 1977-88
– Post-1988 era
Backdrop
• In the Zia era, Pakistan witnessed:
– Return of growth rates
– Increased role of private sector
• Post-Zia period is distinct both politically and
economically
– Return to democracy (1988-1999)
– A great deal of continuity in policy
– Structural adjustment programs
• Pakistan’s economic program since 1988 has totally
capitulated to the requirements of IMF and World Bank
Industrial Performance during Zia Years
• During 1980-88, GDP growth rate = 6.5% pa
• Manufacturing GDP grew at 9.5% pa between
1977-86
• Investment in medium and large scale
industry grew at 18.2% pa
Industrial Policy (1977-88)
• ‘Only epoch in Pakistan’s history when an
industrial policy was formulated and executed
for any length of time’
• 77-81:
– Cautious attempts at dismantling existing
government policies and restoring private sector’s
confidence, while simultaneously trying to gain
political legitimacy
Industrial Policy (1977-88)
• 82-85:
– A more forceful drive towards Islamization which
followed the regime’s consolidation of power
• 82-85:
– Attempt to disengage the government from direct
political control of the economy.
Industrial Policy (1977-88)
• Private sector was to play the leading role in the
industrial sector
• Some specific features of the industrial policy:
– Denationalization
• Agro-based industry
• Small engineering units
• Chemical and cement industries
– Export rebates
– Reduction in interest rates
– Easing of economic controls and regulations, including
procedures for sanctioning of private sector
investment.
Industrial Policy (1977-88)
• Deregulation and Liberalization:
– Sixth five year plan seen as a departure from
government’s earlier policies on industry.
– For the first time emphasis moved from purely
sectoral investment planning to one which also
incorporated incentives and institutional reforms to
enhance the efficiency of the industrial sector.
– Export-led industrialization was mentioned as a policy
goal for the first time
– Emphasis on moving manufactured exports towards
higher value added.
Industrial Policy (1977-88)
• Difference between export-led and import-led
industrialization.
The Age of Structural Adjustment: 1988 onwards
• Adoption of SAP had a significant influence on industrial
sector.
• SAP: access to an extended fund facility from IMF as well as
sectoral loans from the World Bank in exchange for many
structural adjustments in the economy
• Major emphasis of structural adjustment program was on
enhancement of growth by encouraging the private sector
The Age of Structural Adjustment: 1988 onwards
• IMF/World Bank’s induced conditionality (1988-91)
outlined the following industrial policy for the
government:
– De-regulation
– Reducing the level of protection accorded to different
industries
– Reducing the list of restricted import items & those subject
to quantitative restrictions.
The Age of Structural Adjustment: 1988 onwards
• Apart from these industry-specific
recommendations, IMF’S macroeconomic
prescriptions had a direct impact on industrial
development
– Increase in level of indirect taxation
– Withdrawal of subsidies on gas, electricity, telephones and
fertilizers
– Increase in producer prices of crops and petroleum
products
– Reduction in public sector development spending
– Restriction on government borrowing and concessional
credit to private sector.
The Age of Structural Adjustment: 1988 onwards
• The debate on credit allocation to industry
• Multi-lateral financial institutions: The use of
concessional and targeted financing distorts
capital allocation and causes financial repression.
• Level of exports determined by competitiveness,
quality, tariff policy, and exchange rate policy.
• Interest rate subsidies cannot compensate for
lack of competitiveness, poor quality, - only
creates further distortions.
The Age of Structural Adjustment: 1988 onwards
• Pakistani planners:
• Local machinery manufacturing and the
export sector have relied heavily on
concessional financing.
•