Transcript Economy of Pakistan

Issues in
Public Administration
MPA 509
Economic Issues and Challenges
Economic Development
• Economic development generally refers to the
sustained, concerted actions of policy makers
and communities that promote the standard
of living and economic health of a specific
area.
• Economic development can also be referred to
as the quantitative and qualitative changes in
the economy. ...
Economic Development
Such actions can involve multiple areas including
development of human capital, critical infrastructure,
regional competitiveness,
environmental sustainability, social
inclusion, health, safety, literacy, and other initiatives.
Economic development differs from economic growth.
Whereas economic development is a policy
intervention endeavor with aims of economic and
social well-being of people, economic growth is a
phenomenon of market productivity and rise in GDP.
Economy of Pakistan
• Introduction
– 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
65 years of development
• Laying the Foundations:1947-1958 Features
– Predominantly agrarian, undeveloped and newly
independent nation
– Little industry, few services and no infrastructure
– Adverse international conditions and precarious
domestic situation
– Attempts of bureaucracy to keep Pakistan on its
feet
– Lack of capital
– Trade surplus
The Decade of Development:1958-1968
Achievements
Considerable economic growth and development
Significant leaps were made in industrial and
agriculture production
Model Capitalist Economy
High growth rate in manufacturing sector
Increase in exports
Progress in agriculture sector
The Decade of Development:1958-1968
Policy Failures
Increased disparities in incomes
Concentration of economic prosperity
Social sectors were neglected
Little or no increase in real wages
Trade was highly controlled and closed
Distortion of local markets b/c of overvaluation of exchange
rate
Economy of Pakistan
 It was characterized 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.
 Economic indicators
Agriculture growth was about 41.5%
Manufacturing 9.1
Economy of Pakistan
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 bad Luck Years:1971-1977
Achievements
Foundations for future growth and development
Basic industries were setup
Base for a capital goods industry
Middle East boom
Illiberal economic policies
Foreign exchange earnings doubled because of
devaluation
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 from its raw material exports.
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 imbalance 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.
Economy of Pakistan
• 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.
The second Military Government 1977-1988
Achievements
Liberal economic policies
Higher industrial growth
Second economic revolution because of
remittances from the Middle East and aid
from abroad
Emergence of middle class
The second Military Government 1977-1988
Policy Failures
Martial rule inflicted deep rooted damage
to Pakistani society
Drugs and arms culture in Pakistan
Confusion of policies
Underutilization of resources (foreign aid
and remittances)
Economy of Pakistan
Zia adopted liberal economic policies.
Economics and religion
State was more of rent seeking.
New class of entrepreneurs, especially from civil
and military emerged.
Because of invasion of Soviet Union, Pakistan
emerged as front line state. There was massive
flow of aid to Pakistan which contributed in
enhancing the domestic demand.
Economy of Pakistan
◦ 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.
◦ 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.
Economy of Pakistan
– 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.