Transcript Over View Of Pakistan Economy

Review of the previous lecture
•
Advocates of active monetary and fiscal policy view the economy as
inherently unstable and believe policy can be used to offset this inherent
instability.
•
Critics of active policy emphasize that policy affects the economy with a lag
and our ability to forecast future economic conditions is poor, both of which
can lead to policy being destabilizing.
•
Advocates of rules for monetary policy argue that discretionary policy can
suffer from incompetence, abuse of power, and time inconsistency.
•
Critics of rules for monetary policy argue that discretionary policy is more
flexible in responding to economic circumstances.
Review of the previous lecture
•
Advocates of a zero-inflation target emphasize that inflation has many costs
and few if any benefits.
•
Critics of a zero-inflation target claim that moderate inflation imposes only
small costs on society, whereas the recession necessary to reduce inflation
is quite costly.
•
Advocates of reducing the government debt argue that the debt imposes a
burden on future generations by raising their taxes and lowering their
incomes.
•
Critics of reducing the government debt argue that the debt is only one
small piece of fiscal policy.
Review of the previous lecture
•
Advocates of tax incentives for saving point out that our society discourages
saving in many ways such as taxing income from capital and reducing
benefits for those who have accumulated wealth.
•
Critics of tax incentives argue that many proposed changes to stimulate
saving would primarily benefit the wealthy and also might have only a small
effect on private saving.
Lecture 29
Overview of Pakistan Economy
Instructor: Prof.Dr.Qaisar Abbas
Course code: ECO 400
Lecture Outline
1. Economic eras
2. Structural Changes In Pakistan
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
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
The bad Luck Years:1971-1977
•
Failures
– Events beyond control affected economic program of this era
– Downward trend in growth
– Nationalization
– Cotton crops failure and floods affected Pakistan’s exports
– Crisis in balance of payments
– Devaluation of Pakistani rupee
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)
The Era of Structural Adjustment:1988-1998
•
Achievements
– Return of democracy
– Era of structural adjustment
– Economic liberalization and stabilization
– Privatization
– Reduction in tariff rates to increase exports
The Era of Structural Adjustment:1988-1998
•
Policy Failures
– Macro economic crisis
– High taxation
– Low spending in social sectors
– Trade reforms resulted in deindustrialization
– Continuous devaluation in the Pakistani rupee
– Increased in the administrated prices of utilities
– High inflation rate
– Unemployment
– Privatization without proper policy
– Loss of sovereignty for the Pakistani state and its people
Economic Situation:1998-2004
•
Features
– Acceleration in economic growth
– Increase in industrial production
– Rise in exports earnings
– Strong upsurge in investment
– Pre-payment of high cost external debt
– Increase in foreign exchange reserve
– Strategic re-entry into the international capital markets
– Increase in spending on Education
– Increase in FDI
2005-2007
The economy picked up further in FY2005,
-with GDP growth coming in at over 8.4% for the first time in 8 years.
With sound macroeconomic fundamentals achieved and key sectors
strengthened by reforms implemented in the 4-5 years,
the economy was well positioned to sustain 7% or more growth in the medium
term.
ADB’s Asian Development Outlook – 2005
Sect oral Contribution to the GDP growth (%points)
Sector
200607
200708
200809
200910
201011
Agricult 0.92
ure
0.23
0.86
0.13
0.26
Industr
y
2.28
0.38
-0.03
2.09
-0.02
Manufa 1.55
cturing
0.92
-0.69
1.01
0.55
Service 3.61
s
3.08
0.89
1.54
2.15
Real
GDP
(FC)
3.68
1.72
3.76
2.39
6.81
Structural Changes In Pakistan
•
Structural Change
– Modern economics has given clear evidence that changes in
levels of some basic magnitudes are generally associated with
changes in composition, which imply STRUCTURAL CHANGE
Reasons of Structural Changes
•
To modernize the economy
•
To industrialize the economy
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To pace capital accumulation in the economy
Main Sources of Structural Changes
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Growth of population (natural or immigrant)
•
Application of technical and mechanized processes of production which
change quantity of output per unit of input
•
Technical progress which generates a continuous growth of real per capita
incomes which implies a growth of demand for goods and services
Structural Changes
•
Pakistan today is less than half of the country it was in 1947. The
contribution made by East Pakistan to Pakistan’s society and economy was
huge.
•
Pakistan is basically an agricultural country is no longer true. The services
sector has replaced agriculture as the dominant sector of the economy,
contributing almost half of GDP.
•
Process and extent of Urbanization
• In 1951 only 17% of West Pakistan lived in areas designated as
Urban; today estimate suggest that above 40* live in cities and
towns.
•
Emergence and consolidation of middle class
•
The nature of exports from Pakistan has also changed dramatically.
•
Feudalism in Pakistan died a very long time ago.
Pakistan: basic indicators,1947-2011
Population (millions)
1951
1997
2011
33.78
140
180.72
53.2
24.2
21
7.8
26.4
12
39.0
49.4
67
Contribution to GDP by
sector(%)
i.
ii.
iii.
Agriculture
Manufacturing
Others
An Economic and Social Agenda For Improvement
•
Restore confidence
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Initiate and sustain technological change
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Foster stability and trust in social and cultural relationship
Recommended Books
•
Ishrat Husain, “Pakistan: The economy of an
University Press.
elitist state”, Oxford
•
Zaidi, S. Akbar,(1999),“Issues in Pakistan Economy”, Oxford University
Press.
•
Saeed, K. Amjad,(2007)“Economy of Pakistan, Institute of Business
Management, Lahore.
•
Economics Survey of Pakistan (Latest Issues), Economic Advisor’s Wing,
Ministry of Finance, Government of Pakistan