Pakistan Economy history

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MAIN ECONOMIC POLICIESIMPORT SUBSTITUTION: Consumer – goods industry setup.Manufacturing in its own territory the product of

its raw material such as cotton, jute, skin and hides.

EXCHANGE RATES:Decision not to devalue in 1949.Korean war 1951 and its impact on Pakistan’s

economy.TRADE POLICIES :Quantitative controls on imports .Highly differentiated structure of tariffs.

IMPACT OF POLICIES:POSITIVE:Large scale manufacturing grew at 23.6% between 1949

to 1954. Investment doubled ( return 50% to 100% in early

1950’s)Spectacular profits on exports due to Korean boom Newly setup manufacturing industries . (export surplus)GDP rose to 9.4% in 1953-1954. ( Avg GDP 3.12% (1950-

58)Success of import substitution .NEGATIVE:More development in west PakistanAgriculture stagnated

1958-1969

FIVE YEAR PLANSFirst Five-Year Plan (1955-60)-plan was

not implemented-political instability Second Five-Year Plan (1960-65)- encouraged private entrepreneurs to participate in those

activities in which a great deal of profit could be made, This mix of private enterprise and social responsibility was

hailed as a model that other developing countries could follow

1965 Indo-Pakistani War over Kashmir-More resources than had been intended also were diverted to defense

Third Five-Year Plan (1965-70)-produced only modest growth.

LAND REFORMSLand Reform Commission was set up in 1958the government imposed a ceiling of 200

hectares of irrigated land and 400 hectares of unirrigated land in the West Wing

In the East Wing, the landholding ceiling was raised from thirty-three hectares to forty-eight hectares

some 4 million hectares of land in West Pakistan, much of it in Sindh, was released for public acquisition -sold mainly to civil and military officers

INDUSTRIALIZATIONprivate sectortrade policy -export bonus scheme launched in 1959 –selective import licensing scheme of the 1950s-was

replaced in 1961 by the open General license(OGL), which allowed newcomers to enter the trading sector

“Free List” –The EBS scheme transferred a subsidy to exports, large-scale manufacturing increased from 8% per

annum between 1955 and 1960 to 17% between 1960 and 1965.

GREEN REVOLUTIONimproved rural infrastructures subsidized fertilizers and modernized agriculture

through irrigation development

FOREIGN AID, THE PRIVATE SECTOR, AND INEQUALITIES:

Foreign aid Doctrine of Functional Inequality-concentration

of wealth and income in the industrial sector.22 families controlled 66% of industrial assets,

70% of insurance and 80% of total banking assets.

IMPACT OF THE POLICIES1972 - 1974:Agricultural output increasedGrowth in exports1974 – 1977:Failure of nationalizationPrivate sector investment reduced to 15 %Public sector rose to 75%Growth in large scale manufacturing slowed

down

MAIN POLICIES:According to World Development Report 1990, during

80-88 Pakistan’s GDP growth rate was 6.5 percent. According to World Bank, manufacturing GDP grew at an annual average rate of 9.5 percent between 1977 and 1986, and investment in medium and large scale industry grew at an average of 18.2 percent per annum, while total private industrial investment expanded at 15.6 percent per annum.

Zia’s regime consists of three sub periods: 1977-81, which was the period of cautious attempts at dismantling existing government policies and restoring confidence in the private sector,

1982-5, a more forceful drive towards Islamization which followed the regime’s consolidation of power

1985-8, the attempt to disengage the government from direct control of the economy.

One of the most important concerns of the new Zia regime in mid-1977 was the need to restore business confidence

The earliest steps taken by the Zia government to appease the private sector was the denationalization of a number of agro-based industries. In December 1977, a number of basic and heavy chemical and cement industries were opened up to the private sector.

The existing public industrial sector was quite large employing over 50,000 persons and a massive investment programme of over Rs40 billion was underway. Thus it was not practical for the Government to undertake any large scale denationalization.

As for public sector industries, a programme for improving efficiency and profitability was initiated and the investment programme was restricted to ongoing projects and to the balancing, modernization and replacement.

The new government reinstated the system of five year plans and the Fifth Five Year Plan was launched in 1978/79.

Fifth Five Year Plan gave very high priority to producer and investment goods industries with industries based on raw materials next in line.

Growth in large scale manufacturing was projected at the highly ambitious rate of 12 percent per annum, a target which was surprisingly achieved.

The Sixth Five Year Plan (1983-88) marks the beginning of the process of deregulation and liberalization

Export led industrialization was mentioned for the first time as a policy goal

The policy measure that distinguishes the Zia regime from all others was that of Islamization

Deregulation and Liberalization.

A series of measures introduced to deregulate industrial operations in the cement, oil seeds and fertilizer industries.

Along with these measures, important steps were taken to liberalize and encourage foreign trade

CAUSES OF HIGH GROWTH AND SUCESS

The revival of confidence in the private sector to invest in industry once again after the brief interlude of the Bhutto regime.

Floating demand in the economy as a whole Investment demand was enhanced by high

resource inflows from the international community particularly the US, because of Pakistan’s strategic role in Afghan war.

Remittances by Pakistani workers contributed very significantly.

The Seventh Five Year Plan (1988-93)

There was another three year agreement (1988-91) with the IMF was concerned and highlighted industrial policy

There has been an increase in the level of indirect taxation (in the form of general sales tax) by July 1990, withdrawal of subsidies on gas, electricity, telephones and fertilizers, an increase in producer prices of major crops (wheat, cotton, sugarcane, rice and oil seeds) and in the prices of petroleum products

A major emphasis of the structural adjustment programme was on the enhancement of growth by encouraging the private sector, which was supposed to take a lead role. Amongst the investment and industrial policies followed was a forceful programme of liberalizing the economy from government control.

The other three year programme that is of 1993-1996 also urged to continue pursuing the private sector agenda

The growth rate of the manufacturing in the 1990s compared to the 1980s fell from a very impressive 8.21 percent average annual increase over the decade to only 4.8 percent for the 1990s

At the same time the cost of borrowing went up with the rates of interest to borrowers of capital increasing

Similarly the prices of utilities were set according to market

Seven-point agenda"Revive the economy and restore investor

confidence“Since Musharraf's emergency, the stock market

lost over $30 billion in market cap, the foreign reserves shrunk by about half, inflation is now flirting with the 20% threshold and investor confidence is in tatters.

since 2001 cumulative remittances are at least double what the Americans have provided in aid

Pakistan's Economic Comparison 1999 to 2007

Pakistan’s economy grew by 100% — to become $ 160 billion Revenue grew by 100% — to become $ 11.4 billion Per Capita Income grew by 100% — to become $ 925 Foreign Reserves grew by 500% — to become $ 17 billion Exports grew by 100% — to become $ 18.5 billion Textile exports grew by 100% — to become $ 11.2 billion Karachi Stock Exchange grew by 500% — to become $ 75

billion Foreign Direct Investment grew by 500% — to become $ 8.4

billion Annual Debt servicing decreased by 35% — to become 26% Poverty decreased by 10% — to become 24% Literacy ratio grew by 10% — to become 54% Public development Funds grew by 100% — to become Rs

520 billion

2007: National revenues had swelled from Rs 308 billion during 1988-99 to around Rs 800bn in 2007; and FBR estimates now 2.8 million Income Tax payers.

The Infrastructure Industries Index, which measures the performance of Seven industries, i.e. Electricity generation, Natural gas, Crude oil, Petroleum products, Basic metal, Cement and coal, has recorded a 26.2 percent growth in Industrial sector of Pakistan.

Pakistan 3rd in world in Banking profitability, a report of IMF said.

In 1999 what we earned as GDP: we used to give away 64.1 % as foreign debt and liabilities. Now in 2006, what we earn as GDP: we give ONLY 28.3 % as foreign debt and liabilities. Now we are SAVING 35 % of Our GDP for economic growth.

In 1999 what we earned as GDP: we used to give away 64.1 % as foreign debt and liabilities. Now in 2006, what we earn as GDP: we give ONLY 28.3 % as foreign debt and liabilities. Now we are SAVING 35 % of Our GDP for economic growth.

MUSHARRAF’S ECONOMIC LEGACY1. Pakistan's tax base and government revenue collection more

than doubled from about Rs. 500b to over Rs. 1 trillion.2. Pakistan's GDP more than doubled to $144b since 1999.3. Most recent figures in 2007 indicate that Pakistan's total debt

stands at 56% of GDP, significantly lower than the 99% of GDP in 1999.

4. Pakistan attracted over $5 billion in foreign direct investment in the 2006-07 fiscal year, ten times the figure of 2000-01.

5. Agricultural sector growth recovered sharply, from 1.6% in 2006 to 5% in 2007, while the manufacturing sector growth continued at 8.4% in 2007, slightly more moderate than the 10% for 2006. Services grew at 8% in 2007, down from 9.6% in 2006.

6. Millions of new jobs were created-about 5% of Pakistanis moved from the poor to the middle class in three years from 2001-2004,

7. The Karachi stock market surged ten fold from 2001 to 2007.