Business Studies, Karachi Campus

Assignment 1
Summary of Research Papers and its
Analysis

SAAD BAIG
02-111212-390
BBA 7-A
Make a two-page summary of each of these
research papers.

1. Economic Progress of Pakistan: 1947-2018 By

Sajjad Shaukat.

Economic Progress of Pakistan: 1947-2018

Overview
On August 14, 1947, the Republic of Pakistan emerged as the
Islamic Republic of Pakistan. Its economy was, however, quite out
of boundaries with high tendencies of fragmentation. More than
20% of the subcontinent’s population resided in this country but
had an industrial percentage of less than 7% that mainly
consisted of micro industries. There were 34 factories at a glance,
employing about 26400 workers, while there were no large-scale
industries, or ordnance factories. East Pakistan, which is now
Bangladesh, was incapable of developing any mills but grew a lot
of jute.
Early Challenges
Industrialization of the new country which was predominantly
agrarian was the greatest challenge that had to be undertaken.
The agricultural sector was the highest contributing sector which
accounted for 53% of the GDP with only a population of 30 million
out of which 6 million were urban. During the early years, the
agricultural sector employed about 65% of the labour force which
also accounted for 99.2% of export earnings and 90% of forex
revenue of the country. Pakistan was not developed in
infrastructure although it had abundant resources, poor schooling
rate of 10% and poverty between 55%-60%.
Planning Economic Development in the 1950s
The economic planning is said to have started in the 1950s when
the colombo plan was initiated in 1951 alongside five-year plans.
The country managed to divert its attention to only the
manufacturing sector, with the industrial sector booming on the
backs of post-Korean war bounties and strategically enacted
restrictions on the importation of textiles. Towards what was in
the late 1950s, Pakistan moved toward the achievements of
independence in the cotton textile industry, with manufacturing
increasing at 7.7% each year.
Agricultural and Industrial Boom in the 1960s
Political stability in the country within the 1960s allowed for
continuous growth within the economy where agricultural growth
was 5 % per annum. Heavy investment in irrigation, increased
irrigation usage, and improved crop varieties due to the use of
fertilizers contributed to the increase in output. In the early 60s,
large-scale manufacturing was on an average growth rate of
about 16% per annum but the pace of growth reduced in post
1965 oin-war. By the end of the decade headcount poverty has
fallen to 46%.
The 1970s: Struggle at the Core of Socialism
The 1970s were eventful, including the secession of East Pakistan
in 1971 and the establishment of the Pakistan People's Party in
the middle of economic turmoil. The era experienced a more than
doubled increase in poor to reach 55% as a result of changes in
global oil prices, crop losses, and large flooding. Prices continued
to skyrocket, and a coup in 1977 overthrew the government
leading to a reversal of the policies of nationalization to
deregulation.
Revitalization of the Economy in the 1980s
The 1980s saw a steady improvement of the suitability of the
economy with the direct revival in the economic activities, and
private sector investment was stimulated with a poverty rate play
at 29.1% by 1986-87. As a strategy to improve the needs of the
population, a system of Islamic interest-free banking was
unveiled. Pakistan experienced GDP growth at an average of 6.3%
per year, extensive growth in the manufacturing sector and
agricultural production was also observed during this period.
The 1990s as the Period of the Debt Catastrophe and
Economic Pause
The 1990s have rightly been called the lost decade. Sharp
increases in external debt occurred, and this prompted default as
a realistic option due to Western sanctions following the country’s’
nuclear tests in the year 1998. There was no economic growth,
stagnation became a category defining character in the economy
and by the closing of the last decade several economic indicators
were at distress including high public debt.
2000s: Growth of the Economy and Expansion of Cities
In Pakistan, we look at the economic success that came about
beginning in the year 1999 thanks to a military coup by general
Pervez Musharraf. Between the year 2000 to 2007, Pakistan
experienced economic growth at an average rate of 7 percent,
which made it the fastest growing economy in Asia. Resulting
from this growth was reduction in poverty, creation of
employment opportunities, and improved foreign currency
reserves. Email, but there were some very big positives in these
advancements only that the everlasting strife in the region
prevailed over the advantages.
Emerging insights and already existing hurdles in
economy
By the year 2018, the GDP growth rate of Pakistan had grown to
5.3 % thanks to the performance of the certificate agricultural and
service sectors. The industrial sector was still on the path of
recovering, but the tax to GDP ratio, as usual, remained very
struggling at 12.4%, which is one of the lowest in the world. The
state grappled against corruption-related issues due to the large
amounts of capital outwards that led to the state of chaos in the
economy.
Even with these hindrances, however, Pakistan had improved a lot
ever since its independence in 1947. The country applies
mechanization along with other means in textile, tractor and
automobile production. It is one of the top wheat, rice, and cotton
producers in the world.

2. Evaluation of Macro Economic Policies of

Pakistan (1950 -2008) By Tahir Mahmood, Hafeez
ur Rehman and Shahnaz A. Rauf

Overview
The performance of Pakistan’s economy over the decades from
the 1950s to the year 2008 has not been the same. The first
couple of decades can be described as dominant in terms of
growth but by the 1990s the economy suffered from stagnation,
and the budgets were in deficit. Many of these policies such as
the shift from the initiatives of the private sector to
nationalization and later to liberalization and deregulation, had
varying degrees of success.
Economic Phases and Policy Shifts

1950s and 1960s: Early Conflicts and Initial

Industrialization
During the 1950s, Pakistan’s economic base was narrow, heavily
dependent on agriculture. This reliance hampered rapid
development. However, the 1960s saw significant transformation,
with agriculture's contribution to the GDP diminishing, while the
industrial and service sectors gained momentum.
Huge amounts of government investment and foreign capital
inflow during the early 1960s helped accelerate industrial growth.
The Green Revolution that took place in agriculture also spurred a
growth in productivity sharply, making growth more balanced
between industry and agriculture.
The early stages of progress had indeed been quite rapid, but the
middle of the 1960s proved very difficult. The Indian war of 1965
and a cut in foreign assistance arrested industrial progress.
However, overall economic performance during the 1960s was
considered healthy, though structural imbalances under fiscal
policy as well as in external sectors now began to manifest
themselves.

The 1970s: Nationalization and Economic Stagnation

Separation of East Pakistan in 1971 had grave political and
economic consequences. The new government in its very
programme focused nationalization with focus on the public
sector exercising control over industry for self-reliance and
redressal of the problem of income inequality.
These nationalization policies failed to produce the desired result.
Both agriculture and manufacturing sectors could not create
desirable performance, and average GDP growth rate went down
to 3.6%, much lower than in previous decades.
Fiscal imbalances became much more pronounced, since
expansion in the public sector was not accompanied by
corresponding revenue generation. The increasing fiscal deficits
were financed mainly through external borrowing aggravating the
rising burden of debt on the country.

The 1980s: Liberalization and Economic Recovery

In the 1980s, Pakistan turned the corner toward liberalization,
deregulation, and privatization by rolling back many of the
nationalization policies undertaken a decade earlier. It refocused
again on the growth of the private sector with the reduction in
government's direct participatory role in the economy.
This period saw average growth at 7.1%. Much of this result was
foreign aid tied to Pakistan's participation in the Afghan War, as
well as remittances surging, as the economy boomed with
Pakistani workers abroad.
Despite this high growth, the economy remained riddled with
fiscal deficits. Gains were achieved through borrowing from the
private sector, and while inflation was much better controlled
than in the 1970s, public debt continued to mount, implying there
was a deep-rooted structural problem with the fiscal management
framework.

The 1990s: Structural Readjustments and Economic

Challenges
Fierce structural reforms geared toward the reduction of such
severe macroeconomic imbalances are pursued during the 1990s,
liberalizing agricultural prices, dismantling protection for the
industrial sector, and opening up such key sectors as services and
infrastructure to foreign investment.
The reforms remained fruitless, however, and did not deliver their
promise. Poor governance, inadequate infrastructure, and
inconsistent policies discouraged foreign investment, which could
only deepen and prolong GDP growth, averaging a meager 4.4%.
Public debt levels also worsened with international sanctions
following Pakistan's nuclear tests in 1998.
Fiscal deficits were high and inflation increased during the decade
despite all efforts to control government expenditure and
augment revenue. Social indicators like poverty and education
improved little in these years. Such programs were initiated with
the SAP, but weak implementation made these programs useless.

The 2000s: Growth with Structural Reforms

Pakistan pursued more liberalization and structural reforms in the
2000s. The country's accession to the global war on terror in the
aftermath of the 11 September 2001 attacks boosted Pakistani
coffers with a host of sound economic benefits: rescheduling of
debt and increased foreign aid; also, there was an increase in
remittances.
Another area was the privatization of banks, telecommunication,
and energy areas, with large public investments in infrastructure,
keeping the growth rate of GDP at an average of 4.9% for the
decade. Foreign direct investment increased further, especially
from the middle of the 2000s to mark investor confidence.
But by the mid-2000s some of these hard-won gains began to
unravel. Inflation surged into double digits and both fiscal and
current account deficits surfaced once again, fueled by rising
import and consumption expenditures. Rapid growth and debt
rescheduling reduced the public debt to GDP ratio, but the
economy remained sensitive to shocks caused by higher oil
prices.

Important Findings from the Analysis Economic Growth

There were phases of boom economic growth, especially in the
1960s and the 1980s. However, the periods were punctuated by
instability since it became unsustainable mode of economic
growth for the country due to structural imbalances and
inconsistent policies.
Fiscal Management: Pakistan has never been able to manage
its public finances properly in the country's history. The country
has a persistently low tax-to-GDP ratio and also a very high fiscal
deficit. Despite repeated attempts at reforming the tax system
and reducing fiscal imbalances, debt has continued to increase,
very often on the back of heavy dependence on external
borrowings.

External Financing: The Pakistani economy, almost since the

beginning of its independence, heavily relied on outside sources
of finance, primarily foreign aid, loan flows, and inflows of
remittances. Although such inflows were much-needed short-run
relief, it increased the country's overall debt burden along with
vulnerability to external shocks, such as developments in global
market conditions and geopolitical events.

Social Development:
Little improvement in the social indicator has happened in
Pakistan even after much-needed reforms. The SAP-type of
interventions with a focus on health, education, and poverty
issues did not yield results because of poor governance and
implementation. At the fag end of the 1990s, this country had
lower human development as compared to its regional peers.

Conclusion:
The study covering macroeconomic policies for the period from
1950 through 2008 analyses the country's endeavors toward
sustainable and equitable growth since 1950. Pakistan has
portrayed trends of the successive phases of good economic
performance that later led to instability and stagnation across the
years, mainly due to weak fiscal management, overdependence
on foreign financing, and an unsatisfactory system of structural
reforms. Pakistan needs to push for and strengthen domestic
resource mobilization, improve governance, and remove the
structural weaknesses that long undermined its economic stability
to make sustainable long-term development possible.

3. Industrial Development of Pakistan By A.R.

Kemal

Main Economic Phases

Early Industrial Policy: Import Substitution (1949 and 1956)

Import Substitution was the essence of the very first industrial policies of
Pakistan issued in 1949 and revised in 1956. The idea was to reduce
dependency on foreign goods by encouraging home-based industries which
might produce such goods at home.
An overvalued exchange rate adopted by the government made imported
goods cheap and discouraged local production. However, this was meant to
help safeguard the local industry by substituting imports with local
manufacture.
Although protectionist in nature, investments and prices remained under
direct government control, and thus resulted in a rigid economy; the
industries could not revise their prices according to the demand and supply
of the market and hence witnessed slow growth. The reason was that the
government was too deeply dominating the industries. It strangled
innovation and efficiency since the incentive to improve productivity remains
very low under such rigid policies and system.

The 1960s: Transition towards Liberalization

By the 1960s, Pakistan's leadership realized that rigid controls were
curtailing industrial growth, and therefore it turned toward market-friendly
policies. In this period, the government removed price controls, and prices
were left to be determined by market forces by individual businesses.
The government further liberalized the exchange rate, making it more
reflective of the actual market conditions, which in turn improved the
competitiveness of Pakistani goods in international markets.
In an attempt to speed up industrial production and export growth, the
government gave protection in the form of an export subsidy and fiscal
incentives, like tax holiday for new industries. It attracted investment and
accelerated production and had jump-stage growth in the output of industry.
It is often considered a high-growth period for Pakistan's economy, led
largely by increased exports and capital inflows from abroad.

1972: Nationalization and Reimposition of Controls

The extreme policy turn took place at the very beginning of the early 1970s
when nationalization was initiated under the leadership of Prime Minister
Zulfikar Ali Bhutto. Banks, steel mills, and other crucial industries came
under government control.
Nationalization was expected to reduce centralized economic planning,
ensure an equitable division of the cake, and strengthen government control
over strategic sectors. However, this meant a return to price controls and
elimination of most fiscal incentives and export subsidies that had been
launched in the 1960s.
Nationalization created inefficiencies as state-owned enterprises usually
lacked the competitive drive seen in private businesses. Without market
competition and with the return of restrictive controls, the growth of the
industrial sector was stymied. Government-run industries grew bloated and
inefficient, being more unable to maintain a pace with privately managed
firms through competition and innovation.
1980s and Beyond: Deregulation, Privatization, and Floating
Exchange Rates
Learning from the failures of the 1970s, the 1980s went back to
liberalization. The state started privatizing state-owned industries and began
encouraging private sectors to participate in the economy again.
At this point, the structure of the tariff was rationalized in such a way that
excessive protection that had continued during nationalization for domestic
industries was reduced. This opened the economy to more competitive
forces around the world and helped push industries toward greater
efficiency.
The major structural shift that occurred in the 1980s was moving from a
fixed exchange rate to a managed floating exchange rate. This makes the
relative value of Pakistani rupee determined by market forces, and hence the
overall Pakistani rupee would become more competitive in international
trade. The objective was to directly link value of currency to actual economic
conditions and export performance while adjusting deficit created by trade
imbalance.
These were part of a more general move toward integration into the global
economy.
A more liberal economic policy, less interventionist from the state, would
allow greater leeway to private enterprise and encourage growth, jobs, and
efficiency in the industries.
More Economically, Industrially, and Socially

Import Substitution (1949-1956):

The primary strategy was to substitute imports with local production. This
strategy had mixed results; it may have protected local industries from
foreign competition while allowing the state to exert heavy control over its
economy, fostering inefficiency and limited industrial innovation.
Liberalization and Export Growth (1960s): The liberalization policy of the
1960s accelerated rapid industrial expansion, especially with adjustment of
price freedom and fiscal incentives through such policies. The period marked
increased export volumes and higher growth rates in the economy as the
government laid off direct control over the economy.

Nationalization (1972):
Economic growth became slow in the 1970s because nationalization caused
pressure on the private sector to remain stifled and introduced price
controls. Industries were concentrated under state management, and this led
to inefficiency, low productivity, and a reduction in the competitiveness of
Pakistan's industrial sector.

Re-liberalization and Privatization (1980s onwards):

Re-liberalization and privatization in the 1980s were an attempt to reverse
stagnation during the 1970s. Privatization of public-owned enterprises,
floating rate of exchange in its place, and enhancement of productivity and
greater export orientation, besides more efficient industrial practices, was an
effort to regain those lost growth impulses during the 1970s. A managed
floating of the exchange rate helped stabilize the economy and made
Pakistani goods more competitive abroad.

Conclusion:
The paper traces Pakistan's passage through varying stages of economics,
each with a policy approach. Import substitution within earlier state control
approached a more market-friendly approach during the 1960s and
nationalization during the 1970s, though short-lived but damaging. The
1980s and onward reforms through privatization and liberalization were
aimed at reversing the inefficiencies created by the previous policies and
encouraging growth via market forces. These policy changes reflect
Pakistan's continued process in trying to balance state intervention with the
dynamics of market forces in the overall pursuit of sustaining economic
growth and industrial development.