Lecture 2
Overview of Pakistan Economy
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
• Main focus
– Fiscal deficit reduction to 4% of GDP told by IMF
– High taxation and reduced public expenditure
– Indirect taxes imposed and instead of decreasing non development or defense expenditure,
development budget decreased (9.3% of GDP in 1981 to , < 3 % in 2000 onwards
– 1996/97 dev budget slashed from Rs. 105 billion to Rs. 85 billion
– Decrease in tariff rates 125% 1992 to 25% today
– Continuous rise in prices of utilities (gas, electricity, and petrol)
– Selling off state owned enterprises, continuous devaluation of Pak rupee
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 2006- 2007- 2008- 2009- 2010-
07 08 09 10 11
Agricult 0.92 0.23 0.86 0.13 0.26
ure
Industry 2.28 0.38 -0.03 2.09 -0.02
Manufa 1.55 0.92 -0.69 1.01 0.55
cturing
Service 3.61 3.08 0.89 1.54 2.15
s
Real 6.81 3.68 1.72 3.76 2.39
GDP
(FC)
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
• To pace capital accumulation in the economy
Main Sources of Structural Changes
• 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
1951 1997 2011
Population (millions) 33.78 140 180.72
Contribution to GDP by
sector(%)
i. Agriculture 53.2 24.2 21
ii. Manufacturing 7.8 26.4 12
iii. Others 39.0 49.4 67
An Economic and Social Agenda For Improvement
• Restore confidence
• Initiate and sustain technological change
• Foster stability and trust in social and cultural relationship
Recommended Books
• Ishrat Husain, “Pakistan: The economy of an elitist state”, Oxford
University Press.
• 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
