Overview of Pakistan Economy Lecture 2 Overview of Pakistan Economy

Lecture Outline Economic eras 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) 2006-07 2007-08 2008-09 2009-10 2010-11 Agriculture 0.92 0.23 0.86 0.13 0.26 Industry 2.28 0.38 -0.03 2.09 -0.02 Manufacturing 1.55 -0.69 1.01 0.55 Services 3.61 3.08 0.89 1.54 2.15 Real GDP (FC) 6.81 3.68 1.72 3.76 2.39

Structural Changes In Pakistan 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(%) Agriculture 53.2 24.2 21 Manufacturing 7.8 26.4 12 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