1. Overview of Pakistan Economy
Lecture 2
Overview of Pakistan Economy

2. Lecture Outline
Economic eras
Structural Changes In Pakistan

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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)

10. 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

11. 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

12. 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

13. 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

14. Sect oral Contribution to the GDP growth (%points)
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

15. 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

16. Reasons of Structural Changes
To modernize the economy
To industrialize the economy
To pace capital accumulation in the economy

17. 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

18. Structural Changes
Pakistan today is less than half of the country it was in 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.

19. 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

20. An Economic and Social Agenda For Improvement
Restore confidence
Initiate and sustain technological change
Foster stability and trust in social and cultural relationship

21. 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