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Background of Pakistan Economy
Background of Pakistan Economy
At the time on independence there were two main things in the country:
1) Majority of population was attached with agriculture sector.
2) Non-existence of industrial sector and trade.
There was much limited industrial sector but the demand for consumer goods was very high. The
investors and traders earned high profits. According to Prof. Pepnik,
“At that time, the rate of profit on industrial investment was so high that investor was in a
position to meet the amount equal his investment in the period of one or two years”. In order to
promote the industrial sector the agriculture sector was neglected. For industrial development
there was a setup of Pakistan Industrial Development Corporation (PIDC) which develop the jute
factories in East Pakistan and cotton, woolen, paper, matches and sugar factories inn West
Pakistan.
Economic policies
General Ayub Khan takes strict steps for political and economic setup. Broadly Ayub- Shoib-
Haq model of economic development was practiced in 60’s. This model based on following
features:
There should be increase the GNP of the country. For this purpose Dr.Haq suggested for
increasing income of rich segment of the economy.
Provision of incentives to industries such as; tax concession, loans at reduce rate, lake of
trade union, anti-monopoly law and provision of raw material etc.
Free enterprises system for prices, profits and imports.
Only concerned to increase GNP even though the social sectors were neglected.
This model generated some positivity towards economic development. But in 1965 war with idia
forced the government to divert the resources toward defense. The foreign aid was suspended.
There were wide crop failures. During 1966-67 there was a severe shortage of food-grain.
Accordingly, 829000 tons of wheat and 197000 tons of rice had to be imported. All cash reserve
was spending on it. During 1967-68 along with improvement in crop and tight monetary policy
help to stable the economy.
A lot of social, religious and economic factors break down the Ayub-Shoaib-Haq model. Some
of economic factors are in below;
1. Inter-Regional Disparities: Development occurred during 50’s and 60’s in West Pakistan
only. East wing deprived from fruits development and also the foreign exchange earned
from jute etc. this amount spend on West Pakistan. There were differences in per capita
income of East and wst Pakistan.
2. No Increase in Real wage: All efforts done which increase profits and decreases wages.
In this situation a great tension was observed between labor and industrial class.
3. Unequal Income Distribution: A severe type of income inequality resulted only 22
families owned and controlled 66% of industrial assets and 87% of banking assets.
4. Trickle Down economy: In this situation there were neither increase employment by
rising investment nor provided reasonable wages and medical care to the employed
worker.
5. Ignoring the social Development: Ignored social sector such as education, health and
water supply etc. Poverty, unemployment illiteracy was observed widely in the country.
Ayub Khan and his model of concentration of wealth in a few hands. Ultimately in 1969’ Martial
Law was imposed in the country and Yahya Khan took over the charge of Chief-Martial Law
Administrator.
Martial Law in the country which culminated in separation of east Pakistan in 1971. The decade
of 70’s will be divided into two parts.
Outcomes
The flood of 1973 had a negative impact on the growth of agriculture and industrial output.
Although devaluation increases the debt services charges, increses the prices of import
machinery. All these problems were responsible for inflationary tendency in the country.
These years of PPP government was very disappointing and disturbing because it was socialist
party. It took the step to increase the role of public sector;
Public investment was increase, the role of private sector was decreases.
Nationalization boost the confidence of industrialist and businessman.
Private investment in manufacturing decreases.
At that time, sometimes flood and some of shortage of water greatly affected the agricultural
productivity. Because of the bad effect on cotton production resulted to decrease the export as
well as foreign exchange earnings. In 1976, the economy had faced devastating flood and attack
of insects which highly affected the cultivable land and cotton crop respectively. These all
caused to deteriorating industries. At last, Martial Law impose on country in 5th July 1977.
Martial Law Government from 1977-80 (Phase One)
After coming into power Zia ul Haq started encouraging private sector, government took the
following steps:
Policies
Incentives to private sector by providing loans to investors at reducing interest rate. The
gaining factories, flour mills and rice factories were given back to their owners.
Atmosphere of confidence for investors and draw lines between public and private sector.
Private investors were allowing to established cement and chemical plants.
5 to 10 years of tax exemption to those investors who will invest in backward areas of the
country. The ‘Export Processing Zones’ were set up.
Farmers were given loans in greater quantity. There were subsidies on fertilizers, seeds
and tractors etc.
The process of “Islamization” of the economy was accelerated. On 10th of February 1979,
the zakat system was implemented. Zakat of 2.5% will deducted from all those deposits
equal to and more than Rs. 1000 which will remain deposited for the period of one year.
The financial institutions like NIT, HBFC and ICP working on ‘Mazarbat’ rather on
interest.
Outcomes
There was gap between saving and investment and the level of savings was very poor.
Improvement in growth rate from 6.4% to 6.5% because of better crop and better
industrial set up.
Budget deficit also went on mounting. It was so that government expenditures were
increases for more than government revenues.
The first half of 1970’s was brought in economic approaches and policies which give the name
of structural change in the economy. Bhutto was highly concerned with equality and equity.
Consequently, the journey from growth to redistribution becomes popular. Structural measures,
banks educational institutions, large scale manufacturing units were nationalized to reduce
inequalities. All such efforts generated positive as well as negative impacts on the economy.
The decade of 1980’s divided into three phases;
Achievements;
There was a dramatic increase in remittances from the Middle East. It provided the 48%
of total foreign exchange earnings.
The weather was an exogenous factor which highly contributed to sufficient water
supplies. This water led to improve the agriculture sector.
Production of cotton, rice wheat and sugarcane reached recorded level. Farmer’s income
and agriculture credit increase rapidly.
Problems
In March 1985 election in the country were held and Junejo appointed as Prime-Minister.
Prime-Minister Junejo’s democratic period (1986-88).
Policy:
Outcomes:
Employment increases, improved illiteracy rate, growth rate in manufacturing increases, per
capita income was $390 which was very high.
Number of firms was reduces, permission to install the new firm was very easy.
Those industries who wish to invest up to rRs.1 billion, they will not require to get
permission.
Under the chairmanship of Prime-Minister an investment board was set up which will
supervise the investment decisions. The production of oil per day was increases.
Government started four years ‘‘Structural Adjustment Program” with the help of World Bank
and IMF. This program was aimed at increasing the role of private sector and reducing the role
of public sector. In 1989-90 National Credit Consultative Council(NCCC) set the target to
increase the monetary based assets from foreign exchange and domestic sources foreign
exchange. In short, at that time nationalization and privatization was started which cause to
increase the role of private sector and neglect the public sector.