An Outlook of Pakistan’s Economic History: 1947-2013

Thesis Statment

The economic progress of Pakistan after its independence in 1947 has been a dynamic phenomenon
marked by a subtle amalgamation of persistence and alteration from the British colonial epoch. The
colonial economic framework has undergone notable changes due to internal policies, external
influences, and distinct historical circumstances, despite the persistence of certain elements such as
infrastructure and institutional structures. The intricate relationship among these variables has
influenced the economic path of Pakistan, leading to a multifaceted fabric of enduring trends and
revolutionary advancements that have impacted the nation’s progress and advancement throughout
history.

Since gaining independence, the economic conditions of Pakistan have been characterized by
fluctuations and changes. From an economic standpoint, the nation’s past appears more satisfactory
than its present circumstances. Despite encountering numerous challenges in the early years of
partition, the nation persevered.

During Ayyub Khan’s tenure, Pakistan achieved an average growth rate of 5.82% between 1958 and
1969. After signing a significant historical milestone, a decade of misfortune ensued under the
governance of Bhutto and the liberal administration of Gen. Zia. The era following Gen. Zia’s rule was
characterized by considerable political unrest, culminating in the military regime of Gen. Musharraf.
Despite exhibiting some noteworthy trends during General Musharraf’s tenure, the economy failed to
address the contracting economic conditions of Pakistan. During the Ayub era, Pakistan witnessed the
emergence of its first automobile and cement industries, alongside a limited number of other modern
heavy industries. During this period, there was a notable surge in industrial development, particularly in
the country’s western region, facilitated by the implementation of two consecutive five-year economic
plans. It was also discovered that the “development decade” period was characterized by deliberately
promoting inequality between social classes and regions, with the 22 prominent industrial families
accumulating most of the wealth. According to statistical analysis, it can be inferred from the records
that Pakistan’s Second Year Plan (1960-1965), which coincided with a significant portion of the martial
law era, was highly successful. The citation “Hassan, 1998, 235” is presented without additional context
or information. Ayoub’s economic policies were based on the principles of capitalism and adhered to the
fundamental tenets of free-market economics. The period of industrialization under his leadership is
widely recognized as the “Great Decade” in the nation’s history. Toor (2011) notes that the “Great
Decade” was commemorated for its emphasis on the implementation of development plans during
Ayub’s tenure, the establishment of private association companies and industries, and the creation of an
environment that incentivized the private sector to initiate medium and small-scale industries in Pakistan
(p. 84). The emergence of new employment prospects led to a positive trajectory in the nation’s
economic landscape. Ayub implemented a novel educational program and literature for educational
institutions. Numerous educational institutions were built during his time. Siddiqa (2007) proposed
agricultural reforms in this particular context. As per his proposal, the minimum land occupancy was
12.5 acres, while the maximum limit for irrigated and unirrigated land was 500 acres and 1000 acres,
respectively. Establishing an oil processing facility in Karachi and the subsequent reforms resulted in a
15% Gross National Product (GNP) for the country, three times higher than that of India.
Notwithstanding the rise in the Gross National Product, the gains in profit and revenue were
concentrated among a select group of 22 families who held sway over 66% of the industries and land in
the country, as well as 80% of Pakistan’s banking and insurance sectors.

Following the partition, Pakistan commenced the process of establishing its fundamental structures. In
the interim, there was a lack of equitable allocation of resources within the nation. The distribution of
assets between India and Pakistan was based on a ratio of 17:5. Pakistan had the larger share of irrigated
land, while India had a greater proportion of the military division, precisely 65%, compared to Pakistan’s
35%. At that juncture, Pakistan held a preponderant position as an underdeveloped agrarian economy
with a limited proportion of services, manufacturing, and infrastructure, buttressed by a substantial
influx of refugees. Consequently, achieving an elevated level of growth during that particular timeframe
was unattainable. The Korean War in 1952 resulted in the emergence of the mercantile class, leading to
increased profits and efforts to reform the bureaucratic structure.

During the period spanning from 1958 to 1968, Pakistan achieved a significant milestone in its
developmental trajectory. The country’s governance was under General Ayyub’s control during this
period. The region’s economic growth rate was threefold higher than other nations in South Asia. The
annual growth rates surpassed 20 percent, with notable progress in the agricultural and industrial
domains. The partition era witnessed a significant expansion in the industrial and agricultural domains.
The manufacturing industry experienced a growth rate of 17%, whereas the agricultural sector exhibited
a growth rate of 6%. During this period of economic growth, a system of capitalism was implemented
with the support of bureaucratic institutions. Nevertheless, some contend that his non-liberal policies,
exemplified by the bureaucratic capitalism model, have contributed to a rise in income inequality.
Furthermore, the rapid economic growth achieved through the exploitation of East Pakistan and the
labouring class ultimately led to political instability in the early 1970s, culminating in the partition of East
Pakistan.

During the 1970s, Zulifqar Ali Bhutto ascended to power with his political catchphrase “Rotti, Kapra and
Makaan”. The current decade has been widely regarded as a painful period, primarily due to the global
economic downturn in exports, the separation of East Pakistan, and the devastating floods and locust
infestations in 1974. Furthermore, Bhutto’s primary focus was on implementing a socialist economic
system, which was criticized for its shortcomings during his tenure. During his tenure, he undertook the
nationalization of financial institutions such as banks, the insurance sector, and certain fundamental
industries. The implementation of nationalization policies was a significant contributing factor to the
decline of industrial units and investor confidence in Pakistan. During this period, the policies
implemented by the individual in question resulted in a misallocation of resources, ultimately leading to
a decrease in the overall growth rate from 6.8% annually in the 1960s to 4.8% annually in the 1970s.
Despite his implementation of land reforms, some critics contend that his nationalization policies were
motivated by feudal interests. These policies were intended to curtail the burgeoning industrialist class
that had emerged during the 1960s.

In 1977, General Zia assumed control of the nation. During that period, the United States endeavoured
to coax the Soviet Union into withdrawing from Afghanistan. Pakistan participated in the event above,
which ultimately resulted in the Islamization policies implemented by Zia. These policies were enacted to
bolster his political backing. Simultaneously, most foreign aid was obtained by being positioned at the
forefront of the battle against the Soviet Union.
Additionally, there was a noticeable upsurge in industrial expansion during the tenure of Bhutto, which
was a consequence of the investments made during his administration. Therefore, during the tenure of
General Zia, the Gross Domestic Product (GDP) experienced an average annual growth rate of 6.6%. The
book “Pakistan’s Economy at the Crossroads: Past Policies and Present Imperatives” by Hassan Pervez
(1998) features a detailed discourse on exchange rates and trade policy. The author posits that Pakistan
initiated a regular adjustment of the rupee’s value starting in 1982. In 1982, the rupee underwent a
devaluation process, decreasing its value from Rs. 9.90 per US dollar to Rs. 11.84. Subsequently, the
rupee experienced a gradual depreciation, reaching a value of Rs. 18 per US dollar by the conclusion of
1988. During the period spanning from 1982 to 1988, there was a significant decrease in the value of the
Pakistani rupee in real terms. The nominal exchange rate was devalued nearly twice as fast as justified by
the relative price change between Pakistan and its major trading partners. Hassan said the real
devaluation was crucial in facilitating an annual export expansion of 7-8% during the specified period.

Additionally, it substantially decreased the country’s reliance on worker remittances. In 1988, the value
of exports exceeded that of remittances by a factor of two. During the late 1970s, an industrial zone was
established to attract foreign investment, expedite the implementation of modern technology, augment
employment opportunities, enhance skill and management standards, and furnish exporters with a
production base exempt from import duties. However, the outcomes were unsatisfactory since the
exports from the zone were comparatively insignificant.

The period following the tenure of Zia-ul-Haq resulted in the implementation of structural adjustment
programs. During this time, many policies received backing from programs established by the
International Monetary Fund (IMF). The implementation of structural adjustment programs was initially
introduced in Pakistan during the tenure of General Zia in 1982. After the initial disbursement of the SAP
loan, the military regime ceased to avail of foreign loans. This decision was made in light of Pakistan’s
receipt of a substantial sum of 3.2 billion US dollars attributed to the Afghan-Soviet conflict. During the
latter part of the 1980s, the nation experienced a dual fiscal and exchange deficit, compounded by a
decrease in foreign aid due to the decline of the industrial sector, a major source of revenue. As a result
of this situation, the government sought assistance from the Bretton Woods Institutions. Consequently,
the World Bank and IMF pressured Pakistan to curtail its public expenditures and augment its tax
revenues, ultimately reducing developmental initiatives.

Furthermore, Pakistan conducted its inaugural triumphant nuclear test in the year 1998. The G-8
promptly enforced many sanctions upon the country, including reductions in foreign aid, remittance
delays, and the cessation of defence sales. The impact on the economy was severe and far-reaching.
Subsequently, on September 9th, 2001, two aircraft collided with the World Trade Center. Due to its
advantageous strategic location in South Asia, Pakistan was deemed a highly desirable location by the
United States in its pursuit of counterterrorism efforts.

Undoubtedly, the developments that occurred after the September 11th attacks were made possible as a
result of the events of 9/11. The era following the September 11th attacks exhibited notable patterns
within the governance of President Musharraf. Between 2001 and 2007, there was a notable increase in
the investment rate, which rose from 17.2% to 23.0% of GDP. During this same period, domestic debt
experienced a decline from 17.8% to 16.1% of GDP, representing nearly 30% of the total GDP. A
significant portion of foreign aid, both bilateral and unilateral, was directed towards Pakistan, with a
reported $11 billion being sent in 2002. According to reports from 2003-4, it was asserted that Pakistan
had ultimately emerged from the disastrous decade of the 1990s.

Nevertheless, Pakistan experienced significant development throughout the tenure of Musharraf.

Nevertheless, it can be subject to criticism that his period of prosperity was established on the deceitful
underpinnings of investment and growth driven by consumerism. The growth observed was temporary,
and the absence of a comprehensive plan to channel the foreign aid towards the productive sectors was
a notable deficiency. During Musharraf’s leadership, the economy demonstrated a notable upswing, with
an average real rate of 7% over the preceding five years from 1999 to 2007.

However, the economic concerns were largely disregarded amidst the political upheaval 2007. The
automatic adjustment mechanism for oil product prices in Pakistan experienced a decline amidst a sharp
increase in global prices. The substantial expenses incurred from providing food and fuel subsidies
resulted in a decline of reserves to approximately $14 billion as of November 2008, which was
insufficient to finance imports for a period exceeding two months. Singh (2011) stated this information
on page 86. The inflow of foreign investment has significantly decreased, leading to a corresponding
increase in the outflow of assets as investors seek to divest from the market. According to estimates
from international financial institutions, an immediate injection of approximately $5 billion in financing is
required to prevent a financial crisis. Double the quantity within two years. According to Ahmed (2014),
the source in question can be found on page 48. Musharraf presents a more compelling argument
regarding the economy. During his tenure as the country’s leader, he and his competent finance minister,
Shaukat Aziz, accomplished several noteworthy economic feats. These included a threefold increase in
government receipts, a rise in foreign direct investment, and the management of growth rates that
reached 7.7 percent in 2005. The average growth rate during his leadership was slightly above 5 percent.
Singh (2011) stated this information on page 87. Musharraf’s implementation of comprehensive
economic reforms can be regarded as a notable accomplishment in promoting economic empowerment.

Inderjit Singh’s (2011) analysis of economic development is accurate. Based on this analysis, it can be
concluded that during the Musharraf regime, Pakistan implemented policies of liberalization,
deregulation, and privatization that were consistent and beneficial. Our priorities concerned economic
recovery, institutional reforms, and promoting good governance. The Government implemented a dual
approach to achieve economic recovery, prioritizing macroeconomic stability and introducing structural
reforms to foster self-sustainable growth. Over the past four years, the economy has experienced an
average annual growth rate of 7%. The expansion rate achieved a historic milestone of 9% during the
fiscal year of 2004-05. The expansion of extensive manufacturing, which exhibited a growth rate of 3.6%
in the fiscal year 1999-00, demonstrated a mean rise of 11.31% annually between 2000 and 2007. The
sector experienced its most substantial growth in the fiscal year of 2004-05, with a rate of 19.9%. Despite
the widening trade and current account deficits, the exchange rate exhibited stability, suggesting robust
inflows of external resources. The foreign exchange reserves have surpassed the threshold of US$ 16
billion, indicating a significant increase. This augmented reserve can now potentially fund over 31 weeks
of imports, substantially improving from the ten weeks recorded in 1998-99. The per capita income
increased from $526 in 1999-2000 to $925 in 2006-2007.

Singh reported that the aggregate revenue collections experienced a surge from Rs 308 billion in 1999 to
Rs 846 billion in 2007. There is a consensus that the economy has experienced significant advantages,
alongside the political fortunes and longevity of General Musharraf, as a result of the events of 9/11. A
significant debt burden characterized Pakistan’s economy in the 1990s, deemed the most crucial
attribute.

Significant challenges marked the period following Musharraf’s rule in Pakistan. In 2007/8, the country’s
growth rate experienced a sharp decline of 37%, attributed to various factors. These include the Lawyers’
Movement, which emerged in response to Musharraf’s removal of the chief justice of Pakistan, as well as
the death of Benazir Bhutto. The role of the caretaker government during this time was also critical. The
global financial crisis and the Laal Masjid incident also contributed to Pakistan’s economic struggles
during this period.

From 2008 to 2013, the government led by PPP was frequently criticized for its management, widely
regarded as the poorest in history. Pakistan experienced significant unrest and was subsequently
impacted by the catastrophic floods of 2010, resulting in extensive damage to infrastructure and
agricultural areas. Consequently, the growth rates experienced a decline, accompanied by a rise in the
inflation rate to double digits. Additionally, foreign direct investment witnessed a decrease and a decline
in the tax-to-GDP ratio.