AYUB

KHAN’S
ERA(1958-1968)
Presented By:
SIKANDAR SALEEM KHAN
SALMAN SALEEM
Introduction
◦ In October 1958 General Ayub Khan forced martial law in Pakistan
due to the deterioration of economic situation & political stability.

◦ Economic & social reforms were high on Ayub’s checklist, these

included economic planning & basic needs to the people.

◦ During the ten years of Ayub Khan’s rule gross fixed investment
increased from 8.5% of GDP to 14% of GDP.

◦ Ayub khan’s rule also saw the growth rate of GDP increasing. West
Pakistan saw an increase from 3.1% to 6.7% while East Pakistan
saw an increase from 1.7% to 4%.
Growth policies
◦ For the first five years the government set a target of GDP
growth of 15% while for the next five years it was set at 20%.

◦ Income disparity between West & East Pakistan increased

during Ayub’s rule and in 1970 West Pakistan’s per capita GDP
was 60% higher than that of East Pakistan.

◦ Both West and East Pakistan showed an overall growth from

1950’s to 1960’s.
Investment
◦ Real investment increased from 1960-1965 reaching a high of
21.5% of GDP in 1964-1965 while declining from 1969-1970 to
14.6% of GDP.

◦ During Ayub’s rule private investment almost doubled and

increasing the most in comparison to public investment, this was
due to policies were made to be less strict on private investment.

◦ This increase in investment led to an increase in economic

growth
Defense vs development
◦ Investment in Pakistan was affected by the sharp
increase in defense spending.

◦ After the war with India in 1965, defense of the country

was given high priority so that they could phase out
from the US military assistance.

◦ The defense spending increased from 2.8% of GDP in

1960-1965 to 4% in 1965-1970.
Price Stability
◦ During Ayub’s rule and even with economic growth the
prices of goods remained fairly stable as inflation rate
was only 3.3%.

◦ In the 1960’s, public savings occurred which means

that government revenue was greater than government
expenditure.

◦ During this rule efforts were made to broaden the

direct taxation system which kept indirect taxes to a
minimum and hence kept prices stable.
Problems
◦ During Ayub’s rule there was no effort made to save for the
future as there was a lot of foreign aid available, this led to
the problem of foreign debt that we still face.

◦ Social sector was neglected as the government focused on

providing food and basic needs while ignoring education &
health.

◦ Other problems were the exchange & trade policies that

affected the prices which led to inefficient use of national
resources. This occurred because in the initial stage
Pakistan didn’t focus on its exports.
Water & power investment
◦ During Ayub’s rule investments were made in water and power in West
Pakistan, around US $2.5billion worth of investment was made.

◦ During this time India cut off the supply of water from head works under
its control, this led to the Indus water treaty. The treaty allowed a
transitional period of 10 to 13 years after which different rivers will fall
under each’s control.

◦ Pakistan got Jehlum, Chenab and Indus while India got Ravi, Beas and
Sutlej.

◦ Ghulam Ishaq Khan played an important role in getting the donors to

include Tarbela dam into the Indus water treaty which was later
completed in 1971.
Foreign Aid
◦ During Ayub’s time Pakistan was made to be dependent
on foreign aid as during this time foreign aid trebled to
about 7% of GDP.

◦ There was no effort made towards saving for the future

and high reliance on foreign aid increased our foreign
debt that we still face today.
Exchange rate and Trade
Policies
◦ Low Priority – exports 1950-60’s
◦ Pessimism – low expectations from agriculture
◦ Performance exceeded expectations
◦ Turnaround in 1960’s was good
◦ Manufactured goods (cotton textile) growth was > 20%
Export Bonus Scheme
◦ January 1959,
◦ Free import licenses
◦ 1959-61, accounted only 10-15% of imports for private
sector.
◦ Was to increase non traditional exports.
◦ Manufactured goods exports were risen to 2.2% of GDP
– west Pakistan
Export Bonus Scheme was a system of multiple exchange
rates which:

◦ Sustained a high degree of overvaluation of the official

exchange rate
◦ Seriously distorted incentives between agriculture and
industry and within industry
◦ And led to a lack of transparency and stability in export
incentives.

Idea was to support the growth sector

Green Revolution
◦ Varieties of wheat and rice improved in 1967.
◦ Dramatic increase in second half of 1960’s – 75%
◦ Fertilizer was expanded at an annual rate of 35 to 40%
during 1960-1970.
◦ By late 1967, private sector was associated with
fertilizer distribution and results were remarkable
◦ HYV seeds were used.
◦ Wages rose after 1966 with increase in demand of labor
with new technology.
Human Resource
Development
◦ Education sector was neglected
◦ Ratio to be increased was 65% but it only increase by
36% for primary school enrollment.
◦ Lower resources made it impossible to reach the target
of 70% later.
◦ In 1960 a Family Planning Program was developed.
Concentration of Economic
Power
◦ Pakistan was ruled by 22 families
◦ Sources given to West Pakistan
◦ 66% - total industrial assets,
◦ 70% - insurance and
◦ 80% - banking.
Failed Regional Strategy
◦ There was demand for full economic autonomy from
East Pakistan.
◦ Mujib Ur Rahman’s 6 point program called for severely
curtailing the powers of the central government.
◦ More investment was made in West Pakistan than East
Pakistan.