Economy of

Pakistan
Lecture No. 5 & 6
Fundamental Aspects of Pakistan Economy, and
its Important Sectors
Fundamental Aspects of Pakistan Economy, and its Important
Sectors

Following are the fundamental aspects of Pakistan economy.

(i) Three Major Sectors of Pakistan Economy

An economy is a complex structure of consumers and producers,
which have beneficial role for each other. Pakistan economy is a
mixed type of economy which ahs three major sectors i.e.
agriculture, industry and services.
Agriculture is sharing almost 21 percent in GDP, which was more
than 50 percent in 1947. Industrial and services sectors have 20.9
percent and 57.7 percent share in GDP from 8.03 percent and 39.3
percent in 1947.
a. Agriculture sector

 Agriculture sector is the largest sector of our economy,

contributing 21 percent to GDP, employing 44 percent of total
labor force, sharing 65 percent of exports and supporting
expansion of industries by supplying raw materials.
 Total area of Pakistan is 80m hectares. Out of this cultivable area
is 23m hectares.
 Major crops of Pakistan include, cotton, wheat, rice, sugarcane
and maize. Minor crops include pulses, oilseeds, jawar, bajra,
gram, barley, onions, potatoes, tobacco etc. Fruits produced in
Pakistan include apples, mangoes, kinnow, banana, guava etc.
 Agriculture sector of Pakistan is stagnant and its growth rate is
slow (low productivity per acre and per worker).
 The sector has a volatile nature. It is affected by vagaries of
mother nature, floods, pest attacks, droughts etc.
b. Industrial sector

 If a country lags in industrial growth, it cannot hope to make

progress in other fields such as agriculture, transport, energy or
education.
 Manufacturing is the second largest sector of Pakistan economy,
with 21 percent share in GDP. It employs 14 percent of total
labor force.
 Some important industries of Pakistan include textile, cement,
cables and electric goods, chemicals, pharmaceuticals, paints,
cosmetics, fertilizers, iron and steel, paper and board, sports,
sugar and surgical equipment.
 Major problems of industrial sector of Pakistan are low
productivity, poor quality products, limited capacity, shortage of
capital, energy shortage and lack of advanced know-how.
c. Services sector

 Services sector contributes to the extent of 58 percent in GDP. It

has many sub-sectors like transportation, communication and
storage, retail and wholesale trade, insurance and finance,
general government services (public administration and defense),
etc.
 Generally without services sector, economy of any country
cannot run.
 During FY19 the growth rate of this sector was 4.71 percent.
(ii) General Poverty and Low Living Standard

 Most of the people in developing nations are ill-fed, ill-housed, ill-

clothes and ill-literate.
 In LDCs almost 1/3rd population is much poor. But in Pakistan, 21
percent of the population is living below poverty line.

(iii) Burden of Internal and External Debts

 UDCs are loans and grants receiving nations. Their foreign trade
and political structure is also dependent on the guidance of
foreigners.
 The outstanding total public debts of Pakistan are Rs.35.094 trillion
(91.2 percent of GDP). The value of external debts is $105bn.
During FY 18, services charges on all types of debts were $5.62bn.
(iv) Over Dependence on Agriculture

 61 percent population of Pakistan is living in more than 50,000

villages.
 Backward agriculture is the major occupation of the population.
 Agriculture sector is backward due to old and traditional
methods of cultivation, inefficient farmers, lack of credit
facilities, unorganized agriculture market, etc.
 This sector contributes to GDP 21 percent, while in advances
nations it is less than5 percent.
 It employs 45 percent of labor force, while it is less than 5
percent in developed countries.
(v) Backward Industrial Sector

 Pakistan got only 34 industrial units out of 921units in sub-

continent in 1947.
 Industrial sector of Pakistan economy is backward since
independence.
 Small and backward industrial sector is based on low level of
capital formation, technology, training & education and over
dependence on agriculture sector.
 13.7 percent of labor force is attached with industrial sector in
Pakistan.
(vi) Unemployment

 An outstanding problem of developing countries is their high rate

of unemployment, under-employment and disguised-
unemployment.
 Around 6 percent of total labor force i.e. 3.5m people are
unemployed in Pakistan
 There are 16 percent under-employed and 20 percent disguised-
unemployed of total labor force.
(vii) Deficit Balance of Payment

 UDCs have to import some finished and capital goods to make

economic development, on the other hand to export raw
materials.
 Major exports of Pakistan are: raw cotton, textile products &
cotton yarn, rice, leather & leather products, carpets, rugs &
tents, surgical instruments, sports goods, ready-made garments,
vegetables, fruits & fish, chemicals and pharmaceutical products.
 Major imports of Pakistan are: machinery, petroleum, chemicals,
vehicles & spare parts, edible oil, wheat, tea, fertilizers, iron, ore,
steel and pharmaceutical products.
 During July-April FY2019 exports were US$20.09bn and
imports were US$44.03bn.
 So, the deficit balance of payment was YS$23.94bn in FY2019.
(viii) Dualistic Economy

 Dualistic economy refers to the existence of advanced and

modern sector with traditional and backward sectors.
 Pakistani economy is also a dualistic economy as other
developing countries on the following grounds:
a. Co-existence of modern and traditional methods of production
in urban and rural areas.
b. Co-existence of wealthy, highly educated class with a large
number of poor class, and
c. Co-existence of very high living stands with very low living
standard.
(ix) Deficiency of Capital

 Shortage of capital is another serious problem of Pakistan.

 Lack of capital leads to low per capita income, less savings and
short investment.
 Per capita income of Pakistan is $1,497.3, while that of India and
China is $1,670 and 8,250 respectively.
 Savings are only 11 percent of GDP in Pakistan which is less
than half of the Bangladesh, less than one-third of the India and
around less than one-fifth of the China.
 50 percent of savings find their way into the financial sector.
 Investment rate is only 15.4 percent.
 Gross capital formation is 16.74 percent while that of China is 44
percent and of India is 31 percent.
 Capital-Output-Ratio (COR) of Pakistan is very high, which is
not desirable for economic development.

(x) Market Imperfection

 Market is imperfect in accordance with market conditions, rule

and regulations.
 There exist monopolies, misleading information, immobility of
factors, hoarding and smuggling that causes the market to remain
imperfect.
(xi) Inappropriate Use of Natural Resources

 Natural resources if available in UDCs, remain un-utilized,

under-utilized or miss-utilized due to capital shortage, less
efficiency of labor, lack of skill and knowledge, backward state
of technology and improper government actions.
 Natural resources of Pakistan include oil, natural gas, coal,
minerals and forests.
 In Pakistan natural resources contribution to GDP during FY17
was only 1.1 percent.
(xii) Inflation

 High rate of inflation causes economic backwardness in poor

nations.

 Due to high level of price, low purchasing power, value of

money and savings of the consumers tend to decrease.

 Rate of inflation in Pakistan during FY19 was 8.9 percent.

(xiii) Vicious Circle of Poverty

 According to vicious circle of poverty, less developed countries

are trapped by their own poverty.
 Vicious circle of poverty is also applied in case of Pakistan.
 Due to poverty national income is low, which causes low savings
and low investment.
 So rate of capital formation is very low, that results in “ a country
is poor because she is poor”.