Week 1

Issues in Pak Economy

Overview of Pakistan Economy

1. Economic eras
2. Structural Changes In Pakistan

Instructor's name. Aribah Aslam

• 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
 The Decade of Development:1958-1968

• Achievements

– Considerable economic growth and

development (6.8%)

– Significant leaps were made in industrial and

agriculture production (manu: 9.9, CPS: 6.8)

– Model Capitalist Economy

– High growth rate in manufacturing sector

(manu:9.9%)

– Increase in exports (X:13.5, M:16.6)

– Progress in agriculture sector (aggr:5.1)

 The Decade of Development:1958-1968
AYUB :58-71
• Policy Failures

– Increased disparities in incomes

– Concentration of economic prosperity

An overvalued
exchange rate means
that the countries exports
– Social sectors were neglected will be relatively
expensive and imports
cheaper. An overvalue
– Little or no increase in real wages exchange rate tends to
depress domestic
demand and encourage
– Trade was highly controlled and closed spending on imports.

– Distortion of local markets b/c of overvaluation of

exchange rate
 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
One reason a country may
devaluate its currency is to
combat trade imbalances.
Devaluation causes a country's
exports to become less expensive,
making them more competitive on
the global market.
This in turn means that imports
are more expensive, making
domestic consumers less likely to
purchase them.
 The bad Luck Years:1971-1977
Bhutto :1973-79

• 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
 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

 The second Military Government 1977-1988
ZIA_UL_HAQ

• 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)

 The Era of Structural Adjustment:1988-1998
BB & NAWAZ

• Achievements

– Return of democracy

– Era of structural adjustment

– Economic liberalization and stabilization

– Privatization

– Reduction in tariff rates to increase exports

 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

Inflation is likely to
– Unemployment occur following
a devaluation because:
– Privatization without proper policy Imports are more
expensive – causing
cost push inflation. AD
is increasing causing
demand pull inflation.
 Economic Situation:1998-2004
MUSHRAF : 2001-2007
• 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
 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
 Sect oral Contribution to the GDP growth (%points)
Sector 60s 70s 80s 90s 00s 2015 2016

Agricultur 5.1 2.4 5.4 4.4 3.2 2.5 -0.2

e

Industry 6.8 3.9 6.5 4.6 4.3 3.7 3.3

Manufact 9.9 5.5 8.2 4.8 7.1 3.9 5.0

uring

Services 6.7 6.3 6.7 4.3 9.2 4.3 5.7

Growth 6.8 4.8 6.5 4.6 4.7 4.0 4.7

rate
 Structural Change

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

Reasons of Structural Changes

• To modernize the economy

• To industrialize the economy

• To pace capital accumulation in the economy

 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
• Emergence and consolidation of middle class

• Young population : (The median age in Pakistan is 22.7 years.)

• Pakistan population is equivalent to 2.62% of the total world population.

• Pakistan ranks number 6 in the list of
countries (and dependencies) by population. The current population
of Pakistan is 195,185,608 as of Wednesday, February 8, 2017, based on
the latest United Nations estimates.

• 39.2 % of the population is urban (77,107,125 people in 2017)

• The nature of exports from Pakistan has also changed dramatically.

• Feudalism in Pakistan has weakened if not died, from a very long time ago.
 Pakistan: basic indicators,1947-2016

1951 1997 2011 2015-

16
Population 33.78 140 180.72 (now:18
(millions) 9.7)
(growth Pak :2.1,
world:1.8%)
Contribution to GDP by sector(%)

i. Agriculture 53.2 24.2 21 25.5

ii. Manufacturin 7.8 26.4 12 19

g

iii. Others 39.0 49.4 67 Services

alone
55.5
 An Economic and Social Agenda For Improvement

• Restore confidence

• Initiate and sustain technological change

• Foster stability and trust in social and cultural relationship

 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