CAUSES OBSTRUCTING THE ECONOMIC

DEVELOPMENT
OF
PAKISTAN

More than half a century has passed but our economic planners have failed to
comprehend the basic reasons obstructing the process of development. Some of the major
reasons obstructing the economic development of Pakistan are:

REASONS

FOREIGN AID
In the beginning, foreign aid proved helpful and many a mega project got completed. But
this easy way of fostering economic development did not last long. The tragedy that had
obstructed the desired development was the fact that aid inflows were misused and tied
up with certain political motives. We aware for the fact that in the earlier years of
Pakistan, the element of grants-in-aid was greater than loans. With the passage of time,
this trend reversed. Grant-in-aid now got transformed in to loans at high rate. The result
of this cheap aid had now got confronted with the emergence of heavy public debt. This
financial situation slowly but steadily became unfavorable to Pakistan. Debt servicing
now accounted as % of GDP 46.07 for domestic debt and 51.09 for foreign debt (2002-
03). Pakistan has successfully negotiated a rescheduling of its external debt with the Paris
Club in December 2001. This has been the third rescheduling since January;
1999.Rescheduling of the older loans has remained the only last hope to come out of the
critical financial crisis. But here again the consent from the IMF and World Bank is the
primary condition. Now the situation has reached a stage where neither Pakistan’s exports
earnings are increasing nor the revenue receipts showing any tangible improvement. The
fault is not with the lack of needed management, human and material resources but the
way they are being mobilized.

DEVALUATION
Basically, devaluation is a measure to correct a fundamental disequilibrium in a country’s
balance of payments. This may be achieved as a result of restraint on imports by making
them quite expansive and the expansion of exports by making them cheap. In our case,
we export primary commodities and processed material whose supply elasticities are
rather low in the short run. On the other hand, our imports consist of essential capital
goods, intermediate inputs (including fuel and fertilizer) and sometimes-basic consumer
goods. That is why devaluation has not resulted in resolving our BOP problem.
Furthermore, not only exports of Pakistan but whole economy have been doubly affected
by the events of September 11 during the outgoing fiscal year. Side by side with the
unsatisfactory mode of economic management found in selected areas, lack of
implementation of plans, inadequate preparatory work on projects, and lack of evaluation
of plan progress there are other factors which too are standing as an obstruction in the
way of self sustaining process of development.

PRIVATIZATION
The policy of privatization has been announced by Altaf saleem (chairman of the
privatization commission, on January 22 1991), which offered 105 industrial units, four
bank, and two development financial institutions for sale. This may be true that the
objective of privatization is to raise direct foreign investment from the sale of 49 units of
public sectors but we have some reservation against the privatization policy. There are
certain profitable ventures like the PTCL, PSO, HABIB BANK Ltd etc. The major caveat
being the fact that if PTCL or other such institutions are sold out to foreign bidders, the
ultimate result may not prove helpful to Pakistan. As we have already seen in the case of
power projects’. The gains from the generation of electricity are being more than offset
by the high level of profit remittances to the foreign investors. Another point going
against selling of public enterprises is that most of these units will not earn any foreign
exchange to meet the cost of profit remittances.

POVERTY
The incidence of caloric poverty after having decreased from 27% in 1986-87 to 23% in
1990-91 deteriorated to an estimated 29% in 1999-2000. The prime reason for the
increase has been the low rate of economic growth, which has been accompanied by
rising unemployment (about 3.25 million persons were estimated as unemployed in 2002
compared to 3.18 million in 2001. unemployment rate was 7.82 in 2002), income
inequality and cost of living, social deprivation indicators, reflected in low access to food,
land, health care, education, drinking water and sanitation facilities were correspondingly
affected.

POPULATION
The population is estimated to have reached 149.03 million (population growth rate is
2.10%) in 2002-2003. Pakistan is now facing a serious problem of more food for more
mouths, more families to house, more children to educate, and more people looking for
gainful employment, millions more are migrating from the countryside to major cities in
search of jobs, thus creating a raising pressure on urban infrastructure and giving rise to
Katchi Abaadis.

POLITICAL UNCERTAINTY
The misfortune is that our economy was badly affected by the political uncertainty and
disturbances, inefficient bureaucracies riddled with corruption, massive budget deficits
and rampant inflation. An objective assessment of economy of Pakistan for the last 56
years is the crying need. Every ruling government had been claiming success stories. On
the other hand, opposition to the ruling governments has all along been harping on the
theme of economic failure. We all wish to know the truth of our economic performance
of the past and have a yearning desire for a prosperous future.

FUNDAMENTAL FACTORS OF PRODUCTION

While emphasizing the above major factors, one is reminded of the Adam Smith factors
of production (land, labor, capital and management). The key to development lies in these
four fundamental factors:
• Human resources (labor supply, education, discipline, motivation) • Natural
resources (land, minerals, fuels, climate
• Capital formation (machines, factories, roads)
• Technology (science, engineering, management, entrepreneurship) As long as all the
factors mentioned above are not operating efficiently, the Adam Smith factors will not
show the desired results.

CONCLUSION:
While looking at some of the reforms being introduced by the present government, one is
hopeful that things are likely to be improved on the basic factors needed for the
acceleration of economic development. All reforms are well meaning but their
implementation may not be easy to be carried out for long time period. One of the much-
needed requirements to attain this objective is political stability. Political stability help
bring economic stability. Let us hope that the coming decade will be a period of political
and economic stability under sincere leadership making Pakistan a healthy and
prosperous country.

Sources: State bank of Pakistan Annual Report

Economic survey of Pakistan 2002-2003
Books: Paul A. Samuelson & William D. Nordhaus Dr.A.R.Kemal
Privatization in Pakistan Economic development networking program. A. Hamid Shahid
 Rostow’s Model and its Critical Analysis

THE FIVE STAGES OF ECONOMIC GROWTH

In 1960 ‘The Stages of Economic Growth’ by W. W. Rostow was published. It was

subtitled ‘A Non-Communist Manifesto’ because it offers a critique of Marxism in the
later chapters, but this is beyond the remit of our syllabus. We shall therefore concentrate
on the earlier chapters, which discuss the necessary conditions for economic
development, or as Rostow calls them; the preconditions for take-off and the take-off.
Rostow identifies and provides evidence for five stages of economic growth:

1. The Traditional Society

A traditional society has a large proportion of the population devoted to agriculture. The
level of technology is severely restricted or is ‘pre-Newtonian’. Examples include the
Chinese dynasties, the medieval civilisations of Europe, the Middle East and the
Mediterranean.

2. The Preconditions for Take-Off

Preconditions for take-off exist when there is a more stable political nation. There is
greater exploitation of science, and rising investment in transport and communication.
Modern manufacturing appears.

3. The Take-Off
Agriculture is commercialised, new industries appear. Unused natural resources are
exploited, savings and investment rise and steady growth is achieved.

4. The Drive to Maturity

After a long period of growth (say 40 years), 10 to 20% of national income is invested
and output continually outstrips population growth. Goods that were previously imported
are now produced at home. There is a shift away from heavy engineering towards more
complex processes. The economy can choose to produce anything it wants even if the
natural resources required are not actually present. Although 40 to 60 years is quoted,
Rostow says that this length of time may vary.

5. The Age of High Mass-Consumption

A large number of the population have moved beyond meeting their basic needs. Leading
sectors of the economy are producing durable goods. For example, the production of the
Model T Ford signalled the start of this process in the USA. Increased resources are
allocated to social welfare and security.
Criticism of the Model

Rostow's thesis assumes a strong bias towards a western model of modernization. It de-
emphasizes any difference between how leading sectors develop in free and controlled
markets. However, Rostow’s consideration of non-western cases such as China shows
that to some extent, modernization can be achieved in different ways and through free
market or controlled economic means and still fit into his model. It is more at his
description of the final age, the age of high mass consumption, where controlled
economies seem most to find no niche in Rostow’s work. Even there, though, it could be
said that the society seeks out economic equality at the complete detriment of any luxury.

The most disabling assumption that Rostow is accused of is trying to fit economic
progress into a linear system. This charge is correct in that many countries make false
starts, reach a degree of transition and then slip back, or as is the case in contemporary
Russia, slip back from high mass consumption (or almost) to a country in transition. On
the other hand, Rostow’s analysis seems to emphasize success because it is trying to
explain success. To Rostow, if a country can be a disciplined, uncorrupt investor in it, can
establish certain norms into its society and polity, and can identify sectors where it has
some sort of advantage, it can enter into transition and eventually reach modernity.
Rostow would point to a failure in one of these conditions as a cause for non-linearity.

Another problem that Rostow’s work has is that it considers mostly large countries:
countries with a large population (Japan), with natural resources available at just the right
time in its history (Coal in Northern European countries), or with a large land mass
(Argentina). He has little to say and indeed offers little hope for small countries, such as
Rwanda, which do not have such advantages. Neo-liberal economic theory to Rostow,
and many others, does offer hope to much of the world that economic maturity is coming
and the age of high mass consumption is high. But that does leave a sort of 'grim
meathook future for the outliers, which do not have the resources, political will, or
external backing to become competitive.

Finally we might conclude that rather than being one way to economic development,
there are many. But in each path to development there are common characteristics and
Rostow has successfully identified some of them.