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Development Planning in Pakistan

Overview

Economic planning in Pakistan has been usually justified to achieve

following objectives:
1. Rapid economic development
2. Regulation of public utilities
3. Mobilization and allocation of resources
4. Need for structural change
5. Reduction of income inequalities
6. Balanced and stable growth
7. Price stability
8. Reduction of unemployment
9. Capital formation
10.Management of foreign aid

To achieve these objectives the government of Pakistan established

institutions such as Planning Board/Commission, which plans development
through planning machinery. With this institutional arrangement various
short-term, mid-term and long-term development plans have been devised.

Up till now three long-term plans (1965-85, 1985-2005, 2005-2030) have

been formulated. The fist perspective plan (1965-85) highlighted the
importance of agrarian transformation, industrialization, and rapid economic
growth. The second long-term plan (1985-2005) emphasized the expansion
of productive capacities through public-private partnership. The current log-
term or so called Vision Plan (2005-2030) focuses on capital formation and
sustainable development.

After the period of incubation the government of Pakistan was confronted

with the acute problems of institutional arrangements, refugees’ settlement
and lack of infrastructure. In pre-plan period (1947-55) Rs.6.7 billion were
allocated to address these and other immediate problems. 2. No attempt was
made to relate investment to aggregate targets for the economy in terms of

1
IIUI/IIIE/SPRING2014/PZJ/IPE/03

2
C.t Mahbub-ul-Haq, The Strategy of Economic Planning, Oxford, Karachi, 1966, P. 155ff.

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growth, employment and export, nor to prepare any estimates or targets for
private sector.

The First Five Year Plan (1955-60) had a size of Rs.10.8 billion including
Rs.7.5 billion allocated for public sector and Rs.3.3 billion for private sector.
Out of this Rs.6.6 billion were decided to finance by internal resources and
Rs.4.2 billion by external resources in the form of foreign aid and debt. The
major objective of this plan were to increase national income and export by
15% each in real terms through expansion/improvement in irrigation,
transport and communication systems as well as rapid development energy
resources and consume goods industries. However, national income
increased by 13% without having a desired impact on per capita income and
export growth3.

The Second Five Year Plan (1960-65) had a size of Rs.23 billion including
Rs.16.2 billion for public sector and Rs.6.8 billion for private sector. It was
almost evenly financed through internal and external resources. Main
objectives of this plan were to raise real per capita income by 12% and
export by 15% through expansion in agricultural, industrial and
infrastructural capacities. The plan achieved its objectives having 15%
growth in per capita income and 18% growth in export4. In spite of this
success the level of domestic saving and investment could not improved, and
factors such as inflation, cost of foreign capital and balanced regional
development were not appropriately integrated into development plan.

Third Five Year Plan (1965-70) had outlay of Rs.52 billion (including Rs. 30
billion for public sector). 32% of the total outlay was decided to be financed
by external resources5. Main objectives of this plan included target growth
rate of 6.5%, improvement in country’s domestic saving and foreign
exchange earning through exports, transformation of agriculture through
improvement in productivity, development of basic industries, creation of
5.5 million new jobs in the economy, and control in population’s growth.
Although priority was given to productive sector, physical infrastructure and
regional development in public sector resource allocation, however, too little
and too late was done to address regional underdevelopment. The plan ended
with a 5.7% growth in output and 2.9% in per capita income per annum. It

3
Ibid.
4
Ibid., P. 181.
5
C.t Khawaja Amjad Saeed, Economy of Pakistan, IBA, Lahore, 1996, P. 253

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was also not possible to achieve the target of reducing deficit of balance of
payments.

Fourth Five Year Plan (1970-75) had an outlay of Rs. 75 billion including
Rs. 22 billion external finance. It was designed to improve the overall level
of socioeconomic development with less dependence on external finance and
to reduce inter-regional disparity in income distribution. The strategy was
heavily leaned on the development of agriculture sector and infrastructure.
However, due to separation of East Pakistan the implementation of the plan
became virtually impossible. The period from 1970 to 1978 is usually
considered as non-plan period as government decided to run the economy
through annual plans.

Fifth Five Year Plan (1977-83) was designed to develop rural, urban and
backward areas, to increase employment and income through rapid
economic growth, and to provide basic needs facilities to the population. An
investment of Rs.210 billion (including Rs. 148 billion for public sector)
was contemplated in the plan period6. Priority was given to agriculture,
water and power, industry and mining sectors. The plan succeeded to
maintain a consistent 6% growth rate (over 9% industrial growth rate) per
annum and lowering of inflation to 5%. However, total investment as % to
GDP declined to 15.5% affecting long-term investment for physical and
human capital development.

Sixth Five Year Plan (1983-88) allocated Rs. 495 billion (more than doubled
than in previous plan period) including Rs. 295 billion in public sector and
Rs. 200 billion in private sector7. It was aimed to reduce the level of external
finance from 24 to 16% of GDP during the plan period with a corresponding
increase in domestic saving and investment specifically in the private
sector8. The plan targeted to improve living standard of the people through
strengthening agricultural and industrial production, developing domestic
energy resource, and providing basic public utilities. It was aimed to achieve
6.5 % GDP growth rate (including 5% in agriculture and 9% in industry), to
provide 4 million new jobs, and electricity to 88% of village population. The
plan was a mixed success. It fulfilled most of its targets including GDP
growth rate. However, it achieved 3.8% growth rate in agricultural
production instead of planned level of 4.9%, and 7.7% in manufacturing
6
Ibid, p. 265f.
7
GoP, The Sixth Five Years Plan (1983-88), Planning Commission, Islamabad 1983.
8
Ibid., p. 270.

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sector instead of 9.3%9. It failed to raise saving, revenues and export to the
desired levels and progress in social sector remained below expectation.

Seventh Five Year Plan (1988-93) envisaged a total investment of Rs.660

billion (including 323 billion in public sector). A substantial share of public
sector investment was allocated for the development of agriculture, water
and power and industrial sector10. The plan was prepared within broad based
socioeconomic framework of long-term planning emphasizing efficient
growth in output and improving the quality of life. The development strategy
included tasks like increasing productivity, expansion in production and
export, etc. A number of policy reforms were launched during the plan
period including encouragement of open market economy, privatization,
deregulation and liberalization. The plan achieved more than 74% of its
targets in aggregate terms. GDP grew by 5.0 (target 6.5%), agriculture 3.8%
(target 4.7%) and manufacturing 5.9% (target 8.1%). However, self-reliance
in the production of wheat, edible oil, iron-ore, crude oil and capital goods
did not show significant improvement11.

Eighth Five Year Plan (1993-98) had a planned size of Rs.1701 billion in
1992-93 prices (Rs.340 billion per annum in average) having public sector
share of Rs.752 billion out of which Rs.483 billion was to be covered
through budget finance and Rs.269 billion from corporate and market
finance. Target GDP growth rate was set at 7% (agriculture 4.9%,
manufacturing 9.9%, and services 6.7%). It was aimed to increase national
saving from 13.8 to 18% of GDP, and to reduce fiscal and current deficit
from 7.9% and 7% to 4% and 2.4% of GDP, respectively. Similarly, rate of
inflation was planned to be reduced to 6%12. However, due to successive
changes of governments in the 1990s economic policy was primarily guided
through annual planning. The economic performance during this period was
far below expectation. GDP growth rate decreased to 3.5% in 1997-98 and
an average rate of 4.2% could be achieved during 1994-98. Average growth
rate of manufacturing sector decreased to 3.3% per annum. National saving
declined to 13% of GDP per annum. Having desired level of investment at
18% of GDP, an investment gap of 5% of GDP was covered through foreign

9
C.t. M. Saeed Nasir & Syed Kemal Hyder, Economics of Pakistan, Educon Publication, Lahore 1992, p.
303-04.
10
GoP, The Seventh Five Years Plan (1988-93), Planning Commission, Islamabad 1988
11
C.t Khawaja Amjad Saeed, ibid., p. 273.
12
Ibid., p. 292.

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saving. Similarly, targets to reduce unemployment, inflation, fiscal and
current account deficit could not be achieved to the desired levels13.

Ninth Five Year Plan (1998-2003) was officially not announced due to
economic instability after nuclear test in 1998, but it was later on released in
2001 as a part of Perspective Plan (2001-2011). In this plan it was
emphasized to address the structural problem of Pakistan’s economy
(including growth and poverty, capital accumulation, agricultural and
industrial development, etc.) through systemic resolution. The total size of
perspective plan was Rs.11287 billion in market prices (Rs.1026 billion per
annum in average). The plan allocation in per year average was three times
more than during the Eighth Five Year Plan. 77% of the plan allocation was
planned in private sector. The public sector had to concentrate on poverty
reduction as well as human and infrastructural development. For this
purpose Rs.460 billion were allocated for the first three years (2001-2004).
The targets of the perspective plan were based on the benchmarks of 2000-
01 including absolute poverty (30%), HDI ranking (135), and GDP growth
(2.6%). It was planned to reduced poverty to 25% in 2003-04 and to 15% in
2010-11. Similarly, the HDI ranking was to be improved to 120 in 2003-04
and 90 in 2010-11. GDP growth rate was aimed to increase to the level of
5% in 2003-04 and 6.3% in 2010-1114. The twin objective of accelerating
growth and reducing poverty has to be achieved through encouraging four
leading sectors, namely agriculture, SME, information technology and
energy. The performance of the rolling plans for the years 2001-04 indicate
that besides HDI and HPI most of the above-mentioned interim objectives
for 2003-04 including desired level of national saving and investment, GDP
growth rate as well as reduction in inflation and fiscal account deficit were
achieved. The current account showed a surplus during this period15. Higher
growth was primarily achieved through better performance of agricultural
and manufacturing sectors. However, high growth rate depend on continuous
improvement of total factor productivity. Encouraged by this experience the
government reshaped its long-term plan and devised 25 years Perspective
Plan, which was called as “Vision 2030”.

In line with the basic objectives of Vision 2030 the Planning Commission of
Pakistan introduced a five year Medium-Term Development Framework

13
GoP, Ministry of Finance, Economic Survey 2007-08, Statistical Appendix, Economic and Social
Indicators, p. 2-4 (http://www.finance.gov.pk/admin/images/survey/chapters/Indicator%2008-09.pdf)
14
C.t Khawaja Amjad Saeed, The Economy of Pakistan, Oxford, Karachi, 2007, P. 233f.
15
C.t. GoP, Ministry of Finance, Economic Survey 2007-08, Statistical Appendix, ibid.

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(MTDF2005-10). In this framework human development targets have been
fixed in line with the Millennium Development Goals (MDGs) 2015. As a
part of Vision 2030 the MTDF 2005-10 is supposed to achieve higher level
of capital formation and sustainable development, to reduce poverty, to
create internationally competitive, environment friendly and technology
driven knowledge society. The strategy is based on the development of
infrastructure, human resource, and technology. The plan emphasizes on
liberalization to finance economic growth and promote foreign trade. It also
stresses on productivity enhancement for long-term economic stability.
Higher growth rates can be achieved through diversification of agriculture,
enhancement of production base in manufacturing, expansion in physical
and social infrastructure, conservation of resource base, and encouragement
of domestic and foreign investment.

MTDF set GDP growth target for the period 1005-10 at 7.6% per year in
average (including agriculture 5.2%, manufacturing 11.6% and services
7.3%. In order to achieve the desired growth rate it was aimed to increase
the supply of energy from 19540 MW (2005) to 27420 MW (2010). It was
also planned to reduce the level of absolute poverty from one-third of
population (33%) to approximately one-fifth of population (21%) in 2010
through pro-poor growth, social development, good governance, and
protection of vulnerable groups. The MTDF initiatives include free
education up to secondary school level, introduction of technology education
as a core course at elementary level, up-gradation of curricula,
decentralization of teacher training institutes up to the district level and
promoting public-private partnerships. During MTDF, a major initiative
would be the provision of clean drinking water to all through water
purification plants to be set up throughout the country. The water supply
systems coverage will be increased from 65 percent in 2005 to 76 percent in
2010, and sanitation coverage increased from 42 percent in 2005 to 50
percent in 2010. Moreover, during MTDF a comprehensive and holistic
multi-sectoral reproductive health approach will be adopted, with built-in-
linkages and functional integration between the community based workers of
health and population departments. The objective would be to decrease the
population growth rate from 1.87 percent in 2005 to 1.63 percent in 201016.

The growth and the other physical targets of the MTDF would require a total
investment of Rs. 8 trillion, rising from 16.8 percent of GDP in 2004-05 to

16
C.t. The MTDF 2005-10 (http://www.planningcommission.gov.pk/)

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20.7 percent in 2009-10. Out of the fixed investment of Rs. 7.3 trillion, 65
percent, will have to come from the private sector and 35 percent from the
public sector. The bulk of the public investment takes place through the
budgetary mechanism of the PSDP, which is pitched at above Rs 2 trillion
for 2005-10. Total investment will be financed by National Saving to the
tune of 88.3 percent. The balance will have to be arranged from external
sources. Bulk of resources of Public Sector Development Program (PSDP)
will be allocated for the development of infrastructure (49%) and in
achieving MDGs (35%).

The investment policy entails adoption of an appropriate mix of policy

measures in the area of revenue collection and reform in the taxation system.
The strategy will include broadening the tax base, creating uniformity in the
tax laws, enlarging application of GST, containing current expenditures and
implementing an efficient system of user charges for public services. Hence,
fiscal deficit will be kept under 4 percent of GDP.

Balance of payments will be strengthened through diversification of exports,

stable exchange rate and consistency in economic policies, export
competitiveness and trade liberalization. Imports and exports are to grow by
13.6 percent per annum and 14.9 percent per annum respectively in nominal
dollar terms during the MTDF. As a result, the trade account is projected to
be in deficit by $ 5.2 billion in 2009-10 against a deficit of $ 3.5 billion in
2004-05. The current account deficit in 2009-10 is estimated at 2.4 percent
of GDP against 1.7 in 2004-05. The foreign capital requirements are
expected to increase from $ 3985 million in 2004-05 to $ 6691million in
2009-10. The financing of these requirements would be made through
normal disbursements of medium and long term loans, capital and foreign
investment and exceptional financing.

However, the achievement of above-mentioned planned targets seems to be

difficult keeping in view the financial crisis, rising inflation, and rising oil
prices in recent past. The indicators for the provisional period (2005-2008)
reveals GDP growth rate of 6% per annum in average (including agriculture
3.8% and manufacturing 7.4%). Only growth rate of 7.3% in service sector
has been achieved. There has been no net addition in the power sector. Due
to current economic/energy crisis the growth rates in current year are
assumed to be further declined. Although the aggregate level of investment
has been maintained at 22% of GDP, however, only 74% of the total
investment (instead of the desired national saving level of 88% of total

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investment) could be financed through national saving and the gap has to be
covered through foreign saving in the form of foreign credits. Contrary to
the expectation the rate of inflation has been escalating in recent years.
Although government statistics is showing 12% growth in CPI index for the
year 2007-2008, however, real current inflation rate is far exceeding this
level. Similarly, fiscal and current account deficits have been increasing in
recent years, reaching the levels of 7.4% and 8.6% of GDP in the year 2007-
08, whereas they have to be maintained at the levels of 4% and 2.4%,
respectively. Macroeconomic indicators also indicate worsening of HDI and
HPI ranking for Pakistan from 136 and 77 in 2005 to 139 and 100 in 2006
showing one-third of population living under absolute poverty line17.

Balance Sheet:

Obviously planning is a precondition for development at all levels. In

developing countries like Pakistan markets are characterized by imperfection
of structure and operation. Products and factors markets are often badly
organized. Market failure is a basic argument for planning at public level.
Moreover, planning can also facilitate mobilization of resources, capital
formation, structural change, reduction in income inequality, price stability,
avoiding business cycles, reducing unemployment, and management of
foreign aid. After having reviewed the historical experience of development
planning in Pakistan one may reach following conclusions18:
1. Administrative obstacles: There is a lack of an effective
administrative machinery that may establish a sound, efficient and
independent planning authority. Qualified economists, experts and
planners do not join government service due to lack of incentives.
Moreover, the administrative procedures are age old, documents and
files must follow a prescribed series of steps through administrative
layers causing unnecessary delays. There also exist lack of
coordination among ministries and agencies and it becomes difficult
to implement the program according to the approved policy.
2. Inadequate preparatory work: Development plans need preparatory
works including in time feasibility studies which may cover
comprehensive cost-benefit analysis by considering relevant
socioeconomic variables and risk factors. Due to lack of preparatory
17
C. t. Human Development Reports 2008 Statistical Updates Pakistan
(http://hdrstats.undp.org/2008/countries/country_fact_sheets/cty_fs_PAK.html)
18
C.t. Khawaja Amjad Saeed, 2007, P. 192f.

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 works on projects plans have occasionally failed in achieving their
targets.
3. Lack of implementation of plans: Plans have been difficult to
implement due to lack of financial discipline. At times it appears that
plans are prepared by the planning agency and policy is made by
different bodies. Moreover, changes in plans have been occasionally
made on ideological or political grounds.
4. Lack of evaluation of plan progress: Flexibility is essential element of
development planning because in many cases changes in economic
conditions make changes from the original plan unavoidable. In many
cases the midterm review of the five year plans have been published
almost near the end of plan period and final review of a plan often
came after a new plan was launched.