ISSUES

IN
PAKISTAN'S
ECONOMY
SECOND EDITION
REVISED AND EXPANDED

S. AKBAR ZAIDI

OXTORD
UNIVERSITY PRESS
Preface to the Second Edition vii Chapter 4 The Nature and Direction of
Agrarian Change 39
Preface to the First Edition. ... viii
Introduction .4.1 Explaining the Numbers 39
ix
4.1.1 Data from the Censuses 40
Chapter 1 Assessing Pakistan's Development 1 4.1.2 Changes Over Time 42
l.l Structural Change 2 4.2 What Do the Numbers Mean? 49
4.3 Summary and Further Reading 50
1.2 Five Decades and Five Epochs 4 4.3.1 Summary •, 50
1.2.1 Laying the Foundations: 1947-58 5 4.3.2 Further Reading 51
1.2.2 The Decade of Development:
1958-68 5 Chapter 5 Agriculture: Critical Issues 56
1.2.3 The Bad Luck Years: 1971-77 6 5.1 An Overview and Major Trends 56
1.2.4 The Second Military 5,2 Agricultural Pricing Policy 60
Government: 1977-88 6 5.3 Rural Financial Markets and
1.2.5 The Era of Structural Adjustment: Agricultural Credit 63
1988 Onwards 6 5.3.1 Informal Sources of Credit 65
1.3 The Balance Sheet 8 5.3.2 Formal Sources of Credit 65
1.4 Conclusions 10 5.4 Mechanization 70
5.5 Agricultural Income Tax " 71
Parti Agriculture 11 5.6 The Water Crisis 73
5.7 Land Ownership, Power and
Chapter 2 Is Pakistan Feudal? A Historical Land Reforms . . 76
Account of the Development of 5.8 Summary and Further Reading 77
Agriculture in Pakistan 12 5.8.1 Summary 77
2.1 The Development of Agriculture Before 5.8.2 Further Reading 77
the Consolidation of British Rule 12 Part II Industry and Trade 89
2.2 The Impact of British Colonialism 15
2.3 Feudal or Capitalist? 17 Chapter 6 The Process of Industrialization in
2.4 Popular Perceptions of Feudalism 20 Pakistan I: 1947-77 90
2.5 Summary and Further Reading 22 6.1 1947-58: Exchange Rates, Trade Policies,
2.5.1 Summary 22 and Import Substituting Industrialization 91
2.5.2 Further Reading 22 6.1.1 The Impact of the Exchange Rate 92
6.1.2 The Trade Policy Regime 93
Chapter 3 The Green Revolution and 6.1.3 The Consequences of Exchange
Land Reforms 28 Rate and Trade Policy for
Industrialization 94
3.1 me Green Revolution 28 6.1.4 The End Result 95
3.1.1 The Issue of the Tubewells 30 6.2 1958-68: The Decade of Development 97
3.1.2 Tractorization 30 6.2.1 Trade Policy Directing
3.1.3 Regional and Income Disparities 30 Industrialization 98
3.1.4 Elite Farmer Strategy and 6.2.2 Foreign Aid, the Private Sector,
Capitalist Development 31 and Inequalities 100
3.1.5 Social and Political Effects 31 6.3 1972-77: The Bhutto Years - Bad Luck
3.2 Land Reforms 32 or Bad Management? 104
3.2.1 The 1959 Land Reforms 34 6.3.1 Economic Policies and
3.2.2 The Bhutto Reforms of 1972 35 Performance 105
3.3 Summary and Further Reading 36 6.3.2 The Bad Luck Factor 107
3.3.1 Summary 36 6.4 Summary and Further Reading 108
3.3.2 Further Reading 36 6.4.1 Summary 108
6.4.2 Further Reading 109
iv Issues in Pakistan's Economy

Chapter 7 The Process of Industrialization in 9.6 Summary and Further Reading 187
Pakistan II: 1977-2004 111 9.6.1 Summary 187
9.6.2 Further Reading 187
7.1 The Zia Years: 1977-88 111
7.1.1 The Nature and Extent of
Growth 111
Part III Fiscal and Monetary Policy 199
7.1.2 Industrial Policy 113
7.1.3 The Public/Private Sector Divide 116 Chapter 10 Public Finance I: Resource Mobilization
7.1.4 Deregulation and Liberalization 17 and the Structure of Taxation 200
7.1.5 Causes of High Growth and the 10.1 The Structure of Government and
Success of the Zia Regime 118 Taxation Prior to 2001 200
7.2 The Age of Structural Adjustment: 1988 10.1.1 Legislative Functions 202
Onwards 120 10.1.2 The Structure of Taxation 202
7.2.1 The Principles of the Programme 120 10.1.3 Inter-Governmental Fiscal
7.2.2 Assessing the Impact on the Relations 203
Industrial Sector 122 10.1.4 The District Government System
7.3 Summary and Further Reading 124 Fiscal Issues 206
7.3.1 Summary 124 10.2 Public Finance: The Basic Facts • 210
7.3.2 Further Reading 124 10.3 Important Issues in Public Finance and
Chapter 8 Key Issues in Industry in Pakistan 129 Revenue Mobilization 214
10.3.1 Federal Taxes 214
8.1 Numbers and Trends in Industry 130 10.3.2 Resource Mobilization at the
8.2 The Small-Scale Manufacturing Sector 130 Provincial Level 221
8.2.1 Numbers and Characteristics 132
10.3.3 Local Government Revenues 224
8.2.2 Emergence and Growth 132 10.4 Is Local Government the Answer? 227
8.2.3 Issues Affecting the 10.4.1 The Contribution of Municipal
Small-Scale Sector 135 Government in Development 227
8.3 The Textile Industry and its Crisis 139 10.4.2 Potential for Development by -
8.4 Has Public Sector Industry Been a Failure? 143 Local Governments 228
8.5 The Privatization Process 146 10.4.3 Is Local Government the Answer? 229
8.6 The Debate Over Efficiency in the
10.5 The Nature of Public Debt and the Fiscal
Industrial Structure 150 Deficit: A Preliminary Introduction 229
8.7 Summary and Further Reading 154
10.6 Summary and Further Reading 232
8.7.1 Summary 154 10.6.1 Summary 232
8.7.2 Further Reading 155 10.6.2 Further Reading 232
Chapter 9 Balance of Payments and Trade
Regimes 159
Chapter 11 Public Finance II: Debts and Deficits 236
9.1 Pakistan's Foreign Trade: Basic Facts 159
9.2 Trade Policy and Trade Regimes: 1947-97 164 ll.l Does the Fiscal Deficit Matter? 237
9.2.1 The Early Years: 1947-58 164 11.1.1 Should Budgets Always be
9.2.2 Trade Policy and the Decade Balanced? 238
of Development 166 11.1.2 The Problem of Measuring the
9.2.3 A New Country: 1972-77 169 Deficit 238
9.2.4 The Beginning of a Liberal 11.1.3 Fiscal Deficits, Intertemporal
Trade Regime: 1977-88 172 Equity, and Distribution 239
9.2.5 Trade Liberalization Under 11.1.4 Macroeconpmic Implications 239
Structural Adjustment: H- 2 Critical Concerns Regarding Pakistan's
1988 Onwards 173 Fiscal Deficit 240
9.3 The Debate Over Efficiency and the 11.3.1 The IMF/World Bank View of
Trade Regime 175 Pakistan's Fiscal Deficit, 1980-97 242
9.4 The Exchange Rate 177 11.3.2 Re-examining Critical Concerns 244
9.5 Dealing with Globalization and WTO 180 11.4 The Domestic and Foreign Debt Crises 244
9.5.1 Some Political Economy Issues 180 11.5 Summary and Further Reading 251
9.5.2 Globalization and WTO's Impact 11.5.1 Summary 251
on Pakistan 183 11.5.2 Further Reading 252
 Contents v

Chapter 12 Financial and Capital Markets 260 Chapter 15 Structural Adjustment Programmes
in Pakistan 336
12.1 the Development of the Banking Sector 260
12.1.1 The First Phase: 1947-74 260 15.1 History 336
12.1.2 The Relationship Between 15.2 Implementation of the Structural
Economic Growth and the Adjustment Programmes in Pakistan:
Development of Banking 263 An examination of the 1988 Programme 338
12.1.3 Nationalization in the 1970s 264 15.2.1 Fiscal Policy 339
12.1.4 Islamic Banking 265 15.2.2 Trade 339
12.1.5 Developments since 1988 266 15.2.3 Financial Sector 340
12.1.6 Banking Trends: 1964-2003 266 15.3 Was the 1988 Structural Adjustment
12.1.7 Development Finance Programme a Success?
Institutions (DFIs) and Achievements and Failures 340
Non-Bank Financial 15.3.1 Fiscal Policy 340
Institutions (NBFIs) 267 15.3.2 Trade and Balance of Payments 341
12.1.8 Some Salient Issues in the 15.3.3 Financial Sector 341
Banking Sector 269 15.3.4 Liberalization and Privatization 342
12.2 The Equities Market 270 15.3.5 Other Areas 342
12.3 Summary and Further Reading 273 15.4 The World Bank/IMF's Overall Evaluation
12.3.1 Summary 273 of the 1988 Structural Adjustment
12.3.2 Further'Reading 275 Programme 342
15.5 The Political Economy of Structural
Chapter 13 Monetary Policy, Savings and Inflation 283
Adjustment Programmes in Pakistan 345
13.1 Monetary Policy and Monetary 15.5.1 Pakistan's Dependence on
Management in Pakistan 283 Washington, or Are
13.2 Money Supply and Monetary Expansion 292 Governments Autonomous? 345
13.3 Inflation and its Causes 293 15.5.2 Did Pakistan Need to Go to
13.4 The Low Savings Rate 294 the IMF? 348
13.5 Summary and Further Reading 297 15.5.3 Why Does Pakistan Accept the
13.5.1 Summary 297 Structural Adjustment
13.5.2 Further Reading 298 Programme? 349
Part IV The Era of Structural Adjustment: 15.6 Summary and Further Reading 351
. 15.6.1 Summary 351
From ESAFs to PRSPs — 1988 to
the Present 15.6.2 Further Reading 351
311
Chapter 14 Structural Adjustment Programmes:
Composition and Effects 312
Chapter 16 Macroeconomic Developments:
14.1 The Development and Export of 1998-2004 359
Development Thinking 313
14.2 From Structural Adjustment Loans
16.1 Before and After May 1998 360
16.2 September 11, 2001: The Day the
to Structural Adjustment Programmes 314
14.3 Structural Adjustment Programmes: World Changed 363
Composition 318
16.3 What Happened to the Debt Crisis? 364
14.4 Structural Adjustment Programmes:
16.4 The Growing Forex Reserves 369
Implementation and Effects 16.5 Has there been a Turnaround of the
319
14.5 Economic Liberalization and Openness: Economy? 372
Some Questionable Assertions 322
16.6 Summary and Further Reading 375
14.5.1 . The Contextuality of Policy 324 16.6.1 Summary 375
14.5.2 international Capital and the 16.6.2 Further Reading 375
Loss of National Autonomy 326
14.6 Summary and.Further Reading 326
14.6.1 Summary 326
14.6.2 Further Reading 328
vi Issues in Pakistan's Economy

Part V The Social Sector, Institutions and Chapter 20 Institutional Issues in the Social Sector 459
Governance 381
20.1 The Social Action Programme (SAP) 460
Chapter 17 The Social Sector I 382 20.1.1 What SAP envisaged 460
17.1 Some International and Regional 20.1.2 What happened to SAP? 461
Comparisons" 382 20.2 Governance, Decentralization and
17.2 Planning for the Social Sectors 385 Local-Level Delivery 462
17.3 The Health Sector 386 20.2.1 Government and Development
17.3.1 Statistics 386 in Pakistan 464
17.3.2 The Issues 387 20.3 NGOs and Community Participation 466
17.4 Education 392 20.4 Summary and Further Reading 469
17.4.1 Statistics 392 20.4.1 Summary 469
17.4.2 The Issues 394 20.4.2 Further Reading 469
17.4.3 Summarizing the Issues in
Education 397 Part VI Political Economics 479
17.5 Population Welfare and Family Planning 398 Chapter 21 The Political Economy of
17.5.1 The Evolution of the Population Neighbourly Relations 480
Welfare Programme 398
17.5.2 Knowledge and Usage 399 21.1 India and Pakistan: A Brief Comparison 480
17.5.3 Some Issues 400 21.2 Theorizing Trade, War and Peace 482
17.6 Urbanization and Housing 401 21.3 Trade with India 485
17.6.1 The Extent of Urbanization 401 21.4 Benefits and Constraints in Trading
17.6.2 Housing in Cities 401 with India 490
17.7 Summary and Further Reading 403 21.4.1 The Simple Benefits of Trade 490
17.7.1 Summary 403 21.4.2 Complicating Simplicity: The
17.7.2 Further Reading 404 Interests of the Military 490
21.5 Constraints and Possibilities: A Matter
of Survival 492
Chapter 18 The Social Sector II 412 21.6 Summary and Further Reading 496
21.6.1 Summary 496
18.1 Gender Inequality and Women 412 21.6.2 Further Reading 496
18.1.1 Statistics 412
18.1.2 Some Issues 413 Chapter 22 Political Economics: Class, State,
18.1.3 Finding Some Options 414 Power, and Transition 499
18.2 Infrastructure 415 Civilian Bureaucracy and
22.1
18.2.1 The Power Sector 415 Industrialization: 1947-58 500
18.3 The Environment 416 22.2 Civil and Military Bureaucratic
18.4 Regional Inequalities 418 Capitalism: 1958-71 500
18.4.1 Methodology and Results 421 A Shift in Emphasis: 1971-77 501
22.3
18.4.2 The Issues 422
22.4 A Military State and the Middle
18.5 Summary and Further Reading 427
Classes: 1977-88 ' 502
18.5.1 Summary 429
22.5 The Democratic Interregnum: 1988-99 504
18.5.2 Further Reading 429
22.6 The Return of the Military: 1999 Onwards 504
22.7 Issues in Pakistan's Political Economy 506
22.7.1 Pakistan's Middle Classes 506
Chapter 19 Poverty: Trends, Causes and Solutions 434 22.7.2 The Pakistani Military's
19.1 What Does Poverty Mean? 434 Economic Interests and their
19.2 Trends in Poverty 435 Consequences 507
19.3 Who are the Poor and Where do 22.7.3 Pakistan's Praetorian Democracy
they Live? 437 and Technocrats as Apologists 507
19.4 Explaining the Trends in Poverty: 1960-88 439 22.7.4 Pakistan's State and Society:
19.5 Why did Poverty return to Pakistan and Groups, Fractions and Influences 509
why does it still persist? 1988-2004 443 22.7.5 Urbanism as a Way of life 512
19.6 Poverty Alleviation: Then and Now 444 22.7.6 Is Pakistan a Failed State? 514
19.7 Poverty and Bonded Labour 447 22.8 Summary and Further Reading 515
19.8 Can Poverty be Eliminated in Pakistan? 450 22.8.1 Summary 515
19.9 Summary and Further Reading 450 22.8.2 Further Reading 515
19.9.1 Summary 450 Selected Bibliography 521
19.9.2 Further Reading 452 Index 525