Characteristics of Pakistan's Economy

1. Analysis of Industries of Pakistan ECO411 by IRFAN HAIDER SHAKRI

2. Basic Characteristics of Pakistan’s Economy 1- General Poverty and Low Living Standard. Poverty
cannot be described, it can only be felt. The most of the less developed countries (LDC) are facing
the major problem of general as well as absolute poverty and low standard of living. Most of the
people in developing nations are ill-fed, ill- housed, ill-clothed and ill-literate. In LDCs almost 1/3
population is much poor. But in Pakistan, 21.0 % population is living below poverty.

3. 2- Burden of Internal and External Debts: Under developed countries (UDC) are loans and grants
receiving nations. Most of the developing countries of the world are depending on foreign economic
loans. An amount of foreign loans is increasing as the years pass. Their foreign trade and political
structure is also dependent on the guidance of foreigners. The outstanding total public debts are Rs.
12024 billion (58.2% of GDP) and the value of external debts and liabilities is $ 60.3 billion and
services charges on all types of debts are Rs. 730.733 billion during 2011-12, in Pakistan.

4. 3- Low Per Capita Income: Due to low national income and huge population growth rate, per
capita income in developing countries is very low. At constant prices (Base Year 1959-60) per capita
income of Pakistan was Rs. 985 and according to the Economic Survey of Pakistan 2011-12 per capita
income of Pakistan is $ 1372.

5. 4- Over Dependence on Agriculture: 61% 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, in-efficient farmers, lack of credit
facilities; un-organized agriculture market etc. 66.7% population is directly or indirectly depending
on agriculture sector in Pakistan. It contributes to GDP 21.0% while in advanced nations it is less
than 5 %. It employed 45.0 % of labour force while it is less than 5 % in developed countries.

6. 5- Backward Industrial Sector: Backward industrial sector is an additional feature of under

developed countries. Industrial sector of Pakistani economy is backward since independence.
Pakistan got only 34 (3.7 % of total industrial units) industrial units out of 921 units in sub-continent
in 1947. Small and backward industrial sector is based on low level of capital formation, technology,
training and education and over dependence on agriculture sector. 13.7% labour force is attached
with industrial sector in Pakistan. Its share to GDP is 25.4 % and to exports is more than 60 %.

7. 6- Unemployment : An outstanding problem of developing countries is their high rate of un-

employment, under- employment and disguised-unemployment. More than 3.5 million people are
unemployed in Pakistan. There is 16 % underemployed and 20% disguised unemployed of total
labour force. Unemployment rate is 6.0%; it is mainly due to high population growth rate, which is
2.03%.

8. 7- Low level of Productivity: The productivity level is very low in under developed countries as
compared to developed countries. Low level of productivity is due to economic backwardness of
people, lack of skill, illiteracy and ill-training. Value of annual productivity of labour is about $ 100
while it is more than $ 2500 in advanced nations in Pakistan. Minimum wages are Rs.8000/- per
month against the average gross salary of $3,950 (Rs.3,79,200) per month in United States.

9. 8- Deficit Balance of Payment: Third world countries have to import some finished and capital
goods to make economic development, on the other hand they have no products to export but raw
material. During July-April, its exports were $ 20.474 billion and imports were $ 33.15 billion in case
of Pakistan. So, its deficit balance of payment was $ 12.68 billion in 2011-12.
10. 9- Dualistic Economy: Dualistic economy refers to the existence of advanced & modern sectors
with traditional & backward sectors. Pakistani economy is also a dualistic economy as other
developing countries on the following grounds: Co-existence of modern and traditional methods of
production in urban and rural areas, Co-existence of wealthy, highly educated class with a large
number of illiterate poor classes and Co-existence of very high living standard with very low living
standard.

11. 10- Deficiency of Capital: Shortage of capital is another serious problem of poor nations. Lack of
capital leads to low per capita income, less saving and short investment. National saving is 10.7% of
GDP and total investment is 12.5% of GDP in Pakistan. Rate of capital accumulation is very low as
5%. On the other hand, capital output ratio (COR) is very high which is not desirable for economic
development.

12. 11- In-appropriate Use of Natural Resources: Mostly there is shortage of natural resources in
developing nations and this is also a cause of their economic backwardness. Natural resources are
available in various poor countries but they remain un-utilized, under-utilized or mis-utilized due to
capital shortage, less efficiency of labour, lack of skill and knowledge, backward state of technology,
improper government actions and limited home market. Natural resources contribute to the GDP
about 1%.

13. 12- Market Imperfection: Market is imperfect in accordance with market conditions, rules and
regulations in the most of developing nations. There exist monopolies, mis- leading information,
immobility of factors; hoarding and smuggling etc. that cause the market to remain imperfect.

14. 13- Limited Foreign Trade : Due to backwardness, developing countries have to export raw
material because the quality of their products is not according to international standard ISO etc.
Lower developing nations have to import finished and capital goods. Imports of Pakistan are $ 33.15
billion and exports are $ 20.474 billion that cause into unfavourable balance of payment of $ 12.676
billion.

15. 14- Vicious Circle of Poverty: According to vicious circle of poverty, less developed nations are
trapped by their own poverty. Vicious circle of poverty is also applied in case of Pakistani economy.
Due to poverty, national income of Pakistan is low which causes low saving and low investment. So,
rate of capital formation is very low results in “a country is poor because she is poor”.

16. 15- Inflation: High rate of inflation causes economic backwardness in poor nations. Due to high
level of price, purchasing power, value of money and saving of the consumers tend to decrease. Rate
of inflation (CPI) is 10.8% in 2011-12 in Pakistan.

What are the major factors of Pakistan economy?

Pakistan's economy is currently facing four major challenges, that is, deceleration in growth, rising
inflation (particularly food inflation), a growing fiscal deficit, and the widening of trade and current
account deficits.
What is Pakistan's main source of income?

agriculture

Distribution of gross domestic product (GDP) across economic sectors Pakistan 2019. In 2019,
agriculture contributed around 22.04 percent to the GDP of Pakistan, 18.34 percent came from the
industry, and over half of the economy's contribution to GDP came from the services sector.