PPTZ Module 1 PDF

Issues in Pakistan Economy
Munazza Ahmed
https://blogs.tribune.com.pk/story/48954/of-pakistans-strategic-position-and-
progressing-economy/
Department of Management Sciences

Virtual University of Pakistan MODULE 1
Structural Transformation
GDP per capita

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GDP per capita

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15000
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Pakistan South Korea
MODULE 1
Democratic
Transition
New Military (2007 –
Regime (1999- present)
Structural 2008)
Adjustment
The Second Era (1988 –
Military 1999)
The Bad Luck Regime (1977-
Years (1971- 1988)
The Decade of 1977)
Development
Laying the (1958-1968)
Foundation
(1947-1958)
Outline
MODULE 1
Subsistence Diversified
Farming
Structural Economy
Transformation
Structural Transformation at a Glance

https://sappk.wordpress.com/2010/03/08/agriculture-problems-in-pakistan-and-their-
solutions/
https://tribune.com.pk/story/1172214/internet-access-g-b-receive-3g4g-services-early-
2017/
• To evaluate the
performance of our country
over a period of about
seven decades
• A brief overview to
understand Pakistan
economy’s structural
transformation
• Own development narrative
Agenda
Sectoral contributions
to GDP at the time of
independence;
– Agriculture 53%
(65% labor force
involved)
– Manufacturing 7.8%
– Trade 11.9%

Sectoral contributions to
GDP today;
– Agriculture 19.5%
(42.3% labor force
involved)
– Industrial Sector
20.88%
– Services sector 59.59%

Contribution to GDP 1949 Contribution to GDP 2017
Others Agricultur
27% e
19%
Agricultur Service
e Sector Industrial
53% 60% sector
Trade
12% 21%
Manufact
uring
8%

The huge transformation

in economic, social and
hence political power
from the agriculturist
towards an urban and
rural middle class.
one of the key indicators

highlighting the extra
ordinary structural
transformation of
Pakistan over the time
period.
70 years of Development
Or
7 Decades of Pakistan’s
Economy
Pakistan today is less than half of

the country it was in 1947 with
reference to its population.
(Since 55 % of the population
lived in East Pakistan)
Geographically West Pakistan was

6 times more than East Pakistan
Huge contributions to society and

economy by east Pakistan
Laying the Foundations
(1947-1958)
Predominantly agrarian
Undeveloped and newly independent

nation
Little industry, few services
Absence of economic infrastructure
Features
(1947-1958)
Adverse international conditions
Precarious domestic situation (with

millions of refugees)
Attempts of bureaucracy to keep

Pakistan on its feet
Lack of capital
Features
(1947-1958)
Colombo Plan launch 1951 (Rs.2600
million)
Provision of very basic necessities
Building an economic base by state

sector
Features
(1947-1958)
Ban on Imports of cotton textiles and

Luxury goods
Emphasis on Industrial Growth
Manufacturing Sector Growth 34%

(1952-54)
Korean War (1950-1953)
Policy Success
(1947-1958)
Decline in agricultural growth rate
(1951-1958)
Severe floods in the Sindh and Punjab
(1948)
Deficit financing throughout 1950’s
Policy failure
Military take over by

General Ayub Khan in
October 1958
The Decade of Development
(1958-1968)
Considerable Economic growth
Economic policy-making Focus
Model Capitalist Economy
High growth rate in manufacturing
Features
(1958-1968)
Progress in Agriculture sector (5% p.a)
Increase in Exports
Inflow of American Aid
Indus Water Treaty
Features
(1958-1968)
Water & Power Investments
1965 War
Economic & political tensions grew

between the two wings
Features
(1958-1968)
Economic and social reforms
Increase in Investment (three fold )
Technological breakthrough in
Agriculture (5% p.a)
Coordinated economic policies
Price stability
Policy Success
(1958-1968)
Regional Disparities
(Industry and Agriculture in Central
Punjab, Industry in Karachi)
Feeling of East Pakistan of Utter

neglect Demand for full
economic autonomy
Policy failure
(1958-1968)
Income Inequality
(concentration of economic power,
Few families acquired most of the
national wealth)
Perpetuation of Industrial & Trade

policies
Policy failure
(1958-1968)
Functional Inequality (as social sector

was neglected)
• Education sector
• Health Sector
• Little increase in real wages
Policy failure
(1958-1968)
Commitment to Development
Development momentum disrupted

by 1965 War
( Foreign Aid, Defence spending
Investment)
Growing Economic Disparity
An Assessment
(1958-1968)
An era with exceptionally

successful period of economic
management
An Assessment
The bad Luck Years
(1971-1977)
This era brought fundamental structural
and institutional changes is social,
economic and political sectors.
Features
The bad Luck Years
(1971-1977)
Nationalization (Manufacturing
industries, Banking, Insurance,
Education etc.)
1973 oil price shock Balance of

Payment worsened
Devaluation Pakistani rupee Foreign

exchange earnings
Features
The bad Luck Years
(1971-1977)
Worldwide recession Exports
Massive floods 1973 and 1974
Worst Inflation
Fiscal deficit widened further
Features
The bad Luck Years
(1971-1977)
Foreign exchange earnings
Investment in Big industrial units
Land and labor Reforms
Policy Success
The bad Luck Years
(1971-1977)
Private sector investment
Worst Inflation (15% p.a.) Real

Incomes
GDP growth
Policy failure
The bad Luck Years
(1971-1977)
Expenditure on defence and

administration Budget deficit
Development expenditure
employment
Socialism experiment leaves negative

impact
Policy failure

General Zia-ul-Haq
in July 1977
Second Military Government

The second Military Government
(1977-1988)
Improvement in growth rate
Decline in Poverty
Decline in unemployment
Liberal economic policies
Higher industrial growth
Features
(1977-1988)
Domestic debt Increases
Defence spending Increased
Development spending neglected
Fiscal deficit
Features
(1977-1988)
Two major initiatives of last tenure

started paying off in this regime; i.e.
• Mega projects (such as Tarbela dam)
• Pakistani expatriates sent abroad
Policy Success
(1977-1988)
• Inflow of foreign remittances
• Foreign Aid (Afghan War)

(these two factors ease the fiscal
pressure)
Islamic interest free banking System
Policy Success
(1977-1988)
GDP growth (4.9% to 6.6%)
Agriculture growth
Manufacturing growth
Policy Success
(1977-1988)
Domestic saving rate (below 10%)
Exports as a percentage of GDP (below

10%)
Inadequate investment in social &

economic infrastructure
Policy failure
(1977-1988)
Negative public saving
Declining public investment
Domestic debt explosion (large interest

payment and fiscal deficit)
Neglect of development spending
Policy failure
(1977-1988)
National saving/GDP (16%) But used to

finance large fiscal deficit
Fiscal deficit a result of;

• Non-developmental expenditure
• Tax revenue/GDP ration
Policy failure

General Zia-ul-Haq
in July 1977

(1977-1988)
Decline in Poverty
Features
(1977-1988)
Fiscal deficit
Features
(1977-1988)

Policy Success
(1977-1988)

pressure)
Policy Success
(1977-1988)
Agriculture growth
Policy Success
(1977-1988)

10%)

Policy failure
(1977-1988)

Policy failure
(1977-1988)


Policy failure

General Zia-ul-Haq
in July 1977

(1977-1988)
Decline in Poverty
Features
(1977-1988)
Fiscal deficit
Features
(1977-1988)

Policy Success
(1977-1988)

pressure)
Policy Success
(1977-1988)
Agriculture growth
Policy Success
(1977-1988)

10%)

Policy failure
(1977-1988)

Policy failure
(1977-1988)


Policy failure
Structural Adjustment Era started in

August 1988
(democratically elected regime)
Structural Adjustment Era

The Era of Structural Adjustment:
(1988-1999)
Democracy (4 General elections)
Political Instability
Corruption in governance
Law & order situation
Features
(1988-1999)
In-efficient state owned Banks
Debt crises
Economic liberalization
Structural adjustment program (IMF &

World Bank)
Features
(1988-1999)
Economic Reforms 1991
Privatization of state owned enterprises

& Banks Expenditure on subsidies
Energy Policy (private power policy of

1994)
Policy Success
(1988-1999)
Debt crises
Rising unemployment (development

expenditure declined)
External deficit
Worst Inflation
Policy failure
(1988-1999)
GDP growth
Poverty
Declining private investment
Macroeconomic instability
Policy failure
Military took over the

Government in
October 1999
New Liberalism, Dictatorship

(1999-2007)
Most sanctioned country (Post 1998)
GDP growth
Foreign exchange reserves
Budget deficit
Features
(1999-2007)
Unemployment rate
Real state development
Modern services sector
Foreign Direct Investment
Features
(1999-2007)
Government formulated comprehensive

set of reforms for;
• Reviving the economy
• Establishing institutional basis to
improved governance
Substantial improvement in macro

economic indicators
Policy Success
(1999-2007)
Investment rate (17.2% of GDP in 2001

to 23% in 2006)
Foreign direct investment (Investor

confidence)
GDP per capita (3.9% in 1999 to 6%

till 2007)
Policy Success
(1999-2007)
Stock Exchange performance

(Best performing equities market)
Education sector expanded(Record

allocations for science and technology,
education sectors)
Modern services sector development

results in job creation
Policy Success
(1999-2007)
Continued widespread poverty
Shortage of basic services
Dependency on foreign inflow (Afghan

War)
Free media / press
Policy failure
(1999-2007)
Investment in consumer products &

domestic services cannot be basis of
long term sustainable growth.
Policy failure
(1999-2007)
Economically this era embarked the

achievement of many milestones and
demonstrated excellent growth rates.
Analysis
Democratic Government
started after General Elections
in 2008
Democratic Transitions
Democratic Transitions (2007
onwards)
(2008-2013)
Declining GDP Growth
Inflation increases
Global Financial Crisis
Rising foreign debt
Features
onwards)
Rampant Corruption
Rising Unemployment
Falling FDI
Energy crises
Features
onwards)
(2013-2018)
GDP Growth improvement
Budget deficit
Private sector confidence improved
Inflation
Features
onwards)
Improvement in Tax collection
Imports
Current account deficit
Debt Burden
Features
onwards)
FBR tax revenue
Energy crises (up to 33000MW)
Average inflation (4% in last five years)
CPEC
War on terror
Policy Success
onwards)
Short term policies
External debt
Circular debt highest (Rs 922 billion)

(Rs. 120 bn 2010)
Strategic Trade Policy Framework

(STPF)
Policy failure
32 Years of Military Government

(3 times of different military
governments)
38 Years of democratic government

(4 times of democratically elected
governments)
Analysis
Healthy growth around 5% (falling

trend since 1988)
*39th poorest nation in world
Highly dependent on Aid and foreign

assistance
Capitalist development (Role of

private sector is important)
Analysis
Analysis
Lowest performers in the South Asia

Region on human development
indicators, especially in education
Lowest female labor force

participation rates in the region
Tax-to-GDP ratio, at 12.4 percent, is

one of the lowest in the world
Corruption (score 32/100)
Analysis
Pakistan being blessed with;
Skilled labor
Sufficient natural endowments
Could have grown much more.
Analysis
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Issues in Pakistan Economy

Department of Management Sciences

GDP per capita

GDP per capita

Structural Transformation at a Glance

• Own development narrative

Structural Transformation at a Glance

Structural Transformation at a Glance

Contribution to GDP 1949 Contribution to GDP 2017

Structural Transformation at a Glance

The huge transformation

one of the key indicators

Pakistan today is less than half of

Geographically West Pakistan was

Huge contributions to society and

Undeveloped and newly independent

Little industry, few services

Absence of economic infrastructure

Precarious domestic situation (with

Attempts of bureaucracy to keep

Provision of very basic necessities

Building an economic base by state

Ban on Imports of cotton textiles and

Emphasis on Industrial Growth

Manufacturing Sector Growth 34%

Korean War (1950-1953)

Deficit financing throughout 1950’s

Military take over by

Considerable Economic growth

Economic policy-making Focus

Model Capitalist Economy

High growth rate in manufacturing

Progress in Agriculture sector (5% p.a)

Inflow of American Aid

Indus Water Treaty

Water & Power Investments

Economic & political tensions grew

Increase in Investment (three fold )

Coordinated economic policies

Feeling of East Pakistan of Utter

Perpetuation of Industrial & Trade

Functional Inequality (as social sector

• Little increase in real wages

Development momentum disrupted

Growing Economic Disparity

An era with exceptionally

This era brought fundamental structural

and institutional changes is social,

economic and political sectors.

1973 oil price shock Balance of

Devaluation Pakistani rupee Foreign

Worldwide recession Exports

Massive floods 1973 and 1974

Fiscal deficit widened further

Foreign exchange earnings

Investment in Big industrial units

Land and labor Reforms

Private sector investment

Worst Inflation (15% p.a.) Real

Expenditure on defence and

Socialism experiment leaves negative

Military take over by