Professional Documents
Culture Documents
1947- 1958
1. Growth rate for industry was amongst most rapid for any country in the world
2. Large scale manufacturing grew by 23.6% between 1949 and 1954 and by 9.3% up to 1960.
3. Investment rate more than doubled during the 1950s
4. In West Pakistan, between 1949 and 1958, large scale manufacturing grew by 19.1% and per capita
income increased by 6.97%
5. Main feature of the 1950’s was the establishment and expansion of large-scale manufacturing; starting
from a non-existent base.
Tools that influenced investment and economic development in the first decade
Exchange rate
1. Pound devalued in September 1949; Indian currency also devalued; Pakistan did not devalue.
2. Capital goods were needed for industrialization and devaluation would have led to an increase in
their prices.
3. Import controls imposed instead; especially on consumer goods; led to a sharp rise in their prices;
changed terms of trade in favour of industry and against agriculture
4. Profitability of the industrial sector increased; became more attractive; began the process of
industrialization.
Trade policy
1. Balance of payment deterioration in 1952; controls and restrictions imposed on trade
2. Contours of the trade policy: overvaluation of rupee; quantitative controls on imports; export tax
on agricultural products and highly differentiated structure of tariffs on imports.
3. Tariff protection to promote industrialization; lower tariffs on capital and intermediate goods; tight
control on import of luxuries and other consumer goods.
b. Negative list introduced in 1983: everything not on the list was importable
c. Quantitative restrictions replaced by tariffs
d. Export enhancing measures: manufactured exports were given rebates; exporters given income tax
concessions and import facilities
e. Managed float exchange rate introduced in 1982; fixed peg to dollar removed
Trade regime is directly linked to industrialization in Pakistan; import substitution of the 50s and 60s; non-
devaluation of 1948; protection given to the industry in 1960s; devaluation by Bhutto government etc.
1. In the early years Pakistan only exported primary products e.g. raw jute, raw cotton etc.
2. However, as the emphasis on industrialization increased primary commodities contribution to
export earnings fell.
3. Pakistan’s main imports in the first decade were consumer goods, cotton textile, and cotton yarn.
4. Main trading partners in early years: India, UK, USA, Germany, Belgium, Italy and Japan.
5. Most important contribution to balance of payment in Pakistan has been workers remittances.
6. Before 1971, East Pakistan was the major contributor to exports; West the major contributor to
imports.
7. Exports continue to be dependent on agricultural product even today; imports include not only
capital goods and machinery but also agricultural products (recent import of sugar)
8. China and US major trading partners; Afghanistan one of the main export destinations.
1947-58
1. UK and India major trading partners in 1948/9
2. Loose quantitative controls imposed on imports and exports in 1949
3. Regime was again liberalized as Korean war broke out and demand for Pakistan’s exports increased
4. This improved the balance of payment situation substantially.
5. Following the collapse of the Korean boom, the government re-imposed trade and foreign exchange
controls.
6. Import substitution, tariff and non-tariff barriers were responsible for initiation of industrialization in
the 50s.
7. Domestic production of consumer goods began as tariffs were imposed.
8. Export promotion scheme of 1956: exporters entitled to import licenses
9. Imports of capital and intermediate goods were freely allowed
1972-77
1. Import liberalization; number of banned goods reduced; free list further extended; import
procedure streamlined.
2. Most of the non-tariff barriers were removed
3. Export enhancing measures: export rebates, concessionary credit for exporters; income tax and
import facilities for exporters
4. Delinking of rupee from the dollar and introduction of flexible exchange rate.
1. Tariffs reduced
2. In 1991, import license abolished except from items on the negative list
3. Same year, Pakistanis allowed to open foreign currency deposit accounts; foreign exchange inflows
increased.
Exchange Rate
1. For nearly 35 years, Pakistan maintained a fixed-peg regime; rupee was first linked to the pound and
later to the dollar.
2. Pakistan did not devalue in 1949 when the pound devalued; nor in 1952 following the Korean War
boom.
3. First devaluation took place in 1955 to bring the rupee in line with other trading countries.
4. Nominal exchange rate of the rupee was fixed at Rs. 4.76 to the dollar for the next 17 years (rupee was
overvalued)
5. Ayub era: multiple exchange rates; overvalued rupee
6. Devaluation by Bhutto gov (58%); new value Rs.11 to dollar; multiple exchange rate system abolished.
7. Nominal exchange rate changed only twice from 1947-82; once in 56 and then in72
8. Flexible exchange rate system introduced on the advice of the IMF
9. 1993 onwards, direct devaluation by State Bank
10. After 2000, other mechanism used to manage exchange rate
11. 2002-08 kept steady (from 60.09 in 2002 to 61.76 in 2008); after 2008 significant deterioration.
12. 2008-13 depreciated by 37%
13. Further depreciation by about 24% during Nawaz regime
14. Depreciation by around 53% by PTI government
Fiscal Policy
Structure of Taxation
1. Major taxes worth real revenue with the federal government under the 1973 constitution; however,
changes were made in the 18th amendment
2. Revenue sources of the federal government: taxes; revenues from commercial departments; interests
on loans given by the federal government; return on investment made; fees and other receipts by
government departments; surcharge on fuel; dividends
3. Tax collected by FBR; comprises Inland Revenue and customs; Inland Revenue comprises of income tax,
sales tax and federal excise duty.
4. Types of taxes: direct and indirect
5. Indirect taxes: customs, sales tax, federal excise, surcharge on gas, levy on petroleum.
6. Sales tax: tax levied on consumption of retailers and manufacturers, importers, distributors, dealers
etc.; 39% of total federal tax collected in 2009/10, 38.3% in 2018/2019
7. Direct taxes: income tax major source (around 95-97%); capital value tax etc.; direct taxes contributed
40% to total tax revenue in 2009/10, 37.7% in 2018/19
8. Income tax structure is based on withholding tax, voluntary payments, and collection on demand.
1. Stagnant tax to GDP ratio; around 12%; results in high budget deficits;
2. Overdependence on indirect taxes; leads to regressive of the tax system
3. Within indirect taxes domination of taxes on international trade; prompts inefficiencies; encourages
illicit trade etc.
4. Narrow tax base because of tax evasion, exemptions and concessions.
5. Inefficient tax administration
Solutions
1. Broaden the tax base and increase the elasticity of the tax system by shifting emphasis of indirect taxes
to domestic consumption from trade taxes.
2. Increase contribution of income tax
3. Introduction of agriculture income tax
4. Proper documentation of the economy
5. Abolish the numerous exemptions
6. Reform FBR
Public Finance
1. Major expenditure was on defence; from 1947-71 more than half of total expenditure, currently 24%
2. Very low tax to GDP ratio, among the bottom ranked countries.
3. Rampant tax evasion; look up recent numbers.
4. Poor tax collection; direct taxes have not shown any significant progress
1. Income tax: 17% of total tax share in 1983 to 37.77% in 2011/12, same in 2018/19
2. Sales Tax: from 9.10% in 1983 to 42.75% in 2011/12, 38.3% in 2018/19
3. Central excise 30.90% in 1983/4 to 6.50% to 2011/12, 6.1% in 2018/19
4. Customs: 43% in 1983/4 to 12% in 2009/10, 17.9% in 2018/19
5. Direct Taxes: 17.40% in 1983/4 to 39.10% in 2012/2013 to 37.7% in 2018/19; tax to GDP ratio 3.6%
2011/12, 3.8% in 2018/19
6. Indirect taxes: from 82.60% in 1983/4 to 60.90% in 2012/2013 to 62.3% in 2018/19; tax/GDP ratio
5.6% 2011/12, 6.3% in 2018/19
7. Total tax to GDP ratio 12.4% in 2017, 11% currently
Analysis: Import duties have been replaced as the main source of government by sales tax; Direct taxes still
form a small part of the total revenue; Only 3 million taxpayers in a population of 180 million; estimated tax
evasion 5 times the amount collected.
Balanced Budgets
1. Deficits are not always bad; they perform a useful function in absorbing savings that would
otherwise be wasted in unemployment, excess capacity, or lower production.
2. Making deficits unlawful can increase instability by forcing ill-timed expenditure cuts or tax
increases.
3. IMF and World Bank view fiscal deficit as a perennial problem afflicting developing countries;
hence, fiscal policy is an essential component of adjustment programs.
1. All SAPs from 1988-2018 based on fiscal deficit; key component of the program is to reduce deficit.
2. The IMF wants Pakistan to bring down its deficit.
3. Fiscal deficit is causing domestic and foreign debt to grow.
4. Interest payments are largest component of the budget each year
1. Floating debt: cash credit by commercialised banks to the government and treasury bills by SBP and
commercial banks.
2. Medium term debt: voluntary saving schemes aimed at the public.
3. Permanent debt: long term debt, includes long term market loans.
Reasons for high debt
1. Bank nationalization ordinance promulgated on the first day of 1974 according to which the federal
government had exclusive rights of ownership, management and control of all banks in Pakistan.
2. Shareholders of bonds were compensated in the form of federal bonds.
3. 14 banks were nationalized; State bank of Pakistan was also nationalized
Results
1. Banks ordered open branches across the country in every town with a population of 2000
2. Extensive non-monetized economy came into the formal sector
3. However, banks become overcrowded and overstaffed
4. Branches in streets and mohallas regardless of deposit potential.
Islamic Banking
1. In 1977 Zia asked the Islamic Ideology council to prepare a blueprint of an interest free economic
system.
2. In 1979 gov announced that it intended to remove interest from the economy in the three years.
3. Same year gov ordered nationalized commercial banks to provide interest free loans to small farmers
(monetary policy)
4. Scheme enhanced to fishermen and co-operative societies in 1980.
5. 1981, all nationalized commercial banks set up separate counters to accept non-interest-bearing profit
and loss sharing deposits.
6. From 1985 onwards, no bank was allowed to accept any interest-bearing deposits, except foreign
currency deposits.
7. Islamic modes of financing musharakah, murabaha and mudarabah were launched.
Monetary Policy
1. Concerned with the regulation of the quantity, cost and allocation of money and credit in the
economy.
2. Establishes how much can and should be invested and where it should be invested.
3. By determining the cost of money, it helps people decide how much they want to save and how much
they want to spend.
4. For many economists, inflation is always a monetary phenomenon; where excessive monetary growth
will result in inflation
5. In Pakistan monetary policy is controlled much more by the government than in other countries.
6. This has been changing over time; government has allowed market to determine some variables; SBP
decides the interest rate; political pressure remains.
1. Trends in Pakistan’s inflation rate; 3.3% across the 60s, 11.9% on average in the 70s, 7.5% in the 80s,
10-13% in the 1990s, fell at the end of the 90s to 3-4% in early 2000s across until 2007/8, rose
drastically to 21% in 2008, double digit inflation for almost the entire period of the PPP, fell to between
3-5% in PML-N regime, rose to double digits when PTI took over, went to around 8% before rising to as
high as 21%
Causes
1. Supply shocks: whenever the total availability of a commodity falls short due to crop failure, viruses,
floods etc. the prices in that sector rise. Gov has no control over such matters, especially in the short
run.
2. Monetary policy: quantity theory of money; as money supply increases so do prices; monetized budget
deficit puts pressure on prices.
3. Tax policy: rise in e.g. sales tax, excise duties is usually passed on to consumers.
4. External shocks: imported inflation; devaluation and high tariffs also raise domestic prices
5. Pricing policy: higher procurement prices or lower subsidies cause prices to rise; prices of utilities, gas,
electricity, fuel etc. regulated by government also have the potential to cause inflation.
6. Expectations: once expectations of price rise are built into the mind-set of consumers; these
expectations are often realized.
“Development is a multi-dimensional process involving the reorganization and reorientation of the entire
economic and social systems” – Todaro
Trends in poverty
1. Poverty first rose in the 1960s, after which it saw a continuous decline until around 1987/88, after
which there was another rise due to poor federal policies and rampant corruption
2. Poverty increased since early and most certainly since the late 1990s.
3. Impressive decline from 1969/70 to 1979; drop of 16 percentage points
4. 13 percentage point decline from 1979 to 87/88.
5. More or less consistent decline in poverty through the last fifty years
6. Drastic decline in poverty in the 1970s was attributed to huge reduction in rural poverty.
7. From 2002-07 poverty fell; the share of population living in poverty halved; down from 34.5% in
2001/02 to 17.2% in 2007/08
8. Findings suggest that in 2007/08, poverty in Pakistan may have been at its lowest level with urban
poverty down to 10% of the population.
9. Poverty rose again from 2008-2013; reasons include high and persistent inflation (particularly food and
fuel) which reduced purchasing power; consequences of the war on terror; a marked slowing down in
the economy; floods of 2010 and 2011.
10. According to the World Bank, poverty in Pakistan fell from 64.3% in 2001 to 24.3% in 2015 but is at
29.5% in 2020. Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population) fell from 6.2% in
2013 to 4% in 2015
11. MPI in 2019 stood at 38.8%
1. 1960s, high growth and poverty increased but Gini coefficient fell from 0.335 to 0.33 improving the
distribution of income for both urban and rural areas.
2. Income distribution improved in the 1970s and 80s; worsened in the 1990s. Currently Gini at 0.335
Trend in unemployment
1. Low unemployment in the 50s and 60s, rose in the 70s, fell again in the 80s, rose slightly in the 90s and
then fell from 8% to 5% in the 2000s. Since then, has been around 6% and now is 4.5-5%.
2. Reached 8.1 percent due to coronavirus
● Tele density at about 80%, 170 million phone users and 87 million broadband users (PTA)
1. Rural areas have more poverty than urban areas; rural poverty in highest among those who own no
land.
2. After the end of the 1980s there was a marked increase in poverty
3. Gender structure of income is significantly linked to poverty.
4. Rural poverty has a very strong link with unequal land ownership and lack of access to land.
5. In urban areas, poor earn most of their income from the construction or services sector.
6. Rural poor spend 80% of their budget on the four essentials- food, rent, energy and apparel.
1. Urban poverty declined in the 60s but there was a considerable rise in rural poverty which led to the
overall rise in poverty during the decade of development (because at the time rural population was
greater than urban population).
2. Reasons for high level of rural poverty in the 60s and 70s were to be found in the significant changes in
the agrarian structure.
3. New technology was a key factor which allowed large land owners to resume land previously rented
out; tenet farmers were evicted, many became landless labourers.
4. 7% GDP growth rate for a decade and nearly 10% growth in manufacturing were responsible for fall in
urban poverty in the 60s.
5. Nationalization program of the PPP may have been a key factor that provided employment to the
urban population.
6. Public sector employment soared in this period; share of social sector in development plans increased
substantially; development expenditure in 1976/77 was 11% of GDP, highest in history.
7. Policies that may had had an impact on poverty reduction in Bhutto era: land reforms of 1972;
nationalization of banks with expansion in credit to agriculture; direct credit to small businesses
encouraged self-employment and the small scale sector; industries supported by the nationalized
banks; many new public sector programs led to a boom in the construction sector increasing urban
employment; overall economic and political environment favoured small scale industrial and services
sector.
8. Migration to the Middle East and the beginning of the remittance economy; 23.1 billion dollars
remitted in the 1980s. $23 billion in FY20 and set to cross $28 billion in FY21
9. High growth rates in the 80s led by the manufacturing sector
10. Development expenditure and social sector spending continued to be high in the 1980s; per capita
income rose 3.2% a year in the 1980s.
11. Increasing public sector employment trend which began in the 1970s continued into the 1980s.
12. Junejo’s five-year plan launched in 1985/86 had a rural component; the program focused on
education, health, roads, electrification, water supply and sanitation, all with a primary rural focus;
promoted employment and income opportunities for the rural poor.
Growth
● GDP: $314 billion (Rs 34.6 trillion) in 2018, $278 billion (Rs 38 trillion) in 2019 and $261 billion (Rs
● Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the
1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second
half of that decade
● Currently, Khyber Pakhtunkhwa accounts for 10% of Pakistan's GDP, 20% of Pakistan's mining output
and since 1972, it has seen its economy grow in size by 3.6 times
● Sindh's contribution to Pakistan's GDP has been 30% to 32.7%. Its share in the service sector has
ranged from 21% to 27.8% and in the agriculture sector from 21.4% to 27.7%. Performance-wise, its
best sector is the manufacturing sector, where its share has ranged from 36.7% to 46.5%. Since 1972,
Sindh's GDP has expanded by 3.6 times.
Today
1. In the second half of 2020
a. Private sector borrowing went up by 65%
b. Commercial bank deposits went up by 14%
c. Regional exports plunged by 25%
d. Profit repatriation jumped 26%
e. Current account surplus of $1.13 billion
f. FDI decreased by 30%
g. Revenue collection increased by 6% compared to same period last year
h. Textile growth by 2.2%
2. Azerbaijan seeks to build long-term energy ties amid surplus capacity of Pakistan
3. Pakistan gets Geographical Indication (GI) tag for Basmati
4. In Q1 2021
a. $3.6 billion foreign debt retired
b. ICT exports rose 40%
5. Key economic indicators
a. GDP growth expectation 2.2% for FY21, was -0.4% in FY20
b. GDP/capita $1250
c. $22.5 B exports, $42.4 B imports (2020)
d. Public debt/GDP is 81.1%
e. Budget balance is -8.1%
f. Revenues are 15% of GDP, expenses are 23% of GDP
g. $20.5 B foreign exchange reserves
h. $13 B/year for debt servicing, B- credit rating
i. FDI to cross $3 B
j. Inflation 8%
6. Key social indicators
a. HDI 0.557 (154), Iran 70, Sri Lanka 72, Iraq 123, India 131, Bangladesh 133, Afghanistan 169
b. Population growth rate 2.4%
c. Gini 0.335
d. EoDB 108th/190, India 63, Sri Lanka 99, Iran 127, Bangladesh 168, Afghanistan 173
e. Corruption Perceptions Index 120th/180, Sri Lanka 66, India 69, China 88, Iran 109, Bangladesh
115, Afghanistan 122
f. Education 154/183
g. Global gender gap 151/153, Bangladesh 50, Sri Lanka 102, India 112, Iran 148
h. Global health index 4/9 in South Asia, 154/195 in world
i. World hunger index 88/107, India 94, Afghanistan 99, Sri Lanka 64, Bangladesh 75
j. Global information technology 111/144
k. HPI 65/94