Final Exam Assignment

Name: Ch Ghaffar Mustafa

Roll No: 2147
Class: B.S (HONS) English Literature
Section: A3
Subject: History
Course: Political economy of Pakistan
Semester: Fourth
Teacher’s Name: Dr.Farzana

Topic: A comprehensive note on the Political Economy of

Pakistan.

Table of Contents
● What is Political economy?

● Overview of the contemporary political economy of the world

● Political economy of the Pakistan at a glance

● Political economy of Pakistan during different Eras

a) Era of 1947-1958
b) Era of 1958-1971
c) Era of 1971-1977
d) Era of 1977-1988
e) Era of 1988-1999
f) Era of 1999-2008
g) Era of 2008-2020

● Analysis of Military Praetorianism in connection with

political economy of Pakistan
● Contemporary Challenges and Viable steps to assuage
political economy
a) Importance of democracy and pluralism
b) Inauspicious role of IMF
c) Some major problems and their viable solutions
What is Political Economy?
To start with, it is optimal to say
that the Politics and economy of a country goes hand In hand. It is the
political process that determines what economic institutions prevails.
Conversely, it is the economic state of a country that defines its state of
politics. Countries having Extractive economic institutions-which only
benefit a few at the expense of the whole population- harbors a
centralized and authoritarian political system to cater economic interest a
particular strata of the society. On the other hand, inclusive economic
institutions-in which every citizen can fully and autonomously participate
to reap the economic dividends- hails a democratic and pluralistic political
system. Political economy is the study of such political and economic
institutions and their inextricable link between them. As an
interdisciplinary subject, it is the comprehensive study of affect and effect
of political strategies in shaping of economic policies. They share a
relation of cause and effect. Political economists keeping in view the
political setting of a country come up with the feasible and
accomplishable economic strategies to ameliorate the monetary
conditions. They even stress upon alteration in the political policies to
bring substantial improvement in the economy. Political economy
simultaneously deals with commerce, laws, custom, and globalization,
reordering of global economy, international monetary institutions,
international relations government and ways of distribution of wealth.
Political economy was not in vogue a century ago and only economics
was discussed, but with realization with time of tremendous effect of
politics on economy it is widely studied now to delineate the reasons
behind the economic condition of a country and to augment it.

Overview of the Contemporary political economy

of the world:
After the end of Cold war in 1991 ascertained by
the dismemberment of the Soviet Union, America came forth as the
undisputable super power. But, now China has challenged its
unassailability and is undermining its political and economic influence.
The Chinese economy after the emanating of the capitalist and liberalist
policies by their leader Deng Xiaoping in 1980 flourished. But its human
rights record is gruesome and some political economist argue that its
economic flight would suffer because the inclusive economic institutions
supporting capitalism and free market trade cannot survive for long with
extractive political institutions curbing the rights of the Chinese people
and they cite the example of initial economic progress under Joseph
Stalin to support their argument. Nevertheless, for now it is changing the
landscape of the political economy of the world with its one belt one road
initiative and tactically controlling the foreign lands by its debt trap
strategy. In the aftermath of the COVID-19, Chinese seems to challenge
the Uni-polarity of the America in the world politics more assiduously.
India, Brazil, Germany , France , Japan , Malaysia , Bangladesh ,
Canada ,United Kingdom , Italy and South Africa and making great strides
in the realm of economy, because in the new world order the economic
prosperity of a country is the yardstick to gauge the affluence of a
country. The Middle Eastern countries had bore a deadly blow on their
economies because of the curtailment of the demand for oil due to
ongoing pandemic. Saudi Arabia the biggest exporter of the oil is
endeavoring to diversify its exports to diminish the dependency on oil.
United States, Germany, France and America politically disturb some
countries to intervene in them to benefit their oil interests and for the
sale of their military weapons. Turkey, Russia and India are also
burgeoning militarily and economically but are causing more
radicalization and standoffs in the world. European countries are
plummeting their dependency on the America and are slightly edging
towards Chinese patronage. Pakistan mostly and primarily had remained
in neutral affairs and interfering in only few that affect him severely and
directly like that of issue of Taliban in Afghanistan and security threat
posed by India, otherwise it never sided with any party in Sunni-Shia
divide. It had kept cordial relations with America all along with
intermittent cold relations and had also retained amicable relations with
China on the other hand.

Political Economy of Pakistan at a glance:

Although
political economy of the Pakistan would be discussed chronologically in
great detail later on but I found it optimal to first draw an outline of it.
Pakistan political performance had remained quite dismal throughout its
history which had rendered it economy to be continuously faltering.
initially in Ayub’s era it was on a enviable trajectory but soon self-
aggrandizing politicians ,bureaucracy , military vested interests and stakes
of some other elite classes had caused it to be embroiled in severe crisis .
The current GDP rate of Pakistan is -0.02% which is quite alarming. The
GDP per capita is $1500. Pakistan Exports are of $25 Billion and imports
are of $52 billion, which shows a balance of payment deficit of about $27
billion. Pakistan Foreign Reserves are very scarce and are of about $10
billion. Our foreign debt is if of about $105 billion. Pakistan’s economy is
not even of developing countries. There are usually three indicators to
judge the economic prosperity or in Pakistan’s state the economic
condition of a country which are: GDP, balance of payment and Trade
Deficit. Pakistan doesn’t fall even in the category of developing countries
according to these criterions. It has very low value of GDP and a huge
trade and balance of payment deficit. Due to the ongoing COVID-19
pandemic the already worsened economy had further aggravated.
Industries had come to halt and the services sector is fumbling. Trade has
been heavily affected and there are very few buyers for our narrow
exports circle. But CPEC (China-Pakistan economic corridor) is the silver
lining in the sky and for now the only hope to give somehow a flight to
the economy of Pakistan. Our country should assiduously, fervently and
on priority basis complete the projects of CPEC to ameliorate its dismal
economy. On the other hand there is a grave need to lessen the
interference of the establishment in the political process of the Pakistan,
because only in this way all the business transactions carried under CPEC
would be transparent and for the benefit of the masses. A government
elected through undemocratic means will only work for its cronies and
under which directions it works, and can never be of any benefit for the
masses. The establishment and undemocratic governments embroil in
complex and pernicious cycle of rewarding each other through patronage
system which is inimical for the economic prosperity, as they never
pursue policies contrary to their monetary and political interests. The
only who bear the brunt of all the malicious activities by the elite class of
Pakistan are the common people. In Pakistan 1/3 of its population is living
below poverty line which is a very regrettable and reprehensible
situation. Only a Government elected by the broad segments of the
society can cater the citizens’ needs.

Political economy of Pakistan during different

Eras:
To give a vivid and comprehensive historical perspective of the
political economy of Pakistan I had divided it in different eras for the
better understanding. So the particularities of each era would be dealt
under its heading.

a) Era of 1947-58:

A moth-eaten Pakistan deliberately created in a

truncated and weakened shape by Lord Mountbatten with the
connivance of the Congress faced many multifarious problems at its
inception. No administrative machinery, vague ideology, weak position of
the Muslim League and parlous situation was prominent among them.
Soon after the Partition, the bureaucracy took the reins of the
administration of the country and soon ventured into the policy making.
The democratic institutions were sidelined and there was power struggle
among the elite bureaucrats. The Punjabi-muhajir community was in
power from the start was averse to the incorporation of the Bengalis,
Sindhi, Balochi and Pashtuns in the bureaucracy and to some extend in
military. The grudges of the other provinces against Punjab heightened
with time with Bengali resentment leading them. The nonelected
bureaucrats such as Ghulam Muhammad and Sikander Mirza came to
prominence and the formation of constitution was delayed and suffered
at the hands of punjabi-muhajjir bureaucratic-military alliance. Then
during political turmoil in 1958, Ayub Khan, a military dictator took the
advantage and established and consolidated the footprints of the military
in the working machinery of the country which is still strongly felt.
The initial economic performance
of the country was satisfactory. The stress was on establishing capital
goods industries to be self-sufficient.in pursuit of strengthening the
industry agriculture was miserably neglected and all the resources were
directed towards the industry, which was a poor and erratic policy
because agriculture and industry of a country goes hand in hand. Social
services sector was neglected and allocations for it were curtailed or
better to say fully neglected and the lion’s share was awarded to the
military. The rupee was devalued to support the imports but the exports
were badly affected. The Korean War of 1952 greatly boosted the
demand of cotton from Pakistan that benefited Pakistan a lot benefited.
The capital earned from the jute export in East Pakistan was invested on
military in West Pakistan which emanated problems like regionalism and
political and monetary marginalization. The strata of the society who was
controlling the administration was same as that of the ones ruling the
industries and business, so there was an active presence of the patronage
and cronyism system.

b)Era of 1958-1971:
Ayub khan ousted Sikander Mirza on 27 th
October in a very unceremonial and spontaneous to fully take the reins of
the government. He became the chief law administrator of the Pakistan’s
first martial law. He further aggravated the already worsening political
milieu in the Pakistan. The democratic political leaders and bureaucrats
tried their best to ward off transfer of power or the inclusion of the
Bengalis or other ethnicities in the government structure which in the
lead to the military imposing its rule. A political vacuum was created
which opportunist military effectively filled. After coming to power Ayub
Khan showed no signs of transferring power back to the democratic
institutions. Because, once in power they were alluded and enchanted by
political and economic which they never resolve to give up deliberately,
as there is too much to lose in delegating power to the democratic
institutions and moving back to the barracks.

He introduced the Basic

democrats system, a party-less election system through which only close
to him and in best of his interest would be elected and all dissent would
be effectively quelled. It was a kind of representational dictatorship. He
introduced laws such as EBDO (elected bodies disqualification order) to
depose his political and personal opponent. Administration was run
through the bureaucracy. There was a sheer lack of institutional
framework. Judiciary powers very undermined and press freedom of
speech was curbed. Ayub’s policies increased schism between the West
and East Pakistan and Mujib-ur-Rehman put forward Muslim league six
points which became the basis for the establishment of the Bangladesh
later on. The cynical, aggressive, stubborn and non-cooperative behavior
of military and Zulifqar Ali Bhutto resulted in dismemberment of Pakistan,
and all the blame was put rightly on the establishment of country.

Pakistan
growth rate during Ayub’s era was spectacularly around 6% and
industries were set in Pakistan but it occurred at a huge cost of
distributional disparity. Although the country as a whole was gaining
growth but the capital accumulated never trickled down to the locals and
remained amassed in the hands of the capitalist industrialist, landlords
and other elite class. The erratic and incoherent policies solely focused on
growth created schism and ethnic tensions in the country. It was revealed
that 22 families were the owner of the 66% of the industry, 97% of
insurance and 80% of banking. The economic elitism caused resentment
in the middle class and the students and they toppled his government
after rigorous protests.

c) Era of 1971-1977:
Era of 1971-1977 saw the steep rise
and fall of the Bhutto’s populism. Bhutto came to power in time of
adverse economy driven by erratic polices of military and bureaucracy
centered upon concentration of wealth in their own hands, their cronies,
and their well wishers. Bhutto came to power on the basis of populist
slogans of economic and social reforms direly needed by the people. But
he fall short of expectations of people due to arbitrary nationalization of
industries and resulting distrust of the private capital. The highly
incompetent administration of the public sector carried out extensive
corruption and nepotism further dwindling the prospect of a burgeoning
economy. In an environment of accruing of debt the capital was invested
on non-developmental sectors such as military and public administration
and social sectors such as education and health were ignored. Land
reform programme failed to honor its promise of re-distribution of wealth
and land as it was used to extend political patronage and against political
opposition. The Bhutto populist authoritarian government failed to abide
by its pledge of breaking back-bone of wealthy elite class and of
mitigating the miseries of poor and middle-class in Pakistan. Bhutto as an
authoritarian ruler was more concerned about accumulation of all power
in his own hands, increasing party patronage and subverting political
opposition through aggressive and repressive measure than sedulously
formulating and implementation policies that would have resulted in
growth and stability of the faltering economy in Pakistan.
Though Bhutto gravely
failed in realization of the bigger objectives of its economic policies
objective of redistribution of wealth and uplifting the economic condition
of a common man, but it, somehow, succeeded in shackling and jolting
the base of the industrial elite class in Pakistan. Pakistan fell into the debt
trap and whatever loan was received it was used to keep the uneconomic
industries operational and to pay the accruing loans at that time. Inflation
spiked and the assiduously promised land reforms were not fulfilled.
Bhutto economic policies displeased the middle-class and the poor who
were one of the reasons behind his purging from the government.
Whatever he promised was never delivered in substance but there was
an improvement in comparison to the military regimes who openly
advocated greater inequality.

d)Era of 1977-1988:
Zia-ul-haq imposed martial law in 5 July,
1977 and cause Pakistan to venture in uncharted territories, from which
Pakistan still hasn’t been able to fully recover. His draconian,
authoritarian, totalitarian rule under the spurious guise of theocracy
persisted for a decade. He introduced altered and manipulated system of
Islamization, far from its true values which played havoc to the country.
He introduced and implemented those policies that favor the elongation
and prevalence of his military regime. Initially the regime outmaneuvered
and circumvented the political parties by reiterating the false promise of
imminent holding of the elections. Bhutto was hanged to death to curb
the political resistance. Then Zia ul Haq under the pretence of a sole
leader of a theocratic state consolidated his rule. The biased
implementation of the Islamic laws destroyed the secularism and social
fabric of the country. After 1983, to end the ostracization of the military
the civilians were carefully and under strict watch were incorporated in
the regime with Zia ul Haq at the top as the supreme leader.
Amendments were made in the constitution to make his powers
unassailable. The Parliament just had a symbolic importance and nothing
more than that. It is said that terrorism in Pakistan is the legacy of Zia ul
Haq as his erratic and incoherent policies cause religious seminaries to
flourish and weapons to surge furtively in the country. The educational
course was also changed in his regime to align with the so called national
interest. Civil rights were also at their worst in his regime. Women and
minorities were discriminated against and persecuted during his
draconian rule.
Zia ul Haq reversed the nationalization policies of the
Bhutto but the confidence of the private sector investors could never be
won. The political uncertainty and strict public sector watch faltered the
trust of the private sector in the government. On the other hand public
sector investment was meager and only towards defense or for the
benefits of the Zia ul Haq cronies and allies. No substantial projects and
those present were in ruins. The influx of remittances and the financial
aid from America kept supporting the regime throughout his era,
otherwise there was no noteworthy economic development in his era as
he was more focused on sustainability and persistence of his rule.

e) Era of 1988-1999:
This era was fraught with the intense
political rivalry between Benazir Bhutto and Nawaz Sharif as they ruled
frivolously turn by turn. Benazir first 18 months brief rule failed to bring
any substantial and viable changes in the political and economic realms of
the country. She carried in the denationalization policies but couldn’t
revive the economy as the influx of the economic aid was reduced and
later halted and the remittances were of no help were the developmental
projects of the county as they were extravagantly and wrongly utilized by
the consumers and not introduced in the monetary cycle of the economy
for the benefit of the country.
Nawaz Sharif embarked on ambitious projects and policies
with no long-term benefits for Pakistan. His “no question- asked” foreign
currency deposits (FCDs) were a haven for tax evaders and under-filers-
the menace for Pakistan’s economy – that could now clean their ill-gotten
income with no taxation and no fear of detection. Erratic policies like this
jolted the trust of the private sector investors and give flight to the black
money. Nawaz Sharif spent money on the mega projects like motorways
and roads, which were feasible projects to gain popularity and political
support and neglected more important projects like setting up of
electricity power plants and amelioration of the service sector.
This era was also
engineered by the establishment for their own benefit. They supported
only those regime and only as long as it was in their own interest. The
government averse to their political and economic stakes was ousted. But
credit is to be given to these regimes that despite political rivalry,
rampant corruption and dishonesty the nuclear programs in the back
were kept furtive and were never divulged to others of its progress.

f) Era of 1999-2008:
The Musharraf’s military regime was
tremendously affected by the change in global politics in aftermath of the
9/11 attack. Musharraf rightly sided with the NATO and America to curb
the wave of terrorism. A neutral stance or one contrary to American
interest would have greatly sabotaged the economy of Pakistan. But
Musharraf also kept Pakistan’s interest in view and didn’t follow policies
dictated by the America blindly. The regime was authoritarian and self-
centered like the other military rule. The political economy of military
burgeoned tremendously during his tenure. Although it was favored
greatly by the remittances and great influx of USAID but the capital was
directed towards the non-developmental projects and the already
aggravating crisis worsened. He spurred the political tensions with the
Baluchistan by mishandling of the case of Akbar Bhugti, who was killed
with his forty men. The significant economic problems were deliberately
ignored by his regime which channeled into the next democratic
government by Pakistan People Party.

g) Era of 2008-2020:
 Pakistan for the first time in its
history had witnessed a democratic government completing its term and
transferring it to the next democratically elected government. The PPP
government from 2008-2013, was beset with manifold problems. During
their rule the former benign problems had grown up to engulf already
faltering Pakistan from. Energy crisis were at peak, Pakistan was
threatened by terrorist and economy was in bits. But, somehow,
miraculously the regime was able to steer through these problems with
the help of immense economic aid and effective counter-terrorism
operation by the military. Due to sheer lack of funds, incompetency and
lack of willingness this government due was unable to solve the bigger
problems of Pakistan. The problems of Pakistan are so elusive and
entrenched in its society which requires long term planning from its
leaders which are never envisaged by them. Zardari devolved more
powers to the provinces and curtailed the powers of the President and
introduced National Financial Award (NFC) to distribute capital to the
provinces more effectively.
The regime of Nawaz Sharif saw a decrease in
terrorism and was gifted with the CPEC which can prodigiously alter the
economic landscape of the country. Economy was steady and dollar was
artificially controlled. New projects were started and previous ones were
completed. But, instead of amplifying exports massive loans were taken
to prop up economy which the later government was supposed to pay at
every cost.
This new and fledgling government is embroiled in paying
back of the loans and their condition is further compounded by the
incompetent cabinet. A witch-hunt for the tax evaders had shattered the
confidence of the investors and capital had moved out of the country.
The economy is in worst condition because of the ongoing Pandemic and
GDP has plummeted to the 0.02% at current stage. The only way to get
out of this trouble is to increase export and to create a environment
conducive for the foreign investors.

Analysis of Military Praetorianism in connection

with political economy of Pakistan:
A lions’ share of
our budget is channeled to the military, which is also spent on the
elaborate social services and privileges of the serving and retired military
personnel. Despite this is a peculiar for of military’s internal economy
which Ayesha Saddiqa, a famous historian termed as Milbus. A
qualitatively analysed the military economic activities and amount it to
roughly $10 billion dollar. According to her the Milbus operates at three
levels, at the institutional level of military as a general in which corporate
industry works under the military such as that of Fauji Foundation and
Army Welfare Trust, at the sub-levels where every organization of military
has its own corporate industry, and at individual level where retired
military personnel and serving ones runs the capital-intensive industries.
The capital is transferred from the public sector to the private sector
which is not questioned and accounted. There is no concept of
transparency and accountability that why this peculiar military capital
should be rendered as illegal. A patron-client relationship had developed
between the military, politicians and other elite class where each person
benefits the other for political and economic gains.

The politicians and

other elite classes turn a blind eye towards it because in criticizing it their
own interest would be heavily jeopardized. Military gave pretence of a
false threat to the country to have the largest share in the budget and to
carry out their corporatism. All the internal economy is leveled as the
welfare for the army because of the sacrifice they are making for their
country which is a public good. Army either directly or indirectly
intervenes in the political apparatus of the country to safeguard and
perpetuate their economic interest. The economic dividends are
proportional to the power, if one increases the other increases too
naturally. There is too much to lose in going back to barracks or by not
interfering on politics. A democratically elected government is a menace
for their economic interests. Army is an organized institution they care
about their retired personnel and always keep them in corporatism net.
They argue that military can run corporate industries better than civilians
who are incompetent, but this argument is a fallacy and spurious.

Contemporary Challenges and Viable steps to

assuage the derailed state of political economy:
Pakistan political
economy is currently facing multifarious problems, and it is impossible in
near future to rectify it. Long-term substantial and practical goals have
to be set to ameliorate the current condition of the economy. Pakistan
needs to create an environment conducive for foreign investment and
need to incentivize its local investors.

a) Importance of Democracy and Pluralism:

 Also as political
policies affect economic policies, we need to create an environment of
persistence and prevalence of the democracy and pluralism. Elections
can re-elections can put the elite class and establishment in the backseat
of the democratic apparatus, because there is an apparent increase in
political consciousness among the people. If democratic process will
persist and emboldens by time, establishment and other pestilent elite
classes would be sidelined in political and economic process of Pakistan,
bringing common, honest and diligent people to the forefront. Pakistan’s
problems are not unsolvable as we have an auspicious geo-strategic
location and can benefit a lot from doing trade with other countries but
first just need to put the political order at home in order.

b) Inauspicious role of IMF:

Pakistan needs to lessen its dependency
on IMF (international monetary fund) because its policies never were and
never could be fortunate for the economy of Pakistan. They force us to
devalue our currency, to increase the price of gas and electricity, to
increase interest rate, to end the subsidy on different terms, and to sale
those institutions which are under deficit. Consequently, our industry is
badly affected, imported goods rate increase, debt accrues, country
national and internal security jeopardizes, and Pakistan could be deemed
as a default state. And to narrate the worst our nuclear arsenal security
could be compromised.
 c) Some major problems and their viable
solutions:
Alarming Poverty level, unemployment, poor
education quality, wretched agriculture state, parlous state of industry,
ethnic problems, miserable services sector, Budget deficit and current
account deficit, massive spending on defense , accruing debt,
population growth at the rate of 2.25%, Tax evasion smuggling on
borders , and many more problems had been engendered by us and only
we can rectify them. By increasing and diversifying our exports, carving
out a favorable environment for foreign investment, and by injecting
democracy and pluralism in our political system there are viable changes
of amending the political and monetary problems of the Pakistan

Viable solutions:

● We need to widen our tax net to increase the annual budget and
augment the imperative spending on public developmental
projects

● There is a dire need to curtail the defense budget and to bring the
military internal economy to accountability and transparency

● Launch programs to reduce the increasing population

● Take full advantage of CPEC to reduce unemployment and poverty

● Ameliorate the education system to produce better graduates who
can start their own projects to lessen the dependence on Public
sector and can be of better help for the country

● Enforce writ of the state and law and order to secure economic
interests within the country from foreign threats

● Diversify and increase exports and decrease imports to rectify the

deficit balance of payment

● Review foreign Policy and fix in the global economic chains with
the help of china to increase and diversify exports

● Take benefit of information technology and set up research and

development institution for agriculture and every type of industry
to increase the productivity levels

● Build new roads and railways to connect the economic zones in

rural areas to connect with urban areas

● Fair and just opportunities for everyone in the free market trade
and not let establishment and any other elite cadre to have an
unfair advantage over the common people in having contracts.

● Incentivize and utilize the local labor to increase its productivity

and employ it in projects such as CPEC
● Educate and incentivize the youth through the vocational and
training programmes to diminish the dependability on the Public
sector and enable them to start their own small scale projects to
strengthen economy

● Give boost to tourism industry as there is monumental potential in

it and can add millions of dollar to Pakistan’s economy

● Take practical and effective steps against corruption and money

laundering

● National interest should have preponderance over individual and

party interest