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

• Era of 1947-1958
• Era of 1958-1971
• Era of 1971-1977
• Era of 1977-1988
• Era of 1988-1999
• Era of 1999-2008
• Era of 2008-2020

• Analysis of Military Praetorianism in connection with political economy of Pakistan

• Contemporary Challenges and Viable steps to assuage political economy
• Importance of democracy and pluralism
• Inauspicious role of IMF
• 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.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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.

• 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