ECO610 Quiz Modules 1-3

Issues in Economy of Pakistan Module 1 Structural transformation

Pakistan economy is the 25th largest economy of the world in terms of purchasing power parity and 42th largest economy in terms of nominal GDP.We are now having reasonable industrial base in the economy and we have reasonable level of infrastructure in the economy. But the situation was very different at the time of independence in 1947 Pakistan got independence and we were all the blessed with immense reservoirs of land resources and mineral resources etc. but the lack of financial resources and very negligible industrial base in the economy and lack of infrastructure in the economy and the major problem was the rehabilitation and settlement of millions of refugees and migrants from subcontinents. At the time of independence Pakistan per capita income is 100$(US) and now it is around 1600$(US).So this one indicator shows positive sign that Pakistan economy has continuous growth and development history. But if we compare it with other countries it remains volatile sometime it shows remarkable trend and the other point of time it become very disappointing. But the per capita income of Pakistan is very low as compared to China, Malaysia, India and even Bangladesh. South Korea and Pakistan has same developmental phase during 1960s time period but now South Koreas has per capita income is 18th time greater than as compared to Pakistan his indicates that there must be some serious issues in the economy of Pakistan which need to be discussed in detail. Pakistan economy consist/ comprise of seventy years. There are seven different eras which shows trend of growth and development of Pakistan. These different eras are as under.

1. Lying the Foundation (1947-1958)
2. The Decade of Development (1958-1968)
3. The Bad Luck year (1971-1977)
4. The Second Military Regime (1977-1988)
5. Structural Adjustment Era (1988-1999)
6. New Military Regime (1999-2008)
7. Democratic Transition (2007-present)

The second decade is called Development decade that’s why 1960s time period is called golden time period because at that time period Pakistan economy shines among other development economies and in that time period Pakistan economy is to be discussed as a role model. The third decade is called Bad Luck because we lose East Pakistan during this decade. Structural transformation Mean: Reallocation of economic activity among three broader sectors of economy e.g. agricultural, manufacturing and services. It is also developmental theory which explain how a subsistence economy/agricultural economy is transformed to more diversified economy which is based on manufacturing or services sector. In this module we discussed the Pakistan economy which is basically agrarian economy and major contributing sector was agricultural toward GDP or the national income of the economy. We have now more diversified production sector and other sectors also make contribution in the national income of the economy. To evaluate the performance of our country over a period of about seven decades. A brief overview to understand Pakistan economy’s structural transformation. Sectorial contribution to GDP at the time of independence: In 1947 and in 1949 the agricultural contribution in Pakistan GDP was 53% and more than 65% labor force engaged in this sector and the manufacturing sector has negligible base and it has minimal contribution in GDP which is 7.8% only and trade was 11.9%. But in 2017 now the agricultural sector contribute 19.5% in GDP and labor force has 42.3%,industrial sector has

20. 88% and the major contributing sector toward national income is now service sector 59.59%.

The huge transformation in economic, social and hence political power from agricultural towards on urban and rural middle class. This is one of the key indicator highlighting the extraordinary structural transformation of Pakistan over the time period. Pakistan today is less than half of the country as it was in 1947 with reference to its population. Since 55% of population lived in East Pakistan whereas West Pakistan is 6 time more than East Pakistan. In 1971 when we lost East Pakistan its contribution toward society/economy was huge. In every economic era we will be discussed three thing,

1. Features
2. Policy success
3. Policy failure
4. Laying the foundation (1947-1958)

Features: Pakistan is predominately agricultural country (70% population directly or indirectly involved in agricultural sector or more than 65%), so 53% share in GDP was agricultural. More than 90% of exports was agricultural in 1949. So Pakistan economy is predominantly agrarian so it was underdeveloped or newly independent economy, lack of infrastructure, lack of financial resources and very little industries and few services were available. Adverse international condition was that 7 million migrants come to Pakistan as compared to 4.6 million move from Pakistan to India. Pakistan had heavy pressure of migrants. So the attempt of bureaucracy to keep Pakistan on its feet. In 1951 first Colombo Plan launch in Pakistan of (Rs.2600 million), the purpose was the provision of basic necessities (food, clothing and shelter etc.), and also building economic base by state sector.

Pakistan put ban on imports (1950 imports substitution) of cotton textile and luxury goods. So Pakistan put more emphasis on industrial growth which was very negligible at that time as a result manufacturing sector shows remarkable growth or pressure which was 34% (1952-1954) Which was ever highest growth among all over the world. Korean War (1950-1953) there is increase in raw material world prices and Pakistan (both private and public) sector take the advantage of this boom. So the profit was translated into capital formation which later on prove to be industrialization.

Major failure of this policy was neglect ion of agricultural sector which shows negative growth or decline in agricultural growth (1951-1958) in first Economic Era and major external factors were floods in Punjab and Sindh in 1948. Secondly to fulfill to meet the requirement of exceeding expenditures over revenue. Pakistan adopted deficit financing throughout 1950s and it was translated into inflation.

2. The Decade of Development (1958-1968)

Features: We will discussed the military takeover by General Aye Khan in October 1958. This time period is called Golden time period in the history of Pakistan because it has impressive facts and figures with regard to economic indicators in all the sectors of the economy that’s why it is called the decade of development (1958-1968).Because Pakistan has considerable economic growth among all other countries. Pakistan (1947-1968) in first twenty years Pakistan had highest growth rate in South Asia. Major focus of got is Economic policy making and it was considered Model Capitalist Economy, as it has highest growth rate in manufacturing sectors. According to 2002 World Bank report Pakistan export more manufacturing as compared to Malayshia, Indoneshia, Philipine, Thialand and Turkey. Growth in agricultural sector is 5 %( p.a.)Because there is decline in agricultural sector growth. But in this time period Got had focused on agricultural sector as well and increase in exports due to protection of domestic industry manufacturing sector grew and due to this betterment in agricultural sector exports increases. Due to 1965s war Indus water treaty very important document because Pakistan and India had dispute over the water of rivers flowing to Pakistan. So in 1960 an important document had used to solve the problem. Huge investment were made in power and water sectors in decade of development in Pakistan. And the 1965 war had disputed over the momentum of growth and development in Pakistan economy that’s why economic and political tensions grew between the two wings (Pakistan and India).

Economic and social reforms are major agenda of the Govt. Mssive increase in investment(three folds) and gross fixed investment increased by three fourth(3/4) in 10 years of Pakistan economy, 8% increase of GDP in 1958 and more than 14% increase in GDP in till 1968. Technologial breakthrough in agriculture 5%(pea),significant investment was made on water resources than incentives to farmers increase the use of fertilizers,pestisides and increase in use of high yielding verities of weed, as a result agricultural sector grow. As we remember that in first years agricultural sector was neglected and focus of got was manufacturing and industrialization. Price stability is important feature of that time period and inflation remains in control in those 10 years.

This decade of development is also known as controvertible decade although economic policy result out to be impressive and growth in all sectors of the economy. But the focus of got was the concentration of the wealth among the highest class of the economy because the reason behind this policy is celebrate action was the assumption which is to save more. This saving would be utilized for further investment that result out to be more industrialization and development of all the other sectors. This concentration toward saving creates three types of disputes these were regional disparity, income inequality and functional inequality.

1. Regional disparity

Regional disparity in the sense feeling of utter neglect with the East Pakistan because the resources were not fairly distributed Amon East and West Pakistan. In the end there was demand of full economic autonomy by East Pakistan and as a result East Pakistan separated in 1971 and became Bangladesh.

2. Income inequality

Concentration of economic power(21 or 22 family),few families acquired most of the national wealth and the distribution of income is more toward rich with the intension is to save more although saving were increased but the result in income inequality, perpetuation of industrial and trade policies could not be maintained during 1950s.

3. Functional inequality

Functional inequality is the improvement of quality of life with the provision of basic facilities like education and health that was totally neglected. There is little increase in real wage rate,govt of that time period is very much committed to development, but the development momentum disrupted by 1965 war as a result inflow of foreign aid reduced and defense spending has to be increased and then investment was reduced, economic disparity has grown between these two regions. Despite of all these problems it is the era with exceptionally successful period of economic management.

3. The Bad Luck Years (1971-1977)

Division of Pakistan into two states East Pakistan and West Pakistan and East Pakistan became Bangladesh. Features: In this time period the elected got adopted the policy of social justice in the society which was major controversy of last time period because the fruits of development was not fairly distributed among the whole country so it creates the regional disparities. So the aim of upcoming got is to bring about social justice in the country, that’s why this era brought fundamental structural and institutional changes in social, economic and political sector. First of all the got adopted the policy of nationalization (manufacturing industries, banking, insurance and education etc.).This time period also experience oil price shock 1973 which badly effect the whole world due to which balance of payment