HISTORICAL ANALYSIS OF PAKISTAN’S ECONOMY
Introduction: Since partition in 1947, the resources and capital in Pakistan did not suffice. The officials of Pakistan put in a great deal of efforts to help the economy grow at an exceptional rate of 6% in the first four decades. Moreover other economic factors also escalated positively by the mid 1980’s such as low inflation rates, high income levels and poverty declined as much as 49 %. However, by the 1990’s, economic growth declined down to 3 %, poverty rose to 33 %, the foreign debt became equivalent to the GDP and the inflation rates also doubled by the Bhutto regime. The macroeconomic reforms such as privatization have noticeably have helped the economy grow by 6-8 % from 2004-2006 and decreased poverty levels by 10 %. However, the Pakistan economy has been resilient towards a lot of turning adverse events such as the Asian Financial Crisis, economic sanctions global recessions, a severe draught that lasted as long as four years, the post 9?1 military action and the 2005 Pakistan Earthquake .
AYUB KHAN REGIME (1958 TO 1969): The government incorporated policy to drive the large profits made by jute and raw cotton trading towards the manufacturing sector. This was done by cushioning domestic production of consumer groups through numerous means of international trade protection. Therefore, the growth rate in the manufacturing industry in this regime was as high as 8.1 percent. The era by 1960, also known as the “golden age’ due to the high growth rates was the result of tariff protection and subsidy grants given to the industry. However, because of a slow growth rate in the agricultural sector of 2.3 percent, the policy resulted in increasing income inequality and high level of debts burden. It should be noted that much of the development in the Ayub Khan regime was held back due to the heated tension between the East Pakistan and West Pakistan2.
Bhutto Regime (1973 to 1977): The economic policies underpinned by Prime Minister ZA Bhutto were socialist in nature. The most important milestone in the Bhutto regime was inclusive of the nationalization in 1972 of 43 massive industrial units including capital and intermediate sectors such cement, fertilizers, oil refinery, chemicals and engineering. The investment/ GDP ratio in this regime increased by 15.5 % which was relatively better than the previous regime. However t, the GDP in fell to 5 % which was due to one underlying factor which was inefficient economic investment. The channeling of spending towards nonproductive sectors such as defense and spending increased the budget deficit, escalates the inflation rates and rose unemployment.
The Zia Regime (1977 to 1989): The financial constraints in Zia’s regime brought by the military rule and it’s stringent policy framework restricted funds available for development and diminished the programs previously developed to decrease poverty such as the National Development Volunteer program and the People’s Work Program. The GDP increased temporarily to 6.6 percent relative to 4.4 percent. However, the economic stability in this regime crippled due to low domestic saving rates, the exports/GDP percentage ratio remained relatively low and the economic and social investment infrastructure also remained inefficient. The increasing debt burdens dragged the economy into an inevitable recession.
The Democratic Interlude (1989 to 1999):
The 1990’s were marked as the regime of authoritarian rule in which the economy faced a sharp decline in the GDP growth rates and excessively increasing poverty due to poverty reducing programs and reduction in public investment conducted by the Structural Adjustment Program in an attempt to tackle the fiscal crisis. The various policies of IMF did not turn out to be favorable for the economy. Development expenditure as a percentage of GDP reduced from 7 percent in 1970’s to 3.5 percent in the 1990’s as a result of political instability and corrupt government.
The Musharraf Regime (Post 1990):
The growth rates increased noticeably to 6 % in the first three years following President Musharraf’s regime, the debt burden lowered and the budget deficit was also substantially reduced due to successfully implemented economic reforms as well as a favorable international economic environment following the 9/11 incident. However, the government was incapable of resolving poverty and inequality issues and to sustain the growth in the GDP. The key obstacles towards this inconsistency in the growth rates included the ingrained slow growth in the export earning sector due to the agricultural nature of the economy, the inability to meet the required investments of 28 percent to sustain growth levels to 7 % and an inadequate infrastructure and human resource.
During the period of 2001 to 2002 , favorable changes took place in the economy with the growth rate increasing up to 7 percent, the unemployment rate declined from 8.4 to 6.5 percent, foreign exchange reserves accelerated to cover 6 months imports , the investment rate rose to 23 percent of the GDP and poverty also fell by 10 points. The exchange rate remained successfully stable throughout this era.
OVERTIME ANALYSIS OF ECONOMIC VARIABLES
GROSS DOMESTIC PRODUCT: (Refer to graph 1 of the Appendix) The average GDP between 1947-1952 but the Korean War and a global increase in demand of domestic products worldwide increased the GDP to 9.4 % by the year 1952.A recession followed by the war dropped the GDP to 3 % but remain relatively better than other countries due to the export of jute. 1960’s were fairly stable with a favorable GDP of 6 % in the Ayub Khan regime due to trade and industrialization. However the GDP deteriorated back in 1966 due to a war with India and followed through to 1971 because of the disputes in EST AND West Pakistan. Moreover, r Bhutto’s nationalization of industries neglected the private sector investment and the GDP fell to just 1.2 % by 1972. Devaluing the currency and certain economic reforms helped in boosting the GDP To 7.5 % till 1974. However, excessive nationalization lead to the GDP falling noticeably to 3.6 % from 1974-19977. The Zia-ul-Haq and Pakistan’s contribution to the war against USSR as well as increased industrialization increased income and demand leading the GDP to grow to 6.5 % throughout 1980-1988. Conversely, the growth rate of 3.8 % became stagnant during the 1990’s due to political corruption and inefficient structural reforms of the World Bank and IMF2.
INFLATION: (refer to Graph 2 of appendix) Inflation rates from 19991 to 1995 varied from 9.25 to 12.9 %. The key factors behind exceptional inflation in the 1990’s included extremely sluggish growth rates, increase in the international prices i.e. depreciation of domestic currency and maladjusted administration prices. The inflation rate was initially lowered down in 1989 to 4.6 % but it triggered up to 12.6 % in 1990 and has been around 16 to 18 % since then excluding 1992 when it shot up to 30 % due to high budget deficits. High inflation rates historically in Pakistan have amounted to administered process, high exchange rates leading to imported inflation and sharp increase in food prices overtime due to taxation. The high rates of Pakistan during the regimes of high growth have most commonly been due to rising income levels and demand and supply pressures .
IMPORTS AND EXPORTS: (refer to Graphs 3 and 4) Pakistan’s performance in the initial years of (1948 to 1955) was fairly well excluding the incapability of exporting industrial and agriculture products. However, Pakistan has faced serious Balance of Trade deficits due to an overvalued exchange rate and our exports being uncompetitive with excessive imports of capital goods. The promotion of industrialization and increase of manufactured goods exported rising from a share of 49 to 64 % was favorable for the economy. Nonetheless, heavy reliance on cotton and rice, sharp increase in crude oil prices and imports of readymade garments worsened balance of trade increased the import bill and caused adverse fluctuations in the balance of trade overtime. The main trading partners of Pakistan have been Germany, Britain and Saudi Arabia historically.
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