9 Pakistan

Pakistan: brief Economic
history
1947- 2007.
1947 to 1960.
Pakistans regions had been major food and raw
material suppliers to rest of pre-Partition India:
cotton, jute, wheat, rice etc.
Industry only 6% of GDP, of which LSM 1.4%.
Industrial development was critical to Economic
security, but Pakistan had few industrial
entrepreneurs.
Industrial development focused on creating enabling
environment: infrastructure; PIDC, set up and
transferred industry; overvalued rupee; tarrifs.
GDP growth upto 1960 only 3%, bolstered by Korean
War commodity boom in early 50s.
1958-1969: The Glory years

GDP growth averaged 6.8% pa.
Industrial growth was private sector led.
Industrial production grew 17% pa between 60 and 65,
and 10% between 65 and 70.
The Indus Basin scheme (Tarbela et al), together with
breakthrough in seed technology ( Mexi-Pak; IRRI rice)
raised agricultural output significantly.
GOP established PICIC and IDBP to provide project finance
and technical advice to entrepreneurs.
Rapid growth in Pakistani Banking networks (HBL,UBL,
MCB, National).
NIT and ICP set up as Investment funds, to support Capital
issues and galvanise KSE.
1958 -1969 The Glory

Years
By 1968, light industry developed successfully
( textiles, cement, consumer goods).
Through reinvestment of profits and diversification,
Pakistan had two dozen industrial conglomerates.
Diversfied Groups delegated authority to
professional management extensively.
Pakistan was one of the worlds fastest growing
EMs; extensive inflow of Multinationals in pharma,
finance, light engineering.
Pakistan assembled various brands of cars and
trucks by 1968.
The Glory years: the

reversal
Growth model adopted was Import substitution,
with heavy Fcy needs for machinery and industrial
raw material.
Sustainability of industrialisation depended on
capacity to generate Fcy, or reduce need for
imported industrial raw material.
But concessions were given without strategy, or
conditions, to help develop Fcy base: heavy
reliance on Aid, Loans and FDI.
Managing Agent law allowed management control
with minority ownership potential for abuse.
The Glory years- the

reversal
Industrial import was subsidised by multiple
exchange rates; protected by tariffs; and paid low
wages, with suppression of Union power.
Agricultural product made artificially cheaper by
export controls.
The license requirement for new projects led to
patronage and inefficient new entrants.
Actual value added limited given intensely
mechanised basis of industrialization. No effort
make machines/spare parts domestically; and little
effort to build labour intensive, value added
aspects(e.g. garments; footwear; machine tools).
The Glory years- the reversal.

Industrialisation without inclusiveness for
labour, farmers and general population made
PPPs Nationalization slogan popular.
The 1972 nationalisations broke momentum of
private sector led industrial growth.
It is possible that the leading Business groups
would have entered heavy, long pay-back
industry during 70s. By the time Private sector
was investing again (90s), heavy industry less
viable because of extensive, established
regional investment.
Nationalisation
Objective: professionally managed industries, in 4 Groups,
enjoying scale benefits of common administration, purchasing,
and back office functions within units of same industry.
But with encroachment of Government into management, became
overstaffed, inefficient, running up losses.
GOP did set up substantial heavy industry: KSM, HMC, PAF, PAR,
Machine Tool industry; in addition, Port Qasim commenced;
Tarbela 5th tunnel added. Partly made up for falling Private
investment( down to 15% of total in 1975).
Labour immigration to UAE, Saudi took off rapidly: remittances
commenced.
Government also passed Land Reforms act; Labour and Social
legislation, that corrected long period of drift in these areas.
But growth rate fell to 4.5% for period; partly also effect of 57%
devaluation.
The 1980s: Economic

revival.
Three factors marked revival of economy in 80s: US
Aid post Russian invasion of Afghanistan; pay-off
from heavy investment of 70s; and recovery of
private sector investment ( back to 70% of total).
Privatization announced, but commenced in 90s
Despite tight monetary policy, fiscal deficits grew
from lack of expenditure discipline reaching 8% in
late 80s. Part can be explained by 5mn Afghan
refugee inflow.
Not an eventful period for the economy, though the
factors listed above helped the economy grow 6.5%
for the decade.
Return of Civilian Govt: 1988-1999

6 Civilian Governments in 11 years meant policy discontinuity.
Privatisation, deregulation and liberalisation moved very fast;
FX controls eased, Banks privatisation commenced; Power
generation was privatised, supported by World Bank and
private lending; Motorway construction commenced; Dry ports
built.
But corruption and mismanagement charges with change of
Government led to persecution of politicians, bureaucrats, and
businessmen, breaking momentum of growth.
US sanctions escalated after the Nuclear test; reserves down to
two weeks of Imports, when Musharaf Govt took over in 99

9 Pakistan

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9 Pakistan

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Pakistan: brief Economic

1958-1969: The Glory years

1958 -1969 The Glory

The Glory years: the

The Glory years- the

The Glory years- the reversal.

The 1980s: Economic

Return of Civilian Govt: 1988-1999

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