Pakistan brief Economic history 1947 2007 1947 to

Pakistan: brief Economic history 1947 - 2007.

1947 to 1960. • Pakistan’s 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 ‘ 50 s.

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 galvanize 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. • Diversified Groups delegated authority to professional management extensively. • Pakistan was one of the world’s 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 not 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 ‘ 70 s. By the time Private sector was investing again (“ 90 s), 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 5 th 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 1980 s: Economic revival. • Three factors marked revival of economy in ‘ 80 s: US Aid post Russian invasion of Afghanistan; pay-off from heavy investment of ‘ 70 s; and recovery of private sector investment ( back to 70% of total). • Privatization announced, but commenced in 90 s • Despite tight monetary policy, fiscal deficits grew from lack of expenditure discipline – reaching 8% in late ‘ 80 s. Part can be explained by 5 mn 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