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Economy

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Analysis of Pakistani Industries TABLE OF CONTENTS T O P I C P a g e N o . Introduction 2Gross Domestic Product (GDP) 2Inflation 5Unemployment 7Income Inequality 8Balance of Payments 10Foreign Trade 13Exchange Rates 16Foreign Direct Investment (FDI) 17Pakista n’s Strengths and Weaknesses 19World Trade Organization (WTO) 22Conclusion 22Bibliography 23Appendix 24Glossary 25 Page1

Analysis of Pakistani Industries I NTRODUCTION At partition in 1947, the new government lacked the personnel, institutions, and resources to playa large role in developing the economy. To rise from such a state surely is a great task, especiallywhen one’s borders are also insecure. Since then Pakistani officials have sought a high rate of economic growth in an effort to lift the population out of poverty. Rapid industrialization wasviewed as a basic necessity and as a vehicle for economic growth. For more than two decades,economic expansion was substantial, and growth of industrial output was striking. In the 1960s,the country was considered a model for other developing countries. Rapid expansion of theeconomy, however, did not alleviate widespread poverty. In the 1970s and 1980s, although a highrate of growth was sought; greater attention was given to income distribution. In the early 1990s,a more equitable distribution of income remained an important but elusive goal of government policy. G ROSS D OMESTIC P RODUCT (GDP) The disruptions caused by partition, the cessation of trade with India, the strict control of imports, and the overvalued exchange rate necessitated immediate action on the part of thegovernment. Government policies afforded liberal incentives to industrialization, while publicdevelopment of the infrastructure complemented private investment. Some public manufacturing plants were established by government holding companies. Manufacturing proved highly profitable, attracting increasing private investments and reinvestment of profits. Except for largegovernment investments in the Indus irrigation system, agriculture was left largely alone, andoutput stagnated in the 1950s. The broad outline of government policy in the 1950s and early1960s involved squeezing the peasants and workers to finance industrial development.Much of the economy, and particularly industry, was eventually dominated by a small group of people, who were largely traders who migrated to Pakistan's cities, especially Karachi, at partition. These refugees brought modest capital, which they initially used to start trading firms.Many of these firms moved into industry in the 1950s as a response to government policies.Largely using their own resources, they accounted for the major part of investment andownership in manufacturing during the first two decades after independence.Between 1947-1952 Pakistan’s average GDP was just 3%, however, in 1952, Korean War brokeout and the overall demand of goods increased worldwide and Pakistan benefitted from itsignificantly with its GDP increased at a whooping rate of 9.4%. After Korean War ended therewas a worldwide recession. However, Pakistan was the sole exporter of Jute at that time andPakistan’s conditions didn’t get worse. Till 1958 Pakistan maintained an average GDP of 3%.If one examines Pakistan economic growth record, the 1960’s stands out as the decade with the best performance. Throughout 60’s Pakistan maintained the average GDP of 6.2%. The reasonfor this was Ayub Khan’s extensive industrialization and development. The high growth rate inlarge scale manufacturing continued in the first few years of the Ayub’s regime with the average Page2

Analysis of Pakistani Industries for the period 1960-5 rising to a phenomenal 16.9%. In 1966 the GDP fell to 3.1% because of war with India but it continued to grow after that and reached as high as 9.8% in 1970.In 1971 Pakistan lost its east wing which became Bangladesh. It greatly affected our economy because East Pakistan was the major producer of Jute. Bhutto became the Prime Minister of Pakistan and he nationalized all the major industries of the country. This act of Bhuttodiscouraged the private sector and industrialists were no longer interested in investing inPakistan. In 1972 GPD fell to just 1.2%. This occurred mainly because of war with India andalso because Pakistan lost revenue which it used to earn from Bangladesh. Then Bhutto devaluedthe Rupee by 131% which boasted our exports by 153%. He introduced several reforms and public development projects because of which Pakistan was able to achieve the average growthrate of 7.5 till 1974. 1975, the height of Bhutto’s nationalization program, private sector investment was only 15% of the total. Cotton crop was also destroyed and there were severalfloods during his last years of rule. 1976 saw Pakistan’s worst floods, devastating large areas of cultivated land. All these factors caused Pakistan’s GDP to fall significantly and from 1974-1977,the average GDP was just 3.6%.Zia-ulHaq revived the confidence in Private Sector to invest in the country again. The process of privatization was carried out gradually. The inflow of foreign aid from US and other countriesincreased because of Pakistan’s role in war against the USSR. This increased the income of local people and the domestic demand of goods and services increased. This aid also helped Ziaregime to finance in the industrial sector. This all caused Pakistan’s GDP to grow by average6.5% during1980-88 and at that time it was only exceeded by that of Korea, China and HongKong.During the period 1988-99, there were seven different governments and two elected primeministers who were both elected twice. This was a highly uncertain period and no governmentcompleted their constitutional tenure. The economy of Pakistan slowed to an average annualgrowth of 3.8 percent during the 1990s (MSN Encarta). Factors contributing to the sluggishgrowth included corruption and mismanagement at the highest levels of government and the riseof ethnic and sectarian violence in Karachi and other urban centers. These factors shook

investor confidence.The economic performance of the 1990s was also related to the structural adjustment programs(SAPs) of theWorld Bank and theInternational Monetary Fund(IMF). Loans from theseinternational lending agencies were subject to conditions on Pakistan’s national economic policies. Pakistan received its first formal loan in 1988. In Pakistan the primary focus of theIMF-sponsored program was to lower the budget and current-account deficits. These objectives Page3

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