ExcerptINTRODUCTIONPAKISTAN ECONOMY:A HISTORICAL PERSPECTIVE Economic Overview • Size of the Economy : 240 bil USD (44thlargest in terms of GDP) • GDP per capita: $1254 • Population : over 190 million • Inflation : 8-10% • Average interest rate :10-12% (current 8.5%) • Pakistan’s exports: --textiles --primary products • Main imports– Machines & transport equip. – Mineral fuels, etc – Chemicals World Population Graph Top-10 low cost source countries for Textile, 2006 (in % of world exports) Labor force: Oversees employment is encouraged to reduce the unemployment burden within the country and to enhance remittances 194730 million people with per capita income of 100$Todaywith over 180 million people, our per capita income in 2011 was 1372$ Countries GDPper Capita (2012) US $ India 1,503 China 6,091 USA 51,749 Norway 99,636 SECTORAL COMPOSITION Agriculture . Agriculture had suffered greatly from the floods in the summer of 2010 but the growth rate picked up to 3.1% from 2.4% last year. . Major crops such as sugarcane, cotton and rice witnessed substantial growth. . A negative growth of wheat production was registered due to late receding of flood waters in lower Sindh which hampered the timely cultivation of wheat crop. . Livestock, fisheries and forestry have shown modest growth Manufacturing – The growth of the manufacturing sector is estimated at 3.6% compared to 3.1% last year. – There are severe constraints faced by the industry such as:• Flood driven supply chain interruptions • Deteriorating law and order • Reduction in gas supplies • Acute energy shortages Services • The Services sector has registered a growth rate of 4.02 percent. Largely attributable to growth in technical and skill-based services, such as telecommunications, software development, as well as in accountingand finance. Current Issues? . Pakistan,hassufferedfromdecadesofinternalpoliticaldisputesandlowlevelsofforeigninvestment. . Overthepastfewyears,lowgrowthandhighinflationledbyaspurtinfoodpriceshaveincreasedpoverty. . Inflationremainsthetopconcernamongthepublic,climbingfrom7.7%in2007toalmost12%in2011,beforedecliningto10%in2012. . Pakistanirupeehasdepreciatedsince2007asaresultofpoliticalandeconomicinstability. . Pakistan'scurrentaccountdeficit(416millionus$) . ExternalDebt:59383MillionUS$ http://blog.dawn.com/wp-content/uploads/2011/03/graph.jpg Pakistan’s registered income tax payers –1.7 million The highest amount of income tax paid (2010) was Rs 50 lakhs (5 million) GOVERNANCE . A cross-country comparison shows that institutional weakness at all levels of government; the judiciary; civil services; law enforcement; regulatory bodies; and agencies for oversight and accountability, are directly responsible for poor economic growth. . In the case of Pakistan, most governance indicators have weakened in recent years. In a recent study on the ease of doing business released by the World Bank, Pakistan slipped from 96 to 105, out of 183 countries evaluated. GOVERNANCE • Governance consists of the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them. Other challenges? Expanding investment in education, healthcare, and electricity production, and reducing dependence on foreign donors. • The ever-increasing cost of war on terror, high inflation, infrastructural issues and slowing down of economic growth all are adversely affecting the social indicators. • A unprecedented damage has been caused by the recent flood pushing more people into poverty • The power sector is in dire need of massive investment. Problems after Partition and Independence The Early Year 1947-1958 The Formative Phase Overview 1. The economy as inherited by Pakistan in 1947, with a focus on the Industrial sector 2. The broad development priorities of the government in 1947-1958 3. The development of the industry in 1947-58 4. The government’s role in development 5. The public image of the private entrepreneur during the period. Pakistan’s inherited economy • Pakistan was predominantly an agro based economy, with no modern industry or modern banking or commercial establishment. • Pakistan had industrial assets worth RS 580 million only. (contribution to Income was very less) • Areas that were included in Pakistan supplied agricultural products to the other parts of India, while it was dependent on the basic supply of manufacturing and consumer goods. (West Pakistan had only 3 small cotton textile mills, while there was only 1 jute mill in East Pakistan) • Small number of cement production and minor industries like food products, sporting goods and surgical instruments. • Out of 14,677 registered factories in united India, only 1414 became a part of Pakistan and 41.2% of these were small scale establishments. • Issue with the industries in Pakistan? • Example: Non Muslims owned 165 out of 215 small scaled factories in Lahore. In Karachi, 80% of the land property and almost all foreign trade was in the hands on Non Muslims. • Khoja Ismailis and Dawoodi Bohras in Sindh were involved in trade. Situation was even poor in East Pakistan. • Hindus and other non Muslims left everything in Pakistan and migrated to India. Situation was to some extend compensated by the inflow of Muslims from India. DEVELOPMENT PRIORITIES OF THE GOVERNMENT • First Constitution in 1956. • Colombo Plan (1951) • First Five Year Plan (1955-1960) . The rehabilitation of Refugees . The commitment to strengthen defence capacity . Industrialization • Refugee Problem– 14.5millionpeoplecrossedtheborders – 7,226,000MuslimscametoPakistanfromIndia – 7,249,000HindusandSikhsmovedtoIndiafromPakistan – About5.5millionssettledinPunjabPakistanandaround1.5millionssettledinSindh. • Increase in Defence Expenditure • Industrialization: i. Arms and ammunitions ii. Generation of HEP iii. Manufacturing of railway wagons, telephones and wireless equipment. Tools: i. Over valued Exchange Rates with import controls ii. Low taxes and fiscal incentives iii. Agricultural raw material and food prices were kept low. PIDC was established. DEVELOPMENT OF INDUSTRY The Establishment of Muslim Merchant Capital (1947-1952) o Inflow of Muslim trading communities from India o Memons, Bohras and Khuwajas settled in Karachi. o Memons (about 100,000) were the largest community to immigrate. They took over the textile and kirana trade. o Another Industrial center developed Lahore-Lyallpur area of Punjab. o Adamjee and Ispahanis in East Pakistan. • Over valued the Exchange Rate with controls and quotas • After British devaluation in September 1949, India also followed the devaluation. • Tax allowances, fiscal incentives, easy loans etc. Despite government’s incentives to the private sector, it was slow in moving into the industry. • Large incentive to reinvest in industries. • Hence in early 1950’s the industrial sector grew at a high growth rate at about 21% per annum. • Import Substitution Phase. • Growing Economic Problems: (1956-1958) • Population grew at a higher rate than the rate of food production which meant that food had to be imported.