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Pakistan was created with an aim of developing it as a progressive modern country, which could offer equal socio-economic opportunities and benefits to its citizens. At the time of its creation, Pakistan was a country of 30 million people. Despite being primarily, an agrarian economy, it had to import most of its food to feed its citizens. Agricultural output then accounted for about 53% of GDP. The industrial sector at that time consisted of a handful of medium and cottage industries. Per capita income was less than $100 whereas literacy rate was 10% and life expectancy stood at 32 years.

With concerted efforts of the leadership, Pakistan's average annual GDP growth rate in the first five decades remained higher than the average growth rate of the world economy. Average annual real GDP growth rates were 3.1% in the 1950s, 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth rate fell to 4.6% in the 1990s mainly due to political instability, while remained almost same in the 2000s to 4.7% owing mainly to internal security problems. However, the average annual growth rate was about 7% during 2003-04 to 2006-07.

Literacy rate in 1947 was 10%, which has gone up to 58% in 2011-12. Despite this achievement, literacy rate remains dismally low when compared with other developing countries. This is a major challenge to be addressed for rural and female population. Life expectancy has now gone up to 67.2 years. Poverty which was around 46% in the early 1960s has come down to about 21%. With a GDP growth rate of 6.8% in the 1960s, Pakistan was considered as a role model of economic growth for other developing countries. Many countries emulated Pakistan's framework for economic planning. Later on economic mismanagement and implementation of imprudent economic policies caused sluggish growth in the 1970s and 1990s and due to insufficient domestic resource mobilization, the country accumulated large public debt. The economy improved in the 1980s, with a GDP growth rate of 6.5%, when policy of economic deregulation was adopted. Balance of payments situation improved with large inflow of workers' remittances. Afterwards, economic situation became uncertain as a consequence of different external and internal shocks-including Asian financial crisis, economic sanctions after nuclear test, global recession, severe drought, military tensions with India, and the 9/11 event which resulted into new and greater influx of Afghan refugees into Pakistan.

Over the past sixty eight years, the share of the agriculture sector has come down to 21.5% of the GDP. Despite this decline, the agricultural sector now not only satisfies the domestic needs of wheat, rice, sugar and milk at a much higher per capita consumption level, but also exports its surplus production.This was made possible as Pakistan doubled its cultivation area to 22 million hectares along with the development of a vast irrigation network of large storage reservoirs, barrages, and link canals. The contribution of the manufacturing sector in GDP was negligible at the time of independence, however overtime the country has achieved great progress. Manufacturing production index that was 100 in 1947 is now more than 12,000. Pakistani industries now produce consumer as well as industrial raw materials and capital goods. Consequently, Pakistan which used to export only agricultural raw materials in 1947, now has 85% of exports consisting of manufactured and semi-manufactured products.

During the early years of 2000s, Pakistan introduced many economic reforms to put economy on a higher growth path. As a result, economic growth accelerated to 7%, especially during 2003-04 and 2007-08, this was mainly due to unprecedented growth in the services sector. This resilience led to a change in the image of the country despite adverse security conditions. This growth enabled the country to create more jobs and resulted into reduction in poverty. Per capita income that was less than $100 in 1947 has now increased to $1380. This is an indication of improvement in well-being. Despite all odds, Pakistan has made an impressive progress. Nevertheless, the achievements remain far less than its real potential mainly because Pakistan has neglected development of its human resources. The poor cohort still does not have adequate access to education and health facilities. As a result, Pakistan missed opportunities to grow faster and become a modern economy. Since independence, Pakistan has accumulated about $60.9 billion of foreign debt (disbursed and undisbursed); local debt is in addition to it and is larger. Consequently, the country is spending over 38% of its current budget on servicing debt, which is more than the total development budget. This leaves meagre resources for human development.

What lessons can be learnt from the past experience in reforming the Pakistan economy? Pakistani planners experimented with policies of central planning, nationalization, regulation, liberalization, deregulation and privatization. From these policies major lessons are: central planning has been a failure as it led to low productivity and low investment in human resources. Government officials cannot efficiently allocate resources as markets do. Licensing system promotes rent-seeking behaviour, which benefits license holders at the cost of domestic consumers. State-owned enterprises (SOEs) owing to inefficiency, waste and corruption hurt the economy. Import substitution industrialization though protects domestic industries against foreign competition but adversely affect consumers in terms of higher prices and poor quality for goods produced by protected industries. Over regulations and controls of the private sector increases the cost of doing business. Creation of oligopolies retard growth and raise prices.

High tax rates on individuals and corporates led to wide spread tax evasion; consequently government too often misses tax-revenue targets. State-owned banks and financial institutions were used to provide concessional loans to political favourites, which retarded economic growth. Capital-intensive industrialization could not generate sufficient jobs for the growing population. Administered prices of key commodities and utilities disproportionately benefited rich classes and created their shortages, which hit the poor hardest by denying them their access. Subsidized agricultural inputs benefit large farmers who afford to buy them, while small farmers, due to lack of sufficient money to buy them, do not benefit from subsidized inputs. Foreign investment mostly came in import-competing industries that were heavily protected. No effort was made to attract FDI in export-oriented industries.

Thus, what should be the thrust of our future policies? First and foremost, outward-looking strategy that promotes exports and integrates Pakistan into the world economy; it would improve competitiveness and accelerate economic growth on a fast track. Second, prices give correct signals to market players but if they are distorted via government bad policies and market failures then wrong mix of industries is selected resulting into slow growth and high unemployment. Therefore, distortions need to be removed by taking right policy measures; the best policy is to allow the economy to work through market forces with meticulous government oversight to check market failures. Monopolies or oligopolies should be regulated by independent bodies.

The role of the State should be limited to facilitating the private sector and provide security and independent disputes settlement system, building cost-effective efficient infrastructures, developing quality human resources, maintaining sound enabling macroeconomic, and paying full attention for the welfare of the citizens. State-owned enterprises should be run on commercial basis. Foreign investors should be attracted to export-oriented industries while ensuring they transfer the technology. Strength of the Pakistani society is its resilience, which has persistently strived to make the country recover and become stronger. This must persevere in the future. Pakistan is currently going through very hard times of its history. If history stands corrected, Pakistan will In sha Allah come out of the current prolonged impasse and continue its journey towards realizing the goals of a progressive, prosperous and modern economy, which was cherished by the Great Leader.


The writer is a Professor of Economics at School of Social Sciences & Humanities at NUST, Islamabad [email protected]

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