Economy of Pakistan

Written by admin on May 15th, 2011

Economic history

First five decades

Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947 from Britain. Pakistan’s average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. See also
Industrial-sector growth, including manufacturing, was also above average. During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing. Many countries sought to emulate Pakistan’s economic planning strategy and one of them, South Korea, copied the city’s second “Five-Year Plan” and World Financial Center in Seoul is designed and modeled after Karachi. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country’s public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth. In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers.

Recent decades

This is a chart of trend of gross domestic product of Pakistan at market prices estimated by the International Monetary Fund with figures in millions of Pakistani Rupees. See also
Year

Gross Domestic Product

US Dollar Exchange

Inflation Index

(2000=100)

Per Capita Income

(as % of USA)

1960

20,058

4.76 Pakistani Rupees

3.37

1965

31,740

4.76 Pakistani Rupees

3.40

1970

51,355

4.76 Pakistani Rupees

3.26

1975

131,330

9.91 Pakistani Rupees

2.36

1978

283,460

9.97 Pakistani Rupees

21

2.83

1985

569,114

16.28 Pakistani Rupees

30

2.07

1990

1,029,093

21.41 Pakistani Rupees

41

1.92

1995

2,268,461

30.62 Pakistani Rupees

68

2.16

2000

3,826,111

51.64 Pakistani Rupees

100

1.54

2005

6,581,103

59.86 Pakistani Rupees

126

1.71

Economic resilience

GDP Rate of Growth 1951-2007

Background

Historically, Pakistan’s overall economic output (GDP) has grown every year since a 1951 recession. Despite this record of sustained growth, Pakistan’s economy had, until a few years ago, been characterized as unstable and highly vulnerable to external and internal shocks. However, the economy proved to be unexpectedly resilient in the face of multiple adverse events concentrated into an four-year (1998-2002) period
the Asian financial crisis;

economic sanctions according to Colin Powell, Pakistan was “sanctioned to the eyeballs”;

The global recession of 2001-2002;

a severe drought the worst in Pakistan’s history, lasting about four years;

heightened perceptions of risk as a result of military tensions with India with as many as 1 million troops on the border, and predictions of impending (potentially nuclear) war;

the post-9/11 military action in neighboring Afghanistan, with a massive influx of refugees from that country;

Despite these adverse events, Pakistan’s economy kept growing, and economic growth accelerated towards the end of this period. This resilience has led to a change in perceptions of the economy, with leading international institutions such as the IMF, World Bank, and the ADB praising Pakistan’s performance in the face of adversity.

More recent reports of resilience

Additional confirmation that the country’s economy is not as weather-sensitive as had been previously perceived comes from a 2008 analysis that “examined 68 countries, quantifying their sensitivity to fluctuations in weather, using figures on GDP by industry sector and the sensitivity of particular sectors to given weather variables.” The analysis found that of the 68 countries, the “least weather-sensitive country was Pakistan.”
After the highly destructive 2005 earthquake, Pakistan’s economy kept expanding, growing by over 7 percent in the twelve months ending June 30, 2006.

Pakistan emerged as one of the best performers in the wake of the global financial crisis, even as the country waged a costly war against militants. Its domestically-driven economy was minimally affected and its banking sector boasted surplus liquidity while remaining unharmed. However the impact was seen for export sectors which strank as a result of lower external demand. ref>”Barclays sees huge potential in Pakistan (Aug 14 2009)”. DAWN. http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/news/business/09-barclays-sees-huge-potential-in-pakistan—szh-05. Retrieved 2009-09-15. </ref>

Macroeconomic reform and prospects

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National Highways, Motorways & Strategic Roads of Pakistan.

According to many sources, the Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.

Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms – with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue – and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.

Liberalization in the international textile trade has already yielded benefits for Pakistan’s exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan’s relative strengths in low labor costs.

Growing stability in the nation’s monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan’s domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.

In 2005, the World Bank reported that

“Pakistan was the top reformer in the region and the number 10 reformer globally making it easier to start a business, reducing the cost to register property, increasing penalties for violating corporate governance rules, and replacing a requirement to license every shipment with two-year duration licenses for traders.”

Doing Business

The World Bank (WB) and International Finance Corporation flagship report ase of Doing Business 2010 ranked Pakistan 85 among 181 countries around the globe. Pakistan comes highest in South Asia but also ranks higher than China, Russia and India which is at 133. The top five countries are Singapore, New Zealand, the United States, Hong Kong and United Kingdom.

The Government of Pakistan has, over the last few years, granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical education, are intended to give impetus to the nascent Information Technology industry. This in recent years has resulted in impressive growth in that sector.

The economy today

Due to inflation and economic crisis worldwide, Pakistan’s economy reached a state of Balance of Payment crisis. “The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to .3 billion from an initial .6 billion.”

By October 2007, Pakistan raised back its Foreign Reserves to a handsome .4 billion. Exceptional policies kept Pakistan’s trade deficit controlled at billion, exports boomed to billion, revenue generation increased to become billion and attracted foreign investment of .4 billion.

Since the beginning of 2008, Pakistan’s economic outlook has taken stagnation. Security concerns stemming from the nation’s role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately bn to .5bn for the current

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