Review of the previous lecture

Advocates of active monetary and fiscal policy view the economy as

inherently unstable and believe policy can be used to offset this inherent
instability.

Critics of active policy emphasize that policy affects the economy with a lag
and our ability to forecast future economic conditions is poor, both of which
can lead to policy being destabilizing.

Advocates of rules for monetary policy argue that discretionary policy can
suffer from incompetence, abuse of power, and time inconsistency.

Critics of rules for monetary policy argue that discretionary policy is more
flexible in responding to economic circumstances.

Review of the previous lecture

Advocates of a zero-inflation target emphasize that inflation has many costs

and few if any benefits.

Critics of a zero-inflation target claim that moderate inflation imposes only

small costs on society, whereas the recession necessary to reduce inflation
is quite costly.

Advocates of reducing the government debt argue that the debt imposes a
burden on future generations by raising their taxes and lowering their
incomes.

Critics of reducing the government debt argue that the debt is only one
small piece of fiscal policy.

Review of the previous lecture

Advocates of tax incentives for saving point out that our society discourages
saving in many ways such as taxing income from capital and reducing
benefits for those who have accumulated wealth.

Critics of tax incentives argue that many proposed changes to stimulate

saving would primarily benefit the wealthy and also might have only a small
effect on private saving.

Lecture 29

Overview of Pakistan Economy

Instructor: Prof.Dr.Qaisar Abbas
Course code: ECO 400

Lecture Outline

1. Economic eras

2. Structural Changes In Pakistan

65 years of development

Laying the Foundations:1947-1958 Features

Predominantly agrarian, undeveloped and newly independent nation
Little industry, few services and no infrastructure
Adverse international conditions and precarious domestic situation
Attempts of bureaucracy to keep Pakistan on its feet
Lack of capital
Trade surplus

The Decade of Development:1958-1968

Achievements
Considerable economic growth and development
Significant leaps were made in industrial and agriculture production
Model Capitalist Economy
High growth rate in manufacturing sector
Increase in exports
Progress in agriculture sector

The Decade of Development:1958-1968

Policy Failures
Increased disparities in incomes

Concentration of economic prosperity

Social sectors were neglected

Little or no increase in real wages

Trade was highly controlled and closed

Distortion of local markets b/c of overvaluation of exchange rate

The bad Luck Years:1971-1977

Achievements
Foundations for future growth and development
Basic industries were setup
Base for a capital goods industry
Middle East boom
Illiberal economic policies
Foreign exchange earnings doubled because of devaluation

The bad Luck Years:1971-1977

Failures
Events beyond control affected economic program of this era
Downward trend in growth
Nationalization
Cotton crops failure and floods affected Pakistans exports
Crisis in balance of payments
Devaluation of Pakistani rupee

The second Military Government 1977-1988

Achievements

Liberal economic policies

Higher industrial growth
Second economic revolution because of remittances from the
Middle East and aid from abroad
Emergence of middle class

The second Military Government 1977-1988

Policy Failures

Martial rule inflicted deep rooted damage to Pakistani society

Drugs and arms culture in Pakistan
Confusion of policies
Underutilization of resources (foreign aid and remittances)

The Era of Structural Adjustment:1988-1998

Achievements
Return of democracy
Era of structural adjustment
Economic liberalization and stabilization
Privatization
Reduction in tariff rates to increase exports

The Era of Structural Adjustment:1988-1998

Policy Failures
Macro economic crisis
High taxation
Low spending in social sectors
Trade reforms resulted in deindustrialization
Continuous devaluation in the Pakistani rupee
Increased in the administrated prices of utilities
High inflation rate
Unemployment
Privatization without proper policy
Loss of sovereignty for the Pakistani state and its people

Economic Situation:1998-2004

Features
Acceleration in economic growth
Increase in industrial production
Rise in exports earnings
Strong upsurge in investment
Pre-payment of high cost external debt
Increase in foreign exchange reserve
Strategic re-entry into the international capital markets
Increase in spending on Education
Increase in FDI

2005-2007
The economy picked up further in FY2005,
-with GDP growth coming in at over 8.4% for the first time in 8 years.
With sound macroeconomic fundamentals achieved and key sectors
strengthened by reforms implemented in the 4-5 years,
the economy was well positioned to sustain 7% or more growth in the medium
term.

ADBs Asian Development Outlook

2005

Sect oral Contribution to the GDP growth (%points)

Sector

200607

200708

200809

200910

201011

Agricult 0.92
ure

0.23

0.86

0.13

0.26

Industry 2.28

0.38

-0.03

2.09

-0.02

Manufa 1.55
cturing

0.92

-0.69

1.01

0.55

Service 3.61
s

3.08

0.89

1.54

2.15

Real
GDP
(FC)

3.68

1.72

3.76

2.39

6.81

Structural Changes In Pakistan

Structural Change
Modern economics has given clear evidence that changes in
levels of some basic magnitudes are generally associated with
changes in composition, which imply STRUCTURAL CHANGE

Reasons of Structural Changes

To modernize the economy

To industrialize the economy

To pace capital accumulation in the economy

Main Sources of Structural Changes

Growth of population (natural or immigrant)

Application of technical and mechanized processes of production which

change quantity of output per unit of input

Technical progress which generates a continuous growth of real per capita

incomes which implies a growth of demand for goods and services

Structural Changes

Pakistan today is less than half of the country it was in 1947. The contribution made
by East Pakistan to Pakistans society and economy was huge.

Pakistan is basically an agricultural country is no longer true. The services sector has
replaced agriculture as the dominant sector of the economy, contributing almost half
of GDP.

Process and extent of Urbanization

In 1951 only 17% of West Pakistan lived in areas designated as Urban;
today estimate suggest that above 40* live in cities and towns.

Emergence and consolidation of middle class

The nature of exports from Pakistan has also changed dramatically.

Feudalism in Pakistan died a very long time ago.

Pakistan: basic indicators,1947-2011

Population (millions)

1951

1997

2011

33.78

140

180.72

53.2

24.2

21

7.8

26.4

12

39.0

49.4

67

Contribution to GDP by
sector(%)
i.
ii.

iii.

Agriculture
Manufacturing
Others

An Economic and Social Agenda For Improvement

Restore confidence

Initiate and sustain technological change

Foster stability and trust in social and cultural relationship

Recommended Books

Ishrat Husain, Pakistan: The economy of an

University Press.

Zaidi, S. Akbar,(1999),Issues in Pakistan Economy, Oxford University

Press.

Saeed, K. Amjad,(2007)Economy of Pakistan, Institute of Business

Management, Lahore.

Economics Survey of Pakistan (Latest Issues), Economic Advisors Wing,

Ministry of Finance, Government of Pakistan

elitist state, Oxford