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Politics & Policy
Pakistan's economy under different shadows

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Politics & Policy
Pakistan's economy under
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By Syed Asad Hussain
Nov 08 - 14, 1999

Whilst looking back at the economic history of Pakistan, it seems that Pakistan's economic performance has been mixed. The business cycles of Pakistan's economy, since independence, have witnessed more troughs than peaks, suggesting that the economy moved slowly most of the time. Though, the per capita income continued to increase on average by 2 percent a year during 1947-96, but social indicators remained poor during the same period.

Major threats, Pakistan is now facing are: creeping poverty and uneployment, poor literacy rate, high population growth rate, and poor health care facilities for Pakistanis. As the military has assumed power now in Pakistan, I think, we should also celebrate the event by comparing the performance of Pakistan's economy under the military rule and democracy. The topic of discussion begins from General Ayub's era.

Economic performance under the military rule

The Ayub Khan era is regarded as one of the best periods of stability in Pakistan's history. Real investment reached as high as 21.5 per cent of GDP during 1960-65 and then dropped to 14.6 per cent ( due to 1965 war with India) in 1969-70. Increase in investment accelerated the economic growth process. Through good economic management, inflation remained in checked and hovered around 3 per cent during the 1960s. Moreover, Pakistan's economy succeeded in registering its first ever budget surplus during the military rule of Ayub Khan. GNP and per capita GNP averaged 6.7 cent and 3.8 per cent respectively. The performance in this area is regarded as the best far (see table I. ).

Table I

Annual Growth Rates of GNP, Population, and Per Capita GNP

( per cent per annum)

Years

GNP

Population

Per capita GNP

1950-60

3.1

2.4

0.6

1960-70(M)

6.7

2.9

3.8

1970-77(D)

4.4

3.2

1.3

1977-88(M)

6.4

3.1

3.3

1988-96(D)

4.3

3.0

1.2

Source: Economic Surveys, GOP

 

M: Performance under the military rule

D: Performance under the democracy

 The above table suggests that the long military rule of Ayub Khan and Ziaul Haq proved to be a sweetener for the sick economy. I will talk about Zia's era later. Against the conventional wisdom, economic performance, under the shadow of democracy, remains less impressive. One would wonder how two Generals made the economy healthy. Well, it seems that clear policies of the military rulers, commitments to their objectives, low level of corruption, healthy foreign aid, strong technocratic management, and political stability mainly contributed to the rosy performance of the economy.

How did price level behave under the martial law regime? Well, Pakistan's inflation rates, under both military rulers remained well under control. It remained below 8.0 percent on average under General Ayub and General Zia periods. Whereas under democratic governments the inflation rate, most of the time, remained above 10 percent on average.

As suggested by Dr. Pervez Hasan in his book, " Pakistan's Economy at the Crossroads ", the national savings rate rose significantly from the extremely low level of 2.5 per cent of GDP in 1949-50 to 10.5 per cent in 1964-65. It improved further in the 1980s, rising to a peak of 16 per cent of GDP in 1986-87 as large worker remittances came in. However, by the middle of fiscal year 1995-96, the national savings rate had fallen back to 12 per cent. The above statistics suggest that under the military rule the savings rate remained healthy, on account of healthy remittances though. Surprisingly, the highest rate of marginal savings of 20 per cent was recorded during 1960-65 (Ayub era).

Likewise, the economy again picks-up during the General Zia period and average growth rate reached as high as 6.6 percent per annum during 1977-88 period. During this period manufacturing grew by 9.2 per cent, other sectors grew by 7.9 per cent, and moderate growth in agriculture sector was also realized. The agriculture sector recovered from a dismal of 2 per cent in 1972-77 and reached to 4 percent on average during 1977-88. Per capita GNP remained healthy 3.3 per cent during 1977-88.

The economic expansion continues during 1977-88. Price level again remained well in-checked. General Zia period could be well matched by General Ayub Khan period when the economy got into a healthy shape.

Notwithstanding the above economic performance, the military regime, however, failed to address major structural weaknesses. The burden of this wrong doing therefore fell on the successive governments. Ironically, due to the dull performance of private investment, government's spending rose by almost 150 per cent during 1977-88. Budget deficit therefore also rose sharply to 8 per cent of GDP during the same period as revenues grew slowly. The Afghan war was in full swing during General Zia period. Defence expenditures therefore rose to 9 per cent to GDP and ironically were overtaken by development expenditures ( 3 per cent).

The economic growth recorded during 1977-88, however, failed to translate in improving the human development indicators. Not much success was recorded in improving life expectancy at birth, infant mortality, adult literacy and primary school enrollment ratio.

Unfortunately, like the General Ayub period, Zia's economic policies succeeded in pushing the economy but failed to address the social issues.

Table II

1977-88

1988-90

1990-93

1993-96

Growth Rates GDP at factor cost

6.6

4.8

5.0

4.8

GNP Per capita

3.3

1.4

0.9

1.5

Manufacturing

9.2

4.8

6.5

5.1

Agriculture

3.9

4.9

2.9

5.7

Economic Surveys, Government of Pakistan

Economic Performance under Democratic Governments

The period after Zia's death can be marked by as a period of uncertainty. The economy most of the time remains almost flat during 1988-96 (see table II). Old wounds of the economy did not vanish during 1988-96, rather counting increased further. The lax successive governments of Mr. Junejo, Bi.Bi. and Mian Nawaz Sharif did not achieve much success on economic front ( see table II).

The performance of social sector improved a bit under the above regimes but it's performance cannot be matched with the developments that were taking place in neighbouring countries during 1988-96 period. Poverty continued to increase, healthcare facilities remained poor, standard of education kept on declining. Due to high unemployment crime rate shoots-up. Corruption spread like a cancer. Unfortunately the democratic governments openly used nationalized banks to disburse loans to their loved ones. Due to the country's lax financial system most of these loans never returned to its source resulting in huge losses to the banks.

GDP growth rate during 1988-96 averaged 4.9 per cent per annum compared to 6.6 per cent of Zia period and 6.7 per cent of Ayub period respectively. Large scale manufacturing growth moved in a narrow band during 1988-96. The period saw 4.8 per cent per annum growth in this sector and sadly it reached at the bottom 2 per cent per annum after 1994. Ironically, the successive governments after Zia's death failed to contain inflation and on average it remained 12 per cent during 1993-96

Under democratic regimes the per capita GNP during 1986-96 was only 1.2 per cent per annum as compared to 3.3 per cent during 1977-88 period. Stagnation in the investment continues after 1988. During Zia period fixed investment to GDP was around 17 percent whereas during 1988-96 (under democratic regimes) it was marginally higher at 17.5 per cent in the 1980s. However, private investment increased from 7.7 per cent to GDP to 9.2 per cent under democratic regimes. The overall national savings rate showed no progress during 1988-95. It remained more or less stagnant at 14 per cent of GDP. And in 1995 it slipped to below 12 percent.

There is still a wrinkle — why Pakistan's economy did not improve over the years whereas other nations continued tightening their belts. These nations such as, China, Malaysia, Korea, Singapore, Thailand, etc. which got independence after Pakistan now enjoying a comfort of life whereas Pakistan 's economy is still struggling to keep afloat. The answer seems to be quite straightforward.

The fact is, Pakistan never got the intelligent leadership, which could save the sinking ship. Poor governance is another chapter of this sad story. Moreover, Pakistan has been unable to muster the muscles of its talented people. Add to the injury, ill-educated people are brought forward to drive the economy. Last but not least the political instability has also caused a great damage to the health of the economy.

I think the time has come that the current military regime tighten belts and bring forward educated, talented, sincere people who are capable of putting the economy back on tracks. The most neglected areas, which need immediate attention, seem to be: education, growing unemployment, healthcare facilities, poverty; and physical infrastructure. The progress in these areas can only be achieved once good governance is in placed.