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.
