Socio-Economic Challenges in Pakistan: Mrs. Fahmida Aslam, Mr. Jamshed Ali Baloch
Socio-Economic Challenges in Pakistan: Mrs. Fahmida Aslam, Mr. Jamshed Ali Baloch
Abstract
Economic turmoil in Pakistan is due to facets of reasons. The country
since its very inception has remained in a vicious cycle of political
instability, the lamentable lack of civilian leadership, long military rules
and weak institutions. The cumulative implications of the scenario
manifest Adhocism, inconsistencies in economic policies, foreign debt and
fragile industrial policy. The people of the country have been facing
intractable repercussions of economic turn down as increasing poverty,
unflinching corruption, and awful conditions of governance. War on
terror has further deteriorated economic conditions of Pakistan. The
country has got invincible economic losses in the war against terror. The
solution of economic problems of Pakistan lies in true democratic order,
rule of law, consistent economic policies and the reduction of foreign debt
and more investment in the country.
Introduction:
The economy of Pakistan has been remained hamstrung by a host of issues; political
instability, historic constrains with India, internal law and order situation in the
country, lack of implementation of policies, last but not the least external debt.
Pakistan has sixty-three years checkered history; where military rule in the country
more than its existing period. Due to clashes with India since independence, defense
budget was a priority of every political administration of the country. The situation
manifests Pakistan as ‗praetorian state‘.
The economy of Pakistan in the initial period was not sustainable to shore up the
system; it needed external support to take off the country towards development and
economic sustainability. Unfortunately, political instability and long military rules
shackled the dream of self-reliance and economic growth. The whole system of the
economy of Pakistan since the very existence has been running on external aid this
proved Pakistan as ―client state”. ―It goes without saying that wrong economic
policies, mismanagement of the foreign aid, and official corruption at the high levels
have increased the country‗s dependence on the IMF and the World Bank, so much
so that not only its freedom of action in external matters has been compromised, but
the government has to yield to the dictates of the donors even in matters of purely
domestic concerns” (2001:1).
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1. Cardinal Features of Pakistan’s Economy:
―According to statically data of the Economic survey 2006 and 2008 the growth of
Agriculture sector is estimated is 1.5 percent 3.7 in the year 2006-2007 percent. Other
sectors like manufacturing contribute 4.8 is the highest during the year 2007-
2008.Items like beverage 30 Sugar 34.0percent, leather 13.5percent, cement,
17.9percent. The overall collection of revenue in the year 2008 is 1545.5 billion that
is higher to the expected target of RS 1545.5 billion. The inflation has reached at 10.3
percent during the year of 2007-2008, 7.9 in the year 2006 compared. The food
inflation in the current fiscal year is estimated higher than the previous years. The
performance of export sector was significant in the years 2002-2003 to 2005 -2006
with growth of 16 percent per year.
Export performance during the year 2006 and 2007 was meager with a sheer decrease
of 4 percent .Pakistan‗s deficit on current account widened more to $ 11.6 billion 6.8
percent of GDP. The decrease in the current account deficit is due to large trade
deficit‖ (.www.finance.gov.pk/finance_economic_survey.aspx: 2011).
The return of democracy during the 1990s couldn‗t bring pragmatic reformation in
the economy of Pakistan. ―It is one of the ironies of history of Pakistan had to wait
for Benazir Bhutto to come to power before the socialist orientation in economic
management was abandoned. Benazir Bhutto gave full rein to the private sector. A
board of investment was set up in the Prime minister‗s office to sanction the
establishment of new industrial units in the private sectors” (1999: 25). The cardinal
principles of the economy of Pakistan during 1990s are increasing debt, poverty,
inflation and corruption.
―The fragile economic conditions and foreign debt resulted accretion of foreign debt
during the decade of 1990s. The result of the faced was the overall debt increase $ 20
billion in June 1990 to $ 43 billion till 1998. The foreign debt of Pakistan became
47.6 percent of GDP having increase of 8.1percent during the 1990s. The increasing
burden of debt, fiscal and poor social records including high poverty, and inflation
unleashed that the decade of 1990s was a failure” (1999: 2-3).
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On the other hand, the most extenuating factor that determined the turn-down of the
economy of Pakistan during 1990s is prevalent corruption. Transparency
International declared Pakistan one of the most corrupt countries in the world during
the 1990s. In fact both the governments of Benazir Bhutto and Nawaz Sharif were
dismissed due to corruption charges.
―Four major elements projected the economic performance of Pakistan during the
decade of 1990s. One, instable political condition and perpetual removal of civilian
rule and the inconsistencies in the economic policies due to the fact established
environment of uncertainty. Two, prevalent the two parties that diminished the
prospects of economic progress made bad governance. Nepotism, whimsical
approach of the civilian rulers and corruption, without any check and balance .Three,
desperate lack of politically motivated leadership that took quick and timely
decisions. The spillover impacts of the fact were that the delay in making decision
caused a great deal of economic loss. Four, there were unforeseen exogenous shocks,
for example the nuclear testing in May 1998 which shook investor‗s confidence
accelerated flight of capital, led to the imposition of economic sanctions and disrupts
external economic assistance” (1999: 4).
There are some serious challenges that the economy of Pakistan has been facing since
1990s. These are political instability, lack of direct investment, bad governance,
external debt, corruption, economic policies of the governments and terrorism in the
country. ―Political instability was the significant element of Pakistan‗s failure during
the last eight years from 1988 to 1996. The elected governments of the Benazir and
Nawaz Sharif and four caretaker governments each remained in power for 90 days.
The quick change in governments also brought sudden changes in the economic
policies and the atmosphere was not conducive for the investors” (ibid: 7).
The foreign direct investment is the linchpin for the infrastructures, which encourage
the comparative advantages, and considerably increase productions.
The general principle of foreign direct investment is that the investors, if get benefit
they will invest their profit rather withdraw it from the host country. Indeed the other
benefit of the direct investment is the confidence building impacts. The domestic
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situations admire the level of investment confidence in a country; the incoming
foreign direct investment can enhance and establish the cycle, which impinges not
only domestic and foreign investment but also foreign trade and production. The
effects of direct investment can be seen in the Asian Pacific region. In the starting the
flow of direct investment in the emerging industrialized nations as Hong Kong, china,
Korea, and Singapore; China India and Vietnam are also bringing direct investment
to consolidate their economies.
4. Governance Issue:
The issue of bad governance is contemplated as a great impediment to the economic
and other public policies and their implementation. The governance is pivotal to the
political, economic and administrative to deal the national issues. The governance is a
significant factor, technique, skill of providing benefits to the local residents, protects
their entrenched rights and institutionally solved their differences. Indeed the good
governing countries are enhancing the investors to come. Therefore, the good
governance is set of effective, efficient, responsive and welfare oriented governance
to accomplish the dire requirements of the society and the nation as whole. Good
governance is cardinal for establishing and attracting investment in the welfare
programs, poverty elevation and betterment of society.
The foremost crisis of Pakistan's polity and society today is bad governance. Under
the current democratic government, the situation has deteriorated from bad
governance to no governance at all. The Pakistani state is incapable of undertaking
and promoting collective. With all its benefits are reserved for those within system
i.e. the rulers, officials, and employees. By one reckoning, one third of state's
expenditures is wasted the state's budget and finance system is concerned with inputs
rather than with outcomes.
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The comparative study of the development of East Asian has unleashed the fact that there
are various reasons for the issues of economic governance, which are following:
1. Political stability,
2. Stable macroeconomic environment,
3. The outward-looking trade strategies as opposed to the protectionist strategies,
4. The quality of primary education,
5. Effective land reforms,
6. Credit reforms,
7. A merit based, efficient and competent bureaucracy,
8. Well-functioning institutions, and
9. Identification and development of core areas of comparative advantage.
5. Debt Reduction:
External debt at the end of March 2008 was US$ 45.9 billion. Debt reduction is one
of the greatest challenges of the economy of Pakistan. The country failed to establish
the policy of self-reliance because of political instability, corporate interests of the
army, and authoritarian rule in the country. According to PAKISTAN Interim
Poverty Reduction Strategy Paper (I-PRSP); the fiscal deficit of the country in the era
of 1990 was around 7 percent and the current account deficit in the balance of
payment was around 5 percent of the GDP.
The cumulative result of the deficit of the increase of public debt, that is four times
higher which is RS 800 billion in 1990 to Rs. 2971 billion in 1999 and external debt,
which is almost double from $2billion in 1990 to $ 43 billion in 1998. Resultantly,
during 1998-99, 73 percent of the overall revenues and 40 percent of foreign
exchange were consumed by debt service payment.
6. Corruption:
Corruption is the most intractable issue of third world countries. The case of Pakistan
is unique in a sense it is prevalent in every nook and cranny of the country.
Transparency international survey ranked Pakistan as the second most corrupt
country in 1996. The significance of corruption in Asia is highlighted by the fact that
some whatever political regime has crumbled in Pakistan and some other countries in
South Asia, a major and often-decisive cause has been the prevalence of official
misconduct among politicians and administrators and the concomitant spread of
corruption among businessmen.
Like other South Asian countries the case of Pakistan in terms of corruption is
unprecedented; it exists in the higher echelons its widespread effects discourage
investment it rather enhance the flight of capital and it is always encouraging rather
than punishes ; the judicial procedure is fragile to counter the corruption.
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There is a general perception that the corruption is prevalent in the departments,
which are established to control corruption as an anti-corruption department. The
spillover impacts of corruption are on the human development. Skewed public sector
investment priorities, which favor large visible projects where the chances for rent
seeking are substantial. At one point of history, Pakistan has been declared as the
most corrupt country in the world. It is generally believed that in terms of frequency,
the incidents of corruption are highest in law enforcement agencies. In terms of the
amount of corruption money changing hands, taxation departments, state owned
banks and development finance institutions power sector utilities and civil works
departments. Together these departments and institutions annually handle
transactions in the order of approximately RS.1.3 trillion.
The table evaluates Pakistan‗s index of corruption from 2001 to 2008. It shows that at
the beginning of the new century Pakistan‗s performance was rather fair. The level of
corruption increases suddenly in the year 2004 that is 129 in the rankings. The table
also suggests that the level of corruption increase in year, 2005 it is almost double
than the previous year that is 142 in rank. It decreases in level in, 2007 and 2008
respectively that is 138 and 134 in rank.
7. Economic Policies of Musharraf:
Musharraf era is applauded due to its economic policies. Reformation of the economy
of Pakistan Musharraf adopted pragmatic agenda. When the government of
Musharraf comes into power by a coup in 1999 have to face a great deal of
challenges as high foreign and domestic debt; great fiscal deficit and fragile revenue
capability, extreme poverty high unemployment, the fragile balance of payment and
inept export.
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Comparative experience of the Nineties, Pakistan currently possesses good economic
indicators. The Musharraf era has stabilized overall macroeconomic situations.
Pakistan currently possesses great height of foreign exchange reserves that is almost
$ 12 billion as December 2003, low inflation rate 3 percent, fiscal deficit of 4.5
percent including amelioration in domestic resource mobilization by reforming the
Central Board of Revenue. So far Pakistan possesses outstanding performance in
different targets given by the IMF‗s PRGF.
―The IMF and the World Bank have recognized that the economy is considerably
salubrious and well organized and there is crucial consideration that various reforms,
like ameliorating revenue collection and enhancing the country‗s especial financing
institutions like State Bank of Pakistan and the Security and Exchange Commission
possess development candidness and cut off the cost of doing business in Pakistan.
The situation is marvelous for turnaround providing fragile state of the economy in
the late 1990s” (2004: 2010).
However, the second phase of the Musharraf era with the Government of PMLQ
proved economic downturn. International economic crisis, increasing oil prices in the
international market, high inflation rate in the country and law and order situation,
have impaired the economic growth in the country.
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9. Polarization of Society:
Pakistan possesses a diverse kind of society. Ethnicity is playing a dominant role in
social, economic, political and in terms of religious affairs of the country.
The ascendancy of Punjab on the economic and political affairs has always remained
bone of contention between the smaller provinces and Punjab. In the Urban, areas are
controlled by MQM capable of bringing about chaos and political upheavals; Owing
to, the ineffectiveness of the government to deal the national issues, regarding the
distribution of resources, distribution of water resources. ―There is a peculiar
situation about the ethnic and religious tension in Pakistan. There is a cycle of tension
and violence where the ethnic violence is stopped the religious tension emerged; at
every time there is considered the intelligence agencies and the army behind all these
issues” (2005: 25).
According to UNDP and World Bank report 2000-2001out of 1.3 billion people,
livings below the poverty line across the globe 550 million happen to be South Asian.
Poverty can be contemplated in different perspectives. It may be either ―Relative
poverty or ―Absolute poverty‖. Poverty may be moneyless or it may be powerless.
Private sector research on consumer spending pattern tells us that over eighty percent
Pakistani's is spending on food, housing, and utilities. According to estimates put
forward by a market research outfit about 180 billion per month spending on food,
clothing and utilities alone. At the same time access to information has improved
public understanding of the decision making process .This has politicized economic
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decision making brought government policies under the scrutiny of not just
economists, businessmen , traders and agriculturists but the general public as well.
Poverty is one of the intractable issues of Pakistan. The South Asia Human
Development Report has unleashed the fact ―less than one third of the population of
Pakistan are poor, almost one half are enduring desperate depravation of various
opportunities of life. Almost two third of the overall adult population is illiterate.
Access to basic facilities as primary health care and safe drinking water is denied to
almost half of the population. Almost 38 percent of the children under five are
desperately in lack of food. There are some crucial causes of poverty in Pakistan as
high defense budget, political instability and long military rules, high external debt
and distribution of resources.
Poverty during the 1990s remained a determined factor; it increased from 29.3
percent during 1993-94 to 32.2 percent in 198-99. Poverty was estimated higher in
the ruler areas as compared to the urban areas. The indicator of FBS based on PIHS
data poverty was estimated during 1998-99 was 36.3 percent and 22.4 percent both in
ruler and urban areas of Pakistan. Different provinces of Pakistan have different
figure of poverty. The NWFP has a higher ratio of poverty than the Punjab province.
The level of poverty in Baluchistan during the years 1998-99 reveals low poverty, it
possess highest poverty ratio than the other provinces during the era. Poverty is
measured as the lack of fundamental requirements of the basic needs education and
cultivable lands are its major factors. The poor people possess greater dependency, as
large numbers of children, one earning member are considered as poor. The estimated
ratio; of five households; members of the poor is less than 18 years of age.
―It is estimated that 45 percent of poor children are vaccinated fully from 58 percent
of non-poor children. It is perceived that the major cause of the increase of the
poverty is the poor are unskilled persons in the fields of agriculture, service sector,
transport, infrastructure, sale and production. Moreover the poor possess less area of
land for cultivation than the non-poor which is 0.27 acres in comparison of 0.84
acres. Indeed poor are more vulnerable by the economic fragility than the rich.”
Pakistan Interim Poverty. ( www.finance.gov.pk).
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with poverty in Pakistan. There is need of grand strategy to eradicate poverty in
Pakistan. The following table shows poverty in Pakistan in each province of Pakistan.
TABLE – 2
30
Multiple of Estimates of Pakistan is living in Poverty. By Province
% of Population Living in Poverty
1998-99 2001-02 2004-05
Punjab b b b b
Pakistani Government 32% 32% 25%
World Bank 30% 30% 29%
-
SPDC N/A 34% 31%
Sindh b b b b
Pakistani Government 26% 36% 19%
World Bank 26% 37% 22%
-
SPDC N/A 35% 25%
NWFP b b b b
Pakistani Government 41% 42% 27%
World Bank 41% 41% 38%
-
SPDC N/A 40% 37%
Balochistan b b b b
Pakistani Government 22% 36% 28%
World Bank 22% 36% 32%
-
SPDC N/A 49% 34%
Source: LAN S. Livingston and Michael O’Hanlon: Brookings Pakistan Index Tracking
Variables of Reconstruction & Security, Oct 30, 2009 [email protected]
*Social Policy and Development Center, A non Profit policy research institute based in
Karachi.
The Table two shows the level of poverty in Pakistan‗s four provinces. In Punjab, it is
32 percent in 1998 to 99 according to Pakistan government 30 percent according to
the World Bank. The level of poverty is 32 percent according to government of
Pakistan -34 percent according to The World Bank and 34 percent according to
SPDC in 2001 and 2002. The level of poverty decreases according to the government
of Pakistan 25 percent; according to the World Bank 29 percent and 31 percent
according to SPDC in 2004 and 2005. In Sindh province it is 26 percent according to
government of Pakistan same is shown by the World Bank in 1998and 1999. It is
increased in 2001 and 2002 that is 36 according to the government of Pakistan; 37
according to the World Bank and 35 according SPDC to the percent respectively. In
NWFP, it higher than Punjab and Sindh that is 41 percent according to government of
Pakistan; the same is shown by the World Bank in 1998 and 1999. In 2001 and 2002,
it is 42 according to the government of Pakistan; 41 shown by the World Bank and 40
percent shown by the SPDC.
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In Baluchistan 22 percent shown by the government of Pakistan and same is shown
by the World Bank. In 2001 and 2002, it is 36 percent according to the government of
Pakistan same is shown by the World Bank and 49 percent according to the SPDC. In
2004 and 2005, it is 28 percent according to the government of Pakistan; 32 percent
according to the World Bank and 34 percent according to the SPDC.
11. Inflation:
Inflation has become the most intractable issue of Pakistan. Political instability,
policies of the Musharraf government and international economic crisis are
responsible for higher inflation in Pakistan. ―The rate of inflation inversely increases
since 2003 in Pakistan. During the crisis period of 1999-98 the rate of inflation was
stable up to 5 percent till 2000-2003. Stability in the monetary policies, including
fiscal determinants seems cardinal factors of lower inflation in Pakistan. Inflation
increase due to wider money growth and increase private sector credit increase. Due
to increase in monetary growth, inflation increase in great deal in the end of 2003,
reached at 11 percent in every year till 2005.
One of the main objectives of macroeconomic policy is to keep the rate of inflation
low and stable because it is an indicator of macroeconomic stability. Low inflation
along with the budget deficit, realistic exchange rates and appropriate real interest
rate are an indicator of the macroeconomic environment conducive to investment and
growth
The stability in inflation was noted 8 to 9 percent up to the end of 2005. The undue
taxes on the poor have left spill on the economic development. The poor are
desperate to deal with high inflation rates. Because the poor people don‗t have many
resources their real asset is in the form of cash and having low saving. The
cumulative effects of inflation make poor people more vulnerable. The high
percentage of inflation on the other hand has largely affected the growth and
economic development.
Conclusion
This research analyzes that political stability is crucial for economic development and
a strong economy is the bedrock of effective foreign policy. In fact in today‗s
globally world internal factors affect external factors. Political instability in Pakistan
has directly and indirectly affected the economic development of the country. The
focus of civilian and military governments in Pakistan remained on stronger defense
rather than strong economy. On the other hand, failure of civilian government has left
intractable implications on the economy of Pakistan in many accounts. For example
during Zulfiqar Ali Bhutto introduced an Islamic socialist economic system that put
the mixture on the policy move was rather political than economic in nature. General
Ziaul Haq introduced Islamic economic system. While during 1990 political
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instability became the order of the day. Economic policies introduced by one
government were dismantled by the successor government. The scenario gets
economy of the country in Darwin. Pakistan got severe setback in terms of economy
and policies. The failure of industrial policies, corruption and mismanagement of the
economy by the civilian governments of Nawaz Sharif and Benazir Bhutto put
Pakistan in the line of debit countries. More loans were received and got more
dictations in terms of domestic politics and foreign policy.
References:
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