Structural Transformation in Pakistan.

University Of Punjab Lahore

School Of Economics
ASSIGNMENT
Submitted By:
 M02 Saba Shamoon
 M10 Samia Aslam
 M11 Yasir Mustafa
 M30 Neha Ashiq
Submitted To:
 Prof. Ghulam Mujaddad

BS(Economics) 5th semester

MAJOR ISSUES IN PAKISTAN ECONOMY

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Structural Transformation in Pakistan.

COTENTS:
Introduction
Pakistan in 2021 as compared to 1947
Explanation of eras
The flat fifties, 1947 to 1958
The golden sixties, 1958 to 1968
Outcomes of the polices are follows in 1960s
Policy failures
The socialist seventies, 1971 to 1977
The democratic period of PPP from 1971 to 1974
The PPP government period from 1976 to 1977
Failures of Bhutto government
The revivalist eighties, 1977 to 1988
Prime Minister JUNAJO`S period (1986 to May 1988)
The muddling nineties, 1988 to 1999
Nawaz Sharif`s period from 1990 to April 1993
Benazir Bhutto`s period from October 1994 to November 1996
The period from February 1997 to 1999
Summary of eras from 1999 to 2021

Conclusion

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STRUCTURAL TRANSFORMATION OF PAKISTAN

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 Structural Transformation in Pakistan.

FROM 1947 tO_2021

INTRODUCTION:
Structural transformation is defined as the conversion of an economy from low efficiency and
labor-intensive economic activities to high efficiency and skill intensive activities.
Over the time period, the structure of economy does not remain same. This study examines the
interaction between economic growth and its determinant for Pakistan. Since fixed parameter
approaches do not take into account effect of structural changes on parameter constancy.
As we know that Pakistan got independence on 14th August 1947, and since its emergence its
economy has experienced a lot of changes, i.e, a number of approaches have been followed for
the elevation of its status and multiple verities of politics have been adopted by its authorities
giving rise to different outcomes.
Economic and social outcomes in Pakistan over the last sixty years are a mixture of paradox.
Pakistan economy grew at a fairly impressive rate 0f 6% per year throughout the first four
decades of the nation existence.
In structural transformation it is important to know that How and Where it has taken place in the
different basic factors of economy. As agricultural transformation is being replaced by services
and industrial sectors etc.
For example: In past 60% economy of Pakistan was hooked on agriculture. Now only 40%
economy depends upon agriculture. And other 20% have been disseminated towards other
sectors.
• Pakistan in 2021 as Compared to 1947

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Structural Transformation in Pakistan.

Here is an overview of structural transformation in economy from 1947 to 2021as following:

The Flat Fifties, 1947 to 1958
 The Golden Sixties, 1958 to 1969
 The Socialist Seventies, 1971 to 1977
 The Revivalist Eighties, 1977 to 1988
 The Muddling Nineties, 1988 to 1999
 The Reforming hundreds, 1999 to 2021

 The Flat Fifties: 1947 to 1958

In 1947, Pakistan was indeed, a predominantly agrarian, undeveloped, newly
independent nation, with little industry, few services, no manufacturing and no
infrastructure. In the first few years, Pakistan’s main concern was one of survival, where
adverse international condition and domestic political, Economic condition. During this
period Government of our country mostly focused on
 Rapid industrialization
 Banking sector
Accordingly, the traders diverted their capital towards industry as they imported the
textile diverted their capital machinery. In this way, the Textile industry got some
progress.
The first decade of economic policy and planning witnessed the attempts of a
bureaucracy to keep Pakistan on its feet. It was the windfall gains made by , the
mercantile class during and after the Korean War in 1952 that way for the foundation of
industry, an industry which the state sector helped develop and then handed over to
the private sector . After Korean War , Government had to impose restriction on
imports.
As prof. Pepnik writes,
“The rate of profit on investment was so high that investor was in
position to meet the amount equal to his investment in the period of one or two years.”
IN such period, there were political disturbance in the country , but
industrial investment went on rising. On other side, the agricultural sector remained
neglected. It is not commercialized, remained prey to reduced output because of the
use of low quality seeds, reduced fertilizers and inadequate extension services.
In order to promote industrial sector in the
country ,Pakistan Industrial Development Corporation (PIDC) was set up .The role of
PIDC is a landmark in the industrial development which established the jute factories in
East Pakistan and cotton textile, woolen paper, matches and sugar factories in West
Pakistan. IN 1955 Rupee was devalued with the aim of
boasting the exports, but the desired results could not be attained.In1956 it was realized
that the agriculture sector be also develop.
But these approaches and policies gave rise to following outcomes :

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Structural Transformation in Pakistan.

 Industries produce import-substitutions

 The development of Agri-sector was ignored as the least steps were taken to
encourage the farmers and boots Agri-production.
 Limited efforts were made in respect of education ,health, social welfare and
human resource development.
 The regional and provincial inequalities increased in the country.
Simply , The approach pursued and policies followed for economic growth during
1950s were concerned with
1. Over-stressing of industrialization, as Mehboob-ul-Haq , In his book ,’poverty curtain’
Writes that during 1948-1955,the industries engaged in import substitution were
considered a basic key for economic growth,
2. Dependence on private sector for industrialization .
3. Granting of tax-holidays to investors for the sake of industrial development.

 The Golden Sixte’s:1958 to 1969

General Ayub Khan, the first military dictator of Pakistan, assumed that complete
control of the state in October 1958 and reigned over the golden period of Pakistan’s
economic history. After coming into power, followed certain strict steps. In addition to
political stringencies, the economic steps were also very tight. As monetary policy was
reduced, and price and profit controls were imposed etc. as a result of these tight steps
some stability was observed in price level. But such situation could not persist for a long
time.With the help of Harvard advisors, Khan vigorously implemented the Planning
Commission on Economic Management and Reforms with impressive results.

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Structural Transformation in Pakistan.

Broadly Ayub_Shoib _Haq model of economic development which wes practiced in the
60`s had the following important Features:
1. Irrespective of distributional aspects effects should be made to increase GNP of country.
In this connection Dr. Haq suggested for increasing the incomes of the rich segment of
the economy. Accordingly, the rich class was exempted from the taxes so that their
savings could be boosted up. For this purpose Government provide different incentives
to investors like
 Tax rebate
 Tax concession
 Loans at reduced rates an
 Reduced duties on imports
 Lack of trade unions
 Antimonopoly laws
 Provisions of raw material etc.
at reduced rate and provisions of foreign exchange loans to investors.
2. The era of sixties is a representative of free enterprise system where all the controls
were abolished on prices, profits, and imports.
3. Raising the shares of rich in GNP with the view of maximizing the growth rate.
GDP growth rate in this era jumped to an average annual rate of 6 percent from 3
percent in 1950s. The manufacturing sector expended by 9 percent annually various
new industries were set up. Agriculture sector grew respectable rate of 4 percent with
the introduction of Green Revolution technology.
Outcomes of the polices are followed in 1960s :
The model of economic development practiced in Pakistan during this era was highly
applauded by world and other developing countries because it yielded very remaekable
and ostensible quantitative results.
In 1965 war with India forced to divert the resources towards defence. Moreover , the
foreign aid was suspended and there were country _ wide crop failures.19966_67, there
was a severe shortage of food_ grains in the country. Accordingly, 829000 tons of wheat
and 197000 tons of rice had to be imported. In this result inflation is aggravate.
However, during 1967_68 along with improvement in crops and tight monetary policy
the inflation rate was control to same degree.
The fall in agriculture production in 1965_67 had negative effects on the growth of
economy. Even, then it is realized that agriculture sector should be promoted. Green
Revolution was introduced in this era.
In July, 1965 the 3rd five year plan was launched. In this plan government face many
difficulties and problems. Emphasis was laid upon the establishment of consumer goods
industries.
Policy failures:
 No increase in Real Wages

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Structural Transformation in Pakistan.

 Unequal income distribution

 Disaster of Trickle Down strategy
 Ignoring the social development
IN 1969 martial_ Law was imposed in the country and Yahya Khan took over
charge of Chief_ martial Law Administrator.

 The Socialist Seventies, 1971 to 1977:

After the fall of Ayub Government the Martial Law was imposed in the country which
culminated in separation of East Pakistan in 1971. Z.A. Bhutto came in to power in 20 th October
1971. Bhutto ruled over the country about five year and half year, he was dethroned on 5 th July
1977 because of imposition of Martial Law by General Zia_ul_Haq.

1. The democratic period of PPP from 1971 to 1974:

Zulfikar ali Bhutto took advantage of the resentment against Ayub`s economic policies and
promised to restore the principles of distributive justice and equity to the forefront of
Pakistan`s development strategy under the slogan of Islamic socialism.
Z.A. Bhutto inherited the following problems after the separation of East Pakistan

 To reconstruct the depressed and the war affected economy of Pakistan.

 The recessionary tendencies in agriculture and industrial sector.
 The search for new markets, particularly for textiles after separation of East Pakistan.
 Severe deficit in BOP.
 The IMFs pressure to devalue rupee.

As Bhutto s PPP got the votes as a reaction against GNP ism , therefore the party was aimed at
bringing a structural change in the economy. After devaluation on 11th May 1972 the new
exchange rate was Rs 11, while the previous rate was Rs 4.67
The floods in 1973 also have had a negative impact on the growth of agriculture and industrial
outputs. Such all problems became responsible for building up of inflationary tendencies in the
country.

2. The PPP Government Period From 1976 to 1977

The next three year of PPP government starting from 1973 to 1974 were very disappointing and
disturbing PPP was a Socialism oriented party and it believed in structural changes in the
economy. It took the steps to enhance the role of public :Publice sector investment went on
increasing while the role of private sector went on decreasing. The act of Nationalization badly

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Structural Transformation in Pakistan.

affect the private industrialists and Businessmen. The sluggish industrial behavior have bad
impact on agriculture sector. In 1976 once again, the economy had to face the devastating
floods which badly affected the major cultivable land.

Failures of Bhutto Government:

Z.A. Bhutto was in great hurry to bring a structural change in the economy. No doubt, the
socialization increased, employment opportunities and distribution of income also in the fawer
of poor segment of the society. But such all was at the cost ofsorting inflation consequent upon
deficit financing.
Cotton crops badly affected therefor still mill also affected.Due to Nationalization because of
that investers are not ready to invest in private sectors and floods are also a reason of that
condition.
Devaluation result is appear in case of Export Bonanza .Devaluation also beiught a lote of
miseries In the form of imported inflation, increase debt servicing charges, increase import bill,
increase in defence expenditure etc.
The drop scene of Bhutto Government was started ,when new apposition introduce
islamisum .Apposition make base Nationalization to take Government.As a result, by
restoring`Martial Law on 5th July 1977, Zia_ul_Haq took over the power.

 The Revivalist Eighties, 1977 to 1988

After coming in to the power Zia ul Haq started encouraging the private sector and struglr for
put the economy into right direction of progress and prosperity.In this respect , during this era
government took the following steps.

 The incentives to private sector in the form of lone to investors at

reduced interest rate and policy of De Nationalization was
adopted. Accordingly in 1977 the ginning factories, flour mills and
rice husking factories were given back to their owners.
 The atmosphere of confidence amongst investors was restored
government draw a line of demarcation between private and
publice sectors. Private investors allowe to establish cement plants.
 March 1978, the intencive like tax holiday was announced for the
periode of 5 to 10 years to those investors who woll invest in the
backward areas of country.
 The `Export Processing Zones` were set up in the country where the
foreigners and Pakistanis working abroad will be able to invest.

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Structural Transformation in Pakistan.

 The subsidies were provided to the formers on the the use of

different agricultural inputs like fertilizers, seeds and tractors etc.
 The process of Islamization of the economy was accelerated. On
10th of February 1979, the Zakat system was implemented.
 The financial institutions like NIT,HBFC and ICP started working on
the bases of “Mazarbat” rather on interest.
It is observe that GNP increases in this era which was 4.73% in 1977 to 78 rose to 4.89% in 1979
to 1980. The private savings decreases from 11.25% to 9.05%. Inspite the increase in exports,
which was because of better crops and better industrial performance. In march 1985,Elections
in the country were held on the non party basis. As a result , M.K.Junejo was appointed as
prime Minister.

Prime Minister JUNADO`S Period (1986 to May 1988)

Becoming in power of Prime minister he announced his five points programme:
1. An Islamic Democratic system will be established in the the country based upon
ideology of Pakistan.
2. A just and fair economic system will be set up in the country, unemployment will be
removed and prosperity of the people will be made sure.
3. To prepare the nation for modern scientific age, and illiteracy will be removed.
4. Corruption, injustice and other social evils of the society will be put ti an end and
realization of justice and protection will be created in the society.
5. The national prestige and integrity will be strengthened through strong defence and a
balanced foreign policy.
Government focuses on these points thought the period therefor notice that development in
social sectors an deduction in the deficit .As a consequence, Pakistan had to approach the
International Monetary Fund for assistance in 1988.

 The Muddling Nineties, 1988 to 1999

Nine different governments ruled in Pakistan in this period. this period face highest political instability.
When new elections were held, PPP of Benazir Bhutto came into the power in 1988. In 1988 to89 the
growth rate was estimated at 6.9%, but the actual growth was 5.1%. Such decline in growth rate was
attributed to:

1. Uncertain political condition in the country

2. The ethnic conflicts in Karachi and Hyderabad
3. Unexpected flood during September which badly affected the economy
of Pakistan.

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Structural Transformation in Pakistan.

In 1989 PPP announced new Industrial Policy, whereby the number of firms was reduced from
12 to 7 for whom`s establishment no prior permission will be required.
Aimed at increasing the role of private sector in the country.
Benazir government was dismiss during 1990 on the charge of corruption. As the result of new
election PML came in to power. Nawaz Sharif Government ruled over the country from 1990 to
1993. Then in October 1993 after new election PPP come back in to rolled.
Therefore, to analyses the economic performance from 1990to1997 will consider two periods:
1. Nawaz Sharif`s period from November 1990 to April 1993.
2. Benazir Bhutto`s period from October 1994 to November 1996.

Nawaz Sharif`s period from November 1990 to April 1993.

To reform the economy, government announced commissions regarding :
1. Privatization and deregulation policy
2. Export policy
3. Taxation policy
4. Policy of self sufficiency
5. Industrial policy
6. Policy regarding exchange and system of payments
Moreover the government allowed to open commercial banks in private sectors. Those Pakistanis who
were working abroad could open their accounts in the country in the form of foreign currencies.Every
body could invest without any permission and no body be asked about the source of investment who
invests till 30th June 1992.

The results of the reforms introduced by Nawaz sharif government, started coming out.

Benazir Bhutto`s period from October 1994 to November 1996.

After coming into the power, Benazir Bhutto took steps to promote privatization de-regulation,
and market friendly atmosphere. In order to promote domestic and
foreign investments so many steps were taken and different controls on investment were
abolished.
From economic point of view,1996 to 1997 was not a good year. The political situation also
remained uncertain. On 5th November, 1996 Benazir Govt,was dismissed on the changes of
corruption.
In February 1997 new elections took place and Mr Nawaz sharif came into power. During this
period we find three governmens. As till 6th November, Benazir remained in power who was
replaced by care-taker Prime Monster Maraj Khalid and then Nawaz sharif in February, 1997.

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Structural Transformation in Pakistan.

The Period From February 1997-1999

The Period Of Nawaz Government
In 1997_98 in order to promote investment and output, Nawaz Government took so many fiscal
and monetary measurs. As the tax holidas were given, and by paying 7.5% tax, the assets
purchased with black money could be whitened.
On 29th May 1998, the big economic unease developed when nuclear test was made and the
economic senctions were imposed upon us by our donors, Because of heavy fiscal and trade
deficis, IMF conditionalitiles, the fear of deficit on account of debt burden and fall in foreign
exchange reservs government.
The simple during 1990s in Pakistan it was stressed upon marketization. Following New-
Classical growth model so that the confidence of private sector could be restored. Again during
this period a special emphasis was laid upon enhancing physical and human capital. The role of
private sector was increased in respect of boosting educational facilities.Accordingly, certain
reforms like tax reforms and foreign trade sector reforms were introduced in the economy.

 Summery of eras from 1999_2021

 1999-2008
1999 saw the implementation of another martial law. General Pervez Musharraf took the reins
this time. The era of General Pervez Musharraf and General Ayub Khan are considered as the
golden era’s for the Pakistani Economy. The economy along with the financial status of Pakistan
was immensely balanced and a great economical outcome was observed.

Growth rates saw increases until 2004-2005’s peak of 8.6%.

Debt to GDP ratio saw a decrease from 100% to 55%.
Foreign exchange reserves increased by $9 billion.
Agricultural growth: 5.4%
LSM growth: 8.8%
Average GDP growth: 6.3%

 2008-2013

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Structural Transformation in Pakistan.

When General Pervez Musharraf resigned, the PPP took control in 2008, and the country once
again suffered economically. The growth saw masssive decline either agricultural or overall
economical growth.

Economic growth slowed down to 4.09%, and the yearly growth fell to 2%.
Agricultural growth: 2%
LSM growth: 4.4%
Average growth rate: 4%

 2013-2018
PPP rule continued until 2013, after which the PML-N took charge. The PML-N managed to fix a
crippled economy by using IMF loans. GDP growth saw an increase year-on-year and inflation
dropped for most of their rule. Macro-economic stability ensued and Moody’s declared
Pakistan’s economy stable.

Average GDP growth rate: 5%

 2018-2020
In 2018, the PTI was elected for the first time. Prime Minister Imran Khan was confident that his
party will bring all the statistical success for the Pakistani Economy. However, the party
introduced various economic reforms that had the wrong effect.

GDP growth rate fell to a historic low of 0.99% in 2019, much below the 5.55% in 2017.
Furthermore, macroeconomic stability had diminished as the government added $70 billion in
loans to the already existing debt. The economic situation has been worsened in 2020 by the
coronavirus pandemic, which has erased millions of jobs and plunged the country into a deep
crisis. Analysts have expected low growths in every sector.
Despite the various challenges, Pakistan has progressed a lot. The country managed to become
a semi-industrial one and a hub for business activity.

Changes in GDP proportions 1947-2019

Sector Agriculture

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Structural Transformation in Pakistan.

Industry 22.04%
9.6%
Services 18.34%
37.2%

1947 53.86%

53% 2019

 Conclusion
According to above discussion we concluded that economy of Pakistan is not able to
attain sustainable growth. Because of instability in politics which is followed in all ears
and have been discussed above. Political parties don't pay attention to fulfill their duties
they only focus on to depraved the opponents. Mostly Pakistan economic development
is seeing in those areas in which martial law was imposed.
Political Instability and Economic Growth
Pakistan has had twenty-three governments in last sixty years, including: fourteen
electively appointed prime ministers, five interim governments and thirty-three years
of military rule under four different leaders. Excluding the military and interim
governments, the average life span of a politically elected government has been less
than two years. If the five-year period of Bhutto is excluded, then the average span falls
to 1.6 years.
The economic policy regime, on the other hand, has only changed twice in all of
Pakistan‘s history. The liberal private sector-led growth model that was put in place in
the 1950s and accelerated in the 1960s was rolled back by Bhutto in the 1970s and
became the socialist economic model. Since the rejection of this model in 1977 and the
revival of the liberal model,the general thrust of economic policy has remained
unalterable.
While the government‘s implementation of policies, programs and projects has seen
uneven and confusing results, the initiative in driving the economy can be credited to
the private sector.The agricultural sector, representing 20 percent of GDP, is owned and
managed by private farmers. Only public administration, defense services and public
utilities are directly managed and operated by the government.
Imports and exports of goods and services are also privately managed. A rough
approximation indicates that goods and services are produced, traded and distributed
by the private sector that is about 90 percent or more of the national income. While the
government directly or indirectly owns, manages, controls or regulates the remaining 10

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Structural Transformation in Pakistan.

percent of national income. So it is the strength of private initiative, with all its flaws,
operating in a relatively liberal policy environment, that has been the main driver of
long-term economic growth
In Pakistan, transitions from one political regime to another have been quite difficult,
causing uncertainty and short-term reductions in the speed of economic growth. The
transfer of power from the military to civilian regimes in 1971, 1988 and 2008 were
marked with macroeconomic instability, a decline in economic activities, rises
unemployment and inflation and the adoption of a wait-and-see attitude by investors.
But economic recovery has also been resilient;short-term losses caused by political
volatility have not been large enough to offset the positive long-term religion economic
movement.
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