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Pakistan Studies

Project
Name : Usama Khalid

Reg# : Sp19-BBA(2-B)-062

Date : 1/11/2019

Submitted to : Ma’am Tooba Aslam

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How economic instability effects growth of industrial sector after
partition
Indroduction :
Economic instability includes a factor of tense inflation rate and rate of
economic growth. It also includes a high unemployment rate and hurdles in flow of money. The
government of every country made policies to stabilize country growth. Unfortunately in
Pakistan political instability is on its peak so it’s really effect country growth due to change in
policies and working criteria. After partition our industrial sector effect due to economic
instability.

1. HISTORICAL BACKGROUND

After partition Pakistan got only 34 industries out of 955, while remaining were held by india.
It’s very hard for the new born country to compete with the industrial world with only 34
industries but later on Pakistan utilized its all available resources for rapid development of
infrastructure.

1.1. THE LATE 1940S: ERA OF EMERGENCE OF A NEW NATIONAL ECONOMY


In 1947, Pakistan had a agriculture based economy. Agriculture industries contributed 53% in
total GDP in 1947-1950. Poverty ranged from 55% to 60% in west Pakistan and Pakistan had a
lack of agriculture capital so for this government introduced a policy of imports-substituting
industrialization. As a result Pakistan trade balance increases and reached to 66 millions
Rupees. This huge deficit weaken the currency so its badly effect industrial sector.

1.2.THE 1950S: ERA OF A TRADITIONAL ECONOMY IN TRANSITION

Pakistan continued to work on its imports-substituting industrialization after1950s. During the


Korean War(1950-1953) Pakistan’s public and private sector started trade with international
companies that satisfy the need of capital for local producers in the overall country result in
escalate Pakistan economy. But, anti-agriculture policy biases and anti-agriculture policies of
trade between industry and agriculture caused the decline in the growth of agriculture industries
from 2.6% to 1.9%. after that U.S gave us aid of $500 millions. Pakistan was considered as a
foreign aid dependent country in 1950s. As a result Pakistan trade balance deteriorated from
831 million to 1043 million Rupees due to sharp decrease in exports from 1,038 million Rupees
to 763 million Rupees.

1.3. THE 1960S: ERA OF ECONOMIC GROWTH

After getting the massive aid from U.S and political stability enabled to sustain high growth rates
in 1960s. Pakistan agriculture industries growth increases by 5% per annum because of
investments in Pakistan water resources, modern technology of usage of capital , advanced
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capital etc. Thus the large-scale manufacturing industries grew up to 16% per annum.
Government gave subsidies to foreign exporters to enhance the growth rates. Poverty incidence
declined to 46% and Per Capita GNP was Rs.504 in West Pakistan and Rs.314 in East. During
the war of 1965 the industrial growth rate declines and reached to 10% per annum. The overall
performance of the industrial growth in 60s much improved than other era’s.

1.4. THE 1970S: ERA OF SOCIALISM AND ITS AFTERMATH

Because of differences in social, economic, culture and values East Pakistan revolted against
west Pakistan and became independent (Bangladesh) in 1971. Then martial law authorities
empowered the Pakistan people party (PPP) while the country was in the great macroeconomics
conditions. Poverty increased and reaches to 55% from 45%. Accidentally shocking increase in
the global oil price in 1973 lead to an increase in pakistan’s import bills. Pakistan faced the
worst inflation in 1973-1975 when prices increase by 15%. Trade balance deficits were US$337
million in 1970-71 and US$1,184 million in 1976-77. Chief of staff Gen Zia-ul-Haq declared
martial law in the country on 5th-july,1977 resulted in increase in inflation and poverty.
Agriculture industries growth reaches to 2.4% per annum and industries manufacturing growth
rate 5.5% per annum. At that time Pakistan faced worst economic and political condition.

1.5. THE 1980S: ERA OF REVIVAL OF ECONOMIC GROWTH

In 1980, the revival of the private industrial sector investment lead to an increase in growth
rates. Poverty reached to 26.9% and unemployment reached to 2.6%. In the period (1885-1888)
the government introduced a Islamic banking investment to benefit the businessman’s with
cooperation with the owners of capital on the sharing principle of profit and losses. Pakistan
National saving / GDP ratio reaches to 16% but more than half of national saving used to
finance the enlarged fiscal deficits ( same problem Pakistan is facing these days in the
government of PM Imran Khan ). This massive deficit were finance mainly via non-bank
domestic loans. Debt reached to 521 billion from 58 billion in 1988. The public debt / GDP ratio
was 77.1% in 1988, 81.9% in 1989 and 82.6% in 1990. In the era of 80’s Pakistan foreign loans
and trade deficit issues started and unsolved till now.

1.6. THE 1990S: ERA OF DEBT CRISIS

In 1990s, Pakistan faced the problem of declining worker remittances and external deficit. Due
to this the second worst inflation occurs in 1990s. Unemployment rate increased to 5.9% in 1991
and 7.2% in 2000. In 1995, the external debt / GDP ratio increased to 50% from 42%. Another
serious debt crises started due to the western economic sanctions imposed in reaction to
pakistan’s nuclear tests on 28 May, 1998. This effects on agriculture growth and declines to
4.4% per annum and large-scale manufacturing growth rate of 4.8% per annum per annum in
1990s. Poverty also increased to 30.6% in 1998-1999. Due to nuclear test Pakistan faced many
economic sanctions from different countries but this test was compulsory on that time due to
threats given by enemies.

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1.7. THE 2000S: ERA OF ECONOMIC CRISIS

In 2000s, the Debt Reduction Management Team concluded that the high public debt was a
major cause of reduction in economic industrial growth per annum. It took four to five years to
stabilize the country industrial growth move from 4% to 8.6%. the subsequent years were
characterized by growth slowdown and low growth along with high inflation, energy crisis, and
deterioration in fiscal and balance of payments positions. Poverty increased to 7.8% in 2002 and
then declined to 5% in 2008. In March 2010, the total public debt amounted to Rs.8,160 billion
with a total public debt/GDP ratio of 56%, while the foreign-currency denominated debt/GDP
ratio was 25%. The industrial sector contributed 9.6% in 1947 and 21.2% in 2010 and GDP
share of services increased from 37.2% in 1950 to 53.4% in 2010.

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