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Economic Progress of Pakistan: 1947-2018

Written by Sajjad Shaukat   

Saturday, 21 July 2018 23:29

When Pakistan emerged as the independent state on August 14, 1947, the country inherited 20
percent of the subcontinent’s population. Pakistan’s share in industry was less than seven
percent, mostly consisting of small-scale and minor industrial units.

Pakistan had no large industry. Pakistan that included East Pakistan (now Bangladesh) as well
had only 34 factories. The total employment provided by these factories was around 26,400. The
East Pakistan produced 70 percent of the world’s jute. But, there was not a single jute mill and
India’s West Bengal was almost the sole buyer. The newly-emerged state of Pakistan did not
even have its own bank sand depended on the reserve bank of India. Similarly in 1947, Pakistan
did not have a single ordnance factory.
Therefore, rapid industrialization of the country was a great challenge for Pakistan. With the
services of the patriot economic experts, engineers and capitalists, the country achieved high
growth rates in manufacturing in Pakistan for 1950-55.
In this respect, in their research-based paper, Iqbal Anjum and Rasquale Michael Sgro write: “At
its inception in 1947, Pakistan had a predominantly agrarian economy–agriculture contributed
53% of GDP in 1947, and 53.2% of GDP in 1949-50. Then, Pakistan had a population of 30
million with 6 million people living in urban areas, 65% of the labour force working in the
agricultural sector, and agricultural output contributing 99.2% of exports and about 90% of
Pakistan’s foreign exchange earnings. Pakistan’s resources, in East Pakistan and West Pakistan,
were an immense reservoir of land and mineral resources…Pakistan had a per capita income of
almost $360 (1985 international dollars) in 1950 and a literacy rate of 10%, 5 amidst economic
crises–absence of economic infrastructure, financial resources, and industrial base. Then, poverty
incidence ranged from at least 55% to 60% in the West Pakistan…In 1949-50, Pakistan
registered a national savings rate of 2%, foreign savings rate of 2%, and an investment rate of
4%. Then, manufacturing contributed 7.8% of GDP and the services/trade/other sectors
contributed 39% of GDP…The 1950s was the first decade of planning. After launching the
Colombo Plan in 1951, Pakistan instituted a series of Five-Year Plans during the period 1955-
1998 and a Ten-Year Perspective Plan alongside a rolling Three-Year Development Plan…
During the Korean War (1950-1953), Pakistan’s public and nascent private sector thrived on
spectacular merchant profits, which were transformed into industrial capital that accelerated
industrialization. Pakistan banned the imports of cotton textiles and luxury goods in 1952 and
regulated virtually all imports in 1953. Consequently, Pakistan joined the group of the most
rapidly growing countries in the 1950s. After achieving self-sufficiency in cotton textiles in the
late 1950s, export development assumed vital significance…Agriculture grew at a rate of 1.6%
per annum and manufacturing grew at a rate of 7.7% per annum in the 1950s…era of economic
growth…political stability enabled Pakistan to sustain high rates of growth in the 1960s…
Pakistan achieved an agricultural growth rate of 5% per annum by achieving…significant
investments in water resources, increased incentives for farmers, mechanization of agricultural
production processes, increased usage of fertilizers and pesticides, and the increased cultivation
of high yielding varieties of rice and wheat. The large-scale manufacturing grew at a rate of 16%
per annum during 1960/61-1964/65 due to protection of domestic industry from imports and
subsidies for exporters. In the wake of the Pakistan India War of 1965, the reduced foreign
economic assistance caused the large-scale manufacturing to grow at a lower rate of 10% per
annum during 1965-70. Pakistan achieved an average annual growth rate of 6.7% in GDP during
1960-1970. In 1969-70, poverty incidence declined to 46%32…The 1970s: era of socialism and
its aftermath because of growing interregional economic disparity, East Pakistan revolted against
West Pakistan and became independent (Bangladesh) in 1971. Then…empowered…Pakistan
People’s Party amidst very difficult macroeconomic circumstances−poverty incidence rose to
55% in 1971-72, there was an increase in Pakistan’s import bill due to the October 1973 world
oil price shock, a serious post-1973 global recession during 1974-77, failures of cotton crops in
1974-75, pest attacks on crops, and massive floods in 1973, 1974, and 1976-77. Pakistan
experienced the worst inflation during 1972-77, when prices increased by 15% per annum.
During 1973-77, annual average fiscal deficit/GDP ratio was 8.1%. Trade balance deficits were
US$337 million in 1970-71 and US$1,184 million in 1976-77. A military coup d'état occurred on
5 July 1977, and the martial law regime accomplished denationalization, deregulation, and
privatization. Agriculture grew at a rate of 2.4% per annum and the large-scale manufacturing
grew at a rate of 5.5% per annum in the 1970s. While the large and medium-scale private
manufacturing contributed 75% of the value-added and 70-80% of the total investment in
manufacturing in the 1970s, the remainder of the 25% of the value-added was contributed by the
small-scale manufacturing.”
They further write: “The 1980s: era of revival of economic growth Hallmarks of the 1980s were
the reversal of the nationalization regime of the 1970s and the revival of private sector’s
industrial investment, which led to high rates of growth. Poverty incidence declined to 29.1% in
1986-87.  Unemployment rate declined from 3.7% in 1980 to 2.6% in 1990. During 1985-88, the
Government tried to implement the Islamic interest-free banking system, which introduced
Islamic business partnerships between entrepreneur and the owner of capital based on the
principle of sharing profits and losses. Pakistan achieved a national savings/GDP ratio of 16% in
1986-87 amidst massive inflows of worker remittances from the Middle East. During 1980-1990,
Pakistan’s average annual growth rate of GDP was 6.3%. A manufacturing exports’ boom
occurred in the 1980s, with an annual large scale manufacturing growth rate of 8.8% and an
annual agricultural growth rate of 5.4%. The 1990s: era of debt crisis In the 1990s…During
1980-1995, the external debt/GDP ratio increased from 42% to 50%…exports ratio increased
from 209% to 258%...Similarly, the public debt/revenues ratio rose to 624% in 1998-99, interest
payments/revenues ratio rose to 42.6%...Likelihood of external debt default emerged in 1996,
and 1998, due to the Western economic sanctions imposed in reaction to Pakistan’s nuclear tests
on 28 May 1998. Sanctions triggered massive capital flight…In March 2010…Pakistan
experienced remarkable development-oriented structural transition…GDP share of the services
rose from 37.2% in 1950 to 53.4 % in 2010….The history of Pakistan’s economic development
highlighted the key role played by the manufacturing sector. Pakistan progressed from its status
as a low-income to a lower middle income country and achieved her objective of poverty
reduction.”
In this regard, Riaz Haq elaborates: “Pakistani economy grew at a fairly impressive rate of 6
percent per year through the first four decades of the nation's existence. In spite of rapid
population growth during this period, per capita incomes doubled, inflation remained low and
poverty declined from 46% down to 18% by late 1980s, according to eminent Pakistani
economist Dr. Ishrat Husain. This healthy economic performance was maintained through
several wars and successive civilian and military governments in 1950s, 60s, 70s and 80s until
the decade of 1990s…now appropriately remembered as the lost decade. After a relatively
peaceful but economically stagnant decade of the 1990s, the year 1999 brought a bloodless coup
led by General Pervez Musharraff, ushering in an era of accelerated economic growth that led to
more than doubling of the national GDP, and dramatic expansion in Pakistan's urban middle
class. Pakistan became one of the four fastest growing economies in the Asian region during
2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of
strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13
million jobs, halving the country’s debt burden, raising foreign exchange reserves to a
comfortable position and propping the country's exchange rate, restoring investors' confidence
and most importantly, taking Pakistan out of the IMF Program…the volume of international
trade increased from $20 billion to nearly $60 billion. The improved macroeconomic
performance enabled Pakistan to re-enter the international capital markets in the mid-2000s.
Large capital inflows financed the current account deficit and contributed to an increase in gross
official reserves to $14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the
government's social policies contributed to a reduction in poverty and improvement in many
social indicators.”
He adds, “The decade also cast a huge shadow of the US war on terror on Pakistan, eventually
turning the nation into a frontline state in the increasingly deadly conflict that shows no signs of
abating. Along with the blood and gore and chaos on the streets, there are hopeful signs that rule
of law and accountability is beginning to prevail in the country with the restoration of
representative democracy and independent judiciary, largely in response to an increasingly
assertive urban middle class, vibrant mass media and growing civil society…Pakistani economy
has done well under military governments and performed poorly when led by politicians”.
It is notable that a report of the World Bank said on April 17, 2018:  Pakistan’s growth continues
to accelerate…Pakistan’s GDP growth increased by 0.8 percentage points over the previous year
to reach 5.3 percent in FY17. Major impetus came from improved performance of services and
agriculture sector. Industrial sector also saw some recovery. Low interest rate environment
contributed to the growth in private sector credit, which supported businesses. On the demand
side, consumption made up almost 92 percent of GDP, and contributed nearly eight percentage
points towards GDP growth at market prices. Average headline inflation for Jul-Feb FY18
remained 3.8 percent compared to 3.9 percent in Jul-Feb FY17…Exports, after contracting for
three consecutive fiscal years, have started to recover in FY18…The projected poverty rate
continued to decline…The tax-to-GDP ratio, at 12.4 percent, is one of the lowest in the world…
Continued reforms to broaden the tax base and increase revenues will therefore need to remain a
priority. Service delivery is the responsibility of sub-national governments, whose capacity
varies, but the federal Government needs to play an assertive stewardship role as increased
financing has to be accompanied by meaningful improvements in quality of services. A strategy
to greatly improve development outcomes would therefore need to combine efforts to increase
the level of public spending as well as improving its quality, with a focus on provincial level
capacity…In addition, a greater share of revenues has been passed to the provinces through the
National Finance Commission Award (NFC) in order to enable them to perform these functions”.
However, the Independence Day is a reminder of pessimistic economic picture of Pakistan—the
country made its mark among the comity of nations by building from ashes through dedication
and hard work. Present economic conditions in Pakistan are much better than those of 1947.
Now, Pakistan has a creditable ordnance factory, vibrant steel, plastic and auto-industries. The
country is producing tractors, cars and motorcycles, having a world class textile industry—
producing fertilisers, chemicals, sugar, and cement. If the economy is still in disorder, it is owing
to the corrupt politicians and bureaucrats who have parked cumulative assets of around $300
billion outside the country, which is equivalent to the total size of Pakistan’s economy.
As regards the potential of this country, a leading newspaper reported: “Pakistan is the 9th
largest producer of wheat in the world, fourth largest producer of milk, 12th largest producer of
rice and is among top six exporters of the commodity. It is the 4th largest cotton producer and
3rd largest cotton consumer in the world. It has the largest integrated canal irrigation system
around the globe. It has the largest rock salt deposits in the world, its coal reserves are the fourth
largest on this globe, and it is the most efficient producer of cement in the world. All that is
needed is will on the part of those in the power corridors to bring things on track.”
Nevertheless, Pakistanis should not lose heart, as they can regain the growth momentum, if they
work with the same national spirit which was displayed by them in 1947—the country passed
through a long way from almost zero industrial bases in 1947 to a creditable manufacturing
centre more on the strength of its huge economic potential and progress in various fields.
Nonetheless, credit must also be given to the planners of that time for facilitating industrial
growth with scarce resources. Hence, while adopting modern technologies, the policy makers,
economists and industrialists should also follow the strategy of the initial years of 1947, pursued
by planners of the country.