A Brief History of Pakistani Economy 1947-2010

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.

In the 1990s, economic growth plummeted to between 3% and 4%, poverty rose to 33%,
inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan
as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs.
Before Sharif was ousted in 1999, the two parties had presided over a decade of corruption and
mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in
South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri
Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in
1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its
revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India
(44.0% & 358.4% respectively in 1998).
After a relatively peaceful but economically stagnant decade of the 1990s, the year 1999 brought
a bloodless coup led by General Pervez Musharraf, 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.

Per Capita PPP GDP

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 above facts were acknowledged by the current PPP government in a Memorandum of
Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with
the IMF on November 20, 2008. The document clearly (but grudgingly) acknowledged that
"Pakistan's economy witnessed a major economic transformation in the last decade. The
country's real GDP increased from $60 billion to $170 billion, with per capita income rising from
under $500 to over $1000 during 2000-07". It further acknowledged that "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". (see MEFP, November 20, 2008, Para 1)

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.

The Zardari-Gilani government inherited a relatively sound economy on March 31, 2008. It
inherited foreign exchange reserves of $13.3 billion, exchange rate at Rs62.76 per US dollar, the
KSE index at 15,125 with market capitalization at $74 billion, inflation at 20.6 per cent and the
country's debt burden on a declining path. The government itself acknowledged in the same
document that "the macroeconomic situation deteriorated significantly in 2007/08 and the first
four months of 2008/09 owing to adverse security developments, large exogenous price shocks
(oil and food), global financial turmoil, and policy inaction during the political transition to the
new government". (Para 3 of the MEFP, November 20, 2008.
Here is how Pakistani economist and NUST Professor Ashfaque Husain Khan explains the
current situation:

What went wrong? Why one of the fastest growing economies in the Asian region until two years
ago has been totally forgotten in the region? Firstly, the speed and dimension of exogenous
price shocks (oil and food) were of extraordinary proportions. Secondly, the present government
found itself totally ill-prepared and clueless in addressing the challenges arising out of the
shocks. While rest of the world was taking corrective measures and adjusting to higher food and
fuel prices, Pakistan lurched from one crisis to another.

Despite peaceful election and a smooth transition to a new government, political instability
persisted. For a protracted period there were no finance, commerce, petroleum and natural
resources and health ministers in the country. The government lost six precious months in
finding its feet. It gave the impression of having little sense of direction and purpose. A crisis of
confidence intensified as investors and development partners started to walk away. The stock
market nosedived, capital flight set in, foreign exchange reserves plummeted and the Pakistani
rupee lost one-third of its value. In short, Pakistan's macroeconomic vulnerability had grown
unbearable. It had no option but to return to the IMF for a bailout package. There were no Plan
A, B and C. There was only one plan, that is, to return to the IMF.

While the country was moving rapidly towards the IMF, the ministry of finance had prepared the
plan to bring $4 billion by June 30, 2008 through four transactions. A kick-off meeting was
scheduled on April 23, 2008 at the ministry to give a final touch to the various roadshows. These
transactions were canceled on April 20, 2008. Who ordered the cancellation of $4 billion
transaction? This cancellation prompted balance of payment crisis and the rest became history.

The economy continues to remain in intensive care unit and is barely breathing thanks to the
injection of funds from the IMF, World Bank and Asian Development Bank. The economy is not
on the radar screen of the government and as such the economic managers have no relevance in
the current political set up. The exit of Shaukat Tarin is a classic example. At least he tried his
best to inject financial discipline but paid the price of teaching prudent financial management.

Since Tarin's departure, Abdul Hafeez Shaikh has assumed the position of finance minister. It is
still early to judge him, as the economy has suffered yet another major jolt from the widespread
devastation caused by recent floods. This has added to the already extreme challenge Pakistan's
leadership faces in bringing political and economic stability to the nation.
Purpose of Economy

Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal
political disputes and low levels of foreign investment. Between 2001-07, however, poverty
levels decreased by 10%, as Islamabad steadily raised development spending. Between 2004-07,
GDP growth in the 5-8% range was spurred by gains in the industrial and service sectors -
despite severe electricity shortfalls - but growth slowed in 2008-09 and unemployment rose.
Inflation remains the top concern among the public, climbing from 7.7% in 2007 to more than
13% in 2010. In addition, the Pakistani rupee has depreciated since 2007 as a result of political
and economic instability. The government agreed to an International Monetary Fund Standby
Arrangement in November 2008 in response to a balance of payments crisis, but during 2009-10
its current account strengthened and foreign exchange reserves stabilized - largely because of
lower oil prices and record remittances from workers abroad. Record floods in July-August 2010
lowered agricultural output and contributed to a jump in inflation, and reconstruction costs will
strain the limited resources of the government. Textiles account for most of Pakistan's export
earnings, but Pakistan's failure to expand a viable export base for other manufactures has left the
country vulnerable to shifts in world demand. Other long term challenges include expanding
investment in education, healthcare, and electricity production, and reducing dependence on
foreign donors.

GDP (purchasing power parity)

$451.2 billion (2010 est.)
$439.4 billion (2009 est.)
$421.2 billion (2008 est.)
note: data are in 2010 US dollars

GDP (official exchange rate)

$174.8 billion (2010 est.)

GDP - real growth rate

2.7% (2010 est.)
4.3% (2009 est.)
3.6% (2008 est.)

GDP - per capita (PPP)

$2,400 (2010 est.)
$2,400 (2009 est.)
$2,400 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector
agriculture: 21.8%
industry: 23.6%
services: 54.6% (2010 est.)

Population below poverty line

24% (FY05/06 est.)

Labor force
55.77 million
note: extensive export of labor, mostly to the Middle East, and use of child labor (2010 est.)

Labor force - by occupation

agriculture: 43%
industry: 20.3%
services: 36.6% (2005 est.)

Unemployment rate
15% (2010 est.)
14% (2009 est.)
note: substantial underemployment exists

Household income or consumption by percentage share

lowest 10%: 3.9%
highest 10%: 26.5% (2005)

Distribution of family income - Gini index

30.6 (FY07/08)
41 (FY98/99)

Investment (gross fixed)

15% of GDP (2010 est.)

Budget
revenues: $25.33 billion
expenditures: $36.24 billion (2010 est.)

Public debt
49.9% of GDP (2010 est.)
49.3% of GDP (2009 est.)

Inflation rate (consumer prices)

13.4% (2010 est.)
13.6% (2009 est.)

Central bank discount rate

12.5% (31 December 2009)
15% (31 December 2008)

Commercial bank prime lending rate

NA%

Stock of domestic credit

$71.45 billion (31 December 2010 est.)
$63.1 billion (31 December 2009 est.)

Industries
textiles and apparel, food processing, pharmaceuticals, construction materials, paper products,
fertilizer, shrimp

Industrial production growth rate

4.9% (2010 est.)

Electricity - production
90.8 billion kWh (2007 est.)

Electricity - consumption
72.2 billion kWh (2007 est.)

Electricity - exports
0 kWh (2008 est.)

Electricity - imports
0 kWh (2008 est.)

Oil - production
59,140 bbl/day (2009 est.)

Oil - consumption
373,000 bbl/day (2009 est.)

Oil - imports
319,500 bbl/day (2007 est.)

Oil - exports
30,090 bbl/day (2007 est.)

Oil - proved reserves

436.2 million bbl (1 January 2010 est.)

Natural gas - production

37.5 billion cu m (2008 est.)

Natural gas - consumption

37.5 billion cu m (2008 est.)

Natural gas - exports

0 cu m (2008 est.)
Natural gas - imports
0 cu m (2008 est.)

Natural gas - proved reserves

840.2 billion cu m (1 January 2010 est.)

Current Account Balance

-$2.641 billion (2010 est.)
-$3.583 billion (2009 est.)

Agriculture - products
cotton, wheat, rice, sugarcane, fruits, vegetables; milk, beef, mutton, eggs

Exports
$20.29 billion (2010 est.)
$18.33 billion (2009 est.)

Exports - commodities
textiles (garments, bed linen, cotton cloth, yarn), rice, leather goods, sports goods, chemicals,
manufactures, carpets and rugs

Exports - partners
US 15.87%, UAE 12.35%, Afghanistan 8.48%, UK 4.7%, China 4.44% (2009)

Imports
$32.71 billion (2010 est.)
$28.53 billion (2009 est.)

Imports - commodities
petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper
and paperboard, iron and steel, tea
Imports - partners
China 15.35%, Saudi Arabia 10.54%, UAE 9.8%, US 4.81%, Kuwait 4.73%, Malaysia 4.43%,
India 4.02% (2009)

Reserves of foreign exchange and gold

$16.1 billion (31 December 2010 est.)
$13.77 billion (31 December 2009 est.)

Debt - external
$57.21 billion (31 December 2010 est.)
$53.62 billion (31 December 2009 est.)

Stock of direct foreign investment - at home

$30.09 billion (31 December 2010 est.)
$28.09 billion (31 December 2009 est.)

Stock of direct foreign investment - abroad

$1.047 billion (31 December 2010 est.)
$1.017 billion (31 December 2009 est.)

Market value of publicly traded shares

$33.24 billion (31 December 2009)
$23.49 billion (31 December 2008)
$70.26 billion (31 December 2007)

Exchange rates
Pakistani rupees (PKR) per US dollar - 85.27 (2010), 81.7129 (2009), 70.64 (2008), 60.6295
(2007), 60.35 (2006)
Causes of Fall of Pak Economy

Some people think they know, and the answer terrifies them. Away from the
political mishegoss in Islamabad, calculators are anxiously being pulled out and
back-of-the-envelope calculations are furiously being made by the serious-minded
folks.

The numbers are numbing: even before the floods, Pakistan seemed to be heading
for economic collapse; after the floods, that appears to be all but a certainty.

Gone will be the days of loadshedding — because there will be no electricity at all in
the grid. Inflation, which has stayed stubbornly high, will spike again — because a
sustained budget deficit is forcing the government to borrow money, keeping the
economy awash in surplus money, more cash chasing the same amount of goods.

Revenue projections could collapse — because piling on indirect taxes eventually

causes inelasticity to turn into elasticity: in time, the market shrinks as taxes go up.
The current account deficit could balloon yet again as remittances, the great,
unexplained boon the past few years, stagnate, putting pressure on the exchange
rate and making the days of the 100-rupee dollar a distinct possibility.

Must all this necessarily happen? No. Is it politically inevitable? Yes.

The challenges may be grim, but they are not insurmountable — yet. What is
terrifying some people in Islamabad, however, is the attitude of the present
government. Like first-class passengers demanding caviar on a sinking Titanic, the
federal government seems supremely unaware of the storm that is slowly engulfing
it.

Meetings are held on critical economic matters, but decisions are deferred. Ministers
prefer to rearrange papers on their desks, if they bother to come in to office at all,
rather than study how to push through reforms. At the very top … well, never mind.
A presidential helicopter touching down at a chateau in the land of Marie Antoinette
said it all.

How can an elected government be so catastrophically, diabolically, maniacally

bad? It doesn’t seem to make any sense. The panic alarms are ringing furiously
across the country, warning the PPP of an electoral wipe-out the next time round.
Wouldn’t surviving to plunder this land some more be an incentive? Why court your
own doom?

The answer, alas, seems to lie in a game somewhere else. Zardari and his ribald
bunch of misfits appear to be making the ultimate high-stakes bet: that if Pakistan
stands at the precipice, arms aloft, seemingly ready to embrace her fate, western
hands will claw her back to safety.

It goes something like this. The West will generally not let Pakistan fail because the
consequences of failure here are too serious for the region and the world at large.
The West will specifically not let the present government fail because it represents
the best coalition for claiming public support in the fight against militancy. Combine
the general with the specific, and voila! You have an unbeatable hand

Causes of Fall of Economy of Pakistan

Pakistan is facing poverty due to many factors involved in making such circumstances in the in
Pakistan. IBRD (International Bank for Reconstruction and Development) issues annual report of
a country which shows the indicators which effects positively or negatively the Country. These
indicators are named as “World Bank Indicators” According to report of 2007 of Pakistan issued
by IBRD there were 765 indicators (factors) and these increases every year. 765 Indicators
means that 765 factors are there in Economy of Pakistan which may take it to successive way or
may be harmful for Pakistan.

Major Indicators involved in Economy of Pakistan

· Poverty

· GDP

· GNP

· Unemployment

· Savings

· Foreign Investment

· Foreign direct investment

· Investment & many more

Don’t forget that Development or Economy of any country may not be measured by any of the
indicators mentioned by IBRD or the major one, to understand the Economic Condition of any
country you must need to have a very close view to all the indicators involved in it.

I being a student of Management sciences read Pakistan economy as a subject and respected
teacher guided us a lot to understand Pakistan Economy, I’m here discussing “Poverty as major
indicator involved in Economy of Pakistan”

Criterion of Poor

The criterion of poor is that if a person is not earning US $367.00 per is year considered poor but
this was repeated later on the criterion is changed and now it’s US $ 2.00 per day
Major Causes of Poverty in Pakistan

• Lack of Effective Demand

• Population Pressure
• Lack of Investment
• Absense of Solid Industrial Estates
• Sudden fluctuation in Demand and Supply
• Shortage of Capital
• Market imperfection
• Low literary rate
• Inflationary pressure
• Low Foreign Investment
• Dead/Zero Sum Investments
• Structual distortation
• Bad Educational System
• Govt. doesn’t work to create more Employment opportunities

Summary

Pakistan’s economy has shown great resilience against internal and external
shocks of very high intensity and grew robustly at 5.8 percent in 2007-08,
as against 6.8 percent last year and this year’s target of 7.2 percent. The
Commodity Producing Sector (CPS) registered a growth of 3.2 percent in
2007-08 as against 6.0 percent last year owing mainly to the lackluster
performance of agriculture and manufacturing. While agriculture grew by 1.5
percent, the manufacturing sector posted a modest growth of 5.4 percent in
2007-08. The large scale manufacturing (LSM) sector witnessed a modest
growth of 4.8 percent, down from 8.6 percent last year. The manufacturing
sector has been hard hit by political instability, frequent eruptions of
incidents detrimental to law and order and the acute energy shortages. In
unison with increasing prices for fuel and energy, all these factors have
caused slower growth in LSM. Growth in the small scale manufacturing sub-
sector moderated to 7.5 percent in 2007-08 from 8.1 percent during 2006-
07.

The poor show of the agriculture sector was the result of a sharp
deceleration in the growth of the major crops sub-sector, which posted a
negative growth of 3.0 percent in 2007-08 as against a healthy growth of
8.3 percent last year. Minor crops registered a growth of 4.9 percent as
against the negative growth of 1.3 percent last year. Fishing and forestry
exhibited robust growth of 3.8 percent and 11.0 percent, respectively.

The services sector has surpassed the growth target of 7.1 percent and grew
by 8.2 percent in 2007-08 as against the actual achievement of 7.6 percent
last year. The finance and insurance sector displayed a stellar growth
performance of 17.0 percent during 2007-08 as against 15 percent last year.
Value added in the wholesale and retail trade sector grew at 6.4 percent as
compared to 5.4 percent last year and the target of 7.8 percent this year.
The Transport, Storage and Communication sub-sector saw a deceleration in
growth to 4.4 percent in 2007-08 as compared to 6.5 percent of last year.

The contribution of CPS to GDP growth has declined to 26.6 percent from
42.4 percent last year. Agriculture sector contributed only 0.3 percentage
points or 5.6 percent to GDP growth in 2007-08 as against 0.8 percentage
points or 12 percent contribution last year. The manufacturing sector
contributed 1.0 percentage point or 17.7 percent to GDP growth as against
1.5 percentage points or 22.2 percent last year. Industry contributed 1.2
percentage points or 20.9 percent to this year’s real GDP growth. The
Services sector contributed 4.2 percentage points or 73.4 percent to overall
growth this year. The contribution made by wholesale and retail trade has
been 18.7 percent or 1.1 percentage points to GDP growth in 2007-08.
Finance and insurance has also contributed 18.7 percent or 1.0 percentage
point to this year’s growth.

Per capita income has grown at an average rate of above 13.0 percent per
annum during the last five years, rising from $586 in 2002-03 to $925 in
2006-07 and further to $1085 in 2007-08. Per capita income in dollar terms
rose from $925 last year to $1085 in 2007-08, depicting an increase of 18.4
percent. Real per capita income in rupee terms has also increased by 4.7
percent, on average, for the last three years. The real per capita income
grew by 4.2 percent as compared to 4.9 percent last year. Real private
consumption expenditure grew by 8.5 percent in 2007-08 as opposed to 4.1
percent last year.

Total investment declined to 21.6 percent of GDP in 2007-08 from its peak
level of 22.9 percent last year. However, total investment has increased
from 16.9 percent of GDP in 2002-03 to 21.6 percent of GDP in 2007-08,
showing an increase of 5.7 percent of GDP in five years. Fixed investment
grew by 3.4 percent in real terms and 12.5 percent in nominal terms. Private
investment grew by 16.3 percent per annum in real terms and 30.7 percent
per annum in nominal terms during the period (2004-07). However, its
growth declined substantially to 0.9 percent in real terms and 9.7 percent in
nominal terms. Major nominal growth in private sector investment was
witnessed in mining & quarrying (15.3 percent), electricity & gas (11.0
percent), financial business (11.4 percent), and wholesale and retail trade
(18.4 percent).
National Savings stood at 13.9 percent of GDP in 2007-08 down from last
year’s level of 17.8 percent. Domestic savings has declined to 11.7 percent
of GDP from 16.0 percent of GDP in 2006-07. Public sector investment has
also increased by 30.0 percent per annum during the last three years and
20.2 percent during the current fiscal year in nominal terms.

Overall foreign investment during the first ten months (July-April) of the
current fiscal year has declined by 32.2 percent and stood at $ 3.6 billion as
against $5.3 billion in the comparable period of last year, mainly because of
the fact that the political economy suffered many headwinds at continuous
intervals.

Foreign direct investment (private) has shown more resilience and stood at
$3481.6 million during the first ten months (July-April) of the current fiscal
year as against $4180.8 million in the same period last year, thereby
showing a decline of 16.7 percent. Private portfolio investment on the other
hand witnessed a massive decline of 91 percent by recording an inflow of
$98.9 million as against $1097.3 million in the comparable period of last
year. Public foreign investment depicted a modest inflow of only $20.5
million as against an outflow of $66.6 million in the comparable period of
last year.

Almost 57 percent of FDI has come from three countries, namely, the UAE,
US, and UK. US investors, with 33.4 percent investment, contributed the
most during the first ten months (July-April) of 2007-08. Norway (4.4
percent or $154.8 million), Switzerland (4.1 percent or $141.3 million),
Hong Kong (3.5 percent or $121.3 million), Netherlands (2.9 percent or
$101.0 million) and Japan (2.9 percent or $100.3 million) were the other
contributors to FDI inflows. Three groups, namely; communication, financial
business and oil & gas exploration, accounted for almost 67 percent of FDI
inflows in the country.