Pakistan Economic

Conditions
in
1971 -1977

Outline
Background
Nationalization
(3 Phases)
Outcome of
Nationalization
Budget Deficit
Tax Policy
Trade Policy
Inflation pressure
Subsidies

Industrial Sector
Agricultural Sector
Land Reforms
Labor reforms
Social Services
Bad Luck Factors
Opinions
Conclusion

Background
Pakistan lost its east wing which became Bangladesh
It greatly effected the economy because East
Pakistan was main producer of Jute and other food
crops to be exported
Bhutto became the first democratically elected
Leader in west, which was the separated Pakistan
He introduced Nationalization to the country

Nationalization
Definition:
Nationalization is a process of taking a private industry or private assets into
public ownership by a national government or state.

Bhuttos Manifesto:
1. The means of production that generates industrial
advance or on which depends other industries must not
be allowed to be vested in private hands
2. All enterprise that includes infrastructure of national
economy must be in public ownership
3. The institution dealing with exchange like Banking and
Insurance must be nationalized.
*Objective was to curb the power of 22 families

First Phase
The first phase took place in the large
manufacturing sector in the capital and
intermediary goods market.
31 key industrial units were taken over under the
nationalization but it was alleged that
nationalization was selective

Units included from fertilizers, chemical, Steel,

cement, automobiles and so forth

Second Phase
In the 2nd phase, he declared the
nationalization of 13 Banks, over a dozen
Insurance companies, 2 petroleum and 10
shipping companies
They said that the wealth of the nation must
be used for the benefit of the nation and
cannot be allowed to concentrated in bank of
the few individuals

Third Phase
The third phase of Nationalization was 2000
cotton ginning, rice husking and vegetable oil
producing units
It eliminated the role of middlemen and it was
rumored the producer and consumers are at the
mercy of these units

Producers were deprived of due share and

consumers were getting poor quality products at
higher prices

Outcome

Bhuttos economic policy led to deindustrialization and it created pro-government

lobby of landlords who were benefited from so-called land reforms

Private sector investment was wiped out and remained only

15% of what was in 1969

Nationalized industries were mostly inefficient and employed only 4% of large

scale industrial employment

The complete control of decision making was passed onto the hands of chairman
and top functionaries of political parties

Promises were broken

GDP fell to just 1.2% in 1972

Tax Policy
The government was not able to use the tax policies as an effective instrument
of resource mobilization
The essential inelasticity of tax system remained intact with its heavy
dependence on indirect taxes and certain duties rather than direct taxes
In 1975/76, there was 40% increase in indirect taxes over preceding year
Profits of nationalized enterprises fell off rather quickly as inefficiencies crept
in and growth slowed down
Collection from income and corporate tax during the 70s did not exceed 1% of
GDP
There was only a marginal improvement in total federal and provincial tax
revenues from 10.6% of GDP in 1972 to 11.9% in 1976

Budget Deficit
During the Bhutto Era, budget deficit averaged
over 8% of GDP compared with 2% to 3% in
50s & 4% to 5% in 60s.
Government began to borrow on large scale
for current expenditures

Trade Policy
Devaluation of Pakistani Rupee by 133%

Export bonus voucher scheme ended

Exports in 1972 increased by 153% and
manufactured exports were grew by 19%
Export refinance scheme was started by State
Bank in 1973 and its lending rate was lower than
the nominal banking rate
Import of luxury items banned
After 2 years of impressive growth, the last
three years of Bhutto saw a reverse trend

Inflation Pressure
High Inflation experience during Bhuttos regime
Imported inflation
The international Oil prices hike in 1973-74 and prices of
fertilizers also increased
Import cost of petroleum has increased by 300%

Domestic economic policies

There was an increase in currency circulation (deficit
financing) during 72-76
Inflation rose by 20% to the previous growth
Reduction of consumer good and doubling of prices

Subsidies
To Combat on Inflation, large subsidies were given on:
Wheat
Efforts were made to keep wheat prices relatively low and procurement
price was increased from Rs. 0.5 in 1969 to Rs. 1 in 1975 which was 100%
increase

Fertilizers
Large direct subsidies on fertilizers and pesticides were given for plant
protection

Energy
Oil import bill was rising up although Gas prices were maintained at low
level to encourage use of an indigenous resource. But incentives for
increased production were not attractive and there was great
dependence on imported energy.

Industrial Sector
Private sector confidence was totally eroded
Public sector investment jumped from 5% to 75% in Bhutto
era
Public sector investment was concentrated in projects
which had no immediate pay off
Areas such as automobiles, cements and oil refining were
profitable while others incurred losses

Inefficiency of Nationalized units

Overstaffing, no accountability and corruption
Government was to appoint their own directors and there
was no parliamentary committee set up for scrutiny

Agricultural sector
Green revolution in Ayub Khans era boomed the
agricultural sector but it reversed in Bhuttos time
The agricultural sector which normally declines
with industrialization in the country, was
declining with lower industrial outputs
Despite the land reforms, the agricultural sector
was poor
One major reason behind dismal growth were
natural calamities but there were other reasons
too.

Land Reforms
Land reforms was introduced by Bhutto in 1972 where he offered:
The ceiling was lowered to 150 irrigated and 300 unirrigated units
which was 12000 produce index units
Retention of land up to 2000 produce index units for owners who
employed modern techniques of cultivation

But landlords were not utilizing their lands fully and were
compensated for this land which was net gain to them
There was no as such addition to the land under cultivation in this
period where 25% of the land was classified as cultivated

Government was relying on private landowners to increase the

acreage under cultivation but no efforts were made

Labor Reform
They guarantee to the workers their long over
due fundamental rights of freedom and
collective bargaining, assurance old age
pension, free education for children and
housing and medical facilities.
New labor policy added about 12% to the cost
of labor

Social Services - Education

New education policy was introduced
Free and universal education up to class 8
Technical education for all
An educational program for women in rural areas

This was the only sector which was thriving in the era
with improvements
Immediate focus was the nationalization of private
educational institutions and take over has effected the
quality of education adversely.
Total govt. expenditure on education increased from
0.8 million in 1972 to 2.8 million 1976
Female education on primary level did relatively well.

Bad Luck Factors

August 1973, Massive floods hit Pakistan, import
of food grain
October 1973, international petroleum prices
increased
World recession starts and demand for Pakistani
Exports remains depressed
Huge failure of cotton crop by as much as 25% at
the time when international cotton prices had
risen
Worst floods in Pakistani history: agricultural
crops destroyed and further import of food crops

Opinions?

Conclusion
According Oscar Lange, A socialist
government really intent upon socialism has
to decide to carry out the socialist program at
one stroke or give it up altogether.
Bhuttos era was the mix of socialism and
capitalism altogether which led to economic
distortion
Not for forget some bad luck factor
The Bhutto era is said to be the dark era for
the economic development of Pakistan