Econom y O f Pakistan

Ayub Khan Era (1958-1969)

Syeda Laila Ali Jaffery
BBA V
Topics to be covered

Personal Profile
Economic Condition of Pakistan
Economic Strategy
Monetary Policy
Economic Performance of Pakistan
Policies
Agriculture Sector
Industrial Sector
Topics to be covered

Foreign Trade Policy

Balance of Payments
Balance of Trade
1965 War
Ayub Khans Foreign Policy
Demerits of Ayubs Regime
PersonalProfi
le
 PersonalProfi
le

Born on May 14, 1907 in Rehana Village, near

Haripur, Hazara, Pakistan
Studied at Aligarh Muslim University
Joined the army of British Colonial Powers in 1926
Fought in World War II as Commissioned Officer.
Attained the rank of Brigadier General in 1947.
In 1950, became first Pakistani to lead army as its
Commander-In-Chief
Army took control of the country in 1958 &
appointed General Ayub Khan as Chief Martial Law
Administrator.
Soon after, Ayub khan declared himself as
President
Econom ic Condition of Pakistan
Econom ic Condition of Pakistan

Country was in total disarray.

Had no economic weapon in their armory to fight the battle of its
recovery.
Growth rate of 11 years (1959-70) was high as 6.25%.
Created an environment where the private sector was encouraged to
establish medium and small-scale industries in Pakistan.
Opened up avenues for new job opportunities, the economic graph of the
country started rising.
He was the first Pakistani ruler who attempted to bring in land reforms
but the idea was not implemented properly.
Labor, law and administrative reforms were also introduced during his
regime.
Econom ic Strategy
Econom ic Strategy

The commitment to rapid

industrialization.
The benefits of economic growth
would drop down to the poorest
segments of the society.

Key priority
Achieve rapid rates of economic
growth and price stability.
Develop Pakistans agricultural and
industrial capacity.
M onetary Policy
M onetary Policy (1958-1969)

The year 1959-60 marked the beginning of a phase of liberalization and

deregulation of the economy and substantial flow of resources from abroad.
This included gradual liberalization of import policy and introduction of
Export Bonus Scheme.
From this period, government granted liberal concessions to the private
sector to establish industries in the country resulting an increase in
monetary supply.
First plan (1955-60) - the monetary expansion amounted to Rs. 1.96 Billions.
Second plan (1960-65) the money supply increased by Rs. 2.80 Billions.
The bank credit both in the private and public sector expanded to Rs. 1.62
Billions during the first and during the second plan period it was equal to Rs.
4.77 Billions.
Econom ic Perform ance of Pakistan
Econom ic Perform ance of Pakistan

The countrys economic performance in terms of growth

rates of the important sectors include:

Agriculture

Manufacturing

Balance of payments
situation

Price Index
G row th Trends

Years GDP Agriculture Industrial Sector

1950s 3.1 1.6 7.7

1960s 6.8 5.1 9.9
1970s 4.8 2.4 5.5
1980s 6.5 5.4 8.2
1990s 5 4.4 5.5
Policies in the Agriculture Sector
Policies in the Agriculture Sector

One of the salient features of Ayub Khan Regime was

the reversal of the neglect in agricultural sector that
had been there in the early 1960s .
A series of reforms strengthened the Pakistani
Agriculture Sector.
Rural infrastructure was increased to improve the
overall availability of irrigation water and the amount of
cultivated land.
The two factors that contributed to the revival of
agriculture were :
The Green Revolution, characterized by the introduction of high
yielding varieties of rice and wheat.
Policies in the Agriculture Sector

Between 1959 and 1964, agriculture grew at an overall

rate of 3.7% and by 6.3% between 1965 and 1970s.

Improved seeds

Agricultural
Machinery

Tube well irrigation

Policies in the IndustrialSector
Policies in the IndustrialSector

Focus on reconstruction and development of agriculture

based industries.
Priority of Ayubs administration was to achieve the
rapid rate of economic growth and develop Pakistans
industrial capacity.
Emphasized on private sector.
Removal of administrative controls and price stability to
provide a macro economic environment conducive to
private investment.
Policies in the IndustrialSector

In February 1959, Government announced a new

industrial policy. The main emphasis was put on the
utilization of raw materials available in the country to
benefit small and medium scale industries.
Among the major steps that were taken in the
promotion of industrialization were:
Establish amen of Financial and Development Corporations
Industrial Trading Estates
Price Controls
Investment Promotion Bureau
Encouragement of Private Enterprises
Policies in the IndustrialSector

Establishment of Financial & Development Corporations:

PIDC played an important role
Set up with a capital of 1 billion
PIDC was put in charge to promote the following industries:
Jute
Paper-board and newsprint
Heavy engineering
Fertilizers
Sugar
Cement
Textiles, etc
Policies in the IndustrialSector

Industrial Trading Estates:

Four new estates for small industries were established in
Bahwalpur, Gujarat, Larkana and Peshawar
It helped in the process of industrialization by handling the initial
difficulties faced by new industrialists.

Price Controls:
In October 1958, the government took several measures to check
the rising spiral of prices.
Price controls covering a large number of consumer goods and
industrial raw materials were imposed.
These measures led to a fall in prices and improvement in supply
position of a large number of articles.
Policies in the IndustrialSector

Investment Promotion Bureau

In order to attract foreign investment the
government set up an investment promotion
bureau in April 1959.
The main function of this organization was to
sanction proposals for the establishment of
new industries involving foreign investments.
To provide guidance to industrialists and serve
as a clearing house for problems of foreign
investors in the matter of procurement of land,
building materials, water, power, railway etc.
Policies in the IndustrialSector

Encouragement of Private Enterprise

Establishment of investment promotion bureau to

give information and guidance to private
investments.

Industrial legislation with a view to facilitating the

growth of industry with minimum government
interference.

Giving further incentives for encouragement of

exports.
O ther M easures

- SUPPLY OF CREDIT
Liberally provided to the industrial sector
by both the commercial banks & the
specialized credit institutions

- FOREIGN AIDS AND LOANS

Foreign aid and loans received from
friendly countries, played a dominant role
in industrial and economic development of
Pakistan. Without such aid the remarkable
growth in that era could not be possible
O ther M easures

FOREIGN INVESTMENTS
Liberal policies in tax concession and other measures
taken by government, the inflow of capital increased
According to state bank of Pakistan foreign private
investments increased

1956 13.20 Mn
1959 16.59 Mn
1965 26.11 Mn
1966 26.28 Mn
Foreign Trade Policy
Foreign Trade Policy

Export Bonus System

The export sector responded dramatically to the policies.
Growth rates of exports jumped to7% per annum.
Large diversification of the composition of Pakistans export
portfolio, with cotton and jute slowly replacing primary
commodities.
Ninety percent of the export growth in the 1960's was due to the
increase in manufactured export, which grew at an annual rate of
20 %.
Significant dismantling of import licenses and hence, greater ease
in importing industrial raw material and spare parts for industry.
Balance of Paym ents
 B alan ce of P aym en ts
Few reasons for the negative balance of payment.
Import of Capital Goods
Industrial base in the early times was almost negligible.
In order to build the economy, Pakistan had to import capital goods like machinery, etc
for rapid industrialization .
Heavy import of machinery considerably increased the import bill and effected the
balance of payment on current account.

Increase in import payments of Fertilizers

Due to the increase in prices of fertilizers, edible oil, there was a sharp increase in the
import payments.

Consumption oriented Society

Pakistan as a whole is consumption oriented society.
The import of consumer goods was 16% of the total import.
Most of the consumer goods imported from outside could easily be manufactured in
Pakistan and ease the situation in balance of payment.
Balance of Trade
Balance of Trade
(In crores Rupees)

Year (Jun-July) Exports Imports Balance

1959-1960 184.27 246.10 -61.83

1964-1965 240.77 537.42 -296.65

1968-1969 330.54 489.66 -159.12

1969-1970 333.71 609.81 -176.10

 Balance of Trade

Deficit Financing:
Trade deficit in the early times was financed by the foreign aid
At the beginning of the first five-year plan, about 19% of Pakistans
import and 35% of its development expenditure were being
financed by foreign aid.
At the end of the plan period, these proportions had risen to 31% &
38% respectively.
Halfway through the second plan, these proportions had shoot up to
56 and 42 percent respectively.
In 1967-68 foreign aid was financing 50% of imports and 34% of
development expenditures.
1965 W ar
 1965 W ar

The Indian aggression in 1965 had implications for the

economy, including monetary policy.
There was a significant interruption in the inflow of
foreign assistance, which in the past had significantly
contributed high growth rate, particularly in the
industrial sector and private investment.
Also budget deficit rose from Rs. 2.1 billion in 1964-65
to Rs 5.2 billion in 1966-67.
Difficulties created by Indian aggression were
compounded by an extraordinary deficiency, which
affected the countrys main crops for two years.
Thus in 1966-67 the growth rate of economy slowed
down to 3.1% the lowest in ten-year period ending
Ayub Khans Foreign Policy
 Ayub Khans Foreign Policy
The objectives in that era were the security and development of Pakistan and
the preservation of its ideology.
While retaining and renewing the alliance with the United States, Ayub Khan
emphasized his preference for friendship, not subordination, and bargained
hard for higher returns to Pakistan.
Other than ideology and Kashmir, the main source of friction between Pakistan
and India was the distribution of the water of the Indus River system.
As the upper riparian power, India controlled the head works of the repartition
irrigation canals.
After independence India had, in addition, constructed several multipurpose
projects on the eastern tributaries of the Indus.
A compromise that appeared to meet the needs of both countries was
reached during the 1960; called Indus Water Treaty.
D em erits of Ayubs Regim e
 D em erits of Ayubs Regim e

The 1960's also marked Pakistans increase reliance on foreign aid.

Another negative feature of Ayub's industrial and trade policies were the
deliberate repression of wages.
In spite of success in industrial diversification and export performance, Ayub
Khans policies had several shortcomings.
High rates of effective protection continued to make Pakistani industry
inefficient, and a number of international studies documented Pakistan as a
worst example of industrialization.
Unlike other countries, Pakistani use of tariffs and quotas was not carefully
planned.
The paradox of industrialization was, the regime resulted in a progressive
worsening in the balance of payment account with the increase in the imports
of machinery and other industrial raw materials.