Q.

How did the over valuation of our currency in the early 50s allow us to expand the
industrial sector? (5marks)
An overvalued exchange rate implied that foreign goods were cheaper relative to domestic
goods. Since the country was on the route to industrial development, it was argued that private
sector businesses need large amounts of machinery and capital goods, an overvalued exchange
rate meant, these things were accessible at a relatively cheaper rate. So that by getting machinery
at lower rates we can rapidly increase output growth.
Q. What were the 5 factors that led to the green revolution? (5 marks)
Tube-wells
the massive switch over to HYVs
Consumption of fertilizers increase
Area covered by plant protection: 1.7 million spray acres to 4.14 million (1967
72)
Tractors
Q. Explain the economic performance of the country in the Ayubs era. (10 marks)
Golden Era of Pakistan with highest growth rates
1. High average annual economic growth rate
2. Large increase in Investment due to:
Political stability
Liberalization of investment controls
Availability of foreign exchange
Strong political allignment with US through Pakistans membership in CENTO and
SEATO
3. Inflation remained in check
the average annual rate of growth of prices was only 3.3%
Lower inflation rates as there was no fiscal deficit (revenues are greater than
expenditures) which means the government did not have to print money in order to bridge
the deficit.
4. Success in tax mobilization
Significant amount of tax mobilization
The 1960s were the only period in Pakistans fiscal history when significant public
savings i.e. the excess of government revenues receipt over revenue expenditures
materialized.
Emphasis on direct taxation Efforts to broaden the direct taxation system kept the
indirect taxation to minimum and hence prices of goods remained stable.
5. Foreign Aid and Domestic Savings
Too much concentration on foreign aid mobilization led to a relative neglect of domestic
saving effort.
Led to problems of debt an issue which the economy faces even today.
6. Widening Regional Disparities:
The sharp acceleration of growth in West Pakistan during the 60s meant that even though
the growth rate in East Pakistan also increased significantly, the regional disparity in
incomes widened.
7. Massive investments including the Indus Basin Replacement Works spending
8. Negligence of Social sector particularly after 1965
Ignored education and health.
(IF ANY ONE HAS WRITTEN ANY FIVE OF THEM AND EXPLAINED FEW REASONS WITH
IT, GIVE THEM 9.5 MARKS)
Q. How were the policies of the formative phase biased against urban consumers and
agriculturalists? (5marks)
Price controls to keep prices of agricultural raw materials and food products low.
Prices of manufactured consumer goods kept artificially high
But to reduce incentives for importing consumer good, import controls were also levied
to keep the import bill low.
In addition Govt. imposed controls on imports to reduce consumer goods imports.
Q. State the reasons behind increase in investment in the Ayubs era. (5 marks)
The reasons behind increase in investment were:
Political stability
Liberalization of investment controls
Availability of foreign exchange
Strong political allignment with US through Pakistans membership in CENTO and
SEATO
Q. Discuss the performance of the economy during the 70s. (10marks)
Poor agricultural performance in the same year due to adverse weather conditions, both
draught and floods which caused the economic growth to slow down.
Average annual growth rate of economy = 4.9% . This followed the virtual stagnation of
GDP at 1.7% annual growth in the transition years 1970-2.
Inflationary pressures due to the growing fiscal deficit, imported inflation resulting
from higher international oil prices and devaluation
Fiscal imbalances:
1. Government deficits which had increased in 1970-2 due to difficult economic and
political conditions and military operations in East Pakistan showed further explosive
growth during the Bhutto years.
2. Causes: reduction in tax revenues, increase in current and development expenditures,
debt obligations, subsidies
3. The high rising burden of defense expenditure was a root cause of fiscal imbalance.
4. For Pakistan official grants and loans from Middle Eastern oil exporting countries
also increased, prevented balance of payment crisis.
Increase in public investment
1. Government increased Investment in producer industry- thermal power sector,
nuclear power, steel mill project
Privatization led to Decrease in private investment due to falling investor confidence
Foreign assistance
1. Rapid increase in foreign assistance from Muslim world, Western industrial nations and
multilateral banks.
Large influx of foreign remittances helped in combating against imported inflation,
bridge deficit and service deb.
Increase in foreign aid both from the Muslim and the western world- The fresh assistance
from abroad relatively neutralized the effect of oil increases.
Trade:
1. The real devaluation of the exchange rate in May 1972 facilitated the shifts to
international markets.
2. The boom in the international economy and commodity markets in 1972-3 increased the
demand for Pakistans exports.
Tax policy:
1. The government was not able to use the tax policy as an effective instrument of resource
mobilization.
2. Decrease in Profits of nationalized enterprises and lower taxes due to nationalization
3. The essential inelasticity of tax system remained intact with its heavy dependence on
indirect taxes and especially certain duties.
On the economic front, the rapid rise in price level quickly dissipated any gains
from exchange rate adjustments and reduced the competitiveness of exports in
absence of further devaluation
(IF ANY ONE HAS WRITTEN ANY SIX TO SEVEN POINTS AND EXPLAINED FEW
REASONS WITH IT, GIVE THEM 9.5 MARKS)