The Army and Democracy in Pakistan: An Evaluation of Economic & Social Performance

© European Journal of Social Sciences, Vol.
25, No 2, 2011
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Vol. 25 (2): 252-286, October 2011
DOI or URL: http://www.europeanjournalofsocialsciences.com/issues/EJSS_25_2.html
THE ARMY AND DEMOCRACY IN PAKISTAN: AN EVALUATION OF ECONOMIC &

SOCIAL PERFORMANCE
AHMED RIZWAN RAHEEM1 AND PARMAR VISHNU2
Tel: No. +92 (300) 8293560
1,2
Shaheed Zulfikar Ali Bhutto Institute of Science & Technology – Karachi
1. Introduction
According to the Pakistan Economic Survey 2004-05, the outgoing fiscal year has been an eventful year.
Pakistan’s economy gathered greater momentum during fiscal year FY05 as Pakistan’s real GDP grew by
8.4% against 6.4% in FY04. At face value practically all major macroeconomic indicators exhibited
improvement compared to previous years. Even per capita income, which was stagnant for decades,
crossed the $700 mark. The sharp pick up in growth was mainly supported by an exceptional
performance in large-scale manufacturing, impressive recovery in agriculture, and strong growth in
services sector. Large Scale Manufacturing grew by 15.4 percent against the target 12.2 percent.
Agriculture posted a growth of 7.5% against the target of 4.0 %. The services sector registered an equally
strong growth of 7.9%. Although Pakistan's economic performance improved further in FY05 as illustrated
by the major macroeconomic indicators, shortages of essential food items, high oil prices, and inflation
increased sharply. The fiscal deficit also increased, and the current account of the balance of payments
turned into deficit after three years of surplus. The trade deficit exceeded US $ 6 billion, which is highest
in decades. The present government has made strong claims that the economy has stabilized and is
poised for higher growth using key macroeconomic indicators as their basis for projection. This paper
analyzes the government assertions by comparing the group means of the indicators in two different
times.
During FY04 large-scale manufacturing sector accounted for almost 70 % of overall manufacturing sector
and small-scale manufacturing continued grew at 7.5. Pakistan has been a military state since its birth.
The country during its 58 years of history has been mainly governed by the armed forces and its
agencies, overtly, and covertly. The seeds of democracy could never be sown due to the continuous
political interventions by armed forces. Even during quasi-democratic regimes the Armed forces have
acted as backseat drivers and dismissed governments at the slightest pretence without giving any of
them a fair chance for carrying out proper political and economic reforms. S.M. Naseem [1], a well known
political commentator, provides further insight with the following statement: “Objective analysis shows that
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both political and military regimes are at least equally to blame for the tragic plight of democracy in
Pakistan. Even in the period between Zia ul Haq and Musharraf, the military is known to have constantly
interfered in the election process, both openly and covertly, and in ensuring that “right-minded” people get
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elected.” During the so-called democratic period 1988-99, there was high interference of ISI and other
non-democratic elements of the military-bureaucracy in the routine affairs of elected governments. There
were total seven different governments, two elected prime ministers both elected twice, caretakers
government supported by technocrats from international financial institutions IMF overtly ruled during this
period. This was a highly uncertain period and no government could complete their tenure. Pakistan Army
Generals quietly ruled from behind by supporting and establishing new political groupings who would
further their cause. They openly supported their favorite political parties during the four elections. Isabel
Hilton, a writer in the New Yorker magazine argues, that: “During Pakistan existence, no political party
has successfully resisted military pressure. Each time the Army seized power, it has promised to clean up
corruption and to strengthen democracy. Each time military rule has been extended. The ISI has
constantly meddled in and manipulated civilian politics, creating political parties, distributing large sums of
money to favored candidates, and fomenting violence among rival groups. The idea, then, is to maintain
its influence through a mixture of force, mediation, and interference in civic institutions.
There are many similarities between the eras of military dictators. Their policies, objectives and extension
of their rules were the most common features in every era. One similarity during the Zia and Musharaff
regime is that both came in power by threw out the elected Prime Ministers, claim to clean the nation from
corruptions. Further, the geo-political situation has been supported both of them. The invasion of
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Afghanistan twice in late seventies and early 21 century by the former USSR and than USA supported to
extend their rules. Pakistan has been at front line previously supported by USA against USSR, and then
against Taliban. Distorting, amending and trampling of constitution is the another common practice by all
the military rulers.
For more than four decades, the role of foreign governments and international financial institutions have
heavily influenced Pakistan’s political and economic destiny. Today, their role is very critical to the
political and economic stability of Pakistan. Many political scientists and economists believe that
Pakistan’s economic sovereignty was lost with the advent of the Zia regime in July 1977. They also
believe that Pakistan completely lost its political sovereignty just after 9/11 when its armed forces led by
President General Pervez Musharaff surrendered to the United States demands especially with the
misconceived ‘War on Terrorism’.
First, distribution of growth benefits, impact of growth on job creation, poverty alleviation, income
distribution, and access to social services, if growth is not accompanied by these development even a
high average rate of per capita GNP growth can not be considered satisfactory. Second, growth must
also be judged by sustainability, which has been defined as the viability of growth trends. In Pakistan
gross investment rates have not been high but investment has relied heavily on the inflow of large
1
S.M. Naseem, October 04, 2004, article, ‘If democracy is to work’ Daily Dawn, Karachi
2
Pervez Hasan, 1998, ‘Pakistan’s economy at the Crossroads: Past Polices and Present Imperatives’
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external resources on concessional terms, huge foreign exchange earnings from workers remittances,
and the strong underpinning of foreign exchange support provided by the narcotics trade. Sustainability of
investment levels and viability of the balance of payments, therefore, would naturally influence future
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growth as would the level of industrialization and the structure of industry” [2].
1.2 Statement of the Problem

Pakistan’s economic performance has a checkered history during its 58 years of existence. The political
instability, which has marred the nation, has essentially divided its political economic structure into two
different types of governance; namely, democratic government and military rule. Although overall
economic performance during the military regimes have exhibited better results when measured
nominally by overall key macroeconomic and social indicators, the statistics true significance has never
been attempted to be studied inferentially over two different time periods in order to be able to formulate
appropriate policy measures for sustainable growth and prosperity
1.3 Objectives of the Study
The objectives of the study are two fold. First if all, it is to develop a statistical framework of analysis to
compare the economic performance of Pakistan during two different types of governments; namely, the
democratic era (FY89-FY99) and Military regime (FY00-FY05).
1.4 Research Questions
1) Has the current military regime performed better than the previous democratic era as indicated by key
economic and social indicators?
2) Has the overall quality of life in terms of the development of the social sectors (i.e., education, health,
and poverty) changed during the present military rule as compared to the previous democratic era?
2. Review of Literature
2.1 Empirical Studies
3
Faisal Cheema conducted a study [3] in May 2004 at the University of Illinois at Urbana-Champaign, for
(ACDIS) Program in Arms control, Disarmament, and International Security where he studied
macroeconomic stability and the role of the IMF and World Bank (1997-2003). His finding was that
Pakistan is in a much better position these days than it was prior to 1997. He does not use any statistical
model except for descriptive statistics and qualitative analysis. Cheema [3] looked at 15 Macroeconomic
indicators and their performance over six years 1997-2003, which is summarized, in the next page. He
sums up his conclusions as follows:
“Pakistan has made considerable progress in achieving macroeconomic stability. There has been a
considerable improvement in all the macroeconomic indicators. It is evident from the primary budgetary
2
Pervez Hasan, 1998, ‘Pakistan’s economy at the Crossroads: Past Polices and Present Imperatives’
Oxford, pg. no.6-7
3
Faisal Cheema, 2004, ‘macro economic stability of Pakistan 1997-2003’ University of Illinois-
Champaign, ACDIS Occasional paper
http://www.acdis.uiuc.edu/Research/OPs/Cheema/contents/part1.html
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surplus; reduction of quasi-fiscal deficits; turnaround in the current account deficit to a surplus;
improvement in tax collection; renewed export growth rate; lowering of the inflation rate; increase in the
GDP growth rate; reasonable amount of foreign exchange reserves; decline in trade deficit; and reduction
in external debt of the country. In addition, monetary aggregates have been contained, the exchange rate
has been stabilized, and worker remittances have been improved significantly. The risk of default on
external debt, which loomed large on the horizon in 1999 and 2000, has been mitigated and the country's
capacity to service its restructured debt has improved. However, the economy of Pakistan is still at the
take-off stage and faces many daunting challenges. Poverty and unemployment are still high, posing
serious challenges to the policy makers in Islamabad. The government of Pakistan has launched a
poverty alleviation strategy with the help of the IMF and the World Bank; still, 33 percent of the people live
below the poverty line. The rising population and lack of employment opportunities create persistent
unemployment problems in the country. In addition to unemployment, underemployment is even higher in
the country. There is a need to devise a comprehensive employment strategy to tackle this gigantic
problem. For the purpose of brevity, the performance of the major macroeconomic indicators is given in
Table 1.
Table – 1: Changes in Key Macroeconomic Indicators
October 1999 June 2003 Change in the

Indicator
GDP Growth Rate 4.2 % 5.1 % Positive
Inflation 5.7 % 3.3 % Positive
Fiscal Deficit/GDP -6.1 % -4.0 % Positive

Current Account/GDP -3.2 % + 7.1 % Positive
Domestic Debt/GDP 52.0 % 43.4 % Positive
External Debt $37 billion $35 billion Positive
Remittances $88 million per $350 million per month Positive
month
Exports $7.8 billion $11.1 billion Positive
Tax Revenue PRs 391 billion PRs 460 billion Positive
Rupee-Dollar Parity Depreciating Appreciating Positive
Foreign Direct Investment $472 million $800 million Positive
Foreign Exchange $1.6 billion $9.9 billion Positive
Reserves
Poverty Incidence 33 % Data not available but Negative
perhaps rising
Poverty Related PRs 133 billion PRs 161 billion Positive
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Expenditure
Unemployment 6% 8% Negative
Source: Pakistan Economic Surveys, 1998-99, 2003-04, 2004-05 [4,5,6]
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In another study , Dr. Ishrat Husain [7], Governor State Bank of Pakistan discusses the recent turnaround
in Pakistan’s economy and analyzes two different points of view about the Pakistan economy. One
opinion regarding the present progress is that it is a mirage and a false dawn and that the economic
structure has not changed much. The other point of view is that this change is the result of military
government’s policies during the Musharraf’s regime and it will significantly change the economic
landscape of the country over time.
In support of the first opinion A well-respected American scholar on South Asia observed at a recent
seminar on the Pakistan economy that the economy thrived during the periods when Pakistan-US
relationship was strong i.e. the Ayub (1958-1969) period, the Zia years (1977-88) and more recently, the
Musharraf era This postulate is also shared by a number of Pakistani intellectuals, particularly those
who have an ideological revulsion to military rule in Pakistan. A second reason to support the false
dawn postulate is that it is the fall out of events of September 11 and therefore these gains are not
sustainable. Sooner or later our economic condition will most likely revert to the situation that prevailed
in the past.
A third reason in support of the false dawn theory is that Pakistan is so much entangled in a web of
intricate geopolitical problems that its defense expenditures crowd out development expenditures and
that the country will, therefore, continue to remain vulnerable and in an economically precarious
condition. Furthermore, it is also asserted that the growing military industrial complex is eroding the
productive economic base of the country. Dr. Ishrat Husain examines the validity of these propositions
one at a time.
1. US Dependency
“Pakistan’s economy performed extremely well during the three periods of Ayub, Zia and Musharraf. But
Dr. Husain [7] empirically proves that it’s not merely US foreign Aid. If the U.S. and foreign aid is the
main explanatory factor, than it must increased the flow of foreign savings during the military period. We
confine ourselves to the period beyond 1971. The evidence shows that Pakistan’s current account
deficit was 6.5 percent of GDP on average in the 1972-77 period, financing 40 percent of investment
outlay. It was 6 percent of GDP during the 1990-99 periods the most recent non-military period. In other
words, more than one third of investment was financed from external borrowing and grants as against
20 percent in the 1980s-Zia period. In the four years under the Musharraf Government (2000-2004), the
country in fact generated a current account surplus, thus exporting capital to the U.S. and other
4
Dr Ishrat Husain, Oct. 2004, “Pakistan’s economic progress since 2000: False Dawn or a Promising
Start” paper presented at John Hopkins, University of Washington DC
http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN020761.pdf
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developed countries rather than obtaining foreign flows. Besides repaying and prepaying a large
amount of external debt and liabilities, the country has accumulated $12 billion plus in foreign exchange
reserves compared to an average of $1 billion in the 1990s.
This can be further substantiated by the movement of net external transfer i.e. gross disbursement of
foreign loans and grants minus debt servicing. Net external transfers were the highest during the 1990-
99 period compared to the 1980s and 2000-04 periods. Despite these high net external transfers,
growth rate was below the trend in the 1990s, poverty incidence resurged to 33 percent and fiscal
deficits were unmanageable. While the observation that Pakistan thrives economically when relations
with the U.S. are at their best is empirically true at a superficial level, a more nuanced analysis suggests
that it is what economists call spurious correlation. Two un-related events may occur at the same time
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but their cause-effect relationship may be statistically insignificant ”
2. The second hypothesis of the recent economic progress is that it is the windfall of 9/11.
Dr. Ishrat Husain argues that, “Pakistan’s participation in the war against terrorism and the resulting
largesse by the U.S. As such, these are all transitory and short-term gains and have nothing to do with
the quality of economic policies and governance. This line of reasoning completely ignores key
developments prior to September 11, 2001. Following Table II presents the key macroeconomic
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indicators for two years prior to 1999 and two years immediately before September 11, 2001.”
TABLE- 2: Macroeconomic Indicators before September 11, 2001
Indicators FY 98-99 FY 00-01

Large Scale Manufacturing growth rate (%) 3.6 11.0
Inflation rate 5.7 4.4
7.8 9.2
Exports % of GDP
12.8 15.0
Liquid foreign exchange reserves
1730 3212
($ million) End-of-the-period
Budgetary Deficit (as % of GDP) 6.1 5.3
Current account balance (as % of GDP) -3.8 0.6
Debt Servicing paid ($ million) 2657 8857
Tax revenues (Rs billion) End-of-the-period) 308 392
External Debt/Foreign Exchange Earnings 335 259
Public Debt Servicing /Public Revenues 64 57
Source: SBP Annual Reports [8]
5
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It is quite clear from this evidence that the country had not only safely overcome a default situation but,
while economic sanctions were still in place and external aid flows had turned negative, debt servicing
payments amounting to almost $9 billion were made during the two years prior to September 2001. This
was done out of the country’s own resources and within the timeframe agreed upon. Foreign exchange
reserves had risen to $3.2 billion by June 2001 from a sum of $1.7 billion. Inflation was contained to
approximately 4.4 percent. Exports had risen from $7.8 billion in FY99 to $9.2 billion. Tax revenues
showed an impressive increase of almost Rs.100 billion from Rs308 billion to Rs392 billion by June
2001 a 14 percent annual growth. Fiscal deficit was brought down to 5.3 percent of GDP from 6.1
percent. Current account had turned surplus to 0.6 percent of GDP from a deficit of 3.8 percent. The
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exchange rate had become stable since June 200. ”
3. Defense Crowding Out Hypothesis:
In the last hypothesis Dr. Husain states, “Defense expenditures in real terms (as percentage of GDP
and as a percentage of public revenues and as a percentage of total expenditures) have been on a
downward path since 1990. The detail is presented in the following table:
TABLE – 3: Defense Expenditure as % of GDP
% of
Year % of GDP % of Revenues
Expenditure
1990-91 6.9 39.4 24.8
1991-96 5.6 32.5 23.1
2000.01 4.0 23.7 18.3
2003-04 3.8 22.7* 19.5*
*The increase reflects the expenditure incurred on logistical support provided to the U.S. troops.
Defense expenditure, which used to account for about 7 percent of GDP in the early 1990s, declined to
3.8 percent in 2003-04. As a proportion of government revenues and total expenditure, the slide is even
steeper. While it is true that Pakistan should spend relatively more on social sectors, the constraint was
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the ever-increasing debt servicing burden during the 1990s rather than the defense expenditure. ”
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Recently Dr. Ashfaq Husain, Advisor to the Prime Minister for Finance responded to an article [9] in the,
‘The Nation’ which criticized the present government’s economic performance. Dr. Ashfaq’s response is
simplistic as he highlights only weak areas of the previous democratic governments and nominal gains of
the present regime. He seems to have taken the criticism of Shaukat Aziz’s government personally. He
characterizes the era of 1990s as follows:
7
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9
http://www.finance.gov.pk/articles/1YearProfermence.pdf
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“The persistence of large fiscal and current account deficits (7% and 5% of GDP respectively) and the
associated build up of public and external debt (over 100% of GDP and 335% of Foreign Exchange
Earnings respectively) emerged as the major source of macroeconomic imbalances in the 1990s. Failure
in enhancing revenues consistent with growing expenditure requirements, stagnation in exports
(stagnated at $ 8 billion for six years in the 1990s) and in overall foreign exchange earnings (stagnated at
$ 11-12 billion range for six years in a row in the 1990s) exacerbated these imbalances and vitiated a
stable macroeconomic environment. Such a state of affairs had a far-reaching impact on the country’s
economic well-being. There was despondency among all, as many began to talk of Pakistan as a failed
state. Indeed Pakistan witnessed economic growth slowing (from an average of over 6% per annum in
the 1980s to 4% by the end of the 1990s); investment rate decelerating (from an average of over 19% of
GDP to 15.6% by 1999); the country’s debt burden reaching alarming proportions (public debt as a
percent of GDP was over 100% of GDP and external debt and liabilities reaching $ 38 billion or 335% of
Foreign Exchange Earnings – worse than many Highly Indebted Poor Countries (HIPCs), foreign
exchange reserves plummeting to a level ($ 415 million on November 12, 1998) hardly sufficient to
finance two weeks of imports; poor governance beginning to be the norm; the country loosing its financial
sovereignty; more and more people falling below the poverty line; and above all, the country was lurching
from one crisis to another. The massive cost of debt servicing (almost two – thirds of the country’s
revenue were consumed by debt servicing alone) rendered fiscal policy instruments ineffective and the
country’s physical and human infrastructure began to show signs of buckling under the combination of a
fiscal crunch, rising poverty and poor governance. A weak and fragile economy became the cause as well
as the effect of the poor law and order situation in the country. This was the background of the state of
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the economy that existed in 1999 ” On the other hand he goes over board in praise of the present
regime.
“The first year of Mr. Aziz’s Government has also seen improvements in social and living conditions of the
people. Results from the recently concluded Pakistan Social and Living Standards Measurement (PSLM)
Survey show a marked improvement in social and living conditions indicators. Key indicators such as
literacy rate, gross and net enrollment in primary, middle and matric levels; access to sanitation and safe
drinking water; use of electricity and gas as source of lighting and cooking fuel, respectively; various
health indicators such as child immunization and treatment of Diarrhea, have all shown marked
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improvements over the last 4 – 7 years. The landscape of Pakistan’s economy has changed altogether. ”
2.1.1 1988-1999: Democratic Era

The post Zia period, despite many changes in the political regimes, has proved to be more consistent in
its policy stance towards liberalization and, particularly, privatization of public enterprises. In 1989, the
new elected government of Benazir Bhutto established a Board of Investment for laying down the policy
guidelines of affecting industry. In 1990, the new Nawaz Sharif’s government announced a series of
10
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policy reforms to stimulate investment in manufacturing, removal of the complicated investment

licensing, the liberalization of exchange control, the facilitation of easy access to credit, and the granting
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of further tax incentives to industrialists. By 1996, over eighty units had been privatized [10].
The Seventh Five Year Plan (1988-93) was commissioned at the same time as the IMF/World Bank
induced conditionality was accepted by the government in the guise of a Structural Adjustment Program
(SAP). A major emphasis of SAP was on the enhancement of growth by encouraging the private sector,
which was supposed to take a lead role. Public investment areas were opened to the private sector,
like power generation, commercial and development banking and air & sea transport. Privatized some
105 manufacturing units and further steps were to expand this network. Government announced
packages (exemption from custom duty, sales tax and surcharge duty, and five-year income tax holiday
to encourage the investment in rural areas. As a result Industrial value added grew by 6.3%.
Manufacturing, electricity and water expanded by 5.9% and 11.3% per annum on average, respectively.
The large scale-manufacturing sector managed an impressive 7.4 % in 1991/92 due essentially to the
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rapid expansion of cotton manufacture [11]. Large-scale manufacturing growth was only 4.8% per
annum during 1988-96 and slowed down further to less than 2 % per annum after 1994. The slowdown
in manufacturing was notwithstanding a more than doubling of private real investment in large-scale
manufacturing (while public investment remained constant) over 1990-96. The detail is presented in the
following table:
Table – 4: Annual Growth Rate of Democratic Era (1988-1999)

Years Agric. LSM SSM Services GDP
Source:
1988-89 6.8 2.4 8.4 3.8 4.8
Pakistan
1989-90 3.0 4.7 8.4 4.4 4.5
Economic
1990-91 4.9 5.4 8.4 5.2 5.5
Survey
1991-92 9.5 7.9 8.4 6.7 7.7 1998-99
1992-93 -5.2 4.1 8.4 5.6 2.2 table 1.4
1993-94 5.2 4.1 8.4 4.1 4.5 Page 1
1994-95 6.5 1.6 8.4 4.8 5.2
1995-96 11.7 3.1 8.4 4.9 6.7 2.1.2
1996-97 0.1 -2.1 8.4 3.6 1.9 1999 –
1997-98 3.8 7.6 8.4 3.2 4.3 2005:
1998-99 0.3 2.7 8.4 4.1 3.1 Musharra
Average 4.2 3.8 8.4 4.6 4.6 f’s Era
On October 12, 1999, General Pervez Musharraf displaced the elected civilian government of Nawaz
Sharif in highly ‘unusual circumstances.’ General Musharaff vowed to bring ‘true’ democracy’ and root out
sham democracy. The Sharif government had come into power with an overwhelming majority vote by the
people giving him more than two-majority in the National Assembly. Ironically, it was the ISI and other
intelligence agencies that facilitated this ‘massive majority’ of Mian Nawaz Sharif who was also a prodigy
12
Ishrat Husain, 1996
13
Zaidi S. Akber, 1999, ‘Issues in Pakistan’s Economy’ Oxford, page 124
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of a military dictator, General Zia-ul-Haq. Today after six years of Musharraf’s rule the general
perceptions for the present military government are:
1. The architect’s of Pakistan’s foreign, political, and economic policies reside in Washington D.C.
All Islamabad does is own these policies and label it as ‘home grown’.
2. Today Pakistan has regressed further into a ‘rental and vassal state’ of the United States
3. General Musharraf has sold out Pakistan’s security interests in Afghanistan and Kashmir under
American pressure.
4. All of the above have led to an erosion of Pakistan’s image in the Islamic world whose leadership
Pakistan desperately seeks.
The Asian Development Bank’s 2005 update for Pakistan reports. “Pakistan's overall economic
performance improved further in FY2005 and the economy achieved the highest growth in the last two
decades. High economic growth seen in FY2004 strengthened further in FY2005. Agriculture achieved
the highest growth in the last one decade, mainly because of a record growth of 45.5 percent in cotton
production. Growth of the industrial sector was somewhat less than last year, but still in double digits,
mainly because of a rapid growth of the large-scale manufacturing (LSM). Growth in LSM sector was
broad-based, with increases being particularly large in the case of textiles, automobiles, electronics,
engineering goods, cement, and fertilizers. Large increase in public sector development program and
pick up in residential construction boosted the construction industry. The services sector, which
contributes 52.4 percent to GDP, recorded the highest growth in the last two decades because of
rapid expansion in the financial sector, wholesale and retail trade, and telecom services.” But it goes
on to say that “The fiscal deficit also increased, and the current account of the balance of payments
turned into deficit after three years. Prices and Monetary Policy: The CPI-based inflation rose to 9.3
percent in FY2005 compared with 4.6 percent in FY2004. Although inflation was led by food prices,
core inflation also increased from 3.4 percent to 7.4 percent [12]. The balance of payments position
weakened in FY2005, as the current account balance turned into a deficit of $1.8 billion after having
been in surplus in the preceding three years. Following table presents the annual growth rate of major
sectors of GDP:
Table -5: Annual Growth Rate Musharraf Regime (1999-2005)
Years Agriculture LSM SSM Services GDP(fc)

1999-00 6.1 9.6 5.3 4.8 3.9
2000-01 -2.2 11.0 7.5 3.1 1.8
2001-02 0.1 3.5 7.5 4.8 3.1
2002-03 4.1 7.2 4.5 5.2 4.8
2003-04 2.2 18.2 6.2 6.0 6.4
2004-05 7.5 15.4 6.2 7.9 8.4
Average 3.0 10.8 6.2 4.5 4.7
Source: Pakistan economic survey 2004-5 table 1.3 page 11
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7%
Agri.
39%
Manu.
38%
Services
Other Ind.
16%
7%
23%
Agri.
LSM
Ser
18% others
52%
The contribution of each key sector in the GDP has changed in Pakistan’s economy during the past
decades. Today the service sector has grown remarkably and taken the 52% share in the GDP. The
Agriculture sector has shrunk from 39 to 21 percent while the manufacturing sector has increased its
share from 16 to 26% particularly the contribution of large scale manufacturing in industrial sector has
contributed greatly [13]. The share of Large Scale Manufacturing remained 69.5% and it grew by 15.4
14
%. There are various reasons for this variation. The separation of east wing of the country has changed
the entire structure of our economy the share of agriculture sector mainly shrunk from this separation
besides the flood and shortage of water. The next section builds a framework to study 28 macroeconomic
indicators for seventeen-year period (1989-2005). The indicators are quite comprehensive as it covers all
sectors of the economy [14].
3. Framework of Analysis
A quantitative statistical model is formulated using both descriptive and inferential statistical techniques.
Descriptive statistics is used to obtain the three measures of central tendency, such as the mean,
14
Due to unavailability of uniform definition of SMEs it is difficult to measure the real development in large
and small scale sectors many units of SSM are counted as LSM
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median, and mode, and two measures to visualize the shape of the curve with respect to symmetry and
flatness by calculating the skew ness and kurtosis of the data. This is done essentially to validate the
normal distribution assumption, which is essential when utilizing the different test statistics such as the t-
test, z-test, and F-test. Making a judgment about the sampling distribution, approximating the normal
distribution curve, of the population and selecting the appropriate statistical test based upon whether the
data is parametric (interval and ratio) or non parametric (nominal and ordinal) is essential in getting
proper results. The model formulated in this study provides unambiguous information on the primary
objectives of the experiment and it leads to unbiased estimates. Extra caution has been taken to make
sure that the model and its underlying assumptions are appropriate for the data and experimental
material. The design of the model provides the maximum information with respect to the major
objectives of the experiment per minimum amount of experimental effort and gives some information
with respect to all the objectives of the experiment. After verifying the assumption of normal distribution
from the Descriptive Statistics, a multi-test model is formulated using Hypothesis testing along with
several inferential techniques, namely the t-test, F-test, and ANOVA [15]. All these tests are necessary to
find and validate the statistical significance of 28 different macroeconomic variables which measure the
economic, industrial, and social performance of the economy of Pakistan during the two regimes; (i)
Democratic Era (FY89-FY99) and (ii) Military Era (FY00-FY05). All these tests were conducted at the .01
significance level thereby minimizing Type 1 error with a 99% confidence level of measurement. From the
results obtained, the correlation and covariance analysis is utilized to find the significance of the
relationship between growth in SME’s and the key variables.
The inferential statistical model starts of with comparing the group means of two independent samples
with equal variances utilizing the T-Test. The F-test is then used to validate the assumption for equal
variances. After finding that there are several variables, which have unequal variances, the t test is then
repeated for all the variables assuming unequal variances. A summary t-test is then concluded. To further
validate the T-Test and the probability value one factor ANOVA was applied [16].
3.1 The Sample
The data for the selected 28 variables were collected from secondary sources mainly from the various
editions of Pakistan Economic Surveys like (2005, 2004, 2003, 2000, 1995 1990 1988), published by the
Federal Bureau of Statistics, Government of Pakistan. Essentially convenience sampling was used to
select the variables and collect the data. Then stratified sampling was used to divide the population into
two different groups, which are representative of the two types of government for the time period FY89-
FY05. Two independent samples are then obtained from the population and several inferential statistical
tests as discussed in the previous sections were applied to it. The variables are defined and explained in
the following two sections. The data for the Democratic Era (1988-99) is gathered to evaluate the
Economic, Industrial and Social performance of the different elected and cares taking government in
Pakistan. No any government could complete her tenure. Policies were changing frequently [17]. Beside
internal weaknesses and poor governance the global political environment was also highly affected the
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economic, Industrial and social performances. On the next page the economic indicators used in this
study are defined.
3.2 Limitations
The following are the main limitations of this study:
1. It is difficult to make a clear distinction between Military and democratic systems of governance in
Pakistan. Military’s involvement is present during democratic governments either overtly or
covertly. In 2002 elections were held and parliament exists but decision-making resides with
President Musharaff and GHQ.
2. The base year in Economic Survey 2004 and onwards utilize 2000-01 as the base year. The
previous Economic Surveys uses 1980-81 as base year.
3. Only twenty-eight variables have been used from various Economic Surveys of Pakistan for this
study, which tries to assess the performance of the whole economy. A few key macroeconomics
indicators may have been left out.
4. Several variables like social and political are not easily quantifiable therefore have not been
incorporated in this study.
5. The data for the democratic era consists of 11 years while the military regime has only 6 years.
3.3 Results
The research questions formulated at the beginning of the study are repeated below for the sake of
convenience. Thereafter the Main Hypotheses along with the sub-hypotheses are outlined in section 3.6
and section 3.6.1. Finally the results obtained in the study along with the summarized tables are
presented in section 3.7.
3.4 Research Questions
1. Has the current military regime really performed better than the previous democratic era as indicated
by key economic and social indicators?
2. Has the overall quality of life in terms of the development of the social sectors (i.e., education, health,
and poverty) changed during the present military rule as compared to the previous democratic era?
3.5 Hypotheses
The three main hypotheses are as follows:
Ho: There is no significant meaningful difference in the economic performance during the democratic era
and the military regime.
H1: There is a significant difference in the economic performance during the democratic era and the
military regime.
Ho: There is no significant meaningful difference in the quality of life during the two eras as measured by
the social indicators.
H1: There is a significant meaningful difference in the quality of life during the two eras as measured by
the social indicators.
3.7.1 Sub-Hypothesis
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Has the current military regime perform better than the previous democratic era as indicated by key
economic and social indicators?
1. Ho: There is no difference in the mean growth rate of GDP during the two regimes.
H1: There is a difference in the mean growth rate of GDP during the two regimes.
2. Ho: There is no difference in the mean growth rate of Manufacturing during the two regimes?
H1: There is a difference in the mean growth rate of Manufacturing during the two regimes.
3. Ho: There is no difference in the mean growth rate of Large Scale Manufacturing during the two
regimes.
H1: There is a difference in the mean growth rate of Large Scale Manufacturing during the two
regimes.
4 Ho: There is no difference in the mean growth rate of Small Scale Manufacturing during the two
regimes?
H1: There is a difference in the mean growth rate of Small Scale Manufacturing during the two
regimes
5 Ho: There is no difference in the group means of Share of Industry as percentage of GDP during the
two regimes.
H1: There is a difference in the mean growth rate of share of industry as percentage of GDP
during the two regimes.
6. Ho: There is no difference in the mean growth rate of Investment as % of GDP during the two
regimes?
H1: There is a difference in the mean growth rate of Investment as % of GDP during the two regimes
7. Ho: There is no difference in the mean growth rate of Savings as % of GDP during the two regimes.
H1: There is a difference in the mean growth rate of Savings as % of GDP during the two regimes.
8. Ho: There is no difference in the mean growth rate of Defense as % of GDP during the two regimes?
H1: There is a difference in the mean growth rate of Defense as % of GDP during the two regimes
9. Ho: There is no difference in the mean growth rate of Defense Budget during the two regimes.
H1: There is a difference in the mean growth rate of Defense Budget during the two regimes.
10. Ho: There is no difference in the mean growth rate of Exports during the two regimes.
H1: There is a difference in the mean growth rate of Exports during the two regimes.
11. Ho: There is no difference in the mean growth rate of Export as % of GDP during the two regimes?
H1: There is a difference in the mean growth rate of Exports as % of GDP during the two regimes.
12. Ho: There is no difference in the mean growth rate of Unemployment during the two regimes.
H1: There is a difference in the mean growth rate of Unemployment during the two regimes.
13. Ho: There is no difference in the mean growth rate of Consumer Price Index during the two regimes?
H1: There is a difference in the mean growth rate of Consumer Price Index during the two regimes
14. Ho: There is no difference in the mean growth rate of GDP Deflator during the two regimes.
H1: There is a difference in the mean growth rate of GDP Deflator during the two regimes.
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15. Ho: There is no difference in the mean growth rate of Budget Deficit during the two regimes?
H1: There is a difference in the mean growth rate of Budget Deficit during the two regimes
16. Ho: There is no difference in the mean growth rate of Balance of Trade during the two regimes.
H1: There is a difference in the mean growth rate of Balance of Trade during the two regimes.
17. Ho: There is no difference in the mean growth rate of Current Account Balance as % of GDP during
the two regimes?
H1: There is a difference in the mean growth rate of Current Account Balance as % of GDP during
the two regimes
18. Ho: There is no difference in the mean growth rate of Currency Depreciation
during the two regimes.
H1: There is a difference in the mean growth rate of Currency Depreciation during the two regimes.
19. Ho: There is no difference in the mean growth rate of Exchange Rate during the two regimes.
H1: There is a difference in the mean growth rate of Exchange Rate during the two regimes.
20. Ho: There is no difference in the mean growth rate of Investment in Education as % of GDP during
the two regimes?
H1: There is a difference in the mean growth rate of Investment in Education as % of GDP during
the two regimes.
21. Ho: There is no difference in the mean growth rate of Investment in Health as % of GDP during the
two regimes.
H1: There is a difference in the mean growth rate of Investment in Health as % of GDP during the
two regimes.
22. Ho: There is no difference in the mean growth rate of Per Capita Income as % of GDP during the two
regimes?
H1: There is a difference in the mean growth rate of Per Capita Income as % of GDP during the two
regimes
23. Ho: There is no difference in the mean growth rate of Debt Servicing as % of GDP during the two
regimes.
H1: There is a difference in the mean growth rate of Debt Servicing as % of GDP during the two
regimes.
24. Ho: There is no difference in the mean growth rate of Debt as % of GDP during the two regimes?
H1: There is a difference in the mean growth rate of Debt as % of GDP during the two regimes
25. Ho: There is no difference in the mean growth rate of Interest Payment as % of total expenses during
the two regimes.
H1: There is a difference in the mean growth rate of Interest Payment as % of total expenses during
the two regimes.
26. Ho: There is no difference in the mean growth rate of Workers Remittances as % of GDP during the
two regimes?
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H1: There is a difference in the mean growth rate of Workers Remittances as % of GDP during the
two regimes
27. Ho: There is no difference in the mean growth rate of Foreign Reserves as % of GDP during the two
regimes.
H1: There is a difference in the mean growth rate of Foreign Reserves as % of GDP during the two
regimes.
28. Ho: There is no difference in the mean growth rate of Poverty during the two regimes.
H1: There is a difference in the mean growth rate of Poverty during the two regimes.
4. Data Analysis and Interpretation of Results

The results obtained in the study, as summarized in the last section, display substantial statistical
significance and adequately address the problem in the experiment. Our main hypothesis, which was to
compare the group means of most of the economic and social indicators, is not rejected for most of the
variables.16 key macroeconomic and social indicators out of 28 displayed no significant statistical
difference in the two eras. That means the samples obtained for most of the indicators belong to the
same population. The validation through the p value and Analysis of Variance also shows that there is
extremely strong evidence that there is no significant difference in economic performance during the
Democratic era and Military rule. The analysis is summarized below.
4.1. GDP
The GDP growth rate has a t-computed value of -0.21, which compared to the t critical of 3.55 is within
the acceptance region of the null hypothesis at the .01 significance level therefore we can conclude that
the null hypothesis cannot be rejected with a 99% confidence level. The p value of 0.835 is much greater
than 0.1 therefore we have extremely strong evidence that the two group means are the same. The
ANOVA test confirms and validates the result.
4.2. MFG LSM SSM INV
The Manufacturing growth rate, both during the Democratic era and Military rule, also shows that the null
hypothesis cannot be rejected and we have very strong evidence that this is the case as indicated by the
p value of .083, So again with 99% confidence we can say that the null hypothesis cannot be rejected.
Although the group means during the two eras of both growths in large-scale manufacturing and small-
scale manufacturing is statistically much the same, we have strong evidence that the group means are
statistically the same. Again the ANOVA test confirms and validates this result 100%. But when
Investment as a % of GDP are compared in the two eras’ there is extremely strong evidence that the
group means are the same as illustrated with t test and ANOVA test results.
4.3. SIGDP
The group means of the share of industry as a % total GDP are statistically different during the two eras.
The computed t value is 5.894 is greater than the critical value of 2.947 therefore it lies in the rejection
region for the null hypothesis at the .01 significance level. One has to conclude with 99% confidence that
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the two group means are substantially different and the p value confirms this with a value of .00003,
which is extremely strong evidence to support the fact. The ANOVA test validates this perfectly as the
computed F value is 34.738, which are much greater than the critical F value of 8.683 and p value of
0000295.
4.4. DGDP
The group means of the Defense spending measured as % GDP during the two eras are statistically
different. The t-computed value is 7.407, which is much greater than t-critical value 2.947 and lies in the
rejection region. The p value .000002 confirms this fact and indicates that we have extremely strong
evidence to support this claim. Furthermore the ANOVA test validates this result as the computed F-
value is 54.866 much greater than the F-critical value of 8.683.
4.5. DBUG
There is significant statistical difference in the group means of defense spending as a proportion of the
Annual Budget during the two eras democratic and military. The t-computed value is 5.97 much greater
than the t-critical value 2.947. Due to this difference the null hypothesis is rejected and there is extremely
strong evidence as indicated p-value.00003. The ANOVA test validates this further as the computed F-
Value is 35.646 much greater than F-critical value8.683
4.6. ERGH
This null hypothesis cannot be rejected with 99% confidence level as the
T-computed value -1.45 falls with in the t-critical region 2.947. This means there is no significant
difference in export growth during the two eras. There is extremely strong evidence to support not
rejecting the null hypothesis, as the p-value 0.169 is some higher than significance level .01. The ANOVA
test confirms and validates the same, as the F-computed value 2.09 is lesser than F-critical value.
4.7. EGDP
There is no significant difference in the variable export as a % of GDP in the two eras. This is proved
statistically as the t-computed value is-0.07 falls within the acceptance region. This null hypothesis is not
rejected at the .01 significance level. We have extremely strong evidence to support this as the p-value
0.945 is much higher than the significance level of .01. The ANOVA test reveals a computed value of F to
be .0073, which is less than 8.683 and it further, validates our result.
4.8. URATE
This null hypothesis for the unemployment rate is rejected with at the 99% confidence level. The t-
computed value-3.85 is higher than the t-critical value 3.169, which proves that there is significant
difference between the two regimes. There is extremely strong evidence as the p-value 0.003 which is
less than the significance level .01. The ANOVA test further confirms the same as the
F-computed value 14.88 is greater than F-critical value 8.683.
4.9. CPI
The group means of Consumer Price Index is statistically different during the two-selected time periods.
The t-computed value 4.269 is much higher than the t-critical value 2.947. We have extremely strong
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evidence to reject this null hypothesis with 99% confidence level .The p-value .0007 is greater than the
significant level of .01. The ANOVA test further validates the same as the
F-computed value 18.225 is higher than the F-critical value 8.683.
4.10. GDPDF
This null hypothesis is not rejected at the .01 significance level for the GDP deflator as the t-computed
value 2.728 falls within the critical region of 3.169 We have only some evidence of the same as the p-
value 0.021 is a little higher than the significant level .01. This further confirms by the ANOVA test, as the
F-computed value7.624 is lesser than F-critical value 8.683
4.11. BUDD
The group means of the Budget Deficit are statistically different during both eras. The computed value is
6.046 is greater than t-critical value 2.947 therefore it lies in the rejection region for the null hypothesis at
the .01 significance level with 99% confidence level. This is confirmed by the p-value .00002 which is
extremely strong evidence. The ANOVA test validates this perfectly as the computed F-value is 36.552 is
much greater than the F-critical value 8.683 and the p-value.
4.12. BOTD
Balance of Trade during the two regimes has a t-computed value 1.104 which falls within the acceptance
region as indicated by the t-critical value of 3.499 at the .01 significance level therefore the null
hypothesis cannot be rejected with a 99% confidence level. The p-value 0.306 is greater than the .01.
There is extremely strong evidence that the two groups of means are same. The ANOVA test validates
the result as the F-computed value is 1.761 is less than the F-critical value 8.683.
4.13. CAB
The group means for the Current Account Deficit as % of GDP are statistically different during the
Democratic and Military regimes. The t-computed value -6.45 falls with in the rejection region for the null
hypothesis at the .01 significance level. At the 99% confidence level the two groups’ means are different
and the p-value confirms this with a value of .0002 providing extremely strong evidence. This is further
validated by the ANOVA test where the F-computed value 48.954 is greater than the F-critical value
8.683.
4.14. CDEP
Currency depreciation has a t-computed value -2.06 is less than the t-critical value 3.169. It falls within
the value of t-critical region therefore this null hypothesis is not rejected at the .01 significance level. We
have extremely strong evidence that the group means of two eras are same as the p-value is 0.066. The
ANOVA test result validates the same as the F-computed value 2.861 is less than the F-critical value
8.683.
4.15. ERATE
The null hypothesis for the group means of the exchange rate is rejected at the significance level .01 and
this indicates that they are statistically different in both regimes. The T-Computed value -6.47 falls in the
rejection region as the T-critical value is 2.947. The group means results are substantially different in both
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eras at the 99% confidence level. The p-value .00001 shows that extremely strong evidence exists to
support this claim. The ANOVA test further validates the same, as the F-computed value 41.91 is greater
than the F-critical value 8.683.
4.16. IEDU
Investment in education as % of GDP has t-computed value of 2.541, which is, less than the t-critical
value 2.947. This null hypothesis falls within the acceptance region for the null hypothesis at .01
significance level, which also means that it cannot be rejected at 99% confidence level. Since the p-value
of 0.023 is greater than .01 there is strong evidence that the group means are not different in both the
regimes. The ANOVA test also validates the same result, as the F-computed value is 6.456 less than the
F-critical value 8.683.
4.17. IHLTH
The group means of Investment in Health as % of GDP in both eras remain statistically the same. As the
t-computed value1.895 is less than the t-critical value 2.947 it falls within the acceptance region of null
hypothesis at .01 significance level. Therefore, this null hypothesis cannot be rejected at the 99%
confidence level. There is very strong evidence that the two group means are statistically the same as the
p-value 0.078 is much greater than .01. This result is further validated by the ANOVA test, as the F-
computed value 3.59 is less than the F-critical value 8.683
4.18. PCGDP
This null hypothesis cannot be rejected at the 99% confidence level. As the t-computed value 2.424 is
less than the t-critical value 2.947, and the p-value 0.08 is higher than 0.01. Therefore, we have very
strong evidence that the group means of Per Capita Income % of GDP are the same in both eras of
democratic and military. This further validates by the ANOVA test where the F-computed value 5.874 is
less than the F-critical value of 8.683.
4.19. DSGDP
The group means of Debt Services as % of GDP are the same in both, democratic and military eras. The
t-computed value is 1.511 falls within the acceptance region at .01 significance level. The T-critical value
is 3.499. This null hypothesis cannot be rejected with a 99% confidence level. There is extremely strong
evidence that the group means are same as the p-value 0.175 is much more than .01. The ANOVA test
also validates the same result as the F-computed value3.082 is less than the F-critical value 8.683.
4.20. DTGDP
There is significant statistical difference in Debt% of GDP. As the t-computed value 3.672 is greater than
the t-critical value 2.947 it falls in the rejection region, therefore the null hypothesis at the .01 significance
level is rejected at the 99% confidence level. There is very strong evidence that the two groups are not
same as the p-value 0.002 is greater than .001. The ANOVA test further validates the same, as the F-
computed 13.485 is greater than the F-critical value 8.683.
4.21. IPTE
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There is no statistical difference in the group means of Interest Payment as % of GDP in both eras. The t-
computed value is -1.81 is less than the t-critical value 3.25. At.01 significance level it falls with in the
acceptance region. This null hypothesis cannot reject at the 99% confidence level. There is extremely
strong evidence that the group means are same as p-value 0.103 is bigger than .01. This ANOVA test
validates this fact as well.
4.22. WRGDP
The group means are the same of Work Remittance as % of GDP in both the eras. The T-computed
value is -0.11 falls within the acceptance region as the t-critical value is 3.355 at .01 significance level.
This null hypothesis is not rejected with 99% confidence level and there is extremely strong evidence of
same group means as the p-value is 0.913 much greater then .01. The ANOVA test validates the same,
as the F-computed value 0.0161 is less than the F-critical value 8.683.
4.23. FRGDP
This null hypothesis is rejected, as there is significant difference between the group means of Foreign
Reserves as % of GDP during the democratic and military eras. The t-computed value-3.37 falls with the
rejection region. At.01 significance level and with a 99% confidence level the null hypothesis is rejected.
There is very strong evidence that the group means are not same as the p-value 0.004 is less than 0.01.
This validates by the ANOVA test as the F-computed value is11.345 is greater than the F-critical value
8.683.
4.24. POVERTY
The Poverty level during the two eras is statistically different. The t-computed value -9.02 falls in the
rejection region and we have extremely strong evidence as indicated by the p values for both the t test
and validated by the ANOVA test.
5. Findings and Discussion
5.1. GDP
Historically speaking, according to the Pakistan Economic Survey 2005, Pakistan’s GDP growth rate
averaged 6.8% in 1960s: 4.8% in the 1970s; 6.5% in the 1980s; and 4.6% in the 1990s. In this study the
average growth rate of GDP during the 17 years 1989-2005 being studied was also 4.6%. Incidentally,
during the democratic era (FY89-FY99) the GDP growth rate averaged 4.6%, while during military regime
(FY00-05) it increased slightly to 4.8%.
Even though there is no significant statistical difference between the two eras under study but there is
large variation during the military regime (FY00-FY05). In the first three fiscal years of military regime
(1999-2002) the GDP growth average was only 2.9%, and it more than doubled during the next three
years to 6.3% - a 3.4% jump in the growth rate of GDP. This was achieved after the elections in 2002
held by President Musharaff. Although technically, the government would like to believe that it has
reestablished democracy, in reality GHQ essentially controls the government. One positive thing that can
be mentioned about the six-year military rule and which also contributed to the improvement in the growth
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rate of GDP is that there was continuity in economic reforms and policy unlike the democratic era where
the entire political government kept changing every 2-3 years with interim governments in between.
Many reasons are attributed to this significant jump in the GDP growth rate, foremost of which the
Government claims credit is the expert handling of the economic affairs of the country as compared to
Democratic regimes. Although the government is correct to some extent, Independent and objective
political economists point to essentially three factors to explain the increase in the growth rate of GDP;
First of all the events of 9/11 and the increased geopolitical importance of Pakistan in the international
war on terrorism, secondly, the strict adherence of the Pakistani government to the International financial
institutions reform agenda, and lastly the re-basing exercise carried out by the government where the
base year of measurement was changed from 1980-81 to 1999-2000.
The economic survey 2003-2004 notes ‘As a result of re-basing coverage of data has engulfed a new
range of products, enterprises, and economic activities (like IT, courier services, travel agencies, mobile
phones, etc. For instance large-scale manufacturing has now been estimated according to the Census of
Manufacturing industries of 2000-01 instead of 1980-81 and the number of manufacturing items has been
increased from 91 to 128. As a result of re-basing GDP estimates for 1999-2000 have improved from Rs.
2,952 billion to Rs. 3,529 billion showing an increase of 19.5% over the old base estimates. Estimates in
agriculture sector improved by 18.5%, the industrial sector 18% and the services sector by 21.9% over
the old base. Per capita income has been estimated at US$526 for the re-based year 1999-2000
compared to US$ 441 on the basis of 1980-81 bases. Similarly, estimates of fixed investment have
improved by 34.3% to Rs. 607 billion over 1980-81 based estimates of Rs. 452 billion mainly due to
15
improved coverage ). Therefore one can safely deduce that the 6.4% GDP growth rate in FY04 and
8.4% growth rate in FY05 are significantly overstated. Unfortunately the Economic Survey does not
provide the data for these two years based on the common base year 1980-81 which would be the right
basis of comparison for all the relevant data being studied in this thesis. In this study we have discovered
there is no significant statistical difference in the Group means of the variable growth in GDP between the
two eras as indicated by the T-Test and ANOVA test results in the previous section. There is also
extremely strong evidence to support this claim as indicated by the p value in the results using the
framework of analysis established in this paper.
It is interesting to note that during the democratic era the average growth rate of GDP was 4.6%, which
was more or less sustained during most of the seventeen years of study. If the data split into two different
periods of democratic regimes (i.e. Benazir Bhutto (BB) era, and Mian Nawaz Sharif (MNS) era) and look
at the data, the highest growth rate was in FY92 at 7.7% and lowest in FY97, which was 1.7%. MNS was
the prime minister of Pakistan during both fiscal years. There was great variation in GDP growth rate (6%
to be exact) during his rein. On the other hand, BB’s era was a period of macroeconomic stability with
GDP averaging between 4-5%.
5.2. Performance of Industrial Sector
15
Economic Survey 2003-04
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The average growth rate of Manufacturing was 6.2 during the 17 years of both regimes. The key finding
of this study is that there is no statistical difference in the group means and growth rate of manufacturing,
LSM & SSM, and total investment during the two different time periods.
During FY04 the highest manufacturing growth rate of 14.10% was achieved though it come down to
12.50% in 2004-05 but remained higher than most of the years in the democratic era. The manufacturing
growth rate was very volatile during the democratic era; it was highest 8.05% in the FY92, and the lowest
in FY97 at 1.29%. Growth of the industrial sector was somewhat less than FY05, but still in double digits,
mainly because of a rapid growth of the large-scale manufacturing (LSM). Growth in LSM sector was
broad-based, with increases being particularly large in the case of textiles, automobiles, electronics,
engineering goods, cement, and fertilizers. Large increase in public sector development program and pick
up in residential construction boosted the construction industry. The services sector, which contributes
52.4 percent to GDP, recorded the highest growth in the last two decades because of rapid expansion in
the financial sector, wholesale and retail trade, and telecom services.
This average growth rate of Large Scale Manufacturing growth was 5.75 during (1989-2005). There is
substantial statistical difference in two regimes. The military era enjoys the higher growth rate of 9.19%
almost three times than the democratic era of 3.4%. The higher growth rate of LSM is mainly associated
with the higher manufacturing growth rate during the military era. It remained highly fluctuated during the
democratic era while constant growth during the military regime. The average growth rate of small-scale
manufacturing (SSM) was 7.26% during the last 17 years (1989-2005). The growth rate of SSM during
the democratic era was 7.84% and it reduced to 6.20% during the military regime indicating the disregard
for this sector. The growth rate was relatively constant at 8.40% during the first nine years of democratic
regime but in the last two years it decreased to 5.31%. The growth rate of SSM varied from 4.50% low to
7.50% high during the military regime-not a very impressive performance [18].
5.3. Investment and Savings
Total Investment as % of GDP during (1989-2005) was 17.63%. During democratic era it was 17.93,
while in military it dropped to 17.07%. The t-Test and ANOVA test results shows that there is no statistical
difference between the two eras. The share of industry as % of GDP was relatively constant at 24.85% of
GDP during both the regimes. It was slightly higher at 25.59% in democratic and dropped to 23.5% in the
military eras mainly due to the increase in the share of the services sector, which increased to 52% of
GDP. Over all there was little variation in both the regimes. The investment as a proportion of GDP was
highest in FY1993 at 20.70% and lowest in 11.34% in FY1990 in democratic era, while it was between 16
and 17% in Musharraf regime.
Savings as a percent of GDP averaged 15.16% during the last seventeen years (1989-2005). It averaged
higher during the military regime at 17.67% and averaged lower at 13.79% during the democratic era. It
was 20.80% very high in 2002-03 mainly due to the changes in the world after 9/11, and overseas
Pakistanis saved their money in Pakistan. During the democratic era it did not increase beyond 15.70% in
1993-94 which was achieved with return of Benazir Bhutto’s government.
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5.4. Defense Spending

Although defense spending has been increasing every year the statistics show that defense spending as
a percentage of current expenditure as well as a percentage of GDP has been actually declining. During
FY05 the defense expenditure increased 20% to Rs. 216 billion compared to the previous fiscal year. The
average defense spending as percent of current expenditure during (1989-2005) was 22.25%. It was
highest at 26.5% in FY90 during the democratic era and lowest during the military regime at 18.5% in
FY05. The present study shows that there is significant statistical difference between the two eras as
indicated by the T-Test and ANOVA test results in the previous section and there is extremely strong
evidence to support this claim. Similarly during the democratic era the Defense spending as % of GDP
was generally higher than the military regime. In FY90 it reached a high of 6.9% of GDP while in FY01 in
bottomed out at 3.7% of GDP. The defense spending during 1989-2005 averaged 5.27% of GDP. It
averaged 5.87% during the democratic era and 4.4% during the military regime respectively. The main
reason for the reduction in defense spending as a proportion of current expenditure and as a percent of
GDP is due to ‘creative accounting’. Several items which normally should be part of defense spending
such as the salary and pensions of many active and retired armed forces personnel is included in the
civilian budget. Besides the re-designing of budget, the good bilateral relationship with India is also a
reason in the reduction of defense spending.
5.5. Unemployment and Inflation
There is significant statistical difference in the Unemployment Rate and Consumer Price Index in the two
eras as indicated by the T-Test and ANOVA test result in the previous section. The average
unemployment rate during (1989-2005) was close to 6%. During the democratic era it averaged 5.19%
and increased to 7.52% during the military era. Despite high growth rate like 8.4% in 2004-05, and 6.40 in
2003-04, the unemployment rate has increased which shows that the benefit of high growth rate of GDP
is not benefiting the masses. The unemployment rate reached a low of 3.13% low in FY90 during BB's
government and a high of 6.22% in the following year FY91 that was in MNS tenure. During the military
era it touched the highest ever at 8.70% in FY05.
The average inflation rate when measured by the consumer price index was 8.14% during the last 17
years and 8.60% when measured using the GDP deflator [19]. It averaged close to 10% during the
democratic era and 4.75% in the military regime. During the democratic era it ranged between 5.70% to
13%. There is also high variation during the military regime as the CPI was 3.10% in FY03 and 9.30% in
FY05. The average growth rate of GDP Deflator was 8.60 during the 17-year period. The average growth
rate of GDP deflator was 10.09% in the democratic era much higher than during the military regime at
5.89%.
5.6. Budget Deficit and Current Account Balance
The Budget Deficit averaged 5.89% of GDP during the last seventeen years. It averaged close to 7% in
the democratic era, which is much greater than 3.95% in the military regime. There is large variation
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during the democratic era. It fluctuated between 5.6% and 8.8% during this era. During the military era, it
was much better contained between 3% to 4.3% of GDP.
The average balance in the Current Account was -2.72% of GDP during the last 17 years. In the
democratic era the current account was in deficit and averaged -4.8% of GDP but was in surplus in the
military regime at 0.53% of GDP. During the entire democratic era, the deficit ranged from -2.80% to -
7.20%. This deficit was converted into positive balance during the military era as it substantially narrowed
down from -1.60% in FY00 to 3.8% in FY03 mainly due to Pakistan’s favorable position after 9/11 when it
was reconnected to the international financial system. The rapid increase of the mountainous debt burden
reflects the improper financing of Budget and Current Account Deficits through excessive borrowing.
Insufficient Domestic Resource mobilization has been one of the reasons for resorting to this method.
Exceptionally low savings rate as well as low investment rate and also the dis-saving of the Public Sector
has exacerbated the problem. This combined with reckless spending and wasteful consumption has
become the rule rather than the exception.
Major flaws: Over the years, major flaws in economic thinking and practice have become evident which
can be considered as the mortal sins of fiscal policy such as; (1) financing budget deficit from external
borrowing, (2) servicing external debt almost exclusively from gross disbursements of aid, (3) borrowing
internally for external debt servicing, (4) borrowing from non-banking sector at high interest rates to
finance budget and current account deficits, (5) borrowing internally and externally for consumption and
non-revenue yielding spending aside from social sector spending.
5.7. Trade
The average exports as % of GDP was 12.92% during 1989-2005. It was almost exactly the same during
the military regime 12.95% and the democratic era at 12.91%. Export growth averaged 11.38% during the
military era and 5.45% during the democratic era. There is a high variation in export growth during the
entire period particularly in democratic era where it reached a high of 19.80% in 1990-91, and a low of -
10.70% in 1998-99 yielding a variation of almost 30%. During the military regime it was 2.30% low in
FY02 but it was 19.10% very high in the subsequent year.
The average group means in Balance of Trade, as % of GDP was 3.93% during the entire period of study
1989-2005. It was 4.36% slightly higher in democratic era than 3.15% of military regime. During the
democratic era it fluctuated between 2.40% to 6.10%, while during the military regime it was as low
as1.30% in FY03 and the highest ever at 8.02% of GDP high in FY05 when the Balance of trade deficit
exceeded US $6 billion. The average Worker Remittances as % of GDP was 3.15% during the last
seventeen years; during the democratic era it was 3.13% and in military era it was 3.21%. So essentially
there is no difference in the workers remittances as a proportion of GDP during the two regimes. Worker
Remittances were higher at 4.90% in FY90 and narrowed to 1.30% in FY99. Statistically there is no
significant difference in the Group means for Exports, Balance of Trade, and Workers Remittances as
shown in the RESULTS section.
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The Pakistan rupee depreciated at annual average rate of 8% during the last 17 years. The Group means
of the rupee depreciation was 9.2% during the democratic era and 3.02% during the military regime
indicating great stability in the currency in the last few years. The rupee averaged Rs. 31 during the
democratic era and Rs. 57 during the six years of military rule. The foreign exchange reserves as a % of
GDP averaged 5.6% during the 17 years. The group means during the democratic era was 3.50% and it
increased to 9.4% during the military rule. The events following 9/11 proved a blessing in disguise. An
abrupt rise in inflow of workers’ remittances and rescheduling of debts and relief by donors resulted in
manifold increase in country’s foreign exchange reserves. Robust foreign exchange reserves position
reduced vulnerability of the exchange rate and provided some stability to country’s currency value [20].
However, on domestic front, despite structural adjustments, economic growth rate remained stagnant
until 2003 mainly due to neglect of overall investment especially in the social sector, infrastructure and
human development.
5.8. Educations, Health, and Per Capita Income
The average growth rate of Investment in education as % of GDP was 2.18 during the entire period of
study. The investment in education was 2.28 was slightly higher during democratic era than the military
era of 2.0. This important area was equally neglected in both the eras. During the democratic era it was
almost constant. The minimum 2.10 in 1991-92, and the 2.50 is the maximum in 1996-97. The minimum
and maximum of military rulers were 1.60 and 2.50 in 2000-01, and 2004-05 respectively. There is no
statistical difference in both the eras. The descriptive study shows the average growth rate of Investment
during the 17 years of being study (1989-2005) was .7118%. During the democratic era it was 0.74, while
during military era it was 0.67%. It shows that there is significance statistical difference between the two
eras as indicated by the T-Test and ANOVA test result in the previous section.
This most crucial segment severely affected by the rulers of both eras. The investment growth rate
remains between .60% of GDP to 0.90% of the same during the democratic regime. Military regime
further makes the situation worsen as the range of investment in health remains between 0.60% to
0.70%. The per capita income also remained stagnant at $450. The overall saving and investment ratio to
GDP at 19-20 per cent in early nineties came down to 15 per cent and still hovers around this ratio. The
country experienced worst foreign exchange reserves position until 2001.
5.9. External Debt and Debt Servicing
The average group means of debt, as % of GDP was 42.66% during the last 17 years. There is significant
statistical difference in both regimes. It was 44.71% in democratic era and it reduced to 38.9% during the
military regime. During the democratic era, it varied between 43.3% in FY89 and 49.4 % in FY99. During
the military regime it was drastically cut down to 30.80% in FY05.
Debt servicing as a proportion of GDP averaged 8.5% between FY89-FY00. During the military
democratic era it averaged around 9% and it reduced 7.47% during the last six years. This was mainly
due to massive restructuring, rescheduling and re-profiling of debt service payments achieved by
Pakistan in the last six years. Due to this exercise Interest Payments as % of total expenditure averaged
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during the military era was higher at 29.78% compared to the democratic regime, which was at 24.55%,
but a substantial growth is noticed during the years from 18.9% in FY89 to 37% in FY99. For the entire
17-year period it averaged 26.40%.
In Pakistan the economic growth rate started receding in the late 1980s and 1990s mainly due to an
overhang of external debt. The debt burden could no longer match its repaying capacity, as debt servicing
and defense took up more and more of total expenditure. A major share of the benefit accruing from
investment projects started drifting to foreign creditors in the form of debt servicing. This in turn impacted
adversely both domestic and foreign investments. It has now become almost impossible for Pakistan with
its excessive debt burden to achieve Millennium Development Goals even though the rescheduling of its
external debt and the windfall after 9/11.
Increased resources obtained from external borrowings ensure sustainable economic growth rate only up
to a certain level and thereafter additional injection of resources in the economy not only fails to boost
growth rate unless a balance is maintained between quantum of debt servicing and investment on
productive projects, development of infrastructure, and human capital, but creates a long term liability for
future generations. It also exacerbates the poverty situation as the focus of the government is on paying
back creditors at all costs. However, this only holds good only if external debt foster growth via its effect
on how wisely and efficiently overall resources of a country are used and private investment is not
discouraged at any point of time. It generally happened in case of heavily debt burdened low-income
developing countries that, due to absence of fiscal incentives, investment by both domestic and foreign
investments started receding. The momentum of economic growth rate slowed down in view of
government’s inability to carry out important structural and fiscal reforms.
In case of Pakistan, external borrowings stimulated the economy during the period from mid-seventies to
late eighties. The trade and fiscal deficit was contained at lower level to some extent and at the close of
eighties external debt along with foreign exchange liabilities had stood at $22 billion. The abrupt increase
in fiscal and trade deficit, which persisted until late nineties, the total external liabilities had exceeded US$
42 billion when short-term debt was included. It impacted adversely not only budgetary position but also
made average growth rate hover around four per cent during the second half of nineties.
Debt servicing had a share of 11.6 per cent in total revenues until early eighties, but at the close of
nineties it reached the level of 64 per cent. Of the total revenues, only one-third was available for
defense, social sector and civil administration. During this period, export earnings remained within the
range of $9-10 billion. These were too little to meet cost of import bills having liability range of $10-12
billion plus debt servicing, which remained around $5-6 billion per year. Hence external borrowings
continued to grow and by end of 90’s it was around 92 per cent of GDP. The quantum leap in debt
servicing caused a large fiscal deficit, which by 1998-99 was seven per cent of GDP. This, in turn, had
adverse repercussions on social and physical infrastructure development.
5.10. Poverty
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This is one of the most important variables to evaluate the economy of any country. During the year of
study (1989-2005) the average growth of poverty in Pakistan is 30.13%. There is statistical difference in
both regimes. The average growth was 31.7% in Military era and 29% during the democratic regime. The
growth in poverty has made life highly miserable for poor, particularly the rural people. The definition of
poverty differs from country to country. The level of Poverty is defined by the government of Pakistan by
the benchmark of rupee value of Rs. 25 a day or Rs. 748 a month enough to afford 2,350 calories a day.
Anyone earning less than this is considered as absolute poor. This differs dramatically from the
internationally accepted measure of US$1 a day to be considered absolutely poor and US$2 a day, which
is considered very poor. The present official growth rate is 31.80% while the other un-official sources
have estimated it up to 40. Using the internationally accepted definition of poverty 40% of Pakistanis live
on less than one dollar a day and around 70% live on less than two dollars a day.
On one hand the economy is growing with rapid pace of 8.4% the second fastest in the region only after
the China, but only very few are benefiting from this growth. The income distribution is unequal, and only
two percent people are enjoying the growth of economy. Most economists estimate that in order to make
an impact on poverty, GDP growth rate should be sustained at least 6%. In order for Pakistan to have that
kind of rate, during the next 6 years GDP has to average at least 7.2% which is a difficult order to fulfill.
The Pakistan Human Condition Report prepared by the Center for Research on Poverty Reduction and
Income Distribution (CRPRID) brings out a highly depressing picture of the nature of poverty in the
country, “45% of population does not have access to adequate health care, 40% do not have drinking
water, and 55% denied sanitation facilities, 75% of the female adult population is illiterate, and the
mortality rate under five is highest in the South Asia, even higher than Bangladesh and Nepal, Six million
children out of 14 million between the ages of five to nine years are out of school, 55% of the 10+ year
age population is illiterate, the participation at university level is 3% against the 30% in East Asia and
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OECD countries. ” [21]
Poverty in Pakistan has been measured in different ways. The following tables illustrate four different
measurements conducted by different institutions:
TABLE – 6: Proportion of Poor (Headcount %)
YEAR TOTAL RURAL URBAN

1963-64 40.24 38.94 44.53
1966-67 44.50 45.62 40.96
1969-70 46.53 49.11 38.76
1979 30.68 32.51 25.94
1984-85 24.47 25.87 21.17
1987-88 17.32 18.32 14.99
1990-91 22.11 23.59 18.64
1992-93 22.40 23.35 15.50
1996-97 31.00 32.00 27.00
1998-99 32.60 34.80 25.90
16
Pakistan National Human Development Report, 2003, UNDP, Oxford University Press,
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Source: Planning Commission, Govt. of Pak. Human Development and Poverty Reduction
Strategy, April 1999, Pakistan Economic Surveys various issues
TABLE – 7: Incidence of Poverty (%)

1975 35.5 49.8 19.0
1980 27.7 36.2 11.8
1985 9.4 15.2 7.4
1990 12.4 19.0 4.8
1995 14.7 23.1 2.6
Source: Social Policy and Development Center, 1988

1984-85 46.0 49.3 38.2
1987-88 37.4 40.2 30.7
1990-91 34.0 36.9 28.0
1993-94 28.6 33.4 17.2
1998-99 32.6 35.9 24.2
Source: World Bank 2002

1986-87 26.9 29.4 24.5
1987-88 26.4 29.9 22.7
1990-91 23.3 26.2 18.0
1992-93 20.3 22.5 16.8
1993-94 20.8 24.4 15.2
Source: MHCHD/UNDP 1999
Source: Zaidi S. Akber, ‘Issues in Pakistan’s Economy’, 2005, Oxford, page 435 [22]
Above tables shows that poverty in the country increased during the 60s but declined in the subsequent
years. It again started to increase in 1990s and continues to do so. Generally there is no ideal formula to
reduce the poverty, but high growth rates of GDP, along with high public expenditure and increased
workers remittances were the most influencing factors in poverty reduction during the decades of 70s and
80s in Pakistan. Particularly economic growth has been the most essential element in poverty reduction
but in the case of Pakistan it presents inverse relationship in the decades of 60s and 70s. Following table
and graph show the trends in the Gini coefficient from 1964 till 1999, which measures the level of
inequality in Pakistan.
TABLE – 10: Trends in Gini Coefficient
Year Total Rural Urban
1963/64 0.355 0.348 0.368
1966/67 0.351 0.314 0.388
1968/69 0.328 0.293 0.370
1969/70 0.330 0.295 0.361
1970/71 0.326 0.273 0.359
1971/72 0.344 0.309 0.381
1979 0.375 0.319 0.380
1984/85 0.428 0.345 0.379
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1985/86 0.355 0.330 0.354

1986/87 0.346 0.312 0.357
1987/88 0.348 0.307 0.366
1990/91 0.407 0.410 0.390
1992/93 0.390 0.367 0.384
1993/94 0.400 0.40 0.350
1996/97 0.400 0.41 0.380
1998/99 0.410 0.40 0.330
Source: Zaidi S. Akber, ‘Issues in Pakistan’s Economy’, 2005, Oxford, page 439 [22]
The above table shows that growth in Pakistan increased inequality in rural areas but decreased
inequality in urban areas but over all inequality of income in Pakistan increased from 1964 to 1999.
rd
Mainly because more than 2/3 population reside in the rural areas. The following table shows the
relationship of Growth, Poverty, and Income Distribution:
TABLE – 11: Trends in Growth, Poverty, and Income Distribution (Gini)
Decade Growth PovertyIncome Distribution (Gini)

1950s Stagnant Persisted
Unknown
1960s Rapid Increase Increased
Improved
1970s Slow Stagnant Declined
Worsened
1980s Rapid Increase Declined
Rapid deterioration , followed by Rapid
Improvement
1990s Substantial Decline Increased Worsened
Source: Zaidi S. Akbar, ‘Issues in Pakistan’s Economy’, 2005, Oxford, page 439
From the above table it apparent that there was high economic growth during 1960s, but the poverty level
was also high. On the contrary during 1970s the economic growth was slow but poverty was declining.
This inverse relationship between the economic growth and poverty has several reasons. The unequal
distribution of income was the core reason of high poverty during 60s. The rapid industrialization at the
cost of agriculture declined the poverty level in urban areas but increased in rural areas as over 70%
population lived in rural localities. It affects the over all increase in poverty. During 70s, high public
expenditure, ensured employment guarantees, and high social development expenditure were the causes
of reduced poverty. High workers remittances and Prime Minister Mohammad Khan Junejo’s five point
program focused on education, health, roads, electrification, water supply and sanitation were the main
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reasons of poverty alleviation between the years of 1985-90. [22]
6. Conclusions and Recommendations
Pakistan has not resolved most of its core political and social issues that continue to haunt it 58 years
after achieving independence. The country’s overemphasis on high economic growth especially during
the Military regimes have yielded short-term gains but created long term economic and political
dislocations. During Ayub Khan’s decade of development it appeared that Pakistan had made the right
17
Zaidi S. Akber, 2005 ‘Issues in Pakistan’s Economy’, 2005, Oxford University Press
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choice, putting economic growth ahead of political development. In terms of income per head of the
population it overtook India during this period. It was heralded to become one of Asia’s miracle
economies. The benefits of high growth of the 1960s were not distributed evenly and led to the large
scale concentration of incomes, epitomized by the infamous finding that 22 families controlled two-thirds
of the country's industrial assets [23].
It can be debated that all hell would have broken loose if the military had not intervened in October 1958.
In all probability had he not thrown out the civilian government and not abrogated the constitution,
Pakistan may have resolved some of the political, social, and economic issues that continue to haunt it
almost six decades after achieving independence. The so-called “decade of development” may not have
been so spectacular but sustainable growth could have arrived later had Pakistan resolved some of the
difficult social and political problems it then faced. At that time, India, on the other hand, chose to follow
the path to democracy and integration over rapid economic development. Following decades of what was
popularly called the “Hindu rate of growth,” – a growth rate of GDP of 3 to 3.5 percent a year, the country
has recently changed course over the last decade and accelerated the rate of economic growth to more
than 6%. It is now enviably described as the next economic giant and emerging superpower. India may
not have deliberately followed any grand strategy of first letting institutions develop that could handle its
enormous diversity before focusing on accelerated economic development but India was fortunate that
since1947 it was led by people who had enormous faith in democracy as the only way of handling
diversity and dissent [24].
All military regimes start with the same goals like their predecessors; to save the country from usurpers of
power and salvage the economy. Dr. Subhash Kapila [25] observes “For the first time in Pakistan’s
history, the Pakistan Army finds itself in severe dozens insurgency operations against their own people
and suffering dozens of casualties there from…Pakistan’s six years of military rule under General
Musharraf has been a heavy price to pay for a country which aspired to be the leader of the Islamic
18
World.” Similarly, Akbar Zaidi in his book views military regimes more of a problem than a solution.
(Footnote) He notes, “When in power, military regimes have not worked either to establish effective
conditions for the return to civilian rule or to develop institutions that might make military usurpation
unnecessary in the future. Rather they have focused on immunizing themselves against criticism and
deflecting any popular challenges that might arise. More dangerously in an effort to ensure their survival
and mitigate perception of their illegitimacy, military regimes have repeatedly undermined centrist social
forces and political parties in Pakistan by encouraging radical political groups opposed to democracy.
They have also deliberately preferred privileged partly-less local governments over central and provincial
institutions because the former typically cannot threaten core military interests relating to security policy,
national budgets, and economic organization”.
Recently the International Monetary Fund (IMF) expressed concern over widespread poverty, high
inflation, widening of the current account and budget deficits, continued power sector’s drain on budget
18
Dr. Subhash Kapila, ‘Pakistan’s Six years of Military Rule Reviewed’ South Asia Analysis Group,
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and stagnation in Pakistan’s tax-to-GDP ratio. Continuing high debt burden and rising credit development
besides continuing pressure on prices and balance of payments in the future. Their main conclusion is
that in spite of Pakistan’s impressive macro-economic results in recent years, particularly higher growth
rates, financial market stability, and re-access to international capital market, poverty remains widespread
[26]. The State Bank of Pakistan also supports this analysis in its recently released annual report for
FY2005. They now see a GDP growth rate of 6.3-6.8 per cent against the target of seven per cent for
2006. Though lower than the exceptional 8.4 per cent of FY2005, the rate is expected to be higher than
the anticipated long-term trajectory of six per cent per annum. The State Bank also sees continuation of
strong growth in the manufacturing and servicing sectors but does not share the government’s optimism
about growth in agriculture, in view of the latest output estimates of cotton and other major crops. While
recording the positive trends, the SBP Annual Report 2005 is worried about risks to sustainable economic
growth. The first and foremost factor troubling the central bank is the persistently high domestic inflation
though many see a slow tightening of the monetary policy by the SBP as being responsible for it. The
annual CPI inflation rose to 9.3 per cent by end June 2005 the highest since 1997 [27].
Another potential vulnerability, the SBP report notes, lies in the country’s fiscal position of declining tax
buoyancy, the tax-to-GDP ratio falling to 10.1 per cent in 2005 from 11 per cent in 2004. The risk is
further enhanced by the rising interest rates impacting on the government’s debt servicing costs and
shrinking of fiscal space because of spending on relief and rehabilitation of recent quake victims. The
SBP has advised the government to cut current expenditure, as the budget deficit has tended to rise by
0.1 per cent per annum for the last three years. Conventional wisdom dictates that high growth with low
inflation is good for the economy and the people but high growth is negated by higher inflation as the
worst sufferers are the poor, fixed income groups and the unemployed. Their position further aggravated
by the prevailing social conditions. According to the SBP report, the social sector indicators are also not
satisfactory with high regional, gender disparities and a 7.7 per cent unemployment rate. The strategy for
economic growth has not been able to check the weakening of macro-economic indicators including the
trickle-down effect and is devoid of equity. With consumers who contributed to growth last year now
impoverished, the domestic market will shrink, paving the way for recessionary trends to set in sooner
than later. The focus should, therefore, shift to pro-poor growth.
The State Bank states the present high growth has come from a sharp rise in private consumption as
much as from robust growth in investment, that the fact that a steep drop in savings parallels the rise in
consumption raises a note of serious concern. For the first time in six years, the national savings rate has
fallen from the 2003 peak of 20.8 per cent to 15.1 per cent of the GDP in fiscal 2005.
The poverty reduction strategy formulated by Pakistan, for the period 2001-2007, is in fact focused on
growth and macro-economic stability and does not include any policies or programs to reduce inequality
and promote greater equity in providing economic opportunities to the poor. Even the acceleration of
economic growth is perceived largely through the prism of stabilization measures.
Similarly the expenditure on health is projected to rise to only one per cent of the GDP "in the long run".
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The average for most developing countries is more than 2 percent and even some of the least developed
countries like Nepal and Bangladesh are spending 1.6 and 1.5 per cent of the GDP respectively on health
services. The concept of pro-poor growth is no longer confined to academic discussions but has moved to
a full-fledged strategy under which a favorable strategic framework consisting of pro-poor policies and
pro-poor support organizations are given operational meaning through strategic interventions at national,
state and local levels to ensure the participation and empowerment of the poor. Under such a strategy,
the process of growth gives special attention to sub-sectors on which the poor depend for their livelihood,
namely crop agriculture, livestock, fisheries, forestry and small-scale rural industries. The infrastructure
necessary for accelerated development is developed largely through a decentralized governing structure,
but decentralization is accompanied by social mobilization of the poor, to ensure that decentralization
does not end up creating opportunities for vested interests to monopolize power and resources for their
advantage. Similarly, macro-economic stability, which is necessary for accelerated development, is
achieved by cutting out non-essential current expenditures including unessential defense expenditures
and not by reducing development expenditures that lead to employment and other benefits for the poor.
The temptation to raise the cost of utilities and services for the poor is also curbed to the maximum
possible extent [28].
While accelerated GDP growth is one necessary condition for poverty reduction, it is not sufficient by itself
without a more equitable distribution of income and resources in terms of income groups and regions.
Results of recent research show that high inequality is an impediment not only to poverty reduction, but
also to growth through reduced aggregate demand and a shrinking economic base. One strategy to
reduce inequalities in Pakistan can be evolved on the following elements: Increasing the ratio of
development expenditure on social services (education and health) to at least five per cent of the GDP;
Building a safety net for those living below the poverty line; improving the ratio of direct to indirect taxes.
The present tax regime in Pakistan is biased against the poor because the share of direct taxes in total
tax revenues is only 22 per cent, compared to 30 percent in India and 40 percent in Iran.
Human development and a better quality of life for the majority is the ultimate objective of any
development process. It also contributes to poverty reduction through strengthening skills in poor
households, and improves their income earning opportunities. The principal elements of human and
social development are education, health care, social protection, and population control. These elements
have direct linkages to growth, employment and poverty reduction.
Pakistan needs to grow at an average rate of 7.2% annually over the next six years to reach the trajectory
of sustainable 6% growth to be able to keep poverty in check because of growing inequality in the rural
and urban economy. In fact under the status quo scenario, the incidence of poverty over the next five
years might increase further from 32 to 35 per cent of the population if the unemployment rate remains
constant at the rate of eight to ten per cent. The devastating October earthquake exposed Pakistan’s
many weaknesses. Among them was the government’s inability to quickly gauge the depth of the crisis it
faced and organize itself to provide relief to the affected population. The earthquake has already claimed
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at least 74,000 lives but the estimate of those who died continues to increase. More than three million
people are homeless and as winter approaches the number of dead will increase. The country does not
have the resources to pay for rescue, relief, and rehabilitation and the world community has proved to be
ungenerous. How will Pakistan deal with this crisis and what will be the medium-and long-term economic
and political consequences? It is about time Pakistan’s leaders must look at their performance honestly
and also around themselves, take stock of the situation they and their country faces, and, if need be,
adopt a new course. Perhaps the time has come to adopt alternative course and follow a new paradigm
of economic development [29].
6.1 Suggested Areas for Further Research
This study paves the way for further research on the economic performance of Pakistan using inferential
and advanced statistical techniques. Such a study could consist of analyzing the economic performance
during the entire 58 year history of Pakistan. That will give us a bigger sample size and would be equal in
terms of the time period being studied. The macroeconomic indicators could be increased and refined
further to reflect the performance of the economy more comprehensively. After the Federal Cabinet, and
the bifurcation of SMEs from LSM finalize the definition of SMEs and SSM data is made then we would
have a database to analyze the growth and performance of just the SME sector. This would give us a
better platform to formulate more realistic and relevant policies to promote SMEs for the economic
development of Pakistan.
REFERENCES
[1]. S.M. Naseem, October 04, 2004, article, ‘If democracy is to work’ Daily Dawn, Karachi
[2]. Pervez Hasan, 1998, ‘Pakistan’s economy at the Crossroads: Past Polices and Present Imperatives’
Oxford, pg. no.6-7
[3]. Faisal Cheema, 2004, ‘macro economic stability of Pakistan 1997-2003’ University of Illinois-
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The Army and Democracy in Pakistan: An Evaluation of Economic & Social Performance

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© European Journal of Social Sciences, Vol.

© FRDN Incorporated, 2011

European Journal of Social Sciences ISSN: 1450-2267

THE ARMY AND DEMOCRACY IN PAKISTAN: AN EVALUATION OF ECONOMIC &

1.2 Statement of the Problem

Table – 1: Changes in Key Macroeconomic Indicators

October 1999 June 2003 Change in the

Fiscal Deficit/GDP -6.1 % -4.0 % Positive

TABLE- 2: Macroeconomic Indicators before September 11, 2001

Indicators FY 98-99 FY 00-01

Source: SBP Annual Reports [8]

3. Defense Crowding Out Hypothesis:

TABLE – 3: Defense Expenditure as % of GDP

1991-96 5.6 32.5 23.1

2000.01 4.0 23.7 18.3

2003-04 3.8 22.7* 19.5*

2.1.1 1988-1999: Democratic Era

policy reforms to stimulate investment in manufacturing, removal of the complicated investment

Table – 4: Annual Growth Rate of Democratic Era (1988-1999)

Table -5: Annual Growth Rate Musharraf Regime (1999-2005)

Years Agriculture LSM SSM Services GDP(fc)

4. Data Analysis and Interpretation of Results

5.4. Defense Spending

YEAR TOTAL RURAL URBAN

TABLE – 7: Incidence of Poverty (%)

TABLE – 8: Proportion of Poor (Headcount %)

TABLE – 9: Proportion of Poor (Headcount %)

1985/86 0.355 0.330 0.354

Decade Growth PovertyIncome Distribution (Gini)

[4]. Pakistan Economic Survey, 2004-05, page ii

[5]. Pakistan Economic Survey, 2003-04

[6]. Pakistan Economic Survey 1998-99 table 1.4 Page 1

[8]. State Bank’s Annual Report 2004-05

[13]. SME Development Review, 2004, SMEDA, July-Sept. Page 16 Vol. 01

[14]. SME / Development Review, SMEDA, Vol 1. NO.1 July-Sept. page 16

www.mti.gov.sg/public/NWS/ frm_NWS_Default.asp? Sid=39&cid

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