PAKISTAN’S ECONOMIC HISTORY

BRIEF HISTORY OF PAKISTAN’S

The economy is an indicator of development and sustainability. If we understand the cycles
and system in Economics, we can better understand how to manage our money and society.
This paper describe brief historical overview of Pakistan economy and some important events
since independence of Pakistan.

IMPORTANT EVENTS

DATE ECONOMIC EVENTS

26-Sep-47 Quaid-i-Azam lays the foundation of Pakistan’s first textile mill, Valika.
28-Feb-48 First budget presented by then finance minister, Malik Ghulam Muhammad.
1-Jul-48 Inauguration of State Bank of Pakistan.
1949 National Bank of Pakistan is launched.
7/11/1950 Pakistan becomes a member of the International Monetary Fund (IMF) and World
Bank.
10-Jan-55 Pakistan International Airlines (PIA) formed after the nationalisation of Orient
Airways.
19-Sep-60 Pakistan and India sign Indus Water Treaty, brokered by the World Bank.
1960 Warsak Dam in Khyber Pakhtunkhwa is inaugurated.
1-Jan-81 Islamic banking is introduced.
1988 First structural adjustment agreement with IMF.
2008 Government enters IMF stabilisation programme to ward off balance of payments
crisis.
May, 2013 China-Pakistan Economic Corridor (CPEC) formalised during the Chinese premier’s
visit to Pakistan.
2016 Sustainable Development Goals (SDGs) launched with start of new year.

INITIAL PHASE
In the initial stage, Pakistan faced a lot of difficulties as newly state have no infrastructure with
lack of resources & have very few number of industry moreover at initial time Pakistan haven’t
have his own state bank. At the time of independence Pakistan is divided in East Pakistan and
West Pakistan and the primary task of government at that was to re structure the economy of
newly born state.

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In 1947, the population of Pakistan is 30 million with 6 million people live in urban areas. At
that time Agriculture sector contribute 53% of GDP in 1947 & 53.2% in 1949-50. Agriculture
sector contribute 99.2% in export and Pakistan earn his 90% of foreign earning through this
sector. The literacy rate of Pakistan at that time of 10%. In 1949-50, the national saving rate of
Pakistan was 2% and investment rate was 4%. Afterward, the manufacturing sector contribute
39% in GDP while service sector contribute 39% in GDP. Pakistan balance of payment was
deficit by 66 million rupees during 1949-50.

ERA OF 1950s- PLANNING DECADE

The era of 1950s also known as the 1st decade of planning. The first five-year plan was come for
the period of 1950-55. In the first five year plan. The main objective of first 5-year plan was to
improve standard of living of people, raise the national income, improve balance of payment,
make steady progress in providing social service, housing, education and most importantly
increase rate of development.
In 1950s, Pakistan joined the group of most rapidly growing countries. In 1952, Pakistan
banned the import of cotton textiles and luxury good and become self-sufficiency in cotton
textile in the late 1950s but anti- agriculture policy cause the decline of agriculture growth rate
to 1.9% in 1957-59 from 2.6% in 1949-50. Balance of payment deteriorated from 831 million
rupees in 1950 to 1043 million rupees in 1959-60 due to decrease from 1,038 million Rupees in
1950/51 to 763 million Rupees in 1959/60. Agriculture sector grew at a rate of 1.6% and manufacturing
grew at a rate of 7.7% in 1950s.

ERA OF 1960s – ECONOMIC GROWTH

1960s stand out for the best era of development, many economist consider economic
performance was at the optimal level in the era of Ayub Khan. Many economic growth and
development take place in that period. However, observer also notice that aggressive capitalist
cause serious political and economic problem. they argue that in this period rich become more
rich and poor become more poor, like increase income disparity across different province/city.
Massive inflow of American aid and stability in the country enable sustainable growth
rate in different sector of economy. Agriculture growth rate was 5% annum because of
receiving significance investment in water resources, modernization of agriculture process and
increase cultivation of high yield varieties of rice and wheat. Manufacturing sector grow at a
rate of 16% in 1960-65. The foreign aid reduce after 1965 because of India-Pakistan war which
cause large scale manufacturing sector grow at a lower rate of 10% per annum in 1965-70. The
growth rate of Pakistan was 6.7% in GDP during 1960-70.

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ERA OF 1970s – BAD LUCK ERA
1970s the era of socialism and it after math, in 1971 East Pakistan become separate from west
and become separate independent nation (Bangladesh) because of growing interregional
economic disparity of Bhutto’s. Moreover, Bhutto’s nationalize policy was said to be one of the
major cause of deteriorate of economic growth trend downward.
Pakistan face huge economic losses in that decade i.e. Poverty increase to 55% in 1971-
72. Pakistani rupees devalue by 120% in 1972. In 1973, the OPEC increase the oil price that
significantly cause balance of payment deteriorate. In addition, the period after 1973 saw a
huge worldwide recession time. In 1973/74/75 flood affected Pakistan main export of
agriculture. Pakistan experience a huge inflation in this decade because of Bhutto liberal
economic policy. After 1977, second martial law imposed by Zia ul Haq that accomplish
denationalization and privatization.

ERA OF 1980s – SECOND MARTIAL LAW

In 1977, second martial law imposed by Zia ul Haq, which accomplish
denationalization, and privatization, which reveal the private sector investment. However, his
economic policies were more liberal than any other former government his government had an
important role in acquiring capital and many individuals capitalists emerged in post-Bhutto era
which was quite stable.
The revival of private sector industrial investment led to high rate of growth, poverty
decline to 29.1% in 1986-87. Unemployment rate decline to 3.7% 1980, in 1985, government
implement Islamic interest free banking system. Domestic debt grew from 58 billion to 521
billion in 1988. During 1980-90, average annual growth rate of GDP was 6.3% & the large
manufacturing growth rate was 8.8% and agriculture growth was rate of 5.4%.

ERA OF 1990s-
The period after the death of general Zia in 1988 was the period of return of democracy in
Pakistan. Pakistan had four general elections with Benazir Bhutto and Nawaz Sharif coming into
power twice during their governance anti-democratic forces still existed and in late 2012 and
2013.
Unemployment rate sharply increased to 5.9% in 1991 and 7.2% in 2000. In 1995,
external debt amount to US$ 30 billion. During 1980-95, the external debt/GDP ratio increase
from 42% to 50%. Debt to service increase from 18% to 27%. Domestic debt raise to Rs. 909
billion. Serious debt crises occurred in late 1990s when public debt/ GDP ratio rose to 57.5% in

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1975-77. External debt default emerged in 1996-98 due to the sanction imposed by western
economics. However, agriculture growth rate 4.4% per annum and manufacturing growth rate
was 4.8% per annum in 1990s. Poverty rate increase to 30.6% in 1998-99.

ERA OF 1999-2007 – (MUSHARRAF ERA)

Pakistan economy has witnessed of many since October 1999 in the era of Musharraf
some for the better some for the worst. Banking sector was de regulation of banking sector
including decline of interest rate, public investment increased. Easy access of of low cost
finance led sharp rise in the sale of consumer goods. Per capita income was rise to from $ 450
in 1999 to $1000 in 2007. In 2001, Pakistan was caught up in a war against terrorism the
economy was doing badly under Musharraf’s rule. General Musharraf was rescued by the
events of 9/11 and another invasion of Afghanistan. In 2001, the economy boomed by the IMF
and by the other global economic support and aid. Higher education is a federal subject, as
government has to be given credit for setting up a higher education commission and
significantly increase the budget for higher education.
In this era, poverty increase to 34.5% in 2000-1 & then decline to 22.3% in 2005-6.
Unemployment rate increase to 7.8% in 2002, & then decline the rate to 5% in 2008. Adult
literacy rate was 55% in 2008.

ERA OF 2008-2013- ZARDARI ERA

In 2007, Musharraf govt become weekend because of his certain decision, which led to
Pakistan downfall. The rise of free media played an important role in pushing away Musharraf’s
dictatorship but the 2008 democratic transition was weak and incomplete. The PPPs
government come to power in 2008 stayed in power for 5 years though it received many
threats from the establishment but it still stayed in power which itself was a major
achievement, it is the time when global economic experience worst economic recession since
the great depression of 30s. The demand of Pakistani good deteriorate and investment flow
declined.
In 2009-10, the inflation adjusted growth rate was 4.1% while agriculture growth rate
was 2%, industrial growth rate was 4.9% and large scale manufacturing growth rate was 4.4%
and service growth rate was 4.6% in March 2010. GDP share of agriculture declined from 53% in
1947 to 21.2% in 2010, in 2012, the nation was poorer, hungrier, and more deprived than it was
in March 2008. While the Musharraf regime posted 6 per cent to 8 per cent economic growth
rates, the Zardari government could not muster even a 4 per cent GDP growth.

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Critique:
In my point of view Pakistan shouldn’t seek IMF or World Bank’s Financial Assistance because
these two global monetary organizations helps our country in financial crisis but that also
compromises the chances of the growth of our country as evident from the past to present
scenario of our economy Pakistan still is in debt since form its creation, in the initial phase of
Pakistan, the first Development Plan was a finished disappointment as there was no
coordination seen among the offices. Additionally, the arranging apparatus was most certainly
not well prepared to satisfy the activity effectively. There was a poor financial examination
because of which no one felt a need to reconsider the ailing in the arrangement. The period of
Zia ul Haq was gainful as the monetary arrangements made by Zia-ul-Haq brought about
advantages for the economy. The financial development rate expanded and furthermore
supported during this time. The economy extended and the expansion rate likewise declined
during this time. Additionally, the genuine compensation rate likewise expanded which at last
brought about a decrease in the destitution list of Pakistan. Musharraf in his rule with its poor
control fiscal and monetary control also had a part in financial crisis, I believe our government
should think and plan about bringing structural changes and should also look for well though
program of economic reforms, In the history of Pakistan we have experience instable
government and unfavorable environment Pakistan experienced marshal law thrice, due to
these unstable governments many goals for economic development and growth remain
incompetent, purchasing power reduced due to high inflation, negligible foreign investments. In
my view economic growth cannot be achieved by changing governments and adopting
unfavorable economic policies which only provide benefit to the policy makers, government
should shift its focus towards industrialization and agriculture sector which result export high-
end goods and raw material produced from these sectors so that Pakistan will not have to rely
on imports and due to industrialization many job opportunities will be created. Although, the
economic policies were somehow increasing the GDP rate of the country. However, due to the
allowance to transfer revenues without a limit was creating a lot of loss of the economy of
Pakistan.

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 CURRENT ECONOMIC SITUATION AND
POLICY
Pakistan has achieved steady growth since 2013 after the credit facility agreement with the
IMF. Economic growth was estimated decline to 3.3% in 2019 from 5.5% in 2018, which is 0.7
percentage point below IMF's previous estimate. This was mainly due to measures taken by
authorities to counter macroeconomic imbalances. Growth is further expected to slow down to
-1.5% in 2020 due to COVID-19 and pick up to 2% in 2021, according to the updated IMF
forecasts from 14th April 2020.
Imran khan come into the power in 2018, at that time country’s condition was miserable the
balance of payments were high and inflation was at 9.11% in PML (n) government. Total
liabilities at that time was 29.891 trillion and it further increase to 95.097 trillion. According to
the planning development of Pakistan 29.5% of the population living below the poverty line,
Unemployment rate remain at high. In order to stabilize the country Imran Khan made some
policies & many economist suggest that he achieve his first goal that is maintaining economic
stability in Pakistan.
In the start of 2019, Pakistan foreign reserve fallen to US$ 7 billion, after that it was boost when
UAE and Saudi Arabia provide financial assistance. Furthermore, IMF approve two tranches of
loan first in July 2019, and another in fib 2020. According to the data from state bank, foreign
reserve rose to US$ 18 billion as on March 2020. However, export of the country does not boost
but the import of the count decline due to low investment. Pakistan economy recovery is
expect to be quicken after the structural reform in tax collection.
In the fiscal year June 2020, the FBR collected the revenue of Rs 411 billion against set target of
Rs 398 billion. Moreover, 300 billion of revenues were collected in July 2020 against set target
of 243 billion in the same time period inflation declined to 9.3% from 14.6%, furthermore,
Imports decreased by 4.2% due to worldwide lockdown and Exports increased by 5.8% as
industries opened four long months.
The government is focusing more on agriculture and industrial sectors to increase the
production to create sufficient employment opportunities for the people to increase our
exports and foreign exchange reserved. Government can pay off foreign debts if these expected
achievements are made possible the currency’s value will surely stabilize against dollar so that
inflation will decline and the government can balance the current account deficit. The economic
performance is going in well direction and it can be even better if the current government
introducing such policies that bring economy back in shape before its tenure ends.