The economy of pakistan

ECONOMY


Like most developing countries, Pakistan is confronted with the problems of rapid population growth, sizable budget deficits, and heavy dependence on foreign aid and loans. The economy is strained from supporting a large military establishment and from providing for the needs of Afghan refugees.Pakistan receives considerable economic assistance from foreign countries and from international organizations. Over the years Pakistan has accumulated a foreign debt of about $40 billion. Debt repayment, defense spending, and general administrative expenditures consume 80 percent of Pakistan’s annual budget.
Only 20 percent is available for development of the social sector. After Pakistan exploded a nuclear device in May 1998, it faced the imposition of international sanctions. The fact that the country survived the sanctions without a collapse of its currency or violent street demonstrations is generally regarded as proof of the country’s resilience. Heading into the 21st century, Pakistani leaders have a chance to seize the moment in order to modify and build a sound social and economic order that may steer the nation to a more durable path of progress.
In 2001 Pakistan’s gross domestic product (GDP) was $58.7 billion. The government budget in 2000 included $9.9 billion in revenues and $13.5 billion in expenditures.

A -Economic Development
After East Pakistan seceded to become the independent nation of Bangladesh in December 1971, the elected government of Zulfikar Ali Bhutto tried to pick up the pieces of a truncated Pakistan. It devised economic policies that led to a drastic devaluation of the Pakistani currency, thereby boosting agricultural exports. To ease unemployment pressure the government encouraged the export of Pakistani labor to the Middle East. It also embarked on the nationalization of industries, banks, and agriculture-based industries. This expansion of the public sector ultimately shook private-sector confidence so that investment plummeted. The annual growth rate declined, averaging between 2.7 percent and 3.7 percent during most of the 1970s.

During the 1980s the country’s economy grew an average rate of 6 percent annually. This high growth rate was largely created by three factors: aid from the United States, the influx of foreign exchange from Pakistanis working abroad, and high crop yields. First, Pakistan received an average of $600 million per year in economic and military aid from the United States from 1981 to 1989, largely because of Pakistan’s support for anti-Soviet forces in the Afghan-Soviet War. (During this decade Pakistan was the third-largest recipient of U.S. aid, after Israel and Egypt.) Second, Pakistan received $2.5 billion in remittances from Pakistanis working abroad in the Persian Gulf States and other countries. Third, good weather conditions produced bumper cotton and wheat crops.

At the same time, the government did little to devise policies to boost the confidence of private investors or promote the welfare of Pakistani citizens. The negative fallout of the Afghan war on Pakistan was an expansion of the black market (the illicit sale of commodities) and the proliferation of portable weapons and violence. Despite the high economic growth rate, the economy remained largely agricultural, and socioeconomic disparities between the rich and poor widened. Also during the 1980s, the military regime increased defense spending to such an extent that the fiscal deficit rose to 10 percent of the GDP. In addition, public debt ballooned from less than 40 percent of the GDP to more than 80 percent. The debt trap that Pakistan finds itself in today originated during this decade.

The economy of Pakistan slowed to an average annual growth of 3.8 percent during the 1990s. Factors contributing to the sluggish growth included corruption and mismanagement at the highest levels of government and the rise of ethnic and sectarian violence in Karāchi and other urban centers. These factors shook investor confidence.

The economic performance of the 1990s was also related to the structural adjustment programs (SAPs) of the World Bank and the International Monetary Fund (IMF). Loans from these international lending agencies were subject to conditions on Pakistan’s national economic policies. Pakistan received its first formal loan in 1988. In Pakistan the primary focus of the IMF-sponsored program was to lower the budget and current-account deficits. These objectives were to be achieved by reducing public expenditures and broadening the tax base. In addition, in 1992-1993 the IMF further insisted that Pakistan reduce defense expenditures, impose an agricultural tax, and improve methods of tax collection. These reforms were never fully implemented, however, and the IMF-sponsored program did not achieve the desired result. Inflation rose from 8 percent in the 1980s to 11 percent in the 1990s, although a nominal reduction in the budget deficit was visible. Direct foreign investment did not improve and the export sector remained sluggish.

A high-powered Privatization Commission was created in 1990 to encourage privatization of public-sector industries, economic deregulation, and other reforms designed to boost confidence in the principles of a free-market economy. However, the commission was slow to implement its privatization program.

B -Agriculture
About 28 percent of Pakistan’s total land area is cultivated. Agriculture and related activities, including fishing, engage 47 percent of the workforce and provide 25 percent of the GDP. Chief cash crops are cotton (textile yarn and fabrics produce more than one-half of export earnings) and rice. Principal crops in 2002 (with output in metric tons) included sugarcane, 48 million; wheat, 18.5 million; rice, 5.8 million; cotton lint, 5.1 million; and corn, 1.7 million. Livestock included cattle, water buffalo, sheep, goats, and poultry.
Land reform is a controversial issue in Pakistan. At independence in 1947, a large proportion of the arable land was concentrated in a small number of large estates, many of them owned by absentee landlords and cultivated by tenant farmers. Land reforms introduced in 1959 provided some security of tenure to tenants but did little to break up the large estates. In the 1970s the government of Zulfikar Ali Bhutto introduced more extensive land reforms.

The amount of land any individual could own was significantly reduced, and landlords were not compensated for the land they surrendered. Most of the expropriated land was distributed to tenants, but the government retained land that was not suitable for farming. Landlords strongly resisted the reforms, however, and the government bureaucracy was somewhat lax in enforcing them. In the end, the reforms shook the landlords but did not break their hold. By the end of the 20th century, about half of the country’s arable land was held by only a small percentage of wealthy landowners.
The Bhutto government also developed favorable credit and loan policies for farmers. The tractor became the new status symbol in rural Pakistan. Improved mechanization gave a boost to agricultural productivity. Formerly an importer of wheat, Pakistan achieved self-sufficiency in the grain by the late 1970s.

C -Fishing
Fishing resources, although underdeveloped, are extensive. In 1999 the catch was 674,606 metric tons, three-quarters of it obtained from the Indian Ocean. Types of fish caught include sardines, sharks, and anchovies; shrimp are also an important part of the industry.

D -Mining
In the early 1990s the most important nonfuel minerals (with annual production in metric tons) included gypsum (532,000), rock salt (895,000), limestone (8.8 million), and silica sand (154,000). In 2001 coal production was 3.20 million metric tons, crude petroleum production reached 23.3 million barrels, and production of natural gas was 23.4 billion cubic meters (826 billion cubic feet).

E -Manufacturing
The manufacturing capacity of Pakistan is still small, but production has been steadily expanding. In 2001 manufacturing accounted for 16 percent of the GDP. About 17 percent of the labor force is engaged in industry, including manufacturing and mining. Important products include processed foods, cotton textiles, silk and rayon cloth, refined petroleum, cement, fertilizers, sugar, cigarettes, and chemicals. Many handicrafts, such as pottery and carpets, also are produced.

F -Energy
Pakistan’s total output of electricity in 2001 was 67 billion kilowatt-hours. Hydroelectric dams on the Indus and its tributaries help furnish the country’s energy needs, but the supply of hydroelectricity drops sharply during the dry winter months. About 28 percent of the country’s electricity is produced through dams. The country also has natural-gas fields. About 69 percent of the country’s electricity is generated in thermal installations fueled by natural gas and petroleum.

Pakistan has two nuclear power plants, but neither produces a significant amount of electricity. The Karāchi plant was built with Canadian help in the early 1960s, and the Chashma plant, on the Indus River in southern Punjab, was built in the 1980s with financial support from China.

Pakistan is not self-sufficient in energy production. The country relies on imported petroleum to fuel its electricity-generating thermal plants. However, the country’s exports bring in hardly enough revenues to meet the cost of petroleum imports. During the 1990s rising oil prices had a devastating effect on the economy, leading to a rise in the country’s foreign debt.

G -Currency and Banking
The basic monetary unit is the Pakistani rupee, consisting of 100 paisa (61.93 rupees equal US$1; 2001 average). The State Bank of Pakistan, established in 1948, issues banknotes; manages currency and credit, the public debt, and exchange controls; and supervises the commercial banks. Pakistani banks were nationalized in 1974, but in the early 1990s the country transferred two banks to private ownership and issued licenses for ten new commercial banks. A number of major foreign banks maintain offices in the country. In conformity with Islamic doctrine, domestic banks in Pakistan have redefined the payment and collection of interest as profit. Investment partnerships between the bank and the customer have replaced loans at interest.

H -Foreign Trade
The foreign trade of Pakistan consists largely of the export of raw materials and basic products such as cotton yarn and the import of manufactured products. In 2000 exports earned $9.1 billion and imports cost $11.1 billion. The chief exports were cotton textiles, cotton yarn and thread, clothing, raw cotton, rice, carpets and rugs, leather, fish, and petroleum products; the main imports were machinery, electrical equipment, petroleum products, transportation equipment, metal and metal products, fertilizer, and foodstuffs.
The United States is the largest trading partner of Pakistan. The United States is also one of the largest contributors of direct foreign investment in Pakistan. In 2000 Pakistan imported more than $646.5 million worth of U.S. products, mostly wheat, chemicals, fertilizers, machinery, and transport equipment. Pakistan’s exports to the United States amounted to $2.12 billion. Pakistan’s other trading partners are Japan, the United Kingdom, South Korea, Saudi Arabia, China, Germany, Hong Kong, France, the Persian Gulf States, and Iran.

I -Transportation
The lack of modern transportation facilities is a major hindrance to the development of Pakistan. Its terrain, laced with rivers and mountains, presents formidable obstacles to internal overland transportation. The country has 254,410 km (158,083 mi) of roads. The railroad network totals 7,791 km (4,841 mi).

Karāchi is the principal port of Pakistan. The coastline is underdeveloped because of the rugged topography, but it has promise for development. In recent years successive governments of Pakistan have made efforts to build infrastructure along the Makran Coast. Toward this end, the government of Pakistan signed an agreement with China in the late 1990s to develop an international shipping port at Gwādar as an alternative to Karāchi. Gwādar is located on a peninsula that is accessible to large ships traveling from the Gulf of Oman, which leads to the Persian Gulf.

The Karakoram Highway
was constructed between China and Pakistan in 1978 and opened to regular traffic in 1982. This all-weather road is 1,300 km (800 mi) long and passes through the Himalayas, reaching an elevation of 5,000 m (16,000 ft) at Khunjerab Pass. It is of strategic significance for Pakistan and China, connecting Islāmābād with Kashgar, in the Xinjiang Uygur Autonomous Region of China.

Pakistan International Airlines (PIA), the national airline, is in large part government owned. PIA offers flights within Pakistan and to a number of other countries. Many privately owned international airlines also serve Pakistan. In the early 1990s the government ended the airline’s monopoly on domestic service, and a number of private carriers have since begun domestic operations. The country’s main international airports serve Karāchi, Lahore, Islāmābād, and Rāwalpindi.

J -Communications
In 2001 Pakistan had 23 telephone mainlines for every 1,000 people. The number of cellular-phone subscribers is growing rapidly. Radio receivers number 94 and television sets 131 per 1,000 residents.

Television broadcasting began in Lahore in 1964 and in Karāchi in 1966. Since then television-broadcasting centers have been set up in Peshāwar, Rāwalpindi, Islāmābād, and Quetta, giving the Pakistani television network an almost total nationwide reach. In the early 1990s satellite dishes made it possible for international television programming to reach even the remotest areas of the country. More recently, the availability of cable television has improved accessibility to the international networks. Newspapers are mainly printed in Urdu and English. Pakistan has 352 daily newspapers, most with small circulations. The major dailies are concentrated in Lahore, Karāchi, and Islāmābād.