Economy of Pakistan

Introduction Pakistan was established in 1947 and since its inception; it has been surrounded by countless issues, some of which are confined to ill-formed/missing infrastructure, insufficient refined resources, barren or obsolete factories and technologies, the Kashmir controversy and other fronts also involving an ever-ready enemy to underscore its efforts towards progress. Despite being rich in natural resources, Pakistan has so far been a developing country with limited development in every era due to the economic problems it has been facing.

In the following text we will shed light on some of the major problems faced by Pakistan as a country, today. Following are some of the important factors that are disturbing Pakistan’s Economy: • Poverty • Illiteracy • Corruption & Political Instability • Over Population, Unemployment & Inflation • International Interference • Terrorism/Extremism • And The Recent Floods ECONOMY HISTORY OF PAKISTAN First five decades When it gained independence in 1947 from UK. Pakistan’s average economic growth rate since independence has been higher than the average growth rate of the world economy during the period.

Average annual real GDP growth rates[16] were 6. 8% in the 1960s, 4. 8% in the 1970s, and 6. 5% in the 1980s. Average annual growth fell to 4. 6% in the 1990s with significantly lower growth in the second half of that decade. See also[17] During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing.

Many countries sought to emulate Pakistan’s economic planning strategy and one of them, South Korea, copied the city’s second “Five-Year Plan” and World Financial Center in Seoul is designed and modeled after Karachi. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country’s public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth.

[18] In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers. [edit] Recent decades This is a chart of trend of gross domestic product of Pakistan at market prices estimated[19] by the International Monetary Fund with figures in millions of Pakistani Rupees The economy today.

Due to inflation and economic crisis worldwide, Pakistan’s economy reached a state of Balance of Payment crisis. “The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to $11. 3 billion from an initial $7. 6 billion. “[27] Today Pakistan is amongst the elite group of 11 countries,also termed as ‘The Next Eleven”identified by Goldman Sachs investment bank as having a high potential of becoming the world’s largest economies in the 21st century along with the BRICs.

By October 2007, Pakistan raised back its Foreign Reserves to a handsome $16. 4 billion. Exceptional policies kept Pakistan’s trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8. 4 billion. Since the beginning of 2008, Pakistan’s economic outlook has taken stagnation. Security concerns stemming from the nation’s role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3. 5bn for the current fiscal year.

Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan’s economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default.

Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2. The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default. The middle term however may be less turbulent, depending on the political environment.

The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent an overcoming of the present crisis wherein growth is a mere 3. 5-4% Pakistan economy is under its terrible crisis due to following REASONS O One of the immediate causes is Political instability due to Musharaf’s position as president, delay in restoring judiciary and resultantly withdrawal of PML (N) from the alliance leaving behind ‘dead’ ministry of finance.

In contrast the present government is not showing strong will to cope with the situation. Though some Positive Measures. To end Load Shedding till 14th August, 2009, Benazir income Scheme programme, Distribution of Land in Sindh, tight Tariff System against luxury items O Suicide attacks in the industrial cities-fear among people, disinvestment and maximum outflow of capital, especially in Dubai stock exchange crash. Foreign investment in 2007 was $ 700,63. 5 million but in 2008 only $329 million.

O Soaring oil prices due to increased demand from growing economics of China and India, Iraq crisis, Iran holding its oil export, devaluation of Dollar after Iraq invasion and limited supply by OPEC, refusal of Saudi Arabia to enhance its oil supply. More population to use energy from to $ 134/ barrel in 2008. O Food crisis oil prices, low agriculture yield due to heavy cost of production (seeds, pesticides, water and fertilizers), unavailability of small loans to small farmers, power shortage, fast increasing of population, poor governance in managing the food and to stop its smuggling to Afghanistan.

Central Asia and Iran which stored big food stocks due to American war. World Food Crisis encouraged its smuggling. Less attention by the governments to live stock, dairy stock, increased circulation of paper currency. Big share of ‘Middle Man’. O World Food Crisis: population explosion, emergence of middle class with more food consumption in India and China. Low yield in India. Earthquake in China, increase in world oil prices. O ENERGY CRISIS: O Inflation means price hike, huge gar between demand and supply, too many rupees chasing too few things. More supply of Money due to; AID after 9/11.

Foreign Remittances due to over seas Pakistanis, growth in banking sector and investment in real estate. Poor supply of goods, food items due to low yield. Inflation due to rise in oil prices, food, removal of food subsidy, devaluation of Rupee, higher import price, Government borrowing from State Bank Rs . 544 billion. Resultantly increase in wage-price. Delay in monetary tightening by the State Bank. Government claims 25% while actual is 32% while food inflation is 45% O Deceleration of growth in manufacturing: energy crisis. Terrorist incidents. High interest rates by SBP discouraged Private investment.

High imports and low exports. 75 industrial units in Karachi and 85 in Faisalabad were closed due to energy crisis. O Fiscal deficit: 6. 5% of GDP, target was 4%. Due to slippage in revenue and expenditure- Dismal Growth; lower Tax collection. Heavy subsidy on oil effected current expenditure, increased in development expenditure. Decline external financing flows, so the government borrowed from SBP which caused monetary expansion, continuous Defense Budget. RECOMMENDATIONS Pakistan is an agrarian country. 70% of its economy is based on agriculture. but only agriculture is not enough for stable economy.

Industrialization and mineral resources also play a vital role in building country”s economy,so they also need our special attention and they are in immense need of improvement. The agriculture sector”s production can be improved by introducing mechanization and making it common for farmers. Most of the farmers in Pakistan are poor and unable to adopt modern techniques. So they should be provided with (easy to return ) loans. The farmer should be educated that they must only use the seeds of good quality,they must use appropriate fertilizers in right quantities.

The farmer should be made aware that they should practice collective farming instead of farming on small fragments of land,by doing this they would be able to set up tube wells and buy tractors (of their own)collectively. The government should calculate the requirements of the people and then export the rest of rice,cotton,sugar etc. so that it does not have to import the same things at double costs later. Pakistan exports great quantities of cotton,leather etc in their raw form. Instead of this we should establish industries and export these things after processing and converting them to some useful goods..

it will increase the foreign exchange two to three times the previous one. Industries should be established near to the resources to save the fuel used for transporting the raw material . Pakistan imports great quantities of petrol and other fuels . this import can be reduced by discouraging the use of personal vehicles and encouraging the use of public transport. Pakistan uses alot of fuel for the generation of electricity ,this fuel and money can be saved if we construct more dams and generate electricity through hydral powerstations,this electricity would be very cheap so it will also help alot to the agricultural and industrial sector.