Challenged and found resilient

The 75-year journey is a testimony to Pakistan’s economic resilience

Challenged and found resilient


s Pakistan marks its 75th independence anniversary, the whole world faces the brunt of the “triple-C” crises. The three Cs, i.e., conflict (especially in Ukraine), climate change and Covid-19, have pushed many economies to a multidecade high level of inflation, resulting in an economic meltdown if not a full-blown recession. Political uncertainty in Pakistan has further aggravated this crisis dampening the zeal and jubilation with which otherwise we would have been celebrating the platinum jubilee of our independence.

While many of us are justifiably worried today about the economic situation in Pakistan, looking back at Pakistan’s economic journey over the last 75 years, one realises that despite periodic political upheavals and some external factors, the country’s economy, on the whole, has developed and expanded.

In 1947, the population of (West) Pakistan was 33 million, with a GDP of $3.8 billion and a per capita income of $85. At that time, wheat, rice and cotton production in (West) Pakistan were 3.3 million tonnes, 0.7 million tonnes and 1.1 million bales, respectively. There was no steel and chemicals production and the total cement production stood at 292,000 tonnes. Total road length in (West) Pakistan was 50,367 kilometres; there was one road vehicle for 1,000 people; per capita electricity consumption was 6 kWh; and there was no natural gas. If the above does not shock you, look at Pakistan’s social indicators at the time of independence. In 1947, the literacy rate of (West) Pakistan was 11 percent, the primary enrollment rate was 5 percent, and there was one medical doctor for 23,897 people.

Against that humble beginning, today, the size of our GDP is around $300 billion and per capita income $1,798. Wheat production has increased by eight times, rice yield by 13 times, and cotton by eight times. Literacy rate has increased by five and half times, and the health infrastructure has expanded many folds. On top of it, the services sector has become a major contributor to Pakistan’s GDP. True, that during the last 75 years, our population has increased by around seven times. However, catering to this growing population and economically expanding is in itself an achievement.

Before reflecting on what worked and what did not work for us on the economic front, let’s quickly do a decade-wise recap of this journey.

From independence till 1949, India and Pakistan had a de facto customs union. Pakistan exported its agricultural products to India and imported (virtually) all manufactured goods from it. This ended in 1949, when parting course with Britain and India, Pakistan did not devalue its rupee. Amidst the Korean War boom, Pakistan was able to divert its exports to the rest of the world. The government levied export duties on raw cotton and jute (which were Pakistan’s major exports) to earn substantial revenues and put quantitative control on imports. Apart from political instability, floods of different magnitude and other teething problems (in 1950, 1955, 1956, 1957 and 1958) affected the economy of the nascent country.

Challenged and found resilient

The decade of the sixties saw a strong federal government under army rule, first under Gen Ayub Khan and then under Gen Yahya Khan. The introduction of highly responsive (to inputs), high-yield varieties, commonly known as the Green Revolution, was the hallmark of this decade. These varieties did boost Pakistan’s agricultural productivity. However, since agriculture was the main export sector, the overvaluation of currency, import quotas and export duties turned the terms of trade against agriculture in favour of manufacturing. Fuelled by private capital, the domestic industry responded to opportunities, and large-scale manufacturing (especially cotton textiles, yarn and cloth) flourished in the 1960s. Although the economic expansion was halted momentarily by the 1965 war with India, the average annual GDP growth in the 1960s remained 6.8 percent.

The decade of the seventies was a difficult one. It saw the secession of East Pakistan as Bangladesh. Realising that regional economic disparity was one of the triggers for the country’s split, a paradigm shift was made in the government’s economic policy. A Nationalisation and Economic Reforms Order (NERO) was introduced in January 1972 to remove regional economic disparities and reduce wealth concentration among a few industrialists. Under the NERO, the government, in three phases (from 1972-1976), nationalised all major metal industries, including iron and steel, heavy engineering, heavy electricals, petrochemicals, cement, public utilities and banks – sparing only textiles industry and land. The impacts of the 1971 war, nationalisation and worldwide economic recession after the 1973 oil crisis resulted in a decline of average annual growth, which tumbled to 4.8 percent. However, the growth was still better than the fifties.

The decade concluded with Gen Zia ul Haq’s coup d’état. The general introduced the concept of Islamisation of the economy. During the 1980s, Pakistan’s support to Western capitals against the Soviet Union in the Afghanistan War, Gen Zia’s diplomacy with the Middle Eastern governments, and his incentivisation of private capital investment played an important role in a high economic growth pattern that was qualitatively different from the 1960s. The average annual growth for this decade remained 6.5 percent.

The 1990s were marred by political instability. External and domestic indebtedness increased during this decade. So did the need to take unpopular decisions under successive IMF programmes. Half-hearted implementation of structural adjustment programmes, privatisation, market-based policies and economic liberalisation by successive governments with an average life span of 2-3 years resulted in missed growth, exports and revenue targets, once again bringing the average annual growth down to 4.6 percent. Broad-based Western sanctions against Pakistan after the nuclear tests of 1998 further aggravated Pakistan’s economic woes. The IMF, the World Bank and much of bilateral assistance were suspended and Pakistan faced a severe balance of payments crisis. This led it to the brink of default on its external payments.

After another coup d’état, Gen Pervez Musharraf assumed power in October 1999. The military government took several unpopular decisions to bring much-needed fiscal discipline and worked on macroeconomic stability. An IMF programme was negotiated in 2000 and default was avoided. Thanks to Pakistan’s role in the War on Terror, all economic sanctions were lifted, and a steady flow of US dollars followed.

However, the growth was consumption-led and import-based. This gave rise to a balance of payments crisis in 2007-08. Politically motivated economic decisions further aggravated the problem. In 2008, for instance, when global oil prices rose from $55 a barrel to $110, the Shaukat Aziz government raised the domestic petroleum prices by only nine percent as the government did not want to become unpopular in the run-up to general elections. This was the beginning of energy circular debt that now stands at Rs 2.6 trillion.

The average annual economic growth was 2.82 percent during the PPP regime (2008-2013). However, we must remember that this period witnessed major floods in 2010 and 2012, and the IMF programme had to be abandoned halfway. The government also had to deal with high global fuel prices.

The PML-N government (2013 to 2018) benefited from moderate global oil prices, favourable monsoons, and investment under CPEC projects. Although the rupee was artificially stabilised against dollar during this period, the IMF’s extended fund facility programme was successfully completed. In the run-up to the 2018 general elections, however, the government took some populist decisions leading to a record high current account deficit and a balance of payments crisis.

The PTI government (2018 to 2022) remained reluctant to approach the IMF during its first year. It did negotiate an IMF programme in 2019 but could not implement it during the Covid-19 pandemic. The economy did recover after Covid but political instability and populist decisions by the PTI government and its successors amidst the triple-C crises have led us to the current economic meltdown.

During the 75 years, we have experimented with several economic models: regulated economy (1960s), nationalisation (1970s), Islamisation (1980s) and liberalisation (1990s) etc. We have also tried several governance models (various forms of democracy, martial-law and a hybrid).

None of the experiments has resulted in a drastic improvement in GDP growth, tax revenue, development expenditure, education expenditure, health expenditure, etc. Likewise, none of these models has caused a significant improvement in our human development indicators. Two decades of easy inflow of external assistance (dollars) due to geo-strategic reasons under Gen Zia ul Haq and Gen Pervez Musharraf’s regimes promoted a false sense that the economy can indefinitely run on consumption-led, import-based growth and ignore the current account and fiscal deficits. No political government has been able to rectify the policy course due to chronic political instability.

The good part is that the 75-year journey is a testimony to Pakistan’s economic resilience. From a humble beginning in 1947, the country has made considerable progress in food production, expanded its manufacturing base and physical infrastructure, improved its per capita income and strengthened its services sector.

Going forward, we need to capitalise upon this resilience to be able to improve our human development indicators and bring about political stability in our governance model if we want to see Pakistan become a strong economy.

The writer heads the Sustainable Development Policy Institute. He tweets @abidsuleri

Challenged and found resilient