s Pakistan celebrates its 75e anniversary of independence, the whole world suffered the full brunt of the “triple C” crises. The three Cs, that’s to say, conflict (particularly in Ukraine), climate change and Covid-19, have pushed many economies to high levels of inflation over several decades, leading to economic collapse or even full-blown recession. Political uncertainty in Pakistan has further aggravated this crisis, dampening the zeal and jubilation with which we would otherwise have celebrated the Platinum Jubilee of our independence.
While many of us are rightly concerned today about the economic situation in Pakistan, when we look back on Pakistan’s economic journey over the past 75 years, we realize that despite periodic political upheavals and certain external factors, the country’s economy as a whole has grown and expanded.
In 1947, the population of (Western) Pakistan was 33 million, with a GDP of $3.8 billion and a per capita income of $85. At that time, the production of wheat, rice and cotton in Pakistan (West) was 3.3 million tons, 0.7 million tons and 1.1 million bales, respectively. There was no steel and chemical production and the total cement production was 292,000 tons. The total length of roads in Pakistan (west) was 50,367 kilometers; there was one road vehicle for every 1,000 people; electricity consumption per capita was 6 kWh; and there was no natural gas. If the above does not shock you, look at the social indicators of Pakistan at the time of independence. In 1947, the literacy rate in (West) Pakistan was 11%, the primary school enrollment rate was 5% and there was one doctor for every 23,897 people.
From that humble beginning, today the size of our GDP is around $300 billion and per capita income is $1,798. Wheat production has increased eightfold, rice yields by 13 and cotton yields by eight. The literacy rate has increased five and a half times and the health infrastructure has increased several times. Additionally, the service sector has become a major contributor to Pakistan’s GDP. It is true that in the last 75 years our population has increased about seven times. However, catering to this growing and economically expanding population is in itself a feat.
Before we reflect on what has worked and what hasn’t worked for us on the economic front, let’s do a quick recap of that decade-long journey.
From independence to 1949, India and Pakistan had a de facto Customs Union. Pakistan exported its agricultural products to India and imported (almost) all of its manufactured products. This ended in 1949, when it separated from Britain and India, Pakistan did not devalue its rupee. Amid 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 revenue and put quantitative control on imports. Besides political instability, floods of varying magnitudes and other start-up problems (in 1950, 1955, 1956, 1957, and 1958) affected the economy of the nascent country.
The decade of the sixties saw a strong federal government under military rule, first under General Ayub Khan and then under General Yahya Khan. The introduction of highly responsive (to inputs) and high yielding varieties, commonly referred to as the Green Revolution, was the hallmark of this decade. These varieties have boosted Pakistan’s agricultural productivity. However, with agriculture being the main export sector, currency overvaluation, import quotas and export duties have turned the terms of trade against agriculture in favor of manufacturing. Fueled by private capital, domestic industry responded to opportunities, and large-scale manufacturing (particularly cotton textiles, yarn, and cloth) flourished in the 1960s. Although economic expansion was momentarily interrupted by the 1965 war with India, average annual GDP growth in the 1960s remained at 6.8%.
The decade of the seventies was difficult. He saw the secession of East Pakistan as Bangladesh. Realizing 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 Nationalization and Economic Reform Ordinance (NERO) was introduced in January 1972 to eliminate regional economic disparities and reduce the concentration of wealth among a few industrialists. Under NERO, the government, in three phases (1972 to 1976), nationalized all major metal industries, including steel, heavy engineering, heavy electricity, petrochemicals, cement, utilities and banks – sparing only the textile industry and the land. The impacts of the 1971 war, nationalization and the global economic recession after the 1973 oil crisis led to a decline in average annual growth, which fell to 4.8%. However, the growth was still better than that of the fifties.
The decade ended with General Zia ul Haq Rebellion. The general introduces the concept of Islamization of the economy. During the 1980s, Pakistan’s support for Western capitals against the Soviet Union during the Afghan war, General Zia’s diplomacy with Middle Eastern governments and his encouragement of private capital investment played a important role in a pattern of high economic growth that was qualitatively different from the 1960s. Average annual growth for that decade remained at 6.5%.
The 1990s were marked by political instability. External and internal indebtedness increased during this decade. So has the need to make unpopular decisions in successive IMF programs. Timid implementation of structural adjustment programs, privatization, market-based policies and economic liberalization by successive governments with an average lifespan of 2-3 years have led to non-compliance with growth targets , exports and revenues, once again bringing average annual growth down to 4.6 percent. Broad-based Western sanctions against Pakistan after the 1998 nuclear tests further aggravated Pakistan’s economic difficulties. The IMF, World Bank and much bilateral aid were suspended and Pakistan faced a severe balance of payments crisis. This brought her to the brink of defaulting on her external payments.
After another Rebellion, General Pervez Musharraf took power in October 1999. The military government took several unpopular decisions to establish much-needed fiscal discipline and worked on macroeconomic stability. An IMF program was negotiated in 2000 and default was averted. Thanks to Pakistan’s role in the war on terror, all economic sanctions were lifted and a steady flow of US dollars followed.
However, growth has been consumption-driven and import-driven. This gave rise to a balance of payments crisis in 2007-08. Economic decisions driven by political considerations have further aggravated the problem. In 2008, for example, when world oil prices rose from $55 a barrel to $110, the Shaukat Aziz government only increased domestic oil prices by 9%, as the government did not want to become unpopular at approaching general elections. This was the start of the circular energy debt which now stands at 2.6 trillion rupees.
The average annual economic growth was 2.82% under the PPP regime (2008-2013). However, it should be remembered that this period saw major floods in 2010 and 2012, and the IMF program 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 world oil prices, favorable monsoons and investments in CPEC projects. Although the rupiah was artificially stabilized against the dollar during this period, the IMF’s expanded financing facility program was successfully completed. However, in the run-up to the 2018 general election, the government made populist decisions that led to a record current account deficit and a balance of payments crisis.
The PTI government (2018 to 2022) remained reluctant to approach the IMF in its first year. He negotiated an IMF program in 2019 but was unable to implement it during the Covid-19 pandemic. The economy recovered after Covid, but political instability and populist decisions by the PTI government and its successors amid the triple C crises have led us to the current economic collapse.
During the 75 years, we experimented with several economic models: regulated economy (1960s), nationalization (1970s), Islamization (1980s) and liberalization (1990s) etc. We have also tried several models of governance (various forms of democracy, martial law and hybrid).
None of the experiments resulted in a drastic improvement in GDP growth, tax revenue, development spending, education spending, health spending, etc. Similarly, none of these models resulted in a significant improvement in our human development indicators. Two decades of easy inflow of foreign aid (dollars) for geostrategic reasons under the regimes of General Zia ul Haq and General Pervez Musharraf have given the mistaken impression that the economy can function indefinitely on consumption-led growth and based on imports and ignore the current accounts and budget deficits. No political government has been able to rectify the course of politics due to chronic political instability.
The good part is that the 75-year journey is a testament to Pakistan’s economic resilience. Since its humble beginnings in 1947, the country has made tremendous progress in food production, expanded its manufacturing base and physical infrastructure, improved its per capita income, and strengthened its service sector.
Going forward, we must leverage this resilience to be able to improve our human development indicators and bring political stability to our governance model if we are to see Pakistan become a strong economy.
The author directs the Sustainable Development Policy Institute. He tweets @abidsuleri