Connect with us

Economy

An Outlook of Pakistan’s Economic History: 1947-2021

Published

on

Since independence, the economy of Pakistan has always been in vicissitudes situations. If we look at it from the economic perspective, the historical background of the country seems so satisfying, as compared to the current situations. Even though during initial years of the partition the country faced lot of hardships. But during Gen. Ayyub Khan’s era the country has managed 5.82% average growth rate from 1958-1969. However, signing a major benchmark in the history, this period was followed by a bad luck decade of Bhutto’s government and Gen. Zia’s liberal government. The post Zia’s period has faced lot of political turmoil which resulted the military dictate of Gen. Musharraf. Though the economy had shown some remarkable trends in Gen. Musharraf’s period, but it did not work out for the shrinking economic situations of Pakistan.

Soon after the partition Pakistan had started to lay its foundations. Meanwhile, the country did not get the proper distribution of resources the assets were divided in the ration of 17 to India and 5 to Pakistan, bulk of the irrigated land was in Pakistan and major canal system, the military division was 65 to 35 percent in the favor of India. During that time, Pakistan was a dominant underdeveloped agrarian with a little share of services, manufacturing, and infrastructure, backed with millions of refuges. Therefore, it was not possible to attain a higher level of growth in that period. However, the Korean war of 1952 made mercantile class to raise, which helped to attain higher gains and attempts were made to structure the structure of bureaucracy.

Meanwhile, from 1958/68 Pakistan had laid a major benchmark in its history of development. In this period the reigns of the country were in the hands of General Ayyub. The economy was growing 3 times faster than other countries of the South Asia. The growth rates exceeded 20 percent per annum and the agricultural and industrial sector was developing significantly. There was massive growth in the industrial and agriculture sector experienced first time after the partition.  The manufacturing sector grew by 17% and agriculture grew by 6%. This decade of development applied a bureaucratic supported capitalism. However, some people criticize that his non- liberal policies of bureaucratic capitalism model has increased income inequality and this rapid development with the exploitation of east Pakistan and labor class ended with a political disability during the initial years of 1970’s, which resulted the partition of east Pakistan.

In 1970’s, Zulifqar Ali Bhutto came into power with his slogan of “Rotti, Kapra and Makaan”. This decade is often stated as the decade of bed luck, which is mainly supported by the worldwide recession in exports, the partition of East Pakistan and floods of 1974 and locust attacks.  Moreover, Bhutto was mainly devoted to the socialist economy, and just because of that this period is critics by his failure. In his period, he nationalized the financial institutions- like banks and insurance sector and some basic industries. His nationalization policies became the major reason for the loss of industrial units and the confidence of investors to invest in Pakistan. Meanwhile, his polices created misallocation of resources and the overall growth was declined, form 6.8% per annum in 1960’s to 4.8% per annum in 1970’s. Also, even though he introduced the land reforms, some criticize that his nationalization policies were feudal led, which were introduced to clip the wings of industrialist class that has grown tremendously in 1960’s.

General Zia took the reins of the country in 1977. During that time, the USA was trying to pull Soviet-Union back from Afghanistan. Pakistan had taken a part in that, which ended up with the Islamization of Zia, which he done to increase his political support. At the same time, bulk of foreign aid was received by standing on the front line against the Soviet Union. Moreover, the increasing trends of industrial growth can be seen in his period, which were the result of investment in Bhutto’s era. Hence, GDP grew at the average rate of 6.6% per annum in General Zia’s period.

The post Zia’s era led to the structural adjustment programs. In this era most of the policies were supported by IMF programs. Pakistan was first introduced to the structural adjustment programs during General Zia’s regime in 1982. However, after receiving the first SAP loan, the military government discontinued these foreign loans when Pakistan received 3.2 billion US dollars owing to Afghan-Soviet war. But in the late 1980’s because of decline in the industrial sector, which was a major source of income, the country faced twin fiscal and exchange deficit accompanied with the reduction foreign aid. This compelled the government to look forward to the Bretton Wood Institutions for support. As a result, the World Bank and IMF impelled Pakistan to decrease the public spending and increase taxes, which eventually resulted in the cuts of developmental projects.

Moreover, in 1998 Pakistan has tested its first successful nuclear device. Soon G-8 had imposed numerous sanctions on it -like many counties have cut foreign aid, remittances were slowed down and defense sales were terminated. This made devastating effects on economy. Later, on 9th of September 2001, two planes hit the World Trade Center. Because Pakistan was a best possible strategic location in the South Asia and US felt a dire need of it for the war on terrorism.

No doubt that the post 9/11 developments became possible on the account of 9/11. The post 9/11 period had shown some remarkable trends in Musharraf’s regime. The rate of investment grew by 17.2% of GDP to 23.0% from 2001-2007, domestic debt was decreased from 17.8% to 16.1% of GDP in the same period, which is almost 30% of the total GDP, much of bilateral and unilateral foreign aid were sent to Pakistan, i.e., in 2002 $11 billion were sent to Pakistan. In 2003-4 it was claimed that Pakistan has finally ended up from calamitous decade of 1990s. However, Pakistan has seen some tremendous growth in Musharraf’s era. But it can be criticized that his roaring era was based on the deceptive foundations of investment and consumer-led growth. No doubt, it was a sort-term growth, and the thing lacking was a long-run strategy to send that foreign aid into the productive sectors. 

Furthermore, the post Musharraf period was recorded as a dire period for Pakistan. In 2007/8 growth rate started shrinking by 37%, which was hit by numerous factors like the Lawyers’ movement which was the outcome of lawyers, when Musharraf ousted the chief justice of Pakistan, the death of Benazir Bhutto, the care takers government’s role was also critical, the global financial crisis and the Laal masjid incident. Meanwhile, it was PPP’s govt. from 2008/13, which is often criticized as a worst government in the history, because of its management. So, for that, Pakistan had already faced lot turmoil, but it was again hit by disastrous floods of 2010, which swept much of the infrastructure and agricultural land. As a result, the growth rates fell; inflation rate went to double digits, FDI fell and so did the tax to GDP ratio.

Many claim that the PML-N’s government 2013/18 left the economy stronger, bigger and batter. However, it was exclusively based on only growth rates, which seems quite satisfying if we look at statistics and are supported by IMF loan schemes. In this period, the country has faced massive current account deficit, a sharp decline in exports while imports remained flat, the agriculture sector was ignored, large public debt and there was lack of public sector reforms.

PTI came into power in 2018. The growth rate in FY18 was 5.84. In a mean time just after a year the whole world was hit by a catastrophe –COVID-19, which has put the world economy into its knees. It has also largely hit the Pakistan and made its economy to shrink. The growth rates started to decline. In FY19 the growth rate declined to 0.99 and in FY20 it was recorded 0.38.

Student of BS-Economic National Defence University, Islamabad

Continue Reading
Comments

Economy

Finding Fulcrum to Move the World Economics

Published

on

Domenico Fetti / Wikimedia Commons

Where hidden is the fulcrum to bring about new global-age thinking and escape current mysterious economic models that primarily support super elitism, super-richness, super tax-free heavens and super crypto nirvanas; global populace only drifts today as disconnected wanderers at the bottom carrying flags of ‘hate-media’ only creating tribal herds slowly pushed towards populism. Suppose, if we accept the current indices already labeled as success as the best of show of hands, the game is already lost where winners already left the table. Finding a new fulcrum to move the world economies on a better trajectory where human productivity measured for grassroots prosperity is a critically important but a deeply silent global challenge. Here are some bold suggestions

ONE- Global Measurement: World connectivity is invisible, grossly misunderstood, miscalculated and underestimated of its hidden powers; spreading silently like an invisible net, a “new math” becomes the possible fulcrum for the new business world economy; behold the ocean of emerging global talents from new economies, mobilizing new levels of productivity, performance and forcing global shifts of economic powers. Observe the future of borderless skills, boundary less commerce and trans-global public opinion, triangulation of such will simply crush old thinking.

Archimedes yelled, “…give me a lever long enough and a fulcrum on which to place it, and I shall move the world…”

After all, half of the world during the last decade, missed the entrepreneurial mindset, understoodonly as underdog players of the economy, the founders, job-creators and risk-taker entrepreneurs of small medium businesses of the world, pushed aside while kneeling to big business staged as institutionalized ritual. Although big businesses are always very big, nevertheless, small businesses and now globally accepted, as many times larger. Study deeply, why suddenly now the small medium business economy, during the last budgetary cycles across the world, has now become the lone solution to save dwindling economies. Big business as usual will take care of itself, but national economies already on brink left alone now need small business bases and hard-core raw entrepreneurialism as post-pandemic recovery agendas.

TWO – Ground Realities:  National leadership is now economic leadership, understanding, creating and managing, super-hyper-digital-platform-economies a new political art and mobilization of small midsize business a new science: The prerequisites to understand the “new math” is the study of “population-rich-nations and knowledge rich nations” on Google and figure out how and why can a national economy apply such new math. 

Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago.Today,a $1000 investment buys on global-age upskilling on export expansion that were million dollars a decade ago.  Today, a $1000 investment on virtual-events buys what took a year and cost a million dollars a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 80% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

Apply this math to population rich nations and their current creation of some 500 million new entrepreneurial businesses across Asia will bring chills across the world to the thousands of government departments, chambers of commerce and trade associations as they compare their own progress. Now relate this to the economic positioning of ‘knowledge rich nations’ and explore how they not only crushed their own SME bases, destroyed the middle class but also their expensive business education system only produced armies of resumes promoting job-seekers but not the mighty job-creators. Study why entrepreneurialism is neither academic-born nor academic centric, it is after all most successful legendary founders that created earth shattering organizations were only dropouts.  Now shaking all these ingredients well in the economic test tube wait and let all this ferment to see what really happens.

Now picking up any nation, selecting any region and any high potential vertical market; searching any meaningful economic development agenda and status of special skills required to serve such challenges, paint new challenges. Interconnect the dots on skills, limits on national/global exposure and required expertise on vertical sectors, digitization and global-age market reach. Measuring the time and cost to bring them at par, measuring the opportunity loss over decades for any neglect. Combining all to squeeze out a positive transformative dialogue and assemble all vested parties under one umbrella.

Not to be confused with academic courses on fixing Paper-Mache economies and broken paper work trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Economic leadership teams of today, unless skilled on intertwining super-hyper-digital-platform-economic agendas with local midsize businesses and creating innovative excellence to stand up to global competitiveness becomes only a burden to growth.

The magnifying glass of mind will find the fulcrum: High potential vertical sectors and special regions are primarily wide-open lands full of resources and full of talented peoples; mobilization of such combinations offering extraordinary power play, now catapulted due to technologies. However, to enter such arenas calls for regimented exploring of the limits of digitization, as Digital-Divides are Mental Divides, only deeper understanding and skills on how to boost entrepreneurialism and attract hidden talents of local citizenry will add power. Of course, knowing in advance, what has already failed so many times before will only avoid using a rubber hose as a lever, again.  

The new world economic order: There is no such thing as big and small as it is only strong and weak, there is no such thing as rich and poor it is only smart and stupid. There is no such thing as past and future is only what is in front now and what is there to act but if and or when. How do you translate this in a post pandemic recovery mode? Observe how strong, smart moving now are advancing and leaving weak, stupid dreaming of if and when in the dust behind.

The conclusion: At the risk of never getting a Nobel Prize on Economics, here is this stark claim; any economy not driven solely based on measuring “real value creation” but primarily based on “real value manipulation” is nothing but a public fraud. This mathematically proven, possibly a new Fulcrum to move the world economy, in need of truth

The rest is easy  

Continue Reading

Economy

Evergrande Crisis and the Global Economy

Published

on

China’s crackdown on the tech giants was not much of a surprise. Sure, the communist regime allowed the colossus entities like Alibaba Group to innovate and prosper for years. Yet, the government control over the markets was never concealed. In fact, China’s active intervention in the forex market to deliberately devalue Yuan was frequently contested around the world. Ironically, now the world awaits government intervention as a global liquidity crisis seems impending. The Evergrande Group, China’s largest property developer, is on the brink of collapse. Mounding debt, unfinished properties, and subsequent public pressure eventually pushed the group to openly admit its financial turmoil last week. Subsequently, Evergrande’s shares plunged as much as 19% to more than 11-year lows. While many anticipate a thorough financial restructuring in the forthcoming months, the global debt markets face a broader financial contagion – as long as China deliberates on its plan of action.

The financial trouble of the conglomerate became apparent when President Xi Jinping stressed upon controlled corporate debt levels in his ongoing drive to reign China’s corporate behemoths. It is estimated that the Evergrande Group currently owes $305 billion in outstanding debt; payments on its offshore bonds due this week. With new channels of debt ceased throughout the Mainland, repayment seems doubtful despite reassurances from the company officials. The broader cause of worry, however, is the impact of a default; which seems highly likely under current circumstances.

The residential property market and the real estate market control roughly 20% and 30% of China’s nominal GDP respectively. A default could destabilize the already slowing Chinese economy. Yet that’s half the truth. In reality, the failure of a ‘too big to fail’ company could bleed into other sectors as well. And while China could let the company fail to set a precedent, the spillover could devastate the financial stability hard-earned after a strenuous battle against the pandemic. Recent data shows that with the outbreak of the delta variant, the demand pressure in China has significantly cooled down while the energy prices are through the roof. Coupled with the regulatory crackdown rapidly pervading uncertainty, a debt crisis could further push the economy into a recession: a detrimental end to China’s aspirations to attract global investors.

The real question, therefore, is not about China’s willingness to bail out the company. Too much is at stake. The primal question is regarding the modus operandi which could be adopted by China to upend instability.

Naturally, the influence of China’s woes parallels its effect on the global economy. A possible liquidity crisis and the opaque measures of the government combined are already affecting the global markets: particularly the United States. The Dow Jones Industrial Average (DJIA) posted a dismal end to Monday’s trading session: declining by more than 600 points. The 10-year Treasury yields slipped down 6.4 basis points to 1.297% as investors sought safety amid uncertainty. The concern is regarding China’s route to solve the issue and the timeline it would adopt. While the markets across Europe and Asia are optimistic about a partial settlement of debt payments, a take over from state-owned enterprises could further drive uncertainty; majorly regarding the pay schedule of western bondholders amid political hostility.

Economists believe that, while a financial crisis doesn’t seem like a plausible threat, a delayed response or a clumsy reaction could permeate volatility in the capital markets globally. Furthermore, a default or a takeover would almost certainly pull down China’s economy. While the US has already turned stringent over Chinese IPOs recently, a debt default could puncture the economic viability of a wide array of Chinese companies around the world. And thus, while the global banking system is not at an immediate threat of a Lehman catastrophe, Evergrande’s bankruptcy would, nonetheless, erode both the domestic and the global housing market. Moreover, it would further dent Chinese imports (and seriously damage regional exchequers), and would ultimately put a damper on global economic recovery from the pandemic.

Continue Reading

Economy

Economy Contradicts Democracy: Russian Markets Boom Amid Political Sabotage

Published

on

The political game plan laid by the Russian premier Vladimir Putin has proven effective for the past two decades. Apart from the systemic opposition, the core critics of the Kremlin are absent from the ballot. And while a competitive pretense is skilfully maintained, frontrunners like Alexei Navalny have either been incarcerated, exiled, or pushed against the metaphorical wall. All in all, United Russia is ahead in the parliamentary polls and almost certain to gain a veto-proof majority in State Duma – the Russian parliament. Surprisingly, however, the Russian economy seems unperturbed by the active political manipulation of the Kremlin. On the contrary, the Russian markets have already established their dominance in the developing world as Putin is all set to hold his reign indefinitely.

The Russian economy is forecasted to grow by 3.9% in 2021. The pandemic seems like a pained tale of history as the markets have strongly rebounded from the slump of 2020. The rising commodity prices – despite worrisome – have edged the productivity of the Russian raw material giants. The gains in ruble have gradually inched higher since January, while the current account surplus has grown by 3.9%. Clearly, the manufacturing mechanism of Moscow has turned more robust. Primarily because the industrial sector has felt little to no jitters of both domestic and international defiance. The aftermath of the arrest of Alexei Navalny wrapped up dramatically while the international community couldn’t muster any resistance beyond a handful of sanctions. The Putin regime managed to harness criticism and allegations while deftly sketching a blueprint to extend its dominance.

The ideal ‘No Uncertainty’ situation has worked wonders for the Russian Bourse and the bond market. The benchmark MOEX index (Moscow Exchange) has rallied by 23% in 2021 – the strongest performance in the emerging markets. Moreover, the fixed income premiums have dropped to record lows; Russian treasury bonds offering the best price-to-earning ratio in the emerging markets. The main reason behind such a bustling market response could be narrowed down to one factor: growing investor confidence.

According to Bloomberg’s data, the Russian Foreign Exchange reserves are at their record high of $621 billion. And while the government bonds’ returns hover at a mere 1.48%, the foreign ownership of treasury bonds has inflated above 20% for the second time this year. The investors are confident that a significant political shuffle is not on cards as Putin maintains a tight hold over Kremlin. Furthermore, investors do not perceive the United States as an active deterrent to Russia – at least in the near term. The notion was further exacerbated when the Biden administration unilaterally dropped sanctions from the Nord Stream 2 pipeline project. And while Europe and the US remain sympathetic with the Kremlin critics, large economies like Germany have clarified their economic position by striking lucrative deals amid political pressure. It is apparent that while Europe is conflicted after Brexit, even the US faces much more pressing issues in the guise of China and Afghanistan. Thus, no active international defiance has all but bolstered the Kremlin in its drive to gain foreign investments.

Another factor at work is the overly hawkish Russian Central Bank (RCB). To tame inflation – currency raging at an annual rate of 6.7% – the RCB hiked its policy rate to 6.75% from the all-time low of 4.25%. The RCB has raised its policy rate by a cumulative 250 basis points in four consecutive hikes since January which has all but attracted the investors to jump on the bandwagon. However, inflation is proving to be sturdy in the face of intermittent rate hikes. And while Russian productivity is enjoying a smooth run, failure of monetary policy tools could just as easily backfire.

While political dissent or international sanctions remain futile, inflation is the prime enemy which could detract the Russian economy. For years Russia has faced a sharp decline in living standards, and despite commendable fiscal management of the Kremlin, such a steep rise in prices is an omen of a financial crisis. Moreover, the unemployment rates have dropped to record low levels. However, the labor shortage is emerging as another facet that could plausibly ignite the wage-price spiral. Further exacerbating the threat of inflation are the $9.6 billion pre-election giveaways orchestrated by President Putin to garner more support for his United Russia party. Such a tremendous demand pressure could presumably neutralize the aggressive tightening of the monetary policy by the RCB. Thus, while President Putin sure is on a definitive path of immortality on the throne of the Kremlin, surging inflation could mark a return of uncertainty, chip away investors’ confidence: eventually putting a brake on the economic streak.

Continue Reading

Publications

Latest

Development13 mins ago

Demand for Circular Economy Solutions Prompts Business and Government Changes

To truly tackle climate goals, the world must transform how it makes and consumes. To support this effort, circular economy...

Africa2 hours ago

Money seized from Equatorial Guinea VP Goes into Vaccine

As a classic precedence, the Justice Department of the United States has decided that $26.6m (£20m) seized from Equatorial Guinea’s...

forest forest
Environment4 hours ago

More Than 2.5 Billion Trees to be Conserved, Restored, and Grown by 2030

Companies from across sectors are working to support healthy and resilient forests through the World Economic Forum’s 1t.org trillion tree...

Americas6 hours ago

AUKUS aims to perpetuate the Anglo-Saxon supremacy

On September 15, U.S. President Joe Biden worked with British Prime Minister Boris Johnson and Australian Prime Minister Scott Morrison...

Terrorism Terrorism
Terrorism8 hours ago

A shift in militants’ strategy could shine a more positive light on failed US policy

A paradigm shift in jihadist thinking suggests that the US invasion of Afghanistan may prove to have achieved more than...

Eastern Europe10 hours ago

Ukraine’s EU-integration plan is not good for Europe

Late this summer, Estonia, in the person of its president, Kersti Kaljulaid, became the first EU country to declare that...

Intelligence12 hours ago

The AUKUS Alliance and “China’s Maritime Governance Strategy” in the Indo-Pacific

1) Announcing the (French-Indian alliance) to confront the (Australian-American alliance) for establishing a (new multilateral system), and the AUKUS alliance...

Trending