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  3.  Importance of Economy  An overview of Pakistan’s economy  Challenges to Pakistan’s economy  Solutions to improve the economy TOPICS INCLUDED
  4. Why is the economy important?  The economy is an indicator of development and sustainability.  A good economy ensures better chances of survival and development of a state.  If we understand the cycles and systems in Economics, we can better understand how to manage our money and society!
  5. The economy of Pakistan is the 26th largest in the world in terms of purchasing power parity (PPP), and the 44th largest in terms of nominal GDP. AN OVERVIEW OF PAKISTAN’S ECONOMY
  6. The period from 1947 to-1950 saw minimal economic growth due to the government’s main priority being the drafting of a constitution. There were multiple governments during this period, which saw 3 different people as head of state.  Muhammad Ali Jinnah  Sir Khawaja Nazimuddin  Sir Ghulam Muhmmad 1947-1950
  7. The period from 1947 to 1950 saw minimal economic growth due to The 1950s being the decade of planning for an economy transitioning from an agrarian economy to a semi-industrial one. Political instability continued, with 3 people serving as governor-general for 6 years before the post was abolished. Nonetheless, the decade saw progress. The Colombo plan of 1951 was followed by a series of 5-year plans from 1955-to 1958. A ten-year perspective plan and a 3-year development plan also followed. The Korean war helped boost Pakistan’s exports and the government regulated imports to prevent an excess burden on the economy. All of this resulted in Pakistan’s GDP seeing massive growth. Agricultural growth: 1.9% Manufacturing growth: 7.7% Economic Growth: 3.1% 1950-1958
  8. The period from 1947 to 1950 saw minimal economic growth due to the government’s main priority being the drafting of a constitution. There were multiple governments during this period, which saw 3 different people as head of s1958 saw the rise of Ayub Khan via a military coup. The late ’50s and the majority of the ’60s saw Ayub Khan’s rule. The economy saw huge progress due to political stability.  The Green Revolution saw agriculture growth at a rate of 5% per annum.  The first half of the ’60s saw large-scale manufacturing grow at a rate of 16% per year, which reduced to 10% after the 1965 war with India. GDP growth: 6.7% Manufacturing growth: 8.51% 1958-1969
  9. The period of 1969-1971 saw 3 different rulers and the separation of the east wing of Pakistan into a new Country-Bangladesh. This was followed by floods, a rise in oil prices, and failures of export crops. The PPP rule of 1971-1977 saw huge losses to the economy.  Inflation rose to a record 15% and the deficit reached 8% of the GDP.  The nationalization policy dealt a further blow to the country. Agricultural growth: 2.7% Large-Scale Manufacturing Growth: 5.5% 1969-1977
  10. Another military takeover in 1977 saw General Zia take control. He began reversing the PPP’s nationalization scheme. He managed to extract large sums from the United States as an aid for fighting the USSR and used the funds to develop the country. He was further helped by remittances from middle east workers.  The national savings to GDP ratio rose to 16%. Agricultural growth: 5.4% LSM growth: 8.8% Average GDP growth: 6.3% 1977-1988
  11. General Zia’s death in 1988 saw the return of democracy to Pakistan. However, the ’90s were marred with political instability as the PPP and the PML-N ruled the country. The GDP growth saw its worst increase of only 1.7% in 1996 and the second-worst inflation of 14.5% in 1995.  Poverty rose, and foreign debt tripled.  Pakistan’s nuclear program drew further sanctions and left the country on brink of bankruptcy. Agricultural growth: 4.4% LSM growth: 4.8% GDP growth: 4.05% 1988-1999
  12. 1999 saw the implementation of another martial law. General Pervez Musharraf took the reins this time. The era of General Pervez Musharraf and General Ayub Khan are considered as the golden era’s for the Pakistani Economy. The economy along with the financial status of Pakistan was immensely balanced and a great economical outcome was observed.  Growth rates saw increases until 2004-2005’s peak of 8.6%.  Debt to GDP ratio saw a decrease from 100% to 55%.  Foreign exchange reserves increased by $9 billion. Agricultural growth: 5.4% LSM growth: 8.8% Average GDP growth: 6.3% 1999-2008
  13. When General Pervez Musharraf resigned, the PPP took control in 2008, and the country once again suffered economically. The growth saw a massive decline in either agricultural or overall economical growth.  Economic growth slowed down to 4.09%, and the yearly growth fell to 2%. Agricultural growth: 2% LSM growth: 4.4% Average growth rate: 4% 2008-2013
  14. PPP rule continued until 2013, after which the PML-N took charge. The PML-N managed to fix a crippled economy by using IMF loans. GDP growth saw an increase year-on-year and inflation dropped for most of their rule. Macro-economic stability ensued and Moody’s declared Pakistan’s economy stable. Average GDP growth rate: 5% 2013-2018
  15. In 2018, the PTI was elected for the first time. Prime Minister Imran Khan was confident that his party will bring all the statistical success to the Pakistani Economy. However, the party introduced various economic reforms that had the wrong effect.  GDP growth rate fell to a historic low of 0.99% in 2019, much below the 5.55% in 2017. Furthermore, macroeconomic stability had diminished as the government added $70 billion in loans to the already existing debt. The economic situation has been worsened in 2020 by the coronavirus pandemic, which has erased millions of jobs and plunged the country into a deep crisis. Analysts have expected low growth in every sector. 2018-2020
  16. Pakistan is the third-largest exporter of rice in the world and produces enough food grains to feed its people. Pakistan is also one of the five major textile-producing countries in the world. Pakistan also produces the third largest quantity of milk in the world. Manufacturing and industry now account for 25% of the income; when we recall there was not even a single industry worth its name at the time of partition. So if we look at where we were and where we are, I think the justification for Pakistan in terms of the betterment of economic conditions of Muslims in this part is very strong. But, we have not lived up to our potential. We can do much better than this. Agriculture Manufacturing and Industry
  17. 1. We Import More and Export Less. 2. We Consume More and Save Less. 3. Government Spends More than it Earns as Revenues. 4. Political Stability, Law, and Order/Security. Major Challenges to Pakistan’s Economy
  18.  Till Today,80% of our imports were financed by our export earnings.  This ratio has come down to only 50%, it may go up to 60% but a gap of 40% of financing needs in order to keep with the import level still exists.  We have to change the attitude of preferring the imported goods in order to fill in the gap b/w our imports and exports. 1. We Import More and Export Less
  19.  Out of every hundred rupees of our national income, we consume 80 rupees and save only 20 rupees.  Pakistan’s saving rate is 19.9%.  We need at least a 24-25% investment rate to grow, and if we want to rely on domestic savings, your saving rate should be 25% India has 28% saving rates. While China’s saving rate is 44.9%. 2. We Consume More and Save Less
  20.  Pakistan’s government takes away 20% of its national income as its own. 80% is left in the private sector and 20% in the hands of the government is spent on defense, debt servicing, development of education, health, general administration, etc.  The revenue generated is only 15% of the GDP at best, and on the worst days, it is 12 to 13%.  Out of every rupee of income received by a Pakistani, on average, the tax paid is only 9 paisas and 91 paisas remain with the individual. 3. Government Spends More than it Earns as Revenues
  21. The overall arching theme is that for a robust economy we should have political stability, law and order, and security. Until the country has gotten rid of the image of political instability, poor law and order situation, and insecurity, where investors from all over the world hesitate from coming to Pakistan and investing, we will not be able to make any progress in this country. 4. Political Instability, Law, and Order/Security.
  22.  How can we overcome these challenges and problems and improve our economy?  A lot has been written and talked about, but I will focus on only a few action points. Solutions to improve the economy
  23.  We as a nation are too oriented and too cynical where we find everything wrong in this country. Unless we change our mindset and unless everybody who is doing what he is supposed to do carries out his or her task with sincerity and honesty, we are not going to go anywhere.  The media is muddying the water with their sensational stories and inviting so-called experts who contribute to projecting negative thinking and a negative national psyche. Unless we have a positive “can do” mentality, it will be difficult to progress. There are no shortcuts available. Solutions #1. Change in National Psyche and Mindset
  24.  There is no substitute for building up human capital. The private sector, public sector, NGOs, local communities, philanthropists, etc, are all here to put their hands on deck and participate in making sure that every child goes to school. Every high school graduate has some technical and vocational skill or goes for higher education.  Unless we build up human capital, we are just going to be left behind because the world economy is going to be a knowledge-based economy.  Pakistan lags behind other countries in the institutions, infrastructure, and incentives for human capital formation. We have no choice but to accelerate the pace to catch up with others. Solutions #2. Building up of Human Capital
  25.  Pakistan is one of the few countries which has a young labor force that can be harnessed for its own and global economy.  Japan, Europe, the USA, and after 2050 China are going to have an aging population where the ratio of old to young people is going to increase. India and Pakistan are two countries where the ratio of younger people to the older ones is going to increase.  If we tool these young men and women properly, we increase the female labor force participation, give them skills and knowledge, and they can become the labor force for the rest of the world.  This will give a big boost to Pakistan’s economy. Solutions #3. Young Labour Force
  26.  As the population is increasing, one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore, Peshawar, or Quetta. One has to devolve powers, decentralize and delegate authority, and provide resources to the local/district governments so that they can take decisions on their own.  Sitting in Islamabad one cannot visualize what is needed in rural areas, but the people in rural areas know exactly whether they need water, fertilizers, or the fruit processing industry. Let us devolve powers to the people at the grassroots level and there would be much better allocation and utilization of resources. Solution #4 Governance, Devolution, and Decentralization
  27.  There must, however, be the accountability of the local governments by the provincial governments and of provincial governments by the federal government but not interference or usurpation of powers.  If we do that, then a lot more can happen with the same amount of resources that are being wasted today, and the economic growth rate can be raised from 6-7 percent on average to 8-9 percent annually.
  28.  Pakistan and its people have a lot of potential and we are blessed with a whole lot of natural resources.  If the government plans wisely, and the people work hard, the economy of Pakistan can be taken to a whole new level. Conclusion