Ayub Khan Regime (1958-1969) in Economic Perspective

1. Economy Of Pakistan
Ayub Khan Era (1958-1969)
Syeda Laila Ali Jaffery
BBAV

2. Topics to be covered
▪ Personal Profile
▪ Economic Condition of Pakistan
▪ Economic Strategy
▪ Monetary Policy
▪ Economic Performance of Pakistan
▪ Policies
– Agriculture Sector
– Industrial Sector

3. Topics to be covered
▪ ForeignTrade Policy
▪ Balance of Payments
▪ Balance ofTrade
▪ 1965War
▪ Ayub Khan’s Foreign Policy
▪ Demerits of Ayub’s Regime

4. Personal Profile

5. Personal Profile
▪ Born on May 14, 1907 in RehanaVillage, near Haripur,
Hazara, Pakistan
▪ Studied at Aligarh Muslim University
▪ Joined the army of British Colonial Powers in 1926
▪ Fought inWorldWar II as Commissioned Officer.
▪ Attained the rank of Brigadier General in 1947.
▪ In 1950, became first Pakistani to lead army as its
Commander-In-Chief
▪ Army took control of the country in 1958 & appointed
General Ayub Khan as Chief Martial LawAdministrator.
▪ Soon after, Ayub khan declared himself as President

6. Economic Condition of Pakistan

7. Economic Condition of Pakistan
▪ Country was in total disarray.
▪ Had no economic weapon in their armory to fight the battle of its recovery.
▪ Growth rate of 11 years (1959-70) was high as 6.25%.
▪ Created an environment where the private sector was encouraged to
establish medium and small-scale industries in Pakistan.
▪ Opened up avenues for new job opportunities, the economic graph of the
country started rising.
▪ He was the first Pakistani ruler who attempted to bring in land reforms but
the idea was not implemented properly.
▪ Labor, law and administrative reforms were also introduced during his
regime.

8. Economic Strategy

9. Economic Strategy
▪ The commitment to rapid
industrialization.
▪ The benefits of economic growth
would drop down to the poorest
segments of the society.
Key priority
▪ Achieve rapid rates of economic
growth and price stability.
▪ Develop Pakistan’s agricultural and
industrial capacity.

10. Monetary Policy

11. Monetary Policy (1958-1969)
▪ The year 1959-60 marked the beginning of a phase of liberalization and
deregulation of the economy and substantial flow of resources from abroad.
▪ This included gradual liberalization of import policy and introduction of Export
Bonus Scheme.
▪ From this period, government granted liberal concessions to the private sector to
establish industries in the country resulting an increase in monetary supply.
▪ First plan (1955-60) - the monetary expansion amounted to Rs. 1.96 Billions.
▪ Second plan (1960-65) – the money supply increased by Rs. 2.80 Billions.
▪ The bank credit both in the private and public sector expanded to Rs. 1.62 Billions
during the first and during the second plan period it was equal to Rs. 4.77 Billions.

12. Economic Performance of Pakistan

13. Economic Performance of Pakistan
▪ The country’s economic performance in terms of growth rates of the
important sectors include:
Agriculture
Manufacturing
Balance of payments situation
Price Index

14. Growth Trends
Years GDP Agriculture Industrial Sector
1950s 3.1 1.6 7.7
1960s 6.8 5.1 9.9
1970s 4.8 2.4 5.5
1980s 6.5 5.4 8.2
1990s 5 4.4 5.5

15. Policies in the Agriculture Sector

16. Policies in the Agriculture Sector
▪ One of the salient features of Ayub Khan Regime was the reversal of
the neglect in agricultural sector that had been there in the early
1960s .
▪ A series of reforms strengthened the Pakistani Agriculture Sector.
▪ Rural infrastructure was increased to improve the overall availability
of irrigation water and the amount of cultivated land.
▪ The two factors that contributed to the revival of agriculture were :
– The Green Revolution, characterized by the introduction of high yielding
varieties of rice and wheat.
– The mechanization and diffusion of technology among agriculture products.

17. Policies in the Agriculture Sector
▪ Between 1959 and 1964, agriculture grew at an overall rate of 3.7%
and by 6.3% between 1965 and 1970s.
Improved seeds
Agricultural Machinery
Tube well irrigation

18. Policies in the Industrial Sector

19. Policies in the Industrial Sector
▪ Focus on reconstruction and development of agriculture based
industries.
▪ Priority of Ayub’s administration was to achieve the rapid rate of
economic growth and develop Pakistan’s industrial capacity.
▪ Emphasized on private sector.
▪ Removal of administrative controls and price stability to provide a
macro economic environment conducive to private investment.

20. Policies in the Industrial Sector
▪ In February 1959, Government announced a new industrial policy.
The main emphasis was put on the utilization of raw materials
available in the country to benefit small and medium scale industries.
▪ Among the major steps that were taken in the promotion of
industrialization were:
– Establish amen of Financial and Development Corporations
– IndustrialTrading Estates
– Price Controls
– Investment Promotion Bureau
– Encouragement of Private Enterprises

21. Policies in the Industrial Sector
▪ Establishment of Financial & Development Corporations:
– PIDC played an important role
– Set up with a capital of 1 billion
– PIDC was put in charge to promote the following industries:
▪ Jute
▪ Paper-board and newsprint
▪ Heavy engineering
▪ Fertilizers
▪ Sugar
▪ Cement
▪ Textiles, etc

22. Policies in the Industrial Sector
▪ IndustrialTrading Estates:
– Four new estates for small industries were established in Bahwalpur,Gujarat,
Larkana and Peshawar
– It helped in the process of industrialization by handling the initial difficulties
faced by new industrialists.
▪ Price Controls:
– In October 1958, the government took several measures to check the rising
spiral of prices.
– Price controls covering a large number of consumer goods and industrial raw
materials were imposed.
– These measures led to a fall in prices and improvement in supply position of a
large number of articles.

23. Policies in the Industrial Sector
▪ Investment Promotion Bureau
– In order to attract foreign investment the government set
up an investment promotion bureau in April 1959.
– The main function of this organization was to sanction
proposals for the establishment of new industries
involving foreign investments.
– To provide guidance to industrialists and serve as a
clearing house for problems of foreign investors in the
matter of procurement of land, building materials, water,
power, railway etc.

24. Policies in the Industrial Sector
Encouragement of Private Enterprise
– Establishment of investment promotion bureau to give
information and guidance to private investments.
– Industrial legislation with a view to facilitating the growth of
industry with minimum government interference.
– Giving further incentives for encouragement of exports.

25. Other Measures
- SUPPLY OF CREDIT
▪ Liberally provided to the industrial sector by both
the commercial banks & the specialized credit
institutions
- FOREIGN AIDS AND LOANS
▪ Foreign aid and loans received from friendly
countries, played a dominant role in industrial and
economic development of Pakistan. Without such
aid the remarkable growth in that era could not be
possible

26. Other Measures
FOREIGN INVESTMENTS
▪ Liberal policies in tax concession and other measures taken by
government, the inflow of capital increased
▪ According to state bank of Pakistan foreign private investments
increased
▪ 1956 13.20 Mn
▪ 1959 16.59 Mn
▪ 1965 26.11 Mn
▪ 1966 26.28 Mn

27. Foreign Trade Policy

28. Foreign Trade Policy
▪ Export Bonus System
▪ The export sector responded dramatically to the policies.
▪ Growth rates of exports jumped to7% per annum.
▪ Large diversification of the composition of Pakistan’s export portfolio, with cotton
and jute slowly replacing primary commodities.
▪ Ninety percent of the export growth in the 1960's was due to the increase in
manufactured export, which grew at an annual rate of 20 %.
▪ Significant dismantling of import licenses and hence, greater ease in importing
industrial raw material and spare parts for industry.

29. Balance of Payments

30. Balance of Payments
Few reasons for the negative balance of payment.
Import of Capital Goods
Industrial base in the early times was almost negligible.
– In order to build the economy, Pakistan had to import capital goods like machinery, etc for rapid
industrialization .
– Heavy import of machinery considerably increased the import bill and effected the balance of payment on
current account.
Increase in import payments of Fertilizers
– Due to the increase in prices of fertilizers, edible oil, there was a sharp increase in the import payments.
Consumption oriented Society
– Pakistan as a whole is consumption oriented society.
– The import of consumer goods was 16% of the total import.
– Most of the consumer goods imported from outside could easily be manufactured in Pakistan and ease the
situation in balance of payment.

31. Balance of Trade

32. Balance of Trade
(In crores Rupees)
Year (Jun-July) Exports Imports Balance
1959-1960 184.27 246.10 -61.83
1964-1965 240.77 537.42 -296.65
1968-1969 330.54 489.66 -159.12
1969-1970 333.71 609.81 -176.10

33. Balance of Trade
Deficit Financing:
▪ Trade deficit in the early times was financed by the foreign aid
▪ At the beginning of the first five-year plan, about 19% of Pakistan’s import and 35%
of its development expenditure were being financed by foreign aid.
▪ At the end of the plan period, these proportions had risen to 31% & 38%
respectively.
▪ Halfway through the second plan, these proportions had shoot up to 56 and 42
percent respectively.
▪ In 1967-68 foreign aid was financing 50% of imports and 34% of development
expenditures.

34. 1965 War

35. 1965 War
– The Indian aggression in 1965 had implications for the economy,
including monetary policy.
– There was a significant interruption in the inflow of foreign
assistance, which in the past had significantly contributed high
growth rate, particularly in the industrial sector and private
investment.
– Also budget deficit rose from Rs. 2.1 billion in 1964-65 to Rs 5.2
billion in 1966-67.
– Difficulties created by Indian aggression were compounded by an
extraordinary deficiency, which affected the country’s main crops
for two years.
– Thus in 1966-67 the growth rate of economy slowed down to 3.1%
the lowest in ten-year period ending 1969-70.

36. Ayub Khan’s Foreign Policy

37. Ayub Khan’s Foreign Policy
▪ The objectives in that era were the security and development of Pakistan and the preservation of
its ideology.
▪ While retaining and renewing the alliance with the United States, Ayub Khan emphasized his
preference for friendship, not subordination, and bargained hard for higher returns to Pakistan.
▪ Other than ideology and Kashmir, the main source of friction between Pakistan and India was the
distribution of the water of the Indus River system.
▪ As the upper riparian power, India controlled the head works of the repartition irrigation canals.
▪ After independence India had, in addition, constructed several multipurpose projects on the
eastern tributaries of the Indus.
▪ A compromise that appeared to meet the needs of both countries was
reached during the 1960; called “IndusWaterTreaty”.

38. Demerits of Ayub’s Regime

39. Demerits of Ayub’s Regime
▪ The 1960's also marked Pakistan’s increase reliance on foreign aid.
▪ Another negative feature of Ayub's industrial and trade policies were the deliberate
repression of wages.
▪ In spite of success in industrial diversification and export performance, Ayub Khan’s
policies had several shortcomings.
▪ High rates of effective protection continued to make Pakistani industry inefficient, and a
number of international studies documented Pakistan as a worst example of
industrialization.
▪ Unlike other countries, Pakistani use of tariffs and quotas was not carefully planned.
▪ The paradox of industrialization was, the regime resulted in a progressive worsening in
the balance of payment account with the increase in the imports of machinery and other
industrial raw materials.