Pakistan inherited an extremely narrow economic base at the time of Partition in 1947 Since then, the Government of Pakistan is making rigorous efforts to build up infrastructure and productive potential of the economy through the process of development planning. The start for preparing the country for future advancement was made by launching a Six Year Development Programmer (1951-57) named as Colombo Plan. The Plan was suspended two years before its completion due to the repercussions of Korea War. In addition to the Colombo Plan, Five other Five Year Development Plans were drawn up and implemented. The Sixth and Seventh Five Year Plan are complete. The 8th Five Year Plan (1993-98) has been implemented.
If the economic performance since 1947 is evaluated, the overall results are not very encouraging. The per capita income at market price is only 925 dollars per year in 2007 in Pakistan. The major portion of the population is just above the poverty line (poverty line 23.9%) The disturbing feature of the economy is that whatever economic growth has been achieved, it is accompanied by unequal distribution of wealth. |This has created social tension in the country and has slowed down the rate of economic growth. Pakistan has devised various strategies to quicken the tempo of economic development but it has not been able to break the vicious circle of poverty and enter into take off stage. The main obstacles which have affected the rate of growth in Pakistan are grouped under following heads.
(1) Economic obstacles (2) Social and cultural obstacles (3) Administrative obstacles. These obstacles are now discussed in brief:
(2) Fiscal deficit. Another serious constraint in economic development is the higher levels of budget deficits. The overall budget deficit was 8% of GDP in 1990-91. It was brought down to 5.4% in 1999-2000. The present government has succeeded in bringing its down to 4.2% in 2006-07. The large fiscal deficits reduces the capacity of the government to spend on key development activates.
On the revenue side, the tax GDP ratio stands at around 9.5% during the last several years. It is mainly attributable to narrow tax base, inelastic tax system, complex tax laws, heavy reliance on foreign trade taxes, large tax exemptions and incentives, tax evasions, weak tax administration etc. On the expenditure side, defense and bebt serving are taking a very major share of the current revenue.
(3) Banking and Financial Sector in Crisis. The second major economic impediment to economic development was that the public sector banks and development financial institutions (DFI's) were mainly in crisis. Excessive bank credits, large scale defaults in payment of loans were great fault lines of the economy. The poor performance of the financial sector had adversely affected development in various sectors of the economy till 2000. However, due to rapid economic growth from 2000 onward, the banking sector is earning profits. The investment of the banks is mostly on consumer products.
(4) Persistent deficit in balance of payments. Another important obstacle to economic development is the persistent deficit in the balance of payments over the years.
(5) Financing the budgetary gap. Oneof the serious factor distorting the fiscal system and obviously economic growth is the huge amount of borrowing to finance the budgetary gap. The budgetary gap is financed through three sources (i) External borrowing, (2) Domestic non bank borrowing, (3) Borrowing from the banking system. Excessive bank borrowing creates inflationary pressure in the economy.
(6) Deficiency of Capital. Deficiency of capital is an important obstacle in the way of economic development. If a country is to achieve rapid rate of economic development, it must save at-least 25% of GDP each year. In Pakistan, the rate of national saving is very low. It is about 16.1% of GDP which is hardly able to maintain current per capita level in the country.
(7) Scarcity of Foreign Exchange. Pakistan, like other developing countries, is foreign trade oriented. It is concentrating mainly on the export of cotton, carpets and manual labour leather, rice, sport goods. The excessive dependence on export of a few items has made the economy unstable and is a great obstacle to economic growth, which are mainly primary commodities. The increase in the prices of imported goods and their rising flow in the country is a big strain on the foreign exchange resources.
(8) Rapidly Growing Population. The population is growing at the rate of about 1.8% annually in Pakistan. As a result of the rapid increase, the proportion of dependants below the age of 15 years and above the age of has gone up to 73% which is a great burden on the meager resources of the country and a big obstacle to economic development.
(9) Low Level of Technology. One of the obstacles to economic development in Pakistan is the use of low level of technology in various sectors of the economy. We do not stress and even do not recommend that Pakistan should adopt most modern and sophisticated technology. The technology to be applied in Pakistan should be appropriate to the conditions prevailing in the country. For instance we should preferably use cheap sources of energy, simple farm equipment, smaller plants and scale of machinery etc suitable to the local conditions.
(10) Dualistic Economy. Dualism is an another important obstacle to economic development in Pakistan. There is a vast regional disparity in income. The use of technology differs from sector to sector and region to region. There are differences in the social customs, habits and attitudes towards work of the people living i different provinces of the country. The occurrence of dualism stand in the way of optimum utilization of factors.
2. Social and Cultural Obstacles:
The socio-cultural attitudes of the people also stand in the way of economic development of our country. In Pakistan, more than 50% of the people are illiterate. They are ignorant of the development taking place in their own country as well as in the world. society. The people are mostly conservative in their habits. They feel pride in the native culture and are generally not receptive to foreign methods of production. People lack self confidence and initiative. The joint family system, though on the decline, has also killed the sense of initiative and the incentive to work. The caste system functioning mostly in terms of occupation tailors, carpenters, goldsmiths, etc restrict occupational and geographical mobility. The occupational classification which is mostly village centered impede the economic development. The religious beliefs of the people condemning the accumulation of wealth, dependence upon fate and the will of God only are also obstacles to economic growth. People forget here that God has also said, ''Your duty is to do and then put the result in the hands of God.''
The unnecessary expenditure on marriages, deaths, births, litigations, class pride etc. has reduced domestic saving and has adversely affected economic progress. About half of the population comprises women folk. Our social taboos and customs prevent them from working and improving the standard of living. The basic needs of the people remain largely unsatisfied. We do agree here that socio-cultural factors have impeded economic progress. We should not forget here also that the adoption of socio-cultural attitudes of the West have brought down the quality of life as well.
3. Political and Administrative Obstacles:
For accelerating the rate of economic development, there should be political stability in the country. If there is a change in the government set up due to elections, or of dictatorship, the planning job done by the previous government should not be altered altogether.
The planning machinery and all others involved in administration should be loyal to the country. They should be competent sympathetic and honest in the performance of the duties assigned to them. In Pakistan, since its inception, there are rapid changes in governments. Each government which came into power condemned the planning work done by the previous governments. They framed their own plans, formulated their own strategies of development and left the claim without achieving the targets of the Plans. The history of planning show that with the exception of the Faith Five Year Plan, all other Plans have failed to achieve their targets. The overall line of the planning machinery in Pakistan is bureaucratic rather than professional. The administration working in various departments is generally weak, incompetent and unsympathetic. Self interest is dominating over national interest which is a great barrier to economic development. Another administrative obstacle line the way of economic development is that we have not so far been able to decide about the nature of economic system to be adopted in Pakistan. Mixed economy, Socialistic economy. Islamic economy all are talked about but nothing concrete has actually been practiced. There should be clarity on this fundamental issue so that planning is drawn up according to the socio-economic objective of that system and a path of development laid out.
Remedial Measures for Economic Development
We have discussed the major obstacles to economic development. The practical means of setting aside the barriers to economic development are now to be stored out. It is a big challenge to the planners. We are of the opinion that if following measures are right earnestly applied, the rate of economic development can go up.
(1) Expanding the tax base. For expanding the resource base, it is necessary that the coverage of indirect taxes be reduced. In designing the tax reforms, care has to be taken to minimise burden on the common man. The share of direct taxes has also to be increased.
(2) Tax on agriculture income. The government can raise more revue by brining the agriculturists income in the tax net on proper footings.
(3) Self reliance. Pakistan is knee deep in foreign debt. If we are really desirous of increasing the rate of economic development, we shall have to lessen our dependence on foreign assistance. The strategy of self reliance, as far as possible, should be followed for financing development projects.
(4) Export led growth. For the rapid development of the economy, the strategy of export led growth should be carefully chalked out. The production of value added goods on large scale, having comparative advantage in production will greatly solve the problem of limited size of the domestic market. The production of import substitutes at home will save the precious foreign exchange.
(5) Industrialization. Another approach to development planning within the framework of mixed economy is to give priority to the establishment of those industries which meet the basic needs of the various sectors of the economy. The production of improved basic agricultural implements will greatly help in raising the agricultural production.
(6) Strategy of self management. In communist countries, the development planning is being decentralized. Development planning is declared a right and obligation of the planning agents. The system if adopted in a coordinated manner shall help in quickening the tempo of economic development in this country.
(7) Development of agricultural sector. The Government of Pakistan, in view of the importance of agriculture in the national economy, is attaching high priority to the development of this sector. Expanded credit facilities, provision of fertilizer, pesticides and improved seeds are the right steps in improving agricultural production which contributes 20.9% of GDP and accounts for 46% of foreign exchange earnings in Pakistan.
(8) Improvement of the infrastructure. A great deal of improvement in the means of transport, power, roads, banking, education, etc. has to be made for economic development.
(9) Constitutional cover. The state owned industrial units which are being privatized and other private units should be given Constitutional cover. The state of uncertainty of their nationalization again be removed once for all.
(10) Stable fiscal and monetary policies. In order to accelerate the rate of economic development, the fiscal and monetary measures should be carefully chalked out There should not be frequent changes after a few months in the import and export policies, revision of taxes etc.
(11) Promoting Technology. For economic take off, it is very essential that we take effective steps in promoting science and technology. The technological development will help in keeping our products and exports competitive in the world market.
(12) Administrative Reforms. There should be far reaching administrative reforms in the country. The professionally qualified personnel should be inducted and assigned specific targets to be achieved in the allocated sectors. There should be reduction in the administrative expenditure also.
(13) Development of physical and human capital. Development of physical infrastructure, roads, railways etc. and increased investment on education, health and nutrition etc. can play a dominant role in increasing economic development in the country.
(14) Slowing the rate of population growth. High rate population growth (about 1.8%) is also intensifying constraint on the development of savings, foreign exchange and human resources. If we want the qualities of human life, prosperity in place of poverty, education in place of ignorance, health in place of illness, environmental beauty in place of deterioration, we shall have to take measures to control the family size.
During the last four years, the government has identified five key sectors for promoting economic growth and bringing it to the level of 8% growth rate. These sectors include (i) agriculture (ii) housing and construction (iii) small and medium enterprises (iv) information technology and (v) oil and gas sectors.
If the economic performance since 1947 is evaluated, the overall results are not very encouraging. The per capita income at market price is only 925 dollars per year in 2007 in Pakistan. The major portion of the population is just above the poverty line (poverty line 23.9%) The disturbing feature of the economy is that whatever economic growth has been achieved, it is accompanied by unequal distribution of wealth. |This has created social tension in the country and has slowed down the rate of economic growth. Pakistan has devised various strategies to quicken the tempo of economic development but it has not been able to break the vicious circle of poverty and enter into take off stage. The main obstacles which have affected the rate of growth in Pakistan are grouped under following heads.
(1) Economic obstacles (2) Social and cultural obstacles (3) Administrative obstacles. These obstacles are now discussed in brief:
1 Economic Obstacles
(1) External debt: There was a rising trend in external debt which posed a serious threat to the economic future of the country. During the last five years, serious efforts are being made to reduce the external liabilities as far as possible. The external debt even now stands at $ 38.8 billion in 2007.(2) Fiscal deficit. Another serious constraint in economic development is the higher levels of budget deficits. The overall budget deficit was 8% of GDP in 1990-91. It was brought down to 5.4% in 1999-2000. The present government has succeeded in bringing its down to 4.2% in 2006-07. The large fiscal deficits reduces the capacity of the government to spend on key development activates.
On the revenue side, the tax GDP ratio stands at around 9.5% during the last several years. It is mainly attributable to narrow tax base, inelastic tax system, complex tax laws, heavy reliance on foreign trade taxes, large tax exemptions and incentives, tax evasions, weak tax administration etc. On the expenditure side, defense and bebt serving are taking a very major share of the current revenue.
(3) Banking and Financial Sector in Crisis. The second major economic impediment to economic development was that the public sector banks and development financial institutions (DFI's) were mainly in crisis. Excessive bank credits, large scale defaults in payment of loans were great fault lines of the economy. The poor performance of the financial sector had adversely affected development in various sectors of the economy till 2000. However, due to rapid economic growth from 2000 onward, the banking sector is earning profits. The investment of the banks is mostly on consumer products.
(4) Persistent deficit in balance of payments. Another important obstacle to economic development is the persistent deficit in the balance of payments over the years.
(5) Financing the budgetary gap. Oneof the serious factor distorting the fiscal system and obviously economic growth is the huge amount of borrowing to finance the budgetary gap. The budgetary gap is financed through three sources (i) External borrowing, (2) Domestic non bank borrowing, (3) Borrowing from the banking system. Excessive bank borrowing creates inflationary pressure in the economy.
(6) Deficiency of Capital. Deficiency of capital is an important obstacle in the way of economic development. If a country is to achieve rapid rate of economic development, it must save at-least 25% of GDP each year. In Pakistan, the rate of national saving is very low. It is about 16.1% of GDP which is hardly able to maintain current per capita level in the country.
(7) Scarcity of Foreign Exchange. Pakistan, like other developing countries, is foreign trade oriented. It is concentrating mainly on the export of cotton, carpets and manual labour leather, rice, sport goods. The excessive dependence on export of a few items has made the economy unstable and is a great obstacle to economic growth, which are mainly primary commodities. The increase in the prices of imported goods and their rising flow in the country is a big strain on the foreign exchange resources.
(8) Rapidly Growing Population. The population is growing at the rate of about 1.8% annually in Pakistan. As a result of the rapid increase, the proportion of dependants below the age of 15 years and above the age of has gone up to 73% which is a great burden on the meager resources of the country and a big obstacle to economic development.
(9) Low Level of Technology. One of the obstacles to economic development in Pakistan is the use of low level of technology in various sectors of the economy. We do not stress and even do not recommend that Pakistan should adopt most modern and sophisticated technology. The technology to be applied in Pakistan should be appropriate to the conditions prevailing in the country. For instance we should preferably use cheap sources of energy, simple farm equipment, smaller plants and scale of machinery etc suitable to the local conditions.
(10) Dualistic Economy. Dualism is an another important obstacle to economic development in Pakistan. There is a vast regional disparity in income. The use of technology differs from sector to sector and region to region. There are differences in the social customs, habits and attitudes towards work of the people living i different provinces of the country. The occurrence of dualism stand in the way of optimum utilization of factors.
2. Social and Cultural Obstacles:
The socio-cultural attitudes of the people also stand in the way of economic development of our country. In Pakistan, more than 50% of the people are illiterate. They are ignorant of the development taking place in their own country as well as in the world. society. The people are mostly conservative in their habits. They feel pride in the native culture and are generally not receptive to foreign methods of production. People lack self confidence and initiative. The joint family system, though on the decline, has also killed the sense of initiative and the incentive to work. The caste system functioning mostly in terms of occupation tailors, carpenters, goldsmiths, etc restrict occupational and geographical mobility. The occupational classification which is mostly village centered impede the economic development. The religious beliefs of the people condemning the accumulation of wealth, dependence upon fate and the will of God only are also obstacles to economic growth. People forget here that God has also said, ''Your duty is to do and then put the result in the hands of God.''
The unnecessary expenditure on marriages, deaths, births, litigations, class pride etc. has reduced domestic saving and has adversely affected economic progress. About half of the population comprises women folk. Our social taboos and customs prevent them from working and improving the standard of living. The basic needs of the people remain largely unsatisfied. We do agree here that socio-cultural factors have impeded economic progress. We should not forget here also that the adoption of socio-cultural attitudes of the West have brought down the quality of life as well.
3. Political and Administrative Obstacles:
For accelerating the rate of economic development, there should be political stability in the country. If there is a change in the government set up due to elections, or of dictatorship, the planning job done by the previous government should not be altered altogether.
The planning machinery and all others involved in administration should be loyal to the country. They should be competent sympathetic and honest in the performance of the duties assigned to them. In Pakistan, since its inception, there are rapid changes in governments. Each government which came into power condemned the planning work done by the previous governments. They framed their own plans, formulated their own strategies of development and left the claim without achieving the targets of the Plans. The history of planning show that with the exception of the Faith Five Year Plan, all other Plans have failed to achieve their targets. The overall line of the planning machinery in Pakistan is bureaucratic rather than professional. The administration working in various departments is generally weak, incompetent and unsympathetic. Self interest is dominating over national interest which is a great barrier to economic development. Another administrative obstacle line the way of economic development is that we have not so far been able to decide about the nature of economic system to be adopted in Pakistan. Mixed economy, Socialistic economy. Islamic economy all are talked about but nothing concrete has actually been practiced. There should be clarity on this fundamental issue so that planning is drawn up according to the socio-economic objective of that system and a path of development laid out.
Remedial Measures for Economic Development
We have discussed the major obstacles to economic development. The practical means of setting aside the barriers to economic development are now to be stored out. It is a big challenge to the planners. We are of the opinion that if following measures are right earnestly applied, the rate of economic development can go up.
(1) Expanding the tax base. For expanding the resource base, it is necessary that the coverage of indirect taxes be reduced. In designing the tax reforms, care has to be taken to minimise burden on the common man. The share of direct taxes has also to be increased.
(2) Tax on agriculture income. The government can raise more revue by brining the agriculturists income in the tax net on proper footings.
(3) Self reliance. Pakistan is knee deep in foreign debt. If we are really desirous of increasing the rate of economic development, we shall have to lessen our dependence on foreign assistance. The strategy of self reliance, as far as possible, should be followed for financing development projects.
(4) Export led growth. For the rapid development of the economy, the strategy of export led growth should be carefully chalked out. The production of value added goods on large scale, having comparative advantage in production will greatly solve the problem of limited size of the domestic market. The production of import substitutes at home will save the precious foreign exchange.
(5) Industrialization. Another approach to development planning within the framework of mixed economy is to give priority to the establishment of those industries which meet the basic needs of the various sectors of the economy. The production of improved basic agricultural implements will greatly help in raising the agricultural production.
(6) Strategy of self management. In communist countries, the development planning is being decentralized. Development planning is declared a right and obligation of the planning agents. The system if adopted in a coordinated manner shall help in quickening the tempo of economic development in this country.
(7) Development of agricultural sector. The Government of Pakistan, in view of the importance of agriculture in the national economy, is attaching high priority to the development of this sector. Expanded credit facilities, provision of fertilizer, pesticides and improved seeds are the right steps in improving agricultural production which contributes 20.9% of GDP and accounts for 46% of foreign exchange earnings in Pakistan.
(8) Improvement of the infrastructure. A great deal of improvement in the means of transport, power, roads, banking, education, etc. has to be made for economic development.
(9) Constitutional cover. The state owned industrial units which are being privatized and other private units should be given Constitutional cover. The state of uncertainty of their nationalization again be removed once for all.
(10) Stable fiscal and monetary policies. In order to accelerate the rate of economic development, the fiscal and monetary measures should be carefully chalked out There should not be frequent changes after a few months in the import and export policies, revision of taxes etc.
(11) Promoting Technology. For economic take off, it is very essential that we take effective steps in promoting science and technology. The technological development will help in keeping our products and exports competitive in the world market.
(12) Administrative Reforms. There should be far reaching administrative reforms in the country. The professionally qualified personnel should be inducted and assigned specific targets to be achieved in the allocated sectors. There should be reduction in the administrative expenditure also.
(13) Development of physical and human capital. Development of physical infrastructure, roads, railways etc. and increased investment on education, health and nutrition etc. can play a dominant role in increasing economic development in the country.
(14) Slowing the rate of population growth. High rate population growth (about 1.8%) is also intensifying constraint on the development of savings, foreign exchange and human resources. If we want the qualities of human life, prosperity in place of poverty, education in place of ignorance, health in place of illness, environmental beauty in place of deterioration, we shall have to take measures to control the family size.
During the last four years, the government has identified five key sectors for promoting economic growth and bringing it to the level of 8% growth rate. These sectors include (i) agriculture (ii) housing and construction (iii) small and medium enterprises (iv) information technology and (v) oil and gas sectors.
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