Download - Historical Development policy
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HISTORICAL DEVELOPMENT GENERAL ZIAPOLICY
t h e e n t i r e s o c i e t y a n d i n t r a -
so c i a l r e l at i on sh i ps i n co nf or mi t y wi th th etenants of Islam,
social justice in every walk of life by following the Islamic principles,
especially in the distribution of income and wealth in favor of the poor, andthe elimination of interest charged by banks.
REREGULATION AND LIBERALIZATION
A m o n g s t t h e m o r e i m p o r t a n t i n i t i a t i v e s i n p u r s u i t o f d
e r e g u l a t i o n a n d liberalization in this period were an increase in the
investment sanction limit; drastic reduction in the list of specif ied
industries; reduction of tariffs on a number of raw materials,
intermediate and capital goods; introduction of
athree year l ibera l t rade pol icy and upgrading of an Industr i
a l Incent iv es Reform Cell (IIRC) into a tariff commission in 1989 tomake recommendationson fiscal anomalies and effective protection. A
series of measures
introducedto dereg ulat e indus tria l oper atio ns in the ceme nt,
o i l seeds and fert i l i ze industr ies . Pr ivate investment permitt
ed in cement production and stateowned enterprises
substantially reduced and cement imports permitted. A similar
package of de regulation and reform was adopted for the oil
seedssector and a major d ivesture pro grame was in i t iated by
th e p ubl ic ghe ecorporation.Alo ng wi th the se mea sur es,important steps were taken to liberalize and encourage foreign
trade. Prior to 1983, imports were either considered to be free or tied
and goods that were neither of the two lists were banned. In1983 this
system was changed and a negative list was introduced,
whereeverything not on that list was now importable. Perhaps the most
importantand far reaching economic decision taken by the government was
to removethe fixed peg of the Rupee to Dol lar by introducing a
managed float of thecurre ncy in 1982. As a resul t betwe en
1982 and 1987-88 the Rupee wasdeval ued by 38.5% with anaver age d eval uatio n of 7.7% per a nnum. The biggest impact
was expected to come in export performance. Conventionalwisdom
has it that Pakistans export performance has been sluggish becauseof an
overvalued exchange rate. Correcting for the exchange was seen
asthe most important step in devising an incentive structure
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geared
towardsexports . Devaluat ion was also expected to perfo rm a
n important exportsubstitutive function. Devaluation will enhance
prices of imported capital andintermediate goods. The World Bank, not
surprisingly, was particularly happywith the results of the deregulationand liberalization policies of the sixthplan. It calculated that the
private sectors share in total fixed
investmenti n c r e a s e d f r o m 3 8 p e r c e n t i n F Y 8 3 t o 4 2
p e r c e n t i n F Y 8 8 a n d i n t h e
SIR AIJAZ RASHEED18
HISTORICAL DEVELOPMENT
manufacturing sector its share in investment rose from 51 percent to
83percent.
CAUSES OF HIGH GROWTH AND THE SUCCESS OF THE ZIAREGIME
On the whole the manufacturing sector in Pakistan has recorded
impressivegrowth rates during the 1977-88 periods. As we have attempted
to show theprinciple reason for this performance has been a
re su lt of two im po rt an t phenomena:
T h e c o m i n g o n s t r e a m o f t h e p u b l i c s e c t o r p r o v i d e d t
h e r e q u i s i t e diversity in the manufacturing sector. This resulted in both
the onceand for all gains that such large investments are expected to bring
inand secondly in the linkage effects that it created.
The rev iva l of conf idence in the pr ivate sector to invest in
industryonce again after the brief interlude of the Bhutto regime. The
underlying reason for high rates of growth and investment for growth
inoutput was f loat i ng demand in the econom y as a wh ole.
Because of theremittances from the Gulf and a growing
agr icu l tura l and serv ices
sectorconsumpt ion demand increased. Investment demand,
on th e ot he r ha nd ,was enhanced by high resource inflows from
the international communityparticularly the US, because of Pakistans
strategic role in Afghan war. The other critical factor was the foreign
assistance in the form of both US aid,fol lowing the invasion of
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Afghanistan by the Soviet Union, and remittancesby Pakistani
workers contributed very significantly.
CRITICISIMS
Although the growth figures are
very impressive there has been a verydifferent picture if we see the
productivity growth figures. The aggregate of total factor product ivity is
0.3 percent per annum which is low as comparedto the 5 percent
growth in the 1960s. TFP contribution to overall growthduring the decade
has been low. As much as 82.3 percent of the overallgrowth was due to the
growth in the capital stock, 14.5 percent to labor
ando n l y 3 . 1 7 p e r c e n t t o T F P g r o w t h . T h e r e h a d b e e n v e
r y l i t t l e g r o w t h i n employment in almost all industries between
1975 and 1986, and that thegrowth in labor productivity has also fallen
in many industries. Although thewearing apparel industry experienced the
greatest increase in employment,it also saw output fall by nearly 19
percent. The decade of 1980s has been aperiod of relatively high growth in
manufacturing value added, the growth
inm a n u f a c t u r i n g e m p l o y m e n t h a s r e m a i n e d i n s i g n i
f i c a n t . T h i s p a r t l y
SIR AIJAZ RASHEED19
HISTORICAL DEVELOPMENTMICPOLICYrepresents more an increase in capital industry than labor absorption
duringthe period of accelerated expansion. The 1977-88 period is
unique in Pakistans economic history for exhibitinghigh output
growth without corresponding improvements in the efficiency of factor
use in the manufacturing sector. Much of this growth in output
wasfinanced by foreign remittances and aid flows coming into the
country. Wealso saw that policies were not altered even when it
was abundantly
cleart h a t t h e y w e r e h a r m f u l f o r g r o w t h a n d p r o d u ct i v i t y . I n p a r t i c u l a r t h e e x is t e n c e of n eg a t i v e ER P s ( e
f f e c t i v e ra t e s o f p r o t e c t i o n ) f o r c e r t a i n industries, the
regulatory regime of the period and the lack of incentives forthe value
addition in the textile sector were identified as important
policyerrors.