historical development policy

8/12/2019 Historical Development policy

1/3

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


2/3

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


3/3

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.

historical development policy

Documents