STRUCTURE OF THE ECONOMY

Pakistan attained nationhood under difficult circumstances. At the partition of British India in 1947 resulting in the creation of the independent nations of India and Pakistan, Pakistan was an agrarian economy in which a small number of powerful landowners with large holdings dominated the countryside. The majority of the population consisted of tenant farmers who cultivated small plots for a meager existence. Scant rainfall in West Pakistan (present-day Pakistan) forced farmers to rely on the extensive irrigation system developed by the British. The headwaters of the Indus River and its main tributaries, however, were under Indian control. Disputes arose between the two nations and were not settled until the Indus Waters Treaty of 1960 was signed.

Pakistan had almost no industry in 1947. Under British rule, the area that became Pakistan supplied agricultural products for processing to the territory that became the independent India. Energy sources were rudimentary, with wood and animal dung furnishing the bulk of the energy consumed. Ports, transportation, and other services, such as banking and government, were underdeveloped. More than 1,600 kilometers of Indian territory separated the East Wing and West Wing of Pakistan until the former became independent Bangladesh in 1971. In 1949 a dispute over exchange rates halted the flow of goods between Pakistan and India, disrupting the complementary nature of their economies that had developed under British colonial rule.

Despite formidable problems, Pakistan achieved rapid economic expansion. From FY 1951 to FY 1986, the GDP growth rate measured at a constant FY 1960 factor averaged 5.2 percent. Rates of growth averaged 3.1 percent in the 1950s--when agriculture stagnated--but rose to 6.8 percent in the 1960s. They fell to 3.8 percent between FY 1971 and FY 1977 but rebounded to 6.8 percent between FY 1978 and FY 1986. From FY 1987 to FY 1991, growth averaged 5.8 percent, and a rate of 7.8 percent was achieved in FY 1992. Provisional data indicate that GDP grew only 2.6 percent in FY 1993. This decline is mainly a result of the floods in September 1992, which reduced agricultural output.

Rapid growth substantially altered the structure of the economy. Agriculture's share (including forestry and fishing) declined from 53 percent of GDP in FY 1950 to 25 percent in FY 1993. A substantial industrial base was added as industry (including mining, manufacturing, and utilities) became the fastest growing sector of the economy. Industry's share of GDP rose from 8 percent in FY 1950 to 21.7 percent in FY 1993. Various services (including construction, trade, transportation and communications, and other services) accounted for the rest of GDP.

Pakistan has an important "parallel," or "alternative," economic sector, but it is not well documented in official reports or most academic studies. This sector includes a thriving black market, a large illicit drug industry, and illegal payments to politicians and government officials to ensure state contracts. Corruption rose in the 1980s, partly as a result of the massive infusion of United States aid, some of which went to the Pakistani government to pay the cost of supporting Afghan refugees fleeing after the 1979 Soviet invasion and to enhance Pakistani military capability, and some of which was funneled directly to Afghan resistance movements based in Pakistan. Much of this money reportedly was diverted illegally and invested in arms and drug enterprises.

General allegations of corruption are routinely made in the Pakistani press, and politicians often accuse their opponents of corrupt practices. Asif Ali Zardari, the husband of Prime Minister Benazir Bhutto, was accused of corruption after the fall of Benazir's first government in 1990, and former President Ghulam Ishaq Khan accused the government of former Prime Minister Mian Nawaz Sharif and especially its privatization program of corruption when dismissing his government in April 1993. In 1994 allegations of corruption were routinely traded between Benazir's government and the opposition headed by Nawaz Sharif. Political maneuvering aside, corruption has an altogether real and pervasive effect on Pakistani society. Industrialists consider bribery and other handouts a routine cost of production, and contractors and businessmen interviewed on television openly state that a significant percentage of their revenue is paid to government officers who allocate their contracts. Corruption is alleged to be prevalent in almost all official institutions, including the police, the judiciary, the revenue department, the passport office, customs and excise offices, telecommunication organizations, and electricity and gas boards. In each of these departments, the personnel involved range from low-level employees to top management. Some scholars believe that the low salaries of civil servants, compared with earnings from jobs of similar status in business and industry, explain the magnitude of corruption. In the mid-1980s, Mahbubul Haq, a former minister of finance, estimated that illegal payments to government officials were equivalent to about 60 percent of the total taxes collected by the government.

Foreign Aid

Since independence Pakistan has had to depend on foreign assistance in its development efforts and to balance its international debt payments. In 1960 the World Bank organized the Aid-to-Pakistan Consortium to facilitate coordination among the major providers of international assistance. The consortium held 92 percent of Pakistan's outstanding disbursed debt at the end of June 1991. The consortium's members include the United States, Canada, Japan, Britain, Germany, France, and international organizations such as the World Bank and the Asian Development Bank (ADB). The World Bank accounted for 26 percent of the outstanding debt, and the ADB, which was the largest lender in the early 1990s, accounted for 15 percent. Most nonconsortium funding comes from Saudi Arabia and other oil-producing Middle Eastern countries. Most aid is in the form of loans, although the proportion of grants increased from around 12 percent in the late 1970s to around 25 percent in the 1980s, mainly because of food aid and other funds directed toward Afghan refugees. With the decline in this aid after 1988, the proportion of grants decreased to 16 percent in FY 1992.

The United States has been a major provider of aid since independence and was the largest donor in the 1980s .All United States military aid and all new civilian commitments, however, ended in October 1990 after the United States Congress failed to receive certification that Pakistan was not developing a nuclear bomb. As of early 1994, United States aid had not resumed, but Agency for International Development projects already under way in October 1990 continued to receive funds.

SOCIAL SECTORS OF PAKISTAN

Transportation and telecom:

Roads: Road system extends approximately 180,000 kilometers in 1992; asphalt roads about 51 percent of total. Work on four-lane 339-kilometer highway between Lahore and Islamabad began January 1993. Number of motor vehicles estimated at nearly 2 million in 1992, including 932,000 motorcycles, 454,000 automobiles, 220,000 tractors, 157,000 trucks and vans, and 37,000 buses.

Railroads: 8,775 kilometers total; 7,718 kilometers broad gauge, 445 kilometers 1-meter gauge, and 610 kilometers less than 1-meter gauge; 1,037 kilometers broad-gauge double track; 286 kilometers electrified; most government owned.

Civil Aviation: International airports at Karachi, Islamabad, Lahore, Peshawar, and Quetta. Pakistan International Airlines national carrier.

Ports: Karachi, Port Muhammad bin Qasim, Gwadar, and Pasni.

Telecommunications: Telegraph and telephone systems government owned; more than 1.6 million telephone connections in March 1993. Radio and telephone dominated by government corporations; Pakistan Broadcasting Corporation had monopoly on radio broadcasting with home service of 270 hours daily in twenty languages and world service of ten hours daily in two languages in 1995; nineteen AM, eight FM broadcasting stations. Government controlled Pakistan Television Corporation (PTV) transmits daily; privately owned People's Television Network transmits on eight channels; twenty-nine TV broadcast stations; more than 2 million TV sets in use in 1995.

Education:

At independence, Pakistan had a poorly educated population and few schools or universities. Although the education system has expanded greatly since then, debate continues about the curriculum, and, except in a few elite institutions, quality remained a crucial concern of educators in the early 1990s.

Adult literacy is low, but improving. In 1992 more than 36 percent of adults over fifteen were literate, compared with 21 percent in 1970. The rate of improvement is highlighted by the 50 percent literacy achieved among those aged fifteen to nineteen in 1990. School enrollment also increased, from 19 percent of those aged six to twenty-three in 1980 to 24 percent in 1990. However, by 1992 the population over twenty-five had a mean of only 1.9 years of schooling. This fact explains the minimal criteria for being considered literate: having the ability to both read and write (with understanding) a short, simple statement on everyday life.

Relatively limited resources have been allocated to education, although there has been improvement in recent decades. In 1960 public expenditure on education was only 1.1 percent of the gross national product; by 1990 the figure had risen to 3.4 percent. This amount compared poorly with the 33.9 percent being spent on defense in 1993. In 1990 Pakistan was tied for fourth place in the world in its ratio of military expenditures to health and

education expenditures. Although the government enlisted the assistance of various international donors in the education efforts outlined in its Seventh Five-Year Plan (1988-93), the results did not measure up to expectations.

Health:

In 1992 some 35 million Pakistanis, or about 30 percent of the population, were unable to afford nutritionally adequate food or to afford any nonfood items at all. Of these, 24.3 million lived in rural areas, where they constituted 29 percent of the population. Urban areas, with one-third of the national population, had a poverty rate of 26 percent.

Between 1985 and 1991, about 85 percent of rural residents and 100 percent of urban dwellers had access to some kind of Western or biomedical health care; but 12.9 million people had no access to health services. Only 45 percent of rural people had safe water as compared with 80 percent of urbanites, leaving 55 million without potable water. Also in the same period, only 10 percent of rural residents had access to modern sanitation while 55 percent of city residents did; a total of 94.9 million people hence were without sanitary facilities.

In the early 1990s, the leading causes of death remained gastroenteritis, respiratory infections, congenital abnormalities, tuberculosis, malaria, and typhoid. Gastrointestinal, parasitic, and respiratory ailments, as well as malnutrition, contributed substantially to morbidity. The incidence of communicable childhood diseases was high; measles, diphtheria, and pertussis took a substantial toll among children under five. Although the urban poor also suffered from these diseases, those in rural areas were the principal victims.

Despite these discouraging facts, there has been significant improvement in some health indicators, even though the population grew by 130 percent between 1955 and 1960 and between 1985 and 1990, and increasing from 50.0 million in 1960 to 123.4 million in 1993. For example, in 1960 only 25 percent of the population had purportedly safe water (compared with 56 percent in 1992). In addition, average life expectancy at birth was 43.1 years in 1960; in 1992 it had reached 58.3 years.

The health sector in Pakistan has always lacked in meeting the needs of rapidly growing population. The blame simply falls upon the level of corruption with the sector, lack of research based practices.

OVERALL CONCLUSION.

From the years 1999-2000 the life expectancy in males was 64 whereas for females it was 66. For % Disabled Population (1998)* it was 2.54.

The crude death rate decreased from 8.3 to 7.8. And the growth rate also decreased from 2.19 to 1.13.

Women's Health

Crude Birth Rate: 30.2-29.1

General Fertility Rate: 134.9-127.6

Total Fertility Rate: 4.5-4.3

% Births at Non-Medical places: 76.7-76.2

Child Health Ratios: 2000-2001

Infant Mortality Rate: 81.5-79.8 Population per bed: 1,495-1,490

Neo-Natal Mortality Rate: 51-51.5 Population per Doctor: 1,529-1,516

Post Neo-Natal Mortality Rate: 30.5-28.3 Population per Nurse: 33,629-31,579

% Vaccinated (1998): 70.7 Populations per Dentist: 3,732-3,639

Estimated number of Cases with HIV/AIDS in Pakistan

The estimated number of adults and children is 78,000 with age ranging from 15-49 years is 76,000 , women aged 15-49 years are 16,000, children of 0-15 age group are 2200 and adult rate(%) is 0.1 .The estimated number of deaths due to AIDS Deaths in 2001 were 4500, the estimated number of orphans (current living orphans) is 25,000

Urbanization:

Urbanization is not just a side effect of economic growth; it is an integral part of the process, according to the World Bank. With the robust economic growth averaging 7 percent and availability of millions of new jobs created between 2000 and 2008, there has been increased rural to urban migration in Pakistan to fill the jobs in growing manufacturing and service sectors. The level of urbanization in Pakistan is now the highest in South Asia, and its urban population is likely to equal its rural population by 2030, according to a report titled ‘Life in the City: Pakistan in Focus’, released by the United Nations Population Fund. Pakistan ranks 163 and India at 174 on a list of over 200 countries compiled by Nation master.

Pakistan has and continues to urbanize at a faster pace than India. From 1975-1995, Pakistan grew 10% from 25% to 35% urbanized, while India grew 6% from 20% to 26%. From 1995-2025, the UN forecast says Pakistan urbanizing from 35% to 60%, while India's forecast is 26% to 45%. For this year, a little over 40% of Pakistan's population lives in the cities.

The urban population now contributes about three quarters of Pakistan's gross domestic product and almost all of the government revenue. The industrial sector contributes over 27% of the GDP, higher than the 19% contributed by agriculture, with services accounting for the rest of the GDP.

A 2008 report by UN Population Fund says the share of the urban population in Pakistan almost doubled from 17.4 percent in 1951 to 32.5 percent in 1998. The estimated data for 2005 shows the level of urbanization as 35 per cent, and CIA Factbook puts it at 36% in 2008, and it is increasing with 3% of the nation's population migrating to cities every year. With over 5 million rural migrants each year, the population of Pakistani cities in exploding, and Karachi has now become the world's largest city, according to Citymayors.com.

India's urban residents in 2008 account for 29% of its population, and the CIA Fact Book estimates it growing at 2.4% of the total population every year.

In 2007, analysts at Standard Chartered bank estimated that Pakistan has a middle class of 30 million which earns an average of about $10,000 per year. And adjusted for purchasing power parity (PPP), Pakistan's per capita GDP is approaching $3,000 per head. An expected positive consequence of the increasing urbanization of society in Pakistan will be the creation of over 100 million strong middle class by 2030. This large urban population will not only create a domestic market for goods and services, but it can create a skilled work force that can be the engine of economic growth and source of innovation.

According to the 1998 census, Sindh is the most urbanized province with 49 percent of the population living in urban centers. NWFP is the least urbanized province with only 17 percent of its population living in urban areas.

The shares of urban population in Punjab and Baluchistan in 1998 were 31 and 23 percent respectively. There has been a visible narrowing down of the growth rate differentials among provinces, although the urban population in Baluchistan and Islamabad has been increasing at higher rates of 5.1 and 5.8 percent respectively.

More than 60 percent of the population of urban Sindh lives in Karachi and this concentration has increased over time. Approximately three-quarters of the total urban population of Sindh are concentrated in just three urban centers: Karachi, Hyderabad and Sukkur. Karachi is growing so fast that estimate of its population range from 12 million to 18 million. The country's financial capital is also a city where about half the population lives in sub-standard housing.

National Public Radio (NPR), an American radio network, did a series recently on a massive wave of urbanization sweeping the world's emerging economies such as Brazil, China, India and Pakistan. It chose to start with Karachi, which it described as Pakistan's "economic lifeline" and financial and industrial "powerhouse" that produces 25% of Pakistan's GDP, and called it "one of the largest and most crowded cities of the world".

In Punjab, 22 percent of the urban population lives in Lahore, and half of the total provincial urban population lives in five large cities.

In a recent interview with Wall Street Journal, Pakistan's former finance minister Salman Shah explained that "Pakistan has to be part of globalization or you end up with Talibanization". "Until we put these young people into industrialization and services, and off-farm work, they will drift into this negative extremism; there is nothing worse than not having a job," Shah elaborated. But increasing urbanization in South Asia represents both a challenge and an opportunity for India, Pakistan and Bangladesh. It is a challenge because it imposes a rapidly growing burden on the already overcrowded megacities such as Mumbai, Delhi, Dhaka and Karachi. Such a massive challenge will require a tremendous focus on providing housing, transportation, schooling, healthcare, water, power, sanitation and other services at an accelerated pace. But if this challenge can be successfully met, there will be an opportunity to develop the human potential of the rural poor and employ them more productively in the growing industrial and services sectors in the cities. In the case of Pakistan, if the level of robust economic growth, human

development and increased urbanization can be sustained to significantly enlarge the South Asian nation's middle class, then there can be hope for genuine and durable.

Energy Crises in Pakistan

What Is Energy Crises?

An energy crisis is any great shortfall (or price rise) in the supply of energy resources to an economy. It usually refers to the shortage of oil and additionally to electricity or other natural resources.

In popular literature though, it often refers to one of the energy sources used at a certain time and place, particularly those that supply national electricity grids or serve as fuel for vehicles. There has been an enormous increase in the global demand for energy in recent years as a result of industrial development and population growth. Supply of energy is, therefore, far less than the actual demand.

INTRODUCTION:

Electricity Crisis in Pakistan is one of the severe challenges the country is facing today. Electricity is essential part of our daily life and its shortage has severely affected the economy and overall living of ours. Pakistan is currently facing up to 18 hours of electricity outage a day, is expected to face more if not dealt with in time. Electricity, gas, water, fuel is essential part of our daily life and its outage has severely affected the economy and overall living of ours. Thousands have lost their jobs, businesses; our daily life has become miserable.

Pakistan has been facing an unprecedented energy crisis since the last few years. The problem becomes more severe during summers. However, this winter was no different. During the peak crisis there was a power outage of 3-4 hours everyday. Those without generators and UPS faced tremendous problems. The prices of both continued to increase due to a sharp increase in their demand.

Pakistan is facing power shortage, natural crisis and oil crisis. In a report it is claimed that Pakistan has faced 1000 to 2000 MW shortage of power. And it will likely face 3000MW next year. Pakistan is facing 80 million tons of oil shortage according to its need. And is lacking behind the needs of natural gas at about 27 million ton of energy in current year and this ratio will rise in upcoming years.

The crisis often has effects on the rest of the economy, with many recessions being caused by an energy crisis in some form. In particular, the production costs of electricity rise, which raises manufacturing costs.Pakistan’s economy is performing at a very high note with GDP growing at an exceptional rate, touching 8.35% in 2004-05.In its history of 58 years, there has been only a few golden years where the economy grew above 7%. This year official expectations are that GDP growth rate will be around 6.5 – 7.0%. For the coming years, the government is targeting GDP growth rate above 6%. With economy growing at such a pace, the energy requirements are likely to increase with a similar rate. For 2004-05, Pakistan’s energy consumption touched 55.5 MTOE (Million Tons of Oil Equivalent).

ENERGY RESOURCES OF PAKISTAN

TEN YEARS OF ENERGY CONSUMPTION:

DISCUSSION:

HYDEL ENEGRY

Water flowing in the rivers has kinetic energy. They are used to drive the turbine and produce electricity the power generated as hydel energy. Power produced by the turbine depends on quantity of water flowing/minute and the head of water available. Mostly river flows by melting glaciers on High

Mountain. One the water starts flowing in the valley its changes its head very rapidly. This energy can be converted into electrical energy.

PAKISTAN MAJOR DAMS:

Tarbela Dam 9.00MAF

Warsak Dam 0.04MAF

Mangla Dam 0.61MAF

CRISIS OF HYDEL ENERGY

The energy crisis starts from 1990 and still Pakistan is in the crisis of these all as before. The latest and perhaps the most troublesome crisis faced by the Pakistani nation these days is the shortage in supply of electricity. The country is facing a huge electric power crisis these days. Though it has been more than a year since when the country is facing this crisis, but till now no proper solution has been made to this problem neither any proper planning has come into existence since the symptoms and begging of this short supply of electricity. While rolling blackouts or load shedding as it is locally known has always been a staple of daily life in Pakistan, the problem has become acute in the last couple of years.

Thermal energy

Thermal energy is the thermal type of energy. With all known history available, wood always used for heating and cooking. In 2nd world war fossils fuels entered in the form of coal to get energy. Until liquid fuels were discovered and because of their convinces of transportation they took over as major of energy source. Once the steam engines were invented then the coal or liquid fuels was burnt in the in boilers and heat producers steam which is used to drive an electrical generators, or any other mechanical devices. Rudolph diesel invention of diesel engine revolution the energy concept and today we see sine the majority of machine moving on diesel engines.

CRISIS OF THERMAL ENERGY

The oil crisis facing the world is not about supply or about the increase in demand. It is about the speculators who are pumping huge amounts of money into forecasting a serious shortage ahead. Not now but in the future. And that the prices will escalate enough for them to make a killing.

The US government must be wondering at the irony of this windfall benefiting a prime enemy of American and Israeli interests at the cost of millions of innocent citizens of the US and Europe, engineered by the greasy gnomes of the oil trade. As I had written in an earlier piece as far back as 2005, when an attack on Iran was imminent, that the rise in oil at 100 $ a barrel would impact on the food prices has proved prophetic with the current sky high prices of bread in Europe and America.

CAUSES OF ENERGY CRISIS:

1. Economic and political instability. Effect our GDP and Energy growth…

2. Fluctuation of oil prices in international market. WAPDA & KESC purchase expensive oil and transfer cost to customers….

3. Faulty Distribution system. We waste to 15 to 20 percent energy through poor distribution system

4. Aging of equipment. Unable to generate required electricity.

5. Unproductive efforts. Seminars & conference but no implementation.

6. Silting Process. It is a naturally caused

7. Aging of equipment.

8. Wastage of energy.

9. High cost of fuel.

10. No use of coal.

DISTRIBUTION SYSTEM

Unproductive efforts.

Fluctuation of oil prices in international market.

Crises in hydropower energy

Crises in coal

Crises in oil & gas

Crises in nuclear

Circular debt

Corruption

Electricity theft

POOR PLICY MAIKNG :

Renewable resources of energy like solar energy and wind energy should be explored. Neighboring China is rapidly moving towards alternative energy. Lack of transparency is the biggest hurdle in development of alternative energy. In one report, Nepra did not allow setting up of wind mills in Sind as the power companies demanded 8 cents per unit and Nepra was adamant to pay Rs 7.5. This was back in 2007. Now in 2011, Nepra is willing to pay 16 cents per unit, to the same companies, how ironical?

Effects of energy crises in Pakistan

1. Effects on industry:

That factory has losses from shutting down its equipment and idling its workers. According to an estimate, there are 10,000 factories in Lahore, among which approximately 30-40 percent factories have been closed because of load shedding. These factories were utilizing electricity and Sui gas in a huge amount.

2. Unemployment:

According to the labor department sources, approximately 800,000 laborers have been dispelled from their jobs. While, 400,000 to 800,000 laborers were receiving less wages.

3. Agriculture:

Load shedding is destroying the agriculture sector because there are 200,000 electric tube wells in the country to irrigate the land, which could not be run due to electricity shortage decrease in agriculture production and food shortage in the country.

CONCLUSION:

• This study recommends government of Pakistan to take strong steps to over hall its existing infrastructure and transformed it to utilized renewable energy for future needs.

• Government should also take steps to utilized the coal reserves through it will give us energy for next 25 years.

• WAPDA is facing huge line losses due to electricity theft or illegal usage of electricity. The burden is beard by the Government so in order to cover up such losses and to ensure adequate and clean facility of electricity; we must ensure that no body breaks into the transmission system.

RECOMMENDATIONS:

• Govt. must pay circular debt.

• Govt. must invest to cover up line losses.

• Industries that consume 32% of our electricity, must apply Energy Conservation Systems and Management measures.

• They can start producing their own energy with their own investment without depending upon the grid.

• Industrialists and new investors must consider the Energy Sector as good an investment as any other. Needs image building.

• Govt. must convert from inefficient gas plants to efficient ones in order to conserve electric energy.

• Govt. must consider investing in Solar Energy plants to produce Electricity as they provide free energy, and are less mechanical than Wind Energy Plants.

• Continuous updating of equipments

• Conservation of energy resources

• Exploring coal

• Improvement of distribution System

• Reactivates the closed power generation systems

• Explorations of more oils, gas and coal reserves

Energy Planning

Pakistan needs to aggressively pursue ways to increase its power-generating capacity. The best options available today are Nuclear and Coal, followed by Wind and Solar. Hydroelectricity can only be pursued after all environmental, ecological and geopolitical issues are settled with a consensus among all four provinces. Pakistan needs to set up at least a Dozen Nuclear Power Plants, large coal fired plants, wind farms and solar plants in the next 10 years to generate about 20,000 MW of electricity.

SOLUTIONS:

1. Replacing thermal power fuel

Our reliance on thermal power is so large, we simply cannot dismantle it and magically move to hydro power, however we can change the fuel used to gain thermal power. Instead of using oil and gas, both of which are getting more expensive and have volatile Instead of using oil and gas, both of which are getting more expensive and have volatile coal.

2. Moving past the myth of Thar coal:

There is coal in Thar, but assuming that it can be used immediately or it will solve all our energy problems is a myth propagated by a few people and political parties for their personal gains. Experts agree that Thar coal is highly unstable – making it difficult to transport it from one location to another – and even its gasification is not risk-free.

3. Improved energy mix

Energy mix refers to the sources of energy we utilize in Pakistan to fulfill our overall energy needs. I need to give credit to the PML-N on this one as they are the first ones to talk of the holistic energy mix and not just the CNG or the electricity crisis.

We need more hydel plants and renewable energy projects. In the next five years, the aim should be at getting five percent of our total power supply from renewable sources and to also use the nuclear power we are so proud of, to provide electricity. Right now, we are at about three percent power generation from nuclear sources, which have to go up to at least percent. Hence an overall improved energy mix is what can solve our issues in the long run.

4. Stand-alone power projects

About 40 percent of Pakistan is off the national grid; that means they effectively get to no electricity.

The way our grid operates, it is already suffering from heavy line losses and other technical issues, which makes it extremely hard and costly to get 40 percent of the Pakistan on to the national grid. However there are solutions to this.

We can finance independent stand-alone power projects that can function in areas where there is no national grid, this way the local communities and businessmen can set up their own energy solutions without taking prior permission from the National Electric Power Regulatory Authority (NEPRA) like they have to now. This will enable them to set up small scale solar panels and plants in their communities and sell electricity locally. Small wind farms can also be used in areas which are close to wind corridors.

5. Dismantle the national grid

The national grid needs to be dismantled and provincialized, because under the 18 th amendment, the profits of power generation go to the province that is producing the power, meaning if electricity is being produced at Tarbela, royalties of that are being paid to KP Government by all other provinces.

IMF WORLD BANK & SAP

International monetary fund

The International Monetary Fund (IMF) is an organization of 186 countries, working to help the development of global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The IMF works to help development of global growth and economic stability. It provides policy advice and financing to members, in economic difficulties and also works with developing nations to help them achieve macroeconomic stability and reduce poverty.

The IMF’s fundamental mission is to help ensure stability in the international system. It does so in three ways: keeping track of the global economy and the economies of member countries; lending to countries with balance of payments difficulties; and giving practical help to members.

World Bank

The first thing comes to my mind is that what is World Bank and what is the purpose of World Bank. The World Bank is one of the world’s largest sources of funding and knowledge to support governments of member countries in their efforts to invest in schools and health centers, provide water and electricity, fight disease and protect the environment. The World Bank is an international organization owned by the 184 countries. It is not a bank.

Difference between IMF & World Bank

People sometimes confuse the World Bank with the International Monetary Fund (IMF). Although the IMF’s functions complement those of the World Bank, it is a totally separate organization. While the World Bank provides support to developing countries, the IMF aims to stabilize the international monetary system and monitors the world’s currencies.

Structural adjustment programs (SAP)

Structural adjustment programs (SAP) are the programs initiated by Pakistan in the late 1980s with the assistance of International Monetary Fund (IMF) and the World Bank to stabilize the economy in order to borrow from these institutions

IMF assistance to Pakistan

When IMF is advancing loans to their members, they not only analyze the economic conditions of their members but the borrower will also have to frame its policies in the light of directions given by IMF authorities.

The question in my mind is that when and how much was lent to Pakistan by IMF. And what were the conditions imposed by IMF and what were the consequences of these loans.

Pakistan joined IMF on 11th July, 1950. IMF is providing financial assistance to Pakistan since 1952. According to 1977 statistics, Pakistan borrowed 1193 million dollars from IMF. Since 1980, the fund has made four main agreements with Pakistan as,

1. in November, 1980

2. in December, 1988

3. in February, 1994

4. in July, 1997

1. THE AGREEMENT OF 1980:

Under this agreement, IMF provided $1.7 billion for the period of 1980-83. The biggest condition against this loan was to reduce the fiscal deficit. For this purpose they asked the Government to increase the prices of public enterprises like fertilizers, cement, electricity, clean water, educational and health services. The indirect taxes should increase and subsidies should be withdrawn. But the budget deficit in 1980-81 was 5.8% of GDP went to 9.1% in 1985-86. When Government of Pakistan again asked IMF for assistance, they showed dissatisfaction over our efforts to reduce fiscal deficit. Accordingly, IMF prepared a package of policies for Pakistan and chalked-out a time-table for the required changes. IMF set the following conditions for Pakistan:

1. Rupee be devalued by 20% in terms of dollar

2. The imports be liberalized

3. Prices should increase and subsides be withdrawn

4. The custom duty on imports be decreased and sales and exercise duty be imposed in the country

5. The industrial sector is liberalized from govt. controls through de-regulations and privatization.

2. THE AGREEMENT OF 1988:

During the period of 1988-91, IMF gave the assistance of $900 million to Pakistan in order to remove the deficit in BOP by redressing structural problems. According to this agreement:

1. The current account deficit of BOP which was 4% of GNP in 1987 was to be reduced to 3.3% of GNP in 1988-89, 2.7% in 1989-90, and 2.5% of GNP in 1990-91.

2. The foreign debt burden which was 31% of GNP in 1987 would be decreased to 25% in 19990-91.

3. The overall fiscal deficit of federal and provincial govt. which was 8.5% of GDP in 1986-87 would be reduced to 4.8% of GDP in 1990-91.

4. The bank borrowings be reduced to 1% of GDP, while non-bank borrowings to 3.6% of GDP.

5. The tax structure will be changed. The tax-base will be expanded and tax collection system will be improved.

6. The system of general sales tax will be introduced.

7. The federal and provincial govt. will control their expenditures, while the price of social services will be increased.

The main objective of this agreement was to reduce fiscal deficit. But the govt. failed to meet these conditions. The budget deficit which was 8.7% of GDP in 1990-91 decreased to 8% GDP in 1992-93. This means that the budget deficit could not be decrease appreciably.

3. THE AGREEMENT OF 1994:

The aim of this agreement was to reduce the financial deficit to 4% of GDP in 1994-95 and to 3% of GDP in 1995-96. But this agreement was renegotiated in December, 1995. As a result, this target was set at 5% of GDP for 1994-95 and 4% for 1995-95. In this agreement IMF stressed upon early conditions. As the price of gas, electricity, water, education and health services should be increased.

The govt. of Pakistan made some efforts but little success was attained. The budget deficit was 5.8% of GDP in 1994-95 and the target for 1995-96 was set at 5% of GDP. This led to create a suspension in the attainment of loan of $1.4 billion could be raised. Then the govt. of Pakistan failed to complete the conditions of IMF. Then the finance minister re-negotiated with IMF. As a result, a new agreement took place between Pakistan and IMF where the fiscal deficit was stipulated at 4% of GDP for 1996-97. Against it, the agreement was extended to September, 1997, instead of February, 1997, while the amount of loan was raised from $250 million to $850 million.

Government of Pakistan neither reduces its expenditure nor raised tax revenues. The IMF failed to learn any lesson from Pakistan’s experience. Government of Pakistan’s dependence remains the same and efforts for new agreement started.

4. THE AGREEMENT OF 1997:

In 1997, IMF prepared a ‘Medium Term Policy Framework Paper’ for the growth and the stabilization of the economy of Pakistan. This period is of three years from 1st July, 1997 to 30 June, 2000. Pakistan demanded a lot of amount as financial aid but IMF sanctioned $500 million on January 14, 1999. IMF suggested conditional ties in order to bring structural changes in the economy. The IMF issued a long structure. Government of Pakistan applied many suggestions but still they failed to impose sales tax at retail level. The rupee was devalued in 1998. The trade was liberalized. IMF has associated its tranche ($280 million) with the issue of IPPs. It means that unless govt. of Pakistan settles the issue with IPPs, they will not get any loan from IMF.

Effects of IMF programs

IMF authorities think that the problem of Pakistan increased because of non-compliance with the IMF programs. But it is not true. The IMF program has led to increase the charges of gas, electricity, petrol and telephone. The imposition of sales tax and cut in tariff rates on the advice of IMF has greatly affected the incomes of the poor and middle class earners. They have widened the gaps between the incomes. The absolute poverty has increased which has promoted unsocial activities. But this is not all because of IMF, we are responsible for it. If our fiscal deficit and trade deficit decreases then we should not go to IMF for financing. But we should be prepared to pay more in the form of taxes and reduces imports; particularly oil etc., the dependence on IMF may go down.

World Bank assistance to Pakistan

• They are supporting reforms at both the federal and provincial level.

For encouraging growth, investment, and employment generation, the Federal and Provincial Governments have been implementing various reform programs. In June 2007, the World Bank approved a US$350 million to support ongoing implementation of the Government’s Poverty Reduction Strategy. At the provincial level, the Bank approved operations worth US$430 million for Punjab, Sindh and the North West Frontier Province to help improve irrigation, education and human development indicators.

• They are working with Pakistan Poverty Alleviation Fund to bring difference in the lives of poor.

The World Bank funded Pakistan Poverty Alleviation Fund Project (PPAF) is designed to reduce poverty and empower the rural and urban poor in Pakistan through the provision of resources and services to the poor, especially women. This is being achieved through an integrated approach that includes building institutions of the poor and then providing them with micro-credit loans; grants for small scale infrastructure projects; training and skill development and social sector interventions. The program is impacting over 10 million people. PPAF has issued 1.5 million micro-credit loans, (average loan-size US$ 150), benefiting nearly 9 million people.

• They are helping the victims of the Earthquake.

The October 2005 earthquake in Pakistan destroyed or damaged around 575,000 rural houses, and rendering over 3 million people without shelter in North West Frontier Province (NWFP) and Azad Jammu and Kashmir (AJ&K). In response, the government created the Earthquake Relief and Reconstruction Authority (ERRA) and launched an ambitious US$1.5 billion owner-driven rebuilding program – largely suited to the mainly rural affected population. It is partially funded by World Bank.

• They are working with the government to improve education outcomes.

The World Bank is providing assistance to the Government of Pakistan in education reforms, at both the national and the provincial level. This support is provided through development policy operations with a strong focus on primary and secondary education. These programs target increasing participation of girls and children from poorer houses. The World Bank is also assisting the government in improving the quality and relevance of its higher education and technical and vocational training system. They have a strong focus on improving the quality of education.

• They are joining with international partners to help Pakistan fight polio.

They approved two projects US$42.71 million in 2003 and US $ 74.27 million in 2006 for Pakistan to purchase the oral polio vaccine. The loan to Pakistan will help the country’s Polio Eradication Initiative which aims to make Pakistan a Polio free country. Since 1997 the number of polio cases has decreased from 1147 to 31 in 2007. The first project has been successfully completed.

• They are focusing on un-served and underserved low-income communities.

In NWFP and AJK, Bank projects are supporting delivery of cost effective and sustainable community development schemes, and basic infrastructure and services. To achieve this, the role and capabilities of local governments at the district and lower levels have been strengthened. In AJK, the project has already reached a population of 893,000 against the original target of 830,000, through 320 CBOs. Out of the 54 Tehsil Municipal Authorities (TMA) in NWFP, 50 are now participating in the Project.

• They are helping Pakistan prevent the spread of HIV/AIDS.

The key challenge facing the country is to expand and improve quality of HIV preventive services to vulnerable groups that are most at risk of contracting and transmitting the disease. These include sex workers and injecting drug users. The Bank is supporting the Government efforts to control AIDS through the HIV/AIDS Prevention Project designed to prevent the disease from becoming established in these populations, while at the same time working to protect these groups from stigmatization. A key focus of the project is delivery of HIV preventive services to high risk populations through public-private partnerships. A total of 17 service delivery packages for injecting drug users (IDUs), sex workers, truckers and jail inmates have been contracted out to NGOs by the National and Provincial AIDS Control Programs covering most major cities across the country.

• They are helping to ‘improve trade flows’ and ‘lower transit costs and times’.

In 2005, the Government of Pakistan (GOP) launched major initiatives around the National Trade Corridor Improvement Program (NTCIP) to reduce the cost of trade and transport logistics and bring services’ quality to international standards in order to reduce the cost of doing business in Pakistan and ultimately enhance competitiveness and industrialization.

• They rely on local expertise.

They rely mostly on local expertise. As 90% of their staff is local who are working for Pakistan. While a large part of World Bank’s value is its global experience and expertise, local knowledge is indispensable to effective development.

• Assistance:

During the past four years from FY 2006 – 2009, the Bank has approved 30 projects of total US$3.7 billion for Pakistan.

What are Structural Adjustment Programmes (SAPs)?

"Structural adjustment" is the name given to a set of "free market" economic policy reforms imposed on developing countries by the Bretton Woods institutions (the World Bank and International Monetary Fund (IMF)) as a condition for receipt of loans.

SAPs were developed in the early 1980s as a means of gaining stronger influence over the economies of debt-strapped governments in the South. To ensure a continued inflow of funds, countries already devastated by debt obligations have little choice but to adhere to conditions mandated by the IMF and World Bank.

Most donor countries, including Canada, condition their bilateral assistance upon a country's adoption of structural adjustment programs.

MAIN OBJECTIVE

• Reductions in the fiscal deficit

• Balance of payments deficit to a certain extent

• Reduce domestic demand by restricting the expansion of money and credit.

• Reduce inflation and devaluing the national currency.

The main objectives of these programs were to reduce domestic demand by restricting the expansion of money and credit. Reducing the fiscal & current account deficit reduce inflation and devaluing the national currency. And make basic changes in economic management in order to shift the economic policies of the country in the direction, desired by the donors .These programs deal primarily with supply side. These policies involve changes in relative price incentives and institutions to make the economy more efficient by eliminating the distortions in price structure and redefining the role of the government in the economy. The study analyzes the impact of SAP on poverty alleviation in Pakistan through selective macroeconomic variables i.e. GDP growth rate, agricultural growth rate, rate of inflation, trade openness, investment growth rate, wage rate, development expenditure, rate of unemployment, indirect taxes, subsidies, foreign remittances and income inequality. Post and Pre-SAP periods are compared empirically by applying time series econometric technique.

What it lead to:

The Government of Pakistan began implementing structural adjustment programs as part of the conditions for obtaining loans from the World Bank and the IMF. This led to

1 Reductions in the fiscal deficit

2 Balance of payments deficit to a certain extent

3 Resulted in increasing poverty.

What are SAPs Designed to Do?

SAPs are designed to improve a country's foreign investment climate by eliminating trade and investment regulations, to boost foreign exchange earnings by promoting exports, and to reduce government deficits through cuts in spending.

Why the Need for SAPS?

The World Bank and the IMF argue that SAPs are necessary to bring a developing country from crisis to economic recovery and growth. Economic growth driven by private sector foreign investment is seen as the key to development. These agencies argue that the resulting national wealth will eventually "trickle down" or spread throughout the economy and eventually to the poor.

The achievement of social well-being is not an integral component of SAPs but a hoped-for result of applying free market principles to the economy. The process of adjustment, as described by many World Bank and IMF officials to developing countries, is one of "sacrifice," of "present pain for future hope

The impact of four policy instruments of SAP:

1. Reduction in budget deficit

2. Increase in indirect taxes

3. Adjusting the exchange rate

4. Sliding down of subsidies

5. Employment

6. Income distribution

7. Per-capita income and inflation

First policy instrument:

It is found that the first policy instrument, i.e. decrease in budget deficit has affected

1. Employment

2. Income distribution

3. Inflation

Second policy instrument:

The second policy instrument of imposition of indirect tax negatively affected

1. Employment

2. Income distribution

3. Per capita income

It has positive effects on inflation.

Third policy instrument:

The third policy instrument of SAP was adjustment of exchange rate. It is estimated that adjusting exchange rate has resulted into

1. Increased unemployment

2. Increased inflation

Fourth policy instrument:

The fourth policy instrument of shrink in subsidies augmented

1. Unemployment

2. Unequal distribution of income and inflation

3. Dwindled the per capita income.

Currently the government is considering for loan from IMF, so it is proposed to avoid such type of policy directives from IMF.

LOANS:

Pakistan, like many other LDCs faced a large fiscal deficit, rapid monetary expansion accelerating inflation, an unsustainable current account deficit, deterioration in the terms of trade, and a large stock of external debt during the 1970s and early 80s. Pakistan was among those few countries that have received six or more adjustment loans since 1980s. The first Structural Adjustment Loan (SAL) was granted to Pakistan in 1982. An export development loan was provided to the country for extension of industrial export. The first energy loan was approved in 1985 and the second in 1989.

These loans were to support the government energy strategy. The Structural Adjustment Facilities (SAF) was created by the IMF in 1986 and the country received the largest share. The SAF supported program focused on four essential areas,

• raising price incentives for agricultural producers

• increasing domestic savings

• easing bottleneck on supply and fiscal management

•liberalizing exchange and trade system.

Impacts of SAP

Impact on Employment:

The impact evaluation of SAP in our study is concerned with the time period of 1981-82 to 2000-01.

During this period the unemployment has been increased from an average of 3.5 percent in the 1980s to 5.7 percent in the 1990s further to 6.7 percent in 2000-01. The reduction in budget deficit has remained one of the objectives of SAP. Reduction of the budget deficit is a laudable macroeconomic stabilization instrument. However, the way in which it is achieved has different implications. In model 1 our results have shown that reduction in budget deficit has increased unemployment. There exists a range of policy options to achieve the objective of reduction in budget deficit, some are pro-poor and others are not. For example, raising revenues or reducing expenditures can lower the budget deficit.

Revenues can be raised through direct taxation or though indirect taxation. The former impacts the rich, while the latter largely impacts the poor. Expenditure reduction can be attained through cuts in current expenditure or through cuts in development expenditures. The former impacts existing employment, while the latter impacts employment generation. However, while development expenditure is likely to create assets and a future stream of income, current expenditure is likely to be consumptive. Generally, labor productivity and employment generated through development expenditures is likely to be higher than employment generated through current expenditure. While employment on account of development expenditure may be productive and employment on account of current expenditure may by non-productive. As such switching expenditure from current to development heads may increase employment and incomes, and reduce poverty in the future.

Practically in the period of SAP in Pakistan the cuts in developing expenditures have been the norm to achieve the target of budget deficit. The burden of adjustment in this respect has fallen on development expenditures. So burden of managing budget deficit has affected the employment negatively. Similarly, the current account deficit has been decreased by reduction in imports of capital goods and imports of raw material but it should be reduced either by increase in exports or reduction in imports of finished consumer goods. It resulted in to recessionary conditions in the economy adversely affecting employment.

Reduction in deficit financing means decrease in government spending. The reduction in government spending resulted into decrease in aggregate demand and ultimately sliding down of investment and then reduction in employment rate of labor force.

One of the policy directives of IMF was to increase taxes to generate revenues for government spending. The government imposed general sales tax and other indirect taxes such as withholding tax.It increased the ratio of indirect taxes to direct taxes. Our results have shown that unemployment is positively related with indirect taxes. The imposition of indirect taxes has directly affected the purchasing power of

the consumers negatively, which reduced the real aggregate demand and investment and ultimately unemployment was increased.

Impact on Per-capita Income:

The most frequently used indicator of economic welfare is per-capita income. We have used per-capita income as a proxy for poverty in the economy. The change in per-capita also represents the trend of the economic status of the country. In our results of model 3, only two variables related with SAP program, i.e. indirect taxes and subsidies have significantly affected the per-capita income. Industrial sector of Pakistan has remained one of the most important sectors affected by government policies.

This sector did not prepare itself to compete with international competitors up to early 1980s. It enjoyed the low taxes on production. As for as the domestic taxes are concerned, most of the goods were exempted from sales tax and excise duty. Due to this lenient tax policy the domestic producers have not tried to be competitive internationally. In 1980s, the situation reversed in such a way that the domestic producers could not find any time or space to make themselves competitive. Almost all goods came under sales tax net. Our results in model 3 have shown that indirect taxes have negatively affected the per-capita income. To increase taxes was one of the policy directives of SAP. If we take the per-capita income as a measure of welfare, it is adversely affected by the increase in indirect taxes..

Mechanics of indirect taxes is interrelated with the results of previous models, i.e. it has increased the unemployment and income inequality in the economy. As concerned the subsidies, there is an adverse effect of shrinkage in subsidies on per-capita income. The decrease in subsidies was a part of the conditionalities of the SAP. It may be concluded that SAP in the form of reduction in subsidies have adversely affected the per capita income of the economy

Impact on Inflation:

Inflation in an economy remains connected with macroeconomic variables in a complex way. The adjustment of any one of the variables may result into disturbing the inflation. Before SAP program it was feared that the inflation may increase due to the conditionalities, particularly like the imposition o indirect taxes and elimination of subsidies. In our fourth and final model, we attempted to see the effect of SAP on inflation. As we have discussed earlier, the budget deficit in the economy has been achieved by reduction in development expenditures. It has adversely affected the price level in the economy.

Furthermore, increase in oil prices, gas and electricity charges due to imposition of surcharge were all the results of stabilization strategy which damaged the production sector mostly by increasing the cost of production enormously. So increase in ratio of indirect taxes has adversely affected the economy by shooting up inflation.It is further found that exchange rate policies have also exerbated inflation in the economy. The mechanics of subsidies and inflation in developing economies is focused on welfare for poor class.

Elimination of the subsidies was one of the conditionalities of SAP. In the span of SAP this conditionality has increased the inflation in the country.

IMPACT OF (SAP) ON POVERTY ALLEVIATION IN PAKISTAN(1987-2001)

Main cause of increasing poverty level in Pakistan:

• Declining GDP growth rate

• Low agricultural growth rate

• Healthy rate of inflation

• Limited trade openness

• Insufficient investment growth rate

• Unsatisfactory growing wage rate

• Declining development expenditure

• High rate of unemployment

• Burden of indirect taxes

• Low subsidies

• Declining foreign remittances

• Increasing income inequality

The Impact of Structural Adjustment on Income Distribution in Pakistan

Domestic poverty and income distribution are closely related to the state of the economy, which is linked with internal and external economic policies. Since 1988, under the rubric of structural adjustment programme (SAP), Pakistan has made use of fiscal, monetary and trade policies to correct her macro-economic imbalances. It is hard to substantiate with proof that these programmes protect the poor.

HISTORICAL OVERVIEW OF ADJUSTMENT POLICIES AND INCOME DISTRIBUTION

Fiscal performance of Pakistan deteriorated significantly up to financial year 1987-88. Budget deficit reached to 8.5 percent of GDP in 1987-88. A large portion of government expenditure was utilized for subsidy provision as consumer subsidies were supposed to help the poor and production subsidies to provide assistance in production process and for exports. At the same time, there have been many tax exemptions. Pakistan, therefore, was needed tax reforms with efficiency and equity objectives as well as to reduce budget deficit by revenue generation accompanied with reduction in current expenditure in order to free resources for development expenditure. In the first extensive adjustment programme embarked on July 1988, a number of recommendations were made by the IMF and the World Bank. It

was recommended that tax revenue should be increased from 13.0 percent of GDP in 1986-87 to 16.9 percent of GDP in 1992-93 with an increase in direct tax revenue from 1.9 percent of GDP to 3.3 percent of GDP and indirect tax revenue from 11.2 percent of GDP to 13.6 percent of GDP. At the same time, it was emphasized a gradual reduction in government total expenditure from 26.7 percent of GDP in 1987-88 to 24.8 percent of GDP in 1990-91 by reducing current expenditure with main emphasis on lowering subsidies from 1.7 percent of GDP to 0.5 percent of GDP. Therefore, since 1988 the government has been making strenuous efforts to reverse the inherited trend in fiscal balance by broadening the tax base, abolishing tax exemptions and tax holidays and increasing the elasticity of tax system by shifting the emphasis from imports to domestic consumption. Initially, consumption subsidies were incurred to provide safeguard to poor against rising prices of essentials, such as wheat, edible oils while production subsidies were aimed to promote economic activities in areas with long run interest of the nation. But under the deregulation plan and to move towards more market oriented economy, subsidies are substantially withdrawn from 1.7 percent of GDP in 1988-89 to 0.5 percent of GDP in 1997-98 as reported in Table 1. Current and development expenditures are also declined, respectively, from 19.8 percent to 18.8 percent of GDP and from 6.9 percent to 3.1

Table 1

Key Indicators of Fiscal Policy in Pakistan (% of GDP)

Government Expenditure

Year Tax Total Subsidies Health Education Budget

Revenue Deficit

1987-88 13.8 26.7 1.50 1.0 2.4 8.5

1988-89 14.3 26.1 1.66 1.0 2.4 7.4

1989-90 14.0 25.7 1.47 1.0 2.2 6.5

1990-91 12.7 25.6 1.10 0.9 2.1 8.7

1991-92 13.6 26.5 0.94 0.7 2.2 7.4

1992-93 13.3 26.0 0.73 0.7 2.2 8.0

1993-94 13.2 23.2 0.58 0.7 2.2 5.9

1994-95 13.7 22.8 0.35 0.6 2.4 5.6

1995-96 14.1 23.9 0.64 0.8 2.4 6.3

1996-97 13.5 22.3 0.54 0.8 2.6 6.2

1997-98 12.9 21.1 0.48 0.7 2.3 5.4

Fiscal deficit has declined from 8.5 percent of GDP in 1987-88 to5.4 percent of GDP during 1997-98. Table 1 also shows that public expenditure on education and health are declined, although SAP directed to increase expenditure on education and health. Though, the fiscal adjustment programmes emphasize resource mobilization and low income groups are supposed to be protected, recent studies show that income inequality has increased during the period of adjustment in Pakistan. Historical trend in income distribution indicated by gini-coefficients along with GDP growth rates are presented in Table 2. It shows that the country has been growing satisfactorily, but income distribution has worsened over the period 1988 to 1994. Gini coefficients for Pakistan as a whole and for rural and urban areas reported in Table 2 show that gini-coefficients increased for Pakistan from 0.35 in 1987-88 to 0.40 in 1993-94, for rural areas from 0.31 to 0.35 and for urban areas from 0.37 to 0.40 for the same years. Table 2 also shows that on the whole, income distribution during the period under consideration is more worse in urban area as compared to in rural area except in 1990-91. It seems that benefits of growth did not trickle down to the poor. However, these results have provoked us to conduct a study on income distribution to determine the possible causes of this outcome.

Pakistan‘s relations with the IMF:

Pakistan‘s relations with the International Monetary Fund (IMF) can be divided into three phases:

• The initial phase covers the 1950s and 1960s, was a period of normal relations. In this period Pakistan received funds from the IMF under Stand–By arrangements in 1958, 1965 and in 1968.

• The second phase Pakistan frequently approached the IMF for assistance under Stand–By arrangements, oil facility and Compensatory Finance Facility in the 1970s.

• The third phase began in 1980s and there was a five year break (1983- 88). From 1988-2004, Pakistan was a regular user of the IMF recourses. In this period successive medium term stabilization and structural adjustment programs were negotiated and Pakistan successfully executed Stand-By arrangements in 2000 and poverty reduction and growth facility (PRGF) in 2001-04.

Limitations:

The study follows following limitations:

(1) Pre-Structural Adjustment analysis is limited to 16 years i.e. 1973 to 1988.

(2) Post-Structural Adjustment analysis is limited to 15 years i.e. 1989 to 2003

(3) Impact of structural adjustment program is analyzed in the form of selective Macroeconomic variables / poverty correlates

Graphical analysis consists of descriptive statistics and trend lines of all selective macroeconomics.

RESULTS AND DISCUSSION:

For the production sectors, backward linkages are strongest for the education, followed by agriculture, health, other sectors and industry. The largest forward linkage multipliers, which give the total effect on each account of a unit change in all endogenous accounts, are found for industry, followed by other sectors, agriculture, health, and education.

The results of the simulations of various exogenous injections relating to selected structural adjustment reforms in Pakistan. The simulation results are briefly explained as follows:

(i) 50 Percent Reduction in Subsidies in almost all the structural and sectorial adjustment programmes.

The much emphasis has been placed on reduction in subsidies. Since the embarkation of SAP, subsidies have been significantly reduced from Rs 7.3billion in 1988-89 (1.7 percent of GDP) to Rs 3.2 billion (0.5 percent of GDP) in 1997-98, showing one of the most significant compliance indicators of structural adjustment programmes in Pakistan. The simulations are performed by reducing the overall subsidies as well as consumption and production subsidies separately by 50 percent, the incomes of richest rural (HR4 having income more than Rs 7000 per month) and richest urban (HU4 having incomemore than Rs 7000 per month) are the most affected as their incomes declined by 3.5percent and 2.3 percent, respectively.

The second most affected income groups by reducing subsidies are the poorest urban and poorest rural (HU1 and HR1 both having income less than Rs 2500 per month) as their incomes are reduced by 2.1 percent and1.9 percent, respectively. Reducing consumption and production subsidies separately by 50 percent, production subsidies affect the poorest group the most. The second most affected groups are the poorest urban and poorest rural. These results imply that the richest people in the country are the higher beneficiary of subsidies provided by the government. Regarding the producing sectors, the reduction in overall subsidies has more adverse impact on the agriculture sector, followed by industry, other sectors health, and education.

(ii) 5 Percent Reduction in Government Overall Current Expenditure

All the World Bank-IMF adjustment programmes have emphasized that Pakistan should reduce public current expenditure in order to correct the persistent fiscal imbalances. Public current expenditures were19.8 percent of GDP in 1987-88, which declined to 18.0 percent of GDP in 1997-98. The persistent reduction in current government spending is taken as one of the indicators of the implementation of adjustment reforms in Pakistan. A summary of the main results of a reduction in government current expenditure is presented in Table 5. To standardise the simulations, we have reduced the level of government overall current expenditure by 5 percent below that of the base year 1989-90. The effects of a contraction in government spending appear to be negative on the incomes of all the urban and rural household groups. The largest reduction appears in the income of the richest rural (HR4), followed by poorest urban (HU1), whose incomes are reduced by 1.9 percent and 1.8 percent, respectively.

Regarding factors of production, labor income is affected more (1.9 percent reduction) than capital income (1.7 percent decline). For the production sector, reduction in government current spending has more adverse impact on education followed by health, other sectors, agriculture and industry.

(iii) 10 Percent Reduction in Government Expenditure on Education and Health

In the recent adjustment reforms, it has been greatly emphasized to increase investment on education and health in order to enhance human capital in the country. The role of human capital in explaining variation in the rate of growth of output is one that has been given considerable attention in the current literature relating to economic growth in developing countries. Recent economic growth studies have listed human capital as a primary source of economic growth. In spite of this positive phenomenon, government expenditure on education and health has been declining from 3.4 percent of GDP in 1987-88 to 3.0 percent of GDP in 1997-98, although the Bank-Fund guided programmes emphasized to increase investment on human capital. The simulation result of 10 percent decline in public expenditure on education and health reduces activities in the education sector by 7.6 percent and the health sector by 5.1 percent. It also shows that the poorest urban (HU1) and poorest rural (HR1) adversely affected more than the other relatively better-off urban and rural income groups by reducing public expenditure on health and education as the incomes of both the groups decline. Similarly, income of the labor declines relatively more than operating surplus of the capital.

Review on articles:

Conclusions for HEALTH SECTOR REFORMS IN PAKISTAN:

Pakistan is at a critical phase of its history. Political instability and failed attempts at developing a democratic polity mark the first fifty years of its existence. It needs a clean break from its past. The Devolution Plan, if carried out successfully, presents an opportunity to usher in a more democratic governance system. The devolution exercise will bring fundamental change in the way government services, including health, are delivered and managed. Like other government services, it will make health a responsibility of the newly created local governments. The Devolution Plan, thus, presents an opportunity to introduce fundamental changes in the health care delivery system in order to make it more efficient and effective. In short, it presents a window of opportunity to introduce appropriate health sector reforms.

The goals of health sector reform are to improve the technical and/or allocative efficiency of the health care system, enhance the quality of services, and make the system more equitable. It has numerous dimensions - from financing to organization of services to the package of services to be delivered. Depending on the circumstances, health sector reform may encompass one or more of these dimensions or all of them simultaneously. The “need” for HS reform is dictated by demographic, epidemiological, economic, political, and structural (systemic) factors. In case of Pakistan, all these factors - demographic, epidemiological, economic, and systemic - stress the need for HS reform.

With a slower than expected demographic transition, Pakistan’s population is still growing rapidly. Epidemiologically, its health care system must face the twin burden of communicable and non-communicable diseases simultaneously. Economically, the country is on the verge of collapse. A fast growing debt burden is seriously restricting government’s choice and its ability to invest in health. Consequently, the private sector is taking a greater role, the practical and policy implications of which are yet to be fully recognized and addressed.

The structural problems of the health care system also require serious attention. Under utilization, lack of quality, and scarcity of human, financial and technical resources are persistent problems. Structural ambiguity created by the lack of integration of services offered by the federal and the provincial governments is a critical issue adversely affecting health care. In short, Pakistan is in need of a far-reaching health sector reform. The Devolution Plan presents a unique opportunity to introduce fundamental changes in the health sector. Planners and policy makers should seize this opportunity.

Summary for ENERGY CRISIS

Pakistan’s acute energy crisis is posing a serious predicament for its feeble economy and volatile national security environment. The country’s energy problems are deep and complex, being rooted more in shortages of governance and political will than of pure supply. This stems from (1) the absence of a comprehensive and integrated energy strategy, resulting in interagency turf wars and a lack of coordination, (2) insufficient revenue to support energy generation and infrastructure, owing to low

liquidity in Pakistan’s struggling economy and high rates of tax default, and (3) the leadership’s unwillingness to implement politically unpopular changes to address the situation.

Resolving Pakistan’s energy crisis will thus require political will, additional funding, and new power-generation sources. As the country lacks significant internal sources of revenue, opportunities exist for international donors to finance its energy recovery. The United States already provides a considerable amount of energy assistance to Pakistan, with Congress having released nearly $300 million in new energy aid last summer alone. However, indigenous energy solutions should not simply be discarded, and the Pakistani government should explore the Thar coalfields and alternative energy sources, among other options.

Policy implications:

• Pakistan should consolidate its many energy-related institutions into a single ministry. This will bring some urgently needed order and efficiency to its dysfunctional energy sector.

• A short-term fix that could bring immediate relief is to request a new loan from the International Monetary Fund (IMF). However, because the IMF would probably impose politically delicate conditions, Islamabad is unlikely to make such a request until after this spring’s elections.

• Tax reform is imperative and should be designed to provide Islamabad with more revenue to address the energy crisis.

• Pakistan can initially better diversify its energy mix by importing clean coal, which is often cheaper than imported oil and gas.

• Pakistan will not be able to implement the reforms needed to resolve its energy crisis unless Pakistanis elect leaders this spring who genuinely desire to serve the interests of their country.

CONCLUSION & POLICY IMPLICATIONS OF SAP:

The study examines the impacts of structural adjustment program on poverty alleviation in Pakistan by comparing pre-adjustment period (1973-1988) and post adjustment period (1989-2003). Overall impact during 1973-2003 is also analyzed econometrically. It is a little effort to share the huge struggle, which enables the policy makers to understand the multidimensional phenomenon of poverty alleviation. Over the period, macroeconomic policies suffered from many economic and political shocks in Pakistan. Fiscal policy faced many structural adjustments and fiscal reforms. Similarly monetary policy experienced shocks by huge devaluation of local currency. Minor economic disturbances are routine matters of developing countries; Pakistan is not an exceptional case. While discussing role of structural adjustment program, it is seen that, poverty has increased after introduction of these programs in Pakistan.

Specific goals before starting any poverty reduction program:

• Accelerating growth rate by stressing upon distribution aspect.

• Rapid industrial growth by considering its labor absorbing capacity

• Provide incentives for investment with enhancing real wage rate.

• Dynamic agricultural development to absorb rural population.

• Reducing the burden of indirect taxes and providing subsidies to the poor.

• Flourishing overseas employment to generate foreign remittances.

• To enhance the productivity of labor through education and training

Structural adjustment reforms advocated by the World Bank and the IMF began in Pakistan in 1988. The Bank-Fund adjustment programmes were intended primarily to overcome a variety of macroeconomic distortions as well as a set of deep-rooted structural problems in the economy. After more than a decade of intensive adjustment reforms, still no consensus can be found about the effects they have had on Pakistan’s economy. More recently, the important area of research is to analyze the social impact of adjustment reforms, particularly on income distribution and poverty, using an appropriate quantitative framework.

The main conclusions are as follows:

• First, the results show that reduction in subsidies has the more adverse impact on the incomes of richest rural and urban households, implying that the richest people in the country are the higher beneficiary of subsidies provided by the government. The second most affected income groups by reducing subsidies are the poorest urban and poorest rural. In particular, consumption subsidies are basically to provide assistance in consumption to the poor but the richest urban and rural groups are benefiting more.

• Second, the effects of a contraction in government spending appear to be negative on the incomes of all the urban and rural household groups. The largest reduction appears in the income of the richest rural, followed by poorest urban.

• Third, the simulation results show that decline in public expenditure on education and health discourages activities in the education and health sectors. It also shows that the poorest urban and poorest rural are affected more than the other relatively better-off urban and rural income groups.

References:

Structure of economy

• National Encyclopedia (countrydata.com).

• Riaz huq musings (urbanization in Pakistan, highest in South Asia)- September 12, 2009.

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References for IMPLICATIONS OF POLICY FOR SAP

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• Pakistan Development Review 35:4 911–926.

• Barro, R. J. (1989) A Cross-country Study of Growth, Saving, and Government.

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• Journal of Economics 106:2 407–443.

• Barro, R. J., and J. W. Lee (1994) Losers and Winners in Economic Growth.

• Proceedings of the World Bank Annual Conference on Development Economics, 267–297.

• Barro, R. J., and X. Sala-i-Martin (1995) Economic Growth. McGraw Hill.

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• Growth. Journal of Political Economy 98:5 12–37.

• Federal Bureau of Statistics (1993) Input-Output Table for 1984-85. Islamabad:

• Statistics Division, Government of Pakistan.

• Iqbal, Z. (1996) Three Gap Analysis of Structural Adjustment in Pakistan. PhD.

• Dissertation, Tilburg University, the Netherlands (Unpublished).

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• Pakistan. Pakistan Economic and Social Review 33:1&2 37–58.

• James, J., and H. A. Khan (1993) The Employment Effects of Income Redistribution

• In Developing Countries. World Development 21:5 817–827.

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• Experiences. GENEVA: ILO, United Nations.

• King, B. B. (1985) what is SAM? In Pyatt and Round (Eds) Social Accounting

• Matrices: A Basis for Planning. Washington, D.C.: World Bank.