A Mixture of Successes and Failures


Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Ronald Reagan

Economy is the basis of society. When the economy is stable, society develops. The ideal economy combines the spiritual and the material, and the best commodities to trade in are sincerity and love.

Morihei Ueshiba

Economics is the study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected and social action which is most closely connected with the attainment and use of the material requests of wellbeing.

Alfred Marshall

Quaid’s Views

We must work our destiny in our own way and present to the world an economic system based on the Islamic concepts of equality of man and social justice. We will thereby be fulfilling our mission as Muslims and giving the humanity the message of peace which alone can save it and would secure the welfare, happiness and prosperity of mankind.

(Speech at the opening ceremony of State Bank of Pakistan, Karachi July 1, 1948)

Iqbal’s Views

Allama Iqbal was the first economist of the Indo-Pakistan Subcontinent to raise his voice against the exploitation of Muslims by domestic and foreign classes controlling the means of production.

“The problem of bread is becoming more and more acute. The Muslim has begun to feel that he has been going down and down during the last 200 years. Ordinarily, he believes that his poverty is due to Hindu money-lending or capitalism. The perception that it is equally due to foreign rule has not yet fully come to him. But it is bound to come.”

(Excerpt from Letters of Iqbal to Jinnah)

His two historical Presidential Addresses of Allahabad and Lahore are of significant importance and give the outlines of the strategy for his economic thinking.

Residents of the West! God’s earth is not a shop;
The gold you think to be genuine will
now prove to be debased.
Pakistan Movement and Economy

The idea behind a separate Muslim state was to adopt and implement an economic system, based on the principles of Islamic Shariah.

  •  In the War of 1857, the Muslims of South Asia made gigantic efforts to wrest their political and economic rights from the imperialists.
  • By the first quarter of the twentieth century, the Islamic world of South Asia was seething with new ideas and thoughts and finding the socioeconomic system planted on them by the colonialists, a burden which had to be got rid of.
  • Soon after the 1943 Karachi session of AIML, Jinnah made contacts with leading Muslim businessmen, technologists and economists to chalk out a pragmatic economic policy for the future. For this purpose, Quaid-i-Azam, in April 1944, constituted a Planning Committee consisting of Nawab Ali Nawaz Jung (Chairman), Professor A.B.A. Haleem (Secretary), and M.L. Qureshi (Joint Secretary)
  • The first meeting of the Planning Committee was held on Sunday, the 3 September 1944 in the Library Hall of Anglo-Arabic College, Delhi.
  • The Chairman, in his report, opted for planning for about 15 years, divided into three 5 year plans.
  • Besides this, , a Muslim League manifesto, drawn up by Daniyal Latifi, showed the League to be in favour of nationalization of industries and banks, strict state control and regulation of private industry, ceiling on land holdings and heavier taxation on large landowners.

Establishment of State Bank of Pakistan

On July 1, 1948, at the inauguration ceremony of the State Bank of Pakistan at Karachi, Quaid-i-Azam said:

The adoption of Western economic theory and practice will not help us in achieving our goal, of a happy and contended people. We must work out our destiny in our own way, and present to the world an economic system based on true Islamic concept of equality of manhood and social justice.

  • Quaid-i-Azam termed the State Bank of Pakistan as the Laboratory of new economic system.

Features of Pakistan’s Economy

  •  The economy of Pakistan is the 26th largest in the world in terms of purchasing   power parity (PPP), and 44th largest in terms of nominal GDP.
  •  The economy of Pakistan is a semi-industrialised one, based heavily on textiles, agriculture and food production.
  •  Agriculture accounts for more than one-fifth of output and two-fifths of employment.
  •  Primary export commodities include textiles, leather goods, sports goods, chemicals and carpets and Rugs.
  •  Pakistan’s GDP per capita is $3,149 ranking 177th in the world.
  •  Growth poles of Pakistan’s economy are situated along the Indus River.

Salient Aspects

  •  Despite the turmoil caused by the Partition, early development of tensions with India, and frequent regime changes, the 1950s saw rapid industrialisation.
  •  This decade laid down the basis of future growth by sharply increasing investment both in physical and human capital and creating strong economic institutions, notably State Bank of Pakistan, WAPDA, PIDC, and PICIC.
  •  GDP growth is the most widely used measure of economic performance. By this measure, Pakistan’s economy grew at an average rate of over 5% over 1949 “96, a period of nearly fifty years.
  •  Growth was slow during the 1950s averaging 3.1% per annum but accelerated to 6.7% during the sixties and remained generally close to 6% per annum till the early 1990s.
  •  By 1959-60 fixed investment in West Pakistan (now Pakistan) had risen to 11.5% of GDP from 4.1% in 1949-50.
  •  It may seem surprising but education was not neglected in the 1950s.
  •  Economic growth rate that had been a little over 3% per annum in the 1950s shot up to nearly 7% in the 1960s.
  •  Public investment and aid flows were specially stimulated by large expenditures under the Indus Basin Water Treaty signed with India in 1960 with the help of the World Bank.
  •  During Ayub era in the mid 1960s, Pakistan’s development efforts were hailed as a rare success story.
  •  Including the expenditure for Indus Basin Replacement works of about $1.2 billion, water and power investments totalled $2.5 billion (about 3.6% of GDP) during the 1960s and accounted for more than 50% of total public spending.
  •  Fixed investment reached an all time peak of 20.8% of GDP in 1964-65, more than 50% financed by external assistance.
  •  The 1965 war with India had the disastrous consequences of a decline in aid flows and upsetting the balance between defence and development.
  •  The near doubling of defence spending between the first half and the second half of the 1970s was also major setback for education; additional primary school enrolments during 1965-70 was one third less than in 1960-65.
  •  The fixed investment to GDP ratio came down to 14.3% by 1969-70.
  •  The GDP growth in Bhutto period, though a respectable 4.9% per annum suffered from the fact floods and poor harvests adversely affected agricultural growth.
  •  Agricultural growth recovered to nearly 4% per annum during 1977-88 from a dismal 2% during 1972-77.
  •  The five-fold jump in worker remittances between 1976-77 and 1982-83 to the peak of nearly $3 billion or 10% of GDP was another strong boost to economic activity.
  •  External assistance for Afghan Mujahideen, estimated at $5-7 billion in the first half of the 1980s that was channelled through Pakistan also helped the economy.
  •  Zia’s regime, with Ghulam Ishaque Khan as finance minister, made economic decisions and policy choices that were to have serious long -term consequences.
  •  The defence budget, which had already expanded significantly during Bhutto, increased at an average rate of 9% per annum.
  •  The development outlays were squeezed, rising only 3% per annum over 1977-88 in real terms: by 1987-88 defence spending had overtaken development spending.
  • The weak political governments that followed Zia found it difficult to deal with the worsening macroeconomic balances and the build of debt.
  • There were, however, major efforts, starting with the first Nawaz Sharif Government in the early 1990s, to liberalise the economy, to expand the role of private sector, and to redress the imbalances in social services.
  • However, for a number of reasons, the reforms did not succeed in avoiding an economic slowdown and an external debt crisis by the end of 1990s.
  •  Growing abuses in the largely public sector controlled financial system led to siphoning off of valuable resources.
  •  Per capita GDP growth slowed down to 1% per annum in the 1990s compared to the average of over 3% per annum during 1960-90.
  •  The Musharraf era did deliver high growth for a few years. The return of old-style politics after the 2002 elections led to policy mistakes.
  •  Pakistan’s economy found itself in 2008 in a not much better shape than it was at the end of the 1990s.

Pakistan’s Five-Year Plans

First Five-Year Plan (1955-60)

Total size: Rs. 10.8 billion

The first five-year plan (1955-60) laid emphasis mainly on achieving high national income.


(a) To raise the national income and the standard of living of the people;

(b) To improve the balance of payments of the country by increasing exports and by production of substitutes for imports;

(c) To increase the opportunities for useful employment in the country;

(d) To make steady progress in providing social services; housing, education, health and social welfare; and

(e) To increase rapidly the rate of development, especially in East Pakistan and other relatively less developed areas.


During the First Plan period, productive processes of crucial significance were set in motion and development activity attained a certain momentum.

Second Five-Year Plan (1960-65)

Total Size: Rs 23 billion (Revised in April, 1961)

This Plan, approved by the Economic Council of the Government of Pakistan on June 21, 1960, was largely a continuation of the first plan with more focus on the less developed areas.


Specific agriculture and industrial sub-sectors were given priorities. Investment in technical and vocational education, and provision of housing were also featured in this plan.

The actual growth rate surpassed the projected one. The GNP registered a growth of 30% over the Plan period compared to 24% proposed in the plan and per capita income grew at 15% instead of 12% projected in the plan.

Third Five-Year Plans (1965-1970)

Total Size: Rs 52 billion

The formulation of Third Plan (1965-1970) was undertaken in a mood of great optimism and the annual growth target was set at 6.5% per annum.


In this Plan, there was a great visible investment shift from consumer goods to capital goods industry. The Plan came around at a time when Pakistan faced reduced foreign assistance and domestic savings needed to be increased. Export promotion and import substitution were proposed. Relatively more emphasis was placed on heavy industry and on creating infrastructure.

As regard the achievements of this Plan, the performance in industrial sector was far from satisfactory particularly in the large-scale industrial sector which exhibited a growth rate of 10%. The small-scale industry also performed well.

No Plan Period (1971-1976)

The fourth five-year plans were abandoned after the Fall of Dhaka. Virtually, all fourth five-year planning was bypassed by the government of Prime Minister Zulfikar Ali Bhutto. Under him, only annual plans were prepared.

Fifth Five-Year Plan

Total Size: 210 billion

The Draft Fifth Five Year Plan was formulated in terms of 1972-73 prices and in the context of the economic situation obtaining in the first half of the fiscal year 1973-74.


The Fifth Five-Year Plan (1978′ 83) was an attempt to stabilise the economy and improve the standard of living of the poorest segment of the population. Increased defence expenditures and a flood of refugees to Pakistan after the Soviet invasion of Afghanistan in December 1979, as well as a sharp increase in international oil prices in 1979-80, drew resources away from planned investments. Nevertheless, some of the plan’s goals were attained. Many of the controls on industry were liberalised or abolished, the balance of payments deficit was kept under control, and Pakistan became self-sufficient in all basic foodstuffs with the exception of edible oil.

Sixth Five-Year Plan (1983-88)

Total Size: 495 billion


The sixth five-year plan represented a significant shift toward the private sector. It was designed to tackle some of the major problems of the economy: low investment and savings ratios; low agricultural productivity; heavy reliance on imported energy; and low spending on health and education. The economy grew at the targeted average of 6.5%. This Plan also focused on the pro-poor growth concept. Rapid development of steel-based engineering goods and modernisation of textile industry was encouraged. The industrial sector as a whole exhibited a growth rate of 7.7% per annum against the Plan targeted of 9.3% per annum.

Seventh Five-Year Plan (1988-93)

Total Size: 660.2 billion

The Seventh Five Year Plan was prepared within a broad-based socioeconomic framework of a fifteen years perspective (1988-2003), emphasizing efficient growth in output on one hand and improving the quality of life on the other.


The Plan focussed on the renewed role of the government to provide public services and manpower training. The promotion of private sector activity through further deregulation was planned.

The tempo of growth was affected by unforeseen events on domestic and international fronts including economic contraction of Eastern Europe and the former Soviet Union, recession in Pakistan’s export markets, the Gulf War, delay in the settlement of the Afghan issue, the political uncertainties on the domestic front, frequent changes of government, civil disturbances in 1989-90 and floods of 1988-89 and 1992-93. However, the overall performance remained satisfactory.

Eighth Five-year Plan (1993-98)

Total Size: 1700.5 billion


The eighth five-year plan (1993-98) recognised the role of government as a catalyst and manager rather than the main vehicle of economic growth. The overall focus had been on strengthening individual initiative and private enterprise.

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