Pakistan’s Economy and Regional Challenges

Published date01 July 2018
Date01 July 2018
Subject MatterCommentaries
Pakistan’s Economy and
Regional Challenges
Ishrat Husain1,2
Pakistan was one of the top 10 fastest growing developing countries between 1960
and 1990 recording an annual average growth rate of 6 per cent. The structure of
the economy was also transformed during this period with the share of agriculture
coming down from 50 per cent to 20 per cent. The subsequent 25 years have,
however, brought about a significant decline in growth rates and in more recent
seven years, it has lagged behind other South Asian countries. A combination of
political instability and disruption of evolving democratic process, lack of continuity
in policies and poor governance have contributed to this outcome. Pakistan has
also not utilized its geographic location to take advantage of intra-regional trade
and investment. Many promising opportunities were lost due to lingering tension
with India. The future potential can only be realized if Pakistan is able to position
itself for meeting the future challenges of integration into the regional and global
economy, reaping demographic dividends because of youthful population and mov-
ing up the ladder of technology. The realization of these goals will depend upon
sound macroeconomic policies, strong institutional and governance framework,
investment in infrastructure and human development and political stability.
Governance, political stability, economic assistance, terrorism, growth, fiscal
policies, foreign exchange
An Overview
In 1947, Pakistan had 30 million people with a per-capita income of US$100.
Agriculture accounted for almost 50 per cent of the economic output with hardly
any manufacturing, as all industries were located in India. Despite that, Pakistan
International Studies
55(3) 253–270
2018 Jawaharlal Nehru University
SAGE Publications
DOI: 10.1177/0020881718796041
1 Former Governor of the State Bank of Pakistan.
2 Professor Emeritus and Chairman, Centre for Excellence in Islamic Finance (CEIF), Institute of
Business Administration, Karachi, Pakistan.
Corresponding author:
Ishrat Husain, Professor Emeritus and Chairman, Centre for Excellence in Islamic Finance (CEIF),
Institute of Business Administration, Karachi, Pakistan.
254 International Studies 55(3)
was unable to feed 30 million people and was dependent on PL-480 imports from
the United States of America (USA). From thereon, Pakistan has come a long
way. Today with more than 200 million people, the per-capita income has risen 13
times and stood at US$1,468 in 2016. Pakistan is the third largest exporter of rice
in the world, exporting 2 to 3 million tons annually and producing enough food
grains to feed its people. Pakistan is also one of the five major textile-producing
countries in the world. The structure of the economy has also transformed during
this period.
The share of agriculture has come down from 50 per cent to 20 per cent and
agricultural productivity has risen. While the population has risen seven times, the
actual production has outpaced population growth. Agriculture is no longer domi-
nated by cereals, grains and crops. Within the agricultural sector, there has been a
significant shift. Livestock, dairy, mutton, beef, poultry and similar other products
account for 55 per cent of the agricultural output. Pakistan has become the third
largest producer of milk in the world. Thus, there has been a movement in a direc-
tion where the same land resources are being used more efficiently in order to
produce more. Manufacturing and industry now account for 25 per cent of the
national income; there was not even a single industry worth its name at the time
of partition. The services sector now dominates the national economy in terms of
output (55% of GDP) and employment.
Pakistan’s Growth Record
Pakistan’s overall growth record has been quite impressive; on an average, the
economy grew at an annual rate of slightly above 5 per cent during the last six
decades. In per-capita terms, the growth rate was 2.5 per cent annually. The trends
in sectoral GDP growth rates show that industry, including the manufacturing sec-
tor, has been the most dynamic sector of the economy.
In the regional context, Pakistan grew faster than South Asia by an average
2 per cent through most of the 1960s and 1970s and at similar rates during the
1980s. However, since 1993, Pakistan’s growth has been below the regional aver-
age. In the first 20 years after independence in 1947, Pakistan had the highest
growth rate in South Asia. According to the World Bank (2002) Pakistan exported
more manufactures than Indonesia, Malaysia, Philippines, Thailand and Turkey
combined in 1965. By the 1990s, Pakistan had become the slowest growing coun-
try in South Asia, an exact reversal of its previous role. However, the incidence of
poverty has declined from 46 per cent in the mid-1960s to 18 per cent. Nevertheless,
inter-personal, regional and gender disparities appear to have intensified. Human
development indicators have not kept pace with the growth in per-capita incomes.
What are the factors responsible for this reversal?
The main explanatory factor for this reversal is the paradigm shift in the basic
model of development brought about by Zulfiqar Ali Bhutto soon after assuming
power in 1971. The Bhutto regime nationalized all the major manufacturing
industries, banking, insurance, education, etc. and caused a major disruption to
the economy and an erosion of private investor confidence that persisted for the

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