ISSUES

IN
PAKISTAN'S
ECONOMY
SECOND EDITION
REVISED AND EXPANDED

S. AKBAR ZAIDI

OXTORD
UNIVERSITY PRESS

Preface to the Second Edition

Preface to the First

Edition.

vii
...

Introduction

ix

l.l

Structural Change

1.2

4
5

1.3
1.4

Five Decades and Five Epochs

1.2.1
Laying the Foundations: 1947-58
1.2.2
The Decade of Development:
1958-68
1.2.3
The Bad Luck Years: 1971-77
1.2.4
The Second Military
Government: 1977-88
1.2.5
The Era of Structural Adjustment:
1988 Onwards
The Balance Sheet
Conclusions

6
8
10

Parti

Agriculture

11

Chapter 2

Is Pakistan Feudal? A Historical

Account of the Development of
Agriculture in Pakistan

12

The Development of Agriculture Before

the Consolidation of British Rule
The Impact of British Colonialism
Feudal or Capitalist?
Popular Perceptions of Feudalism
Summary and Further Reading
2.5.1
Summary
2.5.2
Further Reading

12
15
17
20
22
22
22

The Green Revolution and

Land Reforms

28

2.1
2.2
2.3
2.4
2.5

Chapter 3

3.1

3.2

3.3

me Green Revolution
3.1.1
The Issue of the Tubewells
3.1.2
Tractorization
3.1.3
Regional and Income Disparities
3.1.4
Elite Farmer Strategy and
Capitalist Development
3.1.5
Social and Political Effects
Land Reforms
3.2.1
The 1959 Land Reforms
3.2.2
The Bhutto Reforms of 1972
Summary and Further Reading
3.3.1
Summary
3.3.2
Further Reading

39

Explaining the Numbers

4.1.1
Data from the Censuses
4.1.2
Changes Over Time
What Do the Numbers Mean?
Summary and Further Reading
4.3.1
Summary
,
4.3.2
Further Reading

39
40
42
49
50
50
51

Chapter 5

Agriculture: Critical Issues

56

5.1
5,2
5.3

An Overview and Major Trends

Agricultural Pricing Policy
Rural Financial Markets and
Agricultural Credit
5.3.1
Informal Sources of Credit
5.3.2
Formal Sources of Credit
Mechanization
Agricultural Income Tax
"
The Water Crisis
Land Ownership, Power and
Land Reforms . .
Summary and Further Reading
5.8.1
Summary
5.8.2
Further Reading

56
60

viii

Assessing Pakistan's Development

Chapter

The Nature and Direction of

Agrarian Change

Chapter 4

5
6
6

.4.1
4.2
4.3

5.4
5.5

5.6
5.7
5.8

28
30
30
30
31
31
32
34
35
36
36
36

63
65
65
70
71
73
76
77
77
77

Part II

Industry and Trade

89

Chapter 6

The Process of Industrialization in

Pakistan I: 1947-77

90

6.1

6.2

6.3

6.4

1947-58: Exchange Rates, Trade Policies,

and Import Substituting Industrialization
6.1.1
The Impact of the Exchange Rate
6.1.2
The Trade Policy Regime
6.1.3
The Consequences of Exchange
Rate and Trade Policy for
Industrialization
6.1.4
The End Result
1958-68: The Decade of Development
6.2.1
Trade Policy Directing
Industrialization
6.2.2
Foreign Aid, the Private Sector,
and Inequalities
1972-77: The Bhutto Years - Bad Luck
or Bad Management?
6.3.1
Economic Policies and
Performance
6.3.2
The Bad Luck Factor
Summary and Further Reading
6.4.1
Summary
6.4.2
Further Reading

91
92
93

94
95
97
98
100
104
105
107
108
108
109

iv Issues in Pakistan's Economy

Chapter 7 The Process of Industrialization in

Pakistan II: 1977-2004

111

7.1

111

7.2

7.3

The Zia Years: 1977-88

7.1.1
The Nature and Extent of
Growth
7.1.2
Industrial Policy
7.1.3
The Public/Private Sector Divide
7.1.4
Deregulation and Liberalization
7.1.5
Causes of High Growth and the
Success of the Zia Regime
The Age of Structural Adjustment: 1988
Onwards
7.2.1
The Principles of the Programme
7.2.2
Assessing the Impact on the
Industrial Sector
Summary and Further Reading
7.3.1
Summary
7.3.2
Further Reading

111
113
116
17

122
124
124
124

8.1
8.2

Numbers and Trends in Industry

The Small-Scale Manufacturing Sector
8.2.1
Numbers and Characteristics
8.2.2
Emergence and Growth
8.2.3
Issues Affecting the
Small-Scale Sector
The Textile Industry and its Crisis
Has Public Sector Industry Been a Failure?
The Privatization Process
The Debate Over Efficiency in the
Industrial Structure
Summary and Further Reading
8.7.1
Summary
8.7.2
Further Reading

130
130
132
132

9.1
9.2

9.3
9.4
9.5

Balance of Payments and Trade

Regimes
Pakistan's Foreign Trade: Basic Facts
Trade Policy and Trade Regimes: 1947-97
9.2.1
The Early Years: 1947-58
9.2.2
Trade Policy and the Decade
of Development
9.2.3
A New Country: 1972-77
9.2.4
The Beginning of a Liberal
Trade Regime: 1977-88
9.2.5
Trade Liberalization Under
Structural Adjustment:
1988 Onwards
The Debate Over Efficiency and the
Trade Regime
The Exchange Rate
Dealing with Globalization and WTO
9.5.1
Some Political Economy Issues
9.5.2
Globalization and WTO's Impact
on Pakistan

Part III

Fiscal and Monetary Policy

199

Chapter 10 Public Finance I: Resource Mobilization

and the Structure of Taxation
200

120
120

129

Chapter 9

187
187
187

10.1

Key Issues in Industry in Pakistan

8.7

Summary and Further Reading

9.6.1
Summary
9.6.2
Further Reading

118

Chapter 8

8.3
8.4
8.5
8.6

9.6

10.2
10.3

10.4

135
139
143
146
150
154
154
155

10.5
10.6

The Structure of Government and

Taxation Prior to 2001
200
10.1.1 Legislative Functions
202
10.1.2 The Structure of Taxation
202
10.1.3 Inter-Governmental Fiscal
Relations
203
10.1.4 The District Government System
Fiscal Issues
206
Public Finance: The Basic Facts

210
Important Issues in Public Finance and
Revenue Mobilization
214
10.3.1 Federal Taxes
214
10.3.2 Resource Mobilization at the
Provincial Level
221
10.3.3 Local Government Revenues
224
Is Local Government the Answer?
227
10.4.1 The Contribution of Municipal
Government in Development
227
10.4.2 Potential for Development by Local Governments
228
10.4.3 Is Local Government the Answer? 229
The Nature of Public Debt and the Fiscal
Deficit: A Preliminary Introduction
229
Summary and Further Reading
232
10.6.1 Summary
232
10.6.2 Further Reading
232

159
159
164
164

Chapter 11 Public Finance II: Debts and Deficits

ll.l

166
169
172
H- 2
173
175
177
180
180
183

11.4
11.5

Does the Fiscal Deficit Matter?

11.1.1 Should Budgets Always be
Balanced?
11.1.2 The Problem of Measuring the
Deficit
11.1.3 Fiscal Deficits, Intertemporal
Equity, and Distribution
11.1.4 Macroeconpmic Implications
Critical Concerns Regarding Pakistan's
Fiscal Deficit
11.3.1 The IMF/World Bank View of
Pakistan's Fiscal Deficit, 1980-97
11.3.2 Re-examining Critical Concerns
The Domestic and Foreign Debt Crises
Summary and Further Reading
11.5.1 Summary
11.5.2 Further Reading

236
237
238
238
239
239
240

242
244
244
251
251
252

Contents v
Chapter 12 Financial and Capital Markets

260

12.1

260
260

12.2
12.3

the Development of the Banking Sector

12.1.1 The First Phase: 1947-74
12.1.2 The Relationship Between
Economic Growth and the
Development of Banking
12.1.3 Nationalization in the 1970s
12.1.4 Islamic Banking
12.1.5 Developments since 1988
12.1.6 Banking Trends: 1964-2003
12.1.7 Development Finance
Institutions (DFIs) and
Non-Bank Financial
Institutions (NBFIs)
12.1.8 Some Salient Issues in the
Banking Sector
The Equities Market
Summary and Further Reading
12.3.1
Summary
12.3.2
Further'Reading

263
264
265
266
266

13.2
13.3
13.4
13.5

Part IV

Monetary Policy and Monetary

Management in Pakistan
Money Supply and Monetary Expansion
Inflation and its Causes
The Low Savings Rate
Summary and Further Reading
13.5.1
Summary
13.5.2 Further Reading
The Era of Structural Adjustment:
From ESAFs to PRSPs 1988 to
the Present

Chapter 14 Structural Adjustment Programmes:

Composition and Effects
14.1
14.2
14.3
14.4
14.5

14.6

The Development and Export of

Development Thinking
From Structural Adjustment Loans
to Structural Adjustment Programmes
Structural Adjustment Programmes:
Composition
Structural Adjustment Programmes:
Implementation and Effects
Economic Liberalization and Openness:
Some Questionable Assertions
14.5.1 . The Contextuality of Policy
14.5.2 international Capital and the
Loss of National Autonomy
Summary and.Further Reading
14.6.1 Summary
14.6.2 Further Reading

15.1
15.2

15.3

267
269
270
273
273
275

Chapter 13 Monetary Policy, Savings and Inflation 283

13.1

Chapter 15 Structural Adjustment Programmes

in Pakistan

15.4

15.5

283
292
293
294
297
297
298
15.6
311
312
313
314
318
319
322
324
326
326
326
328

History
Implementation of the Structural
Adjustment Programmes in Pakistan:
An examination of the 1988 Programme
15.2.1 Fiscal Policy
15.2.2 Trade
15.2.3 Financial Sector
Was the 1988 Structural Adjustment
Programme a Success?
Achievements and Failures
15.3.1 Fiscal Policy
15.3.2 Trade and Balance of Payments
15.3.3 Financial Sector
15.3.4 Liberalization and Privatization
15.3.5 Other Areas
The World Bank/IMF's Overall Evaluation
of the 1988 Structural Adjustment
Programme
The Political Economy of Structural
Adjustment Programmes in Pakistan
15.5.1 Pakistan's Dependence on
Washington, or Are
Governments Autonomous?
15.5.2 Did Pakistan Need to Go to
the IMF?
15.5.3 Why Does Pakistan Accept the
Structural Adjustment
Programme?
Summary and Further Reading
. 15.6.1 Summary
15.6.2 Further Reading

Chapter 16 Macroeconomic Developments:

1998-2004
16.1
16.2
16.3
16.4
16.5
16.6

Before and After May 1998

September 11, 2001: The Day the
World Changed
What Happened to the Debt Crisis?
The Growing Forex Reserves
Has there been a Turnaround of the
Economy?
Summary and Further Reading
16.6.1 Summary
16.6.2 Further Reading

336
336

338
339
339
340

340
340
341
341
342
342

342
345

345
348

349
351
351
351

359
360
363
364
369
372
375
375
375

vi Issues in Pakistan's Economy

Part V

The Social Sector, Institutions and

Governance

Chapter 17 The Social Sector I

17.1
17.2
17.3

17.4

17.5

17.6
17.7

Some International and Regional

Comparisons"
Planning for the Social Sectors
The Health Sector
17.3.1 Statistics
17.3.2 The Issues
Education
17.4.1 Statistics
17.4.2 The Issues
17.4.3 Summarizing the Issues in
Education
Population Welfare and Family Planning
17.5.1 The Evolution of the Population
Welfare Programme
17.5.2 Knowledge and Usage
17.5.3 Some Issues
Urbanization and Housing
17.6.1 The Extent of Urbanization
17.6.2 Housing in Cities
Summary and Further Reading
17.7.1 Summary
17.7.2 Further Reading

Chapter 20 Institutional Issues in the Social Sector 459

381

382
385
386
386
387
392
392
394

20.2

397
398

Part VI

398
399
400
401
401
401
403
403
404

412

18.1

412
412
413
414
415
415
416
418
421
422
427
429
429

18.2
18.3
18.4
18.5

20.3
20.4

21.1
21.2
21.3
21.4

21.6

19.4
19.5
19.6
19.7
19.8
19.9

What Does Poverty Mean?

Trends in Poverty
Who are the Poor and Where do
they Live?
Explaining the Trends in Poverty: 1960-88
Why did Poverty return to Pakistan and
why does it still persist? 1988-2004
Poverty Alleviation: Then and Now
Poverty and Bonded Labour
Can Poverty be Eliminated in Pakistan?
Summary and Further Reading
19.9.1 Summary
19.9.2 Further Reading

22.1
22.2
22.3
22.4
22.5
22.6
22.7

434
435
437
439
443
444
447
450
450
450
452

Political Economics

India and Pakistan: A Brief Comparison

Theorizing Trade, War and Peace
Trade with India
Benefits and Constraints in Trading
with India
21.4.1 The Simple Benefits of Trade
21.4.2 Complicating Simplicity: The
Interests of the Military
Constraints and Possibilities: A Matter
of Survival
Summary and Further Reading
21.6.1 Summary
21.6.2 Further Reading

Chapter 22 Political Economics: Class, State,

Power, and Transition

Chapter 19 Poverty: Trends, Causes and Solutions 434

19.1
19.2
19.3

The Social Action Programme (SAP)

20.1.1 What SAP envisaged
20.1.2 What happened to SAP?
Governance, Decentralization and
Local-Level Delivery
20.2.1 Government and Development
in Pakistan
NGOs and Community Participation
Summary and Further Reading
20.4.1 Summary
20.4.2 Further Reading

Chapter 21 The Political Economy of

Neighbourly Relations

21.5

Chapter 18 The Social Sector II

Gender Inequality and Women

18.1.1 Statistics
18.1.2 Some Issues
18.1.3 Finding Some Options
Infrastructure
18.2.1 The Power Sector
The Environment
Regional Inequalities
18.4.1 Methodology and Results
18.4.2 The Issues
Summary and Further Reading
18.5.1 Summary
18.5.2 Further Reading

20.1

382

22.8

Civilian Bureaucracy and

Industrialization: 1947-58
Civil and Military Bureaucratic
Capitalism: 1958-71
A Shift in Emphasis: 1971-77
A Military State and the Middle
Classes: 1977-88
'
The Democratic Interregnum: 1988-99
The Return of the Military: 1999 Onwards
Issues in Pakistan's Political Economy
22.7.1 Pakistan's Middle Classes
22.7.2 The Pakistani Military's
Economic Interests and their
Consequences
22.7.3 Pakistan's Praetorian Democracy
and Technocrats as Apologists
22.7.4 Pakistan's State and Society:
Groups, Fractions and Influences
22.7.5 Urbanism as a Way of life
22.7.6 Is Pakistan a Failed State?
Summary and Further Reading
22.8.1 Summary
22.8.2 Further Reading

Selected Bibliography
Index

460
460
461
462
464
466
469
469
469
479
480
480
482
485
490
490
490
492
496
496
496
499
500
500
501
502
504
504
506
506
507
507
509
512
514
515
515
515
521
525