1/4/2011

Institute Of Management sciences University of Balochistan Quetta.

MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS

Macroeconomics Assignment | By Waseem Akram (E)11

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 INTRODUCTION It is remarkable that despite a troubled and crisis prone political history, Pakistan has managed to make significant strides in several spheres, including rapid economic growth, and industrial development. Much of this has occurred despite and not due to official policy or action, encouraging the belief among most Pakistanis that less government is the key to a better future. The country has seriously neglected the development of human capital. Two thirds of Pakistans adult population and over three quarters of adult women are illiterate. Basic health facilities are not available to over half the population. Sixty-seven million people lack access to safe drinking water while eighty-nine million are without elementary sanitation facilities. A quarter of newborn babies are malnourished. The unequal distribution of human capital in turn has created an income distribution much more unequal that found in Southeast Asia. Most analysts feel that the success of the Southeast Asian economies is liked to their initial, equitable distribution of income and assets. Given the budgetary constraints that the government is likely to be faced with during the remainder of the decade, it is difficult to see how the country could significantly improve its social infrastructure. Without these human assets and capabilities, the country will be unable to achieve the productivity increases necessary to transform itself, certainly in the near future, along the lines of the Southeast Asian model. But as if this neglect of human development was not enough, the country slacked in the 1990s and began to slip in growth, exports, revenues, and development spending and got entrapped into deep morass of external and domestic indebtedness. As a result the incidence of poverty rose from 18 percent in 198889 to 33 percent by the end of the 1990s. This was due to both fundamental structural and institutional problems as well as to poor governance and frequent changes in political regimes. With short life spans, succeeding governments were hesitant, if not outright unwilling, to reform the rent-seeking activities of the ruling elite- consisting of a small class of politicians, bureaucrats businessmen, feudal

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 landlords and other vested interests and desisted from taking tough unpopular economic decisions to set the economy right. Understandably, they were more preoccupied with the imperatives of retaining political power and making such decisions could have further exposed them to the risk of removal from office. Moreover, the average lifespan of two to three years was clearly inadequate for meaningful policy or institutional change. The external environment was also unfavorable as the inability of successive governments to meet their commitments with international financial institutions led to a serious credibility gap among the donors and intermittent withdrawal of assistance. The event of May 1998, when Pakistan conducted its first nuclear test and its aftermath led to further economic isolation of Pakistan and a considerable erosion of confidence by domestic and non-resident Pakistanis. SOME MAJOR PROBLEMS OF PAKISTANS ECONOMY AND THEIR SOLUTIONS ECONOMIC ADVANCEMENT AND FAILURES Since independence, Pakistan can look back on 50 years of steady, sometimes economic advancement and failures. 1. Here the main shortcomings often cited include: 2. Large budgetary and balance of payments deficits. 3. Low savings and investment rates.
Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 4. Rising external debt and payments obligations. 5. Increasing inflationary pressures. 6. Population explosion and rising unemployment. 7. Physical infrastructural constraints. 8. Inadequate human resource development. On the negative side, it is clear that the country has achieved too little and what has been accomplished has been done at a very high cost. Despite the substantial production increase of major in the agricultural

crops, the country has still not been able to achieve food self-sufficiency and has to spend about $2 billion annually on the import of wheat, edible oil and the like. As make far a as real manufacturing break-through is in

concerned, the country has yet to engineering and other value added industries and is heavily dependent on imports to meet its requirements of machinery, electrical and mechanical goods, transport equipment, steel and chemicals. It is due to this fact that Pakistans annual imports ($11.5 to $12 billion) exceed its annual exports (8.5 billion on average) by about $3 billion to 4 3.5 billion. As a result, Pakistans external debt has mounted to an alarming $32 billion and in addition there is an internal debt of Rs. 1000 billion. Because of such a heavy debt liability, the allocation for debt servicing alone (Rs 249 billion) in the federal budget for 1997-98 constituted nearly 45 percent of the total outlay and the government had to cut down on its vital defense and development

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 budgets in real terms. Unfortunately, it seems that after 50 years of independence and economic planning, the countrys fortunes still depend in large part on the countrys cotton crop SLOUTIONS The present Government is trying hard to retire part of the external and internal debt by speeding up its privatization program. Simultaneously, the authorities have has announced an economic reform package to boost the GDP growth rate and exports in the shortest possible time. One thing is clear. Whether the country will be able to revive its growth and retain the hope of becoming an Asian Tiger will depend largely on the good will of the International Monetary Fund and the countrys major creditors. TERRIORSM PROBLUMES IN PAKISTAN

Pakistan is worse victim of Terrorism as compared to India. Wikipedia says that the 90% of the world wide Islam based terrorism has its root in Pakistan. My take is that Pakistan started the Industry of TERRORISM as an Export Oriented Unit. They had emerged as the biggest exporter of Terrorism the foiled plane person, hijack in China was and attempted by a Pakistani origin India /Kashmir Afghanistan are their favorite hunting ground. In the 9/11 the

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 Pakistani connection was very evident. Certainly Terrorism is their chief export to all countries. Yet they have been caught off guard as they were unaware of a fundamental principal of Economics that for any E.O.U. to be successful its imperative that there is a larger domestic market for the said product. Numerous experts raise questions about the determination, sincerity, and effectiveness of Pakistani government efforts to combat religious extremists. Doubts are widely held by Western experts, many of whom express concerns about the implications of maintaining present U.S. policies toward the region, and about the efficacy of Islamabads latest strategy, which appears to seek reconciliation with pro-Taliban militants. Islamabad is adamant in asserting that it serves its own self-interests through closer relations with the United States since 2001, that there should be no doubts about the sincerity of its anti-terrorism policies (with a corollary that any failings in this area are rooted in Pakistans capabilities rather than in its intentions), and that solely military efforts to combat religious militancy are bound to fail. Instead, Pakistani officials aver, the so-called war on terrorism must emphasize socioeconomic uplift and resolution of outstanding disputes in the Muslim world, including in Kashmir, Palestine, and Iraq. SOLUTIONS In case of lashkars, the Pakistani establishment needs to go to its basics crises. The selfstyled and misguided Islamic scholars preaching Jihad, the government should cut all the help. Pakistans biggest provincePunjab is recruiting Mujahidin from among the poorest of poor people. The poverty of these regions should be eradicated on

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 emergency grounds so that the poor masses get awareness about the misguided Mullahs. Negotiations with them, start building physical paraphernalia including roads, schools, hospitals, bridges and manufacturing units under, the so called reconstruction opportunity zones.
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Preventing and resolving conflicts with Talibans and other religious groups. Strengthening the protection of vulnerable targets. A fully demarcated border with Afghanistan which will prevent the foreign intrusion in the country. Specially, the role of RAW and Mosad. It wills also sooth the feelings of American troops in Afghanistan which always blows the old trumpet of Do More. The government should enter into serious negotiations with Washington on the issues of drone attacks so that our sovereignty should be preserved as we reserve the right to undertake actions on our own land. A concrete time-table of withdrawal from Afghanistan needs to be announced by the U.S led forces. This trauma also needs better intelligence and sophisticated assessment such as threat Assessment Modeling, Artificial Neural Networks and there dimensional modeling in virtual operations centre. To conclude that a devastating and diabolical ideology which has

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manifested itself time and again is both sectarian and non-sectarian bloodshed before and after the 9/11 incidents, would hardly die if Pakistan were to close its alliance with U.S. So the remedy lies in countering poverty, unemployment, backwardness and illiteracy. Attention should also be given to monitoring the activities and curricula of the Madressah- the breeding ground of extremism and intolerance. Moreover Terrorism will not disappear through military operations. It is a perverse mindset that needs to be treated like a disease.

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011

POVERTY PROBLUMES

Deeply linked to the massive debt and poorly educated people, is the large portion of Pakistan's population that lives in poverty. With an average of 2,000 dollars of GDP per person (adjusted for purchasing power parity), the average citizen is forced to live off very limited resources. This is reflected in the fact that 34% of the population lives below the poverty line, despite a mere 7% unemployment. Pakistan's lack of fiscal resources is yet another barrier against foreign investment. Without foreign investment, Pakistan lacks the resources to bring about positive economic development. Without positive economic development, Pakistan is unable to attract foreign investors. SOLUTIONS Pakistan relatively low. Pakistan has developed education and health reform strategies, however these need to be developed into action plans and implemented. To succeed, these will require substantial improvements in governance and public administration, and will also need incremental funding increases in the future. has to increase revenues by broadening its tax

base. Meanwhile, spending on social services, while having increased, is still

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011 Social protection for those living near the poverty line is essential to help protect them from economic downturns and other shocks. These can take the form of social assistance, jobs on public works, and direct cash transfers. Increasing access to credit will also help. Since most of the countrys poor people live in rural areas, these measures would need to be part of a wellcoordinated rural strategy. Finally, there are always vested interests that are opposed to reforms and modernization for fear of losing political influence or financial benefits. Demand for change by civil society and reform-minded leaders will be essential to completing reforms and significantly improving the lives of the Pakistani people who have been left behind.

Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta

[MAJOR PROBLEMS OF PAKISTAN S ECONOMY AND THEIR SUGGESTED SOLUTIONS] January 4, 2011

INDEX
A assistance ...................................................... 3 B bureaucrats .................................................... 3 businessmen .................................................. 3 D donors ............................................................. 3 E economic advancement and failures............ 3 economic isolation ......................................... 3 economy right. ............................................... 3 engineering .................................................... 4 Export Oriented .............................................. 5 external environment ..................................... 3 F S feudal landlords.............................................. 3 financial benefits ............................................ 9 G GDP per person ............................................. 8 growth ............................................................. 5 H health reform strategies ................................ 9 human capital ................................................. 2 I V International Monetary Fund ......................... 5 L Low savings ................................................... 4 victim of Terrorism ........................................ 5 self-sufficiency ............................................... 4 significant strides........................................... 2 socioeconomic uplift...................................... 6 T Terrorism ....................................................... 5 the Southeast Asian economies .................. 2 U unemployment. .............................................. 8 M machinery ...................................................... 4 P Pakistani establishment ................................ 6 Physical infrastructural.................................. 4 political history ............................................... 2 political influence ........................................... 9 political regimes ............................................ 2 population. ..................................................... 2 Poverty problumes ....................................... 8 power ............................................................. 3 privatization program .................................... 5 R reconstruction opportunity zones ................. 7 Rising external debt ...................................... 4

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Waseem Akram (E) 15 Institute Of Management sciences University of Balochistan Quetta