Issues in Public Administration

MPA 509

Economic Issues and Challenges

1

Agenda• Preview of the Last Lecture• The Era of Structural Adjustment:1988-1998• Economic Situation:1998-2004• Sectoral Contribution to the GDP growth• Structural Changes In Pakistan• Pakistan: basic indicators,1947-2011• Some more Stats• Challenges to Pakistan’s Economy• Recommendations• Conclusion• Quote of the Day

2

The Era of Structural Adjustment:1988-1998

Achievements

–Return of democracy

–Era of structural adjustment

–Economic liberalization and stabilization

–Privatization

–Reduction in tariff rates to increase exports

3

To realise the goal of economic development, he centred his policy on private sector and offered it more incentive such as issuance of licence to set up businesses, credit on low interest and etc.

In order to achieve this goal, the five year plan envisaged the removal of administrative controls and the maintenance of monetary discipline and price stability to provide a macroeconomic environment conducive to private sector.

Further, Pakistan Industrial Development Corporation (PIDC) was further strengthened with a view to spearhead the industrialisation drive by providing the critically-needed capital.

As a result of this policy, new entrepreneur class emerged reaping high profits.

This class served as vehicle in the process of industrialisation.

Era of Gen. Pervez Musharraf

4

Policy Failures

Macro economic crisis High taxation Low spending in social sectors Trade reforms resulted in deindustrialization Continuous devaluation in the Pakistani rupee Increased in the administrated prices of utilities High inflation rate Unemployment Privatization without proper policy Loss of sovereignty for the Pakistani state and its

people

The Era of Structural Adjustment:1988-1998

5

Economic Situation:1998-2004Features

Acceleration in economic growth

Increase in industrial production

Rise in exports earnings

Strong upsurge in investment

Pre-payment of high cost external debt

Increase in foreign exchange reserve

Strategic re-entry into the international capital markets

Increase in spending on Education

Increase in FDI

6

2005-2007

The economy picked up further in FY2005,

-with GDP growth coming in at over 8.4% for the first time in 8 years. -With sound macroeconomic fundamentals achieved and key sectors strengthened by reforms implemented in the 4-5 years, -the economy was well positioned to sustain 7% or more growth in the medium term.

ADB’s Asian Development Outlook – 2005

7

Sectoral Contribution to the GDP growth (%points)

Sector 2006-07 2007-08 2008-09 2009-10 2010-11

Agriculture

0.92 0.23 0.86 0.13 0.26

Industry 2.28 0.38 -0.03 2.09 -0.02

Manufacturing

1.55 0.92 -0.69 1.01 0.55

Services 3.61 3.08 0.89 1.54 2.15

Real GDP 6.81 3.68 1.72 3.76 2.39

8

Structural Changes In Pakistan

Structural Change

Modern economics has given clear evidence that changes in levels of some basic magnitudes are generally associated with changes in composition, which imply STRUCTURAL CHANGE

9

Structural Changes • Pakistan today is less than half of the country it was in 1947.

The contribution made by East Pakistan to Pakistan’s society and economy was huge.

• Pakistan is basically an agricultural country is no longer true. The services sector has replaced agriculture as the dominant sector of the economy, contributing almost half of GDP.

• Process and extent of Urbanization• In 1951 only 17% of West Pakistan lived in areas

designated as Urban; today estimate suggest that above 40* live in cities and towns.

• Emergence and consolidation of middle class• The nature of exports from Pakistan has also changed

dramatically.• Feudalism in Pakistan died a very long time ago.

10

Pakistan: basic indicators,1947-2011

1951 1997 2011

Population (millions) 33.78 140 180.72

Contribution to GDP by sector(%)

i. Agriculture 53.2 24.2 21

ii. Manufacturing 7.8 26.4 12

iii. Others 39.0 49.4 67

11

Some more Stats

• On the other hand country with low income growth but with high social and human capital, with literate, healthy and education population represents progress.

• Vietnam and Cuba - have not impressive stats in terms of growth but eradicated illiteracy and have stats in health sector comparable to most developed countries.

12

Major problems confronting Pak-Economy…. According to Dr. Ishrat Hussain, there are five

major problems being confronted by Pakistan economy.

1.Domestic economic structure and the institutions supporting the economy are fragile.

2.Human resource and skill base is less developed compared to other countries in the region.

13

Economy of Pakistan

3. The forces of globalization and integration of the world economy impose severe penalties or conditions for poor internal economic management.

4. The competition form other developing countries for market share in international trade, and to attract foreign direct investment and aid flows, have become fierce.

5. Finally, glaring income and social inequalities since independence, resulting into the polarization and political instability, scaring away the foreign and local investors.

14

Economy of PakistanIn addition to these problems, according to some

economists Pak-economy is also faced with some grey area which invariably undermines the development of Pakistan:

Population:

◦ It was 32 million in 1947

◦ 65 million in 1972

◦ Now it is gone beyond the figure of 180 million.

15

Economy of Pakistan◦ It has put pressure on the scarce national resource

◦ High growth rate of population has led to low level of labour participation which is around 51%

◦ It has led to low level of literacy (which is around 26 to 30%) and contributing alarmingly to the germination of unhealthy and uneducated population.

◦ It also leads to inadequate facilities for health and other social needs, like access to clean drinking water, sewerage, adequate housing, etc.

16

Failures:• failures actually outweigh the success in terms

of spill over effect of the economy.

– Human Development indictor are poor in comparison to other Asian Countries

– Literacy rate, infant morality rate and life expectancy are much below in the region (reason less spending on education and health, accompanying by bad governance and corruption)

17

Economy of Pakistan– Fiscal and Monetary policy has been lax.

– Poor Physical Structure

– Poor quality of human recourses

– Limited technological and scientific progress.

– Evolution of Pak-Economy has been uneven thorough out the sixty years of its life.

18

Challenges to Pakistan’s Economy• We Consume More and Save Less.• Out of every hundred rupees of our national income, we

consume 85 rupees and save only 15 rupees, which means that the amount of money which is available to invest for

economic growth and advancement is too little.• We Import More and Export Less• Till 2007-2008, 80% of our imports were financed by our

export earnings. This ratio has come down to only 50%, it may go up to 60% but a gap of 40% of financing needs in order to keep with the import level still exists.

• Government Spends More than it Earns as Revenues• Pakistan’s government takes away 20% of national income as its own.

80% is left in the private sector and 20% in the hands of the government is spent on defense, debt servicing, development on education, health, general administration etc. 19

• Our Share in the World Trade is Shrinking• We Badly Lag in Social Indicators.• We Face Energy and Water Shortages• Cost of Doing Business is High• Crisis of Governance and Implementation Weaknesses• Uncertainty and Unpredictability due to Lack of Continuity• Political Stability, Law and Order/Security.

20

Conclusion• An Economic and Social Agenda For Improvement• Restore confidence• Initiate and sustain technological change• Foster stability and trust in social and cultural relationship• Possibilities of poverty reduction through SMEs development by employment creation• Vocational training• Islamic microfinance for employment generation• Increased role of donors generating employment• Change in National Psyche and Mindset• Building up of Human Capital• Use of Technology.• Young Educated Labor Force• Governance, Devolution and Decentralization

21

Quote of the Day

• Problems do not go away. They must be worked through or else they remain, forever a barrier to the growth and development of the spirit.

M. Scott Peck

22