Economic Challenges to Pakistan

What is economy?

An economy consists of the economic system of the country or the area, the labour, capital and

land resources and the manufacturing, production, trade, distribution, and consumption of

goods and services of that area.

Economic Challenges after the formation of Pakistan:

From very early in the beginning, economically weak Pakistan was made by the British

Government due to the conspiracies of India. Government of India refused to give Pakistan’s

share of capital. Nehru did not give Pakistan’s share by saying that it would help Pakistan

financially in war on Kashmir. But Gandhi was forced internationally, so he handed over 17.5%

of Pakistan’s share. An installment of 50 million has still not been paid by India. Nizaam of

Hyderabad sent a cheque of large sum but Nehru did not allow it to be cashed. Pakistan’s

economy was mainly dependent on agriculture. It contributed 60% to its income, India also

tried to stop the water of its rivers to make its lands barren. Pakistan overcame this worst

economic crisis with the assistance of its businessmen. Quaid-e-Azam checked the economy on

daily basis and in 1948, he established the State Bank of Pakistan (SBP) to issue its own currency

notes and to make the economy of Pakistan independent.

Proper economic planning was made eight years after the formation of Pakistan. Long term

policy was made and as a result National Economic Council (NEC) was established. Nine

economic plans have been introduced by the approval of NEC till now.

In 2nd five year plan, green revolution was introduced by Ayub Khan. Agricultural growth

increased from 1.43% to 5.1% in this revolution.

Before introducing each five year plan many efforts were made and required targets were set,

and according to the requirement of our target money was allocated for achieving the targets.

Unfortunately, there is no single five year plan of our history which could achieve its all the

estimated targets. There are many reasons for this but major reason is the increase in defense

budget every time because we had to fought many wars like war of 1948, war of 1965, war of

1971, soviet war fought for one complete decade, Kargil war, cold war still being fought from

the formation of Pakistan to ensure our National Integerity. There were many other reasons

like political destabalisation, enforcement of martial laws, bad governance etc.

Due to these severe problems we could not stand on our feet and instead, we became

dependent on loans and foreign aids, that’s why we are not still economically independent.

Challenges to Pakistan’s economy Now-a-days:

Electricity Shortage

Due to technical faults of hydal power plants, their production has decreased. Issues of rental

power plants, transmission losses, meter tempering etc are also there. Private sector does not

invest in power plants due to policies of government. Demand of electricity has also increased

but production is not being increased according to the requirement. Government has to give

subsidy to resolve the problem to an extent, so lot of capital is wasted. In such problem like

load shedding has appeared and disturbing each sector of country’s economy very badly.

Installed Capacity = 21000 MW

Production = 14000 MW

Demand = 21500 MW

Shortfall = 7500 MW

So there is the electricity shortage of 7500 MW and is serious economy threat.

Exports

Pakistan's exports increased more than 100% from $7.5 billion in 1999 to stand at $18 billion in the financial year 2007–2008.

Pakistan exports rice, oranges, mangoes, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods (renowned for footballs/soccer balls), cutlery, surgical

instruments, electrical appliances, software, carpets and rugs, ice cream, livestock meat, chicken, powdered milk, wheat, seafood (especially shrimp/prawns), vegetables, processed food items,

Pakistani-assembled Suzukis (to Afghanistan and other countries), defense equipment (submarines, tanks, radars), salt, onyx, engineering goods, and many other items. Pakistan produces and exports cements to Asia and the Middle East. In August 2007, Pakistan started

exporting cement to India to fill in the shortage there caused by the building boom. Russia is a growing market for Pakistani exporters. In 2009/2010 the export target of Pakistan was US $20

billion. As of April 2011, Pakistan’s exports stand at US $25 billion.

Economic aid

Pakistan receives economic aid from several sources as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc. provide long term loans to Pakistan. Pakistan also receives aid from developed and oil-rich countries.

The Asian Development Bank provided close to $6 billion development assistance to Pakistan

during 2006–9. The World Bank started a lending program of up to $6.5 billion for Pakistan under a new four-year, 2006–2009, aid strategy showing a significant increase in funding aimed

largely at beefing up the country's infrastructure. Japan will provide $500 million annual economic aid to Pakistan. In November 2008, the International Monetary Fund (IMF) has approved a loan of 7.6 Billion to Pakistan, to help stabilize and rebuild the country's economy.

More recently the government of Pakistan received an economic aid of US $5bn dollars out of which the US pledge of $1bn was described as a down-payment on the previously announced

$1.5bn already promised to Pakistan for each of the next five years. The European Union promised $640m over four years, while reports said Saudi Arabia had pledged $700m over two years. Overall Friends of Pakistan had pledged $1.6 billion in aid, which would help Pakistan

move forward on its way to self-reliance.

Debt

Along with the financial aids, we also take loans from International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc to run our country. We have to return

these loans with heavy interests which is the great set back to our economy. Present government has taken record loan of $7.6 billion in Pakistan’s history.

Revenues and Taxation

Pakistan has a low tax/GDP ratio, which it is trying to improve. The current tax-to-GDP ratio is

estimated to be between 8%–9% which is far below developing other countries of the region such as India (15%) and Sri Lanka (18%). Recently, Pakistan's coalition government proposed

the idea of imposing a Reformed General Sales tax. However, with the war on terror having engulfed Pakistan's economy, the politically unpopular bill was not approved in the senate/parliament and has afforded some respite to the people of Pakistan who are already

suffering from a stagnant economy and rampant inflation. the revenue department of the Federal Government, the Federal board of Revenue, collects almost 95% of the entire national revenue.

The Federal Board of Revenue collected nearly one trillion rupees ($14.1 billion) in taxes in the 2007–2008 financial year, while it collected about 1558 billion ($18.3 billion) during 2010–2011.

Foreign Exchange Rate

The Pakistani rupee depreciated against the US dollar until the turn of the century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilized by lowering interest rates and buying dollars, in order to

preserve the country's export competitiveness. At present also the exchange rate is low, $1 is of worth 94Rs.

Conclusions

The above discussed issues are the serious threat to our economy due to which our economy is not stable even after the long span of 60 years. There are many other issues like corrupt politicians, expenditures of war on terror which cost $73 billion, civil war, inflation, governance

issues, poverty, less education, more imports than exports etc. also affect our economy.

References

“Contemporary Economic Issues In Pakistan” by Dr. Muhammad Aslam. Published by Allied Book Center 34-Urdu Bazar Lahore.

“A Concise History Of Pakistan” by M. R. Kazimi. Published by Oxford Press.

Wikipedia

www.studysols.com