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Pakistan - Structure of the Economy
Structure of the economy
Pakistan attained nationhood under difficult circumstances. At the partition of British India in 1947 resulting in the creation of the independent nations of India and Pakistan, Pakistan was an agrarian economy in which a small number of powerful landowners with large holdings dominated the countryside. The majority of the population consisted of tenant farmers who cultivated small plots for a meager existence. Scant rainfall in West Pakistan (present-day Pakistan) forced farmers to rely on the extensive irrigation system developed by the British. The headwaters of the Indus River and its main tributaries, however, were under Indian control. Disputes arose between the two nations and were not settled until the Indus Waters Treaty of 1960 was signed.
Pakistan had almost no industry in 1947. Under British rule, the area that became Pakistan supplied agricultural products for processing to the territory that became the independent India. Energy sources were rudimentary, with wood and animal dung furnishing the bulk of the energy consumed. Ports, transportation, and other services, such as banking and government, were underdeveloped. More than 1,600 kilometers of Indian territory separated the East Wing and West Wing of Pakistan until the former became independent Bangladesh in 1971. In 1949 a dispute over exchange rates halted the flow of goods between Pakistan and India, disrupting the complementary nature of their economies that had developed under British colonial rule.
Despite formidable problems, Pakistan achieved rapid economic expansion. From FY 1951 to FY 1986, the GDP growth rate measured at a constant FY 1960 factor averaged 5.2 percent. Rates of growth averaged 3.1 percent in the 1950s--when agriculture stagnated--but rose to 6.8 percent in the 1960s. They fell to 3.8 percent between FY 1971 and FY 1977 but rebounded to 6.8 percent between FY 1978 and FY 1986. From FY 1987 to FY 1991, growth averaged 5.8 percent, and a rate of 7.8 percent was achieved in FY 1992. Provisional data indicate that GDP grew only 2.6 percent in FY 1993. This decline is mainly a result of the floods in September 1992, which reduced agricultural output.
Rapid growth substantially altered the structure of the economy. Agriculture's share (including forestry and fishing) declined from 53 percent of GDP in FY 1950 to 25 percent in FY 1993. A substantial industrial base was added as industry (including mining, manufacturing, and utilities) became the fastest growing sector of the economy. Industry's share of GDP rose from 8 percent in FY 1950 to 21.7 percent in FY 1993. Various services (including construction, trade, transportation and communications, and other services) accounted for the rest of GDP.
Pakistan has an important "parallel," or "alternative," economic sector, but it is not well documented in official reports or most academic studies. This sector includes a thriving black market, a large illicit drug industry, and illegal payments to politicians and government officials to ensure state contracts. Corruption rose in the 1980s, partly as a result of the massive infusion of United States aid, some of which went to the Pakistani government to pay the cost of supporting Afghan refugees fleeing after the 1979 Soviet invasion and to enhance Pakistani military capability, and some of which was funneled directly to Afghan resistance movements based in Pakistan. Much of this money reportedly was diverted illegally and invested in arms and drug enterprises.
General allegations of corruption are routinely made in the Pakistani press, and politicians often accuse their opponents of corrupt practices. Asif Ali Zardari, the husband of Prime Minister Benazir Bhutto, was accused of corruption after the fall of Benazir's first government in 1990, and former President Ghulam Ishaq Khan accused the government of former Prime Minister Mian Nawaz Sharif and especially its privatization program of corruption when dismissing his government in April 1993. In 1994 allegations of corruption were routinely traded between Benazir's government and the opposition headed by Nawaz Sharif. Political maneuvering aside, corruption has an altogether real and pervasive effect on Pakistani society. Industrialists consider bribery and other handouts a routine cost of production, and contractors and businessmen interviewed on television openly state that a significant percentage of their revenue is paid to government officers who allocate their contracts. Corruption is alleged to be prevalent in almost all official institutions, including the police, the judiciary, the revenue department, the passport office, customs and excise offices, telecommunication organizations, and electricity and gas boards. In each of these departments, the personnel involved range from low-level employees to top management. Some scholars believe that the low salaries of civil servants, compared with earnings from jobs of similar status in business and industry, explain the magnitude of corruption. In the mid-1980s, Mahbubul Haq, a former minister of finance, estimated that illegal payments to government officials were equivalent to about 60 percent of the total taxes collected by the government.
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