PAKISTAN STUDIES NOTES-GRADE 11th & 12th

Chapter # 5 – Economic Planning and Development in the Islamic Republic of Pakistan

5.2   Economic Development Under Different Regimes

5.2.1   Discuss the Different Economic Policies Introduced in the Mentioned Regimes

• Ayub Khan (1958-1969)

• Zulfiqar Ali Bhutto (1971- 1977)

• Zia-ul-Haq (1977-1988)

• Pervez Musharraf (1999-2007)

Economic Development under Different Regimes

In the history of Pakistan, several leaders have shaped the economic landscape of the country. From Ayub Khan’s era in 1958 to Pervez Musharraf’s leadership in 2007, each regime implemented distinct economic policies with varying degrees of success. Let’s delve into the economic strategies introduced by Ayub Khan, Zulfiqar Ali Bhutto, Zia-ul-Haq, and Pervez Musharraf.

Economic Policies of Ayub Khan (1958-1969)

Economic Policies of Ayub Khan Ayub Khan’s economic policies focused on industrialization, privatization, and foreign investment. He implemented a number of reforms, including the establishment of the Pakistan Industrial Development Corporation (PIDC), which played a key role in the development of the country’s industrial sector.

1. Industrialization Drive: Ayub Khan’s regime prioritized industrialization as a means to propel Pakistan’s economic growth. He aimed to reduce the dependency on agriculture and jumpstart the industrial sector to diversify the economy.
2. Five-Year Plans: Inspired by the Soviet model, Ayub Khan introduced a series of Five-Year Plans (1955-1960, 1960-1965, and 1965-1970) to outline economic goals and strategies for development. These plans focused on infrastructure development, energy, agriculture, and industry.
3. Land Reforms: Ayub Khan initiated land reforms to address the issue of feudalism and to improve agricultural productivity. The reforms aimed to redistribute land from large landowners to small farmers, fostering a more equitable distribution of wealth.
   These reforms-imposed restrictions on land ownership, limiting it to 500 acres for irrigated land and 1000 acres for unirrigated land. Surplus land was acquired by the government, compensating owners, and then redistributed among landless farmers and peasants.
4. Foreign Investment: Ayub Khan’s era in Pakistan witnessed a concerted effort to attract foreign investment to bolster the country’s economy. He pursued policies aimed at creating a favorable environment for foreign investors, offering incentives such as tax breaks and relaxed regulations to encourage their participation in various sectors. Additionally, Ayub Khan actively engaged in diplomatic efforts to strengthen ties with foreign nations, fostering trade partnerships and encouraging investment flows into Pakistan. These measures, coupled with economic reforms aimed at liberalizing the economy, contributed to a notable increase in foreign investment during his presidency, laying the groundwork for economic growth and development in Pakistan.
5. Education and Healthcare: Ayub Khan’s government also invested in social sectors like education and healthcare, aiming to improve human capital and boost productivity.
   Under his leadership, efforts were made to expand access to education by increasing the number of schools and colleges across the country. He set up Secondary and Higher Secondary Education Boards to regulate schooling from class 6 through class 12.  Moreover, University degree courses were extended from two to three years. The government implemented policies to improve educational standards and literacy rates, focusing on both urban and rural areas. Additionally, initiatives were undertaken to enhance healthcare infrastructure, with the establishment of hospitals and healthcare centers aimed at providing accessible medical services to the population.

Zulfiqar Ali Bhutto’s Economic Policies (1971-1977)

Zulfiqar Ali Bhutto’s economic policies, introduced during his tenure from 1972 to 1977, were characterized by significant reforms in nationalization and land ownership. These policies aimed to address economic disparities, promote industrialization, and empower marginalized groups. However, they also faced challenges and had mixed impacts on the country.

What is Nationalization?

The term “nationalization” refers to the process by which privately owned assets, such as industries, businesses, natural resources, or services, are transferred into public ownership and control. In other words, nationalization involves the government taking over the ownership and management of private assets, thereby making them part of the public sector. This can occur through various means, including legislative action, government decree, or purchase agreements. Nationalization is often pursued for reasons such as economic regulation, redistribution of wealth, promotion of public welfare, or strategic national interests.

1. Bhutto’s Policy of Nationalization :- Bhutto’s Policy of Nationalization aimed to bring key industries and institutions under governmental control. This included major industries, banks, insurance companies, and schools. The rationale behind nationalization was to address economic inequality, enhance worker rights, and promote industrial growth.
2. Land Reforms :- Bhutto’s land reforms were designed to address feudalism and empower landless individuals by redistributing land ownership from large landlords to peasants and tenants. Under these reforms, individuals were limited to owning a maximum of 250 acres of irrigated land and 500 acres of un-irrigated land. Surplus land exceeding these limits would be acquired by the government and sold to smaller peasant farmers. Tenants were given priority in purchasing the land they farmed, and security of tenure was ensured through agreements between landlords and tenants, preventing arbitrary evictions before the expiry of the defined time period.

Economic Policies of General Zia-ul-Haq (1977-1988)

During his rule in Pakistan from 1977 to 1988, implemented several key features in his economic policy.

1. Privatization:
   • General Zia ul Haq reversed the nationalization process initiated by Zulfiqar Ali Bhutto. He returned nationalized institutions (such as industries, banks, and schools) to their former private owners.
   • Additionally, Zia introduced laws to prevent future nationalization.
   • The military regime provided fiscal and non-fiscal incentives to encourage private companies to invest in Pakistan, thereby improving the overall investment climate.
2. Liberalization:
   • Zia-ul-Haq shifted towards economic liberalization by reducing government controls.
   • He adopted a market-based development strategy across various sectors of national life.
   • The military regime entered into a three-year extended fund facility (EFF) with the IMF in 1980 and implemented structural reforms for financial deregulation and greater economic liberalization.
3. Establishment of Industrial Zones:
   • Zia established industrial zones with the aim of attracting foreign investment and modern technology.
   • These zones were intended to create employment opportunities and enhance management skills.
   • Unfortunately, the output from these zones did not meet expectations, as the goods exported were relatively small-scale.
4. Agricultural Reforms:
   • The regime introduced agricultural reforms aimed at increasing productivity and improving rural livelihoods.
   • These reforms included the distribution of land to landless farmers, subsidies on fertilizers and seeds, and investments in irrigation infrastructure.
   • While these measures led to short-term improvements in agricultural output, they also faced challenges in implementation and sustainability.
5. Islamization of the Economy (Zakat and Ushr Tax):
   • Zia-ul-Haq attempted to align Pakistan’s economic system with Islamic principles.
   • He introduced the Zakat and Ushr Tax, emphasizing social justice and wealth redistribution.
   • Zakat is an obligatory charitable contribution in Islam, typically levied on wealth and assets to be distributed among the needy and deserving members of society.
   • Under Zia-ul-Haq’s regime, Zakat was institutionalized as a compulsory tax, collected by the government, and distributed to designated recipients, including the poor, widows, orphans, and other vulnerable segments of society.
   • Ushr Tax: Ushr is an agricultural tax levied on the produce of cultivated land in Islam.
   • Under Zia-ul-Haq’s regime, Ushr was introduced as a means of generating revenue for the government and promoting agricultural productivity. The tax was typically levied on crops and agricultural produce and collected by the state.
6. Foreign Aid and Assistance:
   • Zia-ul-Haq’s alignment with Western powers, particularly the United States, resulted in significant economic assistance and military aid to Pakistan. This assistance provided crucial support to the economy and bolstered Pakistan’s military capabilities. However, it also created a dependency on foreign aid, limiting Pakistan’s sovereignty and autonomy in decision-making.

Economic Policies Introduced by Pervez Musharraf (1999-2007)

What is Foreign Direct Investment (FDI)?

Foreign Direct Investment (FDI) is an investment made by an individual, a group of individuals, or a corporation in a business located in another country. FDI involves the investor taking a substantial interest in the foreign business, often resulting in participation in management decisions, forming joint ventures with local partners, transferring technology, and contributing management skills. This form of investment plays a significant role in fostering economic growth, facilitating the exchange of knowledge and expertise between countries, and promoting international business collaborations.

1. Foreign Direct Investment (FDI) :- Foreign Direct Investment (FDI) received a substantial boost during the tenure of former president Pervez Musharraf, who, as a military ruler, introduced the Economic Regulations Program (ERP) in the country. This initiative aimed to stimulate international trade and FDI by implementing significant reductions in export and import duties (taxes). The government, under the ERP, eliminated import quotas, surcharges, and duties to create a more favorable environment for trade and investment. Furthermore, the ERP resulted in a decrease in maximum export tariff rates on key commodities such as cement, sugar, livestock, and vegetables in 2005. Additionally, the government relaxed strict licensing conditions previously required for initiating new businesses in the country. Moreover, the Musharraf government abolished public sector monopolies on imports to encourage private sector involvement in import activities. Additionally, measures were taken to provide security and offer land on lease to international firms already operating or interested in operating within Pakistan.
2. Privatization and production of value-added products :- Privatization and industrialization were among the foremost reforms under General Musharraf’s administration. The military government implemented policies that granted exemptions in export duties and designated land adjacent to Port Qasim for industrial development. Incentives were offered to encourage the production of value-added export goods. Consequently, industrialists and manufacturers established a growing number of significant industrial estates across the country, including the M3 Industrial Estate, Sundar Industrial Estate, and Chakri Industrial Estate near Port Qasim.
3. Educational Reforms :- Musharraf enhanced the education budget to 4% of the GDP and mandated English as a compulsory subject from Grade-1, previously scheduled from Grade 6 onwards. Additionally, the government established nine engineering universities of international standards, elevating several institutions from college to university status. The count of universities surged from 30 in 2000 to 49 in 2005, with nearly 100,000 new educational institutions added to the system during Musharraf’s tenure.
4. Reforms in irrigation :- Musharaf took important measures to better the irrigation system of Pakistan. In this regard, he built five dams i.e. Mirani, Subakzai, Gomalzam, Khurram, Tangi dams.
5. Reforms Transportation :- Musharaf started a program of laying a network of highways and motorways in the country. Seven motorways were completed during his regime, and many were still under construction when he was transferring power to the new government. Musharaf started developing Gwadar Port with help of government of China. He completed a major part of the port at a time when he was in the final days of his presidency. He did not leave it for the next government, he rather completed a major part of the project before his resignation as president.