Ayub Khan Regime

Topics: Tax, Monetary policy, Public finance Pages: 21 (5895 words) Published: November 9, 2014
Pakistan Economic History (1947 – 1958)
Introduction:
1947 --Birth of Pakistan
1948 -1958 --Democracy
1958 -1969 --Military Dictatorship

Economic Growth:
Major Sectors:
1. Agriculture
2. Manufacturing
3. Services
Growth Rate in Agriculture:
AverageGrowth RateShare
19501.7647.70
19605.1240.68

Growth Rate in Manufacturing:

1. Share of manufacturing sector in GDP was 6.3 percent in 49 – 50. 2. Overall Share in 1950 was 8.78 percent in which 4.38 contributed by large scale industry.

Important Economic Events:

1. State Of Economy:

Migrants:
In East Pakistan it was 1.25 million: the impact of refugee influx to the local Pakistan can be gauged by the fact that according to the 1951 census) the migrants, as a percentage of the total population of Karachi, were 55 percent and, in the case of the Punjab, 25.6 per cent. Non Existent Industrial Base:

We were producers of some of the major items of raw material but we didn’t have processing capacity. The new state also lacked in administrative, enterprenuials, business and financing capacity. Collapse of banking system:

Ac to RBI -> Out of 165 only 213 banks were functioning before partition. A year later when the state bank of Pakistan was established out of 195 only 65 branches were exited in Pakistan.

2. Non Devaluation Decision in 1948:

1. Major trading partners were UK and India – together accounted for 67 percent of Pakistan trade. 2. There could be 2 possible reasons:
I. Pak was an independent country and didn’t mimic Indian economic policy. II. To continue to sell raw jute to India now at higher prices, and to be able to import machinery and capital goods at cheaper price. 3. 1948/9, India imported 55.8 per cent of Pakistan's exports.

3. Korean War 1950 – 1952:

1. Countries began stock piling and storing raw materials and as demand for them increased so did their price. 2. Pakistani exports consisting of jute and cotton rose by 109%. BOP improved.

End of Korean War and Depression in Export Earnings:
1. By mid-1951 world prices of raw materials began to decline and export earnings also saw a decrease. 2. In 1952 jute and cotton prices fell, as did export earnings and Pakistan was facing a serious balance of payments crisis and sharply falling reserves

4. Import Policy in 1952:

1. In 1949, the government decided not to devalue and instead imposed very strict exchange controls and a set of physical controls on imports and exports. 2. The probable reason for not devaluing in 1952 despite fall in the balance of payments was that capital goods were now needed to start the process of industrialization and devaluation would have raised their prices.

5. Industrialization 1947 – 1958

To meet requirements of home market for consumer goods - Pakistan was dependent on outside source. 1. Exchange Rate
2. Trade Policy

Exchange Rate:
With controls imposed on imports, especially on consumer goods the Prices of these goods increased sharply in the domestic market which changed the terms of trade in favor of industry and against agriculture

Trade Policy:
The policy pursued can be put simply as follows: Produce anything that can be reasonably produced domestically. Once production has started domestically, ban imports of competing goods so as to save foreign exchange.

Outcome of Exchange Rate and Trade Policy:
1. The decision not to devalue its currency put Pakistan on the road to industrial development. 2. There was significant growth in manufactured goods produced from newly established industries e.g. cotton and jute. 3. Agriculture stagnated to the extent that its growth was not even enough to cope with the growth in population, resulting in a fall in per capita consumption of food grain and the need to import food as well. A stagnant agriculture in a predominantly agricultural economy meant a slowly growing economy. 

Monetary Policy:

1. Basically is the way govt. try to control the...
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