Pakistan-Chapter 3 The Economy

Artist's rendition of tile mosaic of lion chasing deer. Artwork represents seventeenth-century Mughal tile work from the Pictured Wall, Lahore Fort, Punjab.

PAKISTAN'S CULTIVATION OF THE RICH alluvial soil of the Indus River basin is its single most important economic activity. Because of extensions and improvements to the irrigation system, waters of the Indus River and its tributaries flow to the fields, a necessity because of scant rainfall. The Indus irrigation system is the world's largest, but there are many problems because of inadequate water management and use. Farmers continue to employ traditional cultivation practices, and support services, such as research and development, are inadequate, although high-yield seeds and fertilizers are fairly widely used. Yields of most crops, with the significant exception of cotton, are low by international standards and substantially below the area's potential. Many farms are too small to support a family using existing agricultural practices. The landless often sharecrop or work as agricultural laborers. A flood in September 1992 temporarily displaced as many as 3 million people and destroyed many irrigation networks. Its effects are expected to limit agricultural production, particularly cotton, in the 1990s.

Since Pakistan became independent in 1947, its leaders have generally sought to increase the role of industry in the nation's economy. They achieved a remarkable degree of success toward this end. A broad industrial base is now in place, producing a wide range of products for both consumer and industrial use. Industrialization, however, has failed to create sufficient jobs for the rapidly expanding urban population. Construction and service-sector activities, especially in trade, transportation, and government, have expanded and now provide more employment than industry. Nonetheless, underemployment remains prevalent throughout the economy. An outdated infrastructure is another problem facing the economy. Frequent electricity shortages, for example, hamper industrial development and production.

Most central government administrations have sought to raise the majority of the population's low standard of living through economic growth rather than through the redistribution of wealth. The gross domestic product (GDP--see Glossary) in constant prices increased an average of 5.3 percent per year between 1950 and 1993, roughly 2 percent per year faster than population growth. In fiscal year (FY--see Glossary) 1993, GDP amounted to the equivalent of US$50.8 billion, or roughly US$408 on a per capita basis. Income, however, has never been evenly distributed. Furthermore, the unequal income distribution pattern has been a political issue since the late 1960s and is expected to remain controversial throughout the 1990s. Social development indicators reflect long-standing problems in providing basic health and education services. Only just over one third of all children of primary school age attended school in 1989, a rate well below the average for low-income countries (see Education , ch. 2). It was estimated in 1992 that 28 percent of the population lived below the official poverty line, which is based on the government's estimate of an income sufficient to provide basic minimum needs.

A pressing problem facing the economy is the government's chronically high budget deficit, which has adverse implications for the nation's balance of payments, inflation and exchange rates, capital formation, and overall financial stability. The government has been attempting to restore fiscal balance through a multiyear structural adjustment program designed to increase revenues, control spending, and stabilize monetary growth. In addition, the government has privatized public-sector industrial enterprises, financial institutions, and utilities; eliminated state monopolies in banking, insurance, shipping, telecommunications, airlines, and power generation; and liberalized investment and foreign exchange regulations. As of early 1994, not all these programs had been implemented as quickly as planned, however, and the deficit and the associated structural problems persisted.

Data as of April 1994