Increasing reliance on short to medium term financing to meet external obligations compounded the unsustainability of the external debt. According to the ADB Draft Poverty Alleviation Report (2001), in 1997-98 the short to medium term debt accounted for about 23 percent of the total external liability and more than 48 percent of the debt servicing cost. According to the same report, in 1997-98 the debt servicing accounted for as much as 54 percent of the total export earnings and about 40 percent of total foreign exchange earning. To rectify these imbalances in the economy, Pakistan implemented various World Bank/IMF structural adjustment and stabilization programmes. The three recent IMF programmes relate to 1988-91, 1993-96 and 1997- 2000. In addition Pakistan has sought debt relief to create fiscal space and spend the available resources on reducing poverty.
Not only did the development activities in the public sector slow down, but as a result of the political uncertainty, excessive government regulations, lack of continuity in economic policies and the ongoing process of structural adjustment led to a very weak private sector growth as well. It is reported that during 1992-99, the investment grew at a rate less than one percent per annum and as a result the domestic fixed investment declined from 19 percent of the GDP in 1992-93 to less than 15 percent in 1997-98.
The economy slipping into the debt trap resulted in a halt to the past practice of large public sector development expenditures that had traditionally been financed by internal and external borrowing. The lower levels of public sector investment in the infrastructure further curtailed growth activities such as trade and transport. The fiscal deficit was as high as 8.8% of GDP in 1990-91, but was reduced to 5.3% in 2000-01.
ECONOMY OF THE PAKISTAN
Pakistan took a basic step toward industrialization by initiating a six-year economic development plan in the early 1950s (1951-1957). The program allowed for free import of capital goods to facilitate progress. Although this was somehow detrimental to the agriculture sector in that it led to a decrease in the production of edible grains, the program was highly successful. It not only facilitated the process of industrialization, but it also brought about developments in the areas of transport, communications, water and power, and technical training.
The government of Pakistan organized a planning committee in 1953 to draw up the country's first five-year economic development plan on the basis of feedback from the said six-year program. The new plan aimed at increasing GDP by 15 percent; income per capita, by 7 percent; food production, by 9 percent; and industrial production, by 60 percent, as well as creating two million jobs. These objectives were not fully achieved. However, the country's GDP increased by 11 percent, and its income per capita grew by 6 percent; and there was considerable improvement in the production of consumable goods.
The second economic development plan (1961-1965) pursued the same objectives; namely, increase of GDP, increase of income per capita, and creation of new jobs; and it succeeded in achieving them with a certain degree of success.
The third economic development plan (1965-1970), being a part of the country's twenty-year development plan (1965-1985), was more comprehensive than the previous plans, though it encountered various difficulties at the outset: In September 1965, war broke out between Pakistan and India; and this diverted the country's internal resources from development to defense purposes. Also, US aids to Pakistan were suspended. And, worst of all, natural disasters such as torrential floods in some cities affected the implementation of the plan adversely.
The fourth economic development plan (1970-1975) was prepared with the firm intention of reinforcing the foundation of development and minimizing local and regional differences. However, this plan was never implemented because of the 1971 conflict with India, as a result of which East Pakistan (or Bangladesh as it is now called) was partitioned. Thus, the government had to draw up a new plan (1971-1978). Whereas the 1970-75 plan had discouraged private investments owing to the nationalistic policies of 1971, the new plan aimed at developing the public sector, though with little success. On the whole, the country's economy lagged behind during this period owing to the government's conflicting economic policies and the private sector's lack of interest to initiate investment.
The fifth economic development plan (1978-1983) was drawn up with the aim of adjusting the undesirable economic status of the country. Initially the plan failed in achieving the desired goal. Eventually, however, it bore fruit. For instance, the industrial sector's value added increased 54 percent. This was due to the flexible nature of the plan, which allowed for yearly adjustments to be made on the basis of the development needs of each year.
The sixth economic development plan (1983-88) was implemented successfully immediately after the fifth. In the course of implementing the plan, Pakistan's GDP increased at an average annual rate of 6 percent at real prices. Prices increased only slightly. Share of investment in GDP increased up to 17 percent. Toward the end of the plan, share of external debts in GDP increased 12 percent, and that of import decreased 17 percent.
While the average annual growth of GDP was 5 percent during the seventh economic development plan (1988-1993), average annual rise of prices was 9 percent. Share of the country's gross investment in GDP grew from 8.5 percent at the beginning of the plan to 20.7 percent towards its end. Share of export in GDP rose from 12.5 percent at the beginning to 14.2 percent toward the end. There was also an increase in the share of import in GDP
During the first two years of the eighth plan (1993-1998), which pursued the objectives of privatization and attraction of foreign investment, GDP fell 4 percent as compared with that of the seventh plan. Share of investment in GDP was about 20 percent. Share of the country's external debts in GDP rose 6 percent. Share of export decreased 13 percent, but share of import remained unchanged.
It may be said that Pakistan's sixth plan was more successful than its seventh plan, which was in turn more successful than the eighth
GDP RATED PERFORAMCE FOR THE YEARS
TAX ON GDP 1990-2000
During the nineties Pakistan’s Federal Tax to Gross Domestic Product ratio varied narrowly and was lower than in most of the countries in Asia and Latin America. Over the years, with reductions in tariffs, customs duties have declined in importance and income tax and sales tax have grown in proportion to GDP. The tax base for most taxes has grown faster than the GDP but has
remained narrow and skewed. The number of income taxpayers has grown from less than one quarter of a million in 1995 to around one million in 2000. Similarly, the number of sales tax filers has increased from less than 30,000 in 1995 to 62,000 in 2000. Taxpayers are less than one percent of the population, a lower proportion than in most countries at a similar stage of development
Federal Tax Revenue of Pakistan
(Percent of G.D.P)
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-2000
Tax
Revenue 10.8 11.6 11.4 11.0 12.1 12.5 11.5 11.0 10.6 11.0
Direct 1.9 2.4 2.7 2.8 3.3 3.6 3.5 3.9 3.8 3.6
Taxes
Indirect 8.9 9.2 8.7 8.2 8.8 8.9 8.0 7.1 6.8 7.4
Taxes
The evolution of Pakistan’s tax system has five essential features:
- Changes through legislation and administrative orders are frequent and ad hoc. Consequently, most taxpayers have insufficient knowledge of their tax obligations and the tax collector has substantial discretion.
- Major tax policy changes are not supported by adequate changes in the administrative framework. For example, the shift from 100% income tax audit to self-assessment regime was not accompanied by a sufficient improvement of audit capacity. Similarly while over 70% of “income tax” is collected via withholding and presumptive taxes, an adequate monitoring and surveillance apparatus does not exist
- Organization, business processes, systems, facilities and expenditure budget have not kept pace with the growing demands on tax administration. For example, a substantial part of the tax process implies one to one relationships between the taxpayer and the tax collector and audit of each taxpayer, often giving rise to allegations of coercion and collusion. The tax administration’s budget is insufficient for the maintenance of buildings, furniture and equipment, and even for stationery and forms.
- As in the rest of the government, the management of human resources is severely deficient. Most of the tax officials are not paid a living wage and none is paid a middle class wage. For most, honesty is an impossible proposition. Because of a large and politically motivated expansion of lower ranks, much of the manpower expenditure is unproductive. During the nineties, recruitment of middle level officials became politicised. The quality and management of training have not kept up with the organisation’s professional needs. Consequently, productivity and morale have suffered
- The relationship between the taxpayer and the tax collector is largely adversarial. Neither the taxpayer nor the tax collector has faith in the other’s integrity
RATE OF GDP OF THE VARIOUS SECTORS
DEVEPLOMENT PROGRAM
OF THE GDP 1990-2000
It has been observed that during 1990-91 and 1999-2000, the GDP has been growing at an average rate (in real terms) of 4.1%, whereas the Total Debt increased at the rate of 5.9%, surpassing GDP in 1999-00. Debt servicing (repayment of principle and interest) varied in the period from 7.7 to 12.5% of GDP and from 43 to 73% of Federal and Provincial Revenue. This is a matter of great concern, with probable repercussions for Pakistan’s borrowing capacity.
The amount of foreign loans and grants diminished significantly from 144 billion Rupees in 1994-95 (in constant 2000-01 terms) to only 43 billion in 2000-01 with a low of 36 billion Rupees in 1999-00. On average this amounts to an annual decrease of 10.9%. The grant component peaked at 9.4 billion Rupees in 1991-92 and had diminished to 1.9 billion in 2000-01. Loans and grants made up 71% of the Development Programme in 1991/92, but diminished to 23% in 2000-01.
The Debt Service on foreign loans increased 3.5% per year, which is less than GDP growth. In relation to GDP it peaked in 1999-2000 at 12.7% and stood at 7.7% in 2000- 01. These lower numbers reflect the effect of rescheduling of foreign loans. The ADB loans were in 2000-01 at almost exactly the same level as in 1990-01 (37.5 billion Rupees), but all years in between were lower, especially 1999-00 with only 2.9 billion Rupees.
The Development Programme did not grow during the period; it decreased at an average rate of 1.1%, being highest in Rupee terms in 1995-96. As percentage of GDP, it was highest in 1992-93. The Water Sector (in the terminology of this study) constituted between 12% and 24% of the Development Programme. The Ten Year Perspective Plan places a greater emphasis on the development of water and hydropower resources and envisages about 40% of the Public Sector Development Programme will be allocated to the water and hydropower development.
ECONOMY AND RESOURCES
FUTURE PLANS
The principal objective of the economic and financial policies of the Government is the achievement of sustained annual economic growth of around 6 percent together with low inflation and a viable balance of payments position. To this end, policies focus on fiscal reforms, including improved monitoring of the budgetary position, and measures to enhance the openness of the economy and export competitiveness. The macroeconomic targets for 2003/04 include:
Real GDP growth of 6.3 percent
Annual average CPI inflation of about 3.5 percent
An overall investment rate of about 17 to 18 percent of GDP
A current account deficit (excluding official transfers) of about 0.1 percent of GDP
A budget deficit of about 3 percent of the GDP;
Reduction in net public debt to about 86 percent of GDP by 2003/04; and
A build-up in official foreign exchange reserves to US$2.86 billion, equivalent to about 12 weeks of imports of goods and non-factor services.
It is envisaged that a steadily rising revenue-to-GDP ratio expected from an improved tax administration and a simpler, broad-based tax system and further savings in interest payments and containment of defense outlays would allow increased social expenditures consistent with the objective of reducing poverty. The Government’s Three Year Poverty Reduction Program 2001-04 (February 2001) lists the five pillars of the programme as:
- Macroeconomic reforms to promote growth
(ii) Physical asset creation for the poor;
(iii) Social asset creation for the poor;
(iv) Provision of social safety nets to protect the most vulnerable groups; and
(v) Good governance.
The Government's strategy to achieve higher growth and build a more self reliant economy includes:
- Transforming the agriculture sector into a dynamic, high yield and market based sector;
(ii) Creating a broad-based manufacturing structure oriented towards exports, with particular attention to small and medium enterprise development;
(iii) Encouraging oil and gas exploration and development; and
(iv) Developing information technology and the software industry.
The Ten Year Perspective Plan envisages reduction in incidence of food poverty from the current 30% to 25% of the population in 2003–04 and to 15% in 2010–11. It also plans to improve the Human Development Index Rank from the current 135 to 120 in 2003–04 and to 90 in 2010–11. The Plan envisages a GDP growth rate of 6.3% in comparison to an estimated growth rate of 2.6% in 2000–01.
Recommendations:
Since 55 years people of the world are working and making up their business by the help of International Monetary Fund. This organization is helping the countries of the world to prosper.
Our recommendations for this organization are, it should work more for the benefit of the Muslim World and the Under Developed Countries. It should raise more funds for the under developing countries and give them more relieves for their benefit and credit limits. Sanctions should not be imposed on poor countries and abiding of rules should be made flexible where ever possible.
Conclusion:
We would like to conclude our report by saying that these trends in the economy have given boost as well as decline to the Pakistan economy. But a lot of things depend on the policies that are made and executed by the government officials in order to compensate necessary problems present in the economy; it should work out its role for the entire population, irrespective of any discrimination of color, creed, race, nationality or sex.
This report is the complete Performa of the GDP and GNP trends in Pakistan since 1990 which has not only helped Pakistan to develop and prosper but also making the best out of the developing world
Bibliography:
The following websites have viewed in order to collect data and information about GDP and GNP trends in Pakistan since 1990 and its role in the national and international economy. The impact and causes of these trends have also came to our knowledge from these websites.
In spite of these websites the economic surveys of Pakistan were also taken into consideration. Following magazines were also taken to collect data and trends.
- The Gulf Economist
- The Pakistan Economist
