Characteristics of Pakistan's Economy

1. Analysis of Industries of Pakistan
ECO411
by
IRFAN HAIDER SHAKRI

2. Basic Characteristics of
Pakistan’s Economy
1- General Poverty and Low Living Standard.
Poverty cannot be described, it can only be felt. The
most of the less developed countries (LDC) are
facing the major problem of general as well as
absolute poverty and low standard of living. Most of
the people in developing nations are ill-fed, ill-
housed, ill-clothed and ill-literate. In LDCs almost
1/3 population is much poor. But in Pakistan, 21.0
% population is living below poverty.

3. 2- Burden of Internal and External Debts:
Under developed countries (UDC) are loans and
grants receiving nations. Most of the developing
countries of the world are depending on foreign
economic loans. An amount of foreign loans is
increasing as the years pass. Their foreign trade
and political structure is also dependent on the
guidance of foreigners. The outstanding total public
debts are Rs. 12024 billion (58.2% of GDP) and the
value of external debts and liabilities is $ 60.3 billion
and services charges on all types of debts are Rs.
730.733 billion during 2011-12, in Pakistan.

4. 3- Low Per Capita Income:
Due to low national income and huge population
growth rate, per capita income in developing
countries is very low. At constant prices (Base Year
1959-60) per capita income of Pakistan was Rs.
985 and according to the Economic Survey of
Pakistan 2011-12 per capita income of Pakistan is $
1372.

5. 4- Over Dependence on Agriculture:
61% Population of Pakistan is living in more than
50,000 villages. Backward agriculture is the major
occupation of the population. Agriculture sector is
backward due to old and traditional methods of
cultivation, in-efficient farmers, lack of credit
facilities; un-organized agriculture market etc.
66.7% population is directly or indirectly depending
on agriculture sector in Pakistan. It contributes to
GDP 21.0% while in advanced nations it is less
than 5 %. It employed 45.0 % of labour force while
it is less than 5 % in developed countries.

6. 5- Backward Industrial Sector:
Backward industrial sector is an additional feature
of under developed countries. Industrial sector of
Pakistani economy is backward since
independence. Pakistan got only 34 (3.7 % of total
industrial units) industrial units out of 921 units in
sub-continent in 1947. Small and backward
industrial sector is based on low level of capital
formation, technology, training and education and
over dependence on agriculture sector. 13.7%
labour force is attached with industrial sector in
Pakistan. Its share to GDP is 25.4 % and to exports
is more than 60 %.

7. 6- Unemployment :
An outstanding problem of developing countries is
their high rate of un-employment, under-
employment and disguised-unemployment. More
than 3.5 million people are unemployed in Pakistan.
There is 16 % underemployed and 20% disguised
unemployed of total labour force. Unemployment
rate is 6.0%; it is mainly due to high population
growth rate, which is 2.03%.

8. 7- Low level of Productivity:
The productivity level is very low in under
developed countries as compared to developed
countries. Low level of productivity is due to
economic backwardness of people, lack of skill,
illiteracy and ill-training. Value of annual productivity
of labour is about $ 100 while it is more than $ 2500
in advanced nations in Pakistan. Minimum wages
are Rs.8000/- per month against the average gross
salary of $3,950 (Rs.3,79,200) per month in United
States.

9. 8- Deficit Balance of Payment:
Third world countries have to import some finished
and capital goods to make economic development,
on the other hand they have no products to export
but raw material. During July-April, its exports were
$ 20.474 billion and imports were $ 33.15 billion in
case of Pakistan. So, its deficit balance of payment
was $ 12.68 billion in 2011-12.

10. 9- Dualistic Economy:
Dualistic economy refers to the existence of
advanced & modern sectors with traditional &
backward sectors. Pakistani economy is also a
dualistic economy as other developing countries on
the following grounds: Co-existence of modern and
traditional methods of production in urban and rural
areas, Co-existence of wealthy, highly educated
class with a large number of illiterate poor classes
and Co-existence of very high living standard with
very low living standard.

11. 10- Deficiency of Capital:
Shortage of capital is another serious problem of
poor nations. Lack of capital leads to low per capita
income, less saving and short investment. National
saving is 10.7% of GDP and total investment is
12.5% of GDP in Pakistan. Rate of capital
accumulation is very low as 5%. On the other hand,
capital output ratio (COR) is very high which is not
desirable for economic development.

12. 11- In-appropriate Use of Natural Resources:
Mostly there is shortage of natural resources in
developing nations and this is also a cause of their
economic backwardness. Natural resources are
available in various poor countries but they remain
un-utilized, under-utilized or mis-utilized due to
capital shortage, less efficiency of labour, lack of
skill and knowledge, backward state of technology,
improper government actions and limited home
market. Natural resources contribute to the GDP
about 1%.

13. 12- Market Imperfection:
Market is imperfect in accordance with market
conditions, rules and regulations in the most of
developing nations. There exist monopolies, mis-
leading information, immobility of factors; hoarding
and smuggling etc. that cause the market to remain
imperfect.

14. 13- Limited Foreign Trade :
Due to backwardness, developing countries have to
export raw material because the quality of their
products is not according to international standard
ISO etc. Lower developing nations have to import
finished and capital goods. Imports of Pakistan are
$ 33.15 billion and exports are $ 20.474 billion that
cause into unfavourable balance of payment of $
12.676 billion.

15. 14- Vicious Circle of Poverty:
According to vicious circle of poverty, less
developed nations are trapped by their own poverty.
Vicious circle of poverty is also applied in case of
Pakistani economy. Due to poverty, national income
of Pakistan is low which causes low saving and low
investment. So, rate of capital formation is very low
results in “a country is poor because she is poor”.

16. 15- Inflation:
High rate of inflation causes economic
backwardness in poor nations. Due to high level of
price, purchasing power, value of money and
saving of the consumers tend to decrease. Rate of
inflation (CPI) is 10.8% in 2011-12 in Pakistan.