Economics development of

Pakistan

Lecture Notes

Topic Including:
1. Economic Development of Pak.
2. Economic growth
3. Agriculture Development
4. Industrial Labour
5. Industrial Development
6. Sources of Pakistan
7. Foreign Aid
8. Case study
Prof. M. Faseeh Khan

Economics development of Pakistan-Notes 1 of 43 Sir M.Faseeh khan

CHAPTER NO: 1

ECONOMIC DEVELOPMENT
OF PAKISTAN

Economics development of Pakistan-Notes 2 of 43 Sir M.Faseeh khan

Definition of Economic Development
Economic development is a process of economic transition involving structural
transformation of an economy through industrialization, raising gross national
product and per capital income.
According to Lewis:
”Economic development means increase in output per head.”
According to Micheal Todaro:
”Economic development must be conceived of as a multi-dimensional process
involving major changes in social structures, people's attitudes, national
institutions, acceleration of economic growth and reduction of inequality.”
According to Kindleberger,
”Economic development means an increase in output of goods and services in
the economy”

It is more important than economic growth because economic development is

more comprehensive process than economic growth. Economic growth is a
quantitative term as it represents quantitative increase in the production of
goods, services and factors of production, whereas economic development is a
qualitative terms as it indicates continuous increase in real national income and
structural changes in the economy of a country.
Definition of Economic Growth
Economic growth means more production of goods and services growth is
measured in terms of an increase in real gross national product (GNP or GDP) or
an increase in per capital income.
According to Micheal Todaro:
”Economic growth is a steady process by which the productive capacity of an
economy increases overtime to bring rising levels of national output and income.”
Objectives of Economic Development
1. Increase of supply of food, clothing, health and education facilities.
2. Increase in standard of living of the people.
3. Increase in leisure, political freedom and equal opportunities of life.
4. Increase in capital formation that is new buildings and industries.

Measurement of Economic Development

Previously four methods including, national income method, per capital income
method, welfare method and social indicators method were used for the
measurement of economic development of a country but non of them provided
an acceptable answer.
According to Prof. Todaro:
”The Human Development Index method, which is prepared by United Nations
Development Program is the best method, which should be adopted by the nations and
organizations”.

This method includes the opportunities for education, health, income, employment,
environment and economic freedom.

Economics development of Pakistan-Notes 3 of 43 Sir M.Faseeh khan

Measurement of Economic Growth
1. Increase in the real gross national product.
2. Increase in the real per capital income.
3. Increase in the general welfare of the masses.
4. Increase in social, economic and human development.

Factors Needed For Economic Growth

Ability of an economy to produce more goods and services depends on the following
factors:
1. An increase in stock and quality of its capital goods.
2. An increase in quantity and quality of its labor force.
3. An increase in quantity and quality of its natural resources.
4. An efficient use of factor inputs so as to maximize their contribution to the expansion
of output, through improved productivity.
5. Development and introduction of innovative techniques and new products i.e.
technological progressiveness.
6. An increase in level of demand to ensure full utilization of the increased productive
capabilities of the economy.

Economic Factors Needed For Economic

Development
1. Natural Resources
Natural resources are one of the three main factors of production the other two are labor
and capital. Natural resources include area of land, forests, rivers, climate and mines. If a
country is rich in better quality of all natural resources, it will develop economically at a
fast speed.
2. Capital Formation
It is the process of adding net physical capital stock of an economy. Capital formation
creates productive potential for future production. Capital formation has three stages
namely
• savings
• financial institutions and capital market for mobilization of savings
• act of investment in machinery and buildings.
3. Specialization
Output is greater as a result of specialization. Specialization enables an economy to use
its scarce resources more efficiently, thereby producing larger volume of goods and
services. It increases the rate of economic development of a country.
4. Technology
Inventions and innovations reduce manufacturing and distribution costs. Technological
progress serves to change cost conditions in the long run; thus technological changes play
an important role in the economic development.
5. Transport and Communication
Efficient communication facilities increase the production capacity of all sectors of the

Economics development of Pakistan-Notes 4 of 43 Sir M.Faseeh khan

economy. It reduces cost of production, increases mobility of goods within and outside
the country.
6. Entrepreneurship
If an entrepreneurship is capable, skillful and trained then out put of his organization will
be greater. Entrepreneurship results in the introduction of new types of output, new
techniques and new sources of supply of inputs for business and industry.

Non-Economic Factors
1. Social Values and Attitudes
It includes culture, religion and life style of a society. Some societies are orthodox and do
not like material approach of life. Religion does not allow them to keep themselves busy
day in and day out for material prosperity. Most societies believe in festivals and
different cultural ceremonies. They do not prefer to save money; hence savings rate
reduces too much. In such societies material gains are not appreciated.
2. Political Stability
Strong and stable Governments can prepare five-year development plans, they can
enforce monetary and fiscal policies and change social attitudes and institutions, which
may be progressive one. The frequent changes in Govt. setup results in the lack of
concrete economic policy decisions.
3. Administrative Efficiency
Educated, trained, skillful and hardworking Govt. officers can push development of a
country at a very fast speed, whereas untrained administration of a country retards the
economic development.
4. Economic Freedom
Private ownership of resources and maximum freedom to deploy these resources in line
with profit signals create strong incentives to work hard. If every body is allowed to
participate in economic activity, then due to competition the rate of economic
development will increase.
5. Right of Private Property
Private ownership of the means of production results in the increase in supply of goods
and services. In order to own and accumulate profit and property, people work hard, thus
trade and business activity flourishes.

Difference between Economic

Development and Growth
Economic Development
Economic development is a qualitative term as it indicates continuous increase in the real
national income and structural changes in the economy of a country. It means increase in
output of goods and services in an economy. Economic development is more important
than economic growth because economic development is wider and more comprehensive
process than economic growth. Economic development is a process of economic
transition involving structural transformation of an economy through industrialization,
raising GNP and per capital income.

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Economic Growth
Economic growth is a quantitative term as it represents quantitative increase in
production of goods and services in an economy. Economic growth is a steady process by
which the productive capacity of an economy increase overtime to bring about rising
levels of national output and income. Economic growth is the name of more production.
Growth is measured in terms of an increase in real gross national product (GNP/GDP)
over time or an increase in per capital income.

Elements of Economic growth

The definitions of economic growth clearing bring out the following elements of
economic growth.
1. Long term process
Economic growth is a long run process involving a period of decades. A short term
increase in national income for a few years is not considered an economic growth.
2. RISE IN REAL PER CAPITAL INCOME
Economic growth is accompanied by substantial rise in real per capital income. This can
be possible only if the real per capital output is higher than the rate of growth of
population over a long period of time.
3. Greater Equality
There should be greater equality in the distribution of income & reduction of
unemployment in the country.

ECONOMIC DEVELOPMENT
Economic development & economic growth apparently are synonyms words but as a
term they differ in meaning from one another. Joseph Schumpeter defining economic
development as
“Economic development is the change which disturbs economic stagnation & which
replaces the situation & conditions already established.”
According to Kindle Burger
“Economic development refers to increase in production & positive change in
technological & institutional system according to which the pattern of production &
distribution of wealth becomes understandable.”
According to Friedman
“Economic development is the innovative process under which the basic structure of
economic system is changed.”

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DIFFERENCE BETWEEN ECONOMIC
DEVELOPMENT & ECONOMIC GROWTH
Usually the term economic development & economic growth are used synonymously
especially in the past but these terms are different from one another technically in several
respects.

1. Scope
Economic development is wider in scope & more c\comprehensive as compare with
economic growth. Economic growth is concerned only with changes in income where as
economic development is concerned with growth plus structural changes in the economy.
2. Human welfare
Economic growth is a process by which real national income & per capital move upward
quantitatively. Whereas economic development is the development of people rather than
development of things only. Economic development means reduction in poverty,
unemployment, inequality, diseases, illiteracy etc.
3. Qualitative/ Quantitative
Economic growth is a quantitative term as it represents quantitative increase in the
productions of goods, service & the efficiency of the factors of producti9ons of a country.
On the other hand of economic development is a qualitative term as it indicates
continuous increase in the real income of a country & structural changes in the economy.
4. Stage of development
Economic growth is the problem of development countries as they are desires to keep on
growing. Whereas in the less development countries economic growth & economic
development go side by side.
5. Key issue
Economic growth is the key of traditional economic, which states, “take care of growth &
poverty would take care of itself.” Whereas economic development is the key issue of
modern economic. It states. “Take care of poverty & growth would take care of itself.”
6. Importance
Economic development is more important than economic growth because economic
development is wider & more comprehensive process than economic growth.
7. Social changes
Economic growth is concerned with the increase in GNP & ignores development of
humans. It gives no importance to social changes. On the other hand the main concern of
the economic development is reduction in poverty, unemployment, inequality, diseases,
illiteracy etc.
8. Self reliance
Economic development reduces dependence on other hand countries & put the country on
the path of reliance as country’s real income increase over a long period of time & it
emphasizes balanced growth of the economy.
On the other hand economic growth does not ensure freedom from dependence on others.

Economics development of Pakistan-Notes 7 of 43 Sir M.Faseeh khan

CHARACTERISTICS OF UNDER DEVELOPED
COUNTIRES
OR DEVELOPING ECONOMY

Under developed countries are those which when compared with the advanced countries
are under equipped with capital in relation to their population & national resources.
1. poverty
In the less developed countries the standard of living is very poor. Basic needs like food,
education, cloths, housing & medical facilities are not available. People are leading
unhappy
2. Dependence on agricultures
Most of the less developed countries like Pakistan depend upon agriculture sector .the
majority of population is engaged in agriculture. But unfortunately agriculture is
hopelessly backward stage in the developing countries, the average land holding & per
acre yield is low.
3. Shortage of natural resources
There is a shortage of natural resources like land, forest, rivers etc. in the poor countries.
On the other hand these are not properly utilized to achieve prosperity, so National
product remains very low in these countries.
4. Population pressure
In the under developed countries the size of population is greater than the size of natural
resources. The rate of population growth is very high while
the rate of economic development is very low, so the high birth rate is the main obstacle
in the way of economic development.
5. Lack of capital
It is the main cause of poverty in the under developed countries. These countries cannot
establish the industries & cannot utilize resources due to non availability capital.
6. lack of technology
In the developing countries like Pakistan there is a use of low level technology in various
sectors. So the cost of production is very high & rate of production is very low.
7. inflation
The rate of inflation is high in all the less developed countries which affect the economic
performance. In these countries level of prices is raising is creating the problems for
produces & consumer.
8. poor performance of inductrial sector
In the under developed countries there is the hold of few families on the industrial sector.
The small scale industry has also been ignored. There is also a shortage of entrepreneurs.
9. Vicious circle poverty
A poor country is trapped in its own poverty. In the less developed countries productions
per capital income, saving & investment is low, so low investment leads to low
production.
10.Frequent changes in fiscal policy
The frequent changes are made many times in the same year in these countries that affect
the rate of investments adversely.

Economics development of Pakistan-Notes 8 of 43 Sir M.Faseeh khan

CHAPTER NO: 2
AGRICULTURAL DEVELOPMENT

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Main Features of Agriculture:
1. Main source of food supply.
2. Provides employment opportunities.
3. Major source of national income.
4. Provides raw material for industries.
5. Good market for agricultural machinery and equipment.
6. Market for fertilizers, pesticides and insecticides.
7. Main sour of foreign exchange earnings.
8. Expands industrial goods market.
PROBLEMS OF AGRICULTURE SECTOR
Pakistan economy is basically an agricultural. It contributes 24% of GDP. About 43.05%
labor force is engaged with this sector but there are many obstacles in the way of its
development.
1. lack of capital
Our farmers are poor & he cannot use the latest machines & better seeds. He always
remains under debt. So due to lack of capital production remains low.
2. leasing system
Our leasing system also discourages farmer. The landlord & the tenant both cannot take
interest in the improvement of land. Is it affect the production badly.
1. water logging
It is the main problem of the agriculture, in Pakistan a large area is affected by it which
has reduced our production, particularly is the province of sindh.
2. smuggling
It is estimated that 25% food grains of Pakistan is smuggled to India & Afghanistan. So it
does create shortage of food in Pakistan.
3. natural circumstances
In Pakistan our agriculture product also remains low due to the unfavorable
circumstances. For example in 1973 & 1980, floods destroyed our crops & now in July
2005 our crops once again destroyed by flood.
4. inadequate supply of water
In Pakistan irrigations facilities are limited & due to this we cannot cultivate our barren
lands so production remains low.
5. Increase in population
In Pakistan rate of population growth is faster than the food production. It creates the
food shortage problem & also the problem on unemployment.
6. small housing
In Pakistan land is divided into small units cannot be cultivated properly & per acre yield
remains low.
7. single cropping
There is low level cropping intensity in the farm sector. The area under double cropping
is limited and production remains low.
8. under utilization of land
In Pakistan there is only 25% cultivable land out of 80 millions hectares & there is a large
waste of natural resources. Due to this our production is low.

Economics development of Pakistan-Notes 10 of 43 Sir M.Faseeh khan

MEASURES TO IMPROVE AGRICULTURE
SECTOR OR REMEDIES
1. extension in cultivation
The agriculture product can be increase by increasing the cultivable area. Using the
barren lands & reducing the water logging can increase it.
2. intensive cultivation
It means to cultivate the same areas that already under cultivation by using better seeds &
modern techniques of production. It increase the production
3. use of machinery
There is a need of modern techno for the improvement agricultural product. The
government of Pakistan has also realized the importance of machinery. So agricultural
development bank & agricultural development corporation is providing the machinery on
low rates.
4. establishment of credit institutions
The government should establish the various financial institutions that may provide the
credit to the small farmers on low rate of interest. In Pakistan the government has
established the specialized credit institutions to provide the loan to the farmers.
5. market facilities
The government should improve the agricultural market. The rural area should be linked
with urban by the roads. The farmers may be able to get fair return of their product.

FARM MECHANIZATION
Farm mechanization means the use of machines & technology in the agriculture sector.
The use of tractors, tube wells & plant protection measures included in the farm
mechanization. So in the farm mechanization the use of machinery greater as compared
the labor.
IMPORTANCE OR ADVANTAGES OF FARM
MECHANIZATION
In Pakistan per acre yield is low because our farmer is not using the machines &
technology in the agricultural operation. Keeping in view the performance of farm
mechanization the government of Pakistan has decided to provide loans to the farmers for
the purchase of tractors & the tube wells. Its importance can be judge by the following
facts.
1. increase in the cultivable area
The use of machines like tractors & bulldozers will enable the farmer to bring more areas
under cultivation. A large area of barren land can be cultivated more easily.
2. irrigation facility
In Pakistan the canal irrigation facilities are inadequate. The installations of more tube
wells relieve the cultivators from uncertainly of water supply that increase the
production.
3. transportation facility
Tractor & trolley is also used for transferring the agricultural product from one place to
another. A huge amount of product due to non availability of transport.

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4. reduction of cost
The use of machinery decreased the cost of production & due to this the income of the
farmer increases. It also improves the quality of production.
5. saving of time
The use of machinery saves the time of the farmers that can be utilized for other
purposes. Many acres land can be cultivated with the tractor in few hours.
6. relief to farmers
The use of machinery has relieved the farmer from hard work & has increased the
production agriculture sector. Before the use of machinery pouching & thrashing was a
hard job.

MECHANIZATION OF
AGRICULTURE
Farm mechanization or mechanization of agriculture means the use of modern machines
& intensive cultivation techniques to get maximum output from the given area.

ARGUMENTS FOR MECHANIZATION

Many arguments are given in favor of mechanization of agriculture. These includes
1. multiple cropping
Mechanization saves time in preparing land, sowing crops & harvesting. Seeds, which
take less time to complete, cropping process, have been discovered. Thus mechanization
of agriculture has made multiple cropping possible.
2. increase in production
Mechanization means intensive cultivation, which increases per hectare yield. It also
enhances the efficiency of farmers.
3. decrease in cost of production
Mechanization makes multiple cropping possible, saves time, increases per hectare yield
by making more efficient utilization of inputs. All these factors reduce cost of production.
4. increase in irrigation facilities
Hydrological technology stores, manages & makes better use of water resources. Water is
considered life giving blood to crops. Moreover water management makes the supply of
water on time & in required quantity
5. control on plant diseases
Plant diseases & insect attacks cause heavy to crops. Plant protection technology has
proved a big help in controlling plant diseases sand insect attacks & use of herbicides
saves the crops from the adverse effects of herbs.
6. increase in economic growth
Since agriculture is the biggest sector of Pak economy. So if the farm mechanization
increases agricultural output, growth rate of Pak economy will also increase.

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CHAPTER NO: 3
INDUSTRIAL DEVELOPMENT

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Importance of Industries
Industries play a dominant role in the economic development of a country. Western
countries enjoy all comforts and luxuries of life due to higher productivity of goods and
services in their countries. This is due to industrialization. Unfortunately there were no
industries when Pakistan came into being but now wit the efforts of Govt. and the people
there is an improvement in this regard however more is required to be done.
The overall manufacturing sector continued on its strong positive trend during the current
fiscal year 2006-07. Overall manufacturing recorded and impressive and broad based
growth of 8.45 percent in 2006-07, against last year's growth of 9.9 percent. Large scale
manufacturing account for 69.5 percent of overall manufacturing registered an impressive
growth of 8.75 percent in the current fiscal year 2006-07 against last year's achievement
of 10.68 percent. There has been a slight decline in growth in the manufacturing sector
due to multiple reasons like reduced production of cotton crop, sugar shortage, steel and
iron problems and the last but not the least global oil prices. All of these reasons
contributed to reduced growth in 2006-07 but high levels of liquidity in the banking
system, an investment friendly interest rate environment, a stable exchange rate, low
inflation, comfortable foreign exchange reserves, stronger domestic demand for
consumer durables and high business confidence among other things will again boost the
manufacturing sector growth rate up to a reasonable level.
Importance of Industries in Economic
Development
1. Increase in National Income
Progress of industrial sector of the country results greater production of goods and
services. Output of goods and services is known as GDP. Increase in national income
increases per capital income of the people. Higher per capital increases general welfare of
people and standard of living of masses improves.
2. Increase in Employment Opportunities
Industries create may types of employment opportunities. Disguised unemployment
prevailing in agricultural sector is removed as labor moves for jobs to the cities. Increase
in employments results increased savings, which is utilized for further investment in
industries.
3. Increase in Productive Capacity
Industrialization increases productive potential. Specialization results in mass production
of superior quality goods at a cheaper cost. Greater employment opportunities increase
income; income increases demand for goods for goods and services and increases in
demand increases investment in industries and other sectors of economy. Effective
demand through acceleration principle increases investment and a small investment
through multiplier effect increases national income many times and in order to meet
demand of people productive capacity develops.
4. Development in Agriculture
Agriculture is backbone of the economy of Pakistan whereas agriculture itself depends
upon the progress of industries. Industries produce all inputs that are needed by
agriculture such as fertilizers, insecticides and machinery etc. Agricultural output such as
cotton, sugarcane, edible oils, fruits, tobacco etc becomes input for industries. All these

Economics development of Pakistan-Notes 14 of 43 Sir M.Faseeh khan

factors increase income of farmers. Thus agriculture and industries are inter-dependent
sectors of economy.
5. Increase in Government Revenue
Industries provide revenue to the Govt. through different sources such as tax on the profit
of the company, income tax, sales tax, excise duty, import duty, export duty. Thus
industries provide a greater proportion of taxes to the Govt.
6. Improvement in Balance of Payments
Exports of industrial goods increases foreign exchange earnings. Likewise processing of
raw material reduces expenditure on imports and foreign exchange earnings improve
balance of payments of Pakistan.
7. Economic Stability and Political Domination
Arms, ammunitions, communication appliances, vehicles and other defense requirements
are produced by domestic industries, which make defense of Pakistan strong.
Industrialization provides economic and political stability. It provides name and fame in
international community. Hence a political domination is achieved.

CAUSES OF INDUSTRIAL BACKWARDNESS IN

PAKISTAN OR
WHY INDUSTRIAL SECTOR OF PAKISTAN IS
BACKWARD
Following are the causes of industrial backwardness or the problem of industrial sector
1. british rulers policy
British rulers utilized the natural resources of this area for their own economic
development. They did not establish the industries in the area.
This policy effected badly. The used the raw material of this area in their own countries
which causes a huge loss to us.
2. lack of mineral resources
There is a lack of mineral resources like oil & coal that are necessary for industrial
development. So the rate of industrial development is very slow in Pakistan because we
are facing the problems of mineral shortage.
3. lack of capital
In Pakistan rate of saving is low due to mow per capital income. Due to low savings rate
of investment is very low. It is the main obstacle for industrialization
4. lack of credit facilities
In Pakistan there is a lack of financial institutions that may provide credit to the industries
according to the needs. Unlikely finance companies failed & they created new problems.
5. nationalization of industries
In 1972 the government nationalized the various private industrial units & it discouraged
the private investment. Our private sector not flourished according to there desires.
6. lack of transport facilities
In Pakistan transport system is underdeveloped. The available facilities are costly &
insufficient. Roads & rail transport conditions is miserable.
7. energy crises

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The source of power like thermal & atomic energy are limited in the country. There is
shortage of electricity for industries.
8. lack of industrial research
Due to lack of industrial research improvement in the production techniques have not
been made which has increased the cost of production & reduced the demand of
production.
9. attitude of the labor
In Pakistan the quality of labor is poor & the spirit of work is absent. The political parties
also use them for their own benefits. It has discouraged the industrial production.
10.defective planning
There is lack of effective planning in industrial sector. There is no coordination among
the different wings of industrial sector. It increased the cost of production.

ROLE OF PRIVATE SECTOR IN THE

DEVELOPMENT OF INDUSTRIAL SECTOR
Pakistan economy’s is a mixed economy. The private & public sectors are walking side
by side. If we examine the history of Pakistan, we will find that private sector has played
very effective role in the development of industrial sector. In order to encourage the
private sector government of Pakistan also provide various facilities, during 1947 to 1965
1. The government provides tax concessions to the private sector.
2. To provide basic facilities to the private sector ten industrial estates were setup.
3. Export bonus scheme was introduced to increase the exports.
4. Import licenses were issued to private sector to import machinery.
5. The commercial banks & insurance companies also helped the private sector.
Down fall of private sector
In 1972 government of Pakistan the ten basic industries. This step of the government
discouraged the private sector & it reduced the private investment. In 1970-71 private
investment was Rs.1358 million. While in 1976-77 it decreased up to Rs.650 million.
Following were the main cause of its downfall
1. the industrialist families were disgraced
2. Fear for further nationalization created unrest in the private sector.
3. The nationalized industries were not paid real compensation.
Reveal of private industrial sector
The government of Late Mr. Zia Ul Haq adopted various measures to revive the private
industrial sector.
1. The government adopted the De nationalized policy to encourage the private
sector.
2. For underdeveloped areas government announced the tax holiday for five years
for the new industries.
3. The government also issued ordinance for the protection of private investment.
Present government policy
The present government policy has also assured the private sector that there will be no
more nationalization. The government has also decided to provide various incentives to

Economics development of Pakistan-Notes 16 of 43 Sir M.Faseeh khan

the private sector. The government has also allowed the establishment of private
investment companies. The foreign investors also invited for investment.

PIDC (Pakistan industrial development of Pakistan)

It was setup in 1950. In 1952 it started its work. It has completed 60 projects in 1973
Capital structure
It was setup with authorized capital of Rs.10 million
Performance
During the period of 1952 to 1974 it expended the industrial base. It developed the heavy
industries like fertilizers, shipbuilding, jute mills, cement factories etc. PIDC was
regarded a symbol of inspiration to the private sector.
Problems
The nationalization of 1772 affected performance of PIDC very badly. Now it is also
facing the financial problems. It has to depend on the annual development plans funds. It
cannot setup projects valuing Rs.50 laces or above without government approval.
Suggestion
The government should increase the funds for PIDC. The PIDC should be encouraged to
established agro base industries. It should also be encouraged to take smaller projects.
The losses suffered by PIDC units in backwardness areas should be forgiven.

IDBP (INDUSTRIAL DEVELOPMENT BANK OF

PAKISTAN)
It was setup in 1961. Its paid up capital was Rs.1570000. its is an important source which
supplies the funds for industrial development. It provides medium term & long term
credit facilities. The loans are granted for the establishment of new industrial units & for
the replacement needs of the old units. The major objectives of this bank are to spread the
benefits of industrialization in all the classes of the people. It issues the loans on behalf of
the government & provides finance in the form of equity. It also encourages the
establishment of industries in the less developed areas of the country. It pays due regard
to the export oriented industries & those industries which re based on domestic raw
material. It is acting as a monitoring agency of World Bank & Asian development for
small scale industrial units.

ROLE OR IMPORTANCE OF FOREIGN

INVESTMENT
The importance of foreign investment in the industrial development of the country is
controversial. The traditional economic arguments given in support of private investment
are as under
1. fills savings investment gap

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The flow of foreign private investment in the country helps in filing the resource gap
between the targeted investment & locally mobilized savings. The country is thus able to
achieve growth & development targets.
2. filling trade gaps
The in flow of foreign private capital contributes in filling the gap between targeted
foreign exchanges requirements & those derived net export earnings.
3. raising of revenue for development
The government can mobilize financial resources for development projects by taxing the
projects operated with the help of private foreign investment.
4. encouragement to local enterprise
The inflow of private foreign investment also encourages the local enterprises to invest
more in the development projects.
5. rise in production
Private foreign investment not only helps in raising production of goods but also
employment to the people in the country.

COTTAGE INDUSTRY
It means the industry which is run in the home usually with the help of family members.
Simple implements are used & workers are not paid wages.

SMALL SCALE INDUSTRY

In the small scale industry the male members of the family along with the hired labor
work together. In small industries, electric power & improved machines used. In Pakistan
the firm employing less than 10 people is classified as small.

IMPORTANCE OF COTTAGE & SMALL

SCALE INDUSTRIES
The following are the advantages of small scale industries
1. increase in industrial product
There is a shortage of manufactured goods in our country. We spend a lot of foreign
exchange on the import of these goods every year. So we should increase the small scale
& cottage industry to remove the shortage of these goods.
2. increase in foreign exchange earnings
The various kinds of goods like carpets & sports are sold in the international market. We
earn a lot of foreign exchange by exporting these goods.
3. use of industrial waste
The waste of large scale industries like cotton & steel can be used by small scale
industry. In this way we can save a lot of capital.
4. establishment of small capital
We can establish these industries with small capital. In Pakistan most of the people are
poor so they can start the production with small capital.
5. reduction of population pressure

Economics development of Pakistan-Notes 18 of 43 Sir M.Faseeh khan

The development of small scale industry reduces the pressure of population on land &
increases the income of the people.
6. reduction in migration
The unemployment labor force is migrating to the other countries. If we expand the small
scale industry, it can serve the nation instead of serving other countries.

PROBLEMS OF SMALL SCALE OR

COTTAGE INDUSTRIES
The following are the problems of small scale or cottage industry
1. lack of finance
The cottage & small scale industry is facing the problem of capital shortage. The
financial institutions are not ready to provide the credit on low rate of interest. It is an
obstacle in the way of small scale industry development.
2. competition
There is stiff competition between the large scale industry & small scale industry &
usually small scale industry suffers a loss.
3. import policy
The import policy of the government is also not favorable for the small scale industry. It
discourages the small scale industry.
4. problems of raw material
The owner of the small scale industry cannot get enough raw materials what he wants.
Poor quality of raw material is provided on higher prices to small industry.
5. old methods of production
Small industries use old machines & old methods of production. Due to this the quality of
small scale industries product is very poor. So they are helpless to sell the product at low
rate.
6. lack of qualified staff
The cottage industries cannot employ the qualified engineers & economists. It reduces
the quality of product.
7. shortage of electricity
There is large number of villages where electricity is not available. The non availability
of electricity is an obstacle in the way of small scale industries.
8. lack of standardization
The mixing of good & bad product creates problems of marketing inside & outside the
country. The product is not standardized.
9. high cost of production
In Pakistan the cost of cottage industry is very high. Because the process of production is
very slow & raw material is also bought at higher prices. Rates of electricity charges are
also increasing.
10. lack of shortage facilities
The small scale industries in Pakistan particularly in villages are lacking storage
facilities. A huge product is wasted due to this problem.

Economics development of Pakistan-Notes 19 of 43 Sir M.Faseeh khan

MEASURES TO SOLVE THE PROBLEMS OF
COTTAGE & SMALL SCALE INDUSTRIES
The government of Pakistan has taken various steps to solve the problems of cottage &
small scale industries
1. credit facilities
The government of Pakistan has established corporation to provide the loan to these
industries at lower rate of interest. Further commercial banks are also providing loan to
develop these industries.
2. small scale industries corporation
In 1955, government of Pakistan setup small scale Industries Corporation to develop the
small scale industries. Now each province in Pakistan has setup small industries
corporation board. This corporation are playing very effective role in improving the
growth of small scale industries.
3. industrial estates
The government has setup the number of industrial estates in different cities. These areas
have been provided facilities like roads, banking & transport facilities to encourage the
small industries.
4. testing laboratories
The government has established the testing laboratories to maintain the prescribed
standard of cottage product. A central laboratory has been setup at Karachi.
5. supply of designs
The government also provides the new models & designs to producers to improve the
quality of cottage industry.
6. publicity
The government has setup the display centers & showrooms inside & outside the country
to increase the sale of cottage industry product.
7. facility of raw material
The federal government imports the road material for the cottage industries from the
abroad & provides them at a lower price to encourage them.
8. carpets centers
For the training of weavers the small corporation has been setup carpet training
development centers. These are working very useful.

PROBLEM OR CAUSES OF LABOR

UNREST IN PAKISTAN
Labor unrest is generally common among the developing countries. Pakistan is also
facing this problem & it has the following reasons.

Economics development of Pakistan-Notes 20 of 43 Sir M.Faseeh khan

1. low wage rate
The present wage rate is very low, but the prices level is very high in the country.
Workers are not in a position to meet the basic needs. The employers reject the demand
for more wages. It may result in strikes.

2. poor bargaining power

The bargaining power of the workers is poor as compared to the employer. The employer
takes the advantages of this weakness & pays the low wages. It creates unrest among the
workers.
3. negative attitude of the employers
The attitude of the employer is rude & inhuman with workers. It creates heart burning
among the workers.
4. extra work without payment
This policy of the employer also leads to unrest to labor. For the extra workers should be
paid at higher rates, but it is not paid generally.
5. insecurity of services
Sometimes terminations of the services mat lead to strikes & agitation among the workers
& unemployment takes place.
6. dual unions
An employer generally forms the counter unions in the factory & adopts the policy of
divide & rule. The labor dislikes this policy of the employer.
7. lack of understanding
There is a distance between workers & employers. They have no friendly relationship so
the employer is not ready to listen anything about the problem of the labor.
8. lack of facilities
In most of the industries there is a lack of housing transportation & schooling facilities. It
creates unrest among them.
9. lack of entertainment
There is no facility of entertainment in the industries for the workers. It also a cause of
unrest in the labor. Recreation facility is necessary for the workers.
10.lack of profit sharing
In most of the industrial units in Pakistan employers are not ready to provide the small
share from profit to the workers. It creates unrest among them.

CHAPTER NO: 4
RESOURCES OF PAKISTAN.

Economics development of Pakistan-Notes 21 of 43 Sir M.Faseeh khan

Natural Resources
National resources are backbone for the industrial development of a country. These
resources play a dominant role in accelerating in the pace of progress and prosperity.
Economic development of an economy is not possible without the availability of natural
resources. Natural resources are divided into minerals, forests and hydle power/energy.

Economics development of Pakistan-Notes 22 of 43 Sir M.Faseeh khan

Mining and Quarrying
Pakistan has a widely geological frame work, ranging from pre-Cambrian to the present
that includes a number of zones hosting several metallic minerals, industrial minerals,
precious and semi-precious stones. Although many effort have been made in developing
geological products, institutional, academic and Research and Development
infrastructure, much remains to be done to enable this sector to take full advantage of its
endowment. As a result of various efforts devoted for the development of mineral sector,
resources of several minerals have been discovered over the last many decades, including
world class resources of lignite coal deposits at Thar, Sindh, porphyry copper-gold
deposits in Chagai, Balochistan, Iron ore deposits at Dilband, Balochistan, Lead-zinc
deposits in Duddar, Balochistan, gypsum, rock salt, limestone, dolomite, china clays etc
in the Indus Basic, ornamental and construction stones in the various parts of the country
and about 30 different gems and precious stone deposits in northern Pakistan.
Mineral industry in Pakistan shows that over the last few decades this sector has been
allocated very small amount - 0.45% to 2.46% of the total public sector expenditure since
first five year plan reflecting its contribution to Gross National Product (GNP) of just
around 0.5%. The mineral resources of a country are valuable means and measures of its
economic and industrial growth. These are still more important for Pakistan because of its
favorable geological environment and a large number of mineral resources in the country.
Considering that substantial scope exists for the development uncertainties, it requires
Government support and recognition of mineral sector.
The Govt. is fully committed to making the mineral sector in Pakistan one of the most
profitable for the country. During the current fiscal year, mining and quarrying sector has
registered a growth rate of 5.7 percent as against 4.58 percent of last year. The increased
growth was propelled by strong growths recorded in magnetite-30%, dolomite-26.1%,
Limestone-25.2% and chromites. To make this sector thrive more in the upcoming year
the Govt. has already started various initiatives which is evident from the discovery and
development of world class copper-gold deposits in Chagai, Balochistan by Australian
Firms that would fetch $500 million to $600 million per year during the lives of these
mines Development of Thar Coal field, one of the largest good quality lignite deposits in
the world on completion, would provide additional source of energy.

2. Mines and Mineral Development Department

This department was created in Sindh in 2001 in pursuance of the National Mineral
Policy, 1995. The department has taken all necessary steps for further establishing its
field office. The province of Sindh has large quantities of minerals. In all there are 24
minerals which are being mined at present. The province also has large quantities of coal
and granite reserves. The granite area which was previously inaccessible has now been
connected with Karachi by network of roads and other facilities like Rest House etc. It is
also proposed that Granite Park should be established at Nagarparkar. Karunjhar Range
of Mountains in Nagarparkar has huge reserves of granite and other rock types of
extractable thickness which has the potential to compete the international market.

Mineral Resources
Economics development of Pakistan-Notes 23 of 43 Sir M.Faseeh khan
Mineral Resources of Pakistan
1. Natural Gas
Natural gas is used in domestic cooking, thermal power stations and steel furnaces and as
a raw material for fertilizer industry and in CNG kits for transport purpose. It is used
almost in every industry. It is found in Sui, Attock, Pirkoh and Kandhkot.
2. Petroleum

Petroleum or Crude, oil is used in transport, power-generating stations, in iron and steel
furnace Petroleum is known as black liquid gold. Of the total requirement only 40 percent
is produced with the country and the rest is imported from abroad. Crude oil is found at
Jhelum, Rawalpindi, Badin, Attock and Mianwali.
3. Coal
Coal is used in thermal power station and in furnaces for making bricks. About 80
percent of cement industry has now switched over to indigenous coal from furnace oil
that has saved considerable foreign exchange being spent on the import of furnace oil.
Quality of coal is not very good. It is available at Dandot, Makerwal, Harnai, Lakhra
(Sindh). The coalfield in the Sindh province has huge coal resources of about 175 billion
tones. In view of the anticipated shortfall of electricity and other energy resources during
the next 10 years, the maximum utilization of coal would be required in power generation
and gasification. To ascertain commercial viability of mining coal from Thar (Sindh),
German consultants have completed a mining feasibility on a specific block in Thar
Coalfield.
The coalfields in the Sindh province have coal resources estimated at 175 billion tones.
Due to high cost of imported energy, government has decided to enhance the share of
coal in the over all energy mix from 5 percent to 19 percent by 2030. Over 80 percent of
coal was consumed by the brick kiln industry thus reducing the supply available for
power generation. Approximately 80 percent of cement industry has also switched over
to indigenous coal from furnace oil that has saved considerable foreign exchange being
spent on the import of furnace oil. The conversion of cement industry from furnace oil to
coal has generated a demand for 2.5 to 3.0 million tons coal per annum.
4. Chromites
Chromite is used in making engineering tools and stainless steel. It is found at Chaghi,
Muslim Bagh, Malakand and Zhob.
5. Copper
Copper is used in electrical equipment, power and communication transmission lines. It is
found at Sandak, Chaghi.
6. Gypsum
Gypsum is used in the manufacture of cement, fertilizers and Plaster of Paris. It is found
at Hazara, Kohat, D.G.Khan and Dandot.
7. Iron Ore
Iron ore is used in making steel and engineering products. Quality of iron ore is not of
good standard. It is found at Kalabagh, Chitral, Hazara, Makerwal and Khuzdar.
8. Rock Salt
Rock salt is used for cooking as well as in the manufacture of soda ash. It is also used in
textile and tanning industries. It is found at Khewra, Warcha and Kalabagh.

Economics development of Pakistan-Notes 24 of 43 Sir M.Faseeh khan

9. Marble and Granite
Marble is used for decoration in construction industry. It is available in great quantities at
various places of the country.
10. Lime Stone
Limestone is used in manufacture of cement, bleaching powder and glass and paint
industries. It has rich deposits in the country. Lime stone is found at Hyderabad, Potohar
and at Khewra Salt range.

Forest Resources
Forest Resources of Pakistan
Forests play a very important role in the economy of a country. There is shortage of
forests in Pakistan. Pakistan has 4.01 million hectares covered by forests, which is about
5 percent of the total land area. Eighty-five percent of this is a public forest, which
includes 40 percent coniferous and scrub forests on the northern hills and mountains. The
balance is made up if irrigated plantations and Riverain forests along major rivers on
Indus plains, mangrove forests on the Indus delta and trees planted on farmlands. Though
the forest resources are meager, it plays an important role in Pakistan's economy by
employing half a million people and fulfills one-third of the nation's energy needs. Forest
and Rangelands support about 30 million herds of livestock. Forestry sector plays an
important role in soil conservation, regulates flow of water for irrigation and power
generation, reduction of sedimentation in water conveyances and reservoirs, employment
and maintenance of ecological balance.
Total forests area of Punjab, NWFP, Sindh and Balochistan is 0.48, 1.33, 0.84 and 1.36
million hectares respectively. Pakistan being an agricultural country relies on sustained
supplies of water and fertile soil. This is only possible when our forests and watersheds in
the high hills are intact. Pakistan being a forest deficient country is facing timber and fire
wood shortage to the tune of about 29 million cubic meters. There is need to increase the
area under tree cover, not only to meet material needs of growing population but also to
enhance environmental and ecological services being provided by the forests.

Importance of Forests
Importance of Forests in the National Economy
1. Raw material for paper, sports, silk, furniture and tanning industries.
2. Medical herbs and seeds for pharmaceutical industries.
3. Recreation facilities for tourism and camping.
4. Timber/woof for fire.
5. Reduce floods intensity.
6. Increase fertilizer of land.
7. Provide employment opportunities.
8. Causes rains.
9. Control soil erosion.
10. Fodder for cattle.
11. Provide employment opportunities.

Economics development of Pakistan-Notes 25 of 43 Sir M.Faseeh khan

12. Chemicals such as turpentine oil.
13. Leaves of forests provide natural fertilizers.
14. Forests are great source of recreation, natural beauty and attraction.

Energy.
Pakistan's economy has been growing at an average rate of 7.6 percent per annum and the
government is making efforts to sustain the momentum going forward. Knowing well
that there exists strong relationship between economic growth and energy demand
government is making efforts to address the challenges of rising energy demand. These
include import of piped natural gas from Iran and Turkmenistan, import of LNG, increase
in oil and gas exploration in the country, utilizing 175 billion tones of Thar coal reserves,
setting up of new nuclear power plants, exploiting the affordable alternate energy
resources and overhauling existing power generation plants to enhance their generation
capacity. In addition to increasing supply, there is a need to promote efficient use of
energy resources as well. At present Pakistan meets its energy requirement of over 75
percent from domestic resources, around 50.4 percent of its energy need is met by the
indigenous gas, 28.4 percent by domestic and imported oil and 12.7 percent by hydro
electricity. Coal and nuclear contribution to energy use is limited to 7% and 1%
respectively. While the widening of energy supply and demand gap remains a challenge
for Pakistan, it also provides viable investment opportunities for both local and
international investors.

Main Energy Sources

1. Hydel power.
2. Natural gas.
3. Petroleum.
4. Coal.
5. Atomic Energy.

Importance of Power/Energy
1. No industry can run without power/energy. All machines require energy to operate
them.
2. No agricultural machine can function without it. Tube wells, tractors, trolleys,
threshers all require energy i.e. electricity, diesel or petrol.
3. No transport and communication service such as trucks, cars, railways or aero plane
can operate without energy/petrol/diesel etc.
4. No domestic appliances such as electric bulbs, television, fridge, juicer and blenders
can function without the use of energy/electricity.

ROLE OF MINERAL RESOURCES IN THE

ECONOMIC DEVELOPMENT OF PAKISTAN
Although the share of mining & quarrying in the GDP of Pakistan is nominal about 0.5%
still mining plays very important role in the economic development of Pakistan.
1. source of energy

Economics development of Pakistan-Notes 26 of 43 Sir M.Faseeh khan

Minerals are source of energy, petroleum, natural gases & coal are very important source
of energy & the energy is the base of almost all economic activities.
2. Development of means of transportation & communication
Energy is the most important factor for the development of means of transportation &
communication. Most modern highways, railways system, air systems, water transport
system all are useless without the use of energy. Moreover most of transportation is made
from mineral raw materials.
3. development of industry
All the developed countries are industrialized & economic growth & developed of a
country depends upon the industrial development. Industrial development in itself
depends upon the availability of mineral resources in several respects.
4. Raw material
Coal, iron, petroleum, natural gas, gold & other minerals provide raw material to almost
all the manufacturing sectors & sub sectors.
5. Development of agriculture
Agriculture is the biggest contributor to GDP in Pakistan. The development of agriculture
depends upon water resources, agricultural machinery, fertilizers & other such things all
are mineral or made from mineral sources.

ROLE OF POWER RESOURCES IN THE

ECONOMIC DEVELOPMENT OF PAKISTAN
Power resources play powerful role in the economic development of a country
1. Development of industry
Power is one of the most important pre requisites of industrial development. The use of
machines has become essential in industry & no machine works without energy.
2. Development of agriculture
Agriculture is the most important sector of Pak economy. From preparation of land for
cultivation to the transportation of crops to the markets power resources are needed.
3. transportation
Transportation is an infrastructure of economic development. For modern system of
transportation power resources are necessary, no vehicles can run without power
resources are needed.
4. increase in efficiency
The use of energy lessens the intensity of hotness & coldness & the use of different
technology has increased working efficiency of humans.
5. Use of technology
In one way or the other energy is used in the development of technology. If it is
developed without the use of energy but it cannot be employed without the use of energy.
6. increase in working hours
The use of powers resources not only has increased the working efficiency, but also has
increased working hours. Illumination in the houses, factories, shops, offices has made
possible to work even at night. In short energy is a sign of life & pre requisites to
generate economic activities.

Economics development of Pakistan-Notes 27 of 43 Sir M.Faseeh khan

POWER (energy) resources of paksitan
The following are resources of energy in Pakistan
1. electricity
The total installed capacity of electricity generation stood at 19389 MW in 2004-05. At
present WAPDA, KESC, KANUPP & chashma nuclear power plant are the four main
public sector organizations, transmissions & distribution of electricity in the country. The
independent power project IPPs are also involved in power generation only.
2. Hydro electricity
It is produced from waterfall & there is great potential of developing it in Pakistan. At the
time of independence only 60 MW was being produced. Now the installed capacity of
hydro electricity if 6463 MW. The main hydra power stations are terbela, mangla,
warsak, gazi brotha & small hydels.
3. Thermal electricity
It is generated with three sources
A. Coal based projects
150 MW coal based projects has been set near Lakra coalfield. Huge deposits of coal
have been found in the Thar deserts. Work on 300 MW projects is progressing with the
help of china.
B. Natural gas based projects
At Shahdara 85 MW, Faislabad 144 MW & Quetta 68 MW is the main gas based
projects.
C. oil based projects
There are several oil based projects generating electricity both in the public & private
sector & KESC. The total thermal electricity generation in 2004-2005 was 4835 MW.
4. Nuclear power plants
There are two nuclear power plants, which have installed capacity of 462 MW. These are
Karachi electric supply corporation KANUPP & chashma nuclear power plant. Private
sector also generates electricity.
5. non conventional sources
There are four non conventional power sources.
a. Biogas
It is produced from animal. It is very cheap sources of energy but it is not being
produced in Pakistan on commercial basis.
b. Solar energy
The sun provides 170000 Mw of power to earth. Pakistan has large quantity of
daily sunshine. It can make the best use of this free gift of nature for rural
electrification. For heating water, & pumping of water for irrigations purpose.

c. wind energy
It is another cheap source of energy. But in Pakistan only four medical winds
pampers & one wing power generation systems has been setup.
d. water falls
Running water of streams & water falls are also used to run small machine in
some hilly areas of Pakistan.

Economics development of Pakistan-Notes 28 of 43 Sir M.Faseeh khan

ELECTRICITY GENERATION &
DISTRIBUTION IN PAKISTAN
There are four main public sector organizations, which are involved in power generation
& distributions of electricity in Pakistan. These organizations are WAPDA, KESC, and
KANUPP & Chashma nuclear power plant. In the private sector the IPP’s (independent
power projects) are involved in the power generation.
1. growth of electricity consumers
The number of consumers has increased due to rapid urbanization extension of electricity
to rural areas. The number of consumers has increased to 14.7 millions by March 2005.
2. village electrification
The rural village electrification program is an integral part of the total power sector
development. This is to increase the productive capacity & socio economic standard of
70% population living in the rural areas. The number of village provided electricity by
March 2005 stood at 87698.
3. electricity consumption by economic groups
House holds is the largest consumer of electricity consuming about 45% of total
consumption followed by industry using 29.8%, agriculture 13%.
4. Privatization of WAPDA
In order to bring improvement on long-term basis the management & finance of WAPDA
will be privatized.
5. national electric power regularly authority
The NEPRA has been set up for the regulation of generation, transmissions &
distributions of electricity power.

CHAPTER NO: 7
FOREIGN AID AND ECONOMIC ASSISTANCE

Economics development of Pakistan-Notes 29 of 43 Sir M.Faseeh khan

FOREIGN AID
Foreign economic aid is the flow of resources & technical assistance from a developed
country to the fewer developing countries. The loans are provided to meet the gap
between domestic savings & investment. Various international institutions like IMF,
IBRD, and IDA are also providing loans.
SOURCES OF FOREIGN AID

Economics development of Pakistan-Notes 30 of 43 Sir M.Faseeh khan

1. the Colombo plan
It provides technical assistance to the south Asian countries. The development assistance
is providing by U.S.A, U.K, and Canada & Japan etc.
2. IBRD
It is also called World Bank. It is providing long term to more than 124 countries. It
provides the loans for electricity, water supply, railroads etc. it is also providing foreign
aid to Pakistan.
3. united nation agencies
It provides long term loans, grants & specialist service to the less developed countries. It
provides assistance through its various specialized agencies.
4. Pakistan development forum
It is consisting of eleven countries for the development of Pakistan. It has provided
sufficient amount in various five years plans. It is the single larges source, which
provides 84% of the total foreign aid.
5. PL-480
U.S.A provides surplus agricultural product to the poor countries. Pakistan has received
177 million dollar aid for the import of food various times.
6. the agency of international development
It is the aid subsidiary agency of World Bank. To provide infrastructure facilities it
provides the loan for long term. The loan is repaid in the local currency.
7. the international finance corporation
The IFC is also subsidiary agency of World Bank. It provides the loans to private
enterprises in various countries.
8. aid form socialist countries
The socialist countries are also helping the non socialist countries like Pakistan. It
provides the loan for various projects.

ADVANTAGES OR IMPORTANCE OF
FOREIGN AID
1. increase in production
The inflow of capital & technology increases the production capacity of the various
sectors of the economy. It also helps to establish the new industries in the countries.
2. closes the trade deficit
The less developed countries balance pf payment remains deficit. So this deficit is met by
the foreign aid. The export earning in these countries are falling short of import
requirements. So the foreign exchange gap is met with the inflow of capital.

3. increase in employment
With the help of foreign aid different development plans can be started. It increases the
rate of employment in the country. For instance, when new factory will be established
new workers will be also employed.
4. increase in real wages

Economics development of Pakistan-Notes 31 of 43 Sir M.Faseeh khan

The foreign resources are very helpful in improving the efficiency of the workers. So
their real wages will increase according to their marginal product. Inflow of technology
improves the per capital output.
5. increase in government revenue
The government taxes the profits earned on foreign investment, in this way revenue of
the state increases. As the new projects are started by the foreign investor’s revenue is
also increased.

DISADVANTAGES OF FOREIGN AID

1. increase in burden of debt
The burden of debt increases as the time passes. In this regard we can examine the record
of Pakistan & Brazil. The debt burden of Pakistan is increasing day by day. Debt
servicing as a percentage of export earning was 16.8%.
2. payment of interest
The rate of interest is very high in the world market & it payment becomes a problem for
the borrower country. Major portion of the export is used on the debt servicing in these
countries.
3. danger of freedom
Foreign aid also brings political pressure with it which is harmful for the independence of
country. Even done country cannot frame the foreign policy according to his own wishes.
4. Tied loans
Sometimes conditions are accompanied with foreign aid, which becomes harmful for the
dons. For example in the period of Mr. Bhutto 131% IMF suggested devaluation of
currency. Pakistan accepted because economic aid was needed.
5. foreign dependence
If once the country borrows the foreign aid becomes dependent forever. So it is better that
one should maximum rely upon the domestic resources.

WORLD TRADE ORGANIZATION (WTO)

In the 8th Uruguay round held in April 1994 an agreement was signed by 124 member’s
nations of GATT to set up world trade organization (WTO). The world trade organization
(WTO) agreement made effective form January 1, 1995.
BIRTH OF WORLD TRADE ORGANIZATION (WTO)
World trade organization (WTO) was established on January 01, 1995. The purpose was
to replace. GATT, which was merely a legal arrangement among the members nation to
relax & deregulate trade. The world trade organization (WTO) administers the new
global trade rules establishing the rule of law in international trade.

ROLE OF WORLD TRADE ORGANIZATION (WTO)

The world trade organization (WTO) membership has increased to 146 countries is
playing an important role in administering the new global trade rules in the following
manner. It is facilitating the multiple trade agreement signed between the nations. It is
playing the role of watch dog in the spheres of trade in goods, trade in services, foreign

Economics development of Pakistan-Notes 32 of 43 Sir M.Faseeh khan

investment, intellectual property rights concerning the trade etc. it also perform the duty
of settlement of trade disputes among nations.

PAKISTAN & WORLD TRADE ORGANIZATION (WTO)

The opinion is divided over the issue of gains to be achieved from liberalization of trade
to be made effective from 2005. It is claimed particularly from the government sector that
the setting up to WTO will bring about substantial gains in the world trade. Increased
income from the liberalization of trade, improved market access, greater export
opportunities.

Advantages of Foreign Aid

Foreign economic assistance is very important for economic development of Pakistan.
The advantages or benefits of such assistance are as under:
1. Foreign Loan Bridges Saving Gap and Balance of Payments
In Pakistan due to low national income and poverty, per capital income is very low hence
rate of savings is very low. Low savings rate cannot help in capital formation and
economic development. Similarly imports are greater than exports therefore there is
always deficit in balance of payments. Foreign loan, aid not only bridges domestic
savings gap but also helps in overcoming balance of payments problem.
2. Development Requirements are Met
Pakistan wants to develop agriculture, industry, power and natural resources of the
country but due to lack of foreign exchange, required technology could not be imported.
Foreign aid and loan facilities help Govt. to import the required technology and basic raw
material with which different sectors of economy can develop and due to utilization of
modern machines productivity is enhanced. Thus productivity of various sectors of
economy increases.
3. Establishment of Modern Economic and Social Infrastructure
Economy of a country cannot grow without the presence of economic infrastructure i.e.,
availability of gas, power, transport and communication. Similarly social infrastructure
(i.e., education, training and health facilities), is also essential. These infrastructure
facilities require local and foreign capital, which is very limited in Pakistan. Foreign aid
helps government to establish these infrastructures. When construction and other
development activities are started in the country, these generate employment
opportunities for the people.
4. Level of Technological Increases
With the help of foreign aid which is in the way of technical collaboration or project aid,
modern machines are used, which produce super quality goods in greater numbers. Hence
by using goods of high quality consumers are benefited.
5. Meeting Emergencies
Foreign aid helps Pakistan in emergencies. Whenever there is an earthquake, flood or
some other natural calamities, Food Aid program provides Pakistan different types of
food items such as wheat, dry milk etc.
6. Defense Modernization
Pakistan wants to modernize its defense capabilities, which can only be possible provided
foreign aid is available. Modern Fighter Planes, F-16 and other modern warfare

Economics development of Pakistan-Notes 33 of 43 Sir M.Faseeh khan

technology can only be secured with the help of foreign aid and loan, as Pakistan do not
have sufficient foreign exchange to finance this crucial requirement of the country.
7. Increase in Tax Revenue
When foreign loan is utilized for established of industries and social overheads then
economic activities grow, goods and services are produced, foreign trade is increased, all
these factors increase Govt's income through different tax sources.

Disadvantages of Foreign Aid

Foreign economic assistance and Foreign Aid result in the following disadvantages.
1. Increase in Foreign Aid's Debt Servicing
Pakistan has already borrowed too much foreign loans and is still borrowing. Now in
order to pay interest Pakistan is. Thus debt burden is continuously increasing.
2. Increase in Production Cost
In results in the increase in the cost of project because of interest, heavy remuneration
and other fringe benefits, which are given to foreign experts.
3. Habit of Dependence on Foreign Loan and Misuse of Aid
Aid receiving countries including Pakistan do not exert and do not make policies to
develop their economy with their own domestic resources. They do not pay attention for
development of technology. They just become entirely dependent on others. Major
portion of aid particularly commodity aid is misappropriated by the concerned
Government officials.
4. Exploitation by Donor Countries
Sometimes loan giving countries interfere in the defense and foreign affairs of Pakistan.
That's why it is said that there are always political strings attached to the bilateral loans.
5. Commodity Aid Discourages Domestic Agriculture Output
When aid is in terms of commodity such as wheat etc, which many times is provided at a
very nominal price, discourages local production of that commodity because of higher
cost of production within the country. This situation discourages local agricultural
production.
6. Dependence of Imported Raw Material from Donor Country
If donor country has assisted in establishing imported substitution industry then raw
material for the industry will have to be imported from loan given country otherwise
industry will not continue its production because particular raw material is not available
locally. This causes heavy foreign exchange burden on economy.
7. Project Tied Loans for Less Priority Projects
Sometimes a donor country may give project tied loans for those projects which for the
time being may not be on the priority list of borrower and may not be very much feasible.
In this way donor can burden the economy of borrower country because principal amount
as well as interest has to be paid while project is not needed and is not worth while.
8. Savings Investment and Balance of Payments Gaps
Pakistan is obtaining foreign aid for bridging gap between domestic savings and
investment and also to improve balance of payments position but till now it has not been
able to accomplish this task, rather both gaps are continuously increasing.
9. Proportion of Tied Aid and Severity of Hard Terms Increased
As the time passes by, it is becoming difficult for Pakistan to obtain foreign aid. The

Economics development of Pakistan-Notes 34 of 43 Sir M.Faseeh khan

donor countries have increased terms of aid by raising rate of interest and the repayment
period has reduced. Too much sureties and guarantees are not demanded from Pakistan
by donor countries.

List of Websites of Pakistani

Companies
 Abbott Laboratories (Pak) Limited
 Adam Sugar Mills Limited
 Agriauto Industries Limited
 Ahmed Hassan Textile Mills Limited
 Ahmed Spinning Mills Limited
 Allwin Engineering Industries Limited
 American Life Insurance Company (Pak) Ltd
 Arif Habib Securities Limited
 Asim Textile Mills Limited
 Askari Commercial Bank Limited
 Atlas Battery Limited
 Atlas Honda Limited
 Attock Cement Limited
 Attock Petroleum Limited
 Attock Refinery Limited
 Azgard Nine Limited
 Baba Farid Sugar Mills Limited
 Babri Cotton Mills Limited
 Baifo Industries Limited
 Balochistan Particles Boards Limited
 Bank Alfalah Limited
 Bannu Woolen Mills Limited
 BOC PakistanLimited
 Bolan Bank Limited
 Bolan Castings Limited
 Bosicor Pakistan Limited
 Buxly Paints Limited
 Centaury Paper & Board Limited
 Century Insurance Company Limited
 Cherat Cement Company Limited
 Clariant Pakistan Limited
 Clover Pakistan Limited
 Commercial Union Life Assurance (Pak) Ltd
 Crescent Boards Limited
 Crescent Commercial Bank Limited
 Crescent Jute Products Limited
 Crescent Steel and Allied Products Limited
 Crescent Sugar Mills & Distillery Ltd
 Crescent Textile Mills Limited
 Custodian Management Services Limited
 Dadabhoy Cement Industries Limited
 Dadabhoy Sack Limited
 Dadex Eternit Limited

Economics development of Pakistan-Notes 35 of 43 Sir M.Faseeh khan

  Dandot Cement Company Limited
 Dawood Hercules Chemical Limited
 Dawood Lawercepur Limited
 Dewan Automotive Engineering Limited
 Dewan Cement Limited
 Dewan Hattar Cement Limited
 Dewan Salman Fiber Limited
 Dewan Sugar Mills Limited
 Din Textile Limited
 Dominion Stock Fund Limited
 Dynea Pakistan Limited
 EFU Life Assurance Limited
 Ellcot Spinning Mills Limited
 Emco Industries Limited
 Engro ChemicalsLimited
 Exide Pakistan Limited
 Faran Sugar Mills Limited
 Fateh Textile Mills Limited
 Fauji Cement Company Limited
 Fauji Fertilizer Bin Qasim Limited
 Fauji Fertilizer Company Limited
 Faysal Bank Limited
 Fecto Sugar Mills Limited
 Ferozsons Laboratories Limited
 Ferozsons Laboratories Limited
 FFC-Jordan Fertilizer Company Limited
 First Capital Mutual Fund Limited
 First Capital Securities Corporation Limited
 First Habib Bank Modaraba
 First Imrooz Modaraba
 First International Investment Bank Limited
 First Investec Modaraba
 General Tyre & Rubber Co. of Pakistan Limited
 General Tyre & Rubber Company Ltd
 General Tyre Limited
 Genertech Pakistan Limited
 Ghandhara Industries Limited
 Ghani Glass Limited
 Gharibwal Cement Limited
 Ghazi Fabrics International Limited
 Ghazi Febrics Intl.
 Godoon Textile Mills Limited
 Gul Ahmed Textile Mills Limited
 Gulistan Spinning Mills Limited
 Gulistan Textile Mills Limited
 Habib Insurance Company Limited
 Hashmi Can Company Limited
 Hinopak Motors Limited
 Honda Atlas Cars (Pakistan) Limited
 Hub Power Company Limited
 Husein Sugar Mills Limited

Economics development of Pakistan-Notes 36 of 43 Sir M.Faseeh khan

  ICI Pakistan Limited
 Indus Dyeing & Manufacturing Company Limited
 Indus Motor Company Limited
 International Housing Finance Limited
 International Industries Limited
 Investec Mutual Fund Limited
 Investec Securities Limited
 Ittehad Chemicals Limited
 J. A. Textile Mills Limited
 Jahangir Siddique & Company Limited
 Janana De Malucho Textile Mills Limited
 Japan Power Generation Limited
 Javedan Cement Limited
 Jehangir Siddiqui & Company
 Karachi Electric Supply Corporation Limited
 Karachi Electric Supply Corporation Limited
 KASB Bank Limited
 Kashmir Edible Oils Limited
 Kohat Textile
 Kohinoor Energy Limited
 Kohinoor Genertek Limited
 Kohinoor Sugar
 Kohinoor Textile Mills Limited
 Kohinoor Weaving Mills Limited
 Kot Addu Power Company Limited
 Lakson Tobacco Company Limited
 Landmark Spinning
 Leiner Pak Gelatine
 Lucky Cement Limited
 Maple Leaf Cement Factory Limited
 Maqbool Textile Mills Limited
 Mari Gas Company Limited
 Meezan Bank Limited
 Mehran Sugar
 Merit Packaging Limited
 Metropolitian Bank Limited
 Millat Tractors Limited
 Murree Brewery Company Limited
 Muslim commercial Bank Limited
 Nagina Cotton Mills Limited
 Nakshbandi Industries Limited
 National Refinery Limited
 National Tanneries of Pakistan Limited
 Natover Lease & Refinance Limited
 NetSol Technologies Limited
 New Jubilee Insurance Company Limited
 Nimir Industrial Chemicals Limited Limited
 Nishat (Chunian) Limited
 Nishat Mills Limited
 Noon Pakistan Limited
 Noon Sugar Mills Limited

Economics development of Pakistan-Notes 37 of 43 Sir M.Faseeh khan

  Olympia Spinning & Weaving Mills Limited
 Orix Investment Bank
 Orix Leasing Pakistan
 Otsuka Pakistan Limited
 Packages
 Pak Electron Limited
 Pak German Prefabs Limited
 Pak Leather Crafts Limited
 Pak. German Prefabs Limited
 Pakistan Engineering Company
 Pakistan Gum & Chemicals Limited
 Pakistan House International Limited
 Pakistan Industrial & Commercial Leasing Limited
 Pakistan International Airlines
 Pakistan National Shipping Corporation
 Pakistan Oilfeeds Limited
 Pakistan Petroleum Limited
 Pakistan Refinery Limited
 Pakistan Reinsurance Company Limited
 Pakistan Services Limited
 Pakistan State Oil Company Limited
 Pakistan Synthetics Limited
 Pakistan Telecommunication Company Limited
 Pakistan Tobacco Company Limited
 Paramount Spining Mills Limited
 PICIC Commercial Bank
 Pioneer Cement Limited
 Plastobag Limited
 Premier Insurance Company of Pakistan Ltd.
 Premium Textile Mills Limited
 Prime Commercial Bank Limited
 Prosperity Weaving Mills Limited
 Qayyum Spinning Limited
 Quetta Textile Mills Limited
 Rafhan Maise Products Co. Ltd
 Rupali Polyester Limited
 S.G Fibre Limited
 Safa Textiles Limited
 Saif Textile Mills Limited
 Salfi Textile Mills
 Sapphire Fibres Limited
 Sapphire Textile Mills Limited
 Saudi Pak Commercial Bank Limited
 Sazgar Engineering Works Limited
 Searle Pakistan Limited
 Security Investment Bank Limited
 Security Papers Limited
 Shabbir Tiles & Ceramics Limited
 Shadab Textile Mills Limited
 Shahmurad Sugar Mills Limited
 Shakarganj Mills Limited

Economics development of Pakistan-Notes 38 of 43 Sir M.Faseeh khan

  Siemens Pakistan Engineering Limited
 Sindh Abadgar's Sugar Mills Limited
 Sitara Chemical Industries Limited
 Southern Electric Power Company Limited
 Sui Northern Gas Pipelines Limited
 Sui Southern Gas Company Limited
 Sunrays Textile Mills Limited
 Suraj Cotton mills Limited
 Tariq Glass Industries Limited
 Tata Textile Mills Limited
 Telecard Limited
 Thal Limited
 The Karachi Electric Supply Corporation Limited
 Treet Corporation Limited
 TRG Pakistan Limited
 Tri-Pack Films Limited
 Tri-Pak Films Limited
 Tritex Cotton Mills Limited
 Trust Investment Bank Limited
 Trust Securities and Brokerages Limited
 Umer Fabrics Limited
 United Bank Ltd
 United Insurance Company of Pak Ltd
 United Sugar Mills Ltd
 Universal Insurance Company Ltd
 Usman Textile Mills Limited
 Wah Noble Chemicals Limited
 Wazir Ali Industries Limited
 World Call Limited
 Worldcall Communications Ltd
 Wyeth Pakistan Limited
 Yusuf Textile Mills Limited
 Zahidjee Textile Mills Limited
 Zeal Pak Cement Factory Limited
 Zulfeqar Industries Limited

Case study
THE MOTORCYCLE INDUSTRY IN PAKISTAN
PAKISTAN’S INDUSTRY
In Pakistan, motorcycle assembly started in 1964 when the local Atlas Group
started assembling Honda motorcycles in Karachi. Currently in addition to Honda,

Economics development of Pakistan-Notes 39 of 43 Sir M.Faseeh khan

 the other Japanese brands being manufactured in Pakistan include Yamaha and
Suzuki. The most successful design among the Japanese brands has been the
Honda 70CC which enjoys tremendous popularity on account of its fuel economy,
resale and low maintenance features.
The Pakistan Automotive Manufacturers Association (PAMA) was formed in
1984. Initially three motorcycle OEMs namely Atlas Honda, Dawood Yamaha
and Suzuki Motorcycles Pakistan became PAMA members. The other founding
members of PAMA were OEMs manufacturing Passenger Cars, Tractors, Light
Commercial Vehicles (LCV’s), Truck & Bus manufacturers etc. In the 1990’s,
three more OEMs joined PAMA, these were, Fateh Motors, Pakistan Cycle
Industrial Cooperative Society Limited and Siagol Qingqi Motors Ltd
(subsequently renamed Qingqi Motors Ltd.).

The Non-Japanese OEMs entered the Pakistani market in the late 1990’s by
introducing clones of the popular Honda 70CC motorcycle using critical parts and
components imported from China. For the basic frame and other low tech parts
they used the local vendors (part suppliers) whose development had been
facilitated by the Government of Pakistan’s indigenization / localization programs
for the motorcycle industry. Other than the original 3 Non-Japanese OEMs who
became PAMA members, the new entrants preferred to form their own trade
bodies and as such are referred to in this study as Non-PAMA members.
Presently there are 43 OEMs producing various brands of motorcycles. Out of
these 6 are PAMA members and the remaining 37 Non-PAMA members. The
Engineering Development Board (EDB) issues licenses to the OEMs for
undertaking assembly operations. The Pakistan Standards & Quality Control
Authority (PSQCA) is responsible for monitoring the production of quality
products by the OEMs. As such both the EDB and the PSQCA play an important
role in the establishment, licensing and monitoring of the technical operations of
the motorcycle assemblers.

The entry of the Non-PAMA OEM’s with a competitive price difference of

approximately 25% (Rs.52,000 Vs. Rs.68,000 for the Honda 70CC in 1999)
and continuous price reductions (2006 price for average Non-PAMA OEM
70CC clone is Rs.40,000 Vs. Rs.54,000 for a Honda 70CC). This has seen
the total motorcycle market increase from 120,627 in 2001 – 02 to 751,667 in
2005 – 06. Table 1, shows the sales increases in the past 5 years.

Table - 1
Sales of Motorcycles in Pakistan
Year Production in Units % Growth
2001 – 02 120,627 11.00
2002 – 03 175,169 45.00
2003 – 04 371,007 112.00

Economics development of Pakistan-Notes 40 of 43 Sir M.Faseeh khan

 2004 – 05 570,085 54.00
2005 – 06 751,667 32.00
Source: EDB
Figure -1
Growth in motorcycle sales in Pakistan
800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0
2001 – 02 2002 – 03 2003 – 04 2004 – 05 2005 – 06

Production in Units

Table – 2
Relationship between per capita income and new motorcycle
purchases – Pakistan
Per
Annual New %
Capita Population
Year Demand Motorcycle Change
income in 000’s
Units Per Person decrease
US$
2001–02 492 120,627 143,825 1193
2002–03 579 175,169 146,845 838 (30%)
2003–04 657 371,007 149,929 404 (52%)
2004–05 742 570,085 153,077 269 (33%)
2005–06 847 751,667 156,291 208 (23%)
Source: Economic Survey, GoP, EDB, Census, Bureau and GoP
Figure -3
Income in per capita income & its relationship to new motorcycle
purchase

Economics development of Pakistan-Notes 41 of 43 Sir M.Faseeh khan

 1400

1200

1000

800

600

400

200

0
2001–02 2002–03 2003–04 2004–05 2005–06

Per Capita income US$ New Motorcycle Per Person

Figure -4
Projected Demand for New Motorcycles
2,000,000

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0
2006-07 2007-08 2008-09 2009-10 2010-11

Total Annual Demand Units

Economics development of Pakistan-Notes 42 of 43 Sir M.Faseeh khan

 Table – 2
Relationship between per capita income and new motorcycle
purchases – Pakistan
Per
Annual New %
Capita Population
Year Demand Motorcycle Change
income in 000’s
Units Per Person decrease
US$
2001–02 492 120,627 143,825 1193
2002–03 579 175,169 146,845 838 (30%)
2003–04 657 371,007 149,929 404 (52%)
2004–05 742 570,085 153,077 269 (33%)
2005–06 847 751,667 156,291 208 (23%)
Source: Economic Survey, GoP, EDB, Census, Bureau and GoP

__________________________

Economics development of Pakistan-Notes 43 of 43 Sir M.Faseeh khan