Ayub khan economic regime

Economy Of PakistanAyub Khan Era (1958-1969)

Syeda Laila Ali JafferyBBA V

Topics to be covered

▪ Personal Profile▪ Economic Condition of Pakistan▪ Economic Strategy▪ Monetary Policy▪ Economic Performance of Pakistan▪ Policies– Agriculture Sector– Industrial Sector

Topics to be covered

▪ Foreign Trade Policy▪ Balance of Payments▪ Balance of Trade▪ 1965 War▪ Ayub Khan’s Foreign Policy▪ Demerits of Ayub’s Regime

Personal Profile

Personal Profile

▪ Born on May 14, 1907 in Rehana Village, near Haripur, Hazara, Pakistan

▪ Studied at Aligarh Muslim University▪ Joined the army of British Colonial Powers in

1926▪ Fought in World War II as Commissioned Officer.▪ Attained the rank of Brigadier General in 1947.▪ In 1950, became first Pakistani to lead army as

its Commander-In-Chief▪ Army took control of the country in 1958 &

appointed General Ayub Khan as Chief Martial Law Administrator.

▪ Soon after, Ayub khan declared himself as President

Economic Condition of Pakistan

Economic Condition of Pakistan

▪ Country was in total disarray.▪ Had no economic weapon in their armory to fight the battle of its

recovery.▪ Growth rate of 11 years (1959-70) was high as 6.25%.▪ Created an environment where the private sector was encouraged to

establish medium and small-scale industries in Pakistan.▪ Opened up avenues for new job opportunities, the economic graph of

the country started rising.▪ He was the first Pakistani ruler who attempted to bring in land reforms

but the idea was not implemented properly.▪ Labor, law and administrative reforms were also introduced during his

regime.

Economic Strategy

Economic Strategy

▪ The commitment to rapid industrialization.

▪ The benefits of economic growth would drop down to the poorest segments of the society.

Key priority▪ Achieve rapid rates of economic

growth and price stability.▪ Develop Pakistan’s agricultural and

industrial capacity.

Monetary Policy

Monetary Policy (1958-1969)

▪ The year 1959-60 marked the beginning of a phase of liberalization and deregulation of the economy and substantial flow of resources from abroad.

▪ This included gradual liberalization of import policy and introduction of Export Bonus Scheme.

▪ From this period, government granted liberal concessions to the private sector to establish industries in the country resulting an increase in monetary supply.

▪ First plan (1955-60) - the monetary expansion amounted to Rs. 1.96 Billions.▪ Second plan (1960-65) – the money supply increased by Rs. 2.80 Billions.▪ The bank credit both in the private and public sector expanded to Rs. 1.62

Billions during the first and during the second plan period it was equal to Rs. 4.77 Billions.

Economic Performance of Pakistan

Economic Performance of Pakistan

▪ The country’s economic performance in terms of growth rates of the important sectors include:

Agriculture

Manufacturing

Balance of payments situation

Price Index

Growth Trends

Years GDP Agriculture Industrial Sector

1950s 3.1 1.6 7.71960s 6.8 5.1 9.91970s 4.8 2.4 5.51980s 6.5 5.4 8.21990s 5 4.4 5.5

Policies in the Agriculture Sector


▪ One of the salient features of Ayub Khan Regime was the reversal of the neglect in agricultural sector that had been there in the early 1960s .

▪ A series of reforms strengthened the Pakistani Agriculture Sector.

▪ Rural infrastructure was increased to improve the overall availability of irrigation water and the amount of cultivated land.

▪ The two factors that contributed to the revival of agriculture were :– The Green Revolution, characterized by the introduction of high

yielding varieties of rice and wheat.– The mechanization and diffusion of technology among agriculture

products.


▪ Between 1959 and 1964, agriculture grew at an overall rate of 3.7% and by 6.3% between 1965 and 1970s.

Improved seeds

Agricultural Machinery

Tube well irrigation

Policies in the Industrial Sector


▪ Focus on reconstruction and development of agriculture based industries.

▪ Priority of Ayub’s administration was to achieve the rapid rate of economic growth and develop Pakistan’s industrial capacity.

▪ Emphasized on private sector.▪ Removal of administrative controls and price stability to

provide a macro economic environment conducive to private investment.


▪ In February 1959, Government announced a new industrial policy. The main emphasis was put on the utilization of raw materials available in the country to benefit small and medium scale industries.

▪ Among the major steps that were taken in the promotion of industrialization were:– Establish amen of Financial and Development Corporations– Industrial Trading Estates– Price Controls– Investment Promotion Bureau– Encouragement of Private Enterprises


▪ Establishment of Financial & Development Corporations:– PIDC played an important role– Set up with a capital of 1 billion – PIDC was put in charge to promote the following industries:▪ Jute▪ Paper-board and newsprint▪ Heavy engineering▪ Fertilizers▪ Sugar▪ Cement▪ Textiles, etc


▪ Industrial Trading Estates:– Four new estates for small industries were established in

Bahwalpur, Gujarat, Larkana and Peshawar– It helped in the process of industrialization by handling the initial

difficulties faced by new industrialists.▪ Price Controls:– In October 1958, the government took several measures to check

the rising spiral of prices.– Price controls covering a large number of consumer goods and

industrial raw materials were imposed.– These measures led to a fall in prices and improvement in supply

position of a large number of articles.


▪ Investment Promotion Bureau– In order to attract foreign investment the

government set up an investment promotion bureau in April 1959.

– The main function of this organization was to sanction proposals for the establishment of new industries involving foreign investments.

– To provide guidance to industrialists and serve as a clearing house for problems of foreign investors in the matter of procurement of land, building materials, water, power, railway etc.


Encouragement of Private Enterprise

– Establishment of investment promotion bureau to give information and guidance to private investments.

– Industrial legislation with a view to facilitating the growth of industry with minimum government interference.

– Giving further incentives for encouragement of exports.

Other Measures

- SUPPLY OF CREDIT▪ Liberally provided to the industrial sector

by both the commercial banks & the specialized credit institutions

- FOREIGN AIDS AND LOANS▪ Foreign aid and loans received from

friendly countries, played a dominant role in industrial and economic development of Pakistan. Without such aid the remarkable growth in that era could not be possible

-

Other Measures

FOREIGN INVESTMENTS▪ Liberal policies in tax concession and other measures

taken by government, the inflow of capital increased▪ According to state bank of Pakistan foreign private

investments increased

▪ 1956 13.20 Mn▪ 1959 16.59 Mn▪ 1965 26.11 Mn▪ 1966 26.28 Mn

Foreign Trade Policy

Foreign Trade Policy

▪ Export Bonus System▪ The export sector responded dramatically to the policies.▪ Growth rates of exports jumped to7% per annum.▪ Large diversification of the composition of Pakistan’s export

portfolio, with cotton and jute slowly replacing primary commodities.

▪ Ninety percent of the export growth in the 1960's was due to the increase in manufactured export, which grew at an annual rate of 20 %.

▪ Significant dismantling of import licenses and hence, greater ease in importing industrial raw material and spare parts for industry.

Balance of Payments

Balance of PaymentsFew reasons for the negative balance of payment.Import of Capital Goods

Industrial base in the early times was almost negligible. – In order to build the economy, Pakistan had to import capital goods like machinery, etc

for rapid industrialization .– Heavy import of machinery considerably increased the import bill and effected the

balance of payment on current account.

Increase in import payments of Fertilizers– Due to the increase in prices of fertilizers, edible oil, there was a sharp increase in the

import payments.

Consumption oriented Society– Pakistan as a whole is consumption oriented society. – The import of consumer goods was 16% of the total import.– Most of the consumer goods imported from outside could easily be manufactured in

Pakistan and ease the situation in balance of payment.

Balance of Trade

Balance of Trade(In crores Rupees)

Year (Jun-July) Exports Imports Balance

1959-1960 184.27 246.10 -61.83

1964-1965 240.77 537.42 -296.65

1968-1969 330.54 489.66 -159.12

1969-1970 333.71 609.81 -176.10

Balance of Trade

Deficit Financing:▪ Trade deficit in the early times was financed by the foreign aid▪ At the beginning of the first five-year plan, about 19% of Pakistan’s

import and 35% of its development expenditure were being financed by foreign aid.

▪ At the end of the plan period, these proportions had risen to 31% & 38% respectively.

▪ Halfway through the second plan, these proportions had shoot up to 56 and 42 percent respectively.

▪ In 1967-68 foreign aid was financing 50% of imports and 34% of development expenditures.

1965 War

1965 War

– The Indian aggression in 1965 had implications for the economy, including monetary policy.

– There was a significant interruption in the inflow of foreign assistance, which in the past had significantly contributed high growth rate, particularly in the industrial sector and private investment.

– Also budget deficit rose from Rs. 2.1 billion in 1964-65 to Rs 5.2 billion in 1966-67.

– Difficulties created by Indian aggression were compounded by an extraordinary deficiency, which affected the country’s main crops for two years.

– Thus in 1966-67 the growth rate of economy slowed down to 3.1% the lowest in ten-year period ending 1969-70.

Ayub Khan’s Foreign Policy

Ayub Khan’s Foreign Policy

▪ The objectives in that era were the security and development of Pakistan and the preservation of its ideology.

▪ While retaining and renewing the alliance with the United States, Ayub Khan emphasized his preference for friendship, not subordination, and bargained hard for higher returns to Pakistan.

▪ Other than ideology and Kashmir, the main source of friction between Pakistan and India was the distribution of the water of the Indus River system.

▪ As the upper riparian power, India controlled the head works of the repartition irrigation canals.

▪ After independence India had, in addition, constructed several multipurpose projects on the eastern tributaries of the Indus.

▪ A compromise that appeared to meet the needs of both countries was reached during the 1960; called “Indus Water Treaty”.

Demerits of Ayub’s Regime

Demerits of Ayub’s Regime

▪ The 1960's also marked Pakistan’s increase reliance on foreign aid.▪ Another negative feature of Ayub's industrial and trade policies were the

deliberate repression of wages.▪ In spite of success in industrial diversification and export performance, Ayub

Khan’s policies had several shortcomings.▪ High rates of effective protection continued to make Pakistani industry

inefficient, and a number of international studies documented Pakistan as a worst example of industrialization.

▪ Unlike other countries, Pakistani use of tariffs and quotas was not carefully planned.

▪ The paradox of industrialization was, the regime resulted in a progressive worsening in the balance of payment account with the increase in the imports of machinery and other industrial raw materials.

Economy & Finance

Ayub khan economic regime