Zulfiqar Ali Bhutto

1971-1977

Luck and Bhutto

GDP grew by close to 5 percent in 1970s
The economic loss of East Pakistan was strongly felt- West
Pakistan exported 50 percent of its good to the eastern wing
and acquired a large amount of foreign exchange from its raw
material exports.
1973 International Increase in Oil prices
1973 saw a serious worldwide recession affecting Pakistans
exports.
Recurrent domestic cotton crop failures and floods in
1973, 1974 (along with pest attacks) and 1976, affected
Pakistans main exports.
Bhuttos government also laid the foundations for future
growth and development from which his successor benefitted

Background
Pakistan lost its east wing which became Bangladesh
It greatly effected the economy because East Pakistan was
main producer of Jute and other food crops to be exported

Bhutto became the first democratically elected Leader in

west, which was the separated Pakistan
He introduced Nationalization to the country

Nationalization
Definition:

Nationalization is a process of taking a private industry or

private assets into public ownership by a national government
or state.
Bhuttos Manifesto:
The means of production that generates industrial advance or
on which depends other industries must not be allowed to be
vested in private hands
All enterprise that includes infrastructure of national economy
must be in public ownership
The institution dealing with exchange like Banking and
Insurance must be nationalized.

First Phase
The first phase took place in the large manufacturing sector in
the capital and intermediary goods market.
31 key industrial units were taken over under the
nationalization but it was alleged that nationalization was
selective
Units included from
fertilizers, chemical, Steel, cement, automobiles and so forth

Second Phase
In the 2nd phase, he declared the nationalization of 13
Banks, over a dozen Insurance companies, 2 petroleum and 10
shipping companies
They said that the wealth of the nation must be used for the
benefit of the nation and cannot be allowed to concentrated in
bank of the few individuals

Third Phase
The third phase of Nationalization was 2000 cotton
ginning, rice husking and vegetable oil producing units
It eliminated the role of middlemen and it was rumored the
producer and consumers are at the mercy of these units
Producers were deprived of due share and consumers were
getting poor quality products at higher prices

Outcome
Bhuttos economic policy led to deindustrialization and it created progovernment lobby of landlords who were benefited from so-called land
reforms
Private sector investment was wiped out and remained only 15% of
what was in 1969
Nationalized industries were mostly inefficient and employed only 4% of
large scale industrial employment
The complete control of decision making was passed onto the hands of
chairman and top functionaries of political parties

Promises were broken

GDP fell to just 1.2% in 1972

Tax Policy
The government was not able to use the tax policies as an effective
instrument of resource mobilization
The essential inelasticity of tax system remained intact with its heavy
dependence on indirect taxes and certain duties rather than direct taxes
In 1975/76, there was 40% increase in indirect taxes over preceding year
Profits of nationalized enterprises fell off rather quickly as inefficiencies
crept in and growth slowed down
Collection from income and corporate tax during the 70s did not exceed
1% of GDP
There was only a marginal improvement in total federal and provincial
tax revenues from 10.6% of GDP in 1972 to 11.9% in 1976

Fiscal Policy
Increase in government expenditure on defence and administration
Defence Expenditure was 6.7% of GDP (1974-75) vs. 2.7% (1965)
Additional burden of Public sector losses
Ability to finance deficit from tax revenue constrained
Growing budget deficit is controlled by reducing subsidies on
consumption goods and increasing indirect taxation
However, not much success attained and Deficit financing led towards
Budget Deficit as a % of GDP
increased bank borrowing.
1950s

2-3%

1960s

4-5%

1972-77

8%

Budget Deficit
During the Bhutto Era, budget deficit averaged over 8% of GDP
compared with 2% to 3% in 50s & 4% to 5% in 60s.
Government began to borrow on large scale for current
expenditures

Trade Policy
Devaluation of Pakistani Rupee by 133%
Export bonus voucher scheme ended
Exports in 1972 increased by 153% and manufactured exports
were grew by 19%
Export refinance scheme was started by State Bank in 1973
and its lending rate was lower than the nominal banking rate
Import of luxury items banned
After 2 years of impressive growth, the last three years of
Bhutto saw a reverse trend

Trade Deficit
25000

20000
15000
Exports
Imports

10000

5000
0
1971

1972

1973

1974

1975

1976

1977

Monetary Policy
The average annual monetary growth rate 1972-77 was 18.8% (with the
lowest of 7.8% in 1975)
The State Bank raised the bank rates gradually from 5% to 10% during 1972 to
1977, also the interest on bank advances and bank deposits were adjusted
upward

Domestic factors

Non domestic factors

High monetary expansion was due

to high borrowings and financing
of the governments deficit
transaction

The international uncontrollable

factor responsible was the prices
of petroleum and other imports

Consumer price index shot up to a

18% thus sending the dream
manifesto of basic necessities for
all, down the drain.

Rupee was devalued and the

exchange rate went from Rs. 4.76
to a dollar to Rs. 11 per US $

Monetary Policy
45.00%
40.00%
35.00%
30.00%

Money Supply

25.00%
GDP Growth

20.00%
15.00%

Growth in producing
Goods

10.00%
5.00%
0.00%
-5.00%

1971

1972

1973

1974

1975

1976

1977

Government of Pakistan, Pakistan Economic Survey, 1995-96, Islamabad 1996

Inflation Pressure
High Inflation experience during Bhuttos regime
Imported inflation
The international Oil prices hike in 1973-74 and prices of
fertilizers also increased
Import cost of petroleum has increased by 300%
Domestic economic policies
There was an increase in currency circulation (deficit
financing) during 72-76
Inflation rose by 20% to the previous growth
Reduction of consumer good and doubling of prices

Subsidies
To Combat on Inflation, large subsidies were given on:
Wheat
Efforts were made to keep wheat prices relatively low and
procurement price was increased from Rs. 0.5 in 1969 to Rs.
1 in 1975 which was 100% increase
Fertilizers
Large direct subsidies on fertilizers and pesticides were
given for plant protection
Energy
Oil import bill was rising up although Gas prices were
maintained at low level to encourage use of an indigenous
resource. But incentives for increased production were not
attractive and there was great dependence on imported
energy.

Industrial Sector
Private sector confidence was totally eroded
Public sector investment jumped from 5% to 75% in Bhutto era
Public sector investment was concentrated in projects which had
no immediate pay off
Areas such as automobiles, cements and oil refining were
profitable while others incurred losses

Inefficiency of Nationalized units

Overstaffing, no accountability and corruption
Government was to appoint their own directors and there was no
parliamentary committee set up for scrutiny

Social Services - Education

New education policy was introduced

Free and universal education up to class 8
Technical education for all
An educational program for women in rural areas
This was the only sector which was thriving in the era with
improvements
Immediate focus was the nationalization of private
educational institutions and take over has effected the quality
of education adversely.
Total govt. expenditure on education increased from 0.8
million in 1972 to 2.8 million 1976
Female education on primary level did relatively well.

Bhuttos Era
1960s

1970s

GDP

6.77

4.6

Manufacturing

9.93

5.5

Agriculture

5.8

2.1

Service Sector

6.74

6.30

Commodity-

6.83

3.88

13.4

3.8

Producing Sector
Industry (Large scale)

End of Bhuttos era

Elections were held on March 7, 1977.

The Pakistan Peoples Party won those elections, but was accused by
their opponents, Pakistan National Alliance, of rigging the elections. On
March 14, 1977.
The Alliance started a series of nationwide protests. Talks between the
Alliance and Bhutto government were held in June 1977 and an
agreement was reached, but it could not be implemented.
Fresh elections were announced for October 15, 1977.
But on July 5, 1977, the Chief of Army Staff, General Muhammad Zia-ulHaq, imposed Martial Law and the elections were postponed.