TOPIC:

THE LOST DECADE

1988 1999 REGIME

Presented by:
Hasan Mehfooz
14648

HIGHLIGHTS
Introduction
Political

Instability
Economic Instability
Structural Adjustment Program
Privatization and Liberalization
Fiscal Performance
Monetary Policy
Exchange Rate
Agriculture Sector
Manufacturing and Industry
Trade and Balance of Payments
Adverse affects of SAP
Conclusion

INTRODUCTION
Democracy returns to Pakistan.
Period of Political and Economic Instability.
B/w !988-99 Four General Elections with both

Benazir & Nawaz returned to power twice.

As a result of 1988 elections, Benazir Bhutto

became the first female Prime Minister of

Pakistan.
None of the Govts could fulfilled their period

once.
Post 1988 period is called Era of Structural
Adjustments
Since 1988 to date IMF and WB has been

POLITICAL INSTABILITY
Year

Prime Minister

President

Care taker P.M

Actions

1988

Benazir
Bhutto

Ghulam Ishaq Khan

None

Ghulam Ishaq Khan

Ghulam Mustafa
Jatoi

1990

Nawaz Sharif

1993

Benazir
Bhutto

Farooq Ahmed Laghari Moinuddin Qureshi

1996

Dissolved

Farooq Ahmed Laghari Malik Meraj Khalid

1997

Nawaz Sharif

Resigned

None

13th Amendment

Nawaz Sharif

Muhammad Rafiq
Tarrar

None

Nuclear State

Dissolved

Muhammad Rafiq
Tarrar

Millitary

Musharraf Scene

1998

1999

Economic In-stability

IMF Loans
BOP Deficit borrow from abroad to finance it
Prices (Inflation)
Investment fell
Unemployment Increased
Poverty Rises
Economic Growth didnt take place
Fiscal Deficit (very few tax payers)
Debt Rise Service Debt budget deficit

StructuralAdjustment
Adjustment Program
Structural
Program
Even

though SAPs are designed for individual

countries but they have common guiding
principles and features which include:

Export led-growth
Privatisation
Liberalisation
Efficiency of free market

General Features of SAP:

Countries

to devalue their currencies against

the dollar
Lift import and export restrictions
Balance their budgets and not overspend
Remove price controls and state subsidies
During

the period 1988-2000, Pakistan entered

into nine different agreements with the Fund.

Major focus of SAP is on Fiscal Deficit :

How?? BY improving the balance of
payment position, cutting the fiscal deficit,
lowering inflation and increasing growth
Arenas around which these policies resolve
are:
Trade

policy
Fiscal policy
Public enterprises
Financial sector
Industrial policy
Agriculture

Structural Adjustment Program

The core policy measures during 1988-1999 were : devaluation,

exchange rate, interest rate, trade liberalization, public enterprise
reform, subsidy withdrawl etc.
reducing budget deficit, bringing down public expenditures through
elimination of subsidies, increasing Foreign exchange reserves,
reducing external debt, controlling inflation, reducing domestic
borrowing for budgetary support and currency devaluation.
But the larger OBJECTIVES of 1988 programs were to improve
financial internal and external balances, increase average savings
rate and promote private sector investment. The annual targets
were:

Reduce budget deficit to 6.5%of GDP in 1988-9 and further to 4.1% in

1990-1 (by high taxation and a decrease in Public Expenditure)
Reduce inflation from 10% in 1988-9 to 6.5% in1990-1
Reduce external current account deficit
Increase gross foreign exchange reserves
Sustain real GDP growth at 5.2% in 1998-9to 5.5 % in1990-1

Structural Adjustment Program

During

1994-97 additional taxes of 140 billion

were imposed.
Higher sales tax and indirect taxes with no
significant increase in Direct Tax Payer Growth.
Govt. via indirect taxation failed to achieve target
of 4%.
Moved to Reduction in Public Expenditure.
Should have been in areas of wasteful and
recurrent expenditures or cut in defense BUT
Largest cut came in the areas of Development.
In 96-97 the allocation for Development exp was
a mere 105 Billion which was further reduced to
85 Billion only

PRIVATIZATION&LIBERALIZATION
PRIVATIZATION&LIBERALIZATION

The Privatization program began under SAPs in 1990 by

Nawaz Sharif when investment and Deregulation committee
was established to identify enterprises to be privatized.
The Committee state a principle that govt should completely
retire from production of industrial goods. 109 industrial units
should be privatized and some national commercial banks.
The committee was dissolved and replaced by Privatization
Commission in January 1991 to supervise process.
In early phase, the program was unsuccessful with few bidders
for targeted firms.
In OCT 1991, the government advertised all the105 industrial
units for immediate sale.
One of the reasons for privatization was to raise revenue and
by NOV 1992,67/109 units have been issued letters for sale
and 49/67 had been transferred to private sector and amount
if Rs6bill was received by govt.

PRIVATIZATION&LIBERALIZATION
PRIVATIZATION&LIBERALIZATION

The three sectors to be privatized were energy,

telecommunications and four commercial banks.(MCB
and ABL)
By late 1995, the telegraph and telephone sector
hadbeen partially privatized.
The two commercial banks HBL and UBL were privatized
by the Musharraf government after 1999.
Liberalization was done when sanctioning of private
investment and import licensing was abolished.
Other
regulatory
restrictions
such
asregistration
offoreign and technical loan agreements and procedures
for employment of foreign workers were also abolished.

FISCAL PERFORMANCE

Until 1993, when the country had the first PPP

government (1988 to 1990) and the first PML government
(1990-1993)
Government expenditures remained high, at about 10
percent of the GDP
Revenues also fell slightly but fiscal policy continued to
be expansionary

FISCAL PERFORMANCE
Since

1993, we observe a declining trend in

government expenditures as well as in revenues
The budget deficit had started to shrink even
before the present military government took over
This decline in government budget deficit reflects
the macroeconomic adjustments that the country
undertook under the IMF restructuring program.
Fiscal policy became relatively less expansionary
during this period.

MONETARY POLICY

IMF recommended shift to market-based monetary

policy, rather direct government controlled.

EXCHANGE RATE

Managed Floating Exchange Rate System (8 th January

1982 20 July, 1998)

Pak rupee reviewed daily with reference to a tradeweighted basket of currencies of the countrys major
trading partners/competitors.
This flexibility in exchange rate boost exports and
curtailing imports
February 1991 extensive exchange & payment reforms
to facilitate industrialization
1995-96 BOP came under severe pressure US dollar
strengthened Pak rupee adjusted downward by 7% in
terms of US dollar in Oct 1995
1996-97 To alleviate the pressure of BOP devaluation of
rupee/dollar exchange rate by 7.85% on October 22, 1996.

AGRICULTURE
The agricultural sector showed average
growth of28.9% in 1980-85 , faced a decline
at 26.3% in 1985-90,further declined to 25%
in 1990-95 and 25.8% in 1995-2000.
The annualgrowth rate ofmajor crops have
fallen since 1980 . In the decade1980-90 the
average annual growth of major crops was 3.3
% which fell to 2.4% in 1990s.
Both production of wheat and rice fell sharply
in 1990-00.

MANUFACTURING & INDUSTRY:

In the SAP, the industrial policy outlined: Limiting thelist of specific industries,
deregulating business decisions, raising investment sanctioning limit annually,
divesting the shares of public sector, considering a realistic trade regime,
enhancing export incentives, reducing the list of restricted import items, phasing
out all tariff exemptions by 1990-1.

This IMF macro economic recipe had adirect impact on industrial development in
Pakistan. It lead to:

An increase in level of indirect taxation by July 1990

Withdrawal of subsidies on utilities and fertilizers
An increase in producer prices of major crops
The restriction on govt borrowing and credit allocation to public sector.

The large scale manufacturing managed an impressive 7.2% in 1991-2 essentially

due to rapid expansion of cotton manufacture.

The WB and IMF concluded that SAPs in the industrial sector went well in late 198090s but after 1991 the utility prices increased and had animpact on industrial costs
and competitiveness.
Tariff rates have fallen from 225% in 1988-9 to 25 % in 2003-4 making imports
cheaper and declaring4000 industrial units as sick

TRADE AND BALANCE OF PAYMENTS

All the non tariff barriers would be replaced by tariffs.

It was planned to reduce the number of banned commodities from
400 to about 80. (restricted list of items was reduced)
Drastic reduction in maximum tariff rate to 125% in 1988-9 and 100
%by the mid 1990s.
Most tariff exemptions and concessions were to be removed so that
imports could be made cheaper.
With deregulation and privatization been promoted, exports also
were promoted.
Import licenses were abolished except for products that were
prohibited.
Improved incentives for exports were given but it was seen that
trade liberalizationencouraged import of goods andservices.
After 1988 exports increased sharply by 11.6%per annum in US
dollar terms which led totrade balance improvement .

TRADE DEFICIT
If

you look at the graph below itis quiet

evident that the trade deficit from 1984-2003
was only between $1 and $2billion, but it has
started to rise significantly in the following
years.
Source
of
trade
deficit
figure:
www.secp.gov.pk

CONCLUSION

The main problem was Power of the Seat

-survival of the fittest.
Lack of understanding on the IMFs terms and
conditions for loans. Also lack of confidence to
speak up against the Washington Super Powers.
Lack of stability in the Govt, for any Plan to work.