Gross Domestic Product Essays

Gross Domestic Product Essays Gross Domestic Product Essay Gross Domestic Product Essay In the 1990s, the economy faced a number of challenges such as unsustainable budget and balance of payment deficits, economic sanctions, and resulting low economic growth. In 1990-91, the budget deficit had risen to 8. 7 percent of the GDP. The continued increase in Government expenditures and dwindling workers remittances from abroad had meant an ever-increasing reliance on public sector borrowing. It has been estimated that since 1977, the public debt in real terms has grown at a much faster rate than the GDP. Between 1990 and December 2000, Pakistans external obligations increased from about US$ 22 billion to over US$ 37 billion. Increasing reliance on short to medium term financing to meet external obligations compounded the unsustainability of the external debt. According to the ADB Draft Poverty Alleviation Report (2001), in 1997-98 the short to medium term debt accounted for about 23 percent of the total external liability and more than 48 percent of the debt servicing cost. According to the same report, in 1997-98 the debt servicing accounted for as much as 54 percent of the total export earnings and about 40 percent of total foreign exchange earning. To rectify these imbalances in the economy, Pakistan implemented various World Bank/IMF structural adjustment and stabilization programmes. The three recent IMF programmes relate to 1988-91, 1993-96 and 1997- 2000. In addition Pakistan has sought debt relief to create fiscal space and spend the available resources on reducing poverty. Not only did the development activities in the public sector slow down, but as a result of the political uncertainty, excessive government regulations, lack of continuity in economic policies and the ongoing process of structural adjustment led to a very weak private sector growth as well. : It is reported that during 1992-99, the investment grew at a rate less than one percent per annum and as a result the domestic fixed investment declined from 19 percent of the GDP in 1992-93 to less than 15 percent in 1997-98. The economy slipping into the debt trap resulted in a halt to the past practice of large public sector development expenditures that had traditionally been financed by internal and external borrowing. The lower levels of public sector investment in the infrastructure further curtailed growth activities such as trade and transport. The fiscal deficit was as high as 8.8% of GDP in 1990-91, but was reduced to 5. 3% in 2000-01. Pakistan took a basic step toward industrialization by initiating a six-year economic development plan in the early 1950s (1951-1957). The program allowed for free import of capital goods to facilitate progress. Although this was somehow detrimental to the agriculture sector in that it led to a decrease in the production of edible grains, the program was highly successful. It not only facilitated the process of industrialization, but it also brought about developments in the areas of transport, communications, water and power, and technical training. The government of Pakistan organized a planning committee in 1953 to draw up the countrys first five-year economic development plan on the basis of feedback from the said six-year program. The new plan aimed at increasing GDP by 15 percent; income per capita, by 7 percent; food production, by 9 percent; and industrial production, by 60 percent, as well as creating two million jobs. These objectives were not fully achieved. However, the countrys GDP increased by 11 percent, and its income per capita grew by 6 percent; and there was considerable improvement in the production of consumable goods. The second economic development plan (1961-1965) pursued the same objectives; namely, increase of GDP, increase of income per capita, and creation of new jobs; and it succeeded in achieving them with a certain degree of success. The third economic development plan (1965-1970), being a part of the countrys twenty-year development plan (1965-1985), was more comprehensive than the previous plans, though it encountered various difficulties at the outset: In September 1965, war broke out between Pakistan and India; and this diverted the countrys internal resources from development to defense purposes. Also, US aids to Pakistan were suspended. And, worst of all, natural disasters such as torrential floods in some cities affected the implementation of the plan adversely. The fourth economic development plan (1970-1975) was prepared with the firm intention of reinforcing the foundation of development and minimizing local and regional differences. However, this plan was never implemented because of the 1971 conflict with India, as a result of which East Pakistan (or Bangladesh as it is now called) was partitioned. Thus, the government had to draw up a new plan (1971-1978). Whereas the 1970-75 plan had discouraged private investments owing to the nationalistic policies of 1971, the new plan aimed at developing the public sector, though with little success. On the whole, the countrys economy lagged behind during this period owing to the governments conflicting economic policies and the private sectors lack of interest to initiate investment. The fifth economic development plan (1978-1983) was drawn up with the aim of adjusting the undesirable economic status of the country. Initially the plan failed in achieving the desired goal. Eventually, however, it bore fruit. For instance, the industrial sectors value added increased 54 percent. This was due to the flexible nature of the plan, which allowed for yearly adjustments to be made on the basis of the development needs of each year. The sixth economic development plan (1983-88) was implemented successfully immediately after the fifth. In the course of implementing the plan, Pakistans GDP increased at an average annual rate of 6 percent at real prices. Prices increased only slightly. Share of investment in GDP increased up to 17 percent. Toward the end of the plan, share of external debts in GDP increased 12 percent, and that of import decreased 17 percent. While the average annual growth of GDP was 5 percent during the seventh economic development plan (1988-1993), average annual rise of prices was 9 percent. Share of the countrys gross investment in GDP grew from 8. 5 percent at the beginning of the plan to 20. 7 percent towards its end. Share of export in GDP rose from 12. 5 percent at the beginning to 14. 2 percent toward the end. There was also an increase in the share of import in GDP During the first two years of the eighth plan (1993-1998), which pursued the objectives of privatization and attraction of foreign investment, GDP fell 4 percent as compared with that of the seventh plan. Share of investment in GDP was about 20 percent. Share of the countrys external debts in GDP rose 6 percent. Share of export decreased 13 percent, but share of import remained unchanged.