Archive for April 2013
MAJOR ISSUES IN THE ECONOMY OF PAKISTAN / BASIC CHARACTERISTICS OF DEVELOPING COUNTRIES LIKE PAKISTAN BY AHSAN KHAN 2013
MAJOR ISSUES IN THE ECONOMY OF PAKISTAN / BASIC CHARACTERISTICS OF DEVELOPING COUNTRIES LIKE PAKISTAN
A country where the average income of the people is much lower than that of developed countries, the economy depends upon a few export crops and where farming is conducted by primary methods is called developing country. Rapid population growth is causing the shortage of food in many developing countries. Criteria to an Under-developed Nation:
i. Potential to become economically developed.
ii. Low or no rising trend of per capita income.
iii. Countries very poor in resources.
Prof. Harvey Leibenstein, in his “Economic Backwardness and Economic Growth” divides these characteristics into four categories: A. Economic characteristics: Following are the economic characteristics of UDC’s:
1- General Poverty and Low Living Standard.
Poverty cannot be described, it can only be felt. The most of the less developed countries (LDC) are facing the major problem of general as well as absolute poverty and low standard of living. Most of the people in developing nations are ill-fed, ill-housed, ill-clothed and ill-literate. In LDCs almost 1/3 population is much poor. But in Pakistan, 21.0 % population is living below poverty.
2- Burden of Internal and External Debts.
Under developed countries (UDC) are loans and grants receiving nations. Most of the developing countries of the world are depending on foreign economic loans. An amount of foreign loans is increasing as the years pass. Their foreign trade and political structure is also dependent on the guidance of foreigners. The outstanding total public debts are Rs. 12024 billion (58.2% of GDP) and the value of external debts and liabilities is $ 60.3 billion and services charges on all types of debts are Rs. 730.733 billion during 2011-12, in Pakistan.
3- Low Per Capita Income.
Due to low national income and huge population growth rate, per capita income in developing countries is very low. At constant prices (Base Year 1959-60) per capita income of Pakistan was Rs. 985 and according to the Economic Survey of Pakistan 2011-12 per capita income of Pakistan is $ 1372.
4- Over Dependence on Agriculture.
61% Population of Pakistan is living in more than 50,000 villages. Backward agriculture is the major occupation of the population. Agriculture sector is backward due to old and traditional methods of cultivation, in-efficient farmers, lack of credit facilities; un-organized agriculture market etc. 66.7% population is directly or indirectly depending on agriculture sector in Pakistan. It contributes to GDP 21.0% while in advanced nations it is less than 5 %. It employed 45.0 % of labour force while it is less than 5 % in developed countries.
5- Backward Industrial Sector.
Backward industrial sector is an additional feature of under developed countries. Industrial sector of Pakistani economy is backward since independence. Pakistan got only 34 (3.7 % of total industrial units) industrial units out of 921 units in sub-continent in 1947. Small and backward industrial sector is based on low level of capital formation, technology, training and education and over dependence on agriculture sector. 13.7% labour force is attached with industrial sector in Pakistan. Its share to GDP is 25.4 % and to exports is more than 60 %.
An outstanding problem of developing countries is their high rate of un-employment, under-employment and disguised-unemployment. More than 3.5 million people are unemployed in Pakistan. There is 16 % underemployed and 20% disguised unemployed of total labour force. Unemployment rate is 6.0%; it is mainly due to high population growth rate, which is 2.03%.
7- Low level of Productivity.
The productivity level is very low in under developed countries as compared to developed countries. Low level of productivity is due to economic backwardness of people, lack of skill, illiteracy and ill-training. Value of annual productivity of labour is about $ 100 while it is more than $ 2500 in advanced nations in Pakistan. Minimum wages are Rs.8000/- per month against the average gross salary of $3,950 (Rs.3,79,200) per month in United States.
8- Deficit Balance of Payment.
Third world countries have to import some finished and capital goods to make economic development, on the other hand they have no products to export but raw material. During July-April, its exports were $ 20.474 billion and imports were $ 33.15 billion in case of Pakistan. So, its deficit balance of payment was $ 12.68 billion in 2011-12.
9- Dualistic Economy.
Dualistic economy refers to the existence of advanced & modern sectors with traditional & backward sectors. Pakistani economy is also a dualistic economy as other developing countries on the following grounds: Co-existence of modern and traditional methods of production in urban and rural areas, Co-existence of wealthy, highly educated class with a large number of illiterate poor classes and Co-existence of very high living standard with very low living standard.
10- Deficiency of Capital.
Shortage of capital is another serious problem of poor nations. Lack of capital leads to low per capita income, less saving and short investment. National saving is 10.7% of GDP and total investment is 12.5% of GDP in Pakistan. Rate of capital accumulation is very low as 5%. On the other hand, capital output ratio (COR) is very high which is not desirable for economic development.
11- In-appropriate Use of Natural Resources.
Mostly there is shortage of natural resources in developing nations and this is also a cause of their economic backwardness. Natural resources are available in various poor countries but they remain un-utilized, under-utilized or mis-utilized due to capital shortage, less efficiency of labour, lack of skill and knowledge, backward state of technology, improper government actions and limited home market. Natural resources contribute to the GDP about 1%.
12- Market Imperfection.
Market is imperfect in accordance with market conditions, rules and regulations in the most of developing nations. There exist monopolies, mis-leading information, immobility of factors; hoarding and smuggling etc. that cause the market to remain imperfect.
13- Limited Foreign Trade.
Due to backwardness, developing countries have to export raw material because the quality of their products is not according to international standard ISO etc. Lower developing nations have to import finished and capital goods. Imports of Pakistan are $ 33.15 billion and exports are $ 20.474 billion that cause into unfavourable balance of payment of $ 12.676 billion.
14- Vicious Circle of Poverty.
According to vicious circle of poverty, less developed nations are trapped by their own poverty. Vicious circle of poverty is also applied in case of Pakistani economy. Due to poverty, national income of Pakistan is low which causes low saving and low investment. So, rate of capital formation is very low results in “a country is poor because she is poor”.
High rate of inflation causes economic backwardness in poor nations. Due to high level of price, purchasing power, value of money and saving of the consumers tend to decrease. Rate of inflation (CPI) is 10.8% in 2011-12 in Pakistan.
B. Demographic characteristics:
Following are the demographic characteristics:
16- Backward Population Explosion.
Another common feature of lower developing nations is population pressure due to high growth rate and reduction in death rate. Population of the Pakistan is 180.71 million with the rapid growth rate of 2.03% and death rate 0.72 % in 2011-12. Pakistan is at 6th number in the list of the most populous nations. Basic needs like food, clothing, housing, education, sanitations and health facilities are not available for the huge portion of population in these countries.
17- Poor Health and Diseases.
M. P. Todaro in his “Economic Development” states, “Many people in developing countries fight a constant battle against malnutrition, diseases and ill health”. Average life expectancy in Pakistan is 65.2 year against 75 years in developed countries. One Doctor is for 1206 persons and one Nurse is for 2369 persons, one Dentist for 16420 persons, number of hospitals is 972 and one hospital bed is available for 1665 persons. The total expenditure on health sector is just 0.27 % (Rs. 55.12 billion) of the GDP.
There is too much pollution in poor countries. On the one side huge existing population is not provided basic facilities of life, like sanitation, clean water, infrastructure etc. but on the other side due to rapid population growth, industrialization and transportation air, water and earth pollution is increasing. Industries are causing pollution because of non-installation of treatment plants. Number of continuous air pollution monitoring stations is only 7 in Pakistan. Pakistan is at number 29th at the chart of the most polluted nations and at number 6th in Asian countries.
19- Brain Drain.
An outflow of the best, brightest and talented student from poor nations to rich nations is called brain drain. There is less reward for the talent, which causes an outflow of best brain in the backward countries. Reward is not paid in accordance with the capability, skill and efficiency in less developed countries.
20- Inadequate Infrastructure.
Adequate infrastructure is needed which is not available in poor economies to enhance the process of economic development. Roads, transport, telecommunications, sanitation, health and education facilities are not at their best level in these nations. Government has reserved an amount of Rs.133 billion to develop the infrastructure. C. Cultural and political characteristics: Following are the cultural and political characteristics of LDC’s:
21- High Degree of Illiteracy.
Illiteracy rate is very high in poor countries while it is almost zero in rich countries. There is lack of technical education and training centers, which is necessary for economic growth and development. Literacy rate in Pakistan is 58% during 2011-12. Expenditure on education sector is just 1.8 % of GDP during last year.
22- Low Level of Organization.
There is absence of developed minded leadership in economic activities in third world nations. Decision making power of entrepreneur is very low due to illiteracy, less training and backward techniques. Most of educational institutions are producing employees rather than employers.
23- Low Self-esteem.
There is less respect, honour and dignity of people in the lower developed countries. People are honoured due to their powers, relations and castes instead of capabilities. There is poverty, poor health, poor education and shortage of other social services. Government and population of poor countries are under the external influence.
24- Un-productive Expenditures.
Population mostly copies the styles of population of developed nations due to demonstration action in poor economies. Their consumption activities not only move around their income but also depend upon the relatives, friends and locality. They spend more on birth, death, marriages and various other ceremonies etc. which reduces their savings and investment.
25- Political Instability.
There is political instability in the most of the developing countries. There are a lot of clashes between government and the opposition that is a cause to reduction in domestic as well as foreign investment. Political instability keeps low the level of economic development.
26- Influence of Feudal Lords.
The poor class is under the influence of feudal lords and tribal heads in lower developed nations. The feudal lords want to keep the people backward and do not appreciate the development of the poor. About 50.8% poor borrow from landlords and 57.4 % poor are working for feudal lords without wages in Pakistan.
27- Unproductive Use of Funds.
The unproductive expenditures are rising day by day in developing countries like Pakistan due to socio-economic and administrative reasons. During the year 2009-10, Rs. 343 billion were spent for defence. About 75% of the budget is spent on defence, administration, repayments of loan and interest charges in Pakistan.
28- Govt. Control by Wealthy Persons.
Wealthy persons, landlords and elite class not only control the government but also they have full control over all the major sectors of the economy in poor countries. This rich class is not interested to solve the problems of the poor for their welfare but they make government policies for their own improvement.
29- Frequent Changes in Fiscal Policy.
Revenues and expenditures policy of government is not stable in developing countries. Government has to change the fiscal policy according to the will of its own people. Industrialists are the main controller of the government and they adjust the fiscal policy in accordance with their own benefits.
30- Violation of Law and Order.
Law and order conditions are at their poor stage in Pakistan like other developing countries. A huge portion of saving of people is wasted in costly and lengthy legal process. As in case of Iftikhar Muhammad Chohdery (CJP), he himself has to wait for justices for a long period.
D. Technological and miscellaneous characteristics:
Following are the technological and miscellaneous characteristics of developing countries:
31- Backward State of Technology.
Use of modern techniques of production is not adopted in developing countries. It may cause further unemployment. Use of advanced technology is impossible due to shortage of capital, lack of skill and training, high cost of production and lack of foreign exchange reserves. Backward state of technology is results in low production, high cost and wastage of time.
32- Social Aspects.
Under developed countries have also some factors such as joint family system, caste system, cultural and religious views, beliefs and values that badly affect their economic development. 30.88 % population is working population and remaining 69.12 % population is depending on them in Pakistan.
33- Un-fair Wealth and Income Distribution.
There are not only regional inequalities in developing countries but also wealth and income inequalities. There is unfair wealth and income distribution in less developed nation. 20 % extremely rich population has 50.02% of national resources, while 20 % poorest population has just 6.37 % of national resources in Pakistan. The difference between rich and poor is increasing day by day.
34- Lack of Experts and Skilled Persons.
People have to move abroad for advanced study due to illiteracy and lack of training institutes. They adjust them in foreign countries due to low remuneration and less self-esteem. So, there is scarcity of experts, skilled and trained staff that causes the poor nation to remain backward.
35- Dependence on External Resources.
The international trade, political activities and other economic activities are under the influence of other advanced countries in less developing countries. Their development plans are financed by the loan giving countries; these plans are made to serve the interests of foreign countries. So, poor nations are loans and grants receiving nations. Conclusion: We conclude that all above characteristics are unfavourable for the developing economies. These features are obstacles in way of economic development. All these features are cause of low rate of capital formation, poverty and creation of vicious circle of poverty.
Tuesday, 23 April 2013
Posted by Ahsan Khan