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1. HISTORY OF THE ECONOMY
OF PAKISTAN (1947–2024)
Dr. Vaqar Ahmed
Chair of Advisory Group (OnThinkTanks)
Fellow, Partnership for Economic Policy
March 28, 2025

2. OUTLINE
Introduction
The Foundational Years (1947–1958)
Ayub Khan Era (1958–1969)
Bhutto Era (1971–1977)
Zia-ul-Haq Era (1977–1988)
Democratisation & Structural Adjustment (1988–1999)
Musharraf Era (1999–2008)
PPP and PML-N Governments (2008–2018)
PTI Government & COVID-19 Shock (2018–2022)
Post-COVID Recovery and 2023–Present
Key Structural Issues Across All Periods
Conclusion
Suggested Readings
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3. INTRODUCTION
Since its independence in 1947, Pakistan’s economy has been shaped by an interplay
of state-led development, episodes of political instability, regional security trends,
and domestic resource constraints
This presentation traces the evolution of economic policy across different historical
phases, highlighting key events, reforms, successes, and structural challenges
It draws on the works of leading economists and historians to present a balanced,
evidence-based narrative.
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4. THE FOUNDATIONAL YEARS (1947–
1958)
Key Themes: State-building, refugee crisis, industrialisation through import substitution,
foreign aid
Economic Conditions
•The economy inherited was largely agrarian and underdeveloped
•Severe refugee crisis and partition-related disruption
•Pakistan lacked a central bank (effort initiated in 1948) and industrial base
Policy Focus
•Emphasis on import substitution industrialisation
•Creation of key institutions: State Bank of Pakistan (1948), Planning Commission (1953)
•Reliance on foreign aid, especially from the US (Technical Assistance Programme)
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5. AYUB KHAN ERA (1958–1969)
Key Themes: Technocratic planning, Green Revolution, inequality, concentration of wealth
Economic Conditions
• Rapid industrialisation and agricultural productivity (Green Revolution)
• GDP growth averaged above 6.5%, industrial growth high
• Emergence of the “22 families” – unequal wealth distribution was pointed out
Policy Focus
• Launch of Second and Third Five-Year Plans
• Establishment of industrial conglomerates and public sector institutions to support industrial growth
• Rural development initiatives via the Basic Democracies programme
Criticism
• Growth without equity: Regional disparity (East vs West Pakistan)
• Overconcentration of economic power
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6. ZULFIQAR ALI BHUTTO ERA (1971–
1977)
Key Themes: Nationalisation, socialist economic planning
Economic Conditions
•Post-1971 secession of East Pakistan left the economy vulnerable
•Oil shocks of 1973 and global stagflation
Policy Focus
•Nationalisation of banks and manufacturing among other sectors
•Introduction of pro-labour and socialistic reforms
•Attempted land reforms and redistribution but weak implementation
Impact
•Sharp decline in investor confidence
•Public sector inefficiency and rent-seeking increased
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7. ZIA-UL-HAQ ERA (1977–1988)
Key Themes: Islamisation of society and economy, remittance-led growth, beginning of neoliberalism
Economic Conditions
• Economic growth driven by remittances from Middle East
• Large-scale rural outmigration
• Rise of informal economy
Policy Focus
• Partial denationalisation and deregulation
• Zakat and Ushr ordinances (Islamic finance)
• Aid from the US during Afghan war
Challenges
• Neglect of human development particularly in economically backward areas
• Increased role of military institutions in society and economy
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8. DEMOCRATISATION & STRUCTURAL
ADJUSTMENT (1988–1999)
Key Themes: Structural reforms, IMF programmes, rising debt burden, civil elected
governments shortlived
Economic Conditions
•High fiscal deficits, current account crises
•Foreign debt increased; recurring IMF engagement
Policy Focus
•Structural Adjustment Programmes (SAPs): trade liberalisation, tax reform, privatisation
•Weak reforms implementation due to political instability and governance issues
Impact
•Deindustrialisation trends
•Social sector spending declined
•Repeated bailouts and macroeconomic volatility
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9. MUSHARRAF ERA (1999–2008)
Key Themes: Technocratic governance, aid inflows associated with Afghan war, privatisation, macroeconomic
stabilisation
Economic Conditions
• GDP growth beyond 6% for several years; growth driven by consumer credit and capital inflows
• Booming investments in telecom, banking, and real estate sectors
Policy Focus
• Resumption of privatisation and liberalisation
• Banking sector reform
• Expansion of IT and service sectors; higher education sector reforms
Challenges
• Unsustainable current account
• High inequality
• Power sector and water resources neglect
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10. PPP AND PML-N GOVERNMENTS (2008–2018)
Key Themes: Energy crisis, China Pakistan Economic Corridor (CPEC), fiscal mismanagement
Economic Conditions
• Deficits widened (fiscal and current account)
• Energy shortages crippled industry
• Inflation and declining FDI
Policy Focus
• Introduction of Benazir Income Support Programme (BISP)
• CPEC (2013) initiated under China’s Belt and Road Initiative
• Some progress on tax and regulatory reforms
Challenges
• Political instability
• Tax-to-GDP stagnation
• External debt surge
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11. PTI GOVERNMENT & COVID-19 SHOCK
(2018–2022)
Key Themes: Delayed engagement with IMF, digital economy, pandemic response
Economic Conditions
• COVID-19 pandemic disrupted supply chains and labour markets
• Debt distress heightened
• High inflation and currency depreciation
Policy Focus
• Structural reforms via IMF Extended Fund Facility (EFF)
• Ehsaas Programme as Pakistan’s flagship social protection initiative
• Digitisation of tax and welfare systems.
Challenges
• IMF programme suspension and resumption cycles
• Weak export performance
• Rising inequality
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12. POST-COVID RECOVERY, THE PDM GOVERNMENT,
AND UNTIL 2024
Key Trends
•Macroeconomic crisis deepened in 2022–23
•Import restrictions and dollar shortage
•High food and energy inflation
Policy Priorities
•Reviving IMF programme
•Focus on digitisation, climate finance, green economy, and tech
entrepreneurship
•Expansion of social protection and digital payments
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13. KEY STRUCTURAL ISSUES (ACROSS ALL PERIODS)
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14. STRUCTURAL ISSUES IN PRODUCTION
Agriculture: Fragmented landholdings, outdated farming techniques, low productivity,
and limited access to modern inputs and credit. Despite employing a large share of
the labour force, agriculture contributes disproportionately low to GDP
Manufacturing: Shallow industrial base, premature deindustrialisation, weak value
addition, limited technological upgrading, and lack of export competitiveness
Services Sector: Dominated by low-value, informal activities with weak links to
employment generation or export earnings.
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15. STRUCTURAL ISSUES IN INFRASTRUCTURE
Energy Sector: Circular debt, inefficiencies in generation and distribution, poor
governance, and tariff distortions
Water Resources: Poor water governance, inadequate storage capacity, and
inefficient usage in agriculture
Transport & Logistics: Inadequate connectivity, poor road infrastructure, inefficient
ports and freight systems affecting trade and mobility
Urban Infrastructure: Unplanned urbanisation, underinvestment in waste management,
public transport, and housing.
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16. STRUCTURAL ISSUES IN PUBLIC FINANCE &
GOVERNANCE
Narrow Tax Base: Heavy reliance on indirect taxes; low direct tax-to-GDP ratio;
weak documentation of the economy
Fiscal Mismanagement: Persistent deficits, pro-cyclical spending, underperforming
SOEs, and rigid current expenditures crowding out development
Elitist Policy Capture: Resource allocation skewed towards influential segments (e.g.,
case of sugar sector), undermining inclusive growth.
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17. STRUCTURAL ISSUES IN BALANCE OF PAYMENTS
Chronic Trade Deficits: Import-heavy consumption, weak export base, and lack of
diversification in export products and markets
Remittance Dependency: Heavy reliance on external inflows from overseas Pakistanis
for stability in current account
Inconsistent Export Incentives: Frequent policy reversals and insufficient support for
export-oriented industries.
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18. STRUCTURAL ISSUES IN MONETARY POLICY &
FINANCIAL SECTOR
Financial Exclusion: Limited access to finance for SMEs, women, and rural populations
Underdeveloped Capital Markets: Shallow bond markets, limited investor base, and
dominance of banking sector in financial intermediation
Inflation Management: Supply-side inflation, administered prices, and weak
transmission of monetary policy.
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19. WEAK RULE OF LAW AND CONTRACT
ENFORCEMENT
Lengthy and Unpredictable Judicial Processes: Commercial disputes take years to
resolve, increasing transaction costs and deterring investment
Poor Enforcement of Contracts: According to global indicators, Pakistan ranks poorly
in enforcing contracts, contributing to a high-risk business environment
Undermining of Investor Confidence: Weak legal protections for property rights and
frequent regulatory reversals discourage both domestic and foreign investment
Barriers to Informal-to-Formal Transition: Uncertainty in enforcement discourages
small and medium enterprises from formalising operations and accessing credit or
formal markets.
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20. REGULATORY AND INSTITUTIONAL CONSTRAINTS
Regulatory Overload: Excessive compliance burden for firms, overlapping mandates
across institutions, and rent-seeking behaviour
Weak Contract Enforcement: Judicial delays, inconsistent legal frameworks, and
limited alternative dispute resolution mechanisms
Bureaucratic Inertia: Centralised decision-making, weak local governance, and slow
implementation of reforms.
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21. HUMAN CAPITAL AND SOCIAL DEVELOPMENT
DEFICITS
Low Investment in Human Capital: Poor quality of public education and health
systems, with large rural-urban and gender disparities
Youth Unemployment: Weak labour market absorption, limited skills alignment with
market needs, and mismatch in supply-demand.
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22. CENTRE-PROVINCE COORDINATION (POST-18TH
AMENDMENT)
Fragmented Policy Implementation: Misalignment between federal and provincial
priorities
Capacity Gaps: Uneven capacity of provinces to manage devolved functions,
especially in health, education, and local taxation.
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23. WEAK LOCAL GOVERNMENTS AND
DECENTRALISED GOVERNANCE FAILURES
Absence of Effective Local Governments: Despite constitutional provisions, Pakistan has
witnessed repeated delays in local government elections, frequent changes in structures, and
limited political empowerment of local tiers
Weak Local Public Financial Management: Local bodies face poor fiscal autonomy,
unpredictable transfers, and limited capacity for budget planning, execution, and auditing
Inadequate Own-Source Revenue: Local governments have narrow tax bases and weak
mechanisms to mobilise local revenues, increasing dependence on provincial transfers
Poor Local Service Delivery: Decentralised sectors (health, education, water, sanitation) suffer
from underfunding, weak performance monitoring, and fragmented accountability lines
Lack of Downward Accountability: Citizens have limited means to hold local institutions
accountable due to weak grievance redressal mechanisms, low civic engagement, and poor
transparency practices.
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24. WEAK DEMAND-SIDE ACCOUNTABILITY AND
OVERSIGHT OF ECONOMIC MANAGEMENT
Limited Role of Civil Society and Media: Few independent civil society organisations
and think tanks are equipped to critically assess or influence fiscal and economic
policy in a sustained manner
No Institutionalised Shadow Budgeting: Unlike many parliamentary democracies,
Pakistan lacks a tradition of shadow budgets or counterfactual economic planning
from opposition parties or civil society actors
Low Public Awareness of Economic Reforms: Absence of citizen-friendly economic
communication limits public engagement in policy debates and accountability
Parliamentary Oversight Remains Weak: Budget and public finance debates in the
legislature are often ceremonial, with limited scrutiny or influence over actual
resource allocation.
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25. STRUCTURAL WEAKNESSES IN PUBLIC SECTOR
CAPACITY
i. Revisit laws & overlapping mandates; improve accountability, audits, and anti-corruption efforts
ii. Sporadic training reforms; weak links to modern needs; merit violations; no performance-based
incentives; ongoing brain drain due to poor conditions; inability to retain talent
iii. Inefficient PFM systems; weak fiscal décentralisation; opaque budget processes undermine trust
iv. Slow e-governance progress; weak data & cybersecurity
v. Weak M&E; ad-hoc planning; low capacity for evidence-based policies
vi. Stronger political will for reform required; weak change management; limited engagement with civil
society/private sector.
vii. Reactive disaster response; few innovation pilots; weak rapid systems
viii. Fragile grievance systems; disempowered local govts; poor citizen feedback mechanisms
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26. CONCLUDING THOUGHTS
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27. STRONG PUBLIC SECTOR CAPABILITIES REQUIRED
FOR DELIVERING REFORMS
Civil service reform is not merely an administrative matter—it is central to
macroeconomic stability, service delivery, and inclusive growth. At both national and
sub-national levels:
i. Trained officers need an enabling environment to apply skills effectively
ii. Stronger institutions and credible leadership are needed to restore trust of public
servants
iii. Modern civil services must be able to manage economic crises, negotiate with
external stakeholders, and design locally-appropriate solutions.
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28. SUGGESTED READINGS
Ahmed, V. (2017). Pakistan’s Agenda for Economic Reforms. Karachi: Oxford University Press
Ahmed, V. and Javed, M. (eds.) (2022). Economy, Welfare, and Reforms in Pakistan. Karachi:
Oxford University Press
Ahmed, V. (2024). 'Responding to the economic consequences of COVID-19 in Pakistan: lessons
learnt', Journal of the Asia Pacific Economy, 29(4), pp. 1724–1736. Available at:
https://doi.org/10.1080/13547860.2024.2318951
Ahmed, V., & O'Donoghue, C. (2010). Global economic crisis and poverty in Pakistan.
International Journal of Microsimulation, 3(1), 127-129
Ahmed, V., Suleri, A. Q., & Javed, A. (2015). Strengthening South Asia Value Chain: Prospects
and Challenges. South Asia Economic Journal, 16(2_suppl), 55S-74S
Abbas, M. H., & Ahmed, V. (2016). Challenges to Social Accountability and Service Delivery in
Pakistan. Social Change, 46(4), 560-582
Ahmed, V., Sugiyarto, G., & Jha, S. (2010). Remittances and household welfare: A case study
of Pakistan. Asian Development Bank Economics Working Paper Series, 86.
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29. vahmed@gmail.com