Industrial Policy
Objective Study the process of industrialization during: The Zia period; 1977-88 Post-1988 era
Backdrop In the Zia era, Pakistan witnessed: Return of growth rates Increased role of private sector Post-Zia period is distinct both politically and economically Return to democracy (1988-1999) A great deal of continuity in policy Structural adjustment programs Pakistan’s economic program since 1988 has totally capitulated to the requirements of IMF and World Bank Despite frequent changes in the government, the economic program stayed more or less the same
Industrial Performance during Zia Years During 1980-88, GDP growth rate = 6.5% pa Manufacturing GDP grew at 9.5% pa between 1977-86 Investment in medium and large scale industry grew at 18.2% pa
Industrial Policy (1977-88) ‘Only epoch in Pakistan’s history when an industrial policy was formulated and executed for any length of time’ 77-81: Cautious attempts at dismantling existing government policies and restoring private sector’s confidence, while simultaneously trying to gain political legitimacy
Industrial Policy (1977-88) 82-85: A more forceful drive towards Islamization which followed the regime’s consolidation of power Attempt to disengage the government from direct political control of the economy.
Industrial Policy (1977-88) Private sector was to play the leading role in the industrial sector Some specific features of the industrial policy: Denationalization Agro-based industry Small engineering units Chemical and cement industries Export rebates Reduction in interest rates Easing of economic controls and regulations, including procedures for sanctioning of private sector investment.
Industrial Policy (1977-88) Deregulation and Liberalization: Sixth five year plan seen as a departure from government’s earlier policies on industry. For the first time emphasis moved from purely sectoral investment planning to one which also incorporated incentives and institutional reforms to enhance the efficiency of the industrial sector. Export-led industrialization was mentioned as a policy goal for the first time Emphasis on moving manufactured exports towards higher value added.
Industrial Policy (1977-88) Difference between export-led and import-led industrialization.
The Age of Structural Adjustment: 1988 onwards Adoption of SAP had a significant influence on industrial sector. SAP: access to an extended fund facility from IMF as well as sectoral loans from the World Bank in exchange for many structural adjustments in the economy Major emphasis of structural adjustment program was on enhancement of growth by encouraging the private sector
The Age of Structural Adjustment: 1988 onwards IMF/World Bank’s induced conditionality (1988-91) outlined the following industrial policy for the government: De-regulation Reducing the level of protection accorded to different industries Reducing the list of restricted import items & those subject to quantitative restrictions.
The Age of Structural Adjustment: 1988 onwards Apart from these industry-specific recommendations, IMF’S macroeconomic prescriptions had a direct impact on industrial development Increase in level of indirect taxation Withdrawal of subsidies on gas, electricity, telephones and fertilizers Increase in producer prices of crops and petroleum products Reduction in public sector development spending Restriction on government borrowing and concessional credit to private sector.
The Age of Structural Adjustment: 1988 onwards The debate on credit allocation to industry Multi-lateral financial institutions: The use of concessional and targeted financing distorts capital allocation and causes financial repression. Level of exports determined by competitiveness, quality, tariff policy, and exchange rate policy. Interest rate subsidies cannot compensate for lack of competitiveness, poor quality, - only creates further distortions.
The Age of Structural Adjustment: 1988 onwards Pakistani planners: Local machinery manufacturing and the export sector have relied heavily on concessional financing.