STRUCTURE OF THE ECONOMY
Pakistan attained nationhood under difficult circumstances (see
Problems at Independence , ch. 1). At the partition of British
India in 1947 resulting in the creation of the independent nations
of India and Pakistan, Pakistan was an agrarian economy in which
a small number of powerful landowners with large holdings dominated
the countryside. The majority of the population consisted of tenant
farmers who cultivated small plots for a meager existence. Scant
rainfall in West Pakistan (present-day Pakistan) forced farmers
to rely on the extensive irrigation system developed by the British.
The headwaters of the Indus River and its main tributaries, however,
were under Indian control. Disputes arose between the two nations
and were not settled until the Indus Waters Treaty of 1960 was
signed (see Irrigation , this ch.).
Pakistan had almost no industry in 1947. Under British rule,
the area that became Pakistan supplied agricultural products for
processing to the territory that became the independent India.
Energy sources were rudimentary, with wood and animal dung furnishing
the bulk of the energy consumed. Ports, transportation, and other
services, such as banking and government, were underdeveloped.
More than 1,600 kilometers of Indian territory separated the East
Wing and West Wing of Pakistan until the former became independent
Bangladesh in 1971 (see Yahya Khan, 1969-71 , ch. 1). In 1949
a dispute over exchange rates halted the flow of goods between
Pakistan and India, disrupting the complementary nature of their
economies that had developed under British colonial rule.
Despite formidable problems, Pakistan achieved rapid economic
expansion. From FY 1951 to FY 1986, the GDP growth rate measured
at a constant FY 1960 factor averaged 5.2 percent. Rates of growth
averaged 3.1 percent in the 1950s--when agriculture stagnated--but
rose to 6.8 percent in the 1960s. They fell to 3.8 percent between
FY 1971 and FY 1977 but rebounded to 6.8 percent between FY 1978
and FY 1986. From FY 1987 to FY 1991, growth averaged 5.8 percent,
and a rate of 7.8 percent was achieved in FY 1992. Provisional
data indicate that GDP grew only 2.6 percent in FY 1993. This
decline is mainly a result of the floods in September 1992, which
reduced agricultural output.
Rapid growth substantially altered the structure of the economy.
Agriculture's share (including forestry and fishing) declined
from 53 percent of GDP in FY 1950 to 25 percent in FY 1993 (see
table 3, Appendix). A substantial industrial base was added as
industry (including mining, manufacturing, and utilities) became
the fastest growing sector of the economy. Industry's share of
GDP rose from 8 percent in FY 1950 to 21.7 percent in FY 1993.
Various services (including construction, trade, transportation
and communications, and other services) accounted for the rest
Pakistan has an important "parallel," or "alternative," economic
sector, but it is not well documented in official reports or most
academic studies. This sector includes a thriving black market,
a large illicit drug industry, and illegal payments to politicians
and government officials to ensure state contracts. Corruption
rose in the 1980s, partly as a result of the massive infusion
of United States aid, some of which went to the Pakistani government
to pay the cost of supporting Afghan refugees fleeing after the
1979 Soviet invasion and to enhance Pakistani military capability,
and some of which was funneled directly to Afghan resistance movements
based in Pakistan. Much of this money reportedly was diverted
illegally and invested in arms and drug enterprises.
General allegations of corruption are routinely made in the Pakistani
press, and politicians often accuse their opponents of corrupt
practices. Asif Ali Zardari, the husband of Prime Minister Benazir
Bhutto, was accused of corruption after the fall of Benazir's
first government in 1990, and former President Ghulam Ishaq Khan
accused the government of former Prime Minister Mian Nawaz Sharif
and especially its privatization program of corruption when dismissing
his government in April 1993. In 1994 allegations of corruption
were routinely traded between Benazir's government and the opposition
headed by Nawaz Sharif. Political maneuvering aside, corruption
has an altogether real and pervasive effect on Pakistani society.
Industrialists consider bribery and other handouts a routine cost
of production, and contractors and businessmen interviewed on
television openly state that a significant percentage of their
revenue is paid to government officers who allocate their contracts.
Corruption is alleged to be prevalent in almost all official institutions,
including the police, the judiciary, the revenue department, the
passport office, customs and excise offices, telecommunication
organizations, and electricity and gas boards. In each of these
departments, the personnel involved range from low-level employees
to top management. Some scholars believe that the low salaries
of civil servants, compared with earnings from jobs of similar
status in business and industry, explain the magnitude of corruption.
In the mid-1980s, Mahbubul Haq, a former minister of finance,
estimated that illegal payments to government officials were equivalent
to about 60 percent of the total taxes collected by the government.
Data as of April 1994