Pakistan - ECONOMY

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Pakistan - The Economy

PAKISTAN'S CULTIVATION OF THE RICH alluvial soil of the Indus River basin is its single most important economic activity. Because of extensions and improvements to the irrigation system, waters of the Indus River and its tributaries flow to the fields, a necessity because of scant rainfall. The Indus irrigation system is the world's largest, but there are many problems because of inadequate water management and use. Farmers continue to employ traditional cultivation practices, and support services, such as research and development, are inadequate, although high-yield seeds and fertilizers are fairly widely used. Yields of most crops, with the significant exception of cotton, are low by international standards and substantially below the area's potential. Many farms are too small to support a family using existing agricultural practices. The landless often sharecrop or work as agricultural laborers. A flood in September 1992 temporarily displaced as many as 3 million people and destroyed many irrigation networks. Its effects are expected to limit agricultural production, particularly cotton, in the 1990s.

Since Pakistan became independent in 1947, its leaders have generally sought to increase the role of industry in the nation's economy. They achieved a remarkable degree of success toward this end. A broad industrial base is now in place, producing a wide range of products for both consumer and industrial use. Industrialization, however, has failed to create sufficient jobs for the rapidly expanding urban population. Construction and service-sector activities, especially in trade, transportation, and government, have expanded and now provide more employment than industry. Nonetheless, underemployment remains prevalent throughout the economy. An outdated infrastructure is another problem facing the economy. Frequent electricity shortages, for example, hamper industrial development and production.

Most central government administrations have sought to raise the majority of the population's low standard of living through economic growth rather than through the redistribution of wealth. The gross domestic product (GDP) in constant prices increased an average of 5.3 percent per year between 1950 and 1993, roughly 2 percent per year faster than population growth. In fiscal year (FY) 1993, GDP amounted to the equivalent of US$50.8 billion, or roughly US$408 on a per capita basis. Income, however, has never been evenly distributed. Furthermore, the unequal income distribution pattern has been a political issue since the late 1960s and is expected to remain controversial throughout the 1990s. Social development indicators reflect long-standing problems in providing basic health and education services. Only just over one third of all children of primary school age attended school in 1989, a rate well below the average for low-income countries). It was estimated in 1992 that 28 percent of the population lived below the official poverty line, which is based on the government's estimate of an income sufficient to provide basic minimum needs.

A pressing problem facing the economy is the government's chronically high budget deficit, which has adverse implications for the nation's balance of payments, inflation and exchange rates, capital formation, and overall financial stability. The government has been attempting to restore fiscal balance through a multiyear structural adjustment program designed to increase revenues, control spending, and stabilize monetary growth. In addition, the government has privatized public-sector industrial enterprises, financial institutions, and utilities; eliminated state monopolies in banking, insurance, shipping, telecommunications, airlines, and power generation; and liberalized investment and foreign exchange regulations. As of early 1994, not all these programs had been implemented as quickly as planned, however, and the deficit and the associated structural problems persisted.

<> STRUCTURE OF THE ECONOMY
<> ROLE OF GOVERNMENT
<> FOREIGN ECONOMIC RELATIONS
<> LABOR
<> AGRICULTURE
<> INDUSTRY

Pakistan

Pakistan - STRUCTURE OF THE ECONOMY

Pakistan attained nationhood under difficult circumstances. 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.

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. 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. 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 of GDP.

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.

Pakistan

Pakistan - ROLE OF GOVERNMENT IN THE ECONOMY

Policy Developments since Independence

Since 1947 Pakistani officials have sought a high rate of economic growth in an effort to lift the population out of poverty. Rapid industrialization was viewed as a basic necessity and as a vehicle for economic growth. For more than two decades, economic expansion was substantial, and growth of industrial output was striking. In the 1960s, the country was considered a model for other developing countries. Rapid expansion of the economy, however, did not alleviate widespread poverty. In the 1970s and 1980s, although a high rate of growth was sought, greater attention was given to income distribution. In the early 1990s, a more equitable distribution of income remained an important but elusive goal of government policy.

At partition in 1947, the new government lacked the personnel, institutions, and resources to play a large role in developing the economy. Exclusive public ownership was reserved only for military armaments, generation of hydroelectric power, and manufacture and operation of railroad, telephone, telegraph, and wireless equipment--fields that were unattractive, at least in the early years of independence, to private investors. The rest of the economy was open to private-sector development, although the government used many direct and indirect measures to stimulate, guide, or retard private-sector activities.

The disruptions caused by partition, the cessation of trade with India, the strict control of imports, and the overvalued exchange rate necessitated the stimulation of private industry. Government policies afforded liberal incentives to industrialization, while public development of the infrastructure complemented private investment. Some public manufacturing plants were established by government holding companies. Manufacturing proved highly profitable, attracting increasing private investments and reinvestment of profits. Except for large government investments in the Indus irrigation system, agriculture was left largely alone, and output stagnated in the 1950s. The broad outline of government policy in the 1950s and early 1960s involved squeezing the peasants and workers to finance industrial development.

Much of the economy, and particularly industry, was eventually dominated by a small group of people, the muhajirs, who were largely traders who migrated to Pakistan's cities, especially Karachi, at partition. These refugees brought modest capital, which they initially used to start trading firms. Many of these firms moved into industry in the 1950s as a response to government policies. Largely using their own resources, they accounted for the major part of investment and ownership in manufacturing during the first two decades after independence.

By the late 1960s, there was growing popular dissatisfaction with economic conditions and considerable debate about the inequitable distribution of income, wealth, and economic power-- problems that had always plagued the country. Studies by economists in the 1960s indicated that the forty big industrial groups owned around 42 percent of the nation's industrial assets and more than 50 percent of private domestic assets. Eight of the nine major commercial banks were also controlled by these same industrial groups. Concern over the concentration of wealth was dramatically articulated in a 1968 speech by Mahbubul Haq, then chief economist of the Planning Commission. Haq claimed that Pakistan's economic growth had done little to improve the standard of living of the common person and that the "trickle- down approach to development" had only concentrated wealth in the hands of "twenty-two industrial families." He argued that the government needed to intervene in the economy to correct the natural tendency of free markets to concentrate wealth in the hands of those who already possessed substantial assets.

Although Haq exaggerated the extent of the concentration of wealth, his speech struck a chord with public opinion. In response, the government enacted piecemeal measures between 1968 and 1971 to set minimum wages, promote collective bargaining for labor, reform the tax structure toward greater equity, and rationalize salary structures. However, implementation was weak or nonexistent, and it was only when the government of Zulfiqar Ali Bhutto (father of Benazir) came to power in 1971 that there was a major shift in government policy.

Bhutto promised a new development strategy more equitable than previous policies. Yet he downplayed economic analysis and planning and relied instead on ad hoc decisions that created many inconsistencies. In May 1972, he promulgated a major act that devalued the rupee by 57 percent and abolished the multiple-exchange-rate system. This act greatly stimulated exports and indicated that the removal of price distortions could spur the economy. But devaluation also completely altered the cost and price structure for industry and affected the level and composition of industrial investment and the terms of trade between the industrial and agricultural sectors. Devaluation helped agriculture, particularly larger farms that had marketable surpluses. Mechanization increased but had the adverse side effect of displacing farm laborers and tenants, many of whom migrated to cities seeking industrial jobs.

In 1972 Bhutto's government nationalized thirty-two large manufacturing plants in eight major industries. The industries affected included iron and steel, basic metals, heavy engineering, motor vehicle and tractor assembly and manufacture, chemicals, petrochemicals, cement, and public utilities. Subsequently, domestically owned life insurance companies, privately owned banks, domestic shipping companies, and firms engaged in oil distribution, vegetable oil processing, grain milling, and cotton ginning were nationalized. The result was a drop of nearly 50 percent in private investment in large-scale manufacturing between FY 1970 and FY 1973. By FY 1978 such investments were little more than one-third (in constant prices) of those in FY 1970. Private capital fled the country or went into small-scale manufacturing and real estate. Between 1970 and 1977, industrial output slowed considerably.

The public sector expanded greatly under the Bhutto government. In addition to the nationalization of companies, plants were built by the government and additional public companies were created for various functions, such as the export of cotton and rice. Able managers and technicians were scarce, a situation that became worse after 1974, when many persons left to seek higher salaries in Middle East oil-producing states. Labor legislation set high minimum wages and fringe benefits, which boosted payroll costs for both public and private firms. Efficiency and profits in public-sector enterprises fell. Public industrial investment rose, surpassing private industrial investment in FY 1976.

Many of the other economic measures undertaken by the Bhutto government were largely ineffective because of the power of vested interests and the inefficiency of the civil administration. Ceilings on the size of landholdings were lowered, tenants were given greater security of tenure, and measures were enacted to tax farm income. Bhutto also supported large, but inadequately planned, long-term projects that tied up the country's development resources for long periods. The largest projects were an integrated iron and steel plant, a major highway on the west bank of the Indus River, and a highway tunnel in the mountainous north.

After 1977 the government of Mohammad Zia ul-Haq (1977-88) began a policy of greater reliance on private enterprise to achieve economic goals, and successive governments continued this policy throughout the late 1980s and early 1990s. Soon after Zia came to power, the government instituted constitutional measures to assure private investors that nationalization would occur only under limited and exceptional circumstances and with fair compensation. A demarcation of exclusive public ownership was made that excluded the private sector from only a few activities. Yet government continued to play a large economic role in the 1980s. Public-sector enterprises accounted for a significant portion of large-scale manufacturing. In FY 1991, it was estimated that these enterprises produced about 40 percent of industrial output.

Islamization of the economy was another policy innovation of the Zia government. In 1977 Zia asked a group of Islamic scholars to recommend measures for an Islamic economic system. In June 1980, the Zakat and Ushr Ordinance was promulgated. Zakat is a traditional annual levy, usually 2.5 percent, on wealth to help the needy. Ushr is a 5 percent tax on the produce of land, allowing some deductions for the costs of production, to be paid in cash by the landowner or leaseholder. Ushr replaced the former land tax levied by the provinces. Self-assessment by farmers is checked by local groups if a farmer fails to file or makes a very low estimate. Proceeds of ushr go to zakat committees to help local needy people.

The government of Prime Minister Nawaz Sharif (1990-93) introduced a program of privatization, deregulation, and economic reform aimed at reducing structural impediments to sound economic development. Top priority was given to denationalizing some 115 public industrial enterprises, abolishing the government's monopoly in the financial sector, and selling utilities to private interests. Despite resistance from officials and labor unions and criticism that the government was moving too quickly, by March 1992 control of twenty industrial units and two banks had been sold to private investors, and plans were under way to begin denationalizing several utilities. As of early 1994, proposals to end state monopolies in insurance, telecommunications, shipping, port operations, airlines, power generation, and road construction were also in various stages of implementation. Private investment no longer requires government authorization, except in sensitive industries. Investment reforms eliminated government sanction requirements, eased restrictions on repatriable direct and portfolio investment from abroad, enabled foreign firms to issue shares in enterprises in Pakistan, and authorized foreign banks to underwrite securities on the same basis as Pakistani banks.

Although the Nawaz Sharif government made considerable progress in liberalizing the economy, it failed to address the problem of a growing budget deficit, which in turn led to a loss of confidence in the government on the part of foreign aid donors. The caretaker government of July-October 1993 led by Moeen Qureshi, a former World Bank vice president, asserted that the nation was near insolvency and would require a number of measures to impose fiscal discipline. The government thus included sharp increases in utility prices, new taxes, stiffer enforcement of existing taxes, and reductions in government spending. In early 1994, the government of Benazir Bhutto, elected in October 1993, announced its intention to continue the policies of both deregulation and liberalization carried out by Nawaz Sharif and the tighter fiscal policies put in place by Qureshi. The government also said it intended to devote a greater proportion of the nation's resources to health and education, especially for women.

Development Planning

Pakistan's economic development planning began in 1948. By 1950 a six-year plan had been drafted to guide government investment in developing the infrastructure. But the initial effort was unsystematic, partly because of inadequate staffing. More formal planning--incorporating overall targets, assessing resource availability, and assigning priorities--started in 1953 with the drafting of the First Five-Year Plan (1955-60). In practice, this plan was not implemented, however, mainly because political instability led to a neglect of economic policy, but in 1958 the government renewed its commitment to planning by establishing the Planning Commission.

The Second Five-Year Plan (1960-65) surpassed its major goals when all sectors showed substantial growth. The plan encouraged private entrepreneurs to participate in those activities in which a great deal of profit could be made, while the government acted in those sectors of the economy where private business was reluctant to operate. This mix of private enterprise and social responsibility was hailed as a model that other developing countries could follow. Pakistan's success, however, partially depended on generous infusions of foreign aid, particularly from the United States. After the 1965 Indo-Pakistani War over Kashmir, the level of foreign assistance declined. More resources than had been intended also were diverted to defense. As a result, the Third Five-Year Plan (1965-70), designed along the lines of its immediate predecessor, produced only modest growth.

When the government of Zulfiqar Ali Bhutto came to power in 1971, planning was virtually bypassed. The Fourth Five-Year Plan (1970-75) was abandoned as East Pakistan became independent Bangladesh. Under Bhutto, only annual plans were prepared, and they were largely ignored.

The Zia government accorded more importance to planning. The Fifth Five-Year Plan (1978-83) was an attempt to stabilize the economy and improve the standard of living of the poorest segment of the population. Increased defense expenditures and a flood of refugees to Pakistan after the Soviet invasion of Afghanistan in December 1979, as well as the sharp increase in international oil prices in 1979-80, drew resources away from planned investments. Nevertheless, some of the plan's goals were attained. Many of the controls on industry were liberalized or abolished, the balance of payments deficit was kept under control, and Pakistan became self-sufficient in all basic foodstuffs with the exception of edible oils. Yet the plan failed to stimulate substantial private industrial investment and to raise significantly the expenditure on rural infrastructure development.

The Sixth Five-Year Plan (1983-88) represented a significant shift toward the private sector. It was designed to tackle some of the major problems of the economy: low investment and savings ratios; low agricultural productivity; heavy reliance on imported energy; and low spending on health and education. The economy grew at the targeted average of 6.5 percent during the plan period and would have exceeded the target if it had not been for severe droughts in 1986 and 1987.

The Seventh Five-Year Plan (1988-93) provided for total public-sector spending of Rs350 billion. Of this total, 38 percent was designated for energy, 18 percent for transportation and communications, 9 percent for water, 8 percent for physical infrastructure and housing, 7 percent for education, 5 percent for industry and minerals, 4 percent for health, and 11 percent for other sectors. The plan gave much greater emphasis than before to private investment in all sectors of the economy. Total planned private investment was Rs292 billion, and the private-to- public ratio of investment was expected to rise from 42:58 in FY 1988 to 48:52 in FY 1993. It was also intended that public-sector corporations finance most of their own investment programs through profits and borrowing.

In August 1991, the government established a working group on private investment for the Eighth Five-Year Plan (1993-98). This group, which included leading industrialists, presidents of chambers of commerce, and senior civil servants, submitted its report in late 1992. However, in early 1994, the eighth plan had not yet been announced, mainly because the successive changes of government in 1993 forced ministers to focus on short-term issues. Instead, economic policy for FY 1994 was being guided by an annual plan.

Pakistan

Pakistan - FOREIGN ECONOMIC RELATIONS

Foreign Aid

Since independence Pakistan has had to depend on foreign assistance in its development efforts and to balance its international debt payments. In 1960 the World Bank organized the Aid-to-Pakistan Consortium to facilitate coordination among the major providers of international assistance. The consortium held 92 percent of Pakistan's outstanding disbursed debt at the end of June 1991. The consortium's members include the United States, Canada, Japan, Britain, Germany, France, and international organizations such as the World Bank and the Asian Development Bank (ADB). The World Bank accounted for 26 percent of the outstanding debt, and the ADB, which was the largest lender in the early 1990s, accounted for 15 percent. Most nonconsortium funding comes from Saudi Arabia and other oil-producing Middle Eastern countries. Most aid is in the form of loans, although the proportion of grants increased from around 12 percent in the late 1970s to around 25 percent in the 1980s, mainly because of food aid and other funds directed toward Afghan refugees. With the decline in this aid after 1988, the proportion of grants decreased to 16 percent in FY 1992.

The United States has been a major provider of aid since independence and was the largest donor in the 1980s. All United States military aid and all new civilian commitments, however, ended in October 1990 after the United States Congress failed to receive certification that Pakistan was not developing a nuclear bomb. As of early 1994, United States aid had not resumed, but Agency for International Development projects already under way in October 1990 continued to receive funds.

Foreign Trade

Foreign trade is important to the economy because of the country's need to import a variety of products. Imports have exceeded exports in almost every year since 1950, and Pakistan had a deficit on its balance of trade each year from FY 1973 through FY 1992. In FY 1991, exports were US$5.9 billion, compared with imports of US$8.4 billion, which resulted in a deficit of US$2.5 billion. In FY 1992, exports rose to an estimated US$6.9 billion, but imports reached an estimated US$9.3 billion, resulting in a trade deficit of US$2.4 billion. Economists forecast a trade deficit of around US$2.5 billion for FY 1993. Pakistan's terms of trade (see Glossary), expressed in an index set at 100 in FY 1981, were 78.0 in FY 1991 and 82.7 in FY 1992.

Crude oil and refined products are significant imports. Their value varies with internal demand and changes in the world oil price. In FY 1982, oil products accounted for around 30 percent of Pakistan's imports, falling to an annual average of 15 percent in FY 1987 to FY 1990, rising to over 21 percent in FY 1991, but dropping back to 15 percent in FY 1992. Other important categories of imports in FY 1992 included nonelectrical machinery (24 percent), chemicals (10 percent), transportation equipment (9 percent), and edible oils (4 percent).

Although import-substitution industrialization (see Glossary) policies favored domestic manufacturing of substitutes for imports, officials also encouraged manufactured exports in the 1950s and 1960s. In the early 1980s, incentives were again provided to industrialists to increase manufactured exports. Nonetheless, in the early 1990s the export base remained primarily dependent on two agricultural products, cotton and rice, which are subject to great variations in output and demand. In FY 1992, raw cotton, cotton yarn, cotton cloth, and cotton waste accounted for 37 percent of all exports. Other important exports were ready made garments (15 percent), synthetic textiles (6 percent), and rice (6 percent). There was some diversification during the late 1980s as the share of manufactured goods rose. The share of primary goods fell from 35 percent to 16 percent between FY 1986 and FY 1993. During the same period, the share of semimanufactures rose from 16 percent to 20 percent, and that of manufactured goods rose from 49 percent to 64 percent.

In the early 1990s, Pakistan's balance of trade remained particularly vulnerable to changes in the world economy and bad weather. Sharp increases in crude oil prices, such as those of 1979-81 and 1990, raised the nation's import bill significantly. Total exports, on the other hand, are more sensitive to agricultural production. The decline in cotton production in FY 1993, for instance, seriously affected the export level.

Sources for imports and markets for exports are widely scattered, and they fluctuate from year to year. In the early 1990s, the United States and Japan were Pakistan's most important trading partners. In FY 1993, the United States accounted for 13.7 percent of Pakistan's exports and 11.2 percent of its imports. Japan accounted for 6.6 percent of exports and 14.2 percent of imports. Germany, Britain, and Saudi Arabia are also important trading partners. Hong Kong is an important export market and China a significant supplier of imports. Trade with the Republic of Korea (South Korea) and Malaysia is small but not unimportant. Trade with India is negligible.

Because of Pakistani fears of protectionism in developed countries and the increasing importance of regional blocs in international trade, the government in the 1980s and early 1990s placed new importance on developing trade links with nearby nations. In the early 1990s, new trading initiatives were being pursued through membership in two regional organizations, the Economic Co-operation Organization (ECO) and the South Asian Association for Regional Cooperation (SAARC).

The ECO was formed in 1985 with Pakistan, Iran, and Turkey as its only members, but Afghanistan, Azerbaijan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan joined in 1992. Some politicians in the member nations see the ECO as a potential Muslim common market, but political rivalries, especially between Iran and Turkey, limit its effectiveness. In 1994 most of the concrete measures being taken by the ECO concerned the improvement of transportation and communications among the member nations, including the construction of a highway from Turkey to Pakistan through Iran.

SAARC was founded in the mid-1980s primarily as a vehicle to increase trade within South Asia by delinking the region's political conflicts from economic cooperation. Its seven member states--Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka--adopted the principle of unanimity in selecting multilateral questions for debate. Despite frequent consultative committee meetings, progress toward increased trade remained limited in 1994. Pakistan's trade with India, for instance, is extremely limited. At the annual SAARC summit in April 1993, members agreed to negotiate a South Asian Preferential Trade Agreement by 1996 that would lower or abolish tariffs among members.

During the first four decades after independence, controls on imports were used to ensure priority use of foreign exchange and to assist industrialization. In the 1980s, the government maintained lists of permissible imports and also used quantitative restrictions and regulations on foreign exchange to control imports. The most extensive list covers consumer goods as well as raw materials and capital goods that can be imported by commercial and industrial users. A second list, mostly of raw materials, can only be imported by industrial users. A third list covers commodities only the public sector can import.

In 1991 and 1992, the government announced various measures to liberalize trade. Import licensing was ended for most goods, many products were removed from the lists of restricted imports, and import duties were cut. In addition, foreign companies were allowed into the export trade. The government also promised to convert the remaining nontariff barriers into tariffs, incorporate various ad hoc import taxes into customs duties, and reduce the numerous exemptions and concessions on duties.

Pakistan

Pakistan - LABOR

Between independence and the early 1990s, the labor force grew rapidly, reflecting the high population growth and the subsequently burgeoning proportion of the population under twenty years of age. The data available concerning employment are only estimates because few concrete facts are available. Official labor force figures represent orders of magnitude and are not precise. Observers agree, however, that relatively few women participate in the formal nonagricultural labor force.

In FY 1992, the civilian labor force was estimated at 33.8 million, compared with 26.3 million in FY 1982 and only 10.4 million in 1951. In FY 1993, about 48 percent of the civilian labor force was engaged in agriculture, 13 percent in industry, 7 percent in construction, 13 percent in trade, 5 percent in transportation and communications, and 14 percent in other services. Only about 25 percent of the official labor force are wage earners, which reflects the high levels of casual enterprise, family businesses, and self-employment.

Agricultural employment, although increasing, has expanded at a slower rate than the total labor force for most of the period since independence. In the 1960s and 1970s, owners of mid-sized farms turned increasingly to managing their own holdings, displacing former tenants. Increased mechanization displaced agricultural laborers. Industry, the major growth sector of the economy, was unable to absorb sufficient workers. From the early 1960s until the early 1990s, the proportion of the labor force employed in the industrial sector remained steady, while the proportion working in trade, construction, and transportation rose. Official estimates placed unemployment at around 3 percent in the late 1980s, but this rate rose in the early 1990s to around 6 percent. Underemployment is a greater problem and is particularly evident in agriculture, construction, and trade.

Overseas employment partially compensates for the insufficient job market. Since the mid-1970s, a growing number of Pakistanis, mostly men, have gone to labor-deficient, oil-exporting countries in the Middle East, where wages are much higher than at home. Estimates vary on the number of Pakistanis working overseas. In the early 1990s, some observers put the number of Pakistanis working in the Middle East as high as 4 million. These workers range from unskilled laborers to highly skilled professionals such as engineers, accountants, teachers, physicians, and nurses.

In the early 1990s, Pakistanis sent home remittances of between US$1.5 billion and US$2.0 billion a year, or over 30 percent of Pakistan's foreign-currency earnings and almost 5 percent of GNP. These remittances raise domestic purchasing power significantly. After the mid-1970s, wages of skilled and unskilled workers in Pakistan rose substantially, affected to a considerable degree by the competition for workers from abroad.

Pakistan

Pakistan - AGRICULTURE

Farming is Pakistan's largest economic activity. In FY 1993, agriculture, and small-scale forestry and fishing, contributed 25 percent of GDP and employed 48 percent of the labor force. Agricultural products, especially cotton yarn, cotton cloth, raw cotton, and rice, are important exports. Although there is agricultural activity in all areas of Pakistan, most crops are grown in the Indus River plain in Punjab and Sindh. Considerable development and expansion of output has occurred since the early 1960s; however, the country is still far from realizing the large potential yield that the well-irrigated and fertile soil from the Indus irrigation system could produce. The floods of September 1992 showed how vulnerable agriculture is to weather; agricultural production dropped dramatically in FY 1993.

Land Use

Pakistan's total land area is about 803,940 square kilometers. About 48 million hectares, or 60 percent, is often classified as unusable for forestry or agriculture consists mostly of deserts, mountain slopes, and urban settlements. Some authorities, however, include part of this area as agricultural land on the basis that it would support some livestock activity even though it is poor rangeland. Thus, estimates of grazing land vary widely--between 10 percent and 70 percent of the total area. A broad interpretation, for example, categorizes almost all of arid Balochistan as rangeland for foraging livestock. Government officials listed only 3 million hectares, largely in the north, as forested in FY 1992. About 21.9 million hectares were cultivated in FY 1992. Around 70 percent of the cropped area was in Punjab, followed by perhaps 20 percent in Sindh, less than 10 percent in the North-West Frontier Province, and only 1 percent in Balochistan.

Since independence, the amount of cultivated land has increased by more than one-third. This expansion is largely the result of improvements in the irrigation system that make water available to additional plots. Substantial amounts of farmland have been lost to urbanization and waterlogging, but losses are more than compensated for by additions of new land. In the early 1990s, more irrigation projects were needed to increase the area of cultivated land.

The scant rainfall over most of the country makes about 80 percent of cropping dependent on irrigation. Fewer than 4 million hectares of land, largely in northern Punjab and the North-West Frontier Province, are totally dependent on rainfall. An additional 2 million hectares of land are under nonirrigated cropping, such as plantings on floodplains as the water recedes. Nonirrigated farming generally gives low yields, and although the technology exists to boost production substantially, it is expensive to use and not always readily available.

Irrigation

In the early 1990s, irrigation from the Indus River and its tributaries constituted the world's largest contiguous irrigation system, capable of watering over 16 million hectares. The system includes three major storage reservoirs and numerous barrages, headworks, canals, and distribution channels. The total length of the canal system exceeds 58,000 kilometers; there are an additional 1.6 million kilometers of farm and field ditches.

Partition placed portions of the Indus River and its tributaries under India's control, leading to prolonged disputes between India and Pakistan over the use of Indus waters. After nine years of negotiations and technical studies, the issue was resolved by the Indus Waters Treaty of 1960. After a ten-year transitional period, the treaty awarded India use of the waters of the main eastern tributaries in its territory--the Ravi, Beas, and Sutlej rivers. Pakistan received use of the waters of the Indus River and its western tributaries, the Jhelum and Chenab rivers.

After the treaty was signed, Pakistan began an extensive and rapid irrigation construction program, partly financed by the Indus Basin Development Fund of US$800 million contributed by various nations, including the United States, and administered by the World Bank. Several immense link canals were built to transfer water from western rivers to eastern Punjab to replace flows in eastern tributaries that India began to divert in accordance with the terms of the treaty. The Mangla Dam, on the Jhelum River, was completed in 1967. The dam provided the first significant water storage for the Indus irrigation system. The dam also contributes to flood control, to regulation of flows for some of the link canals, and to the country's energy supply. At the same time, additional construction was undertaken on barrages and canals.

A second phase of irrigation expansion began in 1968, when a US$1.2 billion fund, also administered by the World Bank, was established. The key to this phase was the Tarbela Dam on the Indus River, which is the world's largest earth-filled dam. The dam, completed in the 1970s, reduced the destruction of periodic floods and in 1994 was a major hydroelectric generating source. Most important for agriculture, the dam increases water availability, particularly during low water, which usually comes at critical growing periods.

Despite massive expansion in the irrigation system, many problems remain. The Indus irrigation system was designed to fit the availability of water in the rivers, to supply the largest area with minimum water needs, and to achieve these objectives at low operating costs with limited technical staff. This system design has resulted in low yields and low cropping intensity in the Indus River plain, averaging about one crop a year, whereas the climate and soils could reasonably permit an average of almost 1.5 crops a year if a more sophisticated irrigation network were in place. The urgent need in the 1960s and 1970s to increase crop production for domestic and export markets led to water flows well above designed capacities. Completion of the Mangla and Tarbela reservoirs, as well as improvements in other parts of the system, made larger water flows possible. In addition, the government began installing public tube wells that usually discharge into upper levels of the system to add to the available water. The higher water flows in parts of the system considerably exceed design capacities, creating stresses and risks of breaches. Nonetheless, many farmers, particularly those with smallholdings and those toward the end of watercourses, suffer because the supply of water is unreliable.

The irrigation system represents a significant engineering achievement and provides water to the fields that account for 90 percent of agricultural production. Nonetheless, serious problems in the design of the irrigation system prevent achieving the highest potential agricultural output.

Water management is based largely on objectives and operational procedures dating back many decades and is often inflexible and unresponsive to current needs for greater water use efficiency and high crop yields. Charges for water use do not meet operational and maintenance costs, even though rates more than doubled in the 1970s and were again increased in the 1980s. Partly because of its low cost, water is often wasted by farmers.

Good water management is not practiced by government officials, who often assume that investments in physical aspects of the system will automatically yield higher crop production. Government management of the system does not extend beyond the main distribution channels. After passing through these channels, water is directed onto the fields of individual farmers whose water rights are based on long-established social and legal codes. Groups of farmers voluntarily manage the watercourses between main distribution channels and their fields. In effect, the efficiency and effectiveness of water management relies on the way farmers use the system.

The exact amounts of water wasted have not been determined, but studies suggest that losses are considerable and perhaps amount to one-half of the water entering the system. Part of the waste results from seepages in the delivery system. Even greater amounts are probably lost because farmers use water whenever their turn comes even if the water application is detrimental to their crops. The attitude among almost all farmers is that they should use water when available because it may not be available at the next scheduled turn. Moreover, farmers have little understanding of the most productive applications of water during crop-growing cycles because of the lack of research and extension services. As a result, improvements in the irrigation system have not raised yields and output as expected. Some experts believe that drastic changes are needed in government policies and the legal and institutional framework of water management if water use is to improve and that effective changes can result in very large gains in agricultural output.

Drainage

The continuous expansion of the irrigation system over the past century significantly altered the hydrological balance of the Indus River basin. Seepage from the system and percolation from irrigated fields caused the water table to rise, reaching crisis conditions for a substantial area. Around 1900 the water table was usually more than sixteen meters below the surface of the Indus Plain. A 1981 survey found the water table to be within about three meters of the surface in more than one-half the cropped area in Sindh and more than one-third the area in Punjab. In some locations, the water table is much closer to the surface. Cropping is seriously affected over a wide area by poor drainage--waterlogging--and by accumulated salts in the soil.

Although some drainage was installed before World War II, little attention was paid to the growing waterlogging and salinity problems. In 1959 a salinity control and reclamation project was started in a limited area, based on public tube wells, to draw down the water table and leach out accumulated salts near the surface, using groundwater for irrigation. By the early 1980s, some thirty such projects had been started that when completed would irrigate nearly 6.3 million hectares. By 1993 the government had installed around 15,000 tube wells. Private farmers, however, had installed over 200,000 mostly small tube wells, mainly for irrigation purposes but also to lower the water table. Private wells probably pumped more than five times as much water as public wells.

Officials were aware of the need for additional spending to prevent further deterioration of the existing situation. Emphasis in the 1980s and early 1990s was on rehabilitation and maintenance of existing canals and watercourses, on farm improvements on the farms themselves (including some land leveling to conserve water), and on drainage and salinity in priority areas. Emphasis was also placed on short-term projects, largely to improve the operation of the irrigation system in order to raise yields. Part of the funding would come from steady increases in water use fees; the intention is gradually to raise water charges to cover operation and maintenance costs. Considerable time and money are needed to realize the full potential of the irrigation system and bring it up to modern standards.

Farm Ownership and Land Reform

At independence Pakistan was a country with a great many small-scale farms and a small number of very large estates. Distribution of landownership was badly skewed. Less than 1 percent of the farms consisted of more than 25 percent of the total agricultural land. Many owners of large holdings were absentee landlords, contributing little to production but extracting as much as possible from the sharecroppers who farmed the land. At the other extreme, about 65 percent of the farmers held some 15 percent of the farmland in holdings of about two hectares or less. Approximately 50 percent of the farmland was cultivated by tenants, including sharecroppers, most of whom had little security and few rights. An additional large number of landless rural inhabitants worked as agricultural laborers. Farm laborers and many tenants were extremely poor, uneducated, and undernourished, in sharp contrast to the wealth, status, and political power of the landlord elite.

After independence the country's political leaders recognized the need for more equitable ownership of farmland and security of tenancy. In the early 1950s, provincial governments attempted to eliminate some of the absentee landlords or rent collectors, but they had little success in the face of strong opposition. Security of tenancy was also legislated in the provinces, but because of their dependent position, tenant farmers benefited only slightly. In fact, the reforms created an atmosphere of uncertainty in the countryside and intensified the animosity between wealthy landlords and small farmers and sharecroppers.

In January 1959, accepting the recommendations of a special commission on the subject, General Mohammad Ayub Khan's government issued new land reform regulations that aimed to boost agricultural output, promote social justice, and ensure security of tenure. A ceiling of about 200 hectares of irrigated land and 400 hectares of nonirrigated land was placed on individual ownership; compensation was paid to owners for land surrendered. Numerous exemptions, including title transfers to family members, limited the impact of the ceilings. Slightly fewer than 1 million hectares of land were surrendered, of which a little more than 250,000 hectares were sold to about 50,000 tenants. The land reform regulations made no serious attempt to break up large estates or to lessen the power or privileges of the landed elite. However, the measures attempted to provide some security of tenure to tenants, consolidate existing holdings, and prevent fragmentation of farm plots. An average holding of about five hectares was considered necessary for a family's subsistence, and a holding of about twenty to twenty-five hectares was pronounced as a desirable "economic" holding.

In March 1972, the Bhutto government announced further land reform measures, which went into effect in 1973. The landownership ceiling was officially lowered to about five hectares of irrigated land and about twelve hectares of nonirrigated land; exceptions were in theory limited to an additional 20 percent of land for owners having tractors and tube wells. The ceiling could also be extended for poor-quality land. Owners of expropriated excess land received no compensation, and beneficiaries were not charged for land distributed. Official statistics showed that by 1977 only about 520,000 hectares had been surrendered, and nearly 285,000 hectares had been redistributed to about 71,000 farmers.

The 1973 measure required landlords to pay all taxes, water charges, seed costs, and one-half of the cost of fertilizer and other inputs. It prohibited eviction of tenants as long as they cultivated the land, and it gave tenants first rights of purchase. Other regulations increased tenants' security of tenure and prescribed lower rent rates than had existed.

In 1977 the Bhutto government further reduced ceilings on private ownership of farmland to about four hectares of irrigated land and about eight hectares of nonirrigated land. In an additional measure, agricultural income became taxable, although small farmers owning ten hectares or fewer--the majority of the farm population--were exempted. The military regime of Zia ul-Haq that ousted Bhutto neglected to implement these later reforms. Governments in the 1980s and early 1990s avoided significant land reform measures, perhaps because they drew much of their support from landowners in the countryside.

Government policies designed to reduce the concentration of landownership had some effect, but their significance was difficult to measure because of limited data. In 1993 the most recent agricultural census was that of 1980, which was used to compare statistics with the agricultural census of 1960. Between 1960 and 1980, the number of farms declined by 17 percent and farms decreased in area by 4 percent, resulting in slightly larger farms. This decline in the number of farms was confined to marginal farms of two hectares or fewer, which in 1980 represented 34 percent of all farms, constituting 7 percent of the farm hectarage. At the other extreme, the number of very large farms of sixty hectares or more was 14,000--both in 1960 and in 1980--although the average size of the biggest farms was smaller in 1980. The number of farms between two and ten hectares increased during this time. Greater use of higher-yielding seeds requiring heavier applications of fertilizers, installations of private tube wells, and mechanization accounted for much of the shift away from very small farms toward mid-sized farms, as owners of the latter undertook cultivation instead of renting out part of their land. Observers believed that this trend had continued in the 1980s and early 1990s.

In early 1994, land reform remained a controversial and complex issue. Large landowners retain their power over small farmers and tenants, especially in the interior of Sindh, which has a feudal agricultural establishment. Tenancy continues on a large-scale: one-third of Pakistan's farmers are tenant farmers, including almost one-half of the farmers in Sindh. Tenant farmers typically give almost 50 percent of what they produce to landlords. Fragmented holdings remain a substantial and widespread problem. Studies indicate that larger farms are usually less productive per hectare or unit of water than smaller ones.

Cropping Patterns and Production

In the early 1990s, most crops were grown for food. Wheat is by far the most important crop in Pakistan and is the staple food for the majority of the population. Wheat is eaten most frequently in unleavened bread called chapati. In FY 1992, wheat was planted on 7.8 million hectares, and production amounted to 14.7 million tons. Output in FY 1993 reached 16.4 million tons. Between FY 1961 and FY 1990, the area under wheat cultivation increased nearly 70 percent, while yields increased 221 percent. Wheat production is vulnerable to extreme weather, especially in nonirrigated areas. In the early and mid-1980s, Pakistan was self-sufficient in wheat, but in the early 1990s more than 2 million tons of wheat were imported annually.

Rice is the other major food grain. In FY 1992, about 2.1 million hectares were planted with rice, and production amounted to 3.2 million tons, with 1 million tons exported. Rice yields also have increased sharply since the 1960s following the introduction of new varieties. Nonetheless, the yield per hectare of around 1.5 tons in FY 1991 was low compared with many other Asian countries. Pakistan has emphasized the production of rice in order to increase exports to the Middle East and therefore concentrates on the high-quality basmati variety, although other grades also are exported. The government increased procurement prices of basmati rice disproportionately to encourage exports and has allowed private traders into the rice export business alongside the public-sector Rice Export Corporation.

Other important food grains are millet, sorghum, corn, and barley. Corn, although a minor crop, gradually increased in area and production after independence, partly at the expense of other minor food grains. Chickpeas, called gram in Pakistan, are the main nongrain food crop in area and production. A number of other foods, including fruits and vegetables, are also grown.

In the early 1990s, cotton was the most important commercial crop. The area planted in cotton increased from 1.1 million hectares in FY 1950 to 2.1 million hectares in FY 1981 and 2.8 million hectares in FY 1993. Yields increased substantially in the 1980s, partly as a result of the use of pesticides and the introduction in 1985 of a new high-yielding variety of seed. During the 1980s, cotton yields moved from well below the world average to above the world average. Production in FY 1992 was 12.8 million bales, up from 4.4 million bales ten years earlier. Output fell sharply, however, to 9.3 million bales in FY 1993 because of the September 1992 floods and insect infestations.

Other cash crops include tobacco, rapeseed, and, most important, sugarcane. In FY 1992 sugarcane was planted on 880,000 hectares, and production was 35.7 million tons. Except for some oil from cottonseeds, the country is dependent on imported vegetable oil. By the 1980s, introduction and experimentation with oilseed cultivation was under way. Soybeans and sunflower seeds appear to be suitable crops given the country's soil and climate, but production was still negligible in the early 1990s.

Pakistan

Pakistan - INDUSTRY

In 1947 only some 5 percent of the large-scale industrial facilities in British India were located in what became Pakistan. The country started with virtually no industrial base and no institutional, financial, or energy resources. Three small hydroelectric power stations provided limited electricity to a few urban areas. Firewood and dung were the main sources of energy; commercial energy sources supplied only about 30 percent of the energy consumed. Further, there was a shortage of management personnel and skilled labor.

Manufacturing

The pace of industrialization since independence has been rapid, although it has fluctuated in response to changes in government policy and to world economic conditions. During the 1950s, manufacturing expanded at about 16 percent annually; during the first half of the 1960s, it expanded at around 11 percent a year. The pace slowed to under 7 percent a year in the second half of the 1960s. Between FY 1970 and FY 1977, the index of manufacturing output increased an average of only 2.3 percent a year. Between FY 1977 and FY 1982, the index rose an average of 9.9 percent a year. Growth averaged 7.7 percent during the Sixth Five-Year Plan (1983-88) and 5.4 percent from FY 1989 through FY 1992. In FY 1993, manufacturing accounted for 17.3 percent of GDP at current factor cost, of which large-scale manufacturing accounted for 61 percent and small-scale manufacturing for 39 percent. Manufactured goods accounted for 64 percent of all exports by value in FY 1993, but the bulk of these exports came in the relatively low-technology areas of cotton textiles and garments.

Total fixed capital formation in manufacturing was estimated at Rs57 billion in FY 1993. During the 1980s, private investment became much more important than public investment. In FY 1982, private investment was 53.9 percent of the total, but in FY 1993 the proportion was 96.1 percent. Total investment in manufacturing was 5.1 percent of GNP in FY 1993.

In the early 1990s, the manufacturing sector was dominated by food processing and textiles. Provisional figures for FY 1992 indicated that sugar production was 2.1 million tons, vegetable ghee 819,000 tons, cotton yarn 862,000 tons, and cotton cloth 234 million square meters. Other industrial products included motor tires (647,000 units), cycle tires (2.2 million units), cement (6.1 million tons), urea (1.4 million tons), soda ash (147,000 tons), bicycles (364,000 units), and paperboard (13,000 tons).

Pakistan has one steel mill, located near Karachi, with a production capacity of 1.1 million tons per year. A major undertaking, the mill required the bulk of public industrial investment in the late 1970s and early 1980s, although the plant was designed and partly financed by the Soviet Union. It produced at 81 percent of capacity in FY 1993, and it was dependent on imports of iron ore and coking coal. As of early 1994, the mill had not achieved sustained profitability, but there were plans to expand it.

Public-sector firms produced about 40 percent of the total manufacturing value added in FY 1991, and they absorbed about 48 percent of gross fixed investment. The total value of publicsector industrial output in FY 1991 was Rs36 billion (in constant FY 1988 prices), but pretax profits were only Rs1.3 billion, reflecting the inefficiencies and overstaffing prevalent in these enterprises.

To improve the efficiency and competitiveness of publicsector firms and end federal subsidies of their losses, the government launched a privatization program in FY 1991. Majority control in nearly all public-sector enterprises will be auctioned off to private investors, and foreign investors are eligible buyers. In March 1992, twenty units had been privatized, but by 1993 only about 30 percent of the government's target number of firms had been sold because some of the enterprises were unattractive for private investors. In 1994 the government led by Benazir Bhutto was committed to continuing the policy of privatization.

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Pakistan

Pakistan - Energy

From 1947 to the early 1990s, the economy made considerable progress in the transformation from a wood-burning base to modern energy sources. The process remains incomplete. Bagasse (the woody residue left over from crushed sugarcane), dung, and firewood furnished about 32 percent of all energy in FY 1988. Some localities had been denuded of firewood, forcing the local population to use commercial energy sources, such as kerosene or charcoal. Domestic sources of commercial energy accounted for 77 percent of all commercial energy in FY 1990. The major domestic energy resources are natural gas, oil, and hydroelectric power. The remainder of energy requirements are met by imports of oil and oil products.

Crude oil production increased sharply in the 1980s, from almost 4.0 million barrels in FY 1982 to 22.4 million barrels in FY 1992. This increase was the result of the discovery and development of new oil fields. Despite this expanded production, however, about 28 million barrels of crude oil were imported annually in the early 1990s. The production from domestic oil refineries also rose in the 1980s, reaching 42 million barrels annually in the early 1990s. However, oil products imports accounted for about 30 percent of the value of all oil imports.

Pakistan vigorously pursued oil exploration in the 1980s and early 1990s and made a number of new discoveries. In the early 1990s, the most productive oil field was at Dhurnal in Punjab, accounting for 21 percent of total output in FY 1993. The Badin area in southern Sindh was the site of a number of discoveries in the 1980s, and its proportion of total output has continued to increase over the years. In the early 1990s, more favorable terms on pricing and repatriation of profits stimulated the interest of foreign oil companies. About twenty foreign companies are engaged in oil exploration, but poor security for workers and property in remote areas of Balochistan and Sindh remains a significant constraint on foreign investment.

The large Sui natural gas field in Balochistan was discovered after independence. Production at Sui began in 1955 and peaked in 1985. In the early 1990s, it remained the nation's most productive gas field, accounting for 46 percent of production in FY 1993. The second largest gas field, also located in Balochistan at Mari, accounted for 20 percent of all production. Twenty-five gas fields were operational in FY 1993. Natural gas recoverable reserves were estimated at 662.0 billion cubic meters, with an extraction rate in the early 1990s of around 14.0 billion cubic meters, up from 9.3 billion cubic meters in FY 1982 and 1.3 billion cubic meters in FY 1970.

Natural gas pipelines, in which the government owns controlling shares, link the Sui gas field and a few others to the main population centers and the major crude oil production areas. The southern pipeline leads from Sui to Hyderabad and Karachi, and a spur supplies Quetta. The northern pipeline branches at Faisalabad. One branch goes a little farther north of Lahore; the other branch is connected to the crude oil fields and supplies gas to Islamabad and Peshawar. There are plans for a new gas pipeline through which Iran would export natural gas to Pakistan.

Coal reserves were boosted substantially in May 1992 when a large coal field was discovered in the Thar Desert in Sindh. In early 1993, these reserves were estimated at 17 billion tons. However, much of Pakistan's coal has a low calorific value and a high ash and sulfur content, which limits its value. Output was 1.3 million tons in FY 1992, down from 1.8 million tons in FY 1982. The bulk of production is from small, privately owned mines whose owners generally lack funds, expertise, and interest in expanding output. A public-sector firm, the Pakistan Mineral Development Corporation, accounted for about one-fifth of output in the early 1990s. The corporation has six operational mines--at Degari, Sor Range, and Sharigh in Balochistan; Lakhra and Meting in Sindh; and at the Makerwal/Gullakhel complex straddling the border between Punjab and the North-West Frontier Province.

Hydroelectric power is an important domestic primary energy resource, and hydroelectric potential is estimated at around 10,000 megawatts. A large number of additional sites with major potential exist in the mountainous north, but the difficulty of access and the high cost of transmission to the populous south make development a distant prospect. A large proportion of hydrogenerators are located at two large multipurpose dams. The Tarbela Dam located on the Indus River in the North-West Frontier Province has an installed capacity of 2,164 megawatts, and the Mangla Dam situated on the Jhelum River in Azad Kashmir has an installed capacity of 800 megawatts.

In 1965 Pakistani officials contracted with the Canadian government for the supply of a 125-megawatt pressurized, heavy-water nuclear reactor, which in 1972 became operational near Karachi. This was Pakistan's only nuclear power plant in 1994, and its operating record is poor. In 1983 plans for a nuclear plant at Chashma, on the Indus River in Punjab, about 240 kilometers south of Islamabad, were announced. The construction of this plant was delayed, in part because of the reluctance of foreign governments to supply needed fuel and technology because of concern over possible military use of the atomic energy program. In 1993 Pakistani officials expected the plant to open in 1997 with a capacity of 300 megawatts. China is providing the necessary technology and materials for the Chashma plant. Pakistani officials expect that fuel for the plant will be provided by the uranium enrichment plant at Kahuta near Islamabad. Some observers, however, believe it is unlikely that the plant will be ready in 1997.

In FY 1992, the country had a total installed generating capacity of 9,293 megawatts, of which approximately 62.7 percent was thermal, 35.9 percent hydroelectric, and 1.5 percent nuclear. In FY 1991, industry consumed 34.2 of percent of electricity, households 31.7 percent, agriculture 21.4 percent, commercial businesses 4.3 percent, and other users 8.3 percent. A rural electrification program increased the number of villages having electricity from around 14,000 in FY 1983 to nearly 41,000 in FY 1992, leaving only about 5,000 villages without electricity. After the late 1970s, considerable improvement was made in transmission facilities. By 1983 a grid connected generators and urban centers of the more populous areas, largely in Punjab and Sindh. Installations of high-voltage transmission lines and other facilities helped reduce power losses. Nonetheless, in 1993 the World Bank estimated that 28 percent of electricity generated in Pakistan was diverted illegally in transmission and distribution, and even the government puts this figure at 12 percent.

In 1993 the government planned a rapid increase of generating capacity, in part through the expansion of existing hydroelectric and thermal units and in part through the construction of new plants. Nonetheless, observers expected shortages of electricity to continue in the early 1990s and probably longer. In much of 1993, both urban and rural areas experienced three power cuts a day lasting a total of around two hours. Industrial and commercial users are required to reduce consumption by an even greater amount, and they risk being disconnected if they violate "agreed-on levels." Peak demand for electricity is estimated to exceed the supply by around 30 percent.

In 1991 the power sector was opened to private capital, both foreign and domestic. In that year, a World Bank consortium that included investors from Britain, Saudi Arabia, and the United States agreed to finance a project for a new US$1.3 billion, 1,292 megawatt oil-fired power station at Hub Chowki in Balochistan, forty-eight kilometers west of Karachi. Construction began in September 1992. The consortium is responsible for the construction and operation of the power station, while its output is sold to the national grid. In 1992 the government announced plans to privatize the Water and Power Development Authority's thermal plants and area electricity boards, but in 1994 legal and political obstacles prevented implementation of this policy.

Some development of renewable energy sources has been undertaken, primarily for rural areas so isolated they would not otherwise have electricity in the foreseeable future. The aim is to upgrade village life while lowering urban migration, reducing reliance on firewood, and providing power to pump water for irrigation where possible. For example, a small family-owned biogas plant uses human and animal waste (from three or four water buffalo, for example) to produce around 2.8 to 4.2 cubic meters of gas a day for heating and lighting. Larger biogas plants serve a number of homes or a village. Construction costs are too high for most villagers unless the government underwrites installation.

Pakistan

Pakistan - Mining

Through the 1980s, development of mining was discouraged by the absence of venture capital and the limited demand for many minerals from domestic industries. The slow development of mining was due in part to the remoteness of the areas where most minerals are found, which adds greatly to the costs of exploration, production, and transportation. Moreover, some of these areas have a poor reputation for law and order. By the early 1990s, mining was of little importance to the economy, despite the presence of fairly extensive mineral resources. Foreign companies have been invited to bid for concessions for mineral extraction.

Minerals include antimony, bauxite, chromite, copper, gypsum, iron ore, limestone, magnesite, marble, molybdenum, rock salt, and sulfur. Much of the mineral wealth is found in Balochistan. In FY 1992, mineral production included 8.5 million tons of limestone, 833,000 tons of rock salt, 471,000 tons of gypsum, and 6,333 tons of magnesite. Some iron-ore deposits are of good enough quality for use in the country's steel plant, but in FY 1992 production was only 937,000 tons.

The Saindak Integrated Mineral Project, managed by the stateowned Resource Development Corporation, was developed in the 1980s and early 1990s, but in 1993 there were as yet few results. Located in Balochistan, the project area contains three separate large deposits of copper ore, gold, iron ore, molybdenum, silver, and sulfur.

Pakistan

Pakistan - Tourism

As of early 1994, foreign tourism remained relatively undeveloped. Annual tourist arrivals averaged 442,136 for the period 1985-89 but fell to 284,779 in 1990 because of uncertainties generated from the Persian Gulf War. The number of tourist arrivals rose to 415,529 in 1991. Many of the arrivals are visitors of Pakistani origin who have settled in Europe and North America. Pakistan has considerable tourist potential, but the generally poor law and order situation in the late 1980s and early 1990s discouraged rapid growth. Hotels meeting international standards are concentrated in the larger cities, especially Islamabad, Karachi, Lahore, Peshawar, and Rawalpindi.

In early 1994, the immediate future of the economy appeared uncertain. Although the economy is responding well to the government's liberalization program, and many sectors appear poised to achieve healthy rates of growth, economic prospects are constrained by the government's large budget deficits, the continued absorption of public expenditures by defense and interest payments, and the perception of widespread corruption. Pakistan remains heavily dependent on foreign aid donors. The failure to address more adequately the nation's low levels of education and health is also likely to act as a constraint on economic growth in the remainder of the 1990s.

Pakistan