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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 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 • 82-85: – 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. •