ECONOMIC AND SOCIAL DEVELOPMENT: At the time of the independence in 1947, Pakistan was primarily an agricultural economy, with the sector producing two thirds of the gross domestic product and providing employment to 80 percent of the population However, within a short period of time the economy began to industrialize and urbanize There were two reasons for this transformation One, the large-scale movement of people that accompanied independence and brought 8 million Muslims, mostly from the urban areas of India, into Pakistan Of the 6 million Hindus and Sikhs that left the country and went to India, about a third were from the countryside The migration, therefore, produced a significant increase in the proportion of urban population The second reason for the structural transformation was the trade war with India in 1949 that forced Pakistan to industrialize in order to compensate for the goods that were previously imported from IndiaUnder Ayub Khan, Pakistan’s first military president, the state worked hard to promote industrial development as well as the development of such modern sectors of the economy as finance and insurance During Ayub Khan’s 11 years in power, from 1958 to 1969, Pakistan’s rate of growth at 64 percent of GDP a year was among the highest in the developing world At that time the country was regarded as a model for growth and structural transformation

However, the economy suffered from a jolt as a result of two developments, one in 1965 and the other in 1972 In 1965 Pakistan fought a brief but destructive war with India Although it lasted for only 17 days, the economic impact was significant It suddenly brought to a halt the inflow of external resources on which Pakistan had relied heavily during the period of Ayub Khan The second jolt came in 1972 when President Zulfikar Ali Bhutto, who replaced General Yahya Khan, Pakistan’s second military president, undertook to nationalize all large-scale industries as well as institutions in the sectors of finance and commerce This sudden expansion of the state in economic management slowed down the rate of growth of the economy and introduced inefficiency and corruption into the management of the economy Bhutto’s six year period was marked by economic stagnation, an increase in the incidence of poverty, and a deterioration in the system of public educationBhutto was replaced by General Zia ul Haq, who brought the military back to power and governed the country for 11 years This period saw three significant developments One, the reactivation of the private sector; two, increased flows of foreign capital into the country as a result of the support provided by the United States to Pakistan in the war against the Soviet Union in Afghanistan; three, the first serious attempt to Islamize the economy The economy once again expanded at more than 6 percent a year and the incidence of poverty declined considerably

By the end of this period less than one-fifth of the total population lived in absolute poverty, the lowest proportion ever in the country’s history However, Zia’s Islamization efforts confused the economic and social picture This was particularly the case in the sector of education in which the introduction of Islam weakened the curricula in public schools and developed a parallel system of religious education General Zia’s death in 1988 brought the politicians back to the center stage of politics However, the 11-year period, from 1988 to 1999, was marked by political instability, increased inefficiency of the government, and a significant increase in the level of corruption Economic growth suffered, the incidence of poverty increased, and the public sector became largely dysfunctional One unfortunate consequence of these developments was the neglect of education which suffered because of the failure by the public sector to cater to the needs of the growing population Some of the gaps left by the public sector were filled by religious seminaries (madrassas) which had gained in strength during the period of Zia ul HaqIn October 1999 the military, under the command of General Pervez Musharraf, returned to power With professionals assigned to key positions as economic managers, the economy began to recover Pakistan’s decision to support the United States in the latter’s war against interna tional terrorism brought the country significant amounts of foreign capital which helped to lift the rate of increase in GDP to 6

1 percent in 2003-04, and to 84 percent in 2004-05 With the bounce back in economic growth the pool of poverty also began to shrink In 2005 Pakistan’s economic growth was among the highest in the developing worldWill Pakistan be able to sustain this rate of growth into the future? As discussed below, the prospects for doing this were not good at the end of 2005 The country suffered a devastating economic blow because of the earthquake on 8 October that killed more than 80,000 people, injured another 300,000 and displaced more than a million

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