Since independence in 1947, the economy of Pakistan has emerged as a semi-industrialized one, particularly on textiles, agriculture, and food production. From 1960 to 1990, Pakistan experienced high economic growth, whereas the economy has seen weaker growth from 1990 to 2022, along with economic mismanagement. Decades of corruption and internal political conflict have usually led to low levels of foreign investment and underdevelopment.CIA: The World Factbook
Historically, the land forming modern-day Pakistan was home to the ancient Indus Valley civilization from 2800 BC to 1800 BC, and evidence suggests that its inhabitants were skilled traders. Although the subcontinent enjoyed economic prosperity during the Mughal era, growth steadily declined during the British colonial period. Since independence, economic growth has meant an increase in average income of about 150 percent from 1950 to 1996, But Pakistan like many other developing countries, has not been able to narrow the gap between itself and rich industrial nations, which have grown faster on a per head basis. Per capita GNP growth rate from 1985 to 1995 was only 1.2 percent per annum, substantially lower than India (3.2), Bangladesh (2.1), and Sri Lanka (2.6).Learning from the Past: A Fifty-year Perspective on Pakistan's Development The inflation rate in Pakistan has averaged 7.99 percent from 1957 until 2015, reaching an all-time high of 37.81 percent in December 1973 and a record low of -10.32 percent in February 1959. Pakistan suffered its only economic decline in GDP between 1951 and 1952.
Overall, Pakistan has maintained a fairly healthy and functional economy in the face of several wars, changing demographics, and transfers of power between civilian and military regimes, growing at an impressive rate of 6 percent per annum in the first four decades of its existence. During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its rapid progress. Many countries sought to emulate Pakistan's economic planning strategy, including South Korea, which replicated the city of Karachi's second "Five-Year Plan."
Ancient history
Indus Valley civilization The Indus Valley civilization, the first known permanent and predominantly urban settlement that flourished between 3500 BC to 1800 BC, featured a vibrant economic system. Its citizens practised agriculture, domesticated animals, made sharp tools and weapons from copper, bronze, and tin, and traded with other cities. Archaeological excavations have uncovered streets, drainage systems, and water supplies in the valley's major cities of Harappa, Lothal, Mohenjo-daro, and Rakhigarhi, revealing an advanced knowledge of urban planning.
Although civilization had several urban centers, much of the population resided in villages, where the economy was largely isolated and self-sustaining. Agriculture was the predominant occupation, as it helped satisfy the villages' food requirements while also providing raw materials for cottage and small scale industries like textiles and handicrafts. Besides farmers, other occupational groups included barbers, carpenters, doctors (Ayurvedic practitioners), goldsmiths, weavers, etc.
Through the joint family system, members of a family often pooled their resources to sustain themselves and invest in business ventures. The system ensured that younger members were trained and employed in the family business, while the elderly and disabled were supported by their families. This also prevented agricultural land from being split and reaped a higher yield due to the benefits of scale.
Achaemenid Empire
In 518 BCE, the Achaemenid Empire conquered regions of modern day's Pakistan. The conquered area was the most fertile and populous region of the Achaemenid Empire. An amount of tribute was fixed according to the richness of each territory.Herodotus Book III, 89-95 The province of the Hindush ('Ινδοι, Indoi) was the Achaemenid district paying the largest tribute, and alone represented 32% of the total tribute revenues of the whole Achaemenid Empire. It also means that Indos was the richest Achaemenid region in the subcontinent, much richer than Gandara or Sattagydia.
Mauryan Empire During the Maurya Empire (c. 321–185 BC), there were a number of important changes and developments in the economy of the region. For the first time, most of Indian subcontinent was unified under one ruler. With an empire in place, trade routes became more secure, thereby reducing the risks associated with the transportation of goods. The empire spent considerable resources building roads and maintaining them throughout the region. The improved infrastructure, combined with greater security, uniformity in measurements, and the increasing usage of coins as currency, all enhanced trade.Ratan Lal Basu & Rajkumar Sen: Ancient Indian Economic Thought, Relevance for Today, , Rawat Publications, New Delhi, 2008.
Kushan Empire After Mauryan Empire, the region came under control of Indo-Greek Kingdom, under which economy was rather vibrant as evident by their coins, art and architecture."Those tiny territories of the Indo-Greek kings must have been lively and commercially flourishing places", India: The ancient past, Burjor Avari, p. 130"No doubt the Greeks of Bactria and India presided over a flourishing economy. This is clearly indicated by their coinage and the monetary exchange they had established with other currencies." Narain, "The Indo-Greeks" 2003, p. 275. Afterwards Kushan Empire gained control in 1st century AD and the region prospered under them.
Medieval history
Delhi Sultanate Many historians argue that the Delhi Sultanate was responsible for making Indian subcontinent more multicultural and cosmopolitan. According to Angus Maddison, between the years 1000 and 1500, region's GDP, of which the sultanates represented a significant part, grew nearly 80% to $60.5 billion in 1500.
Mughal Empire
During the Mughal period (1526–1858) in the 16th century, the gross domestic product of the empire was estimated at 25.1% of the world economy.
An estimate of the Indian subcontinent's pre-colonial economy puts the annual revenue of Emperor Akbar's treasury in 1600 at £17.5 million (in contrast to the entire treasury of Great Britain two hundred years later in 1800, which totaled £16 million). The gross domestic product of Mughal Empire in 1600 was estimated at 24.3 percent of the world economy, making it the second largest in the world.
By the late 17th century, the Mughal Empire was at its peak and had expanded to include almost 90 percent of South Asia. In 1700, the exchequer of the Emperor Aurangzeb reported an annual revenue of more than £100 million. Mughal India was now the world's largest economy, responsible for almost a quarter of global production, as well as a sophisticated customs and taxation system within the empire.
Silk route scholars have suggested that trading from Indian subcontinent to West Asia and Eastern Europe was active between the 14th and 18th centuries. During this period, local traders settled in Surakhani, a suburb of greater Baku, Azerbaijan.
Further north, the Gangetic plains and the Indus valley housed several centres of river-borne commerce. Most overland trade was carried out via the Khyber Pass connecting the Punjab region with Afghanistan and onward to the Middle East and Central Asia.
Colonial history
After gaining the right to collect revenue in Bengal in 1765, the East India Company largely ceased importing gold and silver, which it had hitherto used to pay for goods shipped back to Britain. In addition, as under Mughal rule, land revenue collected in the Bengal Presidency helped finance the company's wars in other part of Indian subcontinent.
During the period 1780–1860, region's status shifted from being an exporter of processed goods for which it received payment in bullion, to being an exporter of raw materials and a buyer of manufactured goods. Fine cotton and silk had been the main exports from Indian subcontinent to markets in Europe, Asia, and Africa in the 1750s. Yet, by the second quarter of the 19th century, raw materials, which chiefly consisted of raw cotton, opium, and indigo, accounted for most of India's exports.
While British colonial rule stabilized institutions and strengthened law and order to a large extent, British foreign policy stifled regional trade with the rest of the world. The British built an advanced network of railways, telegraphs, and a modern bureaucratic system that is still in place today. However, the infrastructure they created was mainly geared towards the exploitation of local resources, and left the economy stagnant, stalled industrial development, and resulted in an agricultural output that was unable to feed a rapidly accelerating population.
The British economic policies were most obvious in Punjab where in 1885, the Punjab administration began an ambitious plan to transform over six million acres of barren waste land in central and western Punjab into irrigable agricultural land. The creation of canal colonies was designed to relieve demographic pressures in the central parts of the province, increase productivity and revenues, and create a loyal support amongst peasant landholders.Imran Ali, THE PUNJAB CANAL COLONIES, 1885-1940, 1979, The Australian National University, Canberra, p34 The colonisation resulted in an agricultural revolution in the province, rapid industrial growth, and the resettlement of over one million Punjabis in the new areas.Ian Talbot, Khizr Tiwana, the Punjab Unionist Party and the Partition of India, Routledge, 16 December 2013, p,55 A number of towns were created or saw significant development in the colonies, such as Lyallpur, Sargodha and Montgomery. By the 1920s the Punjab produced a tenth of India's total cotton crop and a third of its wheat crop. Per capita output of all the crops in the province increased by approximately 45 percent between 1891 and 1921.
Post-independence history
Pakistan's population has grown rapidly from around 30 million in 1947 to over 220 million in 2020. Despite this, Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the same period. Average annual real GDP growth rates2005-06 Economic and Social Indicators of Pakistan were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. See alsoNational Accounts (current prices)
1950s and 1960s: Initial decades Economic growth during the 1950s averaged 3.1 percent per annum, and the decade was marked by both political and macroeconomic instability and a shortage of resources to meet the nation's needs. After the State Bank of Pakistan was founded in 1948, a currency dispute between India and Pakistan broke out in 1949. Trade relations were strained until the issue was resolved in mid-1950. Monsoon floods between 1951–52 and 1952-53 created further economic problems, as did uneven development between East and West Pakistan.
Pakistan's economy was quickly revitalized under Ayub Khan, with economic growth averaging 5.82 percent during his eleven years in office from 27 October 1958 to 25 March 1969. Manufacturing growth in Pakistan during this time was 8.51 percent, far outpacing any other time in Pakistani history. Pakistan established its first automobile and cement industries, and the government constructed several dams, (notably Tarbela Dam and Mangla Dam), canals, and power stations, in addition to launching Pakistan's space program.