Stimulus or hindrance to Pakistan’s private sector?

The cornerstone of the government’s adjustment program is to increase the efficiency of private investment and activity by deregulating the economy and promoting competition. The counterpart of this fundamental strategy is the need to increase the effectiveness of the public sector which in Pakistan had become overextended. To this end, public sector resources and management capacity are being redirected and concentrated in those areas in which public sector intervention is required because of market failures or social objectives. The results obtained strongly suggest that the government’s program is supported by strong empirical evidence. There is no question that private investment has been discouraged by the public capital formation in manufacturing. Not only has government investment in this area stifled the private sector, but also it has diverted funds away from productive activities that would most likely have encouraged a follow-on expansion in private investment. Introduction The sources of growth in any country can be examined from several different perspectives, each suggestive of policy actions undertaken by government authorities: (1) The factors of production – the relative contribution of labor capital and the like to overall output. (2) The major sources of output demand – consumption, investment, exports. (3) Sectoral contribution to growth – the contribution to output made by agriculture, manufacturing, etc. Regarding the sectoral contributions to growth in Pakistan, Burney (1986) found that over the 1960-85 period, commodity producing sectors (agriculture and manufacturing) accounted for than 40 percent of the growth in GDP. The major crops were the main source of the varying contribution of agriculture. In the case of manufacturing, large-scale sectors’ output accounted for more than 60 percent of the contribution. The economy has gone through a number of major changes since 1985. In particular (but especially from 1988 onwards) progress has been particularly strong in the area of freeing the private sector from regulation and artificial price distortions. In addition, a complementary privatization program was launched with the aim to reduce the role of the public sector in manufacturing and services, thereby alleviating the government’s financial and administrative burden and creating new opportunities for the private sector. International Journal of Social Economics, Vol. 26 No. 4, 1999, pp. 521-536, © MCB University Press, 0306-8293 Report Documentation Page Form Approved