Understanding Economy

ECONOMIC OBSTACLES TO ECONOMIC DEVELOPMENT IN DEVELOPING COUNTRIES

Anything that adversely affects the process of economic development may be d a barrier or obstacle. It is an analysis that these obstacles are represented by the lack, inadequacy, or inefficiency of human and non-human factors, which are regarded as essential for the process of economic growth and development of a country. The various obstacles are subdivided as economic, political, social, cultural and administrative in Pakistan.

The major economic obstacles are the following:

1. Lack of Capital:

Pakistan is basically an agrarian country whose income mainly depends on agriculture. But due to the backward agriculture sector, per acre yield is low, therefore, per- capita income is low. In Pakistan per-capita income was Rs. 3905 at 1980-81 constant prices. The level of saving is low due to the low level of income and therefore, the level of investment is low. The ratio of savings to gross national product is low. Development programs cannot be completed and we have to depend on foreign aid and loans which becomes a burden on the economy. Per capita income at current market prices is $1046 per annum during 2008-09 that was $1046 during 2007-08.

2. Lack of Technology:

Another obstacle to economic development is the lack of technology. In Pakistan literacy rate is low and the ratio of higher education is negligible. Pakistan is an agrarian country but agriculture is backward due to obsolete techniques of production. Each and every sector of the economy is underdeveloped. In the industrial sector modem technology is not being used. Means of transport and communication are underdeveloped. Hence, a low level of economic development is due to a lack of technology.

3. Lack of Foreign Exchange:

Pakistan is facing a problem with shortage of foreign exchange because our export and export prices are not increasing as against imports and import prices. Balance of payments position remains unfavorable and to correct balance of payments we have to take foreign debts worth millions of dollars every year. Total foreign debt has reached $50.1 billion in the year 2008-09 against $44 billion at the end of March 2008.

4. Lack of Entrepreneur:

There is a shortage of hardworking, experienced and efficient entrepreneurs. Entrepreneurs play a vital role in the economic development of a country. These are the people who organize business and use national resources properly. In our country entrepreneurs only invest in that business where risk is minimum and the rate of profit is high, they avoid innovation and modernization that is why the production of goods and services is less than the country’s demand. In some sectors, there is overproduction while in other sectors it is negligible. There are no proper training institutions for entrepreneurs.

5. Under Developed Natural and Human Resources:

In Pakistan natural resources such as; fertile soil, favorable climate, water resources, minerals and human resources such as; doctors, engineers, artisans, etc., are underdeveloped There should be forests on 25% of the total area which is only 4% in Pakistan.

Human resources are backward. The literacy rate stood at 56% during 2008-09 as compared to 55% during (2007-08). People are not well trained and have less knowledge of modern technology. They prefer out-dated techniques of production, religious factor is dominating and the majority of women are not included in the working force, therefore, the rate of economic development remains low.

6. Imbalanced Growth:

The unbalanced growth could be identified in the number of sectors. Over the years Pakistan has progressed in the agricultural sector while it lagged behind in human resource development. Financial constraints are another major impediment in national development. This is further compounded by the improper allocation of resources.

7. Market Imperfections:

It is another important obstacle to the economic development of less developed countries. Market imperfections appear in the form of immobility of the four factors of production, price rigidity, ignorance of market conditions, rigid social structure, lack of specialization, etc. In the less developed countries, labor and capital are fewer mobiles in search of higher returns. All these and other market imperfections act as a hindrance to the achievement of optimum allocation of scarce resources.

8. International Forces:

The rate of economic growth in the third word has also been adversely affected by economic forces operating in the world economy. The developing countries are mainly relying on the exports of primary products raw materials and semi-manufactured items and export prices of these products in the international market are either stagnant or fluctuating against them. The advanced world, on the basis of superior technology, has made rapid progress in economic growth and the prices of industrial exports, machinery, technology are rising. This has adversely affected the balance of trade and balance of payments of less developed countries which in turn affected the level of national income per capita income, living standard.

9. Non Availability and Under Utilization of Resources:

The main problem is the miss utilization of resources. The Natural resources comprise of Coal, Gas, Oil, Forests, etc., play an important role in economic development. But these resources are not still handsomely discovered in Pakistan due to lack of research and survey. Moreover, the known resources are not being fully utilized. The resultant production level remains low.

10. Vicious Circle of Poverty:

A common feature of developing economies is the vicious circle of poverty. We are also in a circle of poverty. Economic backwardness in Pakistan operates both as cause and as an effect. That is why we are poor. Income levels are low in Pakistan people hardly meet their basic needs within their small income. So nothing remains as savings, which is an essential need for development. Savings rose to 14.4% of GDP during 2008-09 as compared to 13.9% in the same period last year. Pakistanis cannot save money, as their propensity to consume is high consequent investment level remains low. Capital flight is another reason for low capital formation.

11. Inefficient Trade and Commerce:

Trade and commerce activities which promote the economic development of a country are also poor in Pakistan due to the following:

(a) Backward Industry:

Pakistan has a poor industrial set up. Industrialization is a must for development. Pakistan’s industrial growth is not accelerating. Marketing for industrial goods is also not proper. The growth rate for industry posted at -3.3% (2008-09) as compared to 5.4% 200708200708

(b) Backward Agriculture:
Overall the agriculture sector of Pakistan is backward. The productivity level is low. Agriculture performed better in 2008-09, growing at 4.7% as against 1.5% during 2007-08.

(c) Capital Market:

It plays an important role in the growth of the economy. The stock exchange is one of nine components of the capital market. There are three stock exchange markets in Pakistan. The general volume index of KSE, LSE, and ISE has been continuously fluctuating. The performance of other capital market institutions is also not satisfactory.

12. Weak Infrastructure and Economic Structure:

Pakistan has inadequate infrastructure which actually gives a push to the economic development of a country. Our economic structure is backward we have not been able to develop a sound economic structure. The imposition of sale tax, change of policy, improper economic plans, etc disturbs the economic structure.

13. Transport and Communication:

Transport and communication network in Pakistan consists of Roads, Railways, Ports, Shipping. Telecommunication, services, etc, which are not enough for our economic development. We have traffic jam problems, our roads are congested and the communication network is weak.

14. Energy:

The state of commercial energy like Oil, Electricity, Gas, etc, are inadequate for our development. All kinds of industries and agriculture need these power resources. Dams can be constructed in Pakistan through which the supply of electricity can be made adequate. Unfortunately due to political disputes work on such projects cannot yet be started.

15. Lack of Skill and Research:

The literacy rate in Pakistan remains only 56% this year. There is a lack of skill and entrepreneurial qualities. Most production techniques are outdated. We are not familiar with research and specialization.

16. Inconsistent Economic Policies:

Our economic policies are not clear. There is a frequent change in economic policies. We started our economy with privatization then practiced nationalization and again we are trying to operate our economy on the principles of liberalization. Local and foreign investors have lost their confidence.

17. Tax Structure:

Tax evasion is common in Pakistan and tax is mostly paid by the salaried class. There is a burden of indirect taxes. Most people are not satisfied with the tax structure. Day by day increasing the number of strikes by the traders. Transporters destroy peace. Due to all these factors, the government cannot start development projects in the country?

18. Unfavorable Foreign Economic Affairs:

The external sector can strengthen the economy but our foreign affairs are not favorable for us.
19. Unfavorable International Trade:

Our international trade is not favorable. We export raw material and primary goods while import costly machines, medicines, etc. This makes international trade adverse. Pakistan’s current account balance of payments stood at a deficit of $8.4 billion during the fiscal year 2008-09$ which was 11.6 billion during the fiscal year 2007-08.

20. The burden of Debt and Loans:

We get foreign aid and loan from different countries and international agencies. Our outstanding debt has been growing annually since 1988 at a rate of 7.2%. National debt reaches $50.1 billion in 2008-09, from $44.6 billion at the end of March 2008. So we are depending on international relations. We have to follow the terms and conditions imposed by the donor countries.

21. Capital Flight:

Every month millions of Pakistan’s capital flies to other countries due to lack of infrastructure and political instability. The capital flight problem creates a deficiency of capital.

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