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Economy
With a per capita
GDP of about PPP $2,200, the World Bank considers Pakistan a
low-income country. No more than 45.7% of adults are literate, and
life expectancy is about 63 years. The population, currently about
162.4 million, is growing at 2.0% annually.
In 2000, the
government made significant macroeconomic reforms. Privatizing
Pakistan's state-subsidized utilities, instituting a world-class
anti-money laundering law, cracking down on piracy of intellectual
property, and quickly resolving investor disputes would aid
Pakistan's efforts to improve its investment climate. After
September 11, 2001, and Pakistan's proclaimed commitment to
fighting terror, many international sanctions, particularly those
imposed by the United States, were lifted. Pakistan's economic
prospects began to increase significantly due to unprecedented
inflows of foreign assistance at the end of 2001. This trend is
expected to continue through 2009. Foreign exchange reserves and
exports grew to record levels after a sharp decline. The
International Monetary Fund recently lauded Pakistan for its
commitment in meeting lender requirements for a $1.3 billion IMF
Poverty Reduction and Growth Facility loan, which it completed in
2004, forgoing the final permitted tranche. The Government of
Pakistan has been successful in issuing sovereign bonds, and has
issued $600 million in Islamic bonds, putting Pakistan back on the
investment map. Pakistan's search for additional foreign direct
investment has been hampered by concerns about the security
situation, domestic and regional political uncertainties, and
questions about judicial transparency.
U.S. assistance has
played a key role in moving Pakistan's economy from the brink of
collapse to setting record high levels of foreign reserves and
exports, dramatically lowering levels of solid debt. This
encouraged a 6.1% GDP growth in fiscal year 2003-2004 and a
reported GDP increase of over 8% in fiscal year 2004-2005. In
2002, the United States led Paris Club efforts to reschedule
Pakistan's debt on generous terms, and in April 2003 the United
States reduced Pakistan's bilateral official debt by $1 billion.
In 2004, approximately $500 million more in bilateral debt was
granted. In the second half of 2004 and first half of 2005
inflation has been a concern, rising above the historic lows for
inflation in 2004.
Low levels of
spending in the social services and high population growth have
contributed to persistent poverty and unequal income distribution.
The trends of resources being devoted to socioeconomic development
and infrastructure projects have been improving since 2002,
although expenditures remain below global averages. Pakistan's
extreme poverty and underdevelopment are key concerns. The
government has reined in the fiscal mismanagement that produced
massive foreign debt, and officials have committed to using
international assistance--including a major part of the $3 billion
five-year U.S. assistance package--to address Pakistan's long-term
needs in the health and education sectors.
The government
started pursuing market-based economic reform policies in the
early 1980s. These reforms began to take hold in 1988, when the
government launched an ambitious IMF-assisted structural
adjustment program in response to chronic and unsustainable fiscal
and external account deficits. The government began to remove
barriers to foreign trade and investment, reform the financial
system, ease foreign exchange controls, and privatize dozens of
state-owned enterprises.
Although the
economy became more structurally sound, it remained vulnerable to
external and internal shocks, such as in 1992-93, when devastating
floods and political uncertainty combined to depress economic
growth sharply. The Asian financial crisis seriously affected
Pakistan's major markets for its textile exports. During the 1980s
and early 1990s, the economy averaged a growth rate of 6% per
year, but afterwards growth dwindled until 2002. For example,
average real GDP growth from 1992 to 1998 dipped to 4.1% annually.
Economic reform also was set back by Pakistan's nuclear tests in
May 1998, and the subsequent economic sanctions imposed by the
G-7. International default was narrowly averted by the partial
waiver of sanctions and the subsequent reinstatement of Pakistan's
IMF enhanced structural adjustment facility/extended fund facility
in early 1999, followed by Paris Club and London Club
re-scheduling. After taking power in late 1999, President
Musharraf instituted policies to stabilize Pakistan's
macroeconomic situation. Pakistan continues to struggle with these
reforms, having mixed success, especially in reducing its budget
and current account deficits.
The Karachi Stock
Exchange (KSE) enjoyed strong growth from 2003 to early 2005,
before undergoing a market correction of close to 20% of market
capitalization in early 2005. KSE’s market capitalization
rebounded to all time highs in mid-2005. Regulations have been
implemented targeted at the speculative margins-purchasing that
was blamed for volatility in early 2005.
Information
obtained from the US Dept of State Website |
