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Country Profile 2005

Pakistan This Country Profile is a reference work, analysing the country�s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit�s Country Reports analyse current trends and provide a two-year forecast.

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Pakistan 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Pakistan

3 Basic data

4 Politics 4 Political background 6 Recent political developments 9 Constitution, institutions and administration 10 Political forces 13 International relations and defence

18 Resources and infrastructure 18 Population 19 Education 19 Health 20 Natural resources and the environment 21 Transport, communications and the Internet 23 Energy provision

24 The economy 24 Economic structure 25 Economic policy 27 Economic performance 28 Regional trends

29 Economic sectors 29 Agriculture 30 Mining and semi-processing 30 Manufacturing 31 Construction 32 Financial services 33 Other services

33 The external sector 33 Trade in goods 35 Invisibles and the current account 35 Capital flows and foreign debt 37 Foreign reserves and the exchange rate

38 Regional overview 38 Membership of organisations

39 Appendices 39 Sources of information 40 Reference tables 40 Population 40 Labour force 40 Transport infrastructure 41 Energy supplies

2 Pakistan


41 Federal and provincial government budgets 42 Money supply 42 Interest rates 42 Gross domestic product 42 Gross domestic product by sector 43 Nominal gross domestic product by expenditure 43 Real gross domestic product by expenditure 43 Prices and earnings 43 Agriculture: basic data 44 Agricultural production 45 Non-fuel minerals production 45 Manufacturing production 46 Karachi Stock Exchange statistics 46 Main composition of trade 46 Main trading partners 47 Balance of payments, IMF series 47 External debt, World Bank series 48 Foreign reserves 48 Exchange rates

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Pakistan

Basic data

796,095 sq km

152.5m (June 2004 official estimate)

Population in millions, June 2003

Karachi 10.1 Lahore 5.6 Faisalabad 2.3

Subtropical, cold in highlands

Hottest month, June, 28-34°C (average daily minimum and maximum); coldest month, January, 13-25°C; driest month, October, 1 mm average monthly rainfall; wettest month, July, 81 mm average rainfall

English is the official language; Urdu is the national language

Imperial system, changing to metric. Local measures include 1 seer = 0.933 kg; 1 maund = 40 seers = 37.32 kg

Numbers are still commonly expressed in crores and lakhs: 1 crore=10m, written 1,00,00,000; 1 lakh=100,000, written 1,00,000, although in 1978 the inter-national system of millions, billions etc was introduced

Rupee (Rp)=100 paisa. Average exchange rate in 2004: PRs58.26:US$1. Exchange rate on October 20th 2005: PRs59.73:US$1

Six hours ahead of GMT in the summer; four hours ahead of GMT in the winter

July 1st-June 30th

January 21st (Eid al-Azhaa), February 18th (Ashuraa), March 23rd (Pakistan Day), April 21st (Eid-i-Milad-un-Nabia), May 1st (May Day), August 14th (Independence Day), November 3rd (end of Ramadan; Eid al-Fitra), November 9th (Allama Iqbal Day), December 25th (birth of Quaid-i-Azam and Christmas Day)

a These holidays are dependent on the Islamic lunar calendar and may vary slightly from the dates listed.

Main towns

Climate

Weather in Karachi

Languages

Measures

Currency

Time

Fiscal year

Public holidays in 2005

Land area

Population

4 Pakistan


Politics

On October 12th 1999, General Musharraf, then chief of army staff, overthrew the civilian government of Nawaz Sharif in a bloodless coup and the army returned to power. In April 2002 he held a referendum (which independent observers claim was rigged) and secured his election as president for five years, until 2007. In October 2002, in a partial return to democracy, Pakistan held a parliamentary election. The election was marred by allegations of poll rigging and pro-Musharraf parties won a simple majority. On May 17th 2005 it was announced that General Musharraf would seek to stay on as president when his current term expires in 2007.

General Musharraf presides over an elected parliament and prime minister. Nevertheless, in his capacity as chairman of the National Security Council, he has the power to dismiss the prime minister and to suspend parliament and all other government institutions. The Supreme Court, in a landmark ruling, dismissed legal challenges to his rule. General Musharraf also controls the powerful officer corps of the army, Pakistan�s most influential institution and his ultimate guarantor of power.

The opposition in parliament consists of the Alliance for the Restoration of Democracy, made up of a coalition of the Pakistan People�s Party and the Pakistan Muslim League (Nawaz), or PML (N), and the coalition of religious parties, the Muttahida Majlis-i-Amal. The opposition remains weak because the key leaders, including two former prime ministers, Benazir Bhutto and Nawaz Sharif, remain in exile. The main risk to political stability remains the threat of assassination against General Musharraf; he narrowly escaped two assassin-ation attempts in 2003-04.

Political background

The idea of a separate homeland for the Indian subcontinent�s Muslims was first enunciated in 1930 by a poet, Muhammad Iqbal, and formally adopted by the All India Muslim League, led by Muhammad Ali Jinnah, on March 23rd 1940. Pakistan gained independence on August 14th 1947 when British India was partitioned. West Pakistan (now Pakistan) and East Pakistan (now Bangladesh) were separated by 1,600 km of Indian territory. Pakistan today comprises the four provinces of Punjab, Sindh, North West Frontier Province (NWFP) and Baluchistan, as well as the Federally Administered Tribal Areas and the Federal Capital Area (FCA) of Islamabad.

Following a succession of civilian and military governments, the first general election for a National Assembly was held in December 1970. The largest number of seats was won by Mujibur Rehman�s Awami League (AL; based in East Pakistan). However, Zulfikar Ali Bhutto�s Pakistan People�s Party (PPP) took a lead in the west. Confronted by the reluctance of the PPP and the army (controlled by West Pakistani political leaders) to countenance a Bengali-dominated government in Pakistan as a whole, in March 1971 the AL launched

Pakistan splits in 1971

The opposition remains weak

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a campaign of civil disobedience, immobilising the east. A brutal military crackdown, in which hundreds of thousands of Bengalis were killed, came to an abrupt end in December that year, when the Indian army intervened and East Pakistan, now renamed Bangladesh, was declared an independent state.

Mr Bhutto became president and chief martial law administrator of a truncated Pakistan, and, following the passage of a new constitution in April 1973, its prime minister. Although the PPP won an outright victory in the general election of March 1977, strong-arm tactics employed against the oppos-ition at the local level sparked widespread protests. On July 5th 1977, General Muhammad Zia ul-Haq, the chief of army staff, removed Mr Bhutto and declared martial law. Mr Bhutto was put on trial for alleged complicity in the murder of a political opponent. He was convicted, and was hanged on April 4th 1979. General Zia�s increasingly harsh rule was characterised by an Islamisation programme ostensibly designed to fulfil the original purpose of Pakistan but aimed in reality at extending his own rule by generating popular support.

Political opposition centred on the Movement for the Restoration of Democracy (MRD), of which the most important component was the PPP, now led by Benazir Bhutto, the former prime minister�s daughter, who returned from exile in April 1986. General Zia died in a plane crash!probably the result of sabotage!on August 17th 1988, and, in accordance with the constitution, was succeeded as head of state by the chairman of the Senate (the upper house of parliament), Ghulam Ishaq Khan, a former civil servant. Ms Bhutto�s PPP became the largest party in the National Assembly (the lower house) at the November 1988 election. The PPP formed a government after reaching an understanding with the Muttahida Qaumi Movement (MQM), which represents Urdu speakers from India (mohajirs) who settled in urban areas of Sindh province at partition.

Ms Bhutto�s administration seemed doomed from the outset, however. Rivalry for control of Sindh, the PPP�s traditional heartland, rapidly soured relations with the MQM; the Islami Jamhoori Ittehad (IJI, a multiparty alliance dominated by the Pakistan Muslim League, or PML), which had come a close second in the federal polls and had won control of the Punjab assembly (the key provincial parliament), proved implacable in opposition; and the �establishment�!the all-powerful army high command and senior civil servants!increasingly resented a government it considered not only weak and corrupt but also unfit to handle sensitive defence and foreign policy issues. Mr Khan sacked Ms Bhutto 20 months into her five-year term and installed a biased caretaker adminis-tration to ensure �positive results� in elections within 90 days.

The October 1990 general election was duly won by the IJI, and Nawaz Sharif, an industrialist and former chief minister of Punjab, became prime minister. Despite enjoying a two-thirds majority in the National Assembly, effective control of all four provincial parliaments and the backing of the military and the president, the essentially artificial nature of the IJI!hastily cobbled together by the Inter-Services Intelligence agency after General Zia�s death to meet the challenge posed by Ms Bhutto and a resurgent PPP!soon became apparent.

Nawaz Sharif first takes power in 1990

6 Pakistan


Initially supportive parties, including the fundamentalist Jamaat-i-Islami and the MQM, were alienated.

Relations between Mr Sharif and Mr Khan degenerated into a battle for political supremacy. In April 1993 the head of state dismissed the prime minister and installed another caretaker regime, which included members of the PPP. Although Mr Sharif was reinstated six weeks later by the Supreme Court, which ruled that Mr Khan had exceeded his powers, the power struggle continued. It was brought to an end on July 15th when the army chief, General Abdul Waheed, forced both men to resign.

An election in October 1993, which was overseen by an interim government headed by a former World Bank vice-president, Moeen Qureshi, returned the PPP as the largest party in the National Assembly, followed by Mr Sharif�s faction of the PML, the PML (N). Owing to the support of a breakaway faction of the PML, Ms Bhutto was able to form a coalition government both at the centre and, crucially, in Punjab.

However, the PPP-led administration failed to address widely held grievances, including declining living standards and mounting lawlessness and terrorism, as well as rampant high-level corruption. Yet it was Ms Bhutto�s increasingly brazen manipulation of the democratic process to sustain and prolong her rule, not least the extrajudicial killing of hundreds of MQM militants, that tipped the balance against her. The army high command urged Farooq Leghari (who had been deputy leader of the PPP for years before his elevation to the presidency) to oust her, which he did in November 1996.

Recent political developments

The depth of popular disaffection with the PPP, coupled with the interim government�s hostility towards Ms Bhutto, propelled Mr Sharif�s PML (N) to an overwhelming victory in federal and provincial parliamentary elections in February 1997. However, Mr Sharif�s attempts again to hog all powers embroiled him in a series of disputes with the chief justice, Sajjad Ali Shah, the president, Mr Leghari, and the army chief, General Jehangir Karamat, and led to the ousting of all three in due course. Mr Sharif also lost important electoral allies (such as the MQM), angered regional parties with his perceived bias in favour of Punjabi interests, and clashed repeatedly with increasingly vocal opposition parties!not least over Islamisation policies. Unable to address the country�s chronic economic and law-and-order problems, the government was perceived as ever more corrupt, autocratic and reckless.

Differences with General Karamat�s successor, General Musharraf, erupted into all but open hostility after Mr Sharif bowed to international pressure in July 1999 and prevailed on militants backed by the Pakistani army to withdraw from the strategic positions they had seized in Indian Kashmir in April, provoking the most serious military conflict between the two countries since their 1971 war. General Musharraf was infuriated by Mr Sharif�s claims that the government had not been sufficiently consulted in advance about the campaign, and by the prime minister�s subsequent efforts to encourage senior officers to challenge General Musharraf�s authority.

The Sharif government's term in office is short

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On October 12th 1999, shortly after state-run television announced that General Musharraf!who was returning from a visit to Sri Lanka!had been sacked, Mr Sharif was himself deposed and arrested by generals loyal to General Musharraf. Mr Sharif was subsequently convicted of terrorism and hijacking!arising from ultimately unsuccessful attempts made to prevent the army chief�s flight from Sri Lanka landing in Pakistan!and was sentenced to life imprisonment. General Musharraf, who said that he had been compelled to act to �prevent any further destabilisation� of the military, suspended parliament and the constitution, named himself Pakistan�s �chief executive�, and established a National Security Council dominated by serving generals as the country�s supreme decision-making body.

The new administration�s objectives, which General Musharraf said would have to be attained before �true democracy� could be restored, included the revival of the economy; the restoration of law and order; a purge of corrupt politicians and officials; the prevention of the exploitation of religion for sectarian or political ends; the depoliticisation of state institutions; the rebuild-ing of national confidence; the strengthening of Pakistan�s federal structure; and the devolution of powers to grass-roots bodies.

In September 2001 General Musharraf took the critical decision to side with the US against the Taliban and al-Qaida, and was rewarded with significant international debt rescheduling, loans and debt swaps to revive the ailing economy. Capitalising on the backdrop of international goodwill, in April 2002 he held a highly dubious referendum to secure his �election� as president for five years.

In June 2002 General Musharraf proposed sweeping constitutional amend-ments to enshrine the army in politics with himself as an all-powerful presi-dent. In July he passed laws banning two former prime ministers, Ms Bhutto and Mr Sharif, from contesting the October 2002 election. That election that was marred by allegations of pre-poll rigging against the main opposition parties, and pro-Musharraf parties and groups were returned to power. However, the national parliament remained deadlocked while debating a potential agreement between General Musharraf and the elected assembly on power-sharing between civilian politicians and the army.

At end-2003 General Musharraf clinched a compromise deal with the Muttahida Majlis-i-Amal (MMA), an alliance of six religious parties in parlia-ment. In exchange for a verbal promise to step down from his army position before 2005, the constitution was amended to legitimise General Musharraf�s presidential role. The amendment declares the validity of all laws implemented since 1999, and explicitly states that no laws enacted during and since 1999 may be called into question in a court of law under any circumstances.

In a statement issued on September 15th 2004 the minister of information, Sheikh Rashid Ahmed, announced that General Musharraf would not be stepping down as chief of army staff before the end of 2004. Then, on October 14th, General Musharraf�s supporters in parliament presented a bill permitting General Musharraf to remain army chief and president until 2007. The bill was

General Musharraf overthrows Mr Sharif in 1999

General Musharraf becomes a US ally in the �war on terror�

8 Pakistan


passed by a simple majority, despite strong criticism from the opposition. On May 17th 2005 it was announced that General Musharraf would seek to continue as president after 2007.

Important recent events

September 2001

The president, General Pervez Musharraf, supports the US in the aftermath of the September 11th terrorist attacks on US soil, earning resentment from Islamist hardliners but improving his international standing.

October 2002

General Musharraf issues a Legal Framework Order and holds a general election, which the two former prime ministers, Nawaz Sharif and Benazir Bhutto, are not allowed to contest. International observers allege that the poll is marred by pre-election rigging. The Muttahida Majlis-i-Amal (MMA) alliance of Islamist parties wins an unprecedented 59 seats.

November 2002

The pro-government Pakistan Muslim League (Quaid-i-Azam), or PML (Q), together with smaller parties and defectors from the main parties, forms a government with a slim majority.

June 2003

General Musharraf is invited to the US by the president, George W Bush. Pakistan is promised US$3bn in economic and military assistance over the next five years.

September 2003

The MMA threatens to hold street demonstrations in protest at General Musharraf�s failure to give up his military role.

December 2003

General Musharraf clinches a compromise deal with the MMA. In exchange for a verbal promise to step down from his army position before 2005, the constitution is amended to legitimise General Musharraf�s presidential role. The amendment declares the validity of all laws implemented since 1999, and explicitly states that no laws enacted during and since 1999 may be called into question in a court of law under any circumstances.

October 2004

General Musharraf wins parliamentary approval to remain both president and army chief until 2007.

May 2005

On May 17th 2005 the government announced that General Musharraf will seek to stay on as president after his current term expires in 2007.

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Constitution, institutions and administration

The 1973 constitution, framed by Mr Bhutto�s PPP government, provided for a federal democratic structure. Still in force prior to General Musharraf�s October 1999 coup, it had undergone major amendments, often to legitimise the authoritarian actions of successive administrations. The most sweeping changes, announced in March 1985 by General Zia�s martial law regime, formalised the concentration of power in the hands of the president, who assumed the right to dissolve the National Assembly and to appoint the prime minister, the three chiefs of the armed forces, provincial governors and key judicial figures.

These provisions remained in place for many years, not least because they allowed the army to impose its will indirectly through the president, thus avoiding the need for a full-blooded military intervention in politics. However, soon after becoming prime minister in February 1997 Mr Sharif used his two-thirds majority in parliament to eliminate many of the executive powers of the president, including the power to sack governments.

Tensions between the executive and the judiciary have been commonplace in recent years, largely owing to attempts by civilian governments to assert their supremacy. A protracted power struggle in 1997 between Mr Sharif and the chief justice whom he inherited, Sajjad Ali Shah, which began as a dispute over who had the right to appoint senior judges, led to Mr Shah�s dismissal in December of that year (and the resignation of Mr Leghari as president), and to the passage of constitutional measures curtailing the powers of the chief justice.

General Musharraf�s administration carried out 29 amendments to the constitution unilaterally through a Legal Framework Order (LFO) issued on October 10th 2002, the day of the general election. The Supreme Court has taken the view that the LFO cannot be challenged through the courts, and that only parliament has the power to amend it or get rid of it altogether. However, following the election neither the government nor the opposition had the two-thirds voting strength in parliament required to amend the constitution, either to validate or to reject the amendments. The two sides spent nearly a year in negotiation. The three main disagreements were whether the president had the right to dismiss parliament; the timeframe within which General Musharraf would quit as army chief; and whether General Musharraf should be elected as president through the LFO or by a vote in the parliamentary electoral college.

By September 2003 the talks had broken down and the opposition was preparing to launch street demonstrations. However, in December 2003 General Musharraf clinched a compromise deal with the MMA: General Musharraf publicly (but only verbally) agreed to step down from his position as army chief in exchange for the MMA�s support in amending the constitution to legitimise his role since 1999. The crucial article 270 AA in the constitutional amendment declares the validity of all laws and orders enacted since October 14th 1999. In particular, it explicitly states that no laws enacted or actions taken since 1999 can under any circumstances be questioned in a court of law.

Tension between executive and judiciary is high

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Political forces

The army remains Pakistan�s ultimate political arbiter. It has run the country for as many years as civilian governments, and was the driving force behind the premature removal of the last four elected administrations!Ms Bhutto�s in 1990 and 1996, and Mr Sharif�s in 1993 and 1999!all of which paid the price for seeking to increase their power at the military�s expense. In August 2001 and August 2005 General Musharraf�s regime held non-party local polls to elect officials (nazims) who would represent a new breed of civilian politicians untainted by the excesses of their predecessors and inclined to support the army�s political agenda. General Musharraf has, by and large, succeeded in achieving this goal. Under the new system, a nazim answers to a district co-ordination officer (DCO), who is appointed by the provincial governor, who is in turn appointed by General Musharraf. However, tensions have emerged over the distribution of power and funds between the nazim and the provincial members of parliament. The latter claim that their powers of patronage have been curtailed, thereby undermining their clout in their constituencies.

The Pakistan Muslim League (PML) was long regarded as the party closest to the powerful establishment of generals and senior bureaucrats. Mr Sharif, for example, was groomed as a politician by General Zia, and his first governing coalition was originally contrived by military intelligence as a counterweight to the PPP. After two disappointing and curtailed stints in government in a decade, the PML is now widely perceived as incompetent and corrupt. With Mr Sharif in exile, it has split into two factions, one of which, the pro-military PML (Quaid-i-Azam), or PML (Q), dominates the current government. In September 2003 four smaller anti-Sharif factions of the PML were persuaded to join the PML (Q). The PML (Nawaz), or PML (N), remains loyal to Mr Sharif and is part of the opposition.

The only other national party, the Pakistan People�s Party (PPP), was likewise discredited after having failed to deliver during its two recent periods in office, and won just 18 of the 217 seats in the federal parliament in the February 1997 election. The party is, in effect, leaderless because of Ms Bhutto�s reluctance to return to Pakistan!the military government has stated that if she chooses to return to Pakistan it would either arrest her or deport her immediately. Despite this, her party performed well in the October 2002 election, winning 87 seats. However, the PPP now has only 80 seats, as the government has lured several PPP parliamentarians to defect and join the government.

The military

The PML

The PPP

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Parliamentary forces (no. of seats held in the National Assembly)

Oct 2002 Jun 2005Pakistan Muslim League (Quaid-i-Azam) or PML (Q) 118 122Pakistan People's Party (PPP) parliamentarians 80 77

Muttahida Majlis-i-Amal (MMA) 59 61Pakistan Muslim League (Nawaz) or PML (N) 19 19Muttahida Qaumi Movement (MQM) 17 18

National Alliance 16 14Pakistan Muslim League (F) 5 4

Pakistan Muslim League (J) 3 3Pakistan People's Party (Sherpao) 2 2Pakistan Muslim League (Jinnah) - 1

Pakistan Mili Awami Party - 1Baluchistan National Party 1 1

Jamhoori Wattan Party 1 1Pakistan Awami Tehrik 1 -

Pakistan Muslim League (Z) 1 1Tehrik-i-Insaf 1 1Mohajir Qaumi Movement 1 -

Independents (incl 12 from federally administered tribal areas) 17 16Total 342 342

Source: Election Commission of Pakistan.

In an unprecedented move, Pakistan�s six main religious parties formed a united front to contest the 2002 election. This grouping, the Muttahida Majlis-i- Amal (MMA) largely comprises the Jamaat-i-Islami and the Jamiat-i-Ulema-i-Islami, both of which have historically drawn support from the tribal and conservative areas of the North West Frontier Province (NWFP). The MMA won 59 seats in the National Assembly in the general election to become the second-largest opposition party in the country, and it also took control of the NWFP and Baluchistan, the latter in alliance with the PML (Q). The government�s move to undermine the PPP and the PML (N) had created a vacuum, which was filled by the MMA, and it successfully exploited widespread anti-US sentiment, particularly in NWFP. Until the 2002 election, the religious parties had never obtained more than 5% of the total vote in the country. In 2002 this rose to nearly 11%.

The Muttahida Qaumi Movement (MQM) was originally formed to support Muslim refugees that emigrated to Pakistan from India during the partition. It is the third-largest political party, although its support base is largely confined to Urdu speakers in the main cities of Sindh, particularly Karachi and Hyderabad. The MQM�s militancy and reputation as an unreliable ally have frequently prevented it from capitalising on its potential as a power-broker, although it is currently a partner in the pro-Musharraf state government in Sindh.

The MQM

The MMA

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Main political figures

General Pervez Musharraf

As the driving force behind the campaign by Pakistan-based Muslim militants in Indian Kashmir in mid-1999, the chief of army staff was perceived as an Islamic hard-liner prior to his overthrow of the government. However, in power General Musharraf has sought to cultivate a populist and pragmatic image as a pro-Western reformer keen to rid the country of self-serving politicians, crush terrorism and revive the economy. To a large extent he has cultivated this image successfully, especially abroad. However, moves to make himself an all-powerful president, to give the army a formal role in politics, to stop two former prime ministers, Benazir Bhutto and Nawaz Sharif, from returning to the country and to clamp down on religious extremism have pitted him against powerful political forces in Pakistan.

Nawaz Sharif and Benazir Bhutto

Now in exile, both former prime ministers are still popular even though elements of their parties have deserted them and joined General Musharraf. If General Musharraf were to step down and Pakistan were to revert to genuine civilian rule, both leaders would probably return to Pakistan and resume their domination of politics.

Altaf Hussain

The exiled leader of the Muttahida Qaumi Movement (MQM) first welcomed the military takeover but then boycotted the next local elections after accusing the army of being biased against him. He subsequently decided to participate in the 2002 general and provincial elections, and his party is now part of the pro-government coalition that governs Sindh province. Court cases against him filed by the governments of Ms Bhutto and Mr Sharif still stand, and there is no chance that he will return to Pakistan soon.

Shaukat Aziz

Hand-picked by General Musharraf, the prime minister has spent a large part of his career as a banker with Citibank of the US outside Pakistan. He has a reputation as a sound economist and reformer. He has no political base of his own, and relies on the goodwill of the president.

Maulana Fazlur Rehman and Qazi Hussain Ahmad

The two main leaders of the six-party religious alliance, the Muttahida Majlis-i-Amal, have acquired national status since their group formed Islamist provincial governments in the North West Frontier Province and Baluchistan. Mr Rehman is a pragmatic politician, whereas Mr Hussain is an ideologue. The two men struck a deal with General Musharraf at the end of 2003 on the issue of his tenure of both the presidency and the army leadership.

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International relations and defence

Tense relations with India since the traumatic and bloody partition of 1947 have led to three full-scale wars, several lesser skirmishes, a vigorous arms race and, most recently, a continuing stand-off along the international border and Line of Control (which separates the Indian- and Pakistani-controlled areas) in Kashmir, sparking fears of a possible nuclear war. Following India�s detonation of an atomic device in 1974, Pakistan launched its own nuclear programme.

In May 1998, after the newly elected government in India!led by the Bharatiya Janata Party (BJP)!had tested nuclear devices, Pakistan did the same, prompting several countries, including the US and Japan, to impose economic sanctions on both nations. The signing of the Lahore Declaration (which affirms the need for increased efforts by both countries to restore peace) by Mr Sharif and the Indian prime minister, Atal Behari Vajpayee, in February 1999 seemed to be a positive step towards the normalising of relations, but any perceived gains were quickly erased by the undeclared war in Kargil (in which Pakistani-backed militants entered Indian-controlled Kashmir, and were eventually repulsed in mid-1999). Talks between Mr Vajpayee and General Musharraf in Agra in July 2001 highlighted disagreements over Kashmir and broke down. In November 2001 India accused Pakistan of infiltrating Islamic militants into Kashmir. In December 2001 an audacious attack on the Indian parliament in New Delhi by terrorists (allegedly backed by Pakistan) led India to mobilise its entire army and threaten to go to war if the infiltration continued. Pakistan backed down and the US persuaded General Musharraf to reduce �crossborder� infiltration. War was averted but relations between the two neighbours remained tense. India held elections, which militants tried, but failed, to derail in Kashmir in October 2002. Clashes between militants and India�s security forces have continued unabated.

Following a conciliatory speech by Mr Vajpayee in April 2003, relations began to improve. Pakistan reciprocated with a show of goodwill, and the countries exchanged ambassadors and restored a bus service between Lahore and Delhi. Unofficial parliamentary delegations from both sides also tried to improve the relationship. In November 2003 India and Pakistan declared a ceasefire on the Line of Control in Kashmir. On January 1st 2004 direct air links between the countries were established, and a summit between Mr Vajpayee and General Musharraf followed. In March 2004, 30,000 Indian fans were permitted to travel to Pakistan to watch the India-Pakistan cricket series, and the event was extremely amiable.

In May 2004, following a general election in India, the new Indian prime minister, Manmohan Singh, pledged to continue to seek friendly relations with Pakistan. Talks led to a hotline being set up between the two countries� armies. Mr Singh met General Musharraf for the first time on the sidelines of the UN General Assembly meetings in New York in September 2004. The meeting, although inconclusive, was amicable. In April 2005, in the single most important confidence-building measure in over 50 years, Pakistan and India agreed to establish a bus route linking Pakistani- and Indian-administered Kashmir. The bus route crosses the disputed Line of Control that divides

Relations with India are improving

14 Pakistan


Kashmir. After a devastating earthquake that hit (largely Pakistani) Kashmir on October 8th 2005, India offered Pakistan US$25m in aid!one of the largest emergency aid packages India has ever offered to another country. India also dispatched emergency aid supplies to Pakistan and permitted the re-establishment of a telephone link between Indian- and Pakistani-administered Kashmir!telephone communication between the two Kashmirs had been barred for over 15 years.

Pakistan"s friendship with China, born out of a shared antipathy towards India and the former Soviet Union, has been one of the most consistent features of the country�s foreign policy. Officials of the US Central Intelligence Agency (CIA) believe that China has supplied Pakistan with nuclear technology and parts, as well as M-11 ballistic missiles capable of delivering nuclear weapons. During the Kargil dispute, China voiced little support for Pakistan, a reticence that may have reflected the challenge to its authority posed by Chinese Islamic insurgents. However, as a result of tensions between China and the new US administration, the US attempt to embrace India as a strategic ally against China and the proposed US National Missile Defence programme, China has suddenly renewed its strategic interest in Pakistan. A plan to develop a deepwater port near the mouth of the Persian Gulf at Gwadar is being implemented; the Chinese have committed US$1bn to its development over the next few years, causing much concern in the US. Once completed, it will enable the Chinese navy to dock at a friendly port in a key strategic area.

Pakistan was the most active external sponsor of the Afghan guerrillas during their war against the Soviet army and Afghanistan�s Moscow-backed govern-ment in Kabul, but has not enjoyed consistently good relations with any mujahideen group since the defeat of the communists in April 1992. In 1994 it actively backed the formation of the Taliban, the ultra-orthodox Sunni Muslim militia group that by 1998 had seized most of Afghanistan. However, Pakistan�s attempt to gain �strategic depth� through the installation of an ally in Kabul caused it problems, particularly with the US and Iran. At first, the imposition of sanctions on the Taliban regime by the UN forced Pakistan to be more circumspect in its relationship with the Afghan government. Then, following the al-Qaida attacks in the US on September 11th 2001, Pakistan undertook a swift strategic U-turn and sided with the US in its war against the Taliban in Afghanistan. Pakistan is trying to build a relationship with the new Afghan government installed by the US and led by Hamid Karzai, but its past support for the Taliban counts against it. Mr Karzai has alleged that Taliban remnants have taken refuge on Pakistan�s side of the tribal borderlands, from where they launch attacks on US and Afghan forces in Afghanistan.

Recent governments have sought to ingratiate themselves with the US in order to secure a resumption of military and economic assistance, which was cut off in 1990 after Pakistan was suspected of having attained nuclear weapons capability. Partly because the collapse of the already fragile economy after the May 1998 nuclear tests threatened a possible sale of nuclear technology to rogue states, the administration of the then US president, Bill Clinton, persuaded the US Congress to allow it to waive sanctions temporarily in the

China is a close friend

Relations with Afghanistan are tentative

US relations with Pakistan transformed by 9/11

Pakistan 15


interests of national security. In July 1999, facing worldwide censure for its organisation of the incursion into Indian-administered Kashmir, Pakistan was compelled to negotiate the details of its withdrawal from Kargil with the help of the US. Although the US expressed regret following the military takeover in October that year and urged General Musharraf to restore civilian rule as soon as possible, it opted to engage the new regime so that strategic concerns!nuclear and missile proliferation, regional instability and Islamic terrorism!could be addressed.

The September 11th 2001 terrorist attacks on the US transformed relations between the two countries. Pakistan�s important strategic position bordering Afghanistan, its vital role as a Muslim ally in the US-led �war on terror� and General Musharraf�s willingness to support the US military effort in Afghanistan overrode all other US concerns. This led to the lifting of all US sanctions in October and November 2001, allowing the US to support multilateral lending to Pakistan. In addition, the US rescheduled US$2.3bn of Pakistani debt, provided up to US$1bn in soft loans and grants and also persuaded the IMF and the World Bank to extend assistance of over US$2bn for poverty alleviation and growth over the following three years. In June 2003 the current US president, George W Bush, promised Pakistan US$3bn in economic and military assistance over the next five years, largely in return for Pakistan�s help in the war on terror. In 2004, in response to Pakistan�s lobbying to cement relations over the long term, the US accorded Pakistan the status of Major Non-NATO Ally, enabling the Pakistani government to receive substantial economic and military assistance. Scores of suspected al-Qaida activists have been handed over to the US authorities since September 11th 2001, and the US Federal Bureau of Investigation (FBI) has been given a relatively free hand to investigate and track down terrorists in Pakistan.

Military forces, 2005/06 Pakistan India ChinaArmy Personnel 550,000 1,325,000 1,600,000Main battle tanks >2,461 3,898 7,580Navy Personnel 24,000 55,000 255,000Frigates 7 16 42Submarines 11 16 69

Air force Personnel 45,000 170,000 400,000Combat aircraft 415 679 >1,900

Source: International Institute for Strategic Studies, The Military Balance 2005/06.

16 Pakistan


Security risk in Pakistan

Armed conflict

Tension between India and Pakistan was very high in 2001 and the two countries stood on the brink of war, although US intervention has since led to an improve-ment in relations. Further improvement is hindered by domestic pressure on each side to resist giving concessions to the other. Peace talks have foundered over the differing importance attached by the two sides to the issue of Kashmir. India has in the past argued that the Kashmir dispute is one of several issues that need to be resolved, while Pakistan has insisted that talks must focus on Kashmir, which it has argued is central to the two countries� poor relationship. Relations have improved since April 2003, when India unilaterally offered a �hand of friendship� to Pakistan. This was followed by host of conciliatory measures, and in November 2003 India declared a ceasefire on the Line of Control (which separates the Indian- and Pakistani-controlled areas) in Kashmir. India and Pakistan resumed dialogue in early 2004 when the then Indian prime minister, Atal Behari Vajpayee, met Pakistan�s president, General Pervez Musharraf, in the Pakistani capital, Islamabad, in January and the two countries agreed to continue an all-encompassing dialogue. Following the general election in India in May 2004, the new Indian prime minister, Manmohan Singh, pledged to continue the peace efforts. A meeting between Mr Singh and General Musharraf on the sidelines of the UN General Assembly discussions in New York on September 24th was amicable. Nevertheless, relations could sour quickly, and armed conflict is always a possibility.

Terrorism

Pakistan has been subject to several ethnic and religious conflicts that have erupted into violence. Sporadic bombings continue to occur nationwide, primarily on trains, buses and in marketplaces. Responsibility for bombings is rarely, if ever, claimed by any group, and they are often blamed on the Indian intelligence service, the Research and Analysis Wing (RAW). Extremist Shia and Sunni Muslim groups have killed members of rival sects, including senior business people. The government has attempted to crack down on some of these militant groups, which are believed to receive external assistance!the Shia groups from Iran, and the Sunni groups from private sources in Saudi Arabia. The proliferation of these groups can be linked to the growing prevalence of madrassas (Islamic schools). As successive governments have failed to improve the educational system, sect-based Islamic schools have filled the void, some of them inculcating an extreme outlook. The problem has been accentuated in recent times by the infiltration of al-Qaida militants into the urban areas of Pakistan in the aftermath of the US war in Afghanistan. There were numerous high-profile terrorist attacks in 2002, although the situation improved marginally in 2003. In 2004 a large bomb blast in Karachi killed over 20 people; rival Shia and Sunni groups blamed each other. General Musharraf and the prime minister, Shaukat Aziz, have both survived assassination attempts. It is clear that a number of militant units are focused on assassinating leading politicians; on a number of occasions they have come very close to their targets.

Pakistan 17


Civil unrest

Opposition political parties have historically held large rallies and called for strike action, and violence is commonplace during such demonstrations. The military government initially banned political rallies, although some were in the end allowed, and political parties generally did not seek to alienate themselves from the military in the run-up to the October 2002 elections by holding rallies or demonstrations. However, new laws, such as the condition that candidates for election must be university graduates, and the barring from participation in elections of two former prime ministers, Benazir Bhutto and Nawaz Sharif, and many of their allies, angered the mainstream parties. The elections were nevertheless not marred by undue violence. Nor, despite occasional threats by some political groups, have there been any significant anti-government rallies or civil unrest in 2004. But they cannot be ruled out altogether in the near future if there is no compromise between the opposition and General Musharraf over a constitutional package to legitimise the latter�s position as president.

Violent crime

Levels of crime are high in Pakistan. Car-jacking is common, particularly in Karachi. The incidence of robbery and murder is on the increase. The widespread availability of firearms has been reflected in an increase in armed robbery in urban areas. Tribal, rather than federal, laws apply in the tribal areas of the North West Frontier Province. Armed clashes between rival tribal groups have affected extractive industries in Baluchistan. Crimes against women, in particular, have shown an alarming rise in recent times, ranging from �honour killings� to gang-rapes in isolated rural areas. However, the government is making a belated effort to take firm action in the most glaring cases, largely to avoid negative publicity in other countries.

Drug smuggling

Pakistan remains an important transit route for opium from Afghanistan. Many of the laboratories that process raw opium into heroin are believed to be either located in areas of Pakistan bordering Afghanistan or to be run by Pakistanis working in Afghanistan. One report has suggested that heroin exports contribute about US$1.5bn to the Pakistan economy. Some senior officials within Pakistan�s government and security apparatus have been linked to the export of drugs. The fall of the Taliban in Afghanistan has led to an increase in the area given over to opium cultivation in that country under the control of autonomous warlords.

18 Pakistan


Resources and infrastructure

Population

Official estimates put the population of Pakistan at 152.5m in mid-2004. Pakistan�s population growth rate has been on a declining trend, from over 3% per year in the early 1980s to less than 2% in 2004, a trend that derives in part from the increased, if still modest, coverage of family planning programmes. The last population census was conducted in 1998, and showed that Punjab�s share of the total population had declined to 55.6% from 56.2% in 1981 (the year of the previous census), Sindh�s share edged up to 23% from 22.6%, that of the North West Frontier Province (NWFP) increased to 13.4% from 13.1%, and Baluchistan�s share slipped to 5% from 5.1%. The remainder of the population lived in the Federally Administered Tribal Areas (2.4%) and in the capital, Islamabad (0.6%).

Population according to age, 1998a Years m % of total0�14 55.0 43.215�64 68.0 53.4

65+ 4.4 3.4Total 127.4 100.0

a Excludes Federally Administered Tribal Areas.

Source: Census Organisation, Islamabad.

Although infant mortality (the number of deaths per 1,000 live births) fell from an average of 112 in the latter half of the 1980s to 82 in fiscal year 2004/05 (July-June), it still remains high by international standards. There is also a large disparity between the rate in urban areas and that in rural areas (which is much higher). In addition, female infanticide remains high!in 2000 the male/female ratio in the total population rose to 108:100, owing partly to female infanticide.

The labour force grew at an annual average rate of 4.5% during the 1990s, but growth slowed to less than 3% in 2000-05. At end-June 2005 the labour force stood at 46.8m and the number of employed at 43.2m, leaving 3.6m (7.7% of the labour force) as unemployed. The official unemployment rate (a crude measure in most countries, but even more so in a country with a massive un-documented labour force) has risen continuously over the past decade. The participation rate in June 2005 was 30.4%.

The average population density rose from 106 per sq km in 1981 to 176 per sq km in 2000, but this masks regional differences, ranging in 1998 from 353 per sq km in Punjab to just 19 in Baluchistan. Although the March 1998 census put the proportion of the population in the countryside at 67.5%, only slightly down from 71.7% in 1981, urbanisation is accelerating. Karachi�s population, for example, is said to be expanding at 6% per year. In 2000 nearly 33% of the country�s population lived in urban areas. Of the 46.8m people in employment in June 2005, 31.87m were employed in rural areas compared with 15m in urban areas.

The population growth rate is slowing

The rural-urban drift is accelerating

Pakistan 19


Education

Pakistan�s education system is among the most deficient and backward in Asia, reflecting the traditional determination of a feudal ruling elite to preserve its hegemony and, to a lesser extent, the mushrooming over two decades of madrassas (Islamic schools). The key problem of the education system is the high level of state funding for higher education compared with primary and secondary education. Pakistan has a mass of poorly educated people and a well-educated elite, many of whose children choose to emigrate. The literacy rate in 2003/04 was 52%, with the male literacy rate (at 64%) much higher than that for females (39%).

In recent years the government has increasingly become aware of the serious flaws in the education system, and has attempted to tackle these deficiencies in annual budgets since 2003/04. The federal government and the states, taken together, spent a total of PRs74.4bn (US$1.3bn) on education between July 2004 and March 2005.

Education statistics 1993/94 2003/04Total primary school enrolment (m) 13.3 19.8Male/female ratio in primary schools 100:61 100:70University attendance 77,119 218,275

Professional college enrolmenta 99,197 163,852

a 2003/04 data are not available; the figure in this column is for 2002/03.

Source: Ministry of Finance, Economic Survey 2004-2005.

Health

The government is taking steps to improve Pakistan�s health services by increasing development spending on healthcare. In the 2004/05 budget PRs6bn (US$103m) was allocated to healthcare, whereas expenditure on population welfare (a component of total healthcare spending) rose to PRs2.6bn. Official negligence over the years has, however, meant that the provision of healthcare is poor, even though government statistics indicate a slow but steady increase in the number of doctors and nurses. In 2004/05, 113,206 doctors were registered in Pakistan, almost double the number a decade earlier, whereas the number of nurses had more than doubled to 48,446. Nevertheless, there is only one doctor for every 1,359 people in Pakistan. The rise in the number of rural health centres, from around 2,000 in 1990/91 to 5,000 in 2002/03, has had a greater impact on healthcare provision, although medical staff assigned to rural clinics frequently fail to turn up for work.

Daily calorie intake per head was officially estimated at 2,534 in 2004/05, up from 2,529 in 2003/04 but slightly lower than the UN�s recommended minimum of 2,550, whereas protein consumption averaged 65.8 g in 2004/05, about 15% above the recommended minimum. Given the tendency of governments to exaggerate their achievements, and the vast differences in income levels, it is reasonable to conclude that a substantial proportion of Pakistanis are undernourished, many of them seriously. The government has

An unwise bias towards tertiary education

Healthcare provision remains poor

20 Pakistan


started various programmes, with limited success, which include control of iodine deficiency disorder, anaemia and vitamin A deficiency, and promotion of a breast-feeding programme. However, just as rich Pakistanis tend to send their children abroad for their education, so they or members of their families travel overseas to obtain medical attention.

Natural resources and the environment

Pakistan experiences some of the most extreme temperatures on earth, ranging from 50°C or more at the height of summer in the deserts of Sindh to -50°C and below in the depths of winter on the northern mountain ranges. Droughts frequently ravage herds and standing crops, as do floods, which also destroy physical infrastructure.

Parts of the North West Frontier Province (NWFP) and Baluchistan seek to compensate for the bareness of their soil and their perceived victimisation at the hands of successive central governments by resorting to the �black� economy, notably the processing of opium (much of which is grown in Afghanistan) into heroin. Smuggling across the porous border with Afghanistan is also important to the economies of these areas.

Sindh�s proven hydrocarbon deposits are to a large extent being tapped. Baluchistan is believed to possess massive reserves, particularly of natural gas, but the province�s tribal chiefs, over whom the central government exerts little control, have been demanding too high a price for permission to drill. Some of the foreign companies awarded concessions there have been obliged to declare force majeure, faced with obstruction from Baluchi tribesmen mostly belonging to the Marri and Bugti tribes. In recent times violence has broken out in the Bugti tribal area, and paramilitary forces and tribal bands have clashed over alleged violation of hiring, firing and compensation agreements with the oil and gas companies.

On October 8th 2005 Pakistan was hit by the worst earthquake in its history. The earthquake claimed over 50,000 lives across Pakistani-administered Kashmir and the NWFP (as well as over 1,500 deaths in Indian-administered Kashmir). Pakistan lies on the boundaries of the Indian, Iranian and Eurasian tectonic plates and in an earthquake-prone zone. (The movement of the Indian plate also resulted in the earthquake that triggered the tsunami that hit Indonesia, Thailand, India and Sri Lanka in December 2004.) The Himalayan mountains are themselves the result of tectonic movement over millions of years and the Indian plate continues to move north at about 5 cm per year, resulting in the build-up of seismic pressures. Seismologists believe that the October 2005 earthquake released only about one-tenth of the seismic stress in the region. As the Himalayan region has also witnessed fewer earthquakes than might be expected from a historical trend analysis, more earthquakes are therefore likely.

Pakistan lies on one of the world�s seismic fault lines

Tribal groups hinder resource exploitation

Pakistan 21


Transport, communications and the Internet

If the high economic growth rates needed to maintain the rapidly growing population are to be achieved and sustained, massive investment will be required in physical infrastructure, including roads, ports, air transport and telecommunications, most of which currently suffer from severe bottlenecks. Of all these sectors, telecoms has performed the best. Securing the requisite capital!from private investors and commercial banks, given the paucity of public funds!is one of the biggest challenges that the country faces in terms of development.

Despite its poor condition, Pakistan"s road network totalled 259,758 km in 2004/05, of which 162,879 km are �high type� or good roads and 96,879 km of �low type� or poor roads. The length of high type roads has increased by 88% since 1990/91. Roads have become increasingly important for freight movement, carrying 65% of freight in 2000/01. However, government funding for roads is not only insufficient but also, in the view of the country�s creditors, often unwisely spent. The military government took over the control of national highways in 1999, which were previously in the hands of provincial governments, planning to lease them to groups that would develop toll roads. The Fauji Foundation, which manages military pension funds, was given control over the Karachi-Hyderabad highway and the road that runs between Lahore and Rawalpindi as a first step.

In recent years, Pakistan has witnessed a boom in private vehicle ownership. New passenger-car registrations, which have soared since 2001, are expected to continue to rise. Car sales rose by 57% year on year to 98,461 in 2003/04, after rising by 46% to 61,955 in 2002/03. Much of this growth has been a result of plentiful car financing through banks and leasing companies. In the budget for 2004/05 the finance minister, Shaukat Aziz, slashed import duties on new cars, which stimulated demand even further. In July 2005 the government withdrew a 6% withholding tax on new cars, and import duties on both new and second-hand cars were slashed!the effective duty on a two-year-old used car with a small engine (up to 1300c) stands at only 2%.

The main impetus for demand is the availability of financing from banks and lending institutions, and the increasing affordability of cars. Smuggling of cars into Pakistan is common. Attempts are being made to clamp down on this activity, and the cuts in duty will reduce the incentive to smuggle. At present, vehicles are assembled at 18 plants, which are supported by 850 units that manufacture automotive parts. There are five main car assemblers in Pakistan.

The rise in freight transport by road is partly a result of the decline of Pakistan Railways. In 1990/91 the railway network carried 84.9m passengers, but by 2004/05 passenger numbers had fallen to 61.34m. Rail freight similarly declined: after peaking at 8.1m tonnes in 1994/95, just 4.9m tonnes of freight was carried in 2004/05. The government is trying to encourage private-sector participation in the railways, but full privatisation is unlikely. Instead, private companies have been invited to operate trains by paying track access charges.

The state of infrastructure is poor

Car ownership is booming

22 Pakistan


Although recent governments have opened up the transport sector to private participation, they have failed to follow this up by offering sufficiently attractive incentives, such as effective regulatory frameworks for non-government operators. Bureaucratic obstruction is a problem, as is political expediency. Private airlines continue to complain of the perceived unfair advantage enjoyed by the state carrier, Pakistan International Airlines, and the military-owned Shaheen Airlines. However, private-sector interest in the telecoms sector has been very high and some private airlines have begun to do well.

The telecoms sector in Pakistan is seen as possessing high growth potential, given the low levels of both fixed-line and cellular penetration. From a mere 2.3% in 1999/2000, teledensity rose sharply to 10.2% in 2004/05, with the gross number of subscribers reaching 15.4m (mobile-phone subscribers totalled 10.5m, and fixed-line subscribers 5m). Given rising GDP growth and expectations of a steady climb in GDP per head, cellular operators can look forward to rapidly growing demand. The government plans to attract significant new investment in the telecoms sector, including from foreign companies that bid for licences to operate fixed-line networks.

On April 14th 2004 the Pakistan Telecommunications Authority awarded two licences for cellular phone operators in the country, for US$291m each. The winning bids came from Telenor, a Norwegian company, and from Space Telecom, a consortium of Syria Telecom, Pakistan Oilfields and Attock Refinery. However, Space Telecom failed to pay its first instalment, and was disqualified. In mid-March 2005 Telenor launched its GSM (Global Systems for Mobile Communications) mobile-phone network. The company plans to invest an estimated US$1bn in Pakistan in the next six to eight years. At the time of the launch, Pakistan"s mobile-phone network covered about 20m people in the cities of Rawalpindi, Karachi and the capital, Islamabad. Telenor aims to increase its geographical coverage to 32m people.

In June 2005 the government approved the sale of a 26% stake in the country�s largest telephone service provider, Pakistan Telecommunication Company Limited (PTCL), to the UAE-based Emirates Telecommunications Corporation (Etisalat) for US$2.6bn. Etisalat offered US$1.96 per share for around 1.3bn shares along with management control of PTCL. The bid was higher than market expectations of US$1.5bn-2bn. Etisalat is the incumbent telephone service provider in the UAE. It is 60%-owned by the UAE government and recorded revenue of US$2.8bn in 2004, up from US$1.6bn in 2000. Etisalat outbid heavyweight competitors such as China Mobile, which offered US$1.06 per share for PTCL, and Singapore Telecommunications (Singtel), which bid 88 US cents per share. The privatisation appeared in doubt earlier in June, when troops took control of PTCL"s offices after union leaders threatened to strike if the sale was not stopped, and the interior minister threatened to try the union leaders as terrorists. However, the offer of a substantial improvement in conditions for PTCL staff ended the opposition.

Private-sector interest is patchy

The telecoms sector displays potential

One new cellular phone licence is issued

Etisalat buys a 26% stake in PTCL

Pakistan 23


Energy provision

In 2003/04 primary commercial energy supplies increased by 8% year on year to 50.8m tonnes of oil equivalent. Average oil production fell from 64,268 barrels/day (b/d) in 2002/03 to 61,817 b/d in 2003/04, whereas natural-gas production increased from an annual average of 3.3bn cu ft/day from 2.7bn cu ft/day in 2002/03. During the last 14 years (1991 to 2004), consumption of petroleum products has increased at an average rate of 2.5% per year, gas consumption has grown by 4.9%, electricity by 5.1% and coal by 5.2%. The sharp rise in oil prices in 2005 has made the cement industry switch to using coal, both local and imported, as a fuel source.

Total installed electricity-generating capacity showed a marginal increase of 0.7% year on year over the first nine months of 2004/05 to 19,389 mw. Consumption of power is determined by supply-side constraints: Pakistan faces serious energy shortages, despite a substantial increase in electricity output during the 1990s. Around 60% of the population, primarily in rural areas, does not have access to electricity, and electricity transmission and distribution losses account for around one-quarter of total production, of which a large proportion is the result of theft. In addition, load-shedding (planned power cuts) is common.

The rise in power supply is not keeping pace with demand, and the rate of growth in consumption will slow, particularly given poor levels of revenue collection by the two main supply companies, Karachi Electricity Supply Company and the Water and Power Development Authority (WAPDA, the main power distribution company). Until these companies are reformed, the problems are likely to continue, and the government forecasts that WAPDA will face shortages of 5,000 mw in 2005/06. To meet this shortfall, the government is encouraging the establishment of private generating companies. If this is to be successful, however, the government will have to assure investors that they will not suffer the contractual problems faced by the first wave of independent power producers in the 1990s.

According to the government, the consumption of electricity rose by an annual average of 4.7% between 1990/91 and 2003/04 to reach 57,491 gwh. The growth was largely explained by supply improvements!one of the key policies of the government of Benazir Bhutto, who was prime minister in the mid-1990s, was to increase generating capacity. However, the source of power has changed. In the same period electricity plants powered by natural gas increased by 3.5% per year, whereas coal-powered plants increased by an average of just 1.2% per year.

The most important source of energy is oil, followed by natural gas. The importance of hydroelectricity has declined as output has fallen owing to low water levels in reservoirs, stemming from a long-running drought. In 2003-09 energy consumption is forecast to rise by an average of more than 4% per year, although the increase per head will be lower. The government will try to develop the hydroelectricity sector to ensure a supply of cheaper electricity and to reduce the country"s reliance on imported fuel.

Energy consumption is increasing fast

Electricity supply fails to keep pace with demand

24 Pakistan


In September 2004 the prime minister, Shaukat Aziz, asked the Planning Commission to prepare a long-term energy plan. Nevertheless, both the IMF and the World Bank remain critical of Pakistan"s large and inefficient utilities, and the federal government funded bail-out packages worth over PRs30bn (US$520m) in 2003/04. However, utilities are being prepared for privatisation. Mr Aziz is also pushing for the development of domestic natural-gas resources as well as the construction of a gas pipeline from Iran to Pakistan and through to India.

The economy

Economic structure Main economic indicators, 2004 (Economist Intelligence Unit estimates)

Real GDP growth at market prices (%) 7.8a

Consumer price inflation (av; %) 7.4b

Current-account balance (US$ m) -807.0

Exchange rate (av; PRs:US$) 58.3b

Population (m; mid-year) 152.5

External debt (year-end; US$ m) 35,851.7

a Fiscal year 2004/05 (July-June). b Actual.

Source: Economist Intelligence Unit, CountryData.

The government estimates real GDP growth in fiscal year 2004/05 (July-June) at 7.8% at market prices or 8.4% at factor cost. Growth in agricultural output, at around 7.5%, substantially exceeded the government"s target of 4% for 2004/05, and was driven by bumper wheat and cotton crops. The strong cotton crop fuelled growth in the textile industry, owing to low domestic cotton prices. The manufacturing sector achieved rapid growth of 12.5% in 2004/05, whereas the services sector grew by around 8%. Agriculture"s share of GDP has been on a declining trend, falling to 21.6% of GDP in 2004/05, whereas that of manufacturing has risen sharply to 18.2%.

Low interest rates underpinned domestic demand growth in 2004/05, with both investment and private consumption recording healthy growth rates. Private consumption accounted for 80% of expenditure on GDP at market prices in 2004/05, and government consumption for 7.8%. Gross fixed capital formation has fallen as a percentage of GDP over the past decade, from around 17% in the late 1980s to 15% in 2004/05.

The size of the annual cotton crop, the bulk of which is grown in Punjab province, is a crucial barometer of the health of the overall economy. This is because it determines the availability and cost of the main raw material for the yarn-spinning industry!much of which is concentrated around the southern port city of Karachi!and has a large bearing on the level of exports. Pakistan produced a record 14.6m 170-kg bales in 2004/05 after averaging around 9.3m bales per year over the previous decade. As more land is being used for cotton production, the government hopes that production will be maintained at 15m bales per year by 2010. Historically, although Pakistan has been one of the

The economy booms in 2004/05

Pakistan 25


world�s largest producers of raw cotton, value added in cotton production is minimal. However, increased quotas for higher-end textile products, largely stemming from Pakistan�s support for the US action in Afghanistan and more recently in Iraq, have raised exports of higher-value products.

Comparative economic indicators, 2004 Pakistana India Bangladesh Indonesia Sri Lanka

GDP (US$ bn) 94.9b 592.4 51.9 208.3 18.6

GDP per head (US$) 617 558 354 963 971

GDP per head (US$ at PPP) 2,118 2,693 1,270 3,496 3,346

Consumer price inflation (av; %) 7.4b 3.8 5.6 6.6 6.3

Current-account balance (US$ bn) -0.8 3.4 0.4 7.0 -0.1

Current-account balance (% of GDP) -0.9 0.6 0.7 3.4 -0.7

Exports of goods fob (US$ bn) 13.4 57.2 6.9 62.7 5.1

Imports of goods fob (US$ bn) -16.7 -74.4 -9.3 -39.8 -6.7

External debt (US$ bn) 35.9 101.7 18.1 135.7 10.6

Debt-service ratio, paid (%) 20.7 13.9 7.5 17.4 9.3

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

The federal budget for fiscal year 2005/06 (July-June) is PRs1.1trn (US$18.4bn), following an average rise of 10% between 2000/01 and 2004/05. It includes measures to encourage consumption as well as targeted investment. Consumer demand is likely to be boosted by salary increases of 30% for government employees, a 10% rise in pensions and an increase in the private-sector minimum wage from PRs2,500 (US$42) per month to PRs3,000. The corporate sector benefits from a cut in the corporate tax rate, and from a reduction in personal income tax for salaried employees from the current range of 7.5-35% to 3.5-30%. Incentives were also included to help small and medium-sized enterprises (SMEs), including a Business Support Fund to extend loans to SMEs at favourable rates.

Development spending is another feature of the budget, with a 35% year-on-year increase, to PRs272bn (US$4.7bn), in the allocation for the public-sector development programme (PSDP). The National Highway Authority has been allocated PRs20bn, and PRs25bn was budgeted for the completion of some 10,000 irrigation projects. There are also large increases in spending on education and healthcare. Rising expenditure on healthcare and education will contribute to an increase in the country�s long-term economic growth potential.

The most controversial element of the budget is a significant rise in defence expenditure. Pakistan"s defence spending as a proportion of the budget has been falling in recent years, partly because of the IMF�s involvement in the budgetary process, but the 2005/06 budget envisages a 15% year-on-year rise in military spending to PRs223bn. This represents nearly 20% of total budgetary expenditure. Given the recent rapprochement between India and Pakistan and significant military aid from the US, such a large rise in defence expenditure should be seen in the context of Pakistan"s long-running aim to match India"s range of military capabilities.

Government spending is rising sharply

26 Pakistan


The military government has taken some steps to tackle the severe structural problems that contributed to Pakistan�s low or declining GDP growth rate in the late 1990s. Foremost among these problems is the fiscal deficit, caused by an inability to contain spending, improve tax compliance and expand the tax base. The government has been aided by a substantial external debt-servicing package, stemming from its support for US action in Afghanistan and Iraq following the September 11th 2001 terrorist attacks. Prior to this package, spending on the military and debt servicing had absorbed as much as two-thirds of government spending. The government has also taken steps to tackle corruption, although progress has slowed since the parliamentary election in October 2002.

Revenue receipts and expenditure, federal and provincial governments, 2004/05 (PRs bn unless otherwise indicated)

Estimated % changeRevenue 851.3 8.9 Taxes 662.6 14.1 Non-taxes 188.7 6.0

Expenditure 1,050.4 9.9 Defence 193.9 7.5 Debt-servicing 326.1 12.9 Development 188.0 17.1


The formulation and direction of economic policy have been largely governed by agreements reached with multilateral creditors, particularly the IMF and the World Bank. The slow pace of progress, particularly relating to the restructuring and privatisation of inefficient power utilities such as the Water and Power Development Authority (WAPDA) and Karachi Electricity Supply Company (KESC), reform of the Central Board of Revenue and poverty alleviation, has been criticised by the multilateral agencies. Nonetheless, since 1999 the military government has been praised by the IMF and other international donors for adhering to guidelines for structural change and poverty alleviation.

Until the IMF stand-by package covering November 2000-September 2001, Pakistan had never completed a lending programme with the Fund. Problems typically arose when the government became unwilling or unable to comply with conditions attached to a particular loan package. After the October 1999 military coup, the IMF initially said that all loan discussions with Pakistan would remain suspended until democracy was restored. However, as the US stance softened, so did that of the Fund, which pledged to restart talks on outstanding issues.

In November 2000 the IMF finally agreed to a stand-by credit amounting to US$600m until end-September 2001. The government then implemented most IMF conditions, raising utility rates and revenue and curtailing expenditure. It imposed a 15% general sales tax (GST) on retail trade with effect from July 1st 2001. In December 2001 the IMF approved a three-year poverty reduction and growth facility (PRGF) worth US$1.3bn. The IMF then helped Pakistan to reschedule over US$12bn in debt to the Paris Club of bilateral lenders and the

Some progress is made on structural issues

Donors play an important role in policymaking

Relations with the IMF have improved

Pakistan 27


London Club of commercial creditors, giving Pakistan enormous budgetary relief in debt payments and allowing the State Bank of Pakistan (the central bank) to build unprecedented levels of foreign-exchange reserves, which exceeded US$10bn in 2003.

On June 12th 2004 the government unveiled its budget plans for 2004/05. It reduced taxes and the number of tax bands, and lowered import tariffs. It also increased expenditure on healthcare, education and development by a sub-stantial 31%, and launched a number of micro-level reform initiatives. Increasing tax revenue, privatisation and improving the social infrastructure have dominated economic policy for the past few years. In October 2004 Pakistan�s US$1.3bn PRGF came to an end. The IMF has commended Pakistan for its implementation of a host of structural reforms and the improvement in the debt position. However, the Fund remains concerned about the pace of reform of the power sector and of public-expenditure management.

In 2004/05 Pakistan witnessed a domestic consumer boom fuelled by low interest rates and rapid import growth. However, domestic demand pressures as well as high international oil prices fuelled inflation. The central bank was late to act but in April 2005 raised interest rates by a substantial 1.5 percentage points. Consumer price inflation stood at 9.3% in 2004/05 and in early 2005/06 began to fall slowly, but still remains a major threat to the economy.

Economic performance

The estimated 8.4% growth in GDP (at factor cost) in 2004/05 is the highest rate recorded in two decades. In the past, GDP growth in Pakistan has been held back by political instability, and poor and inconsistent policies, but more fundamentally from the economy�s narrow production base (namely its dependence on cotton-based manufactures), which renders it vulnerable to exogenous shocks such as adverse weather and fluctuating prices. Macro-economic imbalances, particularly the public-sector deficit, also constituted a major impediment to higher growth. However, a large domestic consumer boom, the fiscal space provided by the rescheduling of Pakistan�s external debt, and moves to invest in the modernisation of the textile sector have underpinned a pick-up in growth.

Gross domestic product *(% real change, year on year)

Annual average 2004/05 2000/01-2004/05Agriculture 7.5 2.3Industry 10.2 6.6

Services 7.9 5.4GDP 8.4 4.9


The agricultural sector has been subject to even sharper fluctuations than the broader economy, owing mainly to its excessive dependence on a cotton crop vulnerable to drought and flooding, as well as to pest and viral damage. With

Growth rates have picked up

Monetary policy is being tightened

28 Pakistan


the exception of 2004/05, manufacturing output has been below potential, despite official figures showing annual average growth rate in manufacturing of around 5% over the past ten years. The narrow production base is partly a product of over-generous concessions bestowed by successive governments on a handful of sectors, including yarn spinning and sugar refining.

However, the textile sector has recently begun to invest in new technology in the run-up to the cessation of the Agreement on Textiles and Clothing (a global export-import quota regime for the textile industry) at end-2004. The EU, the US and Turkey had earlier improved Pakistan�s quotas as a result of the govern-ment"s political support for US action in Afghanistan. This has reversed the declining trend in textile-sector investment in recent years.

Consumer price inflation slowed between 2000 and 2003, primarily as a result of the impact of good harvests on food prices. In the past, excessive public-sector borrowing to fund the fiscal deficit has fuelled consumer price inflation. Annual inflation averaged 3.4% between 2000 and 2003, after having averaged over 10% in the late 1990s. However, since 2003/04 inflation has been rising. In 2004 (calendar year) inflation stood at 7.4% and in 2005 it is estimated at around 9.2%.

Inflation (% change)

Annual average 2004 2000-04Consumer prices 7.4 4.1

Sources: Ministry of Finance, Economic Survey IMF, International Financial Statistics.

Regional trends

Pakistan, a product of the break-up of British India and the subsequent secession of Bangladesh, has continued to be dogged by the threat of sub-nationalism and provincialism, primarily stemming from perceived biases in favour of the most populous state, Punjab. An uprising by Baluchi nationalists in the 1970s and Pashtun campaigns for a separate name for their province have been motivated by a sense of neglect and victimisation, economic as well as political. Similar sentiments have been expressed in Sindh and the North West Frontier Province (NWFP).

Punjab has always been the most privileged of Pakistan�s four provinces, filling the upper echelons of the army and the bureaucracy!by far the country�s most influential institutions!and accounting for the bulk of the agricultural production that is the economy�s mainstay. Owing to the role of NWFP in the Afghan war, and its importance as a major transit point for the drug-trafficking and arms trades, this province is the next most influential!after Punjabis, the next highest number of government employees come from here.

Barren Baluchistan and politically difficult Sindh, by contrast, remain poor and backward (although the country�s main business centre, Karachi, is in Sindh). Corruption and political interference mean that the standard of living in the rural areas is generally low, and few government projects actually end up

Provincial suspicions mar dam construction

Pakistan 29


helping the people. In recent times provincial squabbles have erupted over the issue of water sharing, with Sindh in particular accusing Punjab of diverting more than its share of scarce winter water reservoir resources for crop irrigation. Perceptions of Punjabi ethnic bias have also provoked the smaller provinces to resist the construction of big dams upstream, which are desperately needed to store water for use in the winter when the existing reservoirs are running low.

Economic sectors

Agriculture

Over 65% of the country�s population live in rural areas and directly or indirectly rely on agriculture. Fundamental problems afflict the agricultural sector, which accounts for almost one-quarter of GDP and generates 42% of employment. One symptom is an excessive dependence on a cotton crop that is highly susceptible to adverse weather conditions and pest damage. After peaking at 12.8m 170-kg bales in fiscal year 1991/92 (July-June), the cotton crop has fluctuated considerably, ranging from a low of 8m bales in 1993/94 to a record high of 14.6m bales in 2004/05. Another symptom is the food import bill, which is rising rapidly despite a steady increase in crop, livestock and fruit production.

Some agronomists claim that the sector�s traditional sources of growth!including improvements in seeds and fertilisers, better crop management and incentives!are all but exhausted. As a result, the need for major institutional and policy changes is more urgent than ever. The potential for improvement is considerable: the difference between the average and highest yields for staple crops such as wheat, rice and maize, for example, is in the range of 30-50%. In 2004/05 an increase in yields of all major crops, apart from rice and cotton, was recorded.

The key to better productivity lies in the more efficient use of scarce resources, principally land and water. Change is difficult, not least because the status quo suits the wealthy landowners who dominate the sector, as well as federal and provincial parliaments. Large landowners own 40% of the arable land and control most of the irrigation system. Yet assessments by independent agencies, including the World Bank, show them to be less productive than smallholders. They are also poor taxpayers, heavy borrowers and bad debtors. Smallholdings predominate numerically!almost one-third of farms cover less than one acre (0.4 ha), and about three-quarters are under five acres.

The total area planted to crops has remained largely static in recent years, at around 22m ha. Almost one-third of the land is less productive than it should be because of soil erosion, waterlogging and salinity. Land is also damaged by farmers who seek to maximise short-term gains by cultivating unsuitable crops. An optimal allocation of resources cannot be achieved because tenure systems prevent the distribution of land to those who would use it more efficiently. Insecurity of tenure, which derives in large measure from the powers of

Cotton crop dependence remains excessive

30 Pakistan


arbitrary eviction that large landowners enjoy, is a major problem. The irrigation system is also deficient. Reservoir capacity is inadequate, and water deliveries are supply- rather than demand-driven, inequitably distributed and inefficiently used. Finally, the freeing of farm-gate prices of key crops such as cotton, sugarcane, wheat and rice, traditionally set by the government, would discourage the smuggling of farm produce into neighbouring India, Iran and Afghanistan, and would raise farm incomes.

Forest cover has been severely depleted as a result of overexploitation, and stands at around 55 of Pakistan�s total land area. Forestry production fell from 1.07m cu metres of timber in 1990/91 to 383,000 cu metres in 1998/99. Renewed efforts in tree plantation and forestry saw a rise in production to 912,000 cu metres in 2004/05.

Mining and semi-processing

The province of Baluchistan is the leader in the field of mining. Nevertheless, the only major mine in Pakistan is at Saindak in Baluchistan. Saindak produces gold and copper. The Saindak export processing zone measures 1,284 acres and Saindak produces 20,000 tonnes of copper per year. Pakistan has formed a number of joint ventures with China to develop mines and has also issued a new national mining policy. Incentives include 5% customs duties on import of plant and machinery, no sales tax and a depreciation allowance of 50% of machinery and equipment.

Manufacturing

Before 1947 there was little manufacturing in the area that makes up present-day Pakistan. Its primary role was that of a supplier of raw materials, including cotton, to industrial hubs across British India. Manufacturing growth sub-sequently fluctuated dramatically, averaging 9% per year during the first two decades of independence but dropping to less than 3% in the 1970s, when large-scale nationalisation sent investment levels tumbling. The growth rate recovered in the 1980s, averaging 8.2% per year, but fell back to 4.8% in the first half of the 1990s and 2.8% in the second half. Industry has made an in-creasingly important contribution to exports. In rupee terms, manufactured pro-ducts accounted for over 70% of all exports in 2004/05, or around 18% of GDP.

The increase in textile quotas in the EU, the US and Turkey underpinned higher rates of industrial growth in 2002/03. Since then manufacturing has boomed. Large-scale manufacturing, which accounted for 69.5% of overall manufacturing and for 12.7% of GDP in 2004/05, recorded growth of 18.2% in that year, compared with a target of 12.2%. This was the second-highest annual growth rate in three decades. Small-scale manufacturing grew at an estimated 6.3% in 2004/05.

Manufacturing has boomed in recent years

Pakistan 31


Successive governments have promised to work towards a substantial diversification of the manufacturing base, to encourage the production of high value added goods and to achieve significantly increased levels of capital formation in the sector. Their subsequent records have proved less than impressive. Despite recent reforms designed to attract manufacturers from overseas, disincentives!including a shortage of skilled workers, inadequate physical infrastructure, pervasive official corruption, discrepancies between declared policy and actual practice, political instability, and urban terrorism aimed at foreigners since the attacks on the US on September 11th 2001, notably in Karachi!still outweigh the incentives. Foreign direct investment has been rising in recent years, but still only amounted to US$949m in 2003/04 (less than 1% of GDP).

The privatisation of public-sector manufacturing companies got under way, after considerable debate, in mid-1991. Over the following two years 63 units were sold, but thereafter the disposal rate slackened, as most of the remainder were heavily indebted loss-makers. By mid-1999, 103 firms had been offloaded. However, since 1999 privatisation has been high on the policy agenda. In the largest ever privatisation in Pakistan, 26% of Pakistan Telecommunication Company Limited (PTCL) was sold to a UAE company in June 2005. Current privatisation targets include the Karachi Electric Supply Company (KESC) and the Water and Power Development Authority (WAPDA).

Construction

The government has taken steps to stimulate the construction sector, which stagnated over the past decade. A new housing policy has been put in place to tackle Pakistan�s estimated shortfall of 5.1m homes!a backlog that is growing at a rate of around 300,000 per year. The 2003/04 budget contained special incentives, including a boost to mortgage financing and a reduction of taxes on construction inputs, to boost the housing and construction sector. In the 2004/05 budget, excise duty on paint was eliminated, duties on a host of building materials were reduced and duty on imported machinery was slashed. The government encouraged banks to increase lending to the construction sector. It also undertook a large computerisation programme, creating a database of land titles and ownership details to enable properties to be transferred without fear of misrepresentation and fraud. A lack of clarity surrounding titles to property has been a key constraint facing the sector.

The government is also focusing on improving roads and railways as well as power supplies. Work on two road projects in Karachi!the US$100m Lyari Expressway and the US$300m Northern Bypass project!is due to be completed in 2008/09. The Asian Development Bank is providing US$150m to improve roads in Punjab in a project due for completion in 2007. According to a World Bank report, 45% of the national road network is in a state of disrepair, and massive investment is required to cope with the expected increase in road traffic.

Export diversification remains an unachieved ambition

Construction benefits from new government incentives

32 Pakistan


Financial services

The financial sector underwent major liberalisation in the first half of the 1990s. Several new banks were licensed, exchange controls were all but eliminated, prudential regulations were tightened and monetary and credit policies were rendered more market-oriented. Previously, the state-owned banks had little incentive to be competitive or to manage their portfolios carefully. Political pressure to make bad loans and cease collection efforts resulted in high rates of default. With the onset of privatisation, however, the situation has improved substantially. Aggressive marketing, coupled with rising demand, helped banks to raise net credit sharply. The main demand for credit continues to come from the corporate sector. The textile sector has invested around US$1.5bn over the past three years in the modernisation of equipment. Trade finance is another important component of corporate borrowing. One of the main sectors requiring trade finance is cotton: if the domestic cotton crop performs poorly, necessitating higher imports, demand for trade finance increases sharply.

Although consumer loans currently account for around 5% of total bank lending, they are likely to increase in importance over the next few years. As yields on government short-term securities fell as low as 1% in 2004, the banking sector has improved its profitability by moving into consumer lending!something that was largely unavailable even four years ago. This trend continued in 2005, with banks offering loans for purchases of property and cars as well as smaller consumer items. The interest rate on car loans, for instance, which stood at 16% in 2001, is now as low as around 8%. An estimated shortage of around 4m homes means that property lending is likely to become increasingly important for banks, although the move into consumer lending carries risks in the event that interest rates begin to rise.

One of the major problems for banks has been the lack of a long-term instrument to back long-term loans. The government"s longest bond issue, the Pakistan Investment Bond, was a ten-year instrument. As such, banks could not hedge housing loans of 20 or more years. To counter this problem, in January 2004 the State Bank of Pakistan (SBP, the central bank) invited tenders for 20-year bonds, which could be used as a benchmark for corporate issues and housing loans.

Although non-performing loans (NPLs) are concentrated in the remaining three state-owned banks, as well as in specialised financial institutions, the Corporate and Industrial Restructuring Corporation will continue to take over NPLs from financial institutions, slowly improving banks" balance sheets. The number of NPLs has dropped substantially, but is still high. In March 2005 net NPLs represented 26.3% of net advances from specialist financial institutions. In state-owned banks the ratio was only 3.6%. Private (excluding recently privatised banks) and foreign banks are in much better shape, however, so that the overall net NPL/net advances ratio in March 2005 was just 3%.

The health of the banking sector continues to improve

Pakistan 33


Islamic banking services are becoming more common. The Supreme Court had ordered the government to ban the charging of interest from July 2002. However, a few days before the ruling was due to come into force the court overturned its earlier ruling, under pressure from the government and banks. The case has been sent back to the Federal Shariat Court (the main Islamic court, which ensures that rulings are in accordance with the Quran and Islamic sharia law). This is likely to delay a final decision by several years. It is likely that a dual system of both Western-style and Islamic financing will be maintained.

There are three stock exchanges in Pakistan, based in Karachi, Lahore and the capital, Islamabad. In June 2005, 659 companies were listed on the Karachi Stock Exchange (KSE) with a market capitalisation of RPs2.1trn (US$35bn). The stock exchanges in Lahore and Islamabad are substantially smaller than the KSE, but all three equity markets have expanded recently as a result of a significant turnaround in the economy and an increase in foreign inflows. The benchmark index at the KSE, the KSE-100, has witnessed strong growth, rising from 1,191 points at the end of September 2001 to over 8,000 points in October 2005. Bullish trends have also been seen on the other two exchanges.

Other services

Pakistan has persistent weaknesses in its services provision. Historically, the country has attracted few tourists, and its small!and shrinking!shipping fleet has led to mounting net payments for transport and associated services. The retail sector is underdeveloped, and many goods sold in Pakistan are smuggled in through Afghanistan and are sold tax-free, which has deterred domestic production.

The external sector

Trade in goods Foreign trade, 2004/05a (US$ bn; fob)

Exports 13.7Imports -16.7Trade balance -3.0


Pakistan has recorded a trade deficit every year since fiscal year 1972/73 (July-June). Exports have performed strongly in recent years, rising to US$8.2bn in 1999/2000 and to US$9.1bn in 2001/02, fuelled by a bumper cotton crop, a steady depreciation in the exchange rate and strong overseas demand. In 2002/03 exports surged to just over US$11bn, largely on the back of increased quotas for textile products from the US, the EU and Turkey. In 2003/04 and 2004/05 they rose again, to total US$12.3bn and US$13.7bn respectively.

The stockmarket continues to boom

34 Pakistan


Nevertheless, Pakistan�s export base remains narrow. Five categories of goods!cotton yarn, garments and hosiery, cotton cloth, raw cotton and rice!still account for around 60% of export earnings. Key exports, notably cotton, remain vulnerable to exogenous shocks. But there are indications that Pakistani companies, particularly in the textile sector, are beginning to tackle other impediments to export growth, including the small proportion of high value added goods in the sales mix, low product quality and poor marketing.

Main items traded, 2004/05a (PRs bn; fob)

Exports Garments & hosiery 195.2Cotton cloth 90.6Cotton yarn 50.1Rice 42.6Synthetic textiles 14.8Leather goods 42.9Imports Petroleum & products 183.4Chemicals 172.8Non-electrical machinery 85.4Transport equipment 56.4Drugs & medicines b 7.6Edible oils 34.9

a July-April. b July-December.

Source: Federal Bureau of Statistics, External Trade Statistics.

Imports stood at US$9.4bn in 2001/02. The rise in oil prices in early 2003, in the run-up to the US-led war in Iraq, caused the value of Pakistan�s imports in 2002/03 to rise to US$11.3bn. Since then imports have continued to rise, in part reflecting high international oil prices. In 2003/04 they stood at US$15.6bn before rising to US$16.7bn in 2004/05. Industry depends on foreign raw materials and capital goods. Petroleum and refined-product purchases have continued to grow. Changes in consumption patterns and the failure of domestic manufacturers to adjust to them have led to a rapid acceleration in edible-oil imports.

Main trading partners, 2004/05 a Exports to: % of total Imports from: % of totalAll developed countries 58.0 All developed countries 38.4

OECD 57.3 OECD 34.8All developing countries 41.2 All developing countries 59.3

South Asia 4.3 South Asia 2.9ASEAN 2.3 ASEAN 10.3

a July-December.


The US has long been Pakistan�s largest export market, absorbing 21% of total exports in 2004. The UAE, UK and Germany have also been major outlets. On the import side, China topped the rankings, followed by the US, the UAE and Saudi Arabia.

Pakistan 35


Invisibles and the current account Current account, 2004/05a (US$ m)

Merchandise exports (fob) 10,572Merchandise imports (fob) -13,950

Trade balance -3,378Net services -4,238

Net transfers 6,258Current-account balance -1,358

a July-March.


Pakistan traditionally runs a current-account deficit, although it experienced a brief period of surplus in the early 2000s. Since the early 1990s the services account has been in deficit, reflecting net outflows on shipping costs and debt servicing. After averaging less than US$3bn per year in 2000/01-2003/04, the services deficit jumped to US$4.2bn in the first nine months of 2004/05. Pakistan�s traditional deficits on merchandise trade and services were more than offset by private transfers in the three years up to and including 2003/04, allowing the country to run a current-account surplus. However, the rapid growth of imports of goods and services in 2004/05 has returned the current account to deficit.

Remittances from Pakistanis abroad, most of them in the Arab Gulf states and North America, are a vital support for the Pakistani economy. After peaking at US$2.9bn in 1982/83, remittances fell to below US$1bn in 1999/2000, and totalled less than US$1.1bn in 2000/01. The freeze on withdrawals from foreign-currency accounts following nuclear tests by Pakistan in May 1998 may have scared away fresh inflows during that year and in 1999. The gap between the official and open-market exchange rates for the rupee deterred inflows through official channels (although the rationalisation of the exchange rate in 1999 partly addressed that problem).

However, following an international crackdown on informal fund transfers through the hundi or hawala (black market) system in the aftermath of the September 11th 2001 terrorist attacks in the US, Pakistani expatriates have again started to channel their remittances through formal banking channels. Remittances thus soared, to US$4.2bn in 2002/03, before falling to US$3.8bn in 2003/04 and an estimated US$3bn in 2004/05.

Capital flows and foreign debt

Pakistan has relied heavily on official borrowing to finance its sustained current-account deficits and help offset the low level of national savings. Following its support of the US in its �war on terror� since 2001, Pakistan has benefited from a major debt-rescheduling package and higher inflows of grant aid!in 2001/02 the US alone provided US$703.9m of grant assistance. In early 2002 international donors rescheduled US$12.5bn in debt over 30 years. Pakistan�s total external debt stood at US$36.4bn at end-2004.

Official borrowing funds the current-account deficit

36 Pakistan


The major source of external funding is the Pakistan Development Forum (previously known as the Aid to Pakistan Consortium), which comprises the main multilateral lending institutions and a large number of bilateral creditors. The World Bank and its soft-loan arm, the International Development Bank, is the largest creditor, followed by the Asian Development Bank, the US and Japan. Concern over Pakistan�s nuclear programme caused external source of finance to dry up during the 1990s, forcing Pakistan to reschedule some of its external debt payments with the Paris Club of bilateral creditors and the London Club of commercial lenders.

The rapid accumulation of foreign loans and the steady decline in the value of the rupee against the currencies of Pakistan�s main creditors led to an expansion in the debt-servicing requirement during the early and mid-1990s. According to government data, this rose to a record US$2.35bn!equivalent to 3.8% of GDP and 27.3% of export earnings!in 1997/98. As a result of rescheduling agreements, the requirement fell to US$1.5bn in 1998/99. Debt-service payments rose to almost US$2bn in 2000/01. In 2003/04 the government�s provisional figures indicate that debt-service payments stood at US$5.2bn.

Until recently, low investor confidence has harmed direct foreign investment inflows, which fell to US$322m in 2000/01. Political unrest led to net portfolio investment recording an outflow of US$140m. As Pakistan began to reap economic rewards for its political support for the US after the terrorist attacks of September 11th, so foreign investment increased. Portfolio inflows exceeded outflows by US$22m in 2002/03. Net foreign direct investment of rose from US$352m in 2001/02 to US$795m in 2002/03, but then fell to US$515m in 2003/04. The poor security climate has deterred some Western companies from investing in Pakistan, whereas investment by Middle Eastern companies has increased.

The Pakistan government re-entered the international capital markets with a US$500m Eurobond in February 2004. The bond was oversubscribed four times, and carried a fixed rate of 6.75%. It is redeemable in 2009, and was sold at 370 basis points above US Treasury bonds. A credit-rating agency, Standard & Poor�s, assigned a �B� long-term senior unsecured foreign-currency debt rating to the Eurobond before the issue. In April 2004 Pakistan swapped its Eurobond from fixed to floating rates, which marked the country�s first-ever government deal in the international derivatives market.

On January 18th 2005 the Economic Co-ordination Committee (ECC) of the cabinet decided to accept US$600m from total subscriptions of US$1.2bn to its Islamic bond, or sukuk. The bond was floated in international markets in January, and investor response was strong. The government had aimed for subscriptions worth up to US$300m. Some 60% of subscriptions to the bond were from Middle Eastern investors, 20% were from Asia and the remaining 20% were from Europe. The latest offering was helped by a credit upgrade from Standard & Poor�s, in November 2004. The agency raised Pakistan�s long-term foreign-currency rating by one notch, to B+, and upgraded the country�s local-currency rating to BB. This was the result of Pakistan�s falling debt level and

Pakistan issues a US$500m Eurobond

An Islamic bond is successfully floated

Pakistan 37


sustained economic progress. Pakistan will also consider euro-denominated and longer-dated bonds when it comes to the international debt markets in the future, according to the government.

Foreign reserves and the exchange rate

In late 1998 low levels of foreign-exchange reserves threatened the country�s capacity to pay some significant import bills and, more ominously, its ability to service foreign debt. This forced Pakistan to reschedule payments with its external creditors. Reserves subsequently picked up slightly, averaging US$1.5bn in 1999 and 2000!the State Bank of Pakistan (SBP, the central bank) bought US$1.6bn in 1999/2000 and US$2bn in 2000/01 from the free market in order to shore up reserves as required by the IMF. Several developments in the aftermath of the September 11th 2001 attacks on the US led to a surge in foreign-exchange reserves. These included higher inflows of grants, the substantial debt rescheduling associated with the IMF package and the rise in foreign remittances that stemmed from the crackdown on unofficial means of money transfer. Reserves have grown steadily over the past three years, and stood at US$12bn at end-September 2005. Of this, US$2.5bn was held by commercial banks and the remainder by the SBP.

Before mid-1998 Pakistan maintained a so-called managed float, whereby the SBP administered a downward drift in the value of the rupee in relation to the currencies of Pakistan�s main trading partners in order to help offset often sizeable inflation differentials. The rupee�s average value against the US dollar fell from PRs12.7:US$1 in 1982/83 to PRs46:US$1 in May 1998. In the wake of Pakistan�s nuclear tests that month, and the resulting imposition of sanctions, the exchange rate plunged to PRs65:US$1, forcing the government to introduce a regime of multiple exchange rates to discourage imports and encourage the rapid repatriation of export proceeds. This saw the rupee appreciate to PRs52:US$1 by end-March 1999. Two months later, at the insistence of the IMF, the rates were unified under the so-called floating interbank exchange rate. The rupee came under pressure following the depreciation of the Indian rupee, and in September 2000 the rupee was allowed to float. It subsequently fell rapidly.

The post-September 11th 2001 factors that led to the rise in foreign-exchange reserves!higher inflows of remittances and grant assistance, and lower debt-servicing costs!coupled with a surge in exports largely stemming from higher quotas for textile exports, as well as US dollar weakness, led the rupee to strengthen against the US dollar. The currency appreciated in 2002 and remained stable in 2003 and 2004. It averaged PRs58.3:US$1 in 2004. On October 20th 2005 it stood at PRs59.7:US$1.

Reserves grow steadily

The rupee has been stable since 2001

38 Pakistan


Regional overview

Membership of organisations

The South Asian Association for Regional Co-operation (SAARC), which comprises India, Pakistan, Sri Lanka, Bangladesh, Nepal, the Maldives and Bhutan, was established in 1985 at a meeting in Bangladesh. SAARC�s aims include promoting welfare, accelerating economic growth, eradicating poverty and improving relations between member states. Summit meetings are intended to be held annually and are complemented by technical committees, meetings of foreign ministers, and a standing committee consisting of the foreign secretaries (senior foreign ministry civil servants) of each country. An under-resourced secretariat, established in 1987 and based in the Nepalese capital, Kathmandu, co-ordinates SAARC�s activities.

In the early years agreements were made to establish a food security reserve (an agreement that has never been implemented), set up a meteorological centre, combat terrorism and encourage cultural exchanges between member states. Along with micro-level issues, SAARC has also proposed the creation of a South Asian Free-Trade Area (SAFTA). SAFTA, seen as a replacement for the South Asian Preferential Trading Arrangement (which was agreed in 1995 and which had by 1996 identified more than 2,000 products as eligible for preferential treatment), was initially to be put in place by the ambitious target date of 2001. After the 1997 SAARC conference, an eminent persons group was formed to plot the way forward for the association. The group argued that closer economic ties were the key to the future, and proposed that a free-trade area be put in place by 2008 (2010 for the least developed member states), a customs union by 2015 and an economic union by 2020. Political factors weigh against even this extended timetable.

India�s refusal to participate in the SAARC summit of 1999, in protest at the military coup that took place in Pakistan in that year, led to the cancellation of summits in 1999 and 2000, although summits did take place in 2002 and 2004. Tensions between the organisation"s two largest members, India and Pakistan, have hampered SAARC�s progress on wider issues, although it has been effective in providing a forum for meetings of non-governmental organisations and professional groupings. There is a growing feeling among the smaller members of SAARC that the problematic relationship between India and Pakistan is preventing multilateral progress, and this has led to a growing emphasis on bilateral trade links. India has signed bilateral free-trade agreements, effectively bypassing SAARC, with Nepal (in 1996) and Sri Lanka (in 2000), and also has a free-trade agreement with Bhutan. Much of SAARC�s work is also likely to be superseded by World Trade Organisation (WTO) regulations.

SAARC�s ability to reposition itself as the preferred conduit for bilateral relationships within South Asia is likely to determine the success (or otherwise) of the association. Its achievements in promoting civil-society links within South Asia contrasts strongly with its failure to boost government-level ties!a reflection of the volatile relationship between India and Pakistan.

The South Asian Association for Regional Co-operation

Pakistan 39


Appendices

Sources of information

Agricultural Development Bank of Pakistan, Annual Report

Federal Bureau of Statistics, Labour Force Survey (annual)

Federal Bureau of Statistics, Monthly Statistical Bulletin

Federal Bureau of Statistics, Pakistan Democratic Survey (1993)

Federal Bureau of Statistics, Pakistan Statistical Yearbook

Ministry of Finance, Annual Budget Statement 2003-2004

Ministry of Finance, Economic Survey (annual)

Ministry of Food, Agriculture and Co-operatives, Annual Report

Ministry of Food, Agriculture and Co-operatives, Census of Agriculture, 1990

State Bank of Pakistan, Annual Report

State Bank of Pakistan, Bulletin (monthly)

Bank for International Settlements, International Banking and Financial Market Developments (quarterly)

International Institute for Strategic Studies, The Military Balance (annual)

IMF, International Financial Statistics (monthly)

OECD, Geographical Distribution of Financial Flows to Developing Countries (annual)

UN, Monthly Bulletin of Statistics

World Bank, World Development Report (annual)

World Bank, World Investment Report (annual)

Benazir Bhutto, Daughter of the East, Hamish Hamilton, London, 1988

Stephen Philip Cohen, The Idea of Pakistan, Brookings Institution Press, Washington, DC, 2004

Owen Bennett Jones, Pakistan: the Eye of the Storm, Yale University Press, 2002

Seyyed Vali Reza Nasr, The Islamic Leviathan: Islam and the Making of State Power, Oxford University Press, 2001

Mary Anne Weaver, Pakistan: In the Shadow of Jihad and Afghanistan, Farrar, Straus & Giroux, New York, 2003

Lawrence Ziring, Pakistan: at the Crosscurrent of History, Oneworld, 2004

Business Recorder newspaper, www.brecorder.com

National statistical sources

International statistical sources

Select bibliography and websites

40 Pakistan


Daily Times newspaper, www.dailytimes.com.pk

Dawn newspaper, www.dawn.com

The Friday Times newspaper, www.thefridaytimes.com

Government of Pakistan, Ministry of Finance, www.finance.gov.pk

Reference tables

These reference tables provide the most up-to-date statistics available at the time of publication.

Population 2000 2001 2002 2003 2004Population (m; mid-year) 139.76 142.86 146.75 149.65 152.53 % change 2.2 2.2 2.7 2.0 1.9


Labour force (m; end-Jun)

2001 2002 2003 2004 2005Employed labour force 38.14 39.64 40.47 42.24 43.22 Agriculture 18.47 16.68 17.03 18.18 18.60 Mining & manufacturing 4.40 5.51 5.63 5.83 5.96 Construction 2.21 2.40 2.45 2.46 2.52 Utilities 0.26 0.32 0.33 0.28 0.29 Transport 1.92 2.34 2.39 2.42 2.48 Trade 5.15 5.89 6.01 6.25 6.39 Others 5.73 6.50 6.63 6.82 6.98Unemployed 3.24 3.57 3.65 3.52 3.60Total labour force 41.38 43.21 44.12 45.76 46.82


Transport infrastructure 1999/2000 2000/01 2001/02 2002/03 2003/04Rail Passengers carried (m) 68.00 68.80 69.00 72.40 75.70Freight carried (m tonnes) 4.8 5.9 5.9 6.2 6.1Length of track (km) 7,791 7,791 7,791 7,791 7,791Road Vehicles registered; year-end (m) 4,702 4,844 5,049 5,132 5,396 Cars & jeeps (�000) 1,182 1,202 1,282 1,293 1,301 Trucks (�000) 149 157 171 179 181 Buses (�000) 154 159 163 163 163 Taxis (�000) 84 94 84 84 84 Motorcycles, 2- & 3-wheel (�000) 2,360 2,449 2,523 2,567 2,805Network (�000 km) 248.3 250.0 251.7 252.2 256.1

Pakistan 41


Transport infrastructure 1999/2000 2000/01 2001/02 2002/03 2003/04Air Passengers carried (�000) 5,297 2,729 4,290 4,391 4,700Passenger load factor (%) 64.5 63.8 68.7 69.3 69.2No. of aeroplanes 46 45 44 43 48Sea Exports (�000 tonnes)a 5,612 5,918 6,362 6,273 6,081Imports (�000 tonnes)a 18,149 20,063 20,330 19,609 21,732No. of vesselsb 15 14 14 13 14Deadweight tonnes (�000) 261.8 243.8 243.7 229.6 469.9

a Through Karachi port. b Pakistan National Shipping Corporation.


Energy supplies 2000/01 2001/02 2002/03 2003/04 2004/05a

Crude oil extraction (m barrels) 21.1 23.2 23.5 22.6 18.1

Crude oil imports (m barrels) 52.5 52.0 52.5 57.7 47.7

Natural gas output (bn cu ft) 875 924 993 1,203 1,003

Refined oil production (�000 tonnes) 8,337 9,028 9,084 9,740 7,904

Refined oil imports (�000 tonnes) 10,029 9,023 8,437 5,170 4,578

Coal production (�000 tonnes) 3,095 3,328 3,312 3,275 2,145

Coal imports (�000 tonnes) 950 1,081 1,578 2,789 2,200b

Hydroelectricity (gwh) 17,194 18,941 22,351 26,944 17,368

Thermal power (gwh) 48,926 51,174 51,591 52,122 42,331

Nuclear power (gwh) 1,997 2,291 1,740 1,760 2,060

a July-March. b Provisional.


Federal and provincial government budgets (PRs bn; outturn unless otherwise indicated)

2000/01 2001/02 2002/03 2003/04 2004/05

Total gross revenue 553.0 624.1 720.8 791.1 851.3

Tax revenue 441.6 478.1 555.8 608.4 662.6

Non-tax revenue 111.4 146.0 165.0 182.7 188.7

Total spending 717.9 826.3 898.2 955.8 1,050.4

Current 645.7 700.2 791.7 774.9 866.0

Development 89.8 126.3 129.2 160.5 188.0

Balance -179.7 -202.2 -177.4 -164.7 -199.1

a Budgeted.

Sources: Ministry of Finance, Economic Survey 2004-2005.

42 Pakistan


Money supply (PRs bn unless otherwise indicated; end-period)

2000 2001 2002 2003 2004

Money (M1) incl others 876.0 964.9 1,118.4 1,387.6 1,687.4

% change, year on year 10.1 10.1 15.9 24.1 21.6

Quasi-money 600.7 685.2 809.6 878.6 1,043.7

Money (M2) 1,476.7 1,650.1 1,928.0 2,266.2 2,731.1


Source: IMF, International Financial Statistics.

Interest rates (%; period averages unless otherwise indicated)

2000 2001 2002 2003 2004

Money-market interest rate 8.6 8.5 5.5 2.1 2.7


Gross domestic product (market prices)

2000/01 2001/02 2002/03 2003/04 2004/05

Total (US$ bn) At current prices 71.2 71.5 82.3 96.2 110.7

Total (PRs bn) At current prices 4,162.7 4,401.7 4,822.8 5,532.7 6,547.6

At constant (1999/2000) prices 3,864.0 3,988.4 4,185.8 4,453.1 4,799.7


Per head (PRs) At current prices 28,784 29,809 32,004 35,998 41,862

At constant (1999/2000) prices 26,719 27,010 27,777 28,974 30,687


Sources: Ministry of Finance, Economic Survey 2004-2005.

Gross domestic product by sectora (PRs m at constant 1999/2000 prices; factor cost; % of total in brackets)

2000/01 2001/02 2002/03 2003/04 2004/05b

Agriculture 903,499 904,433 941,942 962,527 1,034,292

(25.1) (24.4) (24.2) (23.3) (23.1)

Mining 47,561 51,031 59,266 61,509 64,609

(1.3) (1.4) (1.5) (1.5) (1.4)

Construction 87,846 89,241 92,789 86,402 91,783

(2.4) (2.4) (2.4) (2.1) (2.0)

Electricity, gas & water supply 120,465 112,026 98,932 119,809 122,358

(3.4) (3.0) (2.5) (2.9) (2.7)

Manufacturing 571,357 596,841 638,044 727,733 818,448

(15.9) (16.1) (16.4) (17.6) (18.3)

Services 1,863,396 1,952,146 2,053,979 2,176,564 2,348,360

(51.8) (52.7) (52.9) (52.6) (52.4)

GDP at factor cost 3,594,124 3,705,718 3,884,952 4,134,544 4,479,850

a Totals may not add, owing to rounding. b Provisional.


Pakistan 43


Nominal gross domestic product by expenditure (PRs bn at current prices; % of total in brackets)

2000/01 2001/02 2002/03 2003/04 2004/05

Private consumption 3,163.9 3,278.9 3,548.2 4,052.9 5,235.4

(76.0) (74.5) (73.6) (73.3) (80.0)

Government consumption 327.6 388.4 428.7 462.5 512.9

(7.9) (8.8) (8.9) (8.4) (7.8)

Gross fixed investment 659.3 680.4 736.4 864.7 999.3

(15.8) (15.5) (15.3) (15.6) (15.3)

Stockbuilding 56.2 58.0 80.6 94.3 103.3

(1.4) (1.3) (1.7) (1.7) (1.6)

Exports of goods & services 617.1 677.9 815.2 883.7 1,001.0

(14.8) (15.4) (16.9) (16.0) (15.3)

Imports of goods & services 661.5 681.9 786.2 825.4 1,304.3

(15.9) (15.5) (16.3) (14.9) (19.9)

GDP 4,162.7 4,401.7 4,822.8 5,532.7 6,547.6


Real gross domestic product by expenditure (PRs bn at constant 1999/2000 prices; % change year on year in brackets)

2000/01 2001/02 2002/03 2003/04 2004/05

Private consumption 2,856.6 2,891.1 2,915.4 3,153.9 3,684.4

(1.5) (1.2) (0.8) (8.2) (16.8)

Government consumption 312.1 359.0 384.8 393.0 401.9

(-5.3) (15.0) (7.2) (2.1) (4.5)

Gross fixed investment 634.4 632.1 658.1 628.8 638.5

(3.2) (-0.4) (4.1) (-4.4) (5.9)

Stockbuilding 58.1 62.5 71.1 77.0 79.1

(0.0)a (0.1)a (0.2)a (0.1)a (-1.3)a

Exports of goods & services 576.9 634.4 814.4 802.0 862.7

(11.8) (10.0) (28.4) (-1.5) (7.6)

Imports of goods & services 574.1 591.6 658.0 601.6 866.9

(1.5) (3.0) (11.2) (-8.6) (44.1)

GDP 3,864.0 3,988.4 4,185.8 4,453.1 4,799.7

(2.6) (3.2) (5.0) (6.4) (7.8)

a Change as a percentage of GDP in the previous year.


Prices and earnings (% change, year on year)

2000 2001 2002 2003 2004

Consumer prices (av) 4.4 3.1 3.3 2.9 7.4

Average nominal wagesa 10.2 8.4 4.0 11.3 13.0

Average real wagesa 5.6 5.1 0.7 8.1 5.2

a Economist Intelligence Unit estimates.

Sources: IMF, International Financial Statistics; International Labour Organisation; Economist Intelligence Unit.

Agriculture: basic data

44 Pakistan


(fiscal years Jul-Jun)

2000/01 2001/02 2002/03 2003/04 2004/05a

Cropped area (m ha) 22.0 22.1 21.9 22.9 22.9

Seed distribution (�000 tonnes) 233.1 177.7 190.0 189.0 196.6

Water availability (m acre ft) 134.8 134.6 134.5 134.8 135.7

Fertiliser use (�000 nutrient tonnes) 2,966 2,929 3,020 3,222 2,811

Credit disbursed (PRs bn) 44.8 52.4 58.9 73.6 73.8

a Provisional; July-March.


Agricultural production 2000/01 2001/02 2002/03 2003/04 2004/05a

Foodgrains (m tonnes)

Wheat 19.0 18.2 19.2 19.5 21.1

Rice 4.8 3.9 4.5 4.8 5.0

Maize 1.6 1.7 1.7 1.9 2.8

Total incl others 26.0 24.3 25.9 26.9 29.4

Cash crops (m tonnes)

Sugarcane 43.6 48.0 52.1 53.4 45.3

Cotton 1.8 1.8 1.7 1.7 2.5

Fruit (�000 tonnes)

Citrus 1,865 1,830 1,702 1,760 1,670

Mango 990 1,037 1,035 1,056 1,089

Apple 439 367 315 334 380

Banana 139 150 143 175 189

Apricot 126 125 130 211 206

Guava 526 538 532 550 532

Livestock

Milk (m tonnes) 26.3 27.0 27.8 28.6 29.4

Beef (�000 tonnes) 1,010 1,034 1,060 1,087 1,115

Mutton (�000 tonnes) 666 683 702 723 740

Poultry meat (�000 tonnes) 339 355 370 402 416

Wool (�000 tonnes) 39.2 39.4 39.7 39.9 40.2

Hides & skins (m) 46.0 47.1 48.5 49.8 51.2

Forestry & fishing

Fish (�000 tonnes) 629.0 654.5 562.0 566.2 573.6

Timber (�000 cu metres) 736 726 823 918 912

a Provisional.


Pakistan 45


Non-fuel minerals production (�000 tonnes unless otherwise indicated; fiscal years Jul-Jun)

2000/01 2001/02 2002/03 2003/04 2004/05a

Limestone 10,870 10,820 11,880 13,150 11,109

Rock salt 1,394 1,423 1,426 1,640 1,214

Marble 620 685 1066 994 839

Gypsum 364 402 424 467 436

Dolomite 353 313 341 297 167

Silica 155 157 185 259 236

Fire clay 164 171 117 193 173

China clay 47 54 40 25 27

Magnesite 4.6 4.6 2.6 6.1 2.8

Chromite 22 24 31 29 51

Bauxite 35 37 68 88 70

Barytes 28 21 41 44 35

Ochre 4.7 5.1 6.7 7.9 6.1

Celestite 0.8 0.4 0.4 0.6 1.2

Iron ore 24.8 4.9 11.5 84.9 78.8

Index of mining output (1999/2000=100) 98.3 105.5 122.5 134.8 110.1

a July-March.


Manufacturing production (�000 tonnes unless otherwise indicated)

2000/01 2001/02 2002/03 2003/04 2004/05a

Sugar 2,956 3,247 3,686 4,020 2,961

Vegetable ghee 835 797 743 888 654

Cotton yarn (m kg) 1,721 1,809 1,935 1,939 1,718

Cotton cloth (m sq metres) 490 568 577 683 688

Jute textiles 89 82 95 95 79

Cigarettes (m) 58,259 55,318 49,365 55,399 44,100

Beverages (�000 dozen bottles) 212 208 190 224 121

Motor tyres (�000) 884 908 1,082 1,302 1,101

Cycle tyres (�000) 4,051 4,569 5,330 4,768 3,700

Cement 9,674 9,935 11,020 12,862 10,726

Urea 4,005 4,260 4,402 4,432 3,454

Soda ash 218 215 281 287 224

Paints & varnishes (tonnes) 10,922 10,341 3,899 5,406 11,200

Bicycles (�000) 570 553 630 664 418

Electric bulbs (m) 55 55 58 139 107

Paper board 246 325 205 249 196

Index of manufacturing output (1999/2000=100) 115 123 121 121.4a 142.2

a July-March.


46 Pakistan


Karachi Stock Exchange statistics 2000/01 2001/02 2002/03 2003/04 2004/05a

Total turnover of shares (bn) 29.2 29.1 53.1 97.0 71.7

No. of new listings 4 4 2 16 12

Funds mobilised from new listings (PRs bn) 3.6 15.2 23.8 4.2 34.1

a July-March.


Main composition of trade (US$ m; fob-cif)

2000 2001 2002 2003 2004

Exports fob Cotton fabrics 1,073 977 1,160 1,284 1,485a

Cotton yarn & thread 1,105 1,017 957 1,150 1,204a

Rice 534 498 461 629 483a

Raw cotton 157 130 25 35 227a

Total exports incl others 9,028 9,238 9,913 11,930 13,379

Imports cif Machines & transport equipment 2,047 2,037 2,265 3,482 4,040a

Mineral fuels, etc 3,613 2,933 2,951 3,100 4,344a

Chemicals 1,983 1,886 1,924 2,089 2,543a

Palm oil 318 293 488 696 830a

Total imports incl others 10,864 10,191 11,233 13,038 17,949

a Economist Intelligence Unit estimate.

Sources: UN, International Trade Statistics Yearbook; Economist Intelligence Unit.

Main trading partners (% of total)

2000 2001 2002 2003 2004

Exports fob to: US 24.8 24.2 24.4 23.1 21.0

UAE 6.2 7.5 8.4 9.4 10.9

UK 6.5 6.8 7.2 7.1 7.0

Germany 5.6 5.2 4.9 5.1 5.1

Imports cif from: China 5.0 4.8 6.2 7.3 12.2

US 6.0 5.6 6.4 6.0 11.1

UAE 10.5 12.8 11.7 11.2 10.7

Saudi Arabia 10.5 11.2 11.7 10.9 10.4

Source: UN, Trade Statistics Yearbook.

Pakistan 47


Balance of payments, IMF series (US$ m)

2000 2001 2002 2003 2004

Goods: exports fob 8,739 9,131 9,832 11,869 13,353 a

Goods: imports fob -9,896 -9,741 -10,428 -11,978 -16,735 a

Trade balance -1,157 -610 -596 -109 -3,382 a

Services: credit 1,380 1,459 2,429 2,968 2,726 a

Services: debit -2,252 -2,330 -2,241 -3,294 -5,322 a

Income: credit 118.0 113.0 128.0 180.0 220.0 a

Income: debit -2,336.0 -2,189.0 -2,414.0 -2,404.0 -2,582.0 a

Current transfers: credit 4,200.0 5,496.0 6,593.0 6,300.0 7,672.0 a

Current transfers: debit -38.0 -61.0 -45.0 -68.0 -140.0 a

Current-account balance -85.0 1,878.0 3,854.0 3,573.0 -807.0 a

Direct investment in Pakistan 308.0 383.0 823.0 534.0 950.0 a

Direct investment abroad -11.0 -31.0 -28.0 -19.0 -25.0 a

Inward portfolio investment (incl bonds) -451.0 -192.0 -567.0 -119.0 393.0 a

Outward portfolio investment 0.0 0.0 -25.0 -65.0 -40.0 a

Other investment assets -437.0 53.0 -64.0 -542.0 -1,338.0

Other investment liabilities -2,508.0 -602.0 -948.0 -1,603.0 -1,855.0

Financial balance -3,099.0 -389.0 -809.0 -1,814.0 -1,915.0

Capital account nie credit � 0.0 40.0 1,140.0 603.0

Capital account nie debit � 0.0 0.0 -2.0 -5.0

Capital account nie balance 0.0 0.0 40.0 1,138.0 598.0

Net errors & omissions 557.0 708.0 973.0 -52.0 585.0

Overall balance -2,627.0 2,197.0 4,083.0 2,908.0 -1,354.0

Financing (� indicates inflow)

Movement of reserves -2.0 -2,179.0 -4,527.0 -2,912.0 1,058.0

Use of IMF credit & loans 197.9 510.7 334.7 482.7 255.2

a Economist Intelligence Unit estimate.

Sources: IMF, International Financial Statistics; Economist Intelligence Unit.

External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

1999 2000 2001 2002 2003

Public medium- & long-term 28,100 27,200 26,500 28,100 31,400

Private medium- & long-term 2,220 2,560 2,100 2,000 1,620

Total medium- & long-term debt 30,320 29,760 28,600 30,100 33,020

Official creditors 26,000 25,100 25,200 27,200 30,600

Bilateral 11,800 11,600 12,100 12,400 14,400

Multilateral 14,100 13,500 13,100 14,900 16,200

Private creditors 4,385 4,607 3,412 2,876 2,419

Short-term debt 1,830 1,520 1,310 1,540 1,250

Interest arrears 0 0 0 0 0

Use of IMF credit 1,700 1,530 1,810 2,030 2,110

Total external debt 33,850 32,810 31,720 33,670 36,380

Principal repayments 1,886 1,885 2,142 2,009 2,187

Interest payments 1,047 986 864 837 849

Short-term debt 49 78 57 55 35

Total debt service 2,932 2,870 3,006 2,846 3,036

48 Pakistan


External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

1999 2000 2001 2002 2003

Ratios (%) Total external debt/GDP 53.9 44.8 44.5 47.1 44.2

Debt-service ratio, paida 28.9 25.4 24.7 17.9 16.1

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Foreign reserves (US$ m; end-period)

2000 2001 2002 2003 2004

Total reserves incl gold 2,056.0 4,235.0 8,762.0 11,674.0 10,616.0

Total international reserves excl gold 1,513.0 3,640.0 8,078.0 10,941.0 9,799.0

Gold, national valuation 543.0 595.0 684.0 733.0 826.2


Exchange rates (PRs per unit of currency unless otherwise indicated; annual averages)

2000 2001 2002 2003 2004

US$ 53.6 61.9 59.7 57.8 58.3

£ 81.2 89.1 89.5 94.3 106.7

� 49.6 55.5 56.4 65.4 72.5

Rs 1.19 1.31 1.23 1.24 1.29

Rmb 6.48 7.48 7.22 6.98 7.04

¥ 0.498 0.510 0.476 0.498 0.538


Editors: Ravi Bhatia (editor); Gerard Walsh (consulting editor) Editorial closing date: November 1st 2005 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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