Economy
GDP (2002 est.): PPP $311 billion.
Real annual growth rate (2001-02): 5%.
Per capita GDP (2001): PPP $2,100.
Natural resources: Arable land, natural gas, limited petroleum, substantial hydropower potential, coal, iron ore.
Agriculture: Products--wheat, cotton, rice, sugarcane, tobacco.
Industry: Types--textiles, fertilizer, steel products, chemicals, food processing, oil and gas products, cement.
Trade (FY 2002-03): Exports--$9.8 billion: textiles (garments, cotton cloth, and yarn), rice, leather, sports goods, and carpets and rugs. Major partners--U.S. 27.0%, United Arab Emirates 8%, U.K. 7.2%, Germany 4.9% , Hong Kong 4.8%. Imports--$11.1 billion: petroleum, petroleum products, machinery, chemicals, transportation equipment, edible oils, pulses, iron and steel, tea. Major partners--United Arab Emirates 13.1%, Saudi Arabia 1.6%, Kuwait 7.1%, U.S. 6.7%, China 5.6%.

Economy of Pakistan
With a per capita GDP of about PPP $2,100, the World Bank considers Pakistan a low-income country. No more than 45.7% of adults are literate, and life expectancy is about 63 years or less. The population, currently about 150.7 million, is growing at over 2% annually, very close to the GDP growth rate. Inadequate provision of social services and high population growth have contributed to a persistence of poverty and unequal income distribution. Relatively few resources have been devoted to socioeconomic development or infrastructure projects. Pakistan's extreme poverty and underdevelopment are key concerns, but the Government of Pakistan has reined in the fiscal mismanagement that produced massive foreign debt, and officials have committed to using international assistance--including a major part of a proposed $3 billion 5-year U.S. assistance package--to address Pakistan's long-term problems of high illiteracy and inadequate healthcare.

The government began pursuing market-based economic reform policies in the early 1980s. Market-based reforms began to take hold in 1988, when the government launched an ambitious IMF(International Monetary Fund)-assisted structural adjustment program in response to chronic and unsustainable fiscal and external account deficits. The government began to remove barriers to foreign trade and investment, reform the financial system, ease foreign exchange controls, and privatize dozens of state-owned enterprises.

Although the economy became more structurally sound, it remained vulnerable to Pakistan's external and internal shocks, such as in 1992-93, when devastating floods and political uncertainty combined to depress economic growth sharply, and the financial crisis in Asia hit major markets for Pakistani textile exports. The economy averaged a growth rate of 6% per year during the 1980s and early 1990s, but this growth dwindled until 2002. For example, average real GDP growth from 1992 to 1998 dipped to 4.1% annually. Pakistan continues to struggle with these reforms, having mixed success, especially in reducing its budget and current account deficits. The budget deficit in FY 1996-97 was 6.4% of GDP. Initial data implied a reduction in 1997-98 to 5.4% and in 1998-99 to 4.3%, but revised data indicates that the deficit is probably still more than 5.0%, with an external debt of $32.3 billion in FY 2002. The Pakistani rupee has been continually depreciating against the dollar, and the current exchange rate is around 59 rupees per dollar.

Economic reform also was set back by Pakistan's nuclear tests in May 1998 and the subsequent economic sanctions imposed by the G-7. International default was narrowly averted by the partial waiver of sanctions and the subsequent reinstatement of Pakistan's IMF ESAF/EFF in early 1999, followed by Paris Club and London Club reschedulings. Starting in 1999, President Musharraf and Finance Minister Aziz began instituting policies to stabilize Pakistan's macroeconomic situation.

In 2000, the government made significant inroads in macroeconomic reform, but more work needs to be done. Privatizing Pakistan's state-subsidized utilities, instituting a world-class anti-money laundering law, cracking down on piracy of intellectual property, and quickly resolving investor disputes would aid Pakistan's efforts to improve its investment climate. After September 11, 2001 and Pakistan's proclaimed commitment to fighting terror, many international sanctions, particularly those imposed by the United States, were lifted. Pakistan's economic prospects began to increase significantly due to unprecedented inflows of foreign assistance at the end of 2001, a trend which is expected to continue through 2009. Foreign exchange reserves and exports grew to record levels after a sharp decline. The International Monetary Fund recently lauded Pakistan's commitment in meeting lender requirements for a $1.3 billion IMF Poverty Reduction and Growth Facility, and the Government of Pakistan plans to issue a sovereign bond offering in the near future, putting Pakistan back on the investment map. Pakistan's search for additional foreign direct investment has been hampered by continuing concerns about the security situation, domestic and regional political uncertainties, and questions about judicial transparency.

U.S. assistance has played a key role in moving Pakistan's economy from the brink of collapse to setting record high levels of foreign reserves and exports, historic low inflation, solid 5% GDP growth, and dramatically lower levels of debt. In 2002, the United States led Paris Club efforts to reschedule Pakistan's debt on generous terms, and in April 2003 the United States reduced Pakistan's bilateral official debt by $1 billion. Pakistan has requested additional debt reduction, and it appears likely that about $500 million more in bilateral debt will be reduced in FY 2004.

Agriculture and Natural Resources
Pakistan's principal natural resources are arable land, water, and extensive natural gas reserves. About 28% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Agriculture accounts for about 24% of GDP and employs about 44% of the labor force. The most important crops are cotton, wheat, rice, sugarcane, fruits, and vegetables, which together account for more than 75% of the value of total crop output. Despite intensive farming practices, Pakistan remains a net food importer. Pakistan exports rice, cotton, fish, fruits, and vegetables and imports vegetable oil, wheat, cotton, pulses, and consumer foods.

The economic importance of agriculture has declined since independence, when its share of GDP was around 53%. Following the poor harvest of 1993, the government introduced agriculture assistance policies, including increased support prices for many agricultural commodities and expanded availability of agricultural credit. From 1993 to 1997, real growth in the agricultural sector averaged 5.7% but has since declined to less than 4%. Agricultural reforms, including increased wheat and oilseed production, play a central role in the government's economic reform package.

Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal, and large hydropower potential. However, the exploitation of energy resources has been slow due to a shortage of capital and domestic and international political constraints. For instance, domestic petroleum production totals only about half the country's oil needs, and dependence on imported oil also contributes to Pakistan's persistent trade deficits and shortage of foreign exchange. Regional gas and oil pipeline proposals remain untenable until Indo-Pakistan tensions subside sufficiently to allow free flow to the region. Pakistan announced that privatization in the oil and gas sector is a priority, as is the substitution of indigenous gas for imported oil, especially in the production of power. Saudi Arabia also supplies free oil to Pakistan.

Industry
Pakistan's manufacturing sector accounts for about 25% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 64% of total exports. Other major industries include food processing, beverages, construction materials, clothing, paper products, and shrimp. As technology and education improve in the industrial sector, it continues to grow, and in 2001 the industrial production growth rate was 7%. Despite ongoing government efforts to privatize largescale parastatal units, the public sector continues to account for a significant proportion of industry. In the face of an increasing trade deficit, the government hopes to diversify the country's industrial base and bolster export industries. Currently, net foreign investment in Pakistani industries is only 0.5%.

Foreign Trade and Aid
Weak world demand for its exports and domestic political uncertainty have contributed to Pakistan's high trade deficit. In FY 1998-99, Pakistan recorded a current account deficit of $1.7 billion, only a slight improvement over the FY 1997-98 current account deficit of $1.9 billion. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Major imports include petroleum and petroleum products, edible oil, wheat, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products. External imbalance has left Pakistan with a growing foreign debt burden. The fiscal imbalance is reflected in a high level of total net public debt, which reached an estimated 92.6% of GDP in 2000-01, more than half involving external liabilities. The fiscal deficit widened from 5.6% of GDP in 1994-95 to 7.7% in 1997-98 before declining to 5.3% in 2000-01, close to the target under the Revival Program of 5.2%. Support for loss-making, state-owned enterprises and a weak domestic tax base are critical elements in the recurring fiscal deficits. These, in turn, impair the government's capacity to undertake essential expenditures--including on poverty alleviation, health, education, and infrastructure--thus hampering economic growth and development. Despite its economic and political difficulties, Pakistan has taken steps since its previous review to liberalize its trade and investment regimes, either unilaterally or in the context of commitments made in the World Trade Organization (WTO), IMF, and the World Bank. Over the past 2 years, efforts in several crucial areas have seemingly intensified, with the result that Pakistan is becoming a more open and secure market for its trading partners.

Pakistan has received significant loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors, particularly after it began using its military/financial resources in the war against terror and the reconstruction of Afghanistan. The United States recently pledged $3 billion over the next 5 years in economic and military aid to Pakistan. If approved, $600 million would be spent annually, half on social development programs and half on security assistance. In addition, the IMF and World Bank have pledged $1 billion in loans to Pakistan, and in 2002 alone gave $200 million in economic aid and $50 million in military support.
source: http://www.state.gov