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Further Reading

Economy

An array of structural problems hamper sustained economic development and a reduction in pervasive poverty rates. Infrastructure shortcomings and lack of skilled labor constitute a major deterrent to sustainable medium-term growth. Unreliable power and telecommunication networks may be the main difficulties that businesses face, but the transport sector in particular is in need of investment to meet increasing demand from personal and freight traffic. Endemic corruption, a slow and opaque bureaucracy, a weak legal framework, and inconsistent policy implementation continue to thwart investment activity.

Out of total annual export receipts of $17 billion, nearly $5 billon is sent to Pakistan by Americans. During 2005, total U.S. imports from Pakistan were worth $3.25 billion (up 13% over 2004). About two-thirds of this value came from the purchase of cotton apparel and textiles. As of 2008 more than 60 percent of Pakistan's exports were cotton-related, and close to 90 percent of Pakistan's exports to the US are composed of textiles and apparels. Fully 35 percent of Pakistan's labor force is employed by the textile sector. By one accouting, American consumers are keeping more than 15 million Pakistani workers -- around 30 percent of the total labor force -- gainfully employed.

The World Bank considers Pakistan a low-income country. No more than 55.0% of adults are literate, and life expectancy is about 64 years. The population, currently about 167 million, is growing at 1.81% annually.

In 2000, the government made significant macroeconomic reforms: Privatizing Pakistan's state-subsidized utilities, reforming the banking sector, instituting a world-class anti-money laundering law, cracking down on piracy of intellectual property, and moving to quickly resolving investor disputes. After September 11, 2001, and Pakistan's proclaimed commitment to fighting terror, many international sanctions, particularly those imposed by the United States, were lifted. Pakistan's economic prospects began to increase significantly due to unprecedented inflows of foreign assistance at the end of 2001. This trend is expected to continue through 2009. Foreign exchange reserves and exports grew to record levels after a sharp decline. The International Monetary Fund (IMF) lauded Pakistan for its commitment in meeting lender requirements for a $1.3 billion IMF Poverty Reduction and Growth Facility loan, which it completed in 2004, forgoing the final permitted tranche. The Government of Pakistan has been successful in issuing sovereign bonds, and has issued $600 million in Islamic bonds, putting Pakistan back on the investment map. Pakistan's search for additional foreign direct investment has been hampered by concerns about the security situation, domestic and regional political uncertainties, and questions about judicial transparency.

On October 8, 2005 a magnitude 7.6 earthquake struck Pakistan, India, and Afghanistan. The epicenter of the earthquake was near Muzaffarabad, the capital of Pakistani-administered Kashmir, and approximately 60 miles north-northeast of Islamabad. An estimated 75,000 people were killed and 2.5 million people were left homeless. The disaster of such a huge magnitude galvanized an international rescue and reconstruction effort in support of the affected region. The earthquake cost Pakistan $1.1 billion in resettling those affected.

U.S. assistance has played a key role in moving Pakistan's economy from the brink of collapse to setting record high levels of foreign reserves and exports, dramatically lowering levels of solid debt. Also, despite the earthquake in 2005, GDP growth remained strong at 6.6% in fiscal year 2005-2006. In 2002, the United States led Paris Club efforts to reschedule Pakistan's debt on generous terms, and in April 2003 the United States reduced Pakistan's bilateral official debt by $1 billion. In 2004, approximately $500 million more in bilateral debt was granted. Consumer price inflation eased slightly to an average of 8% in 2005-2006 from 9.3% in 2004-2005.

Low levels of spending in the social services and high population growth have contributed to persistent poverty and unequal income distribution. Pakistan's extreme poverty and underdevelopment are key concerns, especially in rural areas.

About two-thirds of Pakistan's live in rural areas and depend on agriculture for their livelihood. Unlike India, land reform was limited in Pakistan. As a result, less than half of arable land is held by a large number of small farmers, while the remainder is held by a small number of large landowners. There are a large number of landless sharecroppers and agricultural laborers. Pakistan's agricultural sector is characterized by low productivity, limited investment, and a weak extension service. In addition, inefficient resource use, a skewed distribution of farm holdings, a thin land market reflecting insecure tenure, inefficient non-price allocation of water and irrigation systems in a drought-prone region, and poor quality inputs and infrastructure continue to hinder the sector. Food security based on selfsufficiency is a potentially costly policy and a major government priority.