PAKISTAN ECONOMY

The World Bank considers Pakistan a low-income country. No more than 49.9% of adults are literate, and life expectancy is about 63 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 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. The trends of resources being devoted to socioeconomic development and infrastructure projects have been improving since 2002, although expenditures remain below global averages. Pakistan's extreme poverty and underdevelopment are key concerns, especially in rural areas. Officials have committed to using international assistance--including a major part of the $3 billion five-year U.S. assistance package--to address Pakistan's long-term needs in the health and education sectors.