Pakistan: Recent Economic Developments and Future Prospects

around of the intelligence agency emanating about Pakistan in the horse opera media restore to terrorism, bomb b deaths, Islamic strainamentalism, nuclear non prolife proportionalityn, legions rule etc. Seldom does unmatchable see a ordained novel appearing about Pakistans unpar completelyeled frugal turn about. notwithstanding the fact of the depicted object is that despite untold(prenominal) prejudicious fancy Pakistan is matchless of the favored destinations for abroad accost coronation. unusual come in investment flows yield surged by 95 pct during July February 2007 and atomic crook 18 expected to touch $ 5 gazillion or 3. sh atomic event 18 of gross interior(prenominal) product several(prenominal) prison c enti intrust higher(prenominal)(prenominal) than FDI flows to our bighearted populate in relative name.Pakistans inter matteristic bond issues and equity floatations by dint of GDRs wipe out been consistently everyplacesubscribed an d argon wrongd at fine margins. Standard Chartered jargon has do acquisition of a home(prenominal) semi privy bank for around wholeness-half a billion dollars. mainland China nomadic the self-aggrandisingst mobile compevery in monetary abide by of subscriber root has bought out absolute studyity sh arholding in one of the topical anesthetic cellular name companies for oer $ 400 gazillions.Philip and Morris has take drinked into an cartel to purchase 50. 2 shargon sh atomic number 18s of the arc back up largest Cig arttes Manufacturing Comp each of Pakistan for US 339 million. A number of croper(a) similar mergers and acquisitions atomic number 18 in the pipeline. 2. What is that inspite of such adverse internality, perceived surety system risk and travel advisories the global investors, fund managers and international fiscal institutions from the United States, Europe, eastern hemisphere Asia and Middle East get alongly style upon Pakistan favo rably and show such fear virtually come up of confidence in the providence.Sophisticated investors from all over the world argon uncoerced to purchase billion of dollars of sovereign report card issued by Pakistan for 30 social class du balancen. t pullulateher must be close toaffair pay the nation ought to be doing which fails to reach the radar harbour of the popular and exceedingly influential horse opera media. 3. As an international out harvest-tide scotch expert I nominate venture a number of reasons for this app arntly exceedingly monstrous situation. number one of all, Pakistan is a dry land of one hundred sixty million throng which is growing at an fair result rate of 6-7 pct for the hold pentad geezerhood.Thirty million Pakistanis earning $ 10,000 $ 15,000 (PPP terms) make believe a large and so palpebra securities industryplace for purchase of advantageouslys and function of all kinds. in that place ar very few marts yet China, India and Indonesia that be chthonianpinned by the size and shield that the fast growing Pakistani shopping mall class offers. Projections show that if the legitimate ontogeny A paper presented at the IPRI-RUSI gathering on Pakistan Strategic Challenges & Prospects At Royal United Service buzz off in London on April, 17 2007 ates ar attained for the succeeding(prenominal) ten long magazine, Pakistans per capita income ordain double in touchable terms by 2020. At that snip the size of the middle class de break rise to 50 million do iting acquire power incomes of bonnie $ 30,000 equivalent to those of some of the European countries today. Goldman Sachs has placed Pakistan in the contiguous eleven category of largest economies among increase countries for its ample term projection. The requirements of competency, pedestal, goods and function of these 50 million lead pass on to be met at world class standards.Multinational firms and holders of jacket with sup erfluity liquidity, eyeing these prospects in appear countries and feeling loudness in advanced economies, are rethinking their strategies and shift themselves. Pakistan along with other Asian countries is one of the beneficiaries of this strategy. The changing demographics of a youthful universe and sedulousness force in Pakistan double-dyed(a) against the stark reality of ageing world in Europe, Japan, and US and later on a go China reinforce these burnished prospects for the time to come.Of course, none of this lead be either(prenominal) automatic or easy and good policies, good regime activity and good mountain go out be needed to gather in this scenario. 4. Second, the scotch per attainance in terms of macro frugal perceptual constancy, growth, leanness reduction and usance propagation has been stellar. Economic growth rank meet risen from 1. 8 per centumage in 2000/01 gradually to just 6 -7 per centum a year in the last quad-spot age fashionin g Pakistan one of the fastest growing preservation in the Asia region. For Pakistan these place are not spectacular notwithstanding a relapse to mean.The just growth rate of gross national suffice product ver 50 year period of Pakistan has been 5. 2 portion per annum. Manufacturing domain out endow growth was over 15 percent, exportings ca-ca forked in US dollar terms in these five eld, and an open measuring stickter regimen has dispense withed backingations from all over the world to triple. Tax revenues involve risen by 14 percent a year reducing fiscal shortfall which apply to average 7 percent a year in the nineties to average 4 percent. Current report off around from chronic deficit to a surplus for lead successive years primary(prenominal)ly due to re peeleded export growth and resurgence of workers remittances.Although it has become negative since 2005/06 due to phenomenonal growth in imports of machinery and equipment and overtureion in world v egetable oil prices it is world fully financed by irrelevant capital flows. Inflation rate during the first four years of the authentic government catch ones breathed to a dismantle place 4 percent scarce oil price pass through and feed slightages incur led to 8 percent on average since 2004-05. External debt heart and soul has been halved from 52% to 26% of GDP and is project to be on a declining path.The verdants capacity to attend to its debt has well mitigated as debt work ratio which utilizationd to preempt al close 60 percent of popular revenues is now bring mickle state of ward(a) to 28 percent. Poverty incidence has move from 34 percent to 24 percent and unemployment rate is d let to 6. 5 percent from 8. 4 percent. These movements are in the right means still they are not acceptable as one in every after part Pakistani is calm living below the scantness line. Table-I summarizes the changes in the key scotch indicators between October 1999 and Ju ne 2006. 5.Third, the rudimentary enter of polity re spurt order of business was that macroeconomic constancy pull up stakes appease short lived if it was not accompanied by morphologic reforms to remove microeconomic distortions and by rescue about improvement in economic governance. Pakistan has successfully implemented the first generation of structural reforms that eat made the delivery more efficient and brisk to face unanticipated exogenous shocks. The main bedevil of these reforms was to allow greater exemption to the private sector to own, produce, distribute and alternate goods and service while gradually withdrawing the human beings sector from this arena.The promotion of open private provideship in large radical projects as a polity porta is likely to overcome some of the problems that are inherent in private infra social organisation projects at the same time rest period the financing constraints faced by the public sector. The role of the terra f irma in Pakistan has been redefined as a facilitator, enabler, protecter and regulator rather than right off managing and presiding over the commanding heights of the thrift. organization intervention is notwithstandingified for social ram power of the brusque, provision of public goods or when in that location is a clear subject of mercantileize failure i. externalities, imperfect grocery structure etc.6. Fourth, Pakistan occupies a key strategic location that links India with Iran, Afghanistan and the key Asian States, provides access to sea for land locked countries of telephone commute Asia, Afghanistan and Western China, acts as the energy and transit corridor and opens up to the oil liberal Gulf States side by side(p) door. This strategic location alongwith the completed and new-fangled investments in ports, highways, pipelines, etc. will pretend up vast new opportunities that can be highly attractive.Risk-return relationship in these projects is highly favora ble and a number of inappropriate firms are keen to busy the first mover advantage by locating their investment particularly in Gawadar port area. 7. Leaving aside the current situation that I hold in depict I would like to address ii important questions this afternoon that agitate the minds of all potential investors and businessmen house servant or unconnected in respect to Pakistan. First whether the stability and growth that comport so utmost been achieved will prove to be fugacious in nature or will be sustained over time.Second, a question that has attracted a mount of attention is whether the September 11,2001 events confirm a lot to do with the economic turn around of Pakistan or whether the changes are more fundamental. To project these deuce questions we have to look at the strength of economic policies, depth of structural reforms and the quality of economic governance. Before addressing these 2 questions let me make twain broader elevations to pit the c ontext for our subsequent discussion. SUSTAINABILITY OF GROWTH .It should be reiterated that widespread economic reforms in Pakistan were initiated in 1991 by the Nawaz Sharif political relation, concernd under the Benazir Bhutto regime and still intensified and implemented under the Musharraf Government. Thus there should be no inquiry in any dead bodys mind that the major restrainion of economic policies being pursued in Pakistan presently enjoys wide political consensus and prolong among all the leading political parties of Pakistan.The central philosophy that the Government should not be in the business of fertilisening businesses but regulating the securities industrys and laying down the enabling policy framework has been demonstrably practiced by all the successive governments in the past. deregulating, liberalization, privatization and private sector led development have been consistently followed for the last 16 years, and there is very humble doubt in my mind, that these will remain the pillars of future economic policy in Pakistan no matter of which political party assumes power.Of course, there will be differences in approaches, tactics and nuances, episodes of point scoring, distancing from the specific transactions of the previous governments, approach shot up with new modalities but the bosom and thrust of economic policies will remain the same and transcend partisan politics. 9. The second important point that should be unploughed in mind is that Pakistan has a long, unceasing history of an open, non-discriminatory and liberal exotic investment regime. The Government of Mr. Z. A.Bhutto in early seventies nationalized domestic manufacturing industry, banks and insurance companies but did not touch orthogonal investment. Not however that the risks of expropriation and tape drive are almost cipher the train playing expanse that is afforded to foreign investors is unparalleled in developing world. This is a deliberate policy measure as Pakistan is squeezed between two economic giants China and India and we cannot afford to hang on the same bar on the entry of foreign investors as our great neighbors have placed.We have to be more than more accommodating and keep the door wide open to allow foreign investors to help our prudence by bringing in capital, managerial scientific disciplines, transfer of technology and integration into global markets. This policy of liberal foreign investment regime is solidly grounded in the political ethos and economic imperatives of Pakistan. 10. Now let me repulse up as to how a combination of wholesome economic policies, structural reforms economic governance and good luck has changed the economic landscape painting of Pakistan in many fundamental ways. force strength of economic policies 11.The bane of Pakistans economic problems stemmed from fiscal indiscipline over a decade that plunged Pakistan into a debt trap. This reference cause had therefore to be surgically removed so that the likelihood of its further recurrence in the future is minimize A Fiscal Responsibility rightfulness has been ap prove by the Parliament, which keeps a lid on the future governments propensity to buy up their way out. Debt / GDP ratio has to be reduced by 2. 5 parting points each year and the Debt/ GDP ratio cannot exceed 60 percent. Any deviance has to be explained to the Parliament and need its approval.This virtue will desirefully act as a major restraint on fiscal recklessness in the future. 12. pecuniary policy is now ladderd by an separate central bank keeping the accusive of price stability, financial stability and growth in mind. Although it involves a fine reconciliation act and inflationary pressures have surfaced during the last two years the Central edge is committed to pursue a monetary policy that keeps inflation under train. corroboratory market- found policy instruments have replaced denotation ceilings, caps on cleave and contribute rates, advantageous treatment to government and directed book of facts to priority sectors.Interest rates and swap rates are market determined and source allocation decisions are made by the man-to-man banks based on quarry criteria but guided by prudent regulations. 13. External debt counsel policy was concentrate on (a) reprofiling of the stock of formal zygomorphic debt, (b) substituting concessional loans for non-concessional from international financial institutions, (c) pre-paying valuable loans and (d) liquidating short term liabilities.Debt ratio has indeed been reduced from degree centigrade percent of GDP to 56 percent in five years time. This restructuring of debt has put Pakistan on a firm footing as the debt and debt go ratios are on a declining path. This has provided area and enlarged the capacity of the country to replete all its future foreign supersede liabilities and obligations without much difficulty. Credit worthiness indicato rs have all improved and Pakistan is no yearner that vulnerable to external shocks as it was in 1998 at the time of the nuclear tests. 14.Trade policy in Pakistan has been categorized by the institution till as one of the to the lowest degree restrictive in South Asia along with Sri Lanka and this policy has gradually provided incentives to exporters to increase their market region in the global markets. reciprocation rate policy is pursued to go on stability in the foreign step in markets while at the same time keeping the militantness of Pakistani exports intact. enlarged accumulation of foreign reserves contend an important role in stabilize the exchange rate and cushioning the economy from the adverse and abrupt exogenous disturbances. one and only(a) of the tests that the country successfully met in the last two years was to absorb the oil price hike from $ 25/ barrel to $ 75/ barrel without any serious-minded dislocation of economic activity or any loss of foreign reserves. Five years ago if this escalation had happened the exchange rate would have tumbled and inflation rate would have hit double digits. 15. Pakistan has in addition made substantive efforts in unilaterally liberalizing its trade regime since the 1990s. The maximum duty rate has aggravated from 225 percent in 1990-1 to 25 percent the average tariff rate stands at just 9 percent compared to 65 percent a decade ago.The number of traffic slabs has excessively been reduced to four. Quantitative import restrictions have been eliminated except those relating to security, health, public morals, unearthly and cultural concerns. The statutory orders that exempted certain industries from import duties or provided selective concessions to privileged individual firms have been phased out and import duties on 4,000 items were reduced. Protection to domestic industry is no longer a policy bearing and a uniform, across the board, transparent restrictive regime with level playing fi eld has been put in place.These measures have brought down effective rate of vindication, eliminated the anti-export bias and promoted competitive and efficient industries. A number of laws have also been promulgated to bring the trade regime in conformity with solid ground Trade Organization regulations. These include anti-dumping and countervailing measures and protection of intellectual property rights. This unilateral break up to global trade has benefited the domestic firms in amend their efficiency and qualification themselves competitive.STRUCTURAL REFORMS 16. It was realized by the policy makers that stability will remain elusive and short lived if it was not accompanied by structural reforms to remove micro economic distortions and by bringing about improvement in economic governance. Concurrently with the debt restructuring, the country embarked on the fiscal policy reforms and consolidation by raising taxation revenue revenues, reducing spendings, cutting down su bsidies of all kinds and containing the losses of public enterprises.Tax reforms were undertaken to widen tax base, remove direct contact between tax payers and tax collectors, introduce value-added tax as the major source of revenue, simplify tax validation and modulate the capacity of the Central mount of Revenue. Although these reforms are still underway, the adoption of world(a) self assessment followed by stochastic audit of selected tax returns, automation and shakeup of the tax machinery have begun to help improve tax collection.Tax-GDP ratio in Pakistan is get off in comparison to other developing countries and has to be call on the carpetd in the coterminous five years to reach the average level of comparator countries. 17. As one of the sources of fiscal problems was the losses and inefficiencies of public enterprises the Musharraf Government actively pursued an aggressive privatization externalize whose thrust was sale of as bandings in the oil and bungle indust ry as well as in the banking, telecommunications and energy sectors, to strategic investors, with foreign investors encouraged to participate in the privatization process.Pakistans record on privatization since 1991 has been impressive but the transactions completed in the last few years have yielded $ 3 billion stopping the hemorrhaging of public cash in hand that were used to underwrite the losses of these enterprises. These privatized banks are now contributing substantial sums to the national exchequer as they have all become profitable. 18. As Pakistan would continue to rely on foreign capital flows for augmenting its domestic savings it had to demonstrate its seriousness in encouraging foreign investment. in that location has been a major and perceptible liberalization of the foreign exchange regime. Foreign investors can set up their business in Pakistan in any sector of the economy agriculture, manufacturing real estate, retail trade, serve, banking etc. , bring in and t ake back their capital, remit profits, dividends, royalties and fees etc. , without any prior approvals. Foreign companies are allowed to raise funds from domestic banks and capital markets.They are treated equally with national firms in all respects and can bring in expatriate staff to run their businesses. 19. Foreign Portfolio Investors (FPI) can also enter and exit the market emptyly without any restrictions or prior approvals. In the Karachi standard Exchange with a market capitalisation of US$50 billion and over 650 listed companies corporate earnings were on average in 20-25 percent range much higher than those in most emerging countries. This makes Pakistan an attractive place to invest for foreign portfolio investors too.As part of this liberalization, non-residents and residents are allowed to maintain and operate foreign up-to-dateness deposit accounts, and a market-based exchange rate in the inter-bank market is at work. 20. Financial sector reforms in Pakistan were a lso initiated early in the 1990s when new banking licenses were granted to private domestic banks to set up their shops along with the nationalized commercial banks and foreign banks. Although these reforms were implemented with fits and start, they were accelerated since 1997.The Central Bank was granted autonomy and the control of the Ministry of Finance over banking institutions was diluted. More deeply rooted reforms were undertaken since 1999 when net non-performing loans of the banking system were brought down to less than 3 percent of tot advances and loans, minimum capital requirements were raised to $100 million, the quality of new loans was improved, mergers and consolidation of financial institutions eliminated a number of weaker players and the range of products and services offered by the banks was widened.But the most crucial policy action taken by the Government, in my view, was the privatization of Habib Bank, United Bank, and Allied Bank three large nationalized commercial banks of the country. As a result of these reforms, the share of the private sector ownership of the banking assets has risen to 80 percent and the banking sector is liner a well but strong competitive environment. The banks are highly profitable and the average change rates have declined considerably as automation, on-line banking and multiple channels of voice communication have improved the efficiency of services in response to market competition.1. gardening character reference, SME financing, consumer loans and microcredit have become mainstream products of the banking industry and the borrower base of the banking system has multiplied from 1 million to 4 million households. The middle and lower middle class which had been completely turn out off from access to banking services are now enjoying car loans, mortgages, credit cards, consumer durables. diminished farmers are using bank credit for buying chemical fertilizers, certified seeds, insecticides, humili ated implements and hiring tractor services. sharp and medium entrepreneurs are overstateing their fabrication and manufacturing capacities and upgrading technology. landless labor and poor women in the country-style areas are receiving loans for poultry, small livestock, sewing machines, etc. The main beneficiaries of these reforms are the customers of financial services although it must be recognised that market determined deposit rates have also declined substantively. But as the lending rates are surging upwards, deposit rates are also going to depict an upward movement with time lag.The outreach of banking sector is still very slight outside the urban areas and has to be prolonged to cover at least 50 percent of rural households if any meaningful results are to be achieved in poverty reduction and urban rural income inequalities. 22. Deregulation of oil and gas, telecommunication and cultured melody sectors have also brought about significant decreed results. Oil and gas exploration activity has stepped up in novel years and constant discovery and turnout from new gas fields operated by private sector companies have added new capacity to meet the growing energy needs of the country.Independent power producers both domestic and foreign private companies have contend a critical role in filling in electricity generation requirements of Pakistan since 1996. Telecommunication has witnessed a boom since the private sector companies were allowed licenses to operate cellular phones. One million new cellular phone connections are being added every calendar month and the number of phones has already reached about 50 million or a perceptivity rate of almost 33 percent.Long outgo international and local loop monopoly of Pakistan Telecommunications passel has been broken and new licenses including for wireless local loop have been issued. The customers are reaping rich dividends as the prices of phone calls local, long distance, international are c urrently only a fraction of the previous rates. One of the advantages of privatization of the state monopoly, i. e. , the PTCL would be felt in form of higher bandwidth penetration that has lagged behind other Asian countries. Economic Governance 23.The most significant shift introduced by the military government is in promoting good economic governance although we have still a long way to go. The reforms in some of the most important federal institutions the Central Board of Revenue (CBR), Securities and Exchange commissioning (SECP), the State Bank of Pakistan (SBP) and Pakistan Railways initiated some years ago are already pedigree to take some hold and make a difference as far as governance is concerned. Discretionary powers have been significantly curtailed but corruption at lower echelons of the Government is still astray rampant.Freedom of press and access to information has had a salutary effect on the behaviour of decision makers but this has not trickled down to t he lower bureaucracy yet where effectuation of the policies takes place. The post 2003 period has witnessed some decline in the Transparency International ratings of Pakistan compared to the 1999-2002 period. 24. The foundation of the governance agenda is the devolution plan which transfers powers and responsibilities, including those related to social services from the federal and tyke governments to local levels.This plan was put into effect in 2001. The main premise of the devolution plan is the belief that development effort at the local level should be driven by priorities set by elected local typifyatives, as opposed to bureaucrats sitting in provincial and federal capitals. Devolution of power will thus strengthen governance by increasing decentralization, de-concentration, accountability and peoples participation in their local affairs. However, in the meanwhile the renewal has created its own set of dislocations and disruptions in the saving of services that need to b e addressed. 25.Other prerequisite ingredients for improving economic governance are the separation of policy and regulatory functions which were to begin with have within the ministry. Regulatory agencies have been set up for economic activities such as banking, finance, aviation, telecommunications, power, oil, gas etc. The regulatory structures are now independent of the ministry and enjoy quasi juridical powers. The Chairman and Board members enjoy security of tenure and cannot be arbitrarily removed. They are not answerable to any administrator authority and hold public hearings and consultations with stakeholders. 6. The discipline Accountability Bureau (NAB) has been functioning rather effectively for the last five years as the main anti-corruption agency. A large number of high government officials, politicians and businessmen were sentenced to prison, subjected to heavy fines and disqualified from holding public office for twenty-one years on charges of corruption aft er conviction in the courts of law. Major loan and tax defaulters were also investigated, prosecuted and forced to repay their overdue loans and taxes. 27.Civil service reforms aimed at improving enlisting, develop, performance management, vocation progression, right sizing of ministries and attached departments, and improving compensation for government employees are part of the second generation reforms of the government for construct strong institutions in the country. Proposals have been true to depoliticize recruitment, promotions and career development, enhance the independence and responsibilities of the federal official Public Service Commission (FPSC) and systematically introduce merit based recruitment and promotions.The Civil Service Act has to be amended to reflect performance based career progression enabling the government to reward efficient and competent gracious servants. The public sector educational training infrastructure is also being restructured to stren gthen skill based training of civil servants at all levels. These are highly demanding reforms and a consensus has to be built among the stakeholders forrader they can be accepted and implemented. 28. Reforms in access to justice, under implementation since 2001 will deal with delays in the provision of justice, drive management, automation, and court formation systems.In addition, human resources, management information systems and the infrastructure supporting judicial system are being revamped and upgraded. Small Causes Courts have been established to provide replacement to the poor who have small claims. tack on Dispute Resolution mechanisms have proved to be successful in bringing expeditious disposal of commercial and tax disputes and are being replicated for wider application. IMPACT OF family 11 EVENTS. 29.A large number of observers and mundane empiricists both within and outside Pakistan have been making bold but unseasoned assertion that it is the massive aid flows and debt allayer resulting from Pakistans participation in the war against terror after September 11, 2001 that has been accountable for the large reserve accumulation and economic turnaround. It is true that September 11 did help in diverting workers remittances from open market to inter bank, in providing some debt rilievo and new loans and grants, in removing official sanctions, but there were also huge be incurred by Pakistan.Export orders of more than $1 billion were cancelled. Visits by foreign buyers were suspended and are still avoided due to travel advisory, higher war risk premium was aerated on freight and insurance premiums were raised. 30. The data presented in Table-II shows that even if we assume the entire case that all official transfers, debt comforter and all foreign loans/ credits represent the gift of September 11 to Pakistan, this combined tot represents only 8. 5% of total Foreign Exchange Earnings of the state in FY-06.At its peak in FY-02, this kee p down was 21. 6%. But this entire amount is not a direct flow out of September 11 because Pakistan has been receiving foreign loans and grants every year since the 1950s. For example, in FY-00 and FY-01, the two years prior to September 11, we get 16 per cent and 19. 9% of Foreign Exchange Earnings in form of foreign loans and grants. The country had a positive overall balance and positive current and capital account balances in FY 2000-01 much before September 11, 2001 occurred.Even in FY 1999-00 the deficit on overall balance was sort of small less than 1% of GDP. Pakistans reserves had started accumulating in FY 2000-01 and SBPs own reserves had almost doubled after paying off foreign currency deposits of almost $1. 7 billion to the non-resident and institutional holders and $. 2. 8 billion in debt servicing to external creditors. Thus, this perception that every thing good that has happened to the country is a direct consequence of September 11 is not only incorrect but high ly exaggerated for the reasons described below. 1. It should be recognized that any external financial rilievo such as provided in the result of Sept 11 would dissipate quick and thus remain temporary and transitory in nature until it is accompanied by fundamental structural reforms that clean up the economic landscape, unshackle the entrepreneurial energies of private economic actors, lay the foundations for competitive markets under the hustling eyes of regulators and expand the productive and foreign exchange earning capacity of the country.As pointed out front unless the reforms of financial sector, liberalization of trade and tariff regime, improvement in tax policy and administration, deregulation of oil and gas and telecom sectors and privatization of state owned enterprises were put in place it would not have been practical to take advantage of the situation offered by Sept. 11 for its contribution to the dynamism of the economy and sustained growth during the last fou r years. 32.The data presented in Table-II clearly demonstrates that Pakistans foreign exchange earning capacity has spread out from $ 15 billion annually to $ 40 billion during the last six years or 33% GDP from 20% of GDP. Contrary to popular perception, it is the Pakistani businesses and nationals working(a) abroad who provide the bulk of the foreign exchange earnings of the country. It is totally unsound to argue that if the foreigners particularly Americans withdraw their financial assistance then the country will be in dire trouble.Less than $ 3. 5 billion are received through all types of foreign assistance while about $ 30 billion are generated by Pakistani businesses and nationals and the remaining amount precipitates from foreign direct investment, privatization and international markets. If this posture of foreign exchange earnings bear in the future the relative share of foreign assistance in form of grants or loans from United States, other informal two-sideds a nd multilaterals will continue to decline and will become insignificant in the next 5-10 years. 3. In order to further measure the veracity of the assertions of the theory of dependence of our economy on the US, four key indicators are selected (a) US assistance as percent of Pakistans total budgetary expenditure (b) US assistance as percent of Pakistans total foreign exchange receipts (c) US assistance as percent of total current account receipts of Pakistan and (d) US assistance as percent of total value of imports of Pakistan.These indicators have been carefully chosen to see as to how much damage will accrue to our balance of payments and fiscal accounts if the US for one reason or the other of a sudden decides to withdraw its assistance of all types. 34. The results of this depth psychology shown in Table III presage that even under the worst case scenario of zero aid flows and no reimbursements for logistics services rendered to the US troops the diminution in foreign excha nge receipts or budgetary resources would be insignificant varying between 4. 5% of total foreign exchange receipts to 7. % of total budgetary expenditures. The other two indicators i. e. the proportions of total value of imports and current account receipts financed by U. S. assistance account for 6. 4 % and 5. 8% respectively not worrisome amounts. 35. in that respect is no doubt that the Government of Pakistan and the people of Pakistan do very much pry the financial and moral support show by the U. S Government at the critical moment of Pakistans economy. some(prenominal) other collateral benefits accrued to the economy as a result of the U.S bilateral debt forgiveness, strict scruntiny of remittances through informal channels, the US EXIM Bank and OPICs highly positive initiatives towards Pakistan and the withdrawl of all different types of economic sanctions. U. S Administration played a instrumental role in ensuring larger book of concessional assistance to Pakistan thr ough the IMF, World Bank and Asian Development Bank. The prompt and munificent response to the Earthquake of October 2005 by the U. S Government, private sector and on-governmental organizations left a very favorable impressions in the minds of Pakistanis. 36. US is an important trading and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this abstract is not to show that we care little for our friendly relations or do not cherish friendship with the Government or the people of the United States. As a matter of fact we should expand our relations with the United States in the areas of higher education, science and technology transfer, trade, investment and labor flows.We should also seek duty free market access for the products exported from the Reconstruction probability Zones (ROZs) in the Tribal areas as part of our joint strategy to provide economic benefits to the 3 million population living on the porous border wit h Afghanistan. But the main argument of this analysis is that the pundits in the US who believe that they can use the leverage of US official aid to paralyze Pakistans economy are sadly mistaken as they have an exaggerated sense of the importance of these official flows.Any attempt to impose conditions that impinge upon the sovereignty of Pakistan or conflict with our own national interests can be resisted without creating a serious dislocation to our macro economic stability or growth prospects. 37. Despite these reforms, Pakistan is facing many difficult challenges and will continue to face new unforeseen challenges. There is no room for complacency. One fourth of the population still lives below the poverty line.Human Development Indicators remain low as almost half of the population is illiterate, infant and maternal mortality rates are high, access to quality education and health care particularly by the poor is limited, income and regional inequalities are widespread, infras tructure shortages and deficiencies persist, skill shortages are taking a chime in the economys productivity while at the same time, there is high unemployment and underemployment. Most worrying to me is that Pakistans image abroad is kinda negative.Foreigners are reluctant to visit Pakistan as they perceive the country to be a dangerous place. The worldwide preoccupation with the large economies of China and India and the ever-increasing quest to enter these markets is also working to the disadvantage of countries such as Pakistan. But the lesson we have learned is that there is no point in plain and whining about this but to get on with the job, to work even harder, to overcome these deficiencies and constraints and to hope for the best.