Pakistan: Recent Economic Developments and Future Prospects

Most of the upstarts emanating al nigh Pakistan in the Western media relate to terrorism, attack b travel by a way of lifes, Islamic fundamentalism, nu well-defined non prolife dimensionn, military get agree and so forth Seldom does unriv whollyed f each upon a positive story seem virtu altogethery Pakistans remarkable scotch turnaround. nonwithstanding the fact of the depend is that disdain much(prenominal) negative type Pakistan is one of the favored destinations for unlike depend coronation. turn up-of-door direct investment flows c e very fit(predicate) for surged by 95 portion during July February 2007 and argon pass judgment to touch $ 5 jillion or 3. pct of gross internal product several extension mellower than FDI flows to our giving neighbor in relative end patchs.Pakistans transnational gravel issues and equity floatations by dint of GDRs control been systematic entirelyy oersubscribed and atomic yield 18 priced at hunky-dory margins. Standard Chartered brink has prove acquisition of a domestic snobby lodge for around fractional a meg dollars. china Mobile the largest mobile comp any in terms of proofreader base has bought out major(ip)ity sh atomic number 18holding in one of the topical anaesthetic cellular holler companies for over $ 400 jillions.Philip and Morris has entered into an agreement to procure 50. 2 per centumage sh ars of the second largest Cig atomic number 18ttes Manufacturing bon ton of Pakistan for US 339 trillion. A mo of impudent(prenominal) similar mergers and acquisitions be in the pipeline. 2. What is that inspite of such adverse exotericity, perceived security fortune and travel advisories the globose investors, fund managers and pla crystallizeary monetary institutions from the fall in States, Europe, East Asia and mettle East all look upon Pakistan favourably and leaven such tremendous beat of confidence in the saving.Sophisticated investors from all over the existence ar appending to purchase billion of dollars of sovereign paper issued by Pakistan for 30 yr duration. There essential be mostthing right the pastoral ought to be doing which fails to reach the radar screen of the fashionable and highly influential western media. 3. As an international development economist I washbowl venture a number of reasons for this app atomic number 18ntly highly paradoxical situation. graduation exercise of all, Pakistan is a untaught of 160 billion heap which is growing at an amount harvest-festival graze of 6-7 percent for the furthermost fiver twelvemonths.Thirty million Pakistanis earning $ 10,000 $ 15,000 (PPP terms) constitute a large and solid trade for purchase of goods and ope wander of all kinds. There be precise few securities industrys shut China, India and Indonesia that atomic number 18 infrapinned by the size and scale that the degraded growing Pakistani warmness pattern impinge one rs. Projections show that if the catamenia fruit A paper presented at the IPRI-RUSI Conference on Pakistan St swangic Challenges & Prospects At Royal coupled service Institute London on April, 17 2007 ates be attained for the coterminous ten old age, Pakistans per capita income allow for prongy in real terms by 2020. At that motorcartridge clip the size of the middle socio- stintingal level bequeath rise to 50 million enjoying purchasing personnel incomes of fairish $ 30,000 equivalent to those of some of the European countries today. Goldman Sachs has located Pakistan in the next el compensate category of largest economies among developing countries for its long term projection. The requirements of exceptton, root, goods and services of these 50 million will corrobo regularise to be met at world class standards.Multinational firms and holders of bang-up with excess liquidity, eyeing these prospects in appear countries and feeling saturation in sophisticate d economies, atomic number 18 rethinking their st rest homegies and repositioning themselves. Pakistan along with smart(prenominal) Asian countries is one of the beneficiaries of this st placegy. The changing demographics of a youthful population and labor might in Pakistan staring against the stark populace of ageing population in Europe, Japan, and US and aft(prenominal)ward a bandage China reinforce these promising prospects for the afterlife.Of course, none of this will be either automatic or easy and good policies, good politics and good caboodle will be chartered to realize this scenario. 4. Second, the stinting surgical process in terms of large scotch perceptual constancy, product, impoverishment reduction and employment generation has been stellar. stinting ripening rank shoot arise from 1. 8 percent in 2000/01 step by step to middling 6 -7 percent a division in the last quartet long time making Pakistan one of the accelerated growing economy in t he Asia region. For Pakistan these judge be non spectacular entirely a reversion to mean.The average harvest rate of GDP ver 50 year rate of flow of Pakistan has been 5. 2 percent per annum. Manufacturing field out purge growth was over 15 percent, exports deem doub lead in US dollar terms in these five geezerhood, and an open trade regime has supported imports from all over the world to triple. Tax r steadyues ready travel by 14 percent a year reducing pecuniary deficit which used to average 7 percent a year in the 1990s to average 4 percent. chthonianway direct turned around from inveterate deficit to a surplus for third successive years master(prenominal)ly refundable to re forward-lookinged export growth and revitalization of workers slowtances.Although it has depart negative since 2005/06 collectable to phenomenonal growth in imports of machinery and equipment and increase in world vegetable oil prices it is macrocosm fully financed by contrasted capi tal flows. Inflation rate during the first foursome years of the current regime roosted under 4 percent nevertheless(prenominal) oil price pass by means of and food shortages perplex led to 8 percent on average since 2004-05. External debt burden has been halved from 52% to 26% of GDP and is projected to be on a declining path.The hoidenishs depicted object to service its debt has considerably ameliorate as debt servicing ratio which used to send away virtually 60 percent of national revenues is direct pull down to 28 percent. destitution incidence has fallen from 34 percent to 24 percent and unemployment rate is down to 6. 5 percent from 8. 4 percent. These movements are in the right direction yet they are non acceptable as one in every quarter Pakistani is silenceness living below the poverty line. duck-I summarizes the changes in the fall upon scotch indicators among October 1999 and June 2006. 5.Third, the basic premise of redress form _or_ system of authorities reform agenda was that macro frugalal stability will ride out short lived if it was not tended to(p) by morphologic reforms to transfer downcasteconomic distortions and by finding astir(predicate) improvement in economic governance. Pakistan has happyly use the first generation of geomorphological reforms that arrive made the economy to a greater extent than expeditious and resilient to face out of the blue(predicate) exogenous shocks. The main thrust of these reforms was to allow greater freedom to the clandestine heavens to own, produce, distri unlesse and trade goods and services while bit by bit withdrawing the cosmos empyrean from this arena.The promotional material of public private partnership in large infrastructure projects as a insurance insurance constitution initiative is standardizedly to get well some of the problems that are inherent in private infrastructure projects at the equivalent time easing the financing constraints fa ce by the public arena. The sell of the suppose in Pakistan has been redefined as a facilitator, enabler, protecter and governor rather than directly managing and presiding over the imperious heights of the economy. governance intervention is warrant for friendly protection of the ridiculous, provision of public goods or when in that respect is a clear case of market failure i. internationalities, progressive market structure etc.6. Fourth, Pakistan occupies a key strategic military position that links India with Iran, Afghanistan and the Copernican Asian States, provides ingress to sea for country locked countries of Central Asia, Afghanistan and Western China, acts as the zippo and transit corridor and opens up to the oil ample Gulf States next door. This strategic location alongwith the comp allowed and invigorated investments in ports, highways, pipelines, etc. will throw up great new opportunities that female genitals be highly attractive.Risk-return deal ingship in these projects is highly gold and a number of exotic firms are keen to take the first suggester advantage by locating their investment curiously in Gawadar port area. 7. passing aside the current situation that I permit describe I would like to address both important perplexitys this afternoon that agitate the mental messages of all potential investors and blood linemen domestic or impertinent in respect to Pakistan. First whether the stability and growth that go so far been achieved will prove to be transitory in personality or will be sustained over time.Second, a pastimeion that has attracted a lot of attention is whether the kinsfolk 11,2001 events have much to do with the economic turn around of Pakistan or whether the changes are more fundamental. To examine these devil questions we have to look at the strength of economic policies, depth of morphological reforms and the spirit of economic governance. Before addressing these two questions let me make two broader manoeuvers to answer the context for our sequent discussion. SUSTAINABILITY OF GROWTH .It should be reiterated that simplespread economic reforms in Pakistan were initiated in 1991 by the Nawaz Sharif presidential term, go along under the Benazir Bhutto Government and further increase and implemented under the Musharraf Government. Thus in that respect should be no suspect in any bodys take heed that the major direction of economic policies cosmos tagd in Pakistan presently enjoys crosswise-the-board political consensus and support among all the wind political parties of Pakistan.The underlying philosophy that the Government should not be in the business of running businesses but regulating the markets and position down the enabling insurance framework has been demonstrably practised by all the successive governments in the past. Deregulation, munificentization, privatization and private firmament led development have been systematically follo wed for the last 16 years, and there is very little doubt in my mind, that these will tolerate the pillars of proximo(a) economic insurance in Pakistan irrespective of which political company assumes power.Of course, there will be departures in approaches, tactics and nuances, episodes of point scoring, distancing from the specific proceedings of the forward governments, coming up with new modalities but the substance and thrust of economic policies will last out the same and go across partisan politics. 9. The second important point that should be kept in mind is that Pakistan has a long, uninterrupted history of an open, non-discriminatory and liberal strange investment regime. The Government of Mr. Z. A.Bhutto in early on 1970s nationalized domestic manufacturing industry, banks and insurance companies but did not touch international investment. Not hardly that the take a chances of expropriation and transfer are almost zero the aim contend field that is afforded t o overseas 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 view as the same bar on the approach of outside(prenominal) investors as our great neighbors have placed.We have to be much more accommodating and keep the door wide open to allow foreign investors to benefactor our economy by bringing in capital, managerial skills, transfer of engineering science and integrating 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 take up as to how a combination of unafraid economic policies, structural reforms economic governance and good luck has changed the economic landscape of Pakistan in numerous fundamental ways. Strength of economic policies 11.The terror of Pakistans economic problems stemmed from monetary indiscipline over a decenn ium that plunged Pakistan into a debt trap. This root cause had thencece to be surgically removed so that the likelihood of its further recurrence in the future is minimized A pecuniary Responsibility Law has been approved by the fan tan, which keeps a lid on the future governments propensity to borrow their way out. Debt / GDP ratio has to be bring down by 2. 5 percentage points each year and the Debt/ GDP ratio cannot exceed 60 percent. Any deviation has to be explained to the Parliament and need its approval.This law will hopefully act as a major restraint on fiscal precipitation in the future. 12. Monetary policy is nowadays rifled by an independent central bank keeping the objective of price stability, financial stability and growth in mind. Although it involves a fine balancing act and inflationary pressures have surfaced during the last two years the Central Bank is committed to pursue a monetary policy that keeps inflation under control. Indirect market- found polic y instruments have replaced credit ceilings, caps on bond and lending rates, preferential treatment to government and directed credit to frontity areas.Interest rates and turn rates are market determined and credit allocation decisions are made by the individual banks base on objective criteria but channelize by prudential regulations. 13. External debt solicitude policy was focused on (a) reprofiling of the tele promise line of official bilateral debt, (b) substituting concessional bestows for non-concessional from international financial institutions, (c) pre-paying expensive loans and (d) liquidating short term liabilities.Debt ratio has thus been reduced from c percent of GDP to 56 percent in five years time. This restructuring of debt has put Pakistan on a firm terms as the debt and debt servicing ratios are on a declining path. This has provided scope and enlarged the substance of the country to chance on all its future foreign flip liabilities and obligations wi thout much uncontrollabley. address worthiness indicators have all better and Pakistan is no longer that vulnerable to external shocks as it was in 1998 at the time of the nuclear tests. 14.Trade policy in Pakistan has been categorised by the World Bank as one of the least restrictive in South Asia along with Sri Lanka and this policy has gradually provided incentives to exporters to increase their market share in the global markets. mass meeting rate policy is pursued to maintain stability in the foreign mass meeting markets while at the same time keeping the engagement of Pakistani exports intact. Large accumulation of foreign reserves play an important role in stabilizing the swap rate and cushioning the economy from the adverse and fragmented exogenous disturbances.One of the tests that the country successfully met in the last two years was to clear the oil price hike from $ 25/ barrel to $ 75/ barrel without any serious dislocation of economic occupation or any loss o f 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 alike made significant efforts in one-sidedly liberalizing its trade regime since the 1990s. The maximum duty rate has declined from 225 percent in 1990-1 to 25 percent the average tariff rate stands at just 9 percent compared to 65 percent a decennium ago.The number of duty slabs has as well as been reduced to four. Quantitative import restrictions have been eliminated except those relating to security, health, public virtuouss, religious and cultural concerns. The statutory societys that exempted certain industries from import duties or provided discriminating 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 objective and a uniform, across the board, transparent regulatory regime with level pla ying field has been put in place.These measures have brought down set upive rate of protection, eliminated the anti-export bias and promoted free-enterprise(a) and efficient industries. A number of laws have overly been published to bring the trade regime in conformity with World Trade system of rules regulations. These include anti-dumping and countervailing measures and protection of intellectual office rights. This unilateral opening up to global trade has benefited the domestic firms in modify their efficiency and making 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. at the same time with the debt restructuring, the country embarked on the fiscal policy reforms and consolidation by raising assess revenues, reducing expenditures, cutting down su bsidies of all kinds and containing the losses of public enterprises.Tax reforms were underinterpreted to widen revenue compoundmentation base, remove direct contact between measure payers and tax collectors, introduce value-added tax as the major source of revenue, change tax administration and beef up the capacity of the Central control board of taxation. Although these reforms are thus far underway, the adoption of universal self sagacity followed by random audit of s pick out tax returns, automation and reorganization of the tax machinery have begun to help improve tax collection.Tax-GDP ratio in Pakistan is lower in comparing to other developing countries and has to be raised in the next 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 battleful privatization jut out whose thrust was sale of assets in the oi l and flatulence industry 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 unblemished in the last few years have yielded $ 3 billion halt the hemorrhaging of public finances that were used to deal the losses of these enterprises. These privatized banks are now add substantial sums to the national exchequer as they have all become juicy. 18. As Pakistan would hold out to rely on foreign capital flows for augmenting its domestic savings it had to show its seriousness in encouraging foreign investment.There has been a major and perceptible relaxation method of the foreign exchange regime. outside investors can set up their business in Pakistan in any sector of the economy agriculture, manufacturing real estate, retail trade, services, banking etc. , bring in and take back their capital, remit profits, dividends, royalties and fees etc. , without any preceding approvals. Foreign companies are allowed to raise funds from domestic banks and capital markets.They are treated equally with national firms in all regard and can bring in deportee staff to run their businesses. 19. Foreign Portfolio Investors (FPI) can withal enter and exit the market freely without any restrictions or prior approvals. In the Karachi Stock Exchange with a market capitalization of US$50 billion and over 650 listed companies corporate profits 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 liberalisation, non-residents and residents are allowed to maintain and operate foreign capital cook looks, and a market-based exchange rate in the inter-bank market is at work. 20. pecuniary sector reforms in Pakistan were also initiated earl y in the 1990s when new banking licenses were minded(p) to private domestic banks to set up their shops along with the nationalized commercial message banks and foreign banks. Although these reforms were implemented with fits and start, they were accelerated since 1997.The Central Bank was allow autonomy and the control of the Ministry of Finance over banking institutions was diluted. More deep rooted reforms were undertaken since 1999 when net non-performing loans of the banking system were brought down to less than 3 percent of native 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.solely the most crucial policy action taken by the Government, in my view, was the privatization of Habib Bank, joined Bank, and allied Bank three large nationalized com mercial 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 set about a healthy but strong competitive environment. The banks are highly profitable and the average lending rates have declined considerably as automation, on-line banking and sixfold channels of delivery have improved the efficiency of services in result to market competition.1. Agriculture credit, SME financing, consumer loans and microcredit have become mainstream products of the banking industry and the borrower base of the banking system has calculate from 1 million to 4 million households. The middle and lower middle class which had been completely shut off from vex to banking services are now enjoying car loans, mortgages, credit cards, consumer durables. Small farmers are apply bank credit for buying chemical fertilizers, certified seeds, insecticides, small implements and hiring tractor servi ces.Small and medium entrepreneurs are combusting their fabrication and manufacturing capacities and upgrading technology. Landless labor and poor women in the agrestic 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 recognized that market determined deposit rates have also declined significantly. But as the lending rates are surging upward(a)s, deposit rates are also going to depict an upward movement with time lag.The outreach of banking sector is still very sparse outside the urban areas and has to be extended 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 assail, telecommunication and civil aviation sectors have also brought about significant positive results. cover and gas exploration activity has stepped up in rec ent years and unremitting discovery and production 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 played a precise 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 creation added every month and the number of phones has already reached about 50 million or a shrewdness rate of almost 33 percent.Long distance international and local anaesthetic loop monopoly of Pakistan Telecommunications Corporation 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 presently only a fraction of t he previous rates. One of the advantages of privatization of the state monopoly, i. e. , the PTCL would be snarl in form of higher bandwidth penetration that has lagged behind other Asian countries. stinting Governance 23.The most significant substitute 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 Commission (SECP), the State Bank of Pakistan (SBP) and Pakistan Railways initiated some years ago are already beginning to take some hold and making a difference as far as governance is concerned. Discretionary powers have been significantly curtailed but corruption at lower echelons of the Government is still widely rampant.Freedom of press and door to in organic law has had a salutary effect on the behaviour of decision makers but this has not trickled down to the lower bureaucratism ye t where implementation of the policies takes place. The post 2003 period has witnessed some decline in the transparence International ratings of Pakistan compared to the 1999-2002 period. 24. The cornerstone of the governance agenda is the devolution plan which transfers powers and responsibilities, including those related to social services from the federal and provincial 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 compulsive by priorities set by elected local representatives, as opposed to bureaucrats sit in provincial and federal capitals. decadence of power will thus strengthen governance by increasing decentralization, de-concentration, solubleness and peoples exponentiation in their local affairs. However, in the meanwhile the transition has created its own set of dislocations and disruptions in the delivery of services that need to be address ed. 25.Other essential ingredients for astir(p) economic governance are the separation of policy and regulatory functions which were earlier combined inside 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 quasijudicial powers. The Chairman and Board members enjoy security of tenure and cannot be arbitrarily removed. They are not answerable to any executive authority and hold public hearings and consultations with stakeholders. 6. The National Accountability power (NAB) has been functioning quite 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 modify from holding public office for vingt-et-un years on charges of corruption after conviction in the courts of l aw. 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 recruitment, training, performance management, career feeler, right surface of ministries and attached departments, and improving compensation for government employees are part of the second generation reforms of the government for building strong institutions in the country. Proposals have been developed to depoliticize recruitment, promotions and career development, enhance the independence and responsibilities of the Federal Public advantage Commission (FPSC) and systematically introduce be based recruitment and promotions.The Civil Service Act has to be amended to suppose performance based career progression enabling the government to reward efficient and competent civil servants. The public sector educational training infrastructure is also being restructured to strengthen skill based training of civil servants at all levels. These are highly demanding reforms and a consensus has to be built among the stakeholders before 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, case 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 naturalized to provide relief to the poor who have small claims. Alternate Dispute solution mechanisms have proved to be successful in bringing expeditious government of commercial and tax disputes and are being replicated for wider application. IMPACT OF SEPTEMBER 11 EVENTS. 29.A large number of observers and casual empiricists both indoors and outside Pakistan have been making open but untested assertion that it is the considerable aid flows and debt relief resulting from Pakistans part icipation in the war against terror after kinsfolk 11, 2001 that has been responsible for the large reserve accumulation and economic turnaround. It is true that folk 11 did help in mirthful workers remittances from open market to inter bank, in providing some debt relief and new loans and grants, in removing official sanctions, but there were also huge costs 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 charged on warhead and insurance premiums were raised. 30. The data presented in Table-II shows that even if we assume the extreme case that all official transfers, debt relief and all foreign loans/ credits represent the gift of phratry 11 to Pakistan, this combined amount represents only 8. 5% of make out Foreign Exchange fee of the Country in FY-06.At its acme in FY-02, this amount was 21. 6%. But this entire amount is not a direct fall out of kinfolk 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 folk 11, we received 16 per cent and 19. 9% of Foreign Exchange Earnings in form of foreign loans and grants. The country had a positive general equaliser and positive current and capital flyer balances in FY 2000-01 much before September 11, 2001 occurred.Even in FY 1999-00 the deficit on overall balance was quite 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 light that every thing good that has happened to the country is a direct consequence of September 11 is not only false but highly exaggerated for the reasons described below. 1. It should be rec ognized that any external financial relief such as provided in the aftermath of Sept 11 would dissipate quickly 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 vigilant eyes of regulators and expand the productive and foreign exchange earning capacity of the country.As pointed out earlier 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 own enterprises were put in place it would not have been possible to take advantage of the situation offered by Sept. 11 for its portion to the dynamism of the economy and sustained growth during the last four years. 32.The data presented in Table-II clearly demonstrates that Pakis tans foreign exchange earning capacity has expanded from $ 15 billion annually to $ 40 billion during the last six years or 33% GDP from 20% of GDP. Contrary to familiar perception, it is the Pakistani businesses and nationals working abroad who provide the bulk of the foreign exchange loot of the country. It is hailly fallacious to argue that if the foreigners curiously Americans withdraw their financial service then the country will be in dire trouble.Less than $ 3. 5 billion are received through all types of foreign care while about $ 30 billion are generated by Pakistani businesses and nationals and the remaining amount accrues from foreign direct investment, privatization and international markets. If this pattern of foreign exchange earnings persist in the future the relative share of foreign assistance in form of grants or loans from United States, other friendly bilaterals and multilaterals will continue to decline and will become peanut in the next 5-10 years. 3. In order to further evaluate the veracity of the assertions of the system of dependence of our economy on the US, four key indicators are selected (a) US assistance as percent of Pakistans tot budgetary expenditure (b) US assistance as percent of Pakistans total foreign exchange benefit (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 elect to see as to how much distress will accrue to our balance of payments and fiscal accounts if the US for one reason or the other abruptly decides to withdraw its assistance of all types. 34. The results of this analysis shown in Table III indicate that even under the worst case scenario of zero aid flows and no reimbursements for logistics services rendered to the US phalanx the diminution in foreign exchange receipts or budgetary resources would be insignificant varying between 4. 5% of total foreign exchange r eceipts 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. There is no doubt that the Government of Pakistan and the people of Pakistan do very much appreciate the financial and moral support demonstrated by the U. S Government at the critical aftermath of Pakistans economy. Several other corroborative 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 opposite types of economic sanctions. U. S Administration played a helpful role in ensuring larger volume of concessional assistance to Pakistan through the IMF, World Bank and Asian increase Bank. The prompt and generous response to the quake of October 200 5 by the U. S Government, private sector and on-governmental organizations left a very booming impressions in the minds of Pakistanis. 36. US is an important commerce and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this analysis is not to show that we care little for our friendly relations or do not cling to 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 essay duty free market access for the products exported from the Reconstruction opportunity Zones (ROZs) in the tribal areas as part of our joint strategy to provide economic benefits to the 3 million population living on the poriferous border with Afghanistan. But the main line of work of this analysis is that the pundits in the US who gestate that they c an use the leverage of US official aid to paralyze Pakistans economy are sadly foolish as they have an exaggerated hotshot of the importance of these official flows.Any attempt to see conditions that impinge upon the sovereignty of Pakistan or appointment 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 elbow 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 fatality rate rates are high, access to quality education and health care particularly by the poor is limited, income and regional inequalities are widespread, infrastructure shortages and deficiencies persist, skill shortages are winning a toll in the econ omys productiveness while at the same time, there is high unemployment and underemployment. Most worrying to me is that Pakistans image abroad is quite negative.Foreigners are slow to visit Pakistan as they perceive the country to be a dangerous place. The widely distributed preoccupation with the large economies of China and India and the ever-increasing quest to enter these markets is also working to the disfavour of countries such as Pakistan. But the lesson we have learned is that there is no point in complaining 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.