ECONOMY OF PAKISTAN

Pakistan is a nation with a diverse economy of textiles, chemicals, food processing, agriculture and other industries with ranking 25th largest economy of the world, but at present it is suffering past and present ongoing unrest in the country and the internal political disputes has taken the toll at its highest level, though a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India and unrest in Afghanistan is another main reason of the downfall of the economy, however IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery in the last government, and a Substantial macroeconomic reforms of 2000 and privatizing of the banking sector was the most notable earmark of the improvement that has helped the economy. Pakistan has seen a growing middle class population since then and poverty levels have decreased by 10% since 2001.

 
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ECONOMIC HISTORY

Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947 from Britain. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates[12] were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. See also [10]

Industrial-sector growth, including manufacturing, was also above average. During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing. Many countries sought to emulate Pakistan's economic planning strategy and one of them, South Korea, copied the city's second "Five-Year Plan" and World Financial Center in Seoul is designed and modeled after Karachi. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth.[13] In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers

 
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THE ECONOMIC TODAY

Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of Balance of Payment crisis. "The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to $11.3 billion from an initial $7.6 billion.

By October 2007, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. Exceptional policies kept Pakistan's trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion.

Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%.

 
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