Financial Markets in Pakistan

See all 25 photosA financial market is a place for buying and selling of financial securities such as stocks and bonds. It facilitates: The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets In matching those who want capital to those who have it.Financial Market in Pakistan consists of (i) Money Market which provides short term funds and (ii) Capital Market which makes long terms funds available to businesses and industries. The Financial market can be reclassified into (i) Primary Market in which new shares or bonds are issued and (ii) Secondary Market in which securities previously issued are traded such as Shares, Bonds, Commercial Papers, Options and Mutual Fund.Of this, the banking sectors and non-banking sectors are regulated by the central bank, State Bank of Pakistan. While rest of the market (lease, stock exchanges, modarba, mutual funds and insurance) is regulaled by Secruities and Exchange Commission of Pakistan.A sketch showing financial markets in Pakistan is shown at right-hand sideand further explained in the paragraphs that follow.FINANCIAL MARKETSCOMMERCIAL BANKSA type of bank providing checking and saving accounts, credit cards and business loans. Such a bank induces general public to deposit their savings in the banks and offers a wide range of services such as: Deposit Mobilization Money transfer Financing Working Capital Financing other trade related mode (import and export) Investing in government securities Call money operationsThese banks are of three categories (i) Public Sector Banks, (ii) Private Bank and (iii) Foreign Banks.

See all 25 photosLEASE -FINANCE EQUIPMENT INVESTMENT BANKSInvestment banks perform a variety of functions. Primarily, they assist corporations to raise equity-capital by underwriting the public issues. They also assist companies desiring of mergers and acquisition and derivatives. In addition, they provide services like trading of derivative, foreign exchange, fixed income instruments and shares listed on the stock exchanges. Such banks cannot take deposits. They manage their affairs by charging fees such as (i) retainer fee, (ii) advisory fees based on the transactions, (iii) commission on underwriting and (iv) other financial services.

See all 25 photosPICIC was once a premier development in Pakitan but has merged with a commerical bank. BOND MARKET OUTLOOKDEVELOPMENT BANKSThese banks provide guidance in selection of industrial units and extend direct financial assistance to partly cover their financial requirements. Also, they engage themselves in promotional activities to attract investors towards neglected sectors through publishing brochures and research papers. Besides, they help in assessing feasibility of potential projects. Such banks are responsible for speeding up the pace of economic growth in the country in conformity with the national objectives, plans and priorities.Their core functions are: Direct financial assistance Catalytic function Mobilization of domestic savings Ensuring balance regional and industrial growth Expanding entrepreneurial base by encourage new comersAt one time, there were 14 Development Banks in Pakistan. However, most of them have been closed one after another as their bad debts mounted up. It is natural as they take substantial risks in promoting new types of industrial projects in underdeveloped areas sponsored preferably by new-comers. Nevertheless, their contribution brings fruits to the economy in the shape of successful industrial units and transfer of technology.At present, 8 development banks are operating which mostly are joint-venture with other Islamic Countries.Click thumbnail to view full-size

See all 25 photosMICROFINANCE BANKA microfinance bank would cater to the credit needs of poor households and their small enterprises. Thus microfinance bank provide credit to those poor who are not considered creditworthy by the commercial banks and other financial institutions. On the other hand, the microfinance bands recognize every single human being as a potential and creditworthy entrepreneur. In addition, they provide basic training in start of a small business, simple book-keeping and accounting. The main aim of microfinance institutions is alleviation of poverty through helping poorpersonsto earn some money especially the women.

See all 25 photosISLAMIC BANKSIn Islam, it is prohibited to charge interest on any loan.However, it is acceptable to pass on funds to a needy person or corporation for trade purpose in which case profit could be shared on an agreed basis whereas loss should be shared according to the funds invested. Besides, there are certain businesses where any form of deal is forbidden like alcohols and pork.Accordingly, Islamic bank refer to a banking activity which is consistent with the Sharia, the Islamic Laws. Otherwise, there is no difference between the traditional banks and the Islamic bank.DISCOUNT HOUSESThese are firms which buys and discounts bills of exchange, banker' acceptance, commercial paper, etc. Discount houses also tender for treasury bills, deal in short-dated government bonds, and are an important part of the short-term money markets.INSURANCE COMPANIESInsurance is a hedge against the risk of a contingent and uncertain loss. In other words, it is the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. For this service, the insurer charges a fee called premium depending upon the risk involved.Besides traditional insurance companies, there are many Islamic insurance companies in Pakistan known as Takaful operators. Takaful is an Islamic insurance concept based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. These companies believe in promoting the cause of Takaful as well as promoting the insurance business in a Shariah Compliant i.e. halal and absolutely Riba-Free insurance.

See all 25 photosSTOCK EXCHANGESStock exchange is a place where securities are bought and sold. Such securities include shares, derivative, unit trusts and bonds. It also provides facilities for the issue and redemption of securities. Prices of shares and bonds are influenced by their demand and supply like in other commodities.In order to list a security on the stock exchange, there are certain requirements. Transactions in the stock exchange are conducted by members only. Stock exchange serves both as a primary market for the initial public offerings and as a secondary market for their subsequent buying and selling Investors are not bound to sell stock or bond through the stock exchange. They can directly deal with the seller. Similarly, there is no compulsion that stock must be traded on the exchange. The securities can change ownership out of the exchange which is called over the counter or curb dealings.Click thumbnail to view full-size

See all 25 photosLEASINGIt is a contract where owner of an asset agrees to allow someone to use it for a fixed rental. It can be for fixed or indefinite period of time. It is a binding contract which sets out terms of lease agreement between the owner and the user.Leases are of various types mainly (i) a financial lease and (ii) an operating lease. The financial lease is long-term and non-cancellable contract where the user assumes some of the risks of ownership and has the right to keep the assets or get it transferred to its own name after fulfilling the necessary conditions. In operating lease, the owner transfer only the right to use the assets which is returned back at the end of the lease. There are some other types especially in the aircraft industry like wet lease and dry-lease and. In wet lease, a company agrees to provide an aircraft along with pilot and crew and would be responsible for the maintenance of the aircraft. Dry lease, on the other hand, refers to leasing only the aircraft.Click thumbnail to view full-size

See all 25 photosMODARBAIf is a form of partnership which has two distinct parties: (i) the financier and (ii) the manager. The financer takes no part of management of the business. The profits are distributed among the subscriber while the manager is paid the usual salary.Modarba is one the modes of Islamic finance. It is like mutual fund minus its un-Islamic features. Not only in Pakistan, the Islamic financial services industry has witnessed a phenomenal growth all over the Islamic world. In particuar, the Modaraba Sector has been able to create a market niche for itself in the corporate sector. This model is enjoying a unique recognition due to its well designed structure with proper rules and regulations defined by the regulators. It has proved its resilience in this time of global financial turmoil. Click thumbnail to view full-size

See all 25 photosMUTUAL FUNDIt is a professionally managed type of pooled investment for acquiring securities like stocks, bonds, marketable securities and commodities. The profit is distributed by way of dividend to all investors.Financial market in Pakistan experienced boom conditions in1991 due to liberalization policies of the government. There was a manifold increase in the number of listed companies; number of commercial banks, local and foreign and financial instruments like commercial paper. But it has still to develop and a number of suggestions have been made: The public sector should reduce its dependence on State Bank of Pakistan. The infrastructure projects should be financed through domestic bonds of longer maturities (10-20 years). The financial sectors (capital markets, micro credit, banking and non-banking sector) should have a better and more clearly delineated division of responsibilities. Foreign institutional investors should be encouraged to take up (i) private equity funds, (ii) private pension funds, (iii) provident and gratuity funds and (iv) Real Estate Investment Trusts. Mortgage financing should be encouraged. Introduction The primary role of the capital market is to raise long-term funds for governments, banks, and corporations while providing a platform for the trading of securities. This fundraising is regulated by the performance of the stock and bond markets within the capital market. The member organizations of the capital market may issue stocks and bonds in order to raise funds. Investors can then invest in the capital market by purchasing those stocks and bonds. The capital market, therefore, functions as a link between savers and investors. It plays an important role in mobilizing the savings and diverting them in productive investment. In this way, capital market plays a vital role in transferring the financial resources from surplus and wasteful areas to deficit and productive areas, thus increasing the productivity and prosperity of the country and promotes the process of economic growth in the country. The capital market includes the stock market (equity securities) and the bond market (debt). Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. The capital market facilitates lending to the businessmen and the government and thus encourages investment. It provides facilities through banks and nonbank financial institutions. Various financial assets, e.g., shares, securities, bonds, etc., induce savers to lend to the government or invest in industry. With the development of financial institutions, capital becomes more mobile, interest rate falls and inve stment increases. The capital market not only reflects the general condition of the economy, but also smoothens and accelerates the process of economic growth. Various institutions of the capital market like nonbank financial intermediaries allocate the resources rationally in accordance with the development needs of the country. The proper allocation of resources results in the expansion of trade and industry in both public and private sectors, thus promoting balanced economic growth in the country. As discussed in preceding paras, the capital market is that segment of the financial market that deals with the effective channeling of medium to long- term funds from the surplus to the deficit unit. The process of transfer of funds is done through instruments, which are documents (or certificates), showing evidence of investments. The trading instruments in the capital market consist of (i) Debt Instruments which is used by either companies or governments to generate funds for capital-intensive projects. When the instrument is issued by the federal government, it is called a Sovereign Bond (ii) Equities issued by companies only and can also be obtained either in the primary market or the secondary market. ( iii) Preference Shares issued by corporate bodies and the investors rank second (after bond holders) on the scale of preference. The instrument possesses the char acteristics of equity in the sense that when the au thorized share capital and paid up capital are being calculated, they are added to equity capital to arrive at the total (iv) derivatives are those instruments that derive from other securities, which are referred to as underlying assets (as the derivative is derived from them). The price, riskiness and function of the derivative depend on the underlying assets since whatever affects the underlying asset must affect the derivative. The derivative might be an asset, index or even situation. Derivatives are mostly common in developed economies. Some examples of derivatives are Mortgage-Backed Securities (MBS), Asset-Backed Securities (ABS), Futures, Options, Swaps, Rights, Exchange Traded Funds or commodities, Every capital market in the world is monitored by financial regulators and their respective governance organization. The purpose of such regulation is to protect investors from fraud and deception. Financial regulatory bodies are also charged with minimizing financial losses, issuing licenses to financial service providers, and enforcing appl icable laws. In Pakistan the Securities Exchange Commission of Pakistan (SECP) serve as a regulatory body for smooth functioning of Capital Market. Chapter 6 Pakistan Financial MarketA sound study on the Pakistan financial market gives some idea on the rates of shares and bonds available on the share market and also on the ongoing financial and economic condition of the country. State Bank of Pakistan

The State Bank of Pakistan is the central bank of the country and serves as the sole authority to issue and distribute the currency of Pakistan. Headquartered at the financial capital of Pakistan, Karachi, State Bank of Pakistan takes the responsibility to take care of the economic growth and maintain price stability in the country. The State Bank of Pakistan also takes various measures to monitor the financial market of Pakistan.

Karachi Stock Exchange

Pakistan has three stock exchanges to monitor the financial trading in Pakistan - Karachi Stock Exchange, Islamabad Stock Exchange and Lahore Stock Exchange. Karachi Stock Exchange is the largest stock exchange in Pakistan and is the best barometer for indicating the market fluctuations. In order to get acquainted with the financial and monetary market of Karachi, it's necessary to get some knowledge of the Karachi stock exchange. The slightest up and down swings in the market indices may cause havoc changes in the prices of shares and bonds. Islamabad stock exchange is the second largest in the country and gives a fine sketch of the Pakistan financial market too.

With the advent of technological era, the exchange of information has become much easier in last couple of years. Now individuals interested in the financial market of Pakistan can easily browse through the various web sites and gather necessary information.

The major banks of Pakistan are: Allied Bank of Pakistan Limited Atlas Bank Limited Bank AL Habib BankIslami Pakistan Limited Bank Al-Falah Limited Crescent Commercial Bank Limited Habib Bank Limited Dawood Bank Limited Habib Metropolitan Bank Meezan Bank Limited KASB Bank Limited

Over the years, the financial market of Pakistan is in its growth and has been experiencing a number of foreign bankers embarking into the country.

Here is the list of major foreign banks in Pakistan: Abn Amro Bank American Express Bank Limited Citibank Bank of Tokyo Mitsubishi Limited Deutsche Bank AG Hongkong and Shanghai Banking Corporation Habib Bank AG Zurich Oman International Bank SOAG The Bank Of Punjab Standard Chartered Bank Limited Albaraka Islamic Bank

The economy today

he "Next Eleven (N-11)" a group of countries with economies that might have the kind of potential for global impact that the BRICs projections highlighted, essentially an ability to match the G7 in size.[40]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 stagnated. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in Foreign Direct Investment 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 601 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 Pakistans foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistans local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moodys Investors Service cut its outlook on Pakistans debt to negative from stable due to political uncertainty, though it maintained the countrys rating at B2.The cost of protection against a default in Pakistans 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 an overcoming of the present crisis wherein growth is a mere 3.5-4%.[41]Economic comparison of Pakistan 19992008

A view of I. I. Chundrigar Road, the financial district of Karachi in Pakistan

Main Industries by Region - Pakistan. Source:[42]

Pakistan & its two largest City economies. Source:[43]Indicator1999200720082009

GDP$ 75 billion$ 160 billion$ 170 billion$ 185 billion

GDP Purchasing Power Parity (PPP)$ 270 billion$ 475.5 billion$ 504 billion$ 545.6 billion

GDP per Capita Income$ 450$ 925$1085$1250

Revenue collectionRs. 305 billionRs. 708 billionRs. 990 billionRs. 1.05 trillion

Foreign reserves$ 1.96 billion$ 16.4 billion$ 8.89 billion$ 17.21 billion

Exports$ 8.5 billion$ 18.5 billion$ 19.22 billion$ 18.45 billion

Textile Exports$ 5.5 billion$ 11.2 billion

KHI stock exchange (100-Index)$ 5 billion at 700 points$ 75 billion at 14,000 points$ 46 billion at 9,300 points$ 26.5 billion at 9,000 points

Foreign Direct Investment$ 1 billion$ 8.4 billion$ 5.19 billion$ 4.6 billion

External Debt & Liabilities$ 39 billion$ 40.17 billion$ 45.9 billion$ 50.1 billion

Poverty level34%24%19%14%

Literacy rate45%53%59%61%

Development programmesRs. 80 billionRs. 520 billionRs. 549.7 billionRs. 621 billion

Stock marketMain articles: Karachi Stock Exchange, Lahore Stock Exchange, Islamabad Stock Exchange and Sialkot Trading FloorIn the first four years of the twenty-first century, Pakistan's KSE 100 Index was the best-performing stock market index in the world as declared by the international magazine Business Week.[44][citation needed] The stock market capitalisation of listed companies in Pakistan was valued at $5,937 million in 2005 by the World Bank.[45] But in 2008, after the General Elections, uncertain political environment, rising militancy along western borders of the country, and mounting inflation and current account deficits resulted in the steep decline of the Karachi Stock Exchange. As a result, the corporate sector of Pakistan has declined dramatically in recent times. However the market bounced back strongly in 2009 and the trend continues in 2011.Manufacturing and financePakistan's manufacturing sector has experienced double-digit growth in recent years, from 2000 to 2007, with large-scale manufacturing growing from a minimal 1.5% in 1999 to a record 19.9% in 200405 and averaged 8.8% by end of 2007.The Federal Bureau of Statistics valued the finance and insurance sector at Rs.311,741 million in 2005 thus registering over 166% growth since 2000. A reduction in the fiscal deficit had resulted in less government borrowing in the domestic money market, lower interest rates, and an expansion in private sector lending to businesses and consumers.Middle classSee also: Labour force of PakistanAs of 2013, according to Macro Economic Insights, a research firm in Islamabad, the size of the Pakistani middle class is conservatively estimated at approximately 70 million, out of a total population of about 186 million. This represents 40% of the population of the country.[46]On measures of income inequality, the country ranks slightly better than the median. In late 2006, the Central Board of Revenue estimated that there were almost 2.8 million income-tax payers in the country.[47] However by 2013, the number of taxpayers was drastically reduced to just 768,000 out of a total population of 190 million, meaning that only 0.57% of the population pay taxes[48]Poverty levels have decreased by 10% since 2001[49] Foreign Companies which provide for Pakistani middle classes have been very successful. For example, demand for Unilever products have recently been so high that even after doubling production the Anglo-Dutch company struggled to meet demand and its chairman stated "Pakistanis cant seem to have enough".[50]Poverty alleviation expendituresMain article: Poverty in Pakistan

Socio-Economic Status of Pakistanis, source:[51]Pakistan government spent over 1 trillion Rupees (about $16.7 billion) on poverty alleviation programmes during the past four years, cutting poverty from 35% in 200001 to 24% in 2006.[52] Rural poverty remains a pressing issue, as development there has been far slower than in the major urban areas.DemographicsMain article: Demographics of PakistanSee also: Standard of living in PakistanWith a per capita GDP of $2600 (PPP, 2005) in 2005 the World Bank considers Pakistan a low-income country, it is also recorded as a "Low Development Country" on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 56% of adults are literate, and life expectancy is about 64 years. The population, about 168 million in 2007, is growing at about 1.80%.Relatively few resources in the past had been devoted to socio-economic development or infrastructure projects. Inadequate provision of social services, high birth rates and immigration from nearby countries in the past have contributed to a persistence of poverty. An influential recent study[53] concluded that the fertility rate peaked in the 1980s, and has since fallen sharply. Pakistan has a family-income Gini index of 41, close to the world average of 39.EmploymentThe high population growth in the past few decades has ensured that a very large number of young people are now entering the labour market. Even though it is among the seven most populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India, and the Philippines. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult.[54] Significant progress in taxation and business reforms has ensured that many firms now are not compelled to operate in the underground economy.[55]In late 2006, the government launched an ambitious nationwide service employment scheme aimed at disbursing almost $2 billion over five years.[56][57]Mean wages were $0.98 per manhour in 2009. Rate of unemployment is 25%.High inflation and limited wage growth have drawn more women into the workforce to feed their families, in spite of cultural resistance and domestic abuse over the issue.[58]TourismMain article: Tourism in Pakistan

Malam Jabba Ski Resort, Swat, Kyber Pakhtunkhwa, Pakistan

Faisal Mosque in the capital Islamabad.Tourism in Pakistan has been stated as being the tourism industry's "next big thing". Pakistan, with its diverse cultures, people and landscapes has attracted 75 million tourists to the country, almost double to that of a decade ago. Due to threat of terrorism the number of foreigner tourist has gradually declined and shock of 2013 Nanga Parbat tourist shooting has terribly effected. Moreover, presence of extremists (suspected terrorists) at Alpine Club of Pakistan has created an other hurdle to attract the western tourists.[59]Pakistan's tourism industry was in its heyday during the 1970s when the country received unprecedented amounts of foreign tourists, thanks to the Hippie trail. The main destinations of choice for these tourists were the Khyber Pass, Peshawar, Karachi, Lahore, Swat, Quetta, Gwadar and Rawalpindi.The tourism industry is still growing. The country's attraction range from the ruin of civilisation such as Mohenjo-daro, Harappa and Taxila, to the Himalayan hill stations, which attract those interested in winter sports. Pakistan is home to several mountain peaks over 7000 m, which attracts adventurers and mountaineers from around the world, especially K2. The north part of Pakistan has many old fortresses, ancient architecture and the Hunza and Chitral valley, home to small pre-Islamic Animist Kalasha community claiming descent from Alexander the Great. The romance of the historic Khyber Pakhtunkhwa province is timeless and legendary, Punjab province has the site of Alexander's battle on the Jhelum River and the historic city of Lahore, Pakistan's cultural capital, with many examples of Mughal architecture such as Badshahi Masjid, Shalimar Gardens, Tomb of Jahangir and the Lahore Fort. Before the Global economic crisis, Pakistan received more than 500,000 tourists annually. Karachi, Peshawar and Lahore are major attractions for authentic Pakistani food and culture.RevenueAlthough the country is a Federation with constitutional division of taxation powers between the Federal Government and the four provinces, the revenue department of the Federal Government, the Federal board of Revenue, collects almost 95% of the entire national revenue. The Federal Board of Revenue collected nearly one trillion rupees ($14.1 billion) in taxes in the 20072008 financial year,[60] while it collected about 1558 billion ($18.3 billion) during FY 20102011. The revenue collection has hovered below 10% of the GDP for the past several years. The Federal Board of Revenue mainly relies on indirect taxation, and most of the Income Tax is also collected indirectly, in the form of withholding taxes.Currency systemMain article: Pakistani rupeeRupeeThe basic unit of currency is the Rupee, ISO code PKR and abbreviated Rs, which is divided into 100 paisas. Currently the newly printed 5,000 rupee note is the largest denomination in circulation. Recently the SBP has introduced all new design notes of Rs. 5, 10, 20, 50, 100, 500, 1000, and 5000 denomination, while the design work of Rs.10,000 note is in progress which will help the banking industry in keeping few notes in saving accounts. The new notes have been designed using the euro technology and are made in eye-catching bright colours and bold, stylish designs.

Dollar-Rupee exchange rateThe Pakistani Rupee was pegged to the Pound sterling until 1982, when the government of General Zia-ul-Haq, changed it to managed float. As a result, the rupee devalued by 38.5% between 1982/83 many of the industries built by his predecessor suffered with a huge surge in import costs. After years of appreciation under Zulfikar Ali Bhutto and despite huge increases in foreign aid the Rupee depreciated.Foreign exchange rateThe Pakistani rupee depreciated against the US dollar until around the start of the 21st century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilised by lowering interest rates and buying dollars, in order to preserve the country's export competitivenessPKR per US dollar 19952008

YearHighest Lowest

DateRateDateRate

1996PKR 30.930

1997PKR 35.266

1998PKR 40.185

1999PKR 44.550

2000PKR 51.90

2001PKR 53.6482

2002PKR 61.9272

2003PKR 59.7238

2005PKR 57.752

2006PKR 58.000

200905 AugPKR 60.7501 NovPKR 60.50

2010October 10PKR 80.0001 AprPKR 63.50

Source: PKR exchange rates in USD, SBP

Foreign exchange reservesPakistan maintains foreign reserves with State Bank of Pakistan. The currency of the reserves was solely US dollar incurring speculated losses after the Dollar prices fell during 2005, forcing the then Governor SBP Ishrat Hussain to step down. In the same year the SBP issued an official statement proclaiming diversification of reserves in currencies including Euro and Yen, withholding ratio of diversification.In October 2007, at the end of Prime Minister Shaukat Azizs tenure, Pakistan raised back its Foreign Reserves to $16.4 billion. Pakistan's trade deficit was at $13 billion, exports grew to $18 billion, revenue generation increased to become $13 billion and the country attracted foreign investment of $8.4 billion.[citation needed]. However, following the internaltional credit crisis and spikes in crude oil prices Pakistan's economy could not withstand the pressure and on October 11, 2008 State Bank of Pakistan reported that country's foreign exchange reserves had gone down by $571.9 million to $7749.7 million.[61] The foreign exchange reserves had declined more by $10 billion to an alarming level of $6.59 billion.In July 2011, the State Bank of Pakistan reported reserves to hit an all-time high of $18.25 billion. As of May 2014 the reserves have increased to over $12 billion.Structure of economyThe economy of the Islamic Republic of Pakistan is suffering with high inflation rates well above 26%. Over 1,081 patent applications were filed by non-resident Pakistanis in 2004 revealing a new-found confidence.[62] Agriculture accounted for about 53% of GDP in 1947. While per-capita agricultural output has grown since then, it has been outpaced by the growth of the non-agricultural sectors, and the share of agriculture has dropped to roughly one-fifth of Pakistan's economy.In recent years, the country has seen rapid growth in industries (such as apparel, textiles, and cement) and services (such as telecommunications, transportation, advertising, and finance).SectorsSee also: List of Pakistani companiesAgricultureMain article: Agriculture in Pakistan

Agriculture by Province

Mango Orchard in Multan, PakistanPakistan is one of the world's largest producers of the following commodities according to FAOSTAT, the statistical arm of the Food and Agriculture Organisation of The United Nations, given here with the 2008 ranking: Apricot (3rd) Buffalo Milk (2nd) Chickpea (3rd) Cotton, lint (4th) Cotton, Seed (3rd) Dates (5th) Mango (6th) Onion, dry (4th) Oranges (11th) Rice,paddy (11th) Sugarcane (5th) Tangerines, mandarin orange, clementine (9th) Wheat (10th)Pakistan's principal natural resources are arable land and water. About 25% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Pakistan irrigates three times more acres than Russia. Pakistan agriculture also benefits from year round warmth. Agriculture accounts for about 23% of GDP and employs about 44% of the labour force. Zarai Taraqiati Bank Limited is the largest financial institution geared towards the development of agriculture sector through provision of financial services and technical expertise.IndustryMain article: Industry of Pakistan

Manufacturing by ProvincePakistan's two leading companies, as per Forbes Global 2000 ranking for 2011.

GlobalrankingCompany Name

1,429Oil & Gas Development

1,995PSO

Forbes Global 2000[63]

Pakistan's industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labour force.[64] Other major industries include cement, fertiliser, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.The government is privatising large-scale parastatal units, and the public sector accounts for a shrinking proportion of industrial output, while growth in overall industrial output (including the private sector) has accelerated. Government policies aim to diversify the country's industrial base and bolster export industries. Industries: textiles (8.5% of the GDP), fertiliser, cement, oil refineries, dairy products,food processing, beverages, construction materials, clothing, paper products, shrimp Industrial production growth rate: 6% (2005) Large-scale manufacturing growth rate: 19.9% (2005)SME SectorIn Pakistan SMEs have a significant contribution in the total GDP of Pakistan, according to SMEDA and Economic survey reports, the share in the annual GDP is 40% likewise SMEs generating significant employment opportunities for skilled workers and entrepreneurs. Small and medium scale firms represent nearly 90% of all the enterprises in Pakistan and employ 80% of the non-agricultural labour force. These figures indicate the potential and further growth in this sector.[54]Automotive industryMain article: Automotive industry in PakistanPakistan is an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years.[citation needed] Car ownership in Pakistan has risen by 40% per annum since 2001.[citation needed]CNG industryAs of 2010, Pakistan is one of the largest users of CNG (compressed natural gas) in the world. Presently, more than 3,000 CNG stations are operating in the country in 99 cities and towns, and 1000 more would be set up in the next two years. It has provided employment to over 50,000 people in Pakistan, but the CNG industry is struggling to survive the 2013 energy crisis.[65][66]Cement industryIn 1947, Pakistan had inherited four cement plants with a total capacity of 0.5 million tons. Some expansion took place in 195666 but could not keep pace with the economic development and the country had to resort to imports of cement in 197677 and continued to do so till 199495. The cement sector consisting of 27 plants is contributing above Rs 30 billion to the national exchequer in the form of taxes.[citation needed]IT industryMain article: Information technology in PakistanPakistans IT industry has been rising steadily since the last three years.[clarification needed] A marked increase in software export figures are an indication of this booming industrys potential. The total number of IT companies increased to 1306 and the total estimated size of IT industry is $2.8 billion.[citation needed] In 2007, Pakistan was for the first time featured in the Global Services Location Index by A.T. Kearney and was rated as the 30th best location for offshoring.[67] By 2009, Pakistan had improved its rank by ten places to reach 20th.[68]TextilesMain article: Textile industry in PakistanThe Textile Industry is dominated by Punjab. 3% of United States imports regarding clothing and other form of textiles is covered by Pakistan.[69] Textile exports in 1999 were $5.2 billion and rose to become $10.5 billion by 2007. Textile exports managed to increase at a very decent growth of 16% in 2006. In the period July 2007 June 2008, textile exports were US$10.62 billion. Textile exports share in total export of Pakistan has declined from 67% in 1997 to 55% in 2008, as exports of other textile sectors grew.[citation needed] The major reason of decline of textile export of Pakistan is the Govt unhealthy policies. Sui Northern Gas Pipelines Ltd. (SNGPL) notified the textile mills to reduce the supply of gas for five months. Head of All Pakistan Textile Mills Association of Enterprises Anis-ul-Haq has expressed concern about the decision: Now is the time to the textile industry out of a three-year downturn. The demand for textile products is growing, and if we are not able to fulfill our current orders, we will lose international buyers. Monthly loss the textile industry because of interruptions in gas supply could reach about U.S. $ 1 billion, or 4 $ 5 billion for the fiscal year ending June 20 next year.[citation needed]The expression "industrial undertaking" has been used in many a provision in the Income-tax Act, e.g., section 10(15)(iv )(f) and section 80-I. There has been some controversy as regards the true import of the expression "industrial undertaking" for the purpose of section 10(15)( iv)(f) of the Income-tax Act relating to exemption from income-tax in respect of interest on certain foreign borrowings. Keeping in view the legislative intent, an Explanation has been inserted at the end of section 10(15)( iv) of the Income-tax Act to define the term "industrial undertaking" for the purpose of this provision. An industrial undertaking will mean an undertaking engaged in the business of: manufacture or processing of goods, or generation or distribution of electricity, or any other form of power, or mining, or construction of ships, or operation of ships or aircraft.MiningMain article: Mining in PakistanThis section does not cite any references or sources. Please help improve this section by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2013)

Pakistan is endowed with significant mineral resources and is emerging as a very promising area for prospecting/exploration for mineral deposits. Based on available information, the country's more than 6,00,000km of outcrops area demonstrates varied geological potential for metallic and non-metallic mineral deposits. Except oil, gas and nuclear minerals regulated at federal level, minerals are a provincial subject, under the constitution of the Islamic Republic of Pakistan. Provincial governments are responsible for development and exploitation of minerals, besides, enforcing regulatory regime. In line with the constitutional framework the federal and provincial governments have jointly set out Pakistan's first National Mineral Policy in 1995, duly implemented by the provinces, providing appropriate institutional and regulatory framework and equitable and internationally competitive fiscal regime.In the recent past, exploration by government agencies as well as by multinational mining companies presents ample evidence of the occurrences of sizeable minerals deposits. Recent discoveries of a thick oxidised zone underlain by sulphide zones in the shield area of the Punjab province, covered by thick alluvial cover have opened new vistas for metallic minerals exploration. Pakistan has a large base for industrial minerals. The discovery of coal deposits having over 175 billion tones of reserves at Thar in the Sindh province has given an impetus to develop it as an alternate source of energy. There is vast potential for precious and dimension stones.The enforcement of Mineral Policy (1995) has paved the way to expand mining sector activities and attract international investment in this sector. International mining companies have responded favourably to the NMP and presently at least four are engaged in mineral projects development.Currently about 52 minerals are under exploitation although on small scale. The major production is of coal, rock salt and other industrial and construction minerals. The current contribution of the mineral sector to the GDP is about 0.5% and likely to increase considerably on the development and commercial exploitation of Saindak & Reco Diq copper and gold deposits (world's largest gold mine), Duddar zinc lead, Thar coal and gemstone deposits.Services

Service Sector by ProvincePakistan's service sector accounts for about 53.3% of GDP.[70] Transport, storage, communications, finance, and insurance account for 24% of this sector, and wholesale and retail trade about 30%. Pakistan is trying to promote the information industry and other modern service industries through incentives such as long-term tax holidays.The government is acutely conscious of the immense job growth opportunities in service sector and has launched aggressive privatisation of telecommunications, utilities and banking despite union unrest.[citation needed]CommunicationMain article: Communications in Pakistan

PTCL's One Stop Shop in IslamabadAfter the deregulation of the telecommunication industry, the sector has seen an exponential growth. Pakistan Telecommunication Company Ltd has emerged as a successful Forbes 2000 conglomerate with over US $1 billion in sales in 2005. The mobile telephone market has exploded fourteen-fold since 2000 to reach a subscriber base of 91 million users in 2008, one of the highest mobile teledensities in the entire world.[71] In addition, there are over 6 million landlines in the country with 100% fibre-optic network and coverage via WLL in even the remotest areas.[72] As a result, Pakistan won the prestigious Government Leadership award of GSM Association in 2006.[73]The contribution of the telecom sector to the national exchequer increased to Rs 110 billion in the year-end 200708 on account of the general sales tax, activation charges and other steps as compared to Rs 100 billion in the year-end 200607.[citation needed]The World Bank estimates that it takes about 3 days to get a phone connection in Pakistan.[74]In Pakistan, the following are the top mobile phone operators:1. Mobilink (Parent: Orascom Telecom Holding, Egypt)2. Ufone (Parent: PTCL (Etisalat), Pakistan/UAE)3. Telenor (Parent: Telenor, Norway)4. Warid (Parent: Abu Dhabi Group / SingTel, UAE/Singapore)5. Zong (Parent: China Mobile, China)By March 2009, Pakistan had 91 million mobile subscribers 25 million more subscribers than reported in the same period in 2008. In addition to the 3.1 million fixed lines, while as many as 2.4 million are using Wireless Local Loop connections. Sony Ericsson, Nokia and Motorola along with Samsung and LG remain the most popular brands among customers.[71]Pakistan is on the verge of a telecom revolution[citation needed] and is by far the most attractive sector in Pakistan in terms of Foreign Direct Investment coming into the country. Since liberalisation, over the past four years, the Pakistani telecom sector has attracted more than $9 billion in foreign investments.[75] During 200708, the Pakistani communication sector alone received $1.62 billion in Foreign Direct Investment (FDI) about 30% of the countrys total foreign direct investment.Present growth of state-of-the-art infrastructures in the telecoms sector during the last four years has been the result of the PTA's vision and implementation of the deregulation policy. Paging and mobile (cellular) telephones were adopted early and freely. Cellular phones and the Internet were adopted through a rather laissez-faire policy with a proliferation of private service providers that led to the fast adoption. With a rapid increase in the number of Internet users and ISPs, and a large English-speaking population, Pakistani society has seen an unparalleled revolution in communications.According to the PC World, a total of 6.37 billion text messages were sent through Acision messaging systems across Asia Pacific over the 2008/2009 Christmas and New Year period. Pakistan was amongst the top five ranker with one of the highest SMS traffic with 763 million messages.Pakistan is ranked 4th in terms of broadband Internet growth in the world, as the subscriber base of broadband Internet has been increasing rapidly. The rankings are released by Point Topic Global broadband analysis, a global research centre.[76] Pakistan has more than 20 million Internet users in 2009.[77] The country is said to have a potential to absorb up to 50 million mobile phone Internet users in the next 5 years thus a potential of nearly 1 million connections per month. Almost all of the main government departments, organisations and institutions have their own websites. The use of search engines and instant messaging services is also booming. Pakistanis are some of the most ardent chatters on the Internet, communicating with users all over the world. Recent years have seen a huge increase in the use of online marriage services, for example, leading to a major re-alignment of the tradition of arranged marriages. As of 2007 there were six cell phone companies operating in the country with nearly 90 million mobile phone users in the country. Wireless local loop and the landline telephony sector has also been liberalised and private sector has entered thus increasing the teledensity rate. In mid-2008, the Local Loop installed capacity reached around 5.5 million.[78] Telecom industry created of 80,000 jobs directly and 500,000 jobs indirectly.The Federal Bureau of Statistics provisionally valued this sector at Rs.982,353 million in 2005 thus registering over 91% growth since 2000.[79]RailwaysMain article: Pakistan RailwaysA massive rehabilitation plan worth $1 billion over five years for Pakistan Railways has been announced by the government in 2005.[80] A new rail link trial has been established from Islamabad to Istanbul, via the Iranian cities of Zahedan, Kerman and Tehran. It is expected to promote trade, tourism, especially for exports destined for Europe (as Turkey is part of Europe and Asia).[81][82]AviationSee also: List of airlines of Pakistan

A PIA B747-367 at the Domestic Satellite of Jinnah International AirportPakistan International Airlines, the flagship airline of Pakistan's civil aviation industry, has turnover exceeding $1 billion in 2005.[83] The government announced a new shipping policy in 2006 permitting banks and financial institutions to mortgage ships.[84]Private sector airlines in Pakistan include Airblue, which serves the main cities within Pakistan in addition to destinations in the Gulf and Manchester in the United Kingdom. The other private carrier is Shaheen Air International whose network covers the main cities of Pakistan and the Gulf.Wholesale and retail tradeThe Federal Bureau of Statistics provisionally valued this sector at Rs.1,358,309 million in 2005 thus registering over 96% growth since 2000. The wholesale and retail trade is the largest sub-sector of the services. Its share in the overall services sector is estimated at 31.5 percent. The wholesale and retail trade sector is based on the margins taken by traders on the transaction of commodities traded. In 2012- 13, this sector grew at 2.5 percent as compared to 1.7 percent in the last year.Banking, finance and insuranceMain articles: Banking in Pakistan and Insurance in PakistanSee also: List of banks in PakistanPakistan's banking sector has remained remarkably strong and resilient during the world financial crisis in 200809, a feature which has served to attract a substantial amount of FDI in the sector. Stress tests conducted on June 2008 data indicate that the large banks are relatively robust, with the medium and small-sized banks positioning themselves in niche markets. Banking sector turned profitable in 2002. Their profits continued to rise for the next five years and peaked to Rs 84.1 ($1.1 billion) billion in 2006.The credit card market continued its strong growth with sales crossing the 1 million mark in mid-2005.[85] Since 2000 Pakistani banks have begun aggressive marketing of consumer finance to the emerging middle class, allowing for a consumption boom (more than a 7-month waiting list for certain car models) as well as a construction bonanza.The Federal Bureau of Statistics provisionally valued this sector at Rs.311,741 million in 2005 thus registering over 166% growth since 2000.[79]Ownership of dwellingsMain article: Housing in PakistanThe property sector has expanded twenty-threefold since 2001, particularly in metropolises like Lahore.[86] Nevertheless, the Karachi Chamber of Commerce and Industry estimated in late 2006 that the overall production of housing units in Pakistan has to be increased to 0.5 million units annually to address 6.1 million backlog of housing in Pakistan for meeting the housing shortfall in next 20 years. The report noted that the present housing stock is also rapidly aging and an estimate suggests that more than 50% of stock is over 50 years old. It is also estimated that 50% of the urban population now lives in slums and squatter settlements. The report said that meeting the backlog in housing, besides replacement of out-lived housing units, is beyond the financial resources of the government. This necessitates putting in place a framework to facilitate financing in the formal private sector and mobilise non-government resources for a market-based housing finance system.[87]The Federal Bureau of Statistics provisionally valued this sector at Rs.185,376 million in 2005 thus registering over 49% growth since 2000.[79]Public administration and defenceThe Federal Bureau of Statistics provisionally valued this sector at Rs.389,545 million in 2005 thus registering over 65% growth since 2000.[79]Social, community and personal servicesThe Federal Bureau of Statistics provisionally valued this sector at Rs.631,229 million in 2005 thus registering over 78% growth since 2000.[79]ElectricityMain article: Electricity sector in PakistanFor years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. While the government claims credit for overseeing a turnaround in the economy through a comprehensive recovery, it has just failed to oversee a similar improvement in the quality of the network for electricity supply. Most cities in Pakistan receive substantial sunlight throughout the year, which would suggest good conditions for investment in solar energy. If the rich people in Pakistan are shifted to solar energy that they should be forced to purchase solar panels, the shortfall can be controlled. this will make the economy boost again as before 2007.Impact of fertility on developmentSimilar to other developing countries Pakistan can not plan or control its high population growth. No politician or government official highlights Pakistan's wasted opportunities in education and human development because population increase of 3.07 children born/woman and higher in earlier years greatly reduces government ability to finance major new expansion and maintenance of electricity grid and free education and health of Pakistanis.[88]Chemicals and pharmaceuticalsMain article: Pharmaceutical industry in PakistanForeign trade, remittances, aid, and investmentInvestmentForeign direct investment (FDI) in Pakistan soared by 180.6 percent year-on-year to US$2.22 billion and portfolio investment by 276 per cent to $407.4 million during the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP) reported on 24 April. During JulyMarch 200506, FDI year-on-year increased to $2.224 billion from only $792.6 million and portfolio investment to $407.4 million, whereas it was $108.1 million in the corresponding period last year, according to the latest statistics released by the State Bank.[89] Pakistan has achieved FDI of almost $8.4 billion in the financial year 06/07, surpassing the government target of $4 billion.[90] Foreign investment had significantly declined by 2010, dropping by 54.6% due to Pakistan's political instability and weak law and order, according to the Bank of Pakistan.[91]Pakistan is now the most investment-friendly nation in South Asia. Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most barriers to the flow of capital and international direct investment have been removed. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors. Unlimited remittance of profits, dividends, service fees or capital is now the rule. Business regulations are now among the most liberal in the region. This was confirmed by the World Bank's Ease of Doing Business Index report published in September 2009 ranking Pakistan (at 85th) well ahead of neighbours like China (at 89th) and India (at 133rd).[92]Pakistan is attracting an increasingly large amount of private equity and was the ranked as number 20 in the world based on the amount of private equity entering the nation. Pakistan has been able to attract a large portion of the global private equity investments because of economic reforms initiated in 2003 that have provided foreign investors with greater assurances for the stability of the nation and their ability to repatriate invested funds in the future.[93]Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car industry). The privatisation process, which started in the early 1990s, has gained momentum, with most of the banking system privately owned, and the oil sector targeted to be the next big privatisation operation.The recent improvements in the economy and the business environment have been recognised by international rating agencies such as Moodys and Standard and Poors (country risk upgrade at the end of 2003).Foreign acquisitions and mergersWith the rapid growth in Pakistan's economy, foreign investors are taking a keen interest in the corporate sector of Pakistan. In recent years, majority stakes in many corporations have been acquired by multinational groups. PICIC by Singapore based Temasek Holdings for $339 million Union Bank by Standard Chartered Bank for $487 million Prime Commercial Bank by ABN Amro for $228 million PakTel by China Mobile for $460 million PTCL by Etisalat for $1.8 billion Additional 57.6% shares of Lakson Tobacco Company acquired by Philip Morris International for $382 millionThe foreign exchange receipts from these sales are also helping cover the current account deficit.[94]Foreign tradeMain article: Foreign trade of Pakistan

Pakistani exports in 2005Pakistan's hard currency reserves have grown rapidly. Improved fiscal management, greater transparency and other governance reforms have led to upgrades in Pakistan's credit rating. Together with lower global interest rates, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage. Despite the country's current account surplus and increased exports in recent years, Pakistan still has a large merchandise-trade deficit. The budget deficit in fiscal year 199697 was 6.4% of GDP. The budget deficit in fiscal year 200304 is expected to be around 4% of GDP.In the late 1990s Pakistan received about $2.5 billion per year in loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors.[95] Increasingly, the composition of assistance to Pakistan shifted away from grants toward loans repayable in foreign exchange. All new U.S. economic assistance to Pakistan was suspended after October 1990, and additional sanctions were imposed after Pakistan's May 1998 nuclear weapons tests. The sanctions were lifted by president George W. Bush after Pakistani president Musharraf allied Pakistan with the U.S. in its war on terror. Having improved its finances, the government refused further IMF assistance, and consequently the IMF programme was ended.[96] The government is also reducing tariff barriers with bilateral and multilateral agreements.While the country has a current account surplus and both imports and exports have grown rapidly in recent years, it still has a large merchandise-trade deficit. This deficit amounted to over 15 billion in 2010.[97] The budget deficit in fiscal year 20042005 was 3.4% of GDP. The budget deficit in fiscal year 200506 is expected to be over 4% of GDP. Economists believe that the soaring trade deficit would have an adverse impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 Rupees (March 2006) ) and other currencies.One of the main reasons that contributed to the increase in trade deficit is the increased imports of earthquake relief related items, especially tents, tarpaulin and plastic sheets to provide temporary shelter to the survivors of earthquake of October 8, 2005 in Azad Jammu and Kashmir and parts of Khyber-Pakhtunkhwa, an official said. The rise in the trade gap was also fuelled by high oil import prices, food items, machinery and automobiles.The Petroleum Ministry says that this year the bill of oil imports was expected to reach $6.5 billion against $4.6 billion in the last fiscal year, which is the main reason behind the all-time high trade deficit.The EU is the single largest trading partner of Pakistan absorbing over one-third of the exports in 2003. In 2010, the EU accounted for 12.4% of Pakistani imports and 22.6% of its exports.[97]The public debt of the country has surged by almost 100% to Rs12.024 trillion as of 31 March 2011 2012 from Rs6.055 trillion in 2007-2008. The trade deficit has increased by 14.5% and current account deficit has swelled by $3.39 billion despite the fact that the country received $10.8 billion in workers remittances in 10 months of the current financial.[98]Exports

Graphical depiction of Pakistan's product exports in 28 colour-coded categories.Pakistan's exports increased more than 100% from $7.5 billion in 1999 to stand at $18 billion in the financial year 20072008.[99]Pakistan exports rice, oranges, mangoes, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods (renowned for footballs/soccer balls), cutlery, surgical instruments, electrical appliances, software, carpets and rugs, ice cream, livestock meat, chicken, powdered milk, wheat, seafood (especially shrimp/prawns), vegetables, processed food items, Pakistani-assembled Suzukis (to Afghanistan and other countries), defence equipment (submarines, tanks, radars), salt, onyx, engineering goods, and many other items. Pakistan produces and exports cements to Asia and the Middle East. In August 2007, Pakistan started exporting cement to India to fill in the shortage there caused by the building boom.[100] Russia is a growing market for Pakistani exporters. In 2009/2010 the export target of Pakistan was US $20 billion.[101] As of April 2011, Pakistans exports stand at US $25 billion.External imbalancesPakistan suffered a merchandise trade deficit of $13.528 billion for the financial year 2006-7. The gap has considerably widened since 2002-3 when the deficit was only $1.06 billion.[102] Services sector deficit for 20062007 stood at $4.125 billion which equals the services export of $4.125 billion for the same year.[103]The combined deficit in services and goods stand at $17.653 billion which is approx 83.5% of country's total export of $21.136 (Goods and services). The rise in the trade gap has been attributed to high oil import bill, and rise in the prices of food items, machinery and automobiles.Current account Current account deficit for 2006-7 reached $7.016 billion up by 41% over previous year's $4.490 billion.Since the beginning of 2008, Pakistan's economic outlook has taken a dramatic downturn. 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 601 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 Pakistans foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistans local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moodys Investors Service cut its outlook on Pakistans debt to negative from stable due to political uncertainty, though it maintained the countrys rating at B2.The cost of protection against a default in Pakistans 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.[104]The middle term however may be less turbulent, depending on the political environment. The EIU hsd estimated that inflation should drop back to single digits in 2010, and that growth would pick up to over 5% per annum by 2011. However, the unprecedented floods of 2010 which encapsulated 20% of Pakistan's land area, have caused a monetary damage estimated to be in excess of $10bn, as a result of which real growth is almost flat and EIU's original targets will have to be revised. Much like previous natural disasters which have afflicted Pakistan, the floods of 2010 inflicted damage of epic proportions. However, the philanthropic nature of Pakistani people and widespread coverage by a fiercely independent and established media has proven yet again that Pakistan is an incredibly resilient nation.[41]Economic aidMain article: Foreign aid to PakistanPakistan receives economic aid from several sources as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc. provides long term loans to Pakistan. Pakistan also receives bilateral aid from developed and oil-rich countries.The Asian Development Bank will provide close to $6 billion development assistance to Pakistan during 20069.[105] The World Bank unveiled a lending programme of up to $6.5 billion for Pakistan under a new four-year, 20062009, aid strategy showing a significant increase in funding aimed largely at beefing up the country's infrastructure.[106] Japan will provide $500 million annual economic aid to Pakistan.[107] In November 2008, the International Monetary Fund (IMF) has approved a loan of 7.6 Billion to Pakistan, to help stabilise and rebuild the country's economy.More recently the government of Pakistan received an economic aid of US $5bn dollars out of which the US pledge of $1bn was described as a down-payment on the previously announced $1.5bn already promised to Pakistan for each of the next five years. The European Union promised $640m over four years, while reports said Saudi Arabia had pledged $700m over two years.[108] Overall Friends of Pakistan had pledged $1.6 billion in aid, which would help Pakistan move forward on its way to self-reliance.RemittancesThe remittances of Pakistanis living abroad has played important role in Pakistan's economy and foreign exchange reserves. The Pakistanis settled in Western Europe and North America are important sources of remittances to Pakistan. Since 1973 the Pakistani workers in the oil rich Arab states have been sources of billions dollars of remittances.The 7 million strong Pakistani diaspora, contributed US$11.2 billion to the economy in FY2011.[109] The major source countries of remittances to Pakistan include UAE, USA, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), Australia, Canada, Japan, UK and EU countries like Norway, Switzerland, etc. .[110]The State Bank of Pakistan (SBP) has announced that remittances sent home by overseas Pakistani workers have crossed the $10 billion mark for the first time in the countrys history as the figure reached $10.1 billion in 11 months (JulyMay) of the current financial year. The 11-month figure was $2.07 billion or 25 per cent more than $8.09 billion worth of remittances received in the same period of the previous year. In May, overseas workers remitted over $1 billion, which was the third consecutive month that remittances crossed this mark. The country received $1.05 billion, $1.03 billion and $1.05 billion in March, April and May respectively. Citing reasons for the sharp increase in remittances, analysts say that a crackdown on the illegal Hundi and Hawala money transfer systems, swift processing and transfer of money by the banking channel and incentives for overseas Pakistanis have encouraged them to utilise legal channels. The flow of charity money after last summer floods has also given a boost to the remittances this year, they say. In the JulyMay period, remittances from Saudi Arabia, UAE, USA, GCC countries (including Bahrain, Kuwait, Qatar and Oman), UK and EU countries were $2.38 billion, $2.33 billion, $1.86 billion, $1.18 billion, $1.09 billion and $320.93 million respectively. In comparison, remittances stood at $1.72 billion, $1.84 billion, $1.61 billion, $1.13 billion, $793.91 million and $229.74 million respectively in JulyMay 200910. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during the 11 months amounted to $926.86 million against $740.96 million in the same period last year.[111] Governor, State Bank of Pakistan (SBP) Yaseen Anwar said during first ten months of FY2011/12, remittances from overseas Pakistanis rose by 20.2% to $10.88 billion, which helped Balance of Payments (BoP) despite widening of trade deficit. Pakistans fiscal challenges are well known and documented. The Pakistani diaspora of around 10 million sent home around $7.9 billion in the first six months of FY2014 and remittances are expected to touch around $16 billion at the end of FY 2014 thus help easing balance of payment crisis.[112] This spillover to the rest of economy is equally clear. He explained that at start of year (July 2011), external conditions appeared daunting due to rising oil prices and lack of external financing.[113]Government financesFiscal budget summary Fiscal year: 1 July 30 June Budget outlay: Rs 3.259 trillion (FY2010/11) Revenues: $19.8 billion Expenditures: Debt external: $50 billion (2010 est.) Economic aid recipient: $1.2 billion (FY2010/11)Revenues and taxationMain article: Taxation in PakistanPakistan has a low tax/GDP ratio, which it is trying to improve. The current tax-to-GDP ration is estimated to be between 8%9% which is far below developing other countries of the region such as India (15%) and Sri Lanka (18%). Recently, Pakistan's coalition government proposed the idea of imposing a Reformed General Sales tax which was modelled along the lines of VAT. However, with the war on terror having engulfed Pakistan's economy, the politically unpopular bill was not approved in the senate/parliament and has afforded some respite to the people of Pakistan who are already suffering from a stagnant economy and rampant inflation.[114]Expenditures (and the economic costs of War on Terror)Government expenditures were $25 billion (2006 est.)Pakistan has sustained immense socio-economic costs of being a partner in the international counter terrorism campaign. According to government estimates, the war on terror cost the Pakistani economy nearly US$8 billion a year in terms of lost exports, foreign investment, privatisation, industrial output, tax collection (see table below for the government's estimation of the cost of War on Terror to Pakistan as published in an IMF report).[115](Rs billion)2004/052005/062006/072007/082008/09

Direct Cost67.10378.06082.499108.527114.033

Indirect Cost*192.000222.720278.400375.840563.760

Total259.103300.780360.899484.367677.793

'*On account of loss of exports, foreign investment, privatisation, industrial output, tax collection, etc.According to the IMF, the anti-terrorist campaign following the 9/11 attacks in the United States strained Pakistans budget, as allocations for law enforcement agencies had to be increased significantly, eroding resources for development in the country. In addition to human sufferings and resettlement costs, development projects are afflicted with delays which ultimately resulted in large cost over-runs. The heightened sense of uncertainty has contributed to capital flight and slowed down domestic economic activity, creating unease among foreign investors. There has also been massive unemployment in the terror-inflicted regions, as frequent bombings and worsening law and order situation have taken a toll on the socio-economic fabric of the country.[115]Sovereign bondsPakistan is expected to sell a dual-tranche sovereign bond worth $750 million on 23 March 2006 that analysts said should ensure a favourable reception in the bond market. The 10-year tranche would be $500 million and the 30-year portion $250 million. Pricing is expected during New York trading hours on 23 March 2006. The sources said that the 10-year tranche was expected to be priced at around 100125%, while the longer-dated tranche was expected to be sold at around 70.875%, the top end of the indicative yield range of 3.75 to 10.875%.The bonds, consisting of 10-year and 30-year tranches, had