Thursday, August 1, 2019
Pakistan: Recent Economic Developments and Future Prospects
Most of the news emanating about Pakistan in the Western media relate to terrorism, bomb blasts, Islamic fundamentalism, nuclear non proliferation, military rule etc. Seldom does one see a positive story appearing about PakistanÃ¢â¬â¢s remarkable economic turnaround. But the fact of the matter is that despite such negative image Pakistan is one of the favored destinations for foreign direct investment. Foreign direct investment flows have surged by 95 percent during July Ã¢â¬â February 2007 and are expected to touch $ 5 billion or 3. percent of GDP Ã¢â¬â several times higher than FDI flows to our large neighbor in relative terms.PakistanÃ¢â¬â¢s international bond issues and equity floatations through GDRs have been consistently oversubscribed and are priced at fine margins. Standard Chartered Bank has made acquisition of a domestic private bank for around half a billion dollars. China Mobile Ã¢â¬â the largest mobile company in terms of subscriber base Ã¢â¬â has bought out majority shareholding in one of the local cellular phone companies for over $ 400 millions.Philip and Morris has entered into an agreement to purchase 50. 2 percent shares of the second largest Cigarettes Manufacturing Company of Pakistan for US 339 million. A number of other similar mergers and acquisitions are in the pipeline. 2. What is that inspite of such adverse publicity, perceived security risk and travel advisories the global investors, fund managers and international financial institutions from the United States, Europe, East Asia and Middle East all look upon Pakistan favorably and show such tremendous amount of confidence in the economy.Sophisticated investors from all over the world are willing to purchase billion of dollars of sovereign paper issued by Pakistan for 30 year duration. There must be something right the country ought to be doing which fails to reach the radar screen of the popular and highly influential western media. 3. As an international developmen t economist I can venture a number of reasons for this apparently highly paradoxical situation. First of all, Pakistan is a country of 160 million people which is growing at an average growth rate of 6-7 percent for the last five years.Thirty million Pakistanis earning $ 10,000 Ã¢â¬â $ 15,000 (PPP terms) constitute a large and solid market for purchase of goods and services of all kinds. There are very few markets except China, India and Indonesia that are underpinned by the size and scale that the fast growing Pakistani middle class offers. Projections show that if the current growth A paper presented at the IPRI-RUSI Conference on Ã¢â¬Å"Pakistan: Strategic Challenges & ProspectsÃ¢â¬ At Royal United Service Institute London on April, 17 2007 ates are attained for the next ten years, PakistanÃ¢â¬â¢s per capita income will double in real terms by 2020. At that time the size of the middle class will rise to 50 million enjoying purchasing power incomes of average $ 30,000 Ã¢â ¬â equivalent to those of some of the European countries today. Goldman Sachs has placed Pakistan in the next eleven category of largest economies among developing countries for its long term projection. The requirements of energy, infrastructure, goods and services of these 50 million will have to be met at world class standards.Multinational firms and holders of capital with excess liquidity, eyeing these prospects in emerging countries and feeling saturation in advanced economies, are rethinking their strategies and repositioning themselves. Pakistan along with other Asian countries is one of the beneficiaries of this strategy. The changing demographics of a youthful population and labor force in Pakistan staring against the stark reality of ageing population in Europe, Japan, and US and after a while China reinforce these promising prospects for the future.Of course, none of this will be either automatic or easy and good policies, good governance and good luck will be needed t o realize this scenario. 4. Second, the economic performance in terms of macroeconomic stability, growth, poverty reduction and employment generation has been stellar. Economic growth rates have risen from 1. 8 percent in 2000/01 gradually to average 6 -7 percent a year in the last four years making Pakistan one of the fastest growing economy in the Asia region. For Pakistan these rates are not spectacular but a reversion to mean.The average growth rate of GDP ver 50 year period of Pakistan has been 5. 2 percent per annum. Manufacturing sector output growth was over 15 percent, exports have doubled in US dollar terms in these five years, and an open trade regime has allowed imports from all over the world to triple. Tax revenues have risen by 14 percent a year reducing fiscal deficit which used to average 7 percent a year in the 1990s to average 4 percent. Current account turned around from chronic deficit to a surplus for three successive years mainly due to renewed export growth a nd resurgence of workersÃ¢â¬â¢ remittances.Although it has become negative since 2005/06 due to phenomenonal growth in imports of machinery and equipment and increase in world oil prices it is being fully financed by foreign capital flows. Inflation rate during the first four years of the current government remained below 4 percent but oil price pass through and food shortages have 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 countryÃ¢â¬â¢s capacity to service its debt has considerably improved as debt servicing ratio which used to preempt almost 60 percent of public revenues is now down to 28 percent. Poverty 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 but they are not acceptable as one in every fourth Pakistani is still living below the poverty line. Table-I su mmarizes the changes in the key economic indicators between October 1999 and June 2006. 5.Third, the basic premise of policy reform agenda was that macroeconomic stability will remain short lived if it was not accompanied by structural reforms to remove microeconomic distortions and by bringing about improvement in economic governance. Pakistan has successfully implemented the first generation of structural reforms that have made the economy more efficient and resilient to face unanticipated exogenous shocks. The main thrust of these reforms was to allow greater freedom to the private sector to own, produce, distribute and trade goods and services while gradually withdrawing the public sector from this arena.The promotion of public private partnership in large infrastructure projects as a policy initiative is likely to overcome some of the problems that are inherent in private infrastructure projects at the same time easing the financing constraints faced by the public sector. The r ole of the state in Pakistan has been redefined as a facilitator, enabler, protecter and regulator rather than directly managing and presiding over the commanding heights of the economy. Government intervention is justified for social protection of the poor, provision of public goods or when there is a clear case of market failure i. externalities, imperfect market structure etc.6. Fourth, Pakistan occupies a key strategic location that links India with Iran, Afghanistan and the Central Asian States, provides access to sea for land locked countries of Central Asia, Afghanistan and Western China, acts as the energy and transit corridor and opens up to the oil rich Gulf States next door. This strategic location alongwith the completed and new investments in ports, highways, pipelines, etc. will throw up vast new opportunities that can be highly attractive.Risk-return relationship in these projects is highly favorable and a number of foreign firms are keen to take the first mover advan tage by locating their investment particularly in Gawadar port area. 7. Leaving aside the current situation that I have described I would like to address two important questions this afternoon that agitate the minds of all potential investors and businessmen Ã¢â¬â domestic or foreign in respect to Pakistan. First whether the stability and growth that have so far been achieved will prove to be transitory in nature or will be sustained over time.Second, a question that has attracted a lot of attention is whether the September 11,2001 events have much to do with the economic turn around of Pakistan or whether the changes are more fundamental. To examine these two questions we have to look at the strength of economic policies, depth of structural reforms and the quality of economic governance. Before addressing these two questions let me make two broader points to set the context for our subsequent discussion. SUSTAINABILITY OF GROWTH .It should be reiterated that widespread economic reforms in Pakistan were initiated in 1991 by the Nawaz Sharif Government, continued under the Benazir Bhutto Government and further intensified and implemented under the Musharraf Government. Thus there should be no doubt in any bodyÃ¢â¬â¢s mind that the major direction of economic policies being pursued in Pakistan presently enjoys wide political consensus and support among all the leading political parties of Pakistan.The underlying philosophy that the Government should not be in the business of running businesses but regulating the markets and laying down the enabling policy framework has been demonstrably practised by all the successive governments in the past. Deregulation, liberalization, privatization and private sector Ã¢â¬â led development have been consistently followed for the last 16 years, and there is very little doubt in my mind, that these will remain the pillars of future economic policy in Pakistan irrespective of which political party assumes power.Of cours e, there will be differences in approaches, tactics and nuances, episodes of point scoring, distancing from the specific transactions of the previous governments, coming up with new modalities but the substance and thrust of economic policies will remain the same and transcend 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 foreign investment regime. The Government of Mr. Z. A.Bhutto in early 1970s nationalized domestic manufacturing industry, banks and insurance companies but did not touch foreign investment. Not only that the risks of expropriation and transfer are almost zero the level playing field that is afforded to foreign investors is unparalleled in developing world. This is a deliberate policy measure as Pakistan is squeezed between two economic giants Ã¢â¬â China and India Ã¢â¬â and we cannot afford to keep the same bar on the entry of foreign i nvestors as our great neighbors have placed.We have to be much more accommodating and keep the door wide open to allow foreign investors to help our economy by bringing in capital, managerial skills, transfer of technology and integration into global markets. This policy of liberal foreign investment regime is solidly grounded in the political ethos and economic imperatives of Pakistan. 10. Now let me take up as to how a combination of strong economic policies, structural reforms economic governance and good luck has changed the economic landscape of Pakistan in many fundamental ways. Strength of economic policies 11.The bane of PakistanÃ¢â¬â¢s economic problems stemmed from fiscal indiscipline over a decade that plunged Pakistan into a debt trap. This root cause had therefore to be surgically removed so that the likelihood of its further recurrence in the future is minimized A Fiscal Responsibility Law has been approved by the Parliament, which keeps a lid on the future governmen tsÃ¢â¬â¢ propensity to borrow their way out. Debt / GDP ratio has to be reduced 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 recklessness in the future. 12. Monetary policy is now operated 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- based policy instruments have replaced credit ceilings, caps on deposit and lending rates, preferential treatment to government and directed credit to priority sectors.Interest rates and exchange rates are market determined and credit allocation decisions are made by the individual banks based on o bjective criteria but guided by prudential regulations. 13. External debt management policy was focused on (a) reprofiling of the stock of official bilateral debt, (b) substituting concessional loans 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 100 percent of GDP to 56 percent in five years time. This restructuring of debt has put Pakistan on a firm footing as the debt and debt servicing ratios are on a declining path. This has provided scope and enlarged the capacity of the country to meet all its future foreign exchange liabilities and obligations without much difficulty. Credit worthiness indicators have all improved 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 categorized by the World Bank as one of the least restrictive in South Asia along with S ri Lanka and this policy has gradually provided incentives to exporters to increase their market share in the global markets. Exchange rate policy is pursued to maintain stability in the foreign exchange markets while at the same time keeping the competitiveness of Pakistani exports intact. Large accumulation of foreign reserves played an important role in stabilizing the exchange rate and cushioning the economy from the adverse and abrupt exogenous disturbances.One of the tests that the country successfully met in the last two years was to absorb the oil price hike from $ 25/ barrel to $ 75/ barrel without any serious dislocation of economic activity or any loss of foreign reserves. Five years ago if this escalation had happened the exchange rate would have tumbled and inflation rate would have hit double digits. 15. Pakistan has also made significant efforts in unilaterally liberalizing its trade regime since the 1990s. The maximum tariff 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 decade ago.The number of duty slabs has also been reduced to four. Quantitative import restrictions have been eliminated except those relating to security, health, public morals, religious and cultural concerns. The statutory orders that exempted certain industries from import duties or provided selective concessions to privileged individual firms have been phased out and import duties on 4,000 items were reduced. Protection to domestic industry is no longer a policy objective and a uniform, across Ã¢â¬â the board, transparent regulatory regime with level playing field has been put in place.These measures have brought down effective rate of protection, eliminated the anti-export bias and promoted competitive and efficient industries. A number of laws have also been promulgated to bring the trade regime in conformity with World Trade Organization regulations. These include anti-dumping and countervailing measures and protection of intellectual property rights. This unilateral opening up to global trade has benefited the domestic firms in improving 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. Concurrently with the debt restructuring, the country embarked on the fiscal policy reforms and consolidation by raising tax revenues, reducing expenditures, cutting down subsidies of all kinds and containing the losses of public enterprises.Tax reforms were undertaken to widen tax base, remove direct contact between tax payers and tax collectors, introduce value-added tax as the major source of revenue, simplify tax administration and strengthen the capacity of the Central Board of Revenue. Although these reforms are still u nderway, the adoption of universal self assessment followed by random audit of selected tax returns, automation and reorganization of the tax machinery have begun to help improve tax collection.Tax-GDP ratio in Pakistan is lower in comparison 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 aggressive privatization plan whose thrust was sale of assets in the oil and gas industry as well as in the banking, telecommunications and energy sectors, to strategic investors, with foreign investors encouraged to participate in the privatization process.PakistanÃ¢â¬â¢s record on privatization since 1991 has been impressive but the transactions completed in the last few years have yielded $ 3 billion stopping the hemorrhaging of public finances that were used to underwrite the losses of these enterprises. These privatized banks are now contributing substantial sums to the national exchequer as they have all become profitable. 18. As Pakistan would continue to rely on foreign capital flows for augmenting its domestic savings it had to demonstrate its seriousness in encouraging foreign investment.There has been a major and perceptible liberalization of the foreign exchange regime. Foreign investors can set up their business in Pakistan in any sector of the economy Ã¢â¬â 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 prior approvals. Foreign companies are allowed to raise funds from domestic banks and capital markets.They are treated equally with national firms in all respects and can bring in expatriate staff to run their businesses. 19. Foreign Portfolio Investors (FPI) can also enter and exit the market freely witho ut any restrictions or prior approvals. In the Karachi Stock Exchange with a market capitalization of US$50 billion and over 650 listed companies corporate earnings were on average in 20-25 percent range much higher than those in most emerging countries. This makes Pakistan an attractive place to invest for foreign portfolio investors too.As part of this liberalization, non-residents and residents are allowed to maintain and operate foreign currency deposit accounts, and a market-based exchange rate in the inter-bank market is at work. 20. Financial sector reforms in Pakistan were also initiated early in the 1990s when new banking licenses were granted to private domestic banks to set up their shops along with the nationalized commercial banks and foreign banks. Although these reforms were implemented with fits and start, they were accelerated since 1997.The Central Bank was granted autonomy and the control of the Ministry of Finance over banking institutions was diluted. More 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 total advances and loans, minimum capital requirements were raised to $100 million, the quality of new loans was improved, mergers and consolidation of financial institutions eliminated a number of weaker players and the range of products and services offered by the banks was widened.But the most crucial policy action taken by the Government, in my view, was the privatization of Habib Bank, United Bank, and Allied Bank Ã¢â¬â three large nationalized commercial banks of the country. As a result of these reforms, the share of the private sector ownership of the banking assets has risen to 80 percent and the banking sector is facing 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 multiple channels of delivery have improved the efficiency of services in response 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 multiplied from 1 million to 4 million households. The middle and lower middle class which had been completely shut off from access to banking services are now enjoying car loans, mortgages, credit cards, consumer durables. Small farmers are using bank credit for buying chemical fertilizers, certified seeds, insecticides, small implements and hiring tractor services.Small and medium entrepreneurs are expanding their fabrication and manufacturing capacities and upgrading technology. Landless labor and poor women in the rural 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 d eclined significantly. But as the lending rates are surging upwards, deposit rates are also going to depict an upward movement with time lag.The outreach of banking sector is still very 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 Ã¢â¬â rural income inequalities. 22. Deregulation of oil and gas, telecommunication and civil aviation sectors have also brought about significant positive results. Oil and gas exploration activity has stepped up in recent years and constant 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 Ã¢â¬â both domestic and foreign private companies Ã¢â¬â have played a critical role in filling in electricity generation requirements of Pakistan since 1996. Telecommunication has witnessed a boom si nce the private sector companies were allowed licenses to operate cellular phones. One million new cellular phone connections are being added every month and the number of phones has already reached about 50 million or a penetration rate of almost 33 percent.Long distance international and local 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 Ã¢â¬â local, long distance, international Ã¢â¬â are currently only a fraction of the previous rates. One of the advantages of privatization of the state monopoly, i. e. , the PTCL would be felt in form of higher bandwidth penetration that has lagged behind other Asian countries. Economic Governance 23.The most significant shift introduced by the military government is in promoting good economic governance although we have still a long way to go. The reforms in some of the most important federal institutions Ã¢â¬â the Central Board of Revenue (CBR), Securities and Exchange Commission (SECP), the State Bank of Pakistan (SBP) and Pakistan Railways Ã¢â¬â initiated some years ago Ã¢â¬â 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 access to information has had a salutary effect on the behaviour of decision makers but this has not trickled down to the lower bureaucracy yet where implementation of the policies takes place. The post 2003 period has witnessed some decline in the Transparency International ratings of Pakistan compared to the 1999-2002 period. 24. The 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 driven by priorities set by elected local representatives, as opposed to bureaucrats sitting in provincial and federal capitals. Devolution of power will thus strengthen governance by increasing decentralization, de-concentration, accountability and people's participation 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 addressed. 25.Other essential ingredients for improving economic governance are the separation of policy and regulatory functions which were earlier combined within the ministry. Regulatory agencies have been set up for economic activities such as banking, finance, aviation, telecommunications, power, oil, gas etc. The regulatory structures are now independent of the ministry and enjoy quasijud icial 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 Bureau (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 disqualified from holding public office for twenty-one years on charges of corruption after conviction in the courts of law. Major loan and tax defaulters were also investigated, prosecuted and forced to repay their overdue loans and taxes. 27.Civil service reforms aimed at improving recruitment, training, performance management, career progression, right sizing of ministries and attached departments, and improving compensation for government employees are part of the second generation reforms of the go vernment 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 Service Commission (FPSC) and systematically introduce merit based recruitment and promotions.The Civil Service Act has to be amended to reflect performance based career progression enabling the government to reward efficient and competent 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 an d the infrastructure supporting judicial system are being revamped and upgraded. Small Causes Courts have been established to provide relief to the poor who have small claims. Alternate Dispute Resolution mechanisms have proved to be successful in bringing expeditious disposal of commercial and tax disputes and are being replicated for wider application. IMPACT OF SEPTEMBER 11 EVENTS. 29.A large number of observers and casual empiricists both within and outside Pakistan have been making bold but untested assertion that it is the massive aid flows and debt relief resulting from PakistanÃ¢â¬â¢s participation in the war against terror after September 11, 2001 that has been responsible for the large reserve accumulation and economic turnaround. It is true that September 11 did help in diverting workersÃ¢â¬â¢ 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 Pa kistan.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 freight 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 Ã¢â¬Å"giftÃ¢â¬ of September 11 to Pakistan, this combined amount represents only 8. 5% of total Foreign Exchange Earnings of the Country in FY-06.At its peak in FY-02, this amount was 21. 6%. But this entire amount is not a direct fall out of September 11 because Pakistan has been receiving foreign loans and grants every year since the 1950s. For example, in FY-00 and FY-01, the two years prior to September 11, we received 16 per cent and 19. 9% of Foreign Exchange Earnings in form of foreign loans and grants. The country had a positive overall balance and positive current and capital acco unt 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. PakistanÃ¢â¬â¢s reserves had started accumulating in FY 2000-01 and SBPÃ¢â¬â¢s own reserves had almost doubled after paying off foreign currency deposits of almost $1. 7 billion to the non-resident and institutional holders and $. 2. 8 billion in debt servicing to external creditors. Thus, this perception that every thing good that has happened to the country is a direct consequence of September 11 is not only incorrect but highly exaggerated for the reasons described below. 1. It should be recognized 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 founda tions 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 owned enterprises were put in place it would not have been possible to take advantage of the situation offered by Sept. 11 for its contribution to the dynamism of the economy and sustained growth during the last four years. 32.The data presented in Table-II clearly demonstrates that PakistanÃ¢â¬â¢s 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 popular perception, it is the Pakistani businesses and nationals working abroad who provide the bulk of the foreign exchange earnings of the country. It is totally f allacious to argue that if the foreigners particularly Americans withdraw their financial assistance then the country will be in dire trouble.Less than $ 3. 5 billion are received through all types of foreign assistance while about $ 30 billion are generated by Pakistani businesses and nationals and the remaining amount 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 insignificant in the next 5-10 years. 3. In order to further evaluate the veracity of the assertions of the theory of dependence of our economy on the US, four key indicators are selected (a) US assistance as percent of PakistanÃ¢â¬â¢s total budgetary expenditure (b) US assistance as percent of PakistanÃ¢â¬â¢s total foreign exchange receipts (c) US assistance as percent of total current account receipts of Pakistan and (d) US assistance as percent of total value of imports of Pakistan.These indicators have been carefully chosen to see as to how much damage will accrue to our balance of payments and fiscal accounts if the US for one reason or the other 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 troops the diminution in foreign exchange receipts or budgetary resources would be insignificant Ã¢â¬â varying between 4. 5% of total foreign exchange receipts to 7. % of total budgetary expenditures. The other two indicators i. e. the proportions of total value of imports and current account receipts financed by U. S. assistance account for 6. 4 % and 5. 8% respectively Ã¢â¬â not worrisome amounts. 35. There is no doubt that the Govern ment 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 moment of PakistanÃ¢â¬â¢s economy. Several other collateral benefits accrued to the economy as a result of the U.S bilateral debt forgiveness, strict scruntiny of remittances through informal channels, the US EXIM Bank and OPICÃ¢â¬â¢s highly positive initiatives towards Pakistan and the withdrawl of all different 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 Development Bank. The prompt and generous response to the Earthquake of October 2005 by the U. S Government, private sector and on-governmental organizations left a very favorable impressions in the minds of Pakistanis. 36. US is an important trading and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this analysis is not to show that we care little for our friendly relations or do not cherish friendship with the Government or the people of the United States. As a matter of fact we should expand our relations with the United States in the areas of higher education, science and technology transfer, trade, investment and labor flows.We should also seek duty free market access for the products exported from the Reconstruction 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 porous border with Afghanistan. But the main argument of this analysis is that the pundits in the US who believe that they can use the leverage of US official aid to paralyze PakistanÃ¢â¬â¢s economy are sadly mistaken as they have an exaggerated sense of the importance of these official flows.Any attempt to impose conditions that impinge upon the sovereignty of Pakistan or conflict with our own national interests can be resisted without creating a serious dislocation to our macro economic stability or growth prospects. 37. Despite these reforms, Pakistan is facing many difficult challenges and will continue to face new unforeseen challenges. There is no room for complacency. One fourth of the population still lives below the poverty line.Human Development Indicators remain low as almost half of the population is illiterate, infant and maternal mortality rates are high, access to quality education and health care particularly by the poor is limited, income and regional inequalities are widespread, infrastructure shortages and deficiencies persist, skill shortages are taking a toll in the economy's productivity while at the same time, there is high unemployment and underemployment. Most worrying to me is that Pakistan's image abroad is quite negative.Foreigners are reluctant to visit Pakistan as they perceive the country to be a dangerous place. The worldwide preoccupation with the l arge economies of China and India and the ever-increasing quest to enter these markets is also working to the disadvantage of countries such as Pakistan. But the lesson we have learned is that there is no point in 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.