Portal:Business and economics/Selected economy/January 2008
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The economy of Pakistan includes the automotive, textiles, chemicals, food processing, agriculture and other industries.
The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy. Pakistan has seen a growing middle class population since then and poverty levels have decreased by 10% since 2001. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally.
Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the 2005 Kashmir earthquake was manageable. Development in urban areas of Pakistan has remained high but is low in rural areas. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.
