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Key Economic Data 
  2004 2003 2002 Ranking(2004)
Millions of US $ 96,100 82,300 73,300 44
GNI per capita
 US $ 600 520 480 160
Ranking is given out of 208 nations - (data from the World Bank)

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Pakistani rupee

Pervez Musharraf

Update No: 002 - (24/03/06)

Tribal trouble
The violence which occurred in Waziristan in March once again confirmed Musharraf's difficulty in handling the tribal regions of his country. The heavy-handed intervention of the army in the region not only resulted in significant loss of life, but might well lead to heightened confrontation in the region. The local insurgents are already beginning to target security forces more aggressively. This, together with Pakistani brinkmanship in India and Afghanistan, can only add to the uncertainty that international investors still feel characterises the country. In both countries the Pakistani security services demonstrated over the last several months that they still cannot safely handle the insurgent groups which they support, as these often indulge in counter-productive terrorist acts which go to the detriment to Pakistani aims. The Pakistani leadership's control over its own security services is also doubted by some observers, a fact which must be raising some concern in Washington with regard to the future of Pakistan's nuclear arsenal. 

A declining strategic partnership
The month of March had started well for Musharraf, as President Bush, during his visit to the country, had showed his commitment to the reaffirmation of the strategic partnership between the US and Pakistan and had praised the Pakistani counter-terrorist effort. However, a few days later the announcement by the same Bush Administration of an agreement to share nuclear technology with India was greeted with dismay if not surprise in Islamabad. The announcement reminded the Pakistani government that the strategic balance in the region is slowly shifting in India's favour. At the same time, India is also discussing a settlement of its border issues with China and an improvement in the relations between the two countries is already evident. China has every interest in becoming more friendly with India, as it fears that Washington's moves to isolate China from its neighbours. Any improvement in the relations between India and China would come at the expense of the Chinese-Pakistani strategic partnership, or so it is perceived in Islamabad.
Nonetheless, relations between India and Pakistan are improving. Trade between the two countries is expected to reach US$1 billion this year, up from US$600 million last year, thanks to the launch of the South Asian Free Trade Area Agreement (SAFTA) and to the opening of a number of roads and railways between the two countries. Previously, most of the trade between the two countries was illegal. Smuggling was estimated at US$2 billion in 2004-05, but this year estimates have fallen to about US$1 billion. The Pakistani government, which has already reached an agreement with the European Union over the reduction of duties from 13% to 5.8%, is now negotiating free trade agreements with China, Malaysia, Indonesia and Singapore. 

Threat of inflation
On the economic front more good news came through in March, as the ADB forecasted GDP growth at 6.5-7% this year, despite a slowing of the agricultural sector due to a decline of the cotton and sugar crops. Moreover, the latest figures put inflation at 8%, down almost two percentage points from a year ago. However, the prospects for inflation over the coming months are negative, as the wholesale price index is rising fast and stands now at almost 10% on a yearly basis, compared to 6.7% a year ago. The cause of the increase is doubtless commodity prices and in particular oil. Another economic woe, which will contribute to stock inflation, is the soaring budget deficit, which stands at 147.2 billion Pakistani Rupees, well above the target of 98 billion fixed by the government for the current year. By the end of the fiscal year, it is reckoned that the deficit will climb above 4% of GDP. 

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India, Pakistan talk to improve air links

India and Pakistan recently continued their talks, reviewing the bilateral air services agreement in a bid to further air connectivity between the two countries. 
In the two-day talks, officials from the two sides discussed ways to increase commercial cooperation and reduce tariff and non-tariff barriers. 
The six-member Pakistani delegation was headed by additional secretary of defence, Muhammad Ashraf Chaudhry, while the Indian side was led by Director General of Civil Aviation (DGCA), Satinder Singh. 
Currently, Pakistan International Airlines (PIA) flies to Delhi and Mumbai and Indian Airlines to Karachi and Lahore. 
Officials from the two countries will also discuss the possibility of setting up air links between more cities and increasing the number of airlines, including private operators. 
"There are a host of issues associated with this which will also be sorted out," said a DGCA official. 
"Actually under the existing conditions, not many are interested in operating in this sector. Certain issues have to be addressed to encourage traffic on these routes," the official said. 
While the two sides are expected to discuss issuance of visa to the passengers of both the countries to ensure economic viability to operators, they will also exchange views on broadening trade cooperation and removing tariff and non-tariff barriers, a senior government official said. 
During the inconclusive meeting last year, Pakistan surprised India by asking for permission to operate PIA flights to Kochi, Hyderabad and Chennai in addition to Delhi and Mumbai. 
Pakistan has offered Islamabad and Peshawar as additional routes for Indian Airlines and Indian private operators. India, while promising to consider Pakistan's request for three more destinations on Indian routes, did not show much interest in the new destinations proposed by Islamabad due to viability factor. 
The two countries resumed their air services in early 2004 after a two-year suspension.

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