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Books on Pakistan
REPUBLICAN REFERENCE
Area (sq.km)
803,940
Population
162,419,946
Capital
Islamabad
Currency
Pakistani rupee
President
Pervez Musharraf
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Update No: 001 - (24/02/06)
A worsening insurgency
Throughout February, there was no sign of an easing of the insurgency in
Baluchistan and Waziristan. In Baluchistan, nationalist elements, allied with
some tribes, continue to harass the security forces, forcing the central
government to deploy growing numbers of security personnel to maintain the
situation under control. In Waziristan, Taleban-like groups have brought most of
the region under their control and try to increase support among the population
by eliminating criminal gangs and imposing Sharia law. Although the militants in
Waziristan rarely target security personnel, the number of violent incidents has
been on the rise this year. However, neither insurgency has the potential to
directly threaten the hold of Musharraf on power. Both regions are relatively
marginal in terms of contribution to the national economy and demography and are
not strategically placed. Moreover, in terms of resisting the pressure from the
political parties for a full return to civilian rule, Musharraf has been quite
successful. His policy of wooing, intimidating and bribing has managed to
further weaken the political parties, which remain quite unpopular due to their
long history of corruption, internecine fighting and ineffectiveness.
Good growth despite all
Moreover, Musharraf's government can claim to have achieved a quite
satisfactory level of economic growth. The latest IMF estimates place GDP growth
at 6.3% for 2005-06, that would be significantly below the official target of
7.2%, but nonetheless the IMF had words of praise for having achieved such a
relatively high level of growth. While revenue performance remains a weak spot,
the government has been moving in the direction of creating a better business
climate. The IMF projects growth for 2006-07 at 6.5%. Inflation, however,
remains relatively high at 8.7% this year, although the IMF expects that it will
be reduced to 7.3% next year. Given the pressure on prices caused by the high
oil prices, this is considered a satisfying level, not least because the Central
Bank intervened promptly to tighten monetary policy and forcing inflation back
from a high of 11% in April 2005. Another negative effect of the high oil prices
was a rising trade deficit, which reached a record US$6.5 billion during the
first half of 2005-06, whereas the government had projected a trade deficit of
just US$4 billion for the whole year. Exports did well, but imports grew even
faster. Not least because of the earthquake in Azad Kashmir, the budget deficit
is expected to increase this year to 3.7% of GDP, before declining to 3.3% next
year. Government debt as a percentage of GDP has been steadily declining since
2003-04 and is projected at just below 50% by 2006-07. The increase in the
budget deficit (from 3% last year to 3.7%) will be the most noticeable economic
effect of the earthquake, as the region hit by the disaster contributes only
marginally to the national GDP.
Investment needed
The IMF's optimism concerning the Pakistani economy is shared by some
investment pundits, such as Merrill Lynch, who considers Pakistan one of the
best potential returns in the region. The growing pace of market reforms in
Pakistan should, in Merrill Lynch's view, offer high returns compared to the
larger markets, which are now expected to slow down. Pakistani stocks currently
offer a yield of about 5%. Foreign investment in Pakistani stocks trebled in
2005, but still stood at a rather puny US$450 million, in a market whose total
value is US$53 billion. Although Pakistani stocks grew by 60% over the last 6
months, they are considered by analysts to still be cheaper than most other
Asian stocks. Many companies are expected to be privatised over the next two
years and this should stimulate the growth of the market. More in general,
foreign investment in Pakistan is growing and is expected to double to US$3
billion this year.
Nonetheless, the picture coming from Pakistan is not a completely rosy one.
Economic growth is reckoned to be held down by the high losses of the power
sector, which is affected negatively by corruption and inefficiency. There is
currently already a power shortage of 500 megawatts, despite the fact that half
of the population does not have access to electricity, and the shortage is
projected to grow to over 5,500 megawatts by 2010, increasing at the rate of
1,000 megawatts per year. Although the country has a huge hydroelectric
potential, it is not fully exploiting it because of political issues and lack of
sufficient funds to invest.
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ENERGY
India, Pakistan hold talks on tri-nation gas
pipeline
Indian Petroleum Minister, Murli Deora, recently started talks with his
Pakistani counterpart, Amanullah Khan Jadoon, on a US$7.2-billion
Iran-Pakistan-India (IPI) gas pipeline project, officials said. Deora, who was
sworn in as India's new petroleum minister in January, will discuss pricing of
gas and project structure in the day-long talks with the Pakistani delegation,
said a Petroleum Ministry official who did not wish to be named. The possibility
of Pakistan permitting export of diesel by the Indian Oil Corporation will also
be discussed, the IANS News Agency reported.
While considerable progress has been made in the Iran pipeline project, issues
like pricing of gas, project structure and other legal, technical and financial
issues still need to be ironed out at trilateral level, the agency said.
Following the talks in Delhi, Pakistan and Iran will meet to discuss the
project. Subsequently, a trilateral meet will be held in Tehran in early April
which will help evolve consensus before the three sides can execute the
ambitious project. The three countries have decided to go ahead with the
mega-project despite opposition by the US, saying the pipeline is in the
countries' national interest. The three sides have agreed to finalize the
pipeline project by April next year. Nicholas Burns, the US undersecretary of
state, on a visit to Pakistan in January had dismissed the pipeline project as
"impractical." Earlier, Washington said the project will breach the
US, Iran and Libya Sanctions Act of 1996, which forbids more than US$20 million
of investment in Iranian oil and gas projects.
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