Pakistan Afghanistan

COUNTRY REPORT

Pakistan

Afghanistan

1st quarter 1999

The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

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Contents

3 Summary

Pakistan5 Political structure6 Economic structure7 Outlook for 1999-2000

14 Review14 The political scene21 Economic policy and the economy25 Industry and energy28 Agriculture29 Banking and finance31 Foreign trade and payments

Afghanistan33 Political structure34 Economic structure35 Outlook for 1999-200036 Review

39 Quarterly indicators and trade data

List of tables11 Pakistan: forecast summary18 Pakistan: official crime figures of Punjab and Sindh, Jan-Nov 199824 Pakistan: consumer prices25 Pakistan: import prices, 1997/9830 Pakistan: external reserves32 Pakistan: official exchange rate39 Pakistan: quarterly indicators of economic activity40 Afghanistan: quarterly indicators of economic activity41 Pakistan: foreign trade42 Pakistan: structure of trade43 Pakistan: direction of trade

List of figures12 Pakistan: gross domestic product by sector13 Pakistan: gross domestic product13 Pakistan: Pakistan rupee real exchange rate31 Pakistan: external balances

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EIU Country Report 1st quarter 1999 © The Economist Intelligence Unit Limited 1999

February 17th 1999 Summary

1st quarter 1999

Pakistan Outlook for 1999-2000: The Supreme Court and the prime minister, NawazSharif, will continue to spar. The main opposition parties will try to mount aunited front. Mr Sharif’s relations with the press are set to deteriorate. Theslowly spreading role of the army in civilian affairs will place pressure on thejudiciary to intervene. Relations with India are set to improve. The IMF’s rescuepackage will ease the immediate financial crunch but will not transformPakistan’s overall external payments position. The IMF’s stiff conditions will bedifficult to implement. Fiscal consolidation is unlikely. GDP growth of about2% is forecast for 1998/99, rising only slightly in 1999/2000.

The political scene: The Supreme Court has declared the military courtsunconstitutional. Ms Bhutto has continued to fight corruption charges. An“assassination” attempt on Mr Sharif has raised the question of the continuedthreat of militant sectarianism. The PML(N) government in NWFP has promul-gated a new sharia law. The Taliban movement has gained strength in Pakistan.The new army chief has continued to back Mr Sharif, although there is stilldiscontent in the army ranks. The Pakistani press, including the country’slargest newspaper group, has come under pressure from the government. Legis-lation remains deadlocked in parliament.

Economic policy and the economy: The IMF has restarted a lending pro-gramme with Pakistan. The World Bank has approved a $350m structural reformloan. Foreign-exchange reserves have been buttressed by the repayment by theUS for undelivered F-16 planes. The Paris Club of official creditors has resched-uled $3.3bn in medium- and long-term debt-service payments. A similararrangement with the London Club of commercial creditors has been mooted.The IMF has imposed tough macroeconomic targets, and a challenging reformprogramme to achieve them. A new labour policy has been announced. Infla-tion has remained subdued.

Industry and energy: Administration of the WAPDA utility has beenhanded over to the army. Proposals to collect overdue payments from federaldepartments and provinces, apply uniform power rates and end concessions tofarmers have been resisted. The fear of summary military punishments hascompelled many people to respond to WAPDA’s threats. The government hasannounced a “revised tariff settlement” with IPPs. The government’s disputewith Hubco has continued to simmer. The Indian government has agreed inprinciple to buy electricity from Pakistan. Plans for a foreign-invested hydro-power plant has been announced. Pakistan and Turkmenistan have pledged tocontinue investigating a gas pipeline across Afghanistan.

Agriculture: Cotton crop estimates have been revised down, again. The mainfactors behind the shortfall have been a fall in the acreage under cultivationand unfavourable weather conditions. Estimates for output of Pakistan’s sec-ond largest crop, wheat, have also been lowered. The government has offered

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incentives for sugar exports, amid some controversy. The fledgling fishingindustry has tried to recover after the partial lifting of an EU ban.

Banking and finance: The Lahore High Court has declared the freeze onforeign-currency withdrawals from foreign-currency accounts and the forcedconversion of dollar deposits illegal. But an appeal filed by the government hasrestored the status quo. The credit terms for imports have been loosened.Exporters have been offered new incentives. The government has pledged toretain the current exchange-rate policy until its reserves position improvessubstantially. Plans to restructure Habib Bank in readiness for privatisationhave moved forward.

Foreign trade and payments: The trade deficit has narrowed, thanks to asharp contraction in imports. Foreign-exchange earnings have fallen. Foreigninvestment inflows and private remittances have contracted. The IMF disburse-ment and repayments from the US have caused foreign-exchange reserves toswell. The free-market rupee exchange rate has strengthened.

Afghanistan Outlook for 1999-2000: The Taliban will work to consolidate their hold onthe recently acquired north and central areas. The disparate opposition forceswill try to launch limited, but irritating, attacks on Taliban areas. Ahmad ShahMassoud is likely to push further the offensives he began in recent months.Mr Dostum is said to be planning a comeback. The UN will return to Afghanistan,giving added influence to the UN political team.

Review: The Taliban control 90% of Afghanistan, but pockets of fighting havere-emerged. A lack of funds has fuelled some hardship and dissension in theranks. Taliban officials have admitted in private that their men carried out themassacre in Mazar-i-Sharif in 1998. The exact status of the Taliban’s rule in thecentre remains unclear. Mr Massoud has maintained his Panjshir Valley head-quarters while launching new attacks. A former opposition leader has defected.The food situation in the centre has improved. Meetings with “six plus two”countries have taken place. The Saudi dissident Osama bin Laden is missing.The UN launches its annual Afghan appeal and has held talks with Iran.

Editor: Elisabeth PaulsonAll queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

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Pakistan

Political structure

Official name Islamic Republic of Pakistan

Form of state Federated parliamentary system

The executive As a result of the constitutional changes in 1997, the prime minister now holdssupreme executive authority. The president is head of state and is elected by anelectoral college consisting of both houses of the federal parliament as well asmembers of all four provincial legislatures

National legislature Bicameral legislature; lower house, the National Assembly, has 217 directly electedmembers who serve for five years, of whom 10 represent minorities; upper house, theSenate, has 87 members elected for six years with one-third retiring every two years.Each of the four provinces elects 19 senators; the remaining 11 are elected from theFederal Capital Territory and the tribal areas

Provincial government Pakistan has four provinces that enjoy considerable autonomy. Each province has agovernor and a council of ministers headed by a chief minister elected by a provincialassembly

National elections February 3rd 1997 (National Assembly); next elections due December 2002(presidential), February 2002 (National Assembly)

National government After a mid-term general election, the PML(N) formed a government in February 1997and Nawaz Sharif was elected prime minister

Main political organisations Pakistan Muslim League (Nawaz) (PML(N)); Pakistan People’s Party (PPP);Jamaat-i-Islami (JI); Muttahida Qaumi Movement (MQM); Awami National Party(ANP); Jamiat-e-Ulema-e-Islam (JUI); Tehrik-i-Insaaf (Movement for Justice); MillatParty

Main members of Councilof Ministers

President Rafiq TararPrime minister Nawaz Sharif

Key ministers Commerce, finance & economic affairs Ishaq DarForeign affairs Sartaj AzizInterior Shujuat HussainPopulation & welfare Abida HussainWater & power Nadir Pervez

Central bank governor Mohammad Yaqub

Pakistan 5


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998a

GDP at market pricesb (PRs bn) 1,573.1 1,882.1 2,171.3 2,503.2 2,759.5

GDPb ($ bn) 52.2 61.0 64.7 64.2 64.1

Real GDP growth at factor costb (%) 4.5 5.2 5.2 1.3 5.4c

Consumer price inflation (av; %) 12.4 12.3 10.4 11.4 6.4

Population (mid-year; m) 126.5 130.3 133.8a 137.4a 141.1

Exports fob ($ bn) 7.1 8.3 8.5 8.3 7.8

Imports fob ($ bn) 9.3 11.2 12.1 10.7 8.4

Current-account balance ($ bn) –1.80 –3.33 –4.41 –1.75 –1.87

Reserves excl gold ($ m) 2,929 1,733 548 1,195 450

Total external debt ($ bn) 27.4 30.2 29.9 29.9 32.0

Debt-service ratio, paid (%) 33.3 26.0 27.1 30.5 29.7

Exchange rate (av; PRs:$) 30.57 31.64 36.08 41.11 45.05

February 5th 1999 PRs50.58:$1

% of % ofOrigins of gross domestic product 1997/98 total Components of gross domestic product 1997/98 total

Agriculture 26.0 Private consumption 72.1

Manufacturing 16.8 Government consumption 10.2

Wholesale & retail trade 15.9 Fixed investment 15.1

Transport & communications 10.2 Change in stocks 2.5

Public administration & defence 7.5 Exports of goods & services 15.1

Others 23.6 Imports of goods & services –14.9

GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1997/98bd $ m Principal imports 1997/98bd $ m

Cotton fabrics 1,250 Machinery 2,402

Cotton yarn 1,160 Petroleum & products 1,572

Ready-made garments 747 Unmilled wheat 709

Knit wear 697 Palm oil 669

Synthetic textile fabrics 618 Iron and steel 320

Total incl others 8,628 Total incl others 10,118

Main destination of exports 1997/98b % of total Main origins of imports 1997/98b % of total

US 19.9 US 12.5

Hong Kong 7.2 Japan 7.6

UK 6.9 Saudi Arabia 7.1

Germany 6.2 UAE 7.1

UAE 5.1 Kuwait 5.6

a EIU estimates. b Fiscal years ending June 30th. c Actual. d Customs basis.

6 Pakistan


Outlook for 1999-2000

The Supreme Court’sassertive decision—

The Supreme Court’s decision in mid-February, which declares illegal and un-constitutional the military courts established in late 1998 by the prime min-ister, Nawaz Sharif, is the most recent—and strongest—assertion of the court’sresurgent independence. Since the sacking of the former chief justice of theSupreme Court, Sajjad Ali Shah, in late 1997—which marked the end of a rowover the filling of vacancies and accusations that Mr Sharif was infringing uponthe Supreme Court’s independence—the judiciary has been quite circumspect(4th quarter 1997, page 9).

—on the status of thecontroversial military

courts—

The formation of military courts sparked a furore, not only because they createa parallel justice system run by military personnel, but also for the questionableconstitutionality of their rapid verdicts. More worrying, in January Mr Sharifextended the military court system to the entire country.

These developments increased public pressure on the high courts to use theirconstitutional powers to intervene. The Supreme Court first ordered a halt tothe application of the death penalty imposed by the military courts pending adetailed judgment on petitions challenging the courts’ legality. However, in abold move, the Supreme Court has now declared illegal the parallel militaryjustice system and overruled all of the military courts’ rulings to date.

—will continue tochallenge Mr Sharif—

The implications of this decision are manifold. Most importantly, it suggeststhat the Supreme Court will not tolerate policies which dilute or run counter toPakistan’s constitution. In other words, the Supreme Court will act strictly inline with its own mandate. For example, the court is likely to strike downefforts by the government to pass several pieces of legislation by bypassing theSenate, where the Pakistan Muslim League (Nawaz), or PML(N), fears defeat,and calling a joint session of both houses of parliament (where he can musterthe required simple majority on the basis of the PML(N)’s representation in thelower house). The constitution states clearly that a joint session of both housesmay only be called for legislative purposes if a bill passed by the nationalassembly has been first defeated in the Senate.

In the unlikely event that the court sides with the government, the Senatewould become virtually redundant. This would strengthen the simmering feel-ing in the smaller provinces that the federal arrangement is unworkable andjustify further their separatist sentiments. If, as their most recent decisionsuggests, the Supreme Court declares such actions unconstitutional, Mr Sharifwill have to rely almost exclusively on presidential decrees for ruling purposes.(Although, according to the constitution, presidential ordinances must betranslated into laws by parliament within three months.) Hence, the SupremeCourt is likely to incur the wrath of the prime minister, resulting in anotherdangerous deadlock between the executive and the courts.

—check the involvementof the army—

The decision also challenges the creeping role of the army in civilian affairs. Inaddition to the military courts, the army has also been drawn into other areas ofcivilian administration. Full administrative and financial charge of the bankruptWater and Power Development Authority (WAPDA) has been handed to the

Pakistan 7


army, which has lent over 32,000 army personnel to run the organisation. Indue course, it is possible to envisage that Pakistan Railways may be handed overto the armed forces in addition to the Karachi Electricity Supply Company(KESC). Mr Sharif may also revamp the police and civilian intelligence agencieswith direct input from the military. The Inter-Services Intelligence Agency (ISI),the Intelligence Bureau and the Federal Intelligence Agency (FIA), all of whichreport directly to the prime minister, are already headed by senior army officerschosen by him. In the event, the army could assume an informal but central rolein the administrative affairs of the country through the back-door. Although thearmy will now have to unwind its involvement in the courts, Mr Sharif’s repu-tation is more likely to be damaged than that of the military.

—and inspire theopposition—

Moreover, these decisions, coupled with rising disgruntlement within theranks of the ruling PML(N), suggests that Mr Sharif will face growing oppos-ition to his rule from all sides. Prior to the court’s decision, the main oppos-ition parties seemed committed to trying to mount a united front against theprime minister. They will still look for opportunities to embarrass and destabi-lise the government. The leader of the Pakistan People’s Party (PPP) and formerprime minister, Benazir Bhutto, is the driving force behind the oppositionalliance, the Pakistan Awami Tehreek, comprising the PPP and some smallopposition groups. She will try to link up with nationalist parties estrangedfrom Mr Sharif’s PML(N), such as the Awami National Party (ANP) based in theNorth-West Frontier Province (NWFP). Joint rallies and “long marches” couldbecome frequent and feverish, and the possibility of violent skirmishes withthe police cannot be ruled out. Renewed attempts will be made to bring thethree other main opposition groups—the fundamentalist Jamaat-i-Islami (JI),the Tehrik-i-Insaf, and the Millat Party, formed by the former president, FarooqLeghari—within the fold of a combined opposition movement against theregime.

—but the president willpresent no challenge

The prime minister faces very limited opposition from the presidency: afterrevoking most of the executive powers of the president in 1997, he furtherreduced the office of the president by amending the rules of office whereby thepresident’s signature is no longer required on presidential directives issued onbehalf of the federal government (the cabinet secretary will sign henceforth onbehalf of the president). Moreover, the current president, Rafiq Tarar, selectedby Mr Sharif last year, is considered an ally.

The press will be drawn in The independent press could become an unwitting pawn in the tussle betweenthe government and the opposition. Mr Sharif’s recent crackdown on the largestnewspaper group in the country, the Jang Group, could become a rallying pointfor the opposition as well as other sections of the media. The Jang Group hasbeen presented with income tax demands totalling PRs2bn ($43.5m) and itsowner, Mir Shakeel ur Rahman, has been charged with sedition for printing anadvertisement by the Muttahida Qaumi Movement (MQM), which split from itsalliance with the PML(N) in October. The group alleges that the government hasdemanded that it dismiss 16 senior journalists and support government policiesunequivocally. The group has appealed to the Supreme Court for relief. It hasalso decided to fight back by organising seminars and protest marches by

8 Pakistan


journalists in the industry. In a desperate measure, the group has tied up withthe political opposition and joint public rallies are planned. If the governmentchooses not to drop the tax demands, other sections of the press are bound torally against threats to press freedom in Pakistan. This in turn could furtheranger the government and provoke a clampdown on other smaller papersand magazines.

The CTBT will dominatetalks with the US—

Pakistan’s relations with the US are set to improve in 1999 and 2000. After acommitment by Mr Sharif last December to sign and ratify the comprehensivenuclear test ban treaty (CTBT) by September 1999, the US government re-moved most economic sanctions imposed on Pakistan in 1998. The US govern-ment has also paid $326.9m to Pakistan in lieu of the F-16 jets which Pakistanbought but never received (see The political scene).

In the eight rounds of negotiations between the two governments in the lastnine months, attempts have also been made to address Washington’s otherdemands, namely, a freeze on the production of fissile material and on thedevelopment and deployment of missiles, and a constitutional ban on theexport of nuclear know-how and technology. While Pakistan says that it ispreparing legislation to forbid export of nuclear technology, it refuses to freezeits uranium enrichment programme unless the five “nuclear club” members(France, the UK, Russia, the US and China) plus India and Israel are also pre-pared to do the same. However, since the US claims to have made “definiteprogress” in its talks with India on the same range of issues, it is thought thatneither India nor Pakistan will rock the boat until the CTBT has been signed andsealed.

Meanwhile, the US and Pakistan seem to have reached some understanding onhow to deal with the issue of terrorism sponsored by Islamic radicals, with bothgovernments quietly urging the Taliban in Afghanistan to extradite Osama binLaden (who is blamed for masterminding the bombing of two US embassiesin 1998).

—while relations withIndia will improve

India and Pakistan are scheduled to renew talks over a range of bilateral issues inlate February. Meanwhile, both sides continue to adopt various confidence-building measures. Recently, the Indian government refused to buckle underpressure from the militant Hindu fundamentalist party, Shiv Sena, in the stateof Maharashtra, to cancel cricket and hockey matches between the two coun-tries. In an unprecedented initiative, the two countries are about to launch a busservice to facilitate travel. The prime minister of India, Atal Bihari Vajpayee, willtravel to Pakistan on the first bus; his Pakistani counterpart is expected toreciprocate the gesture on the bus’s return journey. In addition, visa restrictionshave eased, bilateral trade is slowly expanding and both sides are optimistic thatPakistan will start exporting electricity to India within the year (see Industryand energy).

The IMF’s package willbarely tide Pakistan over

present difficulties—

On January 14th the IMF unveiled a $575m economic package designed to staveoff formal financial default by Pakistan. The World Bank approved a $350mloan for structural reforms and the Paris Club of official creditors has agreed toreschedule $3.3bn in debt repayments. The London Club of private creditors is

Pakistan 9


expected to follow suit, rescheduling several hundred million dollars in debtrepayments by March. After these cash disbursements, as well as the paymentfrom the US, Pakistan’s foreign-exchange reserves rose to about $1.6bn by theend of January. At that time, its accumulated principal and interest arrears toParis Club creditors stood at $1.6bn, according to estimate by a US ratingscompany, Standard & Poor’s, in addition to $33.5m of arrears on public andpublicly guaranteed debt to private creditors.

The IMF-led package and the rescheduling of Pakistan’s debt repayments pre-sents a unique opportunity for Pakistan to extricate itself from its currentfinancial problems. However, while the package will ease the immediate finan-cial crunch, it will not transform the overall external payments position, espe-cially if, as the EIU expects, Pakistan fails to diversify its export base fromlow-value added manufactures and to attract larger direct investment and re-mittance inflows. Moreover, a surge in imports (which could result from theloosening of import restrictions) or worse than expected foreign-exchangeearnings could cause the financing requirement to balloon beyond currentestimates and strain resources again.

—and its stiff conditionswill be difficult to

implement

The package is designed to keep Pakistan afloat for about one year, in whichtime the Fund hopes major structural reforms will take place. A detailed,step-by-step restructuring programme is envisaged which, it is hoped, willachieve some ambitious macroeconomic targets (see Economic policy and theeconomy). The new structural reforms are familiar to those acquainted withprevious IMF packages to Pakistan. Conditions include tax reform, higherpower rates, lower import tariffs, restructuring public enterprises, downsizingthe public payroll and the broader imposition of the sales tax.

It is still not clear whether the government has absorbed the IMF’s message.The finance minister, Ishaq Dar, has ruled out an increase in power rates or theretail goods and service tax (GST) until the next budget, due in June 1999. Thegovernor of the State Bank of Pakistan (SBP, the central bank), MohammadYaqub, has stated that he is in no hurry to abolish the multiple exchange-rateregime or to devalue the rupee. The prime minister is dragging his feet over taxreform and shows no inclination to abandon his pet infrastructure projects(such as new motorways, airports and subsidised yellow cab/tractor schemes).Mr Sharif also announced on January 29th an immediate increase (of up to33%) in the salaries of armed forces personnel; this addition will about PRs5bnto the government’s budgeted expenditure. Mr Dar says that the same sort ofincrease for all other government servants will be built into the budget for thenext fiscal year.

The EIU has little confidence in the government’s ability to adhere to thestructural reform agenda attached to the IMF programme, which hinges on thestabilisation of the fiscal position. Raising tax revenue will remain the mostdifficult task. The IMF wants 300,000 new tax assessees added to the list in thenext 12 months, but the government has barely managed to add 4,000 in thelast 12 months. Cutting public expenditure, which is dominated by such rigidspending items as debt servicing and defence, will remain another problem.However, bank restructuring will continue and the overhaul of WAPDA maymake some progress.

10 Pakistan


Pakistan: forecast summary($ m unless otherwise indicated)

1997a 1998b 1999c 2000c

Real GDP growth (%)d 1.3 5.4a 2.0 3.8 of which: agriculture 0.1 5.9a 1.0 3.5 manufacturing 1.2 7.0a 1.5 4.0

Consumer price inflation (av; %) 11.4 6.4 11.5 10.0

Merchandise exports fob 8,311 7,789 7,303 7,817

Merchandise imports fob 10,700 8,425 8,012 8,856

Current-account balance –1,752 –1,866 –1,637 –1,969

Exchange rate (PRs; av) 41.11 45.05 49.00 53.00

a Actual. b EIU estimates. c EIU forecasts. d Fiscal years ending June 30th; at factor cost.

Economic recovery willbe slow—

Real GDP growth was targeted by the government at 6% for 1998/99, but theactual figure is sure to be far lower. Our forecast of 2% growth is well below theconsensus but is less extreme when viewed against Pakistan’s historical record:in 1996/97, when Pakistan faced a similarly severe foreign payments crisis—butdid not experience an equally devastating slump in business confidence orsuch a poor external environment—GDP growth was just 1.3%. Within thistotal, industrial growth was just 1% and services 2.1%—well below trend aver-age for these sectors.

In 1998/99 we expect a similarly poor performance from both industry andservices. The manufacturing and export-oriented sectors have been negativelyaffected by the higher cost of imported inputs and capital goods (because of themany import restrictions), poor external demand and a slump in businessconfidence. Consequently, industrial growth is unlikely to rise above 1% in1998/99. The agricultural sector will offer little support. This year there havebeen shortfalls in wheat (18m tonnes compared with 19m last year) and cottonproduction (7.5m bales compared with a 10m target). Our estimate for agricul-tural growth in 1998/99, of 1%, is likely to be optimistic. Assuming growth ofthe services sector of just 2.7%, GDP growth will be about 2% in 1998/99.

A projected contraction in real growth of gross fixed investment of 4.5% (com-pared with a 7.5% contraction in 1996/97, the last year when Pakistan experi-enced a balance-of-payments crisis) will prevent a sharp rebound in industrialgrowth in 1999/2000. Fixed investment will remain constrained by the govern-ment’s budget tightening measures as well as poor external and domestic invest-or sentiment. Moreover, we forecast a slower growth in the US and EU—both ofwhich are main sources of foreign investment—as well as a further contractionin GDP in Japan, undermining its already weak foreign-capital inflows. Foreigndirect investment (FDI) alone slumped from $650m in the first half of 1997/98to about $100m in the same period this year; foreign investors will continue toshy away from Pakistan until the problems with the independent power projects(especially with Hubco) have been satisfactorily resolved and the country’scredit ratings, rock bottom at the moment, have been restored. Consequently,industrial growth is forecast to rise by just over 3% in 1999/2000, led by margin-ally faster growth in construction and manufacturing.

Pakistan 11


Assuming better weather conditions in 1999/2000, but the same constraintsposed by poor fertiliser and seed quality and little investment in improvedirrigation, agricultural growth is forecast to accelerate to 3.5%, from a low basein 1998/99. This will be sufficient to boost real GDP growth to about 3.8% in1999/2000.

—containing imports, andthe trade deficit in 1999

and 2000

The external environment will remain unfavourable to export growth in 1999.According to our forecasts, world trade growth will slow to 4.3% in 1999 from4.6% in 1998. Slower growth in Pakistan’s major export markets—the US, EUand Hong Kong—will hinder demand and block any attempts to boost exportgrowth. Weak demand for cotton and cotton-based manufactures in Pakistan’smajor markets—Japan, the US and the EU—coupled with increased compet-ition from South-east Asian countries will continue to damage exports. Weakfibre prices will benefit manufacturers which use imported cotton inputs, butwill squeeze Pakistani exporters of raw cotton.

Poor export growth and slack domestic demand will contain both importvolume growth and the trade deficit in 1999. Meanwhile, import prices willremain soft. The international price for oil, Pakistan’s second largest import item,will contract by a further 33.5% in 1999, helping to contain Pakistan’s aggregateimport bill. Prices for non-oil commodities such as wheat (another major importitem) will also remain weak. Consequently, the trade deficit will widen onlyslightly, to $709m in 1999 from $636m in 1998. In 2000 firming domesticdemand and firmer import prices will boost the dollar-denominated import bill,causing the trade deficit to widen to $1bn, which is still well below pre-1998 levels.However, the sharp fall in expatriate remittances (through official channels),prompted in part by the freeze on foreign-currency withdrawals from foreign-currency accounts, caused inward transfers to fall sharply in 1998. Even assuminga rationalisation of the exchange rate, remittances will remain depressed in1999 as confidence in the economy and the government remains low, and fearof another clampdown on withdrawals remains. The improvement in thecurrent-account deficit—from $1.9bn in 1998 to $1.6bn in 1999—will mainlyreflect the modest improvement in the trade account. In 2000 private remit-tances are forecast to rise, although they will remain well below their pre-1998levels. But the widening trade deficit, and the increased demand for trade-related services, will pull the current-account deficit to nearly $2bn in 2000.

Inflation will begin toaccelerate—

Pakistan’s consumer price index rose by 6.4% year on year in December, upfrom 6.2% in November, and 6.5% in October, according to the Federal Bureauof Statistics. Figures from the IMF show a slightly higher rate of inflation, atabout 7% in both October and November. Very soft import prices seem to havehelped contain inflation as did stagnant domestic demand and lower levels ofdeficit monetisation in the first half of 1998.

Demand pressures will remain weak throughout most of 1999. Higher energycosts and the wider application of the GST, in line with IMF conditions, willfeed through into inflation; a firming of world import prices and a depreciationof the exchange rate used for imports will translate into higher prices (in rupeeterms) for some imports, although this will be moderated in part by a reductionin import tariffs. Moreover, faced with a revenue shortfall—because of the

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3

4

5

6

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1997 98(a) 99(b) 2000(b)

IndustryServicesAgricultureGDP

Pakistan: gross domestic product, bysector% change, year on year

(a) EIU estimates. (b) EIU forecasts.Source: EIU; State Bank of Pakistan.

12 Pakistan


slowdown in GDP growth and the suppression of imports—coupled with lowerlevels of external financing, the government must continue to resort to centralbank financing (monetisation) of the deficit, resulting in rapid money-supplygrowth. This will place some upward pressure on inflation, which is expectedto rise to an annual average rate of 11.5% in 1999. In 2000 an upturn ineconomic activity will boost demand pressures, while the slow restructuring ofpublic enterprises will lead to higher prices for fuel, transport and telecommun-ications. However, the expected narrowing of the budget deficit (a result ofbetter GDP growth and, therefore, revenue) will help to contain the deficit andits monetisation.

—and an adjustment tothe currency regime is

inevitable

The SBP is likely to discontinue its four-tier exchange-rate system before theend of 1999 in favour of the floating interbank rate, as well as the official ratefor non-trade transactions. the differential between the official (PRs46:$1) andopen-market rates for the rupee will be reduced by making the floating inter-bank rate the effective rate for imports and exports and phasing out the com-posite rate (which is a weighted composite of the official and free-market rate).Because of the wide differential between the official and market rates, overseasremittances are being diverted to unofficial channels, and away from foreign-exchange reserve statistics, forcing the government (which is heavily reliant onoverseas remittances for foreign exchange) to try to match the rate. However,the government is also constrained by the need to keep the official exchangerate at current levels until most of the foreign-currency deposits from frozenforeign-currency accounts are either converted into rupees or dollar bonds.Consequently, we expect the phasing out of the four-tier system in favour of atwo-tiered system in 1999, comprised of the floating interbank rate (for tradetransactions) and the official rate, with the latter depreciating to aboutPRs53:$1 by the end of 1999 (equal to an average rate of PRs49:$1). The con-tinued roll-back of these emergency measures will result, in 2000, in the elim-ination of the floating interbank rate in favour of a single, official rate for therupee. This rate will then be adjusted, to compensate for competitiveness lostas a result of inflation differentials with its main trading partners. Assumingdouble-digit inflation in 2000 and a lacklustre export performance, we expectthe official rupee rate to fall to PRs59:$1 by the end of the year, or an annualaverage rate of PRs53:$1.

70

80

90

100

110

1990 91 92 93 94 95 96 97 98 99 2000

Pakistan: Pakistan rupee real exchangerates (d)1990=100

PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$PRs:$

PRs:¥

PRs:$

PRs:¥PRs:¥

PRs:DMPRs:DMPRs:DM

PRs:$

PRs:¥

PRs:$

PRs:¥PRs:¥

PRs:DMPRs:DMPRs:DM

97 98(b) 99(c) 2000(c)

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:$

PRs:¥

PRs:DM

97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)97 98(b) 99(c) 2000(c)

0

1

2

3

4

5

6

7

8

1996 97 98(b) 99(c) 2000(c)

Pakistan (a)

Asia excl Japan

Pakistan: gross domestic product % change, year on year

(a) Fiscal year (Jul-Jun) ending year stated. (b) EIU and officialestimates. (c) EIU forecasts. (d) Nominal exchange ratesadjusted for changes in relative consumer prices.Sources: EIU; IMF, International Financial Statistics.

Pakistan 13


Review

The political scene

The setting up of militarycourts in Sindh—

The establishment and operation of military courts in Sindh province inNovember have created a new battleground for the ongoing power strugglebetween the prime minister, Nawaz Sharif, and the judiciary in Pakistan. OnNovember 20th the president, Rafiq Tarar, passed an ordinance giving sweep-ing powers to the armed forces to arrest, interrogate and summarily try allegedterrorists and criminals in any part of Sindh province. The ordinance empow-ered the army chief, or any senior officer designated by him, to constitute asmany military courts as required by the federal government to tackle “civilcommotion” in the province. Civil commotion was defined as: “Creation ofinternal disturbances in violation of law or intended to violate law, commence-ment of continuation of illegal strikes, go-slows, lockouts, vehicle snatching/lifting, damage to or destruction of state or private property, random firing tocreate panic, charging batta (extortion), acts of criminal trespass, distributing,publishing or pasting of handbills or making graffiti or wall-chalking intendedto create unrest or fear or create a threat to the security of law and order or toincite the commission of any offence punishable under Chapter VI of thePakistan Penal Code Act of 1860.”

—which followed thedemise of the provincial

alliance—

The setting up of the military courts followed the demise of the 18-monthprovincial coalition government in Sindh between the ruling Pakistan MuslimLeague (Nawaz) (PML(N)) and the Muttahida Qaumi Movement (MQM) inOctober (4th quarter 1998, page 18). The provincial alliance—which was nego-tiated by the PML(N) after the February 1997 election in order to preclude anyefforts by the opposition Pakistan People’s Party (PPP), led by the former primeminister, Benazir Bhutto, to form a provincial government—proved to berocky. Under the terms of the power-sharing agreement between the PML(N)and the MQM, Mr Sharif conceded the most important provincial ministries tothe MQM, agreed to provide compensation to the families of MQM activistskilled in “police encounters” during the Bhutto administration (1993-96) andreleased hundreds of alleged MQM terrorists from prison. But the MQM con-stantly accused the PML(N) of reneging on the agreement, and threatened todesert the PML(N).

With the Sindh provincial government crippled by political infighting, theincidence of terrorism and crime in Karachi—and factional warfare within theMQM—rose. Relations between the MQM and the PML(N) worsened after theMQM opposed the 15th amendment bill (the so-called sharia bill) proposed byMr Sharif in August. In late October Mr Sharif then accused the MQM of themurder earlier in the month of a well-known philanthropist and former Sindhgovernor, Hakim Said; the MQM denied the charges, arguing that the primeminister was retaliating against the MQM’s opposition to the sharia bill.Mr Sharif dismissed the Sindh coalition government for its inability to tackleterrorism, suspended the Sindh parliament and imposed governor’s rule on theprovince (4th quarter 1998, page 18).

14 Pakistan


—supersedes the powers ofthe high courts

The law establishing the military courts allows for appeals against decisions onlyto other military courts, thereby sweeping aside the jurisdiction of the highcourts and the Supreme Court. It denies bail to any of the accused. It allows forany pending criminal case to be transferred to a military court at any time. Thelaw also indemnifies all actions taken by the military under the ordinance fromany “civil suit, prosecution or other legal proceedings”. The army, it was an-nounced, would investigate, prosecute and judge the accused. Each court benchwas to be headed by a colonel, assisted by two majors, and was legally bound todeliver a verdict within three days (later amended to eight days).

The courts have swunginto action—

The military courts began to operate straight away. The first trials began inKarachi in mid-December when nine persons accused of rape, abduction andmurder were tried before three military courts. All were reportedly charged only24 hours before being tried and all allegedly had MQM links (as did defendantsin the first 19 cases put before the courts). The first verdict was announced onDecember 17th when two out of six defendants for kidnapping, rape andmurder were sentenced to death while the others were imprisoned (withsentences ranging from 10 years to life imprisonment). On December 19th fourmore were sentenced to death, including a 13-year-old boy, for murderingthree plainclothes policemen. On January 10th an activist of an MQM factionaccused of murder was sentenced to death. On January 25th the courtssentenced three people to death for the assassination of a PML(N) member ofparliament. The trial lasted five days. The first death sentence was carried outon December 31st when Ashraf Chakar was hanged in Karachi jail for themurder of a policeman.

—sparking a popularuproar—

The installation of summary military courts was received with universal criti-cism. The MQM condemned the move and accused the government of usingthe courts to punish the MQM for opposing the sharia bill. Ms Bhutto opposedthe intervention of the military in her home province of Sindh. Lawyers andjurists were agitated by the curtailment of the jurisdiction of the high courts.Human rights activists criticised the flouting by the court of international legalconventions when it sentenced a 13-year-old boy to death. The chairperson ofthe Human Rights Commission of Pakistan, Asma Jehangir, noted that “it hasnow been established that the MTCs [military courts] were set up not to dis-pense justice but to expedite convictions”. The press joined the chorus, arguingthat the military was not equipped to deliver justice in the mandatory eightdays in complex—and sometimes politically motivated—cases involving civil-ians. Moreover, in this highly charged political environment, the military is atrisk of being discredited as a “neutral” state institution.

—efforts by the armychief to quell fears—

The army chief-of-staff, General Pervez Musharaf, tried to quell concerns aboutthe role of the army and military courts in Sindh by pledging that the armywould not be involved in politics and would not target any political partythrough the courts. General Musharaf also helped to revoke the death sentencegiven to the 13-year-old boy, who was freed by an appellate military court onJanuary 8th.

Pakistan 15


—and an activist responsefrom the Supreme Court

On January 11th a seven-member bench of the Supreme Court ordered thegovernment not to carry out the death sentences awarded by the military courtsuntil the question of the legitimacy of the military courts was settled by theSupreme Court. The court disregarded a letter from Mr Sharif to the attorney-general of Pakistan, Chaudry Farooq, that was placed before it arguing that “inabnormal times a normal legal process was perceived as being hazardous andinadequate” and that the military courts and death sentences were justified in“furtherance of the paramount national interest”. However, the Supreme Courtallowed the parallel system to continue functioning in the interim.

The Supreme Court then went one step further. On January 12th, while up-holding the legitimacy of central rule in Sindh, the court held that there wasno constitutional justification for the federal government to suspend the Sindhprovincial parliament; they stated: “The power of the provincial assembly shallnot be restricted to make any law under the constitution.” (However, thequestion of whether or not such laws could be implemented in the presence ofcentral rule was not addressed.) The government had argued that the provin-cial assembly was “intact” but “non-functional”.

But Mr Sharif’s efforts toextend the system

nationwide—

On January 30th, two days before a nine-member bench of the Supreme Courtwas to begin hearing petitions challenging the establishment of military courtsin Sindh, a new presidential ordinance was announced that decreed the estab-lishment of military courts throughout the country. Encouraged by what hetermed “positive” results from the military courts in Karachi, Mr Sharif decidedto extend them to the rest of the country. He parried questions whether or notthis amounted to setting up a parallel justice system which might invite con-frontation with the judiciary. Critics immediately lambasted the prime min-ister for putting pressure on the Supreme Court on a matter pendingadjudication.

—is followed by asweeping judgment by the

Supreme Court

In mid-February a nine-member bench of the Supreme Court declared in aunanimous judgment that the military courts are “unconstitutional and illegal”.The court also overruled all the judgments of the military courts to date andprovided guidelines to the government whereby the ends of justice might bemet swiftly and legally either via the existing anti-terrorist courts or by othercourts established under law to deal with terrorism. They upheld that the rightto hear appeals is vested securely in the high courts.

The judgment restores part of the Supreme Court’s credibility and inde-pendence, which was lost in 1997 in the wake of the battle between thejudiciary and the executive, which led to the departure of the former president,Farooq Leghari, and the former chief justice, Sajjad Ali Shah (4th quarter 1997,page 9). The judgment also provides some vindication to Mr Shah, who (priorto his forced departure from the court in December 1997) had argued that eventhe special anti-terrorist courts created by the prime minister could not operateoutside the ambit of the high courts.

In the dock, Ms Bhuttofights back—

The government’s pursuit of Ms Bhutto in the courts has continued. Eightmajor cases of corruption and misuse of power lodged by the head of theaccountability bureau, Saif ur Rehman, against Ms Bhutto remain in the special

16 Pakistan


high court benches established for accountability purposes. Judgments are ex-pected to be delivered within the next three months. Ms Bhutto’s spouse, AsifZardari, has been in prison for over two years awaiting trial for the murder ofher brother, Murtaza, in September 1996.

But Ms Bhutto has continued to fight the charges against her. She has alsochallenged the ordinance which prohibits the chief accountability commis-sioner, Mujadid Mirza, from lodging corruption cases against anyone withoutthe prior approval of Mr Rehman’s accountability bureau, which falls underthe purview of the prime minister’s office. Ms Bhutto has lodged 25 cases ofcorruption and misuse of power by Mr Sharif, Mr Rehman and the chief min-ister of Punjab (the prime minister’s brother), Shahbaz Sharif, in the chiefaccountability commissioner’s office. When not fighting or launching corrup-tion allegations, Ms Bhutto is trying to cobble together an alliance of disgrun-tled opposition parties and groups aimed at overthrowing Mr Sharif.

—and receives succourfrom the judiciary

On January 2nd Mr Mirza announced—counter to claims by the prime min-ister’s accountability bureau—that he was not required by law to seek theaccountability bureau’s approval before proceeding against anyone in Pakistan.Moreover, he stated that it would be “a mockery of justice” if he were to refercases for investigation against the prime minister or the senator to the account-ability bureau, in part because the cell is part of the prime minister’s office.Mr Mirza has promised to launch an independent investigation into alleg-ations against, among others, Mr Sharif before deciding whether or not toproceed against them in the high courts.

An “assassination”attempt on Mr Sharif—

On January 3rd a bomb exploded under a bridge on the route to the primeminister’s farmhouse in Raiwind, 45 km outside Lahore, resulting in twodeaths. Although Mr Sharif was in his Lahore residence at the time, he was dueto visit his farmhouse later that day. It is not yet clear if this was an attempt onthe prime minister’s life and, if so, by whom. The information minister,Mushahid Hussain, has stated that the bomb was an assassination attempt, andthe government has accused the MQM. However, senior Punjab police officialsbelieve that the bomb was meant to be a warning from a fundamentalist,anti-Shia sectarian organisation, the Lashkar Jhangvi (LJ), which has been tar-geted by the Punjab government. One of the leaders of the LJ, Riaz Basra, wassentenced to death but escaped from prison one year ago; he remains on thegovernment most wanted list. In December, two LJ activists were convicted ofmurder and sentenced to death by an anti-terrorist court in Punjab. They wereexecuted shortly afterwards. Mr Sharif has been warned by Pakistani intelli-gence agencies that he is a prime target for both LJ and MQM militants.

—raises the threat ofmilitant sectarianism

once again—

One day after the explosion near Raiwind, 17 Shia Muslims were killed by LJhitmen while they were praying at a mosque in a small town in southernPunjab, which strengthened suspicions that the LJ was involved in the bomb-ing. The police have since arrested two LJ activists who are said to have admit-ted to involvement in the sectarian killings and the bomb explosion. OnJanuary 30th three activists of the LJ—who were earlier arrested by the policeand were allegedly involved in the Raiwind bomb explosion—were killed in an

Pakistan 17


“encounter” with the police while they were being transported to Lahore fromthe southern Punjab city of Multan where they had been arrested.

—and provokesembarrassing comparisonsbetween Sindh and Punjab

Nearly 100 people have died in sectarian killings in Punjab in the past12 months. This spate of terrorist violence in Mr Sharif’s home province, whichis ruled by his younger brother, Shahbaz, has provoked comparisons with Sindhprovince in which central rule has been imposed and military courts establishedto deal with the so-called law-and-order problem. Statistics released by bothprovincial governments show that 662 persons were killed in Karachi, thecapital of Sindh, compared with 998 in Lahore, the capital of Punjab, in 1998.The overall comparative crime picture is no better, undermining claims by thePunjab chief minister that he is running an efficient administration.

Pakistan: official crime figures of Punjab and Sindh, Jan-Nov 1998

Offence Punjab Sindh

Murder 4,732 2,172

Rape 1,653 317

Armed theft 804 506

Vehicle theft 5,181 5,019

Robbery 4,856 5,398

Kidnapping 36 91Source: Press reports.

The NWFP remainsuneasy—

The main provincial party in the North-West Frontier Province (NWPF),the Awami National Party (ANP), abandoned its alliance with the PML(N) inFebruary 1998, after the central government refused to concede the ANP’s maindemand: changing the name of the province to Pakhtunkhwa, or land of thePakhtuns (1st quarter 1998, page 16). Since then, the PML(N) provincial govern-ment has depended on a clutch of independents and religious leaders to holdonto power. The ANP is now being wooed by both the opposition PPP and theruling PML(N). Despite past disputes, the possibility that the ANP might agree toa renewal of its working relationship with the provincial PML(N) if the renam-ing of the province were to take place cannot be ruled out.

—despite opportunistconcessions on Islamic

law—

The controversy surrounding the proposed sharia constitutional amendmentcontinues, with conservative and liberal Muslims alike accusing Mr Sharif ofexploiting Islam to help legitimise his political position. Nevertheless, onJanuary 16th the PML(N) provincial government in NWFP promulgated a newsharia law, the Nizam-e-Adl regulation (which supersedes the 1994 Nifam-e-Sharia regulation of 1994) in the provincially administered tribal areas ofMalakand and Kohistan, in an effort to appease its Islamic allies in the region.According to the chief minister, Mehtab Abbasi, sharia will be enforcedthroughout the province in due course. The Islamic laws envisage the estab-lishment of new judicial offices and structures (including the appointment ofreligious leaders to judicial advisory roles) while retaining some elements of theAnglo-Saxon penal and criminal procedure codes inherited from the British.The new Islamic laws will not apply to banking courts or financial edicts.

18 Pakistan


—which have raised thespectre of Talibanism in

Pakistan

The application of sharia in some parts of NWFP seems to indicate that theTaliban movement is gaining strength in Pakistan. The fundamentalist SunniMuslim Taliban, who now rule most of Afghanistan, have a long-standing butfluid presence in this area: the activists were mostly Islamic students frommadrassahs (religious colleges) in Baluchistan and NWFP, Pakistani provincesthat still accommodate large numbers of Afghan refugees. There have beensuccessful attempts by a number of Taliban-inspired Islamic zealots, mainlybased in NWFP and Baluchistan, to impose their self-defined codes on thepeople of their areas. For instance, activists belonging to the fundamentalistTehrik-i-Taliban Zargari in the northern tribal areas have started an armedmovement against “un-Islamic social evils” such as television, dish antennae,unveiled women and music. During the month of Ramadan, Islamic funda-mentalists in Quetta, the capital of Baluchistan province, ransacked videoshops and smashed television sets. The NWFP government’s latest concessionto the groups of madrassah students calling themselves the Pakistan Taliban—enforcement of sharia in the districts of Malakand and Kohistan—suggest thatother concessions, and greater tensions, are likely to follow.

The new army chief isbacking Mr Sharif—

The new chief of army staff, General Musharaf, seems sanguine about the newcivilian role outlined for the army by Mr Sharif (4th quarter 1998, page 19). Inaddition to the establishment of military courts in Sindh, in 1998 the armyhelped the Punjab administration unearth “ghost” schools (schools which ex-ist only on the payrolls of the government), supervise secondary examinationsand build roads in the province. More recently, it has also assumed the admin-istration of the bankrupt Water and Power Development Authority (WAPDA)and over 32,000 soldiers and officers have been contracted to check electricmeters, identify power theft and pursue late payments. The federal governmenthas passed an ordinance enabling the military to set up tribunals to deal withpower theft.

—but institutionalreservations remain

Many in the officer corps believe that extended contact with corrupt civilianstructures could undermine the professionalism and discipline of the armedforces or create potential sources of conflict with civilian populations in al-ready troubled areas. A recent circular by the military chief of WAPDA, GeneralZulfikar Ali, to the newly installed military heads of the eight regional electric-ity boards suggests that this criticism is not being taken lightly. The army teamsscouring the country for power thefts have now been advised to try and secure,wherever possible, outstanding dues without hauling up the thieves beforesummary military courts for “exemplary punishment”.

Pressure on the pressstrengthens—

Mr Sharif has never hidden his dislike for the independent press. Throughouthis tenure as prime minister he has often accused the national press of irre-sponsible and sensational reporting and threatened to take action againstthem. In 1998 there were signs that the press was coming under indirectpressure from the government: in June an independent weekly newspaper, TheFriday Times, was served with income tax notices at the behest of the head ofthe prime minister’s accountability bureau, Mr Rehman, while in August aKarachi-based independent English monthly magazine, Newsline, complainedthat its offices had been raided by the income tax authorities.

Pakistan 19


—as the largest newspapergroup is targeted

But it is the battle between the government and the country’s largest newspapergroup, the Jang Group, which has been the most fierce and public. In August1998, the editor-in-chief and owner of the Jang Group, Mir Shakeel ur Rahman,was served income tax claims amounting to PRs2bn ($39m). At a press confer-ence on January 28th Mr Rahman played audio tapes which he said recordeddiscussions he had with Mr Rehman in which the head of the accountabilitybureau complained about a lack of political support from the Jang Group (forthe sharia bill in particular) and asked him to dismiss 16 top journalists (includ-ing two editors) from his staff and replace them with people suggested by thesenator. (Mr Rehman has not denied that the voice on the tape is his.) When herefused, the government froze his company and personal bank accounts andsealed his newsprint warehouses. He has appealed to the Supreme Court; thecourt has since ordered that the supply of newsprint be restored.

As the battle escalates— In defence of the government’s actions, Mr Rehman claims that the income taxnotices served to the press groups are part of the government’s drive againstincome tax evaders and not discriminatory against a section of the press. Whilehe has publicly admitted to “complaining about some journalists” on the staffof Jang Group newspapers, he denies that he asked the management tofire them.

However, on January 30th the government lodged cases of sedition (which arepunishable with death) against Mr Rahman on the ground that his newspaperhad published an advertisement from the MQM. Meanwhile, the editor of anIslamabad-based English-language daily, The News, Maleeha Lodhi, has for-mally complained of harassment. Ms Lodhi, who served as Pakistan’s ambassa-dor to Washington during Ms Bhutto’s tenure, has alleged that she has receivedtelephone calls threatening to bomb her house if she does not resign.

—the opposition ralliesaround the press—

The Jang Group has succeeded in rallying most sections of the press to its side.Meanwhile, the main opposition parties have seized on the confrontation toargue that a violation of constitutional guarantees of press freedom by Mr Sharifare further evidence of his dictatorial inclinations. The leader of the Millat Party,the former president, Farooq Leghari, has stated that it is no surprise that havingforced from office the president, chief justice and army chief, Mr Sharif hasturned on the press. This view has also been expressed by Ms Bhutto and otheropposition leaders. Ms Bhutto and the leader of Tehrik-i-Insaaf, Imran Khan,have addressed separate letters to the chief justice of the Supreme Court, AjmalMian, exhorting him to challenge the alleged harassment of the press. Militantdemonstrations by journalists, angry editorial denunciations and internationalprotests by media protection committees and human rights groups against thegovernment actions against the press have followed.

—but the Supreme Court’said is in vain

On February 1st the Supreme Court ordered the government to unlock the JangGroup’s newsprint warehouses and enable it to clear its newsprint importsfrom customs, allowing it to continue to publish its newspapers. However, onthe same day, the Federal Investigation Agency (FIA) flouted the court’s orderby confiscating a shipment of newsprint which was on its way to the Jangpress. The group has said that it will be forced to suspend publication of itsnewspapers if newsprint supply is not soon restored.

20 Pakistan


With parliamentdeadlocked—

Legislation is stuck in a deadlocked parliament. Mr Sharif lost his majority inthe Senate (the upper house of parliament) after the desertion from the PML(N)alliance of the MQM, ANP and independent nationalist groups in late 1998.Consequently, bills passed by the National Assembly (the lower house ofparliament), where Mr Sharif has a very large majority, cannot become law,since the constitution requires a majority in both houses for passage. Currentlyat least eight bills are awaiting a Senate vote, after their passage in the NationalAssembly. Fearing an outright rejection, the government has delayed theirpresentation to Senate.

—the government suggestscreative legislative action

The constitution does allow for the consideration of a bill in a joint sitting ofboth houses of parliament, but only if it has first been debated—and thenrejected—by the Senate. The bill would then become law if it is passed by amajority vote in the joint sitting. However, the government has indicated thatit could call a joint session of both houses of parliament—in which the PML(N)could command a majority of the votes—without first presenting the bills to theSenate. An attempt by Mr Sharif to pursue this path is likely to be followed byanother constitutional battle between the Supreme Court and the government.

Relations withWashington have

improved—

Pakistan’s relations with Washington have begun to improve after Mr Sharif’smeeting with the US president, Bill Clinton, in Washington in December. TheUS and Pakistan have finally resolved the eight-year dispute over the failure ofthe US to refund the payments Pakistan made for F-16 fighters which were neverdelivered owing to the passage in 1990 of the Pressler amendment (which barredmilitary sales to countries with nuclear programmes that are outside the recog-nised nuclear club). The US has now paid $326.9m, and up to $140m in othercompensation (such as soft-term imports of wheat and food-grains from the US)but has asked that the claim for $658m (the amount originally paid to the US)be dropped as part of the deal. In addition, in mid-January the IMF approved alending programme with Pakistan, with an initial disbursement of SDR409.48m($575m), followed by the approval of a $350m package from the World Bank. Inreturn, it is understood that Pakistan has agreed to sign and ratify the nucleartest ban treaty before its cut-off date next September.

Economic policy and the economy

Pakistan has staved offfinancial default, thanks

to the IMF—

The IMF approved the renewal of a lending programme on January 15th, endingmonths of volatile negotiations and paving the way for the short-term stabilis-ation of the balance of payments. Under the new package, SDR409.5m ($575m)was disbursed immediately. This included an SDR37.9m instalment under aconcessional enhanced structural adjustment facility (ESAF), an SDR18.97m ex-tended arrangement under the extended fund facility (EFF) and SDR352.7munder the compensatory contingency finance facility (CCFF). The ESAF/EFFloan is on comparatively soft terms and is part of the now restored $1.6bn,three-year programme agreed between Pakistan and the IMF in 1997; the CCFFis extended on commercial terms and is intended to compensate for a shortfallin export earnings in 1998 (see Foreign trade and payments). An additionalSDR417m from the ESAF and SDR379m under the EFF will be disbursed toPakistan during the remainder of the three-year programme.

Pakistan 21


As expected, approval of the IMF package was the catalyst for the extension ofa fresh loan from the World Bank ($350m for initial structural reforms); othermultilateral and bilateral lenders are expected to follow suit. In addition, theforeign-exchange reserves have also been buttressed by the repayment by theUS for F-16 planes, which had been paid for by Pakistan but never delivered.Although information is sketchy, these foreign capital inflows in January willhelp Pakistan to clear payments arrears that had developed in the second halfof 1998. (According to estimates by a US ratings company, Standard & Poor’s,as of January 22nd Pakistan’s principal and interest arrears to Paris Club credi-tors stood at $1.56bn in addition to $33.5m of arrears on public and publiclyguaranteed debt to private creditors.)

—and the Paris Club— Pakistan’s rescue package also includes measures designed to lower the debt-service burden in 1999 and 2000. The Paris Club of official creditors agreed onJanuary 30th to reschedule $3.3bn in medium- and long-term debt-service pay-ments falling due up to the end of December 2000. Pakistan owes 70% of itstotal foreign debt to the Paris Club, which is an informal group of governmentcreditors, including the US, UK, France, Germany and Canada. Pakistan willnow sign bilateral agreements individually with the creditor countries byDecember 31st 1999, under the parameters set by the Paris Club agreement.

According to the finance minister, Ishaq Dar, loan instalments and interestpayments thereof becoming due up to December 31st 2000 will be given a20-year rescheduling period, including ten years’ grace period for official devel-opment assistance. The Paris Club has also agreed to include in the reschedul-ing an amount of $317m relating to debts incurred between 1974 and 1981,which will become due up to December 31st 1999 and relates to old debts of1974 and 1981. Mr Dar indicated that the possibility of bilateral debt andequity swaps was being negotiated.

—but London Clubmembers will also be

asked to help

The Paris Club is also insisting that Pakistan seek a similar arrangement withthe London Club of commercial creditors. Among the commercial debts whichwill be considered for rescheduling are outstanding sovereign eurobond pay-ments, the value of which totals $750m. (A $150m bond is due to be repaid atthe end of 1999 and a $300m bond is due to mature in 2000.) Reschedulingwould not only be complex, but may also cut Pakistan off from this source offoreign capital for many years to come.

The IMF imposes toughtargets—

The IMF has announced the macroeconomic targets for 1998-2001 that ithopes will result from an ambitious programme of structural reforms and eco-nomic polices. These include:

• the doubling of GDP growth from the 3-4% range to 5-6%;

• the halving of the current-account deficit from 3% of GDP in 1998/99 to lessthan 1.5% in 2001/02;

• a reduction in the rate of inflation from about 9% to 6% in 2001/02;

• an increase in the rate of domestic savings from 12% of GDP to 16%; and

• the stabilisation of the ratio of public-sector debt to GDP.

22 Pakistan


In pursuance of these targets, Pakistan is being asked to tackle several long-standing structural problems as well as unwind some more recent policychanges. The main, immediate policy requirements include:

• a further phased reduction in electricity rates;

• the unification and devaluation of the exchange rate;

• a reduction in the maximum import tariffs (from 45% to 25%);

• the imposition of the goods and services tax (GST) on services, petroleum,electricity and agriculture inputs;

• the broadening of the tax base;

• the restructuring of public-sector enterprises in preparation for privatisation;and

• the reduction of the government payroll through massive staff reduction.

—and offers hard-hittingadvice

On January 27th the IMF released the conclusions of its executive board’s ArticleIV consultation with Pakistan that had taken place earlier in the month, inwhich the Fund notes critical weaknesses in Pakistan’s economy, along with itsview on how to address them in order to ensure a continuation of its assistanceprogramme to Islamabad. The board expressed particular concern about: thedependence of the balance of payments on highly market sensitive financing;the large uncovered forward position of the State Bank of Pakistan (SBP, thecentral bank); increasing dependence of budget revenue on receipts from petro-leum surcharges while the domestic tax base remains narrow; the financialdifficulties of the Water and Power Development Authority (WAPDA); and thehigh level of non-performing loans in the banking system.

In comments that echoed previous assessments, the Fund warned that Pakistanmust avoid slippage from policy and reform objectives so as to break from the“past record of stop-go policies”. It intends to put in place a system to monitorthe implementation of the proposed reforms, in particular those aimed atstrengthening the tax administration and revenue base (including the greaterand more effective collection of agricultural income tax and the extension ofthe GST to the services sector, electricity, petroleum products and agriculturalinputs). The IMF also called for: movement to a market-determined, unifiedexchange rate; the resolution of the problem surrounding the still large stock offoreign-currency deposits; and the continuation of the privatisation pro-gramme. In the power sector, the implementation of detailed plans for therestructuring of WAPDA and the Karachi Electricity Supply Company (KESC)was encouraged, as was an increase in power rates. The IMF was insistent thatthe exchange restrictions imposed in mid-1998 by the central bank should belifted, and required the government swiftly to eliminate external paymentsarrears. However, it concluded that despite a projected improvement in thebalance of trade and an increase in foreign-exchange reserves, large, excep-tional financing will be required to close the financial gaps in the next twofiscal years.

Pakistan 23


The policy advice echoes that given to Pakistan about ten years ago, when theIMF offered a package to the Bhutto government. But four governments andseveral IMF programmes later, most of the goals remain unmet. However, thistime Pakistan cannot afford slippage. Comments made by the US deputy secre-tary of the Treasury, Larry Summers, suggest that the US has pledged to keepPakistan “afloat” for one year after which time the US will look for compliancewith its tough non-proliferation agenda that includes signing and ratifying thecomprehensive nuclear test-ban treaty (CTBT) by September 1999. The treatyrequires constitutional guarantees against exporting nuclear technology andknow-how, freezing fissile material production and refraining from testing anddeveloping missiles.

A new labour policy isannounced—

The draft of a new labour policy was announced January 7th (but has not yetbeen put to the National Assembly). Apart from the promises to establishvarious committees to recommend improvements in the status and welfare ofworkers, the following concrete measures are proposed.

• The minimum pension allowed under the Employees Old-Age BenefitsScheme will be increased from PRs425 ($8) per month to PRs635 and will bedeposited into a National Pension Fund (which will replace the old scheme).

• The number of trade unions allowed in any single industrial organisationwill be “rationalised and reduced”: any union which receives less than 10% ofthe votes in a workers’ referendum in the industrial concern will be outlawedas will any registered union which fails to submit its annual income andexpenditure returns for approval by the government.

• Workers who forgo their earned leave or who choose to work on holidaysmay be provided incentives by employers for doing so at a rate of not less than50% above their normal wage rate.

• The law governing the monthly minimum wage of unskilled labour (set atPRs1,500 in any establishment employing more than 50 workers) shall apply toall establishments, irrespective of labour strength.

—which workers do notlike

Labour organisations in Pakistan have criticised the plan. Criticism is centredon proposals to reduce the number of unions as well as the continued omissionof agricultural workers from the ambit of the various laws governing tradeunions, minimum wages and welfare benefits. Union demands that the mini-mum wage be raised from PRs1,500 per month to PRs3,000 per month—aspromised by the prime minister, Nawaz Sharif, in his election manifesto—havebeen ignored. Moreover, contract labour, which remains largely outside thepurview of most labour protection laws, continues to be the major source ofworkers’ exploitation by employers.

Pakistan: consumer prices

1996 1997 19984 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Index (1990=100) 196.3 203.7 208.2 210.3 213.6 215.9 220.3 224.4 % change, year on year 11.2 13.0 13.0 10.9 8.8 6.0 5.8 6.7Source: IMF, International Financial Statistics.

24 Pakistan


Soft import prices helpcontain inflation—

Pakistan’s consumer price index rose by 6.4% year on year in December, upfrom 6.2% in November, and 6.5% in October, according to the Federal Bureauof Statistics. Figures from the IMF show a slightly higher rate of inflation, atabout 7% in both October and November. Very soft import prices seem to havehelped contain inflation: according to the State Bank of Pakistan, the importunit value of strategic imports fell sharply.

Pakistan: import prices, 1997/98(% change)

Wheat –11.6

Sugar –5.8

Pulses –12.4

Petroleum products –29.8

Synthetic & artificial yarn –15.4

Fertilisers –11.1

Insecticides –13.3Source: State Bank of Pakistan, 1997/98 Annual Report.

—as do lower levels ofpublic borrowing

Lower levels of deficit monetisation also seem to have helped cap price in-creases. Public-sector borrowing from the banking sector fell in 1997/98, fromPRs72.5bn ($1.4bn) to PRs48.5bn, according to central bank payments data.(Revised estimates from the finance ministry are slightly lower, at justPRs30.7bn.) Money supply growth slowed. According to IMF data, money sup-ply (M2) growth slowed from over 20%, year on year, in the first three quartersof 1997 to about 15% in the first three quarters of 1998. However, the situationis likely to have changed in the second half of 1998; the slump in revenuereceipts and lower levels of external financing are likely to have resulted inhigher government borrowing in the second half of the year.

Industry and energy

WAPDA is handed over tothe army—

In a last-ditch effort to rescue the Water and Power Development Authority(WAPDA) from financial collapse—WAPDA has an accumulated operating def-icit of PRs60bn ($1.2bn) and line losses of over 35%—the prime minister,Nawaz Sharif, appointed General Zulfikar Ali as chairman of the public utilityand handed its administration over to the army on January 15th. General Alihails from the army’s Engineer Corps and served in the Pakistan’s intelligenceservice, the Inter-Services Intelligence Agency (ISI), before taking charge in1997 of the country’s nuclear programme. He controls a force of 32,000 armypersonnel “temporarily” inducted into WAPDA. The military has taken controlof WAPDA’s administrative and financial departments and soldiers are travers-ing the country reading electric meters, delivering bills, uncovering and plug-ging electricity theft, and staffing complaint centres.

The new force is backed by a presidential ordinance establishing military courtsempowered to investigate, arrest, try and sentence “electricity thieves anddefaulters”. Another ordinance enhances the penalties prescribed for electricitytheft while a third enables the WAPDA to fire any employee without assigningany reason and bans all trade union activity in the organisation. Once the jobis done, says the government, WAPDA’s eight area electricity transmission

Pakistan 25


boards and one distribution company will be privatised as required by theWorld Bank.

—whose proposals meetstiff resistance—

WAPDA’s deficit is forecast to rise to PRs75bn by June 30th—comprised ofPRs40bn in unpaid bills and PRs35bn in line losses. It is owed about PRs27bnby various federal and provincial government departments and the remainderby private consumers. To begin to tackle these arrears, WAPDA wants thefederal government to deduct the outstanding dues of various federal depart-ments and ministries from their budgetary allocations in order to clear its bills.But the federal departments are resisting, arguing that their bills have beeninflated by WAPDA. Much the same attitude is manifested by the provinceswhich refuse to allow deductions from their federal budgetary grants. WAPDAis also demanding the right to enforce a uniform power rate structure through-out the country—the territory of Azad Jammu and Kashmir is provided electric-ity at lower rates than the rest of the country—and an end to the flat-ratesystem enjoyed by all agricultural tubewell owners. But landowners dominatethe national and provincial parliaments and are fiercely opposed to changingthe status quo.

—but whose harshpenalties prompt visible

progress

However, the fear of summary military punishments has forced tens of thou-sands of people to mend the rigged electric meters and clear their dues. Othersare rushing to apply for new meters and connections. In connivance withWAPDA staff, many commercial establishments are quietly paying the arrearsof the difference between the higher commercial tariff applicable to them andthe lower domestic tariff which has hitherto been applied to their bills—apractice now called “engineered theft”. The military authorities have alsostepped up a press campaign to identify and embarrass top politicians, busi-nessmen and civil servants who are alleged to have stolen electricity or refusedto clear dues. One minister in the Punjab province who is close to the primeminister was forced to resign after his factory was raided by the army and hewas found to have rigged his electric meter.

Steps are taken to resolvedisputes with the IPPs—

The government announced on January 9th a “revised tariff settlement” whichincorporates the recommendations of the accountability bureau (3rd quarter1998, page 24) and is aimed at finding a final resolution of outstanding dis-putes between the government and five independent power producers (IPPS)which have agreed to revise their tariff: Southern Electric Power (120 mw, from6.1 cents/kwh to 5.8 cents/kwh), Habibullah Coastal Power (140 mw, from 6.1cents/kwh to 5.6 cents/kwh), Saba Power (112 kw, from 6.1 cents/kwh to 5.56cents/kwh), Kohinoor Energy (120 mw, from 6.1 cents/kwh to 5.8 cents/kwh),and Liberty Power (211 mw, from 6.1 cents/kwh to 5.62 cents/kwh). Officialsfrom the accountability bureau claim that this settlement is a breakthrough;according to them, not only will it save the government PRs21bn every year, itwill also send a clear signal to foreign investors that Pakistan, under Mr Sharif,welcomes foreign investment.

—but the dispute withHubco is still simmering

A team from the Hub Power Company (Hubco) met government officials inIslamabad on December 22nd in order to try and find a way out of the deadlockbetween Hubco and the government. The dispute stems from accusations by

26 Pakistan


the head of the accountability bureau, Saif ur Rehman, that Hubco manage-ment offered bribes in 1994 to the then prime minister, Benazir Bhutto, andher husband, Asif Zardari, in exchange for changes to the original IPP contactwhich led to a sharp rise in the tariff (2nd quarter 1998, page 23). Criminalcharges have been pressed against Hubco in the Pakistani courts while Hubcohas taken WAPDA and the government of Pakistan to the courts in the UK forfailing to honour their contracts.

However, no settlement is in sight. Although Hubco offered to lower its powertariffs from October 1st 1998, it also wants the criminal charges dropped andits contract honoured. However, the accountability bureau is not satisfied; itinsists that Hubco reduce its tariff with retrospective effect from 1994 (when itwas significantly revised upwards by the Bhutto government), pay back at leastPRs17bn in excess payments received on account of the revised tariff and payabout PRs2bn in unpaid local taxes. In addition, Mr Rehman wants Hubco toadmit wrong-doing in obtaining tenders.

Plans to export electricityto India move ahead

A memorandum of understanding was signed on January 30th between thegovernments of India and Pakistan under which the Indian government hasagreed in principle to buy electricity from Pakistan. The two sides, which haveconsidered this possibility for over one year, are now discussing the details ofthe proposed arrangement. Pakistan has proposed to arrange almost immed-iately the supply of up to 300 mw per year to India through to 2005, rising to1,000 mw per year in the long-term. Transmission lines for supplying up to 300mw could be laid within six months, according to the Pakistani government,which is expected to tap four private power producers (Japan Power, SabaPower, Kohinoor Energy and Southern Electric Power) for export supplies. TheAsian Development Bank is understood to have agreed to guarantee timelypayments from Indian power companies to Pakistan. Settling the tariff is thenext hurdle; Pakistan’s is seeking about 7 cents/kwh while India is willing topay about 3 cents/kwh. Negotiations are expected to continue in March.

A foreign investmenthydropower project is

announced—

Synergics Development Corporation (SDC) of the US has announced plans toinvest nearly $1bn in two hydroelectric projects with a total generating capacityof 684 mw. A power purchase agreement (PPA) is expected to be signed betweenSDC and WAPDA before the end of March. SDC plans to develop a 600-mwplant at Kohala in Azad Kashmir and 84-mw plant in Matiltan in theNorth-West Frontier Province (NWFP). The company proposes to charge4-5 cents/kwh and transfer the company—at no charge—to the government ofPakistan after 20 years.

—and the gas pipelineproject with

Turkmenistan is still on

After a visit to Islamabad on January 26th by Turkmenistan’s foreign minister,Boris Shikhmuradov, Pakistan and Turkmenistan reached an agreement to con-tinue to explore the possibility of building a 1,400-km gas pipeline, from theBaultabad gasfields in Turkmenistan to Multan in Pakistan, at a cost of $1.9bn.A tripartite meeting of officials from the two countries and Afghanistan is ex-pected to be scheduled soon. The Central Asia Gas Pipeline Company(Centgas)—the nine-company consortium formed to build the pipeline—lost itsleader in November when the US company, Unocal, withdrew its interest.Unocal held a 46% stake in Centgas. Pakistan and Turkmenistan have affirmed

Pakistan 27


that they remain interested in the project. (Unocal has since stated that it is stillinterested in the project.) However, huge gas reserves in Turkmenistan and thestrong demand for gas in Pakistan, which would like to replace expensive fur-nace oil used by its oil-fired power generation plant with low-cost natural gas,are separated by warring Afghanistan. Securing financing or insurance is diffi-cult given that the pipeline traverses Afghanistan, 90% of which is governed bya political entity (the Taliban) recognised by only a handful of countries. Hence,Pakistan and Turkmenistan are strongly backing a UN proposal—which in-volves Afghanistan’s neighbouring states (Iran, Turkmenistan, Uzbekistan,Tajikistan, Pakistan and China) as well as the US and Russia—to bring peace tothe war-torn country.

Agriculture

Cotton crop estimatesslump—

Official and unofficial estimates for the cotton crop continue to slide. Thegovernment has finally conceded that the cotton crop is well below the 10.2m374-lb bale target set for the 1998/99 season. The latest official estimates placethe crop at about 8.8m bales. The main factors causing this shortfall include afall in the acreage under cultivation—from 2.94m ha last year to 2.91m ha in1998/99—and unfavourable weather conditions. It is estimated that Punjab(with 2.28m ha under cultivation) will produce 6.8m bales and Sindh (0.63mha) will produce 2m bales—equivalent to a annual decline in cotton productionin Punjab and Sindh of 5% and 26% respectively. Groups representing thecotton industry assert that the production totals could prove to be even lower.

—as do those of wheat Output of Pakistan’s second largest crop, wheat, is likely to fall short—by about1m tonnes—of the official revised target for 1998/99 of 19m tonnes, accordingto the agriculture ministry. (The government’s original target of 22m tonneswas considered very high.) Domestic consumption is estimated at about 22mtonnes while another 2m tonnes is earmarked for Afghanistan. The projectedgap between supply and demand is being met with imports from the US,Australia and Canada; since July, 1.54m tonnes has been imported.

Although rains in late January helped the wheat crop, the unusually long dryspell (which began in November) is thought to have reduced output in rainfedareas by about 20%. Rainfed areas account for about 2m tonnes of wheat eachyear. Output has also been adversely affected by the fact that sowing andharvesting of sugarcane was delayed, thereby reducing the area available forsowing wheat last year. This has led to a shortfall of about 800,000 tonnes ofwheat in the canal-irrigated areas which also support the sugarcane crop.

Sugar exports are hit by ascandal—

Mr Sharif’s cousin, Tariq Shafi, who owns Ittefaq Sugar Mills, has alleged thatChaudry Sugar Mills and Ramzan Sugar Mills, which are owned by the primeminister’s father and brothers, are receiving preferential treatment fromPakistan Railways to expedite exports to India of sugar produced in their mills.The latter two sugar mills have exported about 60,000 tonnes of sugar to Indiain the last eight months, out of the end-January target of 300,000 tonnes for theindustry. The managing director of the Railways Goods Company, MohammadAslam, has not denied the charge. He says that the All Pakistan Sugar Mills

28 Pakistan


Association is welcome to take the matter of allocation of railway wagons forsugar export into its own hands.

In order to encourage sugar exports, the government is offering a hefty exportrebate of PRs4,500 per tonne and low freight rates. Over 70% of the total sugarexported to India is from ten sugar mills, all belonging to top politicians fromthe Pakistan Muslim League (Nawaz) and relatives of Mr Sharif.

—and the fledglingfishing industry fights an

EU ban

Pakistan’s fledgling fishing industry faces a crisis. Despite the lifting of animport ban by the EU in October 1998, imposed on account of unhygienicconditions in fish-processing factories and the Karachi fish harbour, delays inobtaining health certificates from the government have led to delays in ship-ping and losses in export proceeds. Exports of fish and allied products earnedPakistan $170m in fiscal year 1997/98. However, the EU—which accounts for40% of all Pakistani fish exports—imposed a ban on Pakistani fish in July 1998,resulting in a loss of about $44m by November, when the ban was liftedpending an inspection visit by EU officials. The Pakistan Seafood IndustriesAssociation says that 15 of the country’s 34 fish-processing factories are up toEU standards but only six have so far been given a clean bill of health by thegovernment’s marine fisheries department.

The global fish products market is estimated at $50bn, of which Pakistan’sshare is a meagre 0.5%, despite a 1,000-km coastline. The Export PromotionBureau estimates that fish exports can surge to $1bn per year if on-boardrefrigeration facilities are improved and expanded.

Banking and finance

Foreign-currency accountsare thawed—

In a surprising decision, the Lahore High Court declared illegal and unjust theorder by the State Bank of Pakistan (SBP, the central bank) to freeze $9bn inresident and non-resident foreign-currency accounts on May 28th (3rd quarter1998, page 21). The decision, announced on January 27th, followed an appealby about 100 individuals against the freeze, which was placed on these ac-counts to avert a massive withdrawal of foreign currency after the testing ofnuclear devices. In addition, the court decided that:

• the enforced conversion of dollar deposits held in such accounts into rupeesat PRs46:$1 or into dollar bonds with maturities of at least three years wasillegal;

• the refusal of the SBP to allow dollar deposits (now forcibly converted intomedium- and long-term dollar bonds) to be used as collateral for rupee loanswas illegal; and

• depositors may be allowed to withdraw whatever dollar amounts were re-quired from their foreign-currency accounts for contingency expenses on for-eign education for children and medical treatment abroad.

—and frozen again On January 28th the government filed an appeal before the Supreme Courtasking it to reverse the decision. The court has restored the status quo ante andwill hear detailed arguments in due course. With foreign-exchange reserves of

Pakistan 29


about $1.6bn in January (according to official estimates), the government hasno immediate plans for unfreezing the accounts that—after some rupee anddollar bond conversion—are thought to be worth about $6.5bn. However, onthe other hand, it is in the interests of the government to convert a largerproportion of the deposits into rupees or dollar bonds before moving to ration-alise the multitiered exchange rate (which will most likely result in some depre-ciation of the official exchange rate).

The credit terms forimports are loosened—

On January 9th the finance ministry announced a reduction in the margindeposit (the cash advance required to open letters of credit, LCs) on importsfrom 30% to 10%. The 30% margin was imposed in 1998 in order to discourageimports and conserve foreign exchange. Some import restrictions remain: noLCs may be opened nor any remittance made abroad without the prior ap-proval of the central bank, which can entail delays of up to two weeks. Never-theless, the tightening of credit terms for imports not only hurt importers, butthe manufacturing and export-oriented sectors (which are import-intensive) aswell. Consequently, both import and export growth contracted sharply in theJuly-December period (see Foreign trade and payments).

—and exporters areoffered new incentives

In late 1998 the government changed the existing ratio requirement—50% atthe official rate and 50% at the floating interbank rate—for exporters andimporters buying and selling their currencies. From December 18th exporterswere allowed to sell 80% at the floating interbank rate and the remaining 20%at the official rate (PRs46:$1). Conversely, importers must buy 80% at thefloating interbank rate and 20% at the composite rate, which is a weightedcomposite of the official and free-market rate and has been hovering at aboutPRs52:$1 during most of January.

Pakistan: external reserves($ m)

1996 1997 1998 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Reserves excl gold 548 960 1249 1193 1195 1271 844 676 1128Sources: IMF, International Financial Statistics; Reuters.

By allowing the purchase of most imports, barring a few essentials, at thefloating interbank rate, the government is moving slowly towards eliminatingthe official and composite rates in favour of the floating interbank rate as thede facto rate for most foreign trade. The rate is determined by commercial bankson the basis of supply and demand of foreign exchange. However, despitepressure from the IMF for a single rate regime, the government says it willretain the current exchange-rate policy until its reserves position improvessubstantially.

Privatisation moves ahead On December 7th the Privatisation Commission floated a tender inviting anexpression of interest from domestic and foreign investors to prequalify for thesale of a minimum 26% tranche in Habib Bank. Habib Bank has a network of1,721 domestic and 65 international branches and a full-service licence cover-ing commercial banking, consumer finance, credit cards and investment bank-ing in Pakistan and most of the 26 countries in which it operates. The bank

30 Pakistan


accounts for nearly 20% of the advances, deposits and trade business ofPakistan’s banking sector. It has deposits of PRs211bn, advances of PRs119bnand assets of PRs255bn in 1997, and it is the first public-sector bank to besuccessfully restructured. The bank did this by reducing its workforce andmoving to reduce or reschedule its bad loan portfolio.

Foreign trade and payments

The trade deficitnarrows—

According to official, customs-based data, merchandise imports fell by 19.65%year on year in dollar terms in July-December, while exports fell by 12.45%.Consequently, the trade gap shrank to $594m, compared with $1.13bn inJuly-December 1997.

Petroleum products, palm oil and fertilisers led imports while exports weredominated by cotton yarn and garments. In July-December 1998 earnings fromcotton yarn exports totalled 199,417 tonnes, a 28% contraction on the sameperiod in the previous year. Cloth sales contracted by nearly 20% in volumeterms. The decline in yarn revenue has been attributed principally to thecontraction of South-east Asian markets as well as Japan, where allegations ofdumping of Pakistani yarns remain unresolved.

—but lower remittancesreduce foreign-exchange

earnings

Pakistan’s foreign-exchange earnings fell by about 20% year on year in the firstsix months of the current fiscal year (July-December), according to the StateBank of Pakistan (SBP, the central bank). Total foreign-exchange earnings fellto $4.59bn in July-December 1998 compared with $5.76bn in July-December1997. Within this total, merchandise export earnings fell from $4.34bn to$3.8bn. Foreign private investment contacted by about 60%—from $517m inJuly-December 1997 to $206m in the same period in 1998: foreign directinvestment dropped from $343m in 1997 to $199m; portfolio investmentplummeted, from $174m in the second half of 1997 to a mere $7m in the lastsix months of 1998.

Remittances of overseas Pakistanis, a major source of foreign exchange, con-tracted by 36% year on year from $900m in the second half of 1997 to $577min 1998. Nearly one-third of total remittances comes from Pakistanis workingin Saudi Arabia. The freeze on withdrawals from foreign-currency accounts andthe wide gap between the official exchange rate (PRs46:$1) and the free marketrate (currently about PRs52:$1) are the main reason for this decline in remit-tances through official channels. Remittances are probably still taking place,but a larger proportion is likely to be channelled through unofficial routes,where the exchange rate is more favourable. The need to draw remittances backthrough official channels is one of the most important reasons why Pakistan isbeing urged by the IMF to devalue its currency through a rationalisation of thefour-tier exchange rate.

Foreign-exchange reservesswell, thanks to IMF and

US cash—

Pakistan’s foreign-exchange reserves increased to $1.64bn by January 23rd, fromjust $1.1bn the previous week, according to the central bank. This rise is almostentirely the result of the foreign-exchange injections from the US ($326m), theIMF ($575m in January) and the World Bank ($350m). Foreign-exchange

-4

-3

-2

-1

0

1

2

3

4

1997 98(a) 99(b) 2000(b)

Services & income balanceTransfers balanceTrade balanceCurrent-account balance

Pakistan: external balances$ bn

(a) EIU estimates. (b) EIU forecasts.Source: EIU; IMF.

Pakistan 31


reserves had remained below $1bn in the six months from June 1998, reachinga low of about $400m in November, before passing the $1bn level in the lastweek of December.

Pakistan: official exchange rate

1996 1997 1998 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

PRs:$1 (av) 39.409 40.120 40.294 40.514 43.519 44.050 44.137 46.000 46.000Source: IMF, International Financial Statistics.

—and the market rupeeexchange rate strengthens

The Pakistani rupee interbank and open-market rate have both risen since theend of 1998. The floating interbank rate is determined by commercial banks onthe basis of supply and demand of foreign exchange. It rose from an average ofRs54.2:$1 in August-December to PRs50.9:$1 in mid-January. The open-marketdollar rate has strengthened from the PRs55-56:$1 level recorded in the lastquarter of 1998 to about PRs52:$1 at the end of January. Consequently, thespread between the open market rate and the official rate (PRs46:$1) has nar-rowed considerably. This strengthening reflects in part an improved supply ofdollars in the market (in part thanks to the injection of cash from the IMF andthe US as well as low demand for dollars from importers), an improved short-term outlook for the economy after the restart of the IMF lending programmeand the possibility some central bank intervention in the interbank market.However, this strengthening will prove to be temporary.

32 Pakistan


Afghanistan

Political structure

Official name Islamic State of Afghanistan

Form of government Interim government

The executive The Islamic Taliban movement, which seized power on September 27th 1996, fromthe previous administration of Burhanuddin Rabbani

National legislature Acting ministers are currently holding power

National elections April 1988 (Assembly); next election yet to be decided

National government Six-member ruling council, which has power until a government is formed. Notimetable for formation has been given

Main political organisations Taliban; Hezb-i-Islami; Jamiat-i-Islami; Ittehad-i-Islami; Harakat-i-Inqilab-i-Islami;National Liberation Front; National Islamic Front; Hezb-i-Wahdat; Junbush-i-Milli

Afghanistan 33


Economic structure

Latest available figures

Economic indicators 1994 1995 1996 1997 1998

GDP at constant 1978/79 pricesa (Af bn) n/a n/a n/a n/a n/a

Population (mid-year; m) 18.88 19.66 20.88 n/a n/a

Exports foba ($ m) 24.0 26.0 n/a n/a n/a

Imports cifa ($ m) 142.0 50.0 n/a n/a n/a

Total external debt ($ m) n/a n/a n/a n/a n/a

Exchange rateb (av; Af:$) 425.1 833.3 2,333.3 3,000.0 3,000.0

February 5th 1999 Af4,750:$1

Origins of gross domestic product 1989a % of total Components of gross domestic product 1981a % of total

Agriculture & forestry 52.6 Private consumption 70.6

Industry 28.5 Government consumption 35.0

Construction 5.8 Gross fixed capital formation/increase in stocks 17.3

Trade 7.9 Exports of goods & services 19.6

Transport & communications 3.5 Imports of goods & services –50.3

Services 1.7 Statistical discrepancy 7.8

GDP at factor cost 100.0 GDP at market prices 100.0

Principal exports 1990a $m Principal imports 1988a $m

Fruit & nuts 93 Capital goods 293

Carpets 44 Food 150

Wool 10 Textiles 117

Karakul skins 3 Petroleum products 99

Cotton 3 Sugar & vegetable oil 53

Total incl others 235 Tyres 50

Total incl others 900

Main destinations of exports 1990 % of total Main origins of imports 1990 % of total

Soviet Union 72.4 Soviet Union 56.3

Germanyc 3.1 Japan 9.4

India 3.1 Singapore 5.6

Belgium-Luxembourg 2.3 India 2.9

UK 1.9 South Korea 2.2

Czechoslovakia 1.2 Germany 1.7

a Fiscal years beginning March 21st. b Official rate. c Includes former East Germany from July.

34 Afghanistan


Outlook for 1999-2000

The Taliban will remainin control of most areas—

The Taliban, an extreme Sunni Muslim and predominantly Pashtun group,control 90% of Afghanistan. They are consolidating their hold on the recentlyacquired northern and central areas. Most observers, including their opponents,see no sign that their dominance is on the wane. Moreover, their continuedmilitary successes have pushed the Taliban further from the negotiating table.

—although the oppositionwill remain an irritant in

certain pockets

The disparate opposition forces will remain but pose little threat. The veteranopposition leader, Ahmad Shah Massoud, the ethnic Tajik who jointly control-led the Jamiat-i-Islami party with the former president, Burhanuddin Rabbani,has been involved in fighting in Afghanistan for over two decades. He beganfighting, as a young man, against the Soviet invasion army, and now fights theTaliban. He is likely to push further the offensives he launched over the recentmonths, although he will continue to face fierce opposition from Taliban forces.

The leader of the ethnic Uzbek Junbush-i-Milli party, Abdul Rashid Dostum, isplanning a comeback, according to his aides. Troops from his party were de-feated by the Taliban during last year’s northern offensive (3rd quarter 1998,page 38), but since then have staged several small attacks and uprisings.Mr Dostum has been living in Turkey, a country with which he has goodrelations and, as an ethnic Uzbek, is likely to have maintained ties withAfghanistan’s northern neighbour, Uzbekistan.

The UN will return toAfghanistan—

The UN security team spent five days in Afghanistan in early February assessingthe security situation and progress on the investigation into the murder ofthree UN workers (one Afghan and two Italians) in 1998. Satisfactory findingson both counts will give the green light for foreign UN staff to return after theirwithdrawal in August 1998. The initial return of part of the UN’s representationnow seems likely, with full resumption possible at a later date.

—giving added influenceto the UN political team

The UN special envoy to Afghanistan, Lakhdar Brahimi, is the force behind theUN-sponsored “six plus two” group—comprised of Afghanistan’s neighbouringstates (Iran, Turkmenistan, Uzbekistan, Tajikistan, Pakistan and China) as wellas the US and Russia—which is working to bring a peaceful, political solution tothe war-torn country. Mr Brahimi visited the region in December as part ofefforts to plan a meeting of the group in the capital of Uzbekistan, Tashkent. Thereturn of the UN’s humanitarian staff to Afghanistan will strengthen its positionin the country, which in turn will bolster the efforts of the political team.

New personnel have replaced long-time staff and there is a fresh impetusbehind the development of new approaches. However, progress will be pain-fully slow: one decade after the withdrawal of Soviet troops, Afghanistan re-mains at war, its infrastructure ruined and its population the world’s largestgroup of refugees.

Afghanistan 35


Review

The Taliban remain alert— The harsh winter months traditionally bring a lull in fighting in Afghanistan.However, pockets of fighting have continued and constant rumours of oppos-ition offensives have kept the extreme Sunni Muslim movement, the Taliban,alert even though they control about 90% of the country. The Taliban leader,Mullah Mohammed Omar, took no chances: despite the Taliban’s strict adher-ence to Islam, the movement’s leader cancelled all leave during the fastingmonth of Ramadan and the following Eid holiday.

—although a lack of fundsis fuelling hardship and

dissension—

In December the Jalalabad police chief shot dead two students and injured fourothers who were protesting food shortages at a university in Jalalabad, headedby the police chief’s brother. The following month, six Taliban soldiers werecharged with killing two women and four men in the southern Khost provinceduring a dispute over gambling. The same month, six Taliban fighters in Kabulhad their hands and feet publicly amputated for theft. These and other similarevents seem to point to a growing lack of discipline and dissension withinTaliban ranks and, perhaps, the rising hardship the Taliban are facing sinceSaudi Arabia withdrew its official recognition. A shortage of funds has causedconditions for soldiers to deteriorate and crime among troops is rising.

—which could underminetheir public image

The swift and harsh treatment meted out to the Kabul thieves was clearlydirected at maintaining discipline among Taliban ranks. Leaders must be seento act in order to differentiate their forces from the rogue commanders whomthe Taliban defeated. The movement’s public appeal has been based almostsolely on their ability to bring peace or at least, less war to Afghanistan, and torestore law and order. Should the Taliban begin to look as lawless as theiropponents, they would be left with little to offer Afghans and would probablysee their control swiftly eroded.

The Mazar-i-Sharifmassacre gets further

confirmation

Taliban officials have admitted in private that it was their men who carried outthe massacre in Mazar-i-Sharif that was reported by the UN, Human RightsWatch and Amnesty International (4th quarter 1998, page 35). In these andother reports, the Taliban were accused of the mass killing of around 4,000 inMazar-i-Sharif on August 8th. Although the Taliban had publicly denied thekillings, thought to have been an act of revenge after the massacre of Talibantroops in the north in 1997, a lack of access to the region and inconsistency ofreports weakened their claim. In an internal report, the International Red Crossalso largely confirmed the findings of Human Rights Watch.

The Taliban adapt toconditions in the north—

Taliban troops have controlled northern Afghanistan for almost seven months.The harshness that characterised their initial rule (such as the massacre), andwhich engendered much fear among local people, has shown signs of adapta-tion. Taliban leaders, surprised by their sometimes hostile reception fromnortherners—who are considered far more independent than their southerncounterparts—softened their approach and even replaced some commanders(including the former Taliban governor of Mazar-i-Sharif who has been linkedwith the August massacre). The Taliban have rarely been forced to adapt tothe ways of the people they now rule; in fact, it is usually the reverse. This

36 Afghanistan


development in the north may signal an increase in the movement, which isnow stretched thinly across Afghanistan.

—and little is knownabout Taliban control in

the centre—

The Taliban have marked five months of rule in central Afghanistan, whichbegan after the fall of the central Afghan city of Bamiyan (the historic homelandof the Hazara people) on September 13th. The Taliban have continued to facelimited fighting by remnants of a Shia Muslim group, Hezb-i-Wahdat, whichpreviously controlled the region. Control of the remote town and airstrip,Yawkalang, has changed a few times in recent months; at the time of writing, itis unclear who is in control. Moreover, little information is available about thecentral Hazarajat region; few aid workers and journalists were allowed into theregion prior to the onset of winter, which cuts off access to the area. However,sketchy reports seem to indicate that, like many Afghans, the local population isfed up with greedy commanders, and is thus accepting Taliban rule.

—while Mr Massoud isdown, but not out

The remnants of the opposition forces, led by Ahmad Shah Massoud, remain anirritant to the Taliban. As well as maintaining his Panjshir Valley headquarters,Mr Massoud’s forces launched attacks over the recent winter into the north-western Faryab province and north-eastern Kunduz province, making somegains against Taliban troops.

A former leader defects— In November increasing cold and a lack of supplies forced the leader of aHezb-i-Wahdat faction, Mohammed Akbari, and 20 senior commanders toleave their central Afghan mountains and surrender to the Taliban. Mr Akbari’sfaction had sided with Mr Massoud several years ago, after he fell out with themain section of the Shia Muslim Hezb-i-Wahdat, led by Karim Khalili. Unsur-prisingly, the Taliban trumpeted Mr Akbari’s defection. He held a news confer-ence saying his minority ethnic group, the Hazaras, will be given a fair role ina future Taliban government. But since then, little has been heard of him.

—and the food situationhas improved

The 18-month Taliban blockade of central Afghanistan, which has caused se-vere food shortages, finally ended in early 1999. A survey team sent by the UNWorld Food Programme (WFP) in November found tens of thousands of peoplewere in critical need of food aid. In early January the aid agencies Oxfam,Madera and Shuhada just beat the first winter snows to finish a three-week longdistribution of WFP food aid. The WFP hopes that these supplies will satisfybasic food requirements through the winter. In the same month, a sharp rise inwheat prices prompted the WFP to reopen its subsidised bakeries in the easterncity, Jalalabad. They were closed in August when a mob attacked the WFP officein the city one day after the US missile strike on Afghanistan.

Meetings with the “sixplus two” countries take

place—

Taliban officials have held meetings over the winter with representatives ofneighbouring Iran, Turkmenistan and Uzbekistan. They have also met seniorofficials from the US (the assistant secretary of state for South Asia, Karl Inder-furth) and the UK (the foreign office minister, Derek Fatchett). Four of thesecountries are members of a UN-sponsored forum, the so-called “six plus two”group— comprised of Afghanistan’s neighbouring states (Iran, Turkmenistan,Uzbekistan, Tajikistan, Pakistan and China) as well as the US and Russia—

Afghanistan 37


which is working to try to bring a peaceful, political solution to the war-torncountry.

—with US talks likelyinvolving the future of

Osama bin Laden

The details for the meetings between the Taliban and US and UK repre-sentatives in early February have not been made public. But it is possible thatforeign representatives may have dangled the possibility of official recognitionto the Taliban—a long-standing demand—or some move towards it, in ex-change for action regarding the Saudi dissident, Osama bin Laden, or someconcrete action to contain the massive drug cultivation.

Soon after the meetings with US officials on February 3rd, the Taliban an-nounced fresh restrictions on Mr bin Laden’s activities, including cutting offhis communication facilities. Soon after, on February 13th, the Taliban leader-ship announced that the Saudi dissident was “missing”. Although there isspeculation that Mr bin Laden has fled to Iraq, Sudan or Chechnya, it is morelikely that he is still in Afghanistan and has simply gone underground—eitherunder pressure from the Taliban or to relieve some of the pressure on them.

The US demand on the Taliban for the extradition of Mr bin Laden follows analleged connection with the bombings of US embassies in two African coun-tries last August that killed 250 people. A US court has indicted Mr bin Ladenand the US government has offered a $5m reward for information leading tohis arrest and conviction. Two weeks after the two bombings, the US launcheda cruise missile attack on suspected terrorist training camps run by Mr binLaden in Afghanistan, killing 26 people.

The UN launches itsannual Afghan appeal—

The UN is seeking $185m for aid to Afghanistan in 1999, 20% more than thetarget for 1998. Of this total, $115m is earmarked for high-priority programmessuch as food aid, healthcare and mine removal, and a further $70m for infra-structure projects. For the first time, the UN inserted a human rights clause inthe appeal, reflecting international concerns about the Taliban’s restrictions ofwomen’s rights and alleged massacres by both the Taliban and the opposition.By contrast, the International Red Cross reduced its appeal for Afghanistan by20% to $30m, according to its representative, Thomas Gurtner. Mr Gurtnerattributed the reduction to continuing instability in Afghanistan but addedthat the group may seek more funds if conditions improve.

—and holds talks withIran

A UN delegation made a four-day visit to largely Shia Muslim Iran in Januaryafter an initiative by the UN Afghan special envoy, Lakhdar Brahimi. The teamwas headed by the UN co-ordinator for Afghanistan, Erick de Mul, who saidthat the two parties discussed Afghan refugees living in Iran and ways ofcreating a broad-based government in Afghanistan. Given its sufferingeconomy, Iran is keen to repatriate the refugees; 12,000 Afghans left Iran inNovember and December, although it was unclear if they were deported or leftfreely.

38 Afghanistan


Quarterly indicators and trade data

Pakistan: quarterly indicators of economic activity

1996 1997 1998

3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr

Industrial production Monthly av

Manufacturing 1990=100 106.5 130.3 145.3 110.0 106.4 135.2 169.5 120.7 n/a n/a

Cotton:

yarn ’000 tonnes 121.0 127.3 129.1 129.0 129.0 130.4 125.7 125.7 126.2a n/a

fabrics m sq metres 28.4 29.1 26.8 26.9 28.6 29.9 27.9 27.1 29.7a n/a

Prices

Consumer prices: 1990=100 189.6 196.3 203.7 208.2 210.3 213.6 215.9 220.3 224.4 226.9b

change, year on year % 9.9 11.2 13.0 13.0 10.9 8.8 6.0 5.8 6.7 n/a

Wholesale: general 1990=100 202 208 217 221 222 224 227 232 237 239b

Share prices “ 48 48 55 50 52 49 45 37 34 33b

Money End-Qtr

M1, seasonally adj: PRs bn 514.7 516.6 557.0 577.2 592.4 684.7 633.8 647.7 697.9 693.8c

change, year on year % 7.3 7.5 10.7 13.3 15.1 32.5 13.8 12.2 17.8 n/a

Foreign trade Qtrly totals

Exports fob PRs bn 69.10 85.34 84.00 89.49 82.88 102.67 93.25 97.65 91.62 31.13d

Imports cif “ 95.84 123.49 118.63 127.04 107.25 123.43 102.48 103.18 100.85 36.61d

Exchange holdings End-Qtr

State Banke:

goldf $ m 593 580 542 529 501 475 456 467 450 458g

foreign exchange “ 1,216 535 958 1,248 1,189 1,184 1,270 841 674 478g

Exchange rate

Market rate PRs:$ 36.97 40.12 40.12 40.46 40.52 44.05 44.05 46.00 46.00 46.00

Note. Annual figures of most of the series shown above will be found in the Country Profile.a Average for July-August. b Average for October-November. c End-October. d October only. e Excluding assets with Reserve Bank of India.f End-quarter holdings at quarter’s average of London daily price less 25%. g End-November.

Sources: Federal Bureau of Statistics, Monthly Statistical Bulletin; IMF, International Financial Statistics.

Quarterly indicators and trade data 39


Afghanistan: quarterly indicators of economic activity

1990 1991 1992

1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr

Prices Monthly av

Consumer prices: 1990=100 97.5 93.8 95.4 113.5 126.7 152.1 172.5 175.4 233.6 n/a

change year on year % n/a n/a n/a n/a 29.9 62.2 80.8 54.5 84.4 n/a

Money End-Qtr

M1, seasonally adj: Af bn n/a n/a n/a 346.18 371.48 n/a n/a n/a n/a n/a

change year on year % n/a n/a n/a 39.8 34.4 n/a n/a n/a n/a n/a

Foreign trade Qtrly totals

Exports fob $ m 72.3 50.2 49.2 63.3 47.8 57.6 76.8 60.8 n/a n/a

fruit & nuts “ 23.1 23.9 19.3 27.0 16.9 21.7 45.1 n/a n/a n/a

Imports cif ” 261.8 171.4 244.5 258.8 205.0 131.5 215.9 184.6 n/a n/a

Exchange holdings End-Qtr

Bank of Afghanistan:

golda $ m 294 265 277 275 268 261 259 261 254 n/a

foreign exchange “ 221 233 240 250 265 231 244 221 214 n/a

Exchange rate

Principal rate Af:$ 50.60 50.60 50.60 50.60 50.60 50.60 50.60 50.60 50.60 50.60b

Note. Annual figures of most of the series shown above will be found in the Country Profile.a End-quarter holdings at quarter’s average of London daily price less 25%. b Unchanged to end-1 Qtr 1996. From 2 Qtr 1996 to end-4 Qtr1998, 3,000.

Source: IMF, International Financial Statistics.



Pakistan: foreign trade($ m)

Total US Japan Germany UK

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Imports cif 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997

Foodstuffs 1,030.9 1,342.5 423.0 435.8 1.6 1.6 5.6 4.9 9.3 17.5

of which:

cereals & preparations 469.4 809.8 419.1 431.6 0.0 0.0 1.5 0.0 0.2 0.1

Textile fibres & waste 263.1 289.3 34.9 46.6 20.8 14.9 9.1 7.0 19.2 18.3

Petroleum & productsa 2,278.1 2,063.3 4.6 0.9 1.4 1.4 1.0 1.0 4.0 2.7

Animal & vegetable

oils & fatsb 724.9 771.4 1.4 3.0 1.6 2.3 0.7 0.4 0.7 4.7

Chemicals 2,166.0 1,843.8 308.2 251.2 118.8 103.1 192.6 153.4 156.4 133.3

Paper & manufactures 138.7 126.1 5.2 5.9 3.7 3.0 10.6 16.0 8.4 8.2

Textile yarn, cloth & mnfrs 110.6 85.1 6.7 7.6 19.8 12.9 7.0 3.4 3.0 2.3

Iron & steel 488.8 400.6 82.9 35.9 64.7 80.3 55.6 59.4 24.3 15.9

Non-ferrous metals 163.9 112.5 4.6 1.4 7.3 5.4 8.9 5.0 14.7 8.6

Metal manufactures 157.7 127.8 9.0 10.8 12.6 6.6 10.1 14.5 19.9 7.2

Machinery & transport eqpt 3,231.6 3,033.0 357.7 495.7 926.0 576.7 256.4 420.9 247.1 211.4

of which:

transport equipment 669.9 476.4 75.1 195.6 433.3 289.7 17.4 9.0 30.4 27.0

Scientific instruments etc 158.1 136.7 27.4 15.2 28.6 25.1 12.2 11.9 12.2 12.5

Total incl others 12,140.6 11,558.0 1,308.7 1,366.5 1,241.8 869.9 601.4 720.0 565.8 489.9

Total US Hong Kong UK Germany

Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec

Exports fob 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997

Food 819.4 857.4 27.4 27.3 7.3 9.4 35.7 53.4 4.6 10.1

of which:

fish & preparations 147.1 176.3 16.3 12.2 6.3 5.5 23.3 32.2 2.1 2.9

cereals & preparations 505.7 488.7 5.7 6.9 0.2 0.2 2.8 6.3 0.8 3.7

Cotton raw 458.7 155.6 8.9 0.7 50.0 9.5 6.8 7.7 2.0 2.9

Leather & manufactures 271.8 233.4 17.3 10.3 34.3 37.4 2.6 2.5 30.9 25.2

Textile yarn, cloth & mnfrs 4,918.5 4,592.1 597.2 676.6 762.8 636.0 299.3 291.0 226.0 194.3

of which:

cotton manufactures 3,004.2 2,644.5 171.1 217.8 748.9 618.0 97.3 89.1 51.1 44.4

Clothing 1,872.2 1,803.9 741.2 744.4 7.9 11.8 211.2 180.8 294.0 246.8

Footwear 51.5 48.3 0.6 0.6 0.2 0.0 5.6 5.9 11.5 8.8

Scientific instruments etc 139.3 138.7 59.2 58.9 0.3 0.3 9.1 9.4 21.1 18.2

Total incl others 9,266.0 8,605.6 1,553.7 1,624.1 875.0 730.0 623.9 602.3 663.0 578.4

Imports from Kuwait, January-December 1997, $692.1m. b Imports from Malaysia, January-December 1997, $558.2m.

Source: UN, External trade statistics, series D.



Pakistan: structure of trade($ m)

Jan-Dec Jan-Oct Jan-Oct1997 1997 1998

Imports cifFood 1,934.9 1,567.1 1,259.0 of which: wheat, unmilled 802.0 624.5 295.1 sugar 139.6 139.1 3.5 tea 169.4 127.5 197.7 palm oil 575.7 468.1 524.8Textile fibres & manufactures incl clothing 216.6 179.4 174.4 of which: synthetic fibres 110.7 91.3 99.9Petroleum & products 2,070.0 1,762.6 1,064.7Chemicals 1,842.7 1,548.0 1,483.4 of which: medicaments 264.4 220.4 202.8 fertilisers 233.0 185.4 139.8 plastics 321.0 270.0 257.6Ores, metals & manufactures 474.1 414.1 295.9 of which: iron & steel 402.6 353.8 251.0Machinery & transport equipment 3,041.7 2,659.3 1,739.0 of which: road motor vehicles 368.6 317.9 267.2Total incl others 11,565.9 9,757.9 7,491.3

Domestic exports fobPrimary commodities 1,137.2 880.3 895.9 of which: fish & preparations 175.7 143.5 101.4 rice 483.4 371.7 451.6 leather 224.4 189.4 158.4Textile manufactures 5,222.8 4,632.4 4,280.2 of which: cotton yarn 1,357.8 1,143.6 821.7 cotton fabrics 1,293.0 1,078.1 968.2 synthetic fabrics 565.3 459.9 465.5 knitwear 610.2 558.9 589.7 garments 769.1 617.5 567.6 bed linen 483.8 380.4 432.2Other manufactures 1,267.9 1,043.7 966.5 of which: leather manufactures 364.2 291.1 274.2 carpets 196.6 158.4 164.3 sports goods 353.8 293.6 290.0Total incl others 8,610.3 7,001.5 6,746.4Source: State Bank of Pakistan; Monthly Bulletin of Statistics.



Pakistan: direction of trade($ m)

Jan-Dec Jan-Oct Jan-Oct Jan-Dec Jan-Oct Jan-OctImports cif 1997 1997 1998 Domestic exports fob 1997 1997 1998

US 1,364.5 1,144.8 715.7 US 1,621.5 1,290.9 1,463.6Malaysia 638.0 526.5 653.1 Hong Kong 732.7 614.2 488.9Japan 870.1 752.9 601.6 UK 603.6 491.2 465.9Saudi Arabia 780.1 650.3 484.0 Germany 579.8 478.6 443.4UAE 1,029.7 864.6 477.6 UAE 443.6 366.6 354.2Kuwait 698.4 596.2 389.4 Japan 448.1 389.5 241.5Germany 721.8 623.1 356.3 Netherlands 279.0 224.3 219.4UK 491.7 424.2 354.5 Italy 238.3 196.0 183.5Total incl others 11,565.9 9,757.9 7,491.3 Total incl others 8,610.3 7,001.5 6,746.4Source: State Bank of Pakistan; Monthly Bulletin of Statistics.



Documents

Pakistan Afghanistan