REPORTING STANDARD ON OPPORTUNITY LOSSES

Working in the public sector environment evoke my soul many times about the need of financial reporting standard for discloser requirements with regard of the opportunity loss(es) if any pointed out by the management/auditors (whether internal auditors or external auditors).

It is a serious issue especially in case of state owned enterprises that are not subjected to legislative scrutiny by Auditor General of Pakistan (AGP) or the Public Accounts Committee (PAC) relating to the effective use of public fund. The Board of Directors (BOD) should consider about the need of the Accounts Committee consisting of board of directors, whose report along with minutes of meting should be submitted to Board of Directors and AGP or Public Accounts Committee for review in good gesture for good governance.

In the public sector it could also been observed that effective fund management is missing. Public taxes/funds are usually been placed/invested with lower rates of return although the opportunity of higher yield fulfilling the organizational need as well as according to the corporation policy is available.  Beside the culprits this credit goes to our bureaucratic attitude to obliged others and use the public fund in personal interest.

As a policy matter it must be decided and instructed to all public owned entities that placement could only be made to the highest return yielding financial institution, for contrary prior approval from accounts committee / Board of Directors is required. The board of the corporation must also give guidelines in regard of minimum credit rating of the financial institution for secure placement.

The commercial audit wing of the Auditor General of Pakistan should also perform a monitoring role for compliance for adopted standards and good practices by state-owned enterprises. Monitoring role for Public sector entities need to be improve. There is currently no Public sector Enterprises Monitoring Boards as established in other countries. This role is performed by the corporate wing of the ministry of finance. There is little or no involvement of Auditor General in the selection of internal auditors and external auditors of the state-owned enterprises. There is a need to first reform the individuals or participants in the process of decision making, identified person(s) must be charged with authority and responsibility for implementation.

Integrity and objectivity comes with the fear of the Accountability, Openness in front of public would also play an important role in this regard. Financial Statements / Statement of Expenditure and revenue must be opened for public (may be uploaded in website etc) so that independent opinion could be obtain for better prospective. Holder of public offices should be as open as possible about all the decision and actions that they take. They should give reason for their decision and restrict information only when the wider public interest clearly demands.

Tax evasion – a worldwide sophisticated phenomenon

Tax evasion is usually understood to be an act in which an individual intentionally chooses to not pay income taxes due. This act of not paying taxes may be conducted by simply chooses to not file an income tax return, or choosing to not include information about taxable income on the filed return. In all instances, tax evasion can be considered to be fraud, and usually carries stiff penalties.

While there are some that consider any type of omission from the tax return to constitute tax evasion, it is important to remember that it is possible to omit an item simply because the data was overlooked when filing the return. Thus, the intent of the individual plays a key role in determining if tax evasion has taken place. When the return fails to include information simply because the filer overlooked the data, there is a good chance that the tax agency will still impose a fine of some sort, but no further action would be taken.

However, when it can be demonstrated that the individual willfully attempted to hide information about income that was subject to withholding, the tax agency may choose to impose more than a simple interest fine on the amount omitted. The filer may be subject to stiff fines associated with the deliberate failure to file an accurate tax return, or even possibly face prosecution and some time spent in jail for the intentional negligence.

Tax evasion is considered a crime, and is often classified as fraud. All citizens suffer from tax evasion, as the act prevents the government from collecting funds to use for the operation of essential services to the population. When these funds are not collected, services have to be curtailed and thus result in a lower quality of life for all citizens.

Persons who become aware of an error on calculating taxes on reported income or notice that income was inadvertently left off the tax return for a given period should contact the tax agency and make arrangements to file an amended return as soon as possible. This will help to minimize the chances of being suspected of tax evasion, and allow the matter to be settled before interest charges become significant.

Criminal Tax Evasion

Moving funds suspiciously and with no clear reason or documentation can attract the attention of tax authorities. Once tax authorities suspect someone of tax evasion, they will scrutinize that taxpayer closely. Notable members of the criminal community, including no less a figure than infamous gangster Al Capone, have gotten in trouble for tax evasion.

In order to become a tax inspector you must have excellent accounting and research skills. Tax inspectors must review tax returns in order to find tax evasion or mistakes. In order to begin a career related to taxes, you must study tax codes, have a sharp understanding of mathematics and be able to work with people.

Convicted Tax Evasion

For example, a ten-year statute of limitation on tax debt means that a person cannot be charged with tax evasion more than ten years after the occurrence. Warrants, however, do not have a statute of limitations.

Tax Evasion Investigation

In order to become a tax inspector you must have excellent accounting and research skills. Tax inspectors must review tax returns in order to find tax evasion or mistakes. In order to begin a career related to taxes, you must study tax codes, have a sharp understanding of mathematics and be able to work with people.

Referred to as tribunals, these are essentially situations in which a person is prosecuted for tax evasion. The inspector may present evidence he uncovered that led to the charge of tax evasion.

Bank deposit cash expenditure method

The bank deposit cash expenditure method identifies tax evasion through review of the taxpayer’s bank deposits. This method of investigation primarily focuses on whether the taxpayer’s total bank deposits throughout the year are equal to the taxpayer’s reported income. This method is most appropriate when the majority of the taxpayer’s income is deposited in the bank and most expenses are paid by check. This method is most commonly used for surveillance of tipped employees and is combined with statistical analysis to determine what a tipped employees actual wages are. Information gathered through this method is most successful when the credibility of tipped employees can be destroyed. This method is used less frequently now for tipped employees because the IRS negotiates with hotels or casinos, the largest employers of tipped employees, to identify a tip estimate. If the tipped employee reports the minimal amount agreed upon, he is not questioned by the IRS. However, it is recommended for corroborating other methods of proof. Given the uncertainty of this method, this method likely could not be used in criminal prosecutions where the guilt must be found beyond a reasonable doubt.

Whistle blower Program

This is a program which allows anonymous whistle blowers may receive certain percent of any recovery including all penalties, interests and any other monies collected from the government. The whistle blower program seeks information based on evidence and analysis which can provide a solid basis for further investigation rather than speculation and hearsay. The program is designed to provide incentive to ordinary citizens to snitch on tax cheats. The program provides far greater incentives for whistle blowers than previous programs because under prior programs the government was not required to compensate whistleblowers. Under this program, a taxpayer may file in court if they are not issued a deserved award.

What is Tax Fraud?

Taxes are monies that individuals and businesses owe to governments. These amounts are usually obligatory, unless some type of exemption applies. Tax fraud occurs when an individual or business aims to cheat the government out of all or part of what is owed. People do this by keeping false records, underreporting tips or cash income, and concealing assets.

There are numerous types of taxes, including income tax and sales tax. There are also numerous governments to which taxes may be owed. These include county, state, and federal governments.

There are many methods people can use to commit tax fraud. With regard to income taxes, people may lie about how much they have earned. By claiming to have earned less on a tax return than a person actually earned, he can fraudulently lower his tax burden.

Tax fraud can also be committed in regards to other types of taxes. Counties, for example, often charge tax on personal property. To reduce the amounts owed, a person may try to conceal valuable items or illegally transfer them to avoid paying the correct amount of taxes. An individual or business does not have to be directly involved in the fraudulent actions to be accused of tax fraud. The party who owes taxes may be held liable for the acts of third parties such as accountants and lawyers.

Tax fraud can be handled as a civil matter. In these instances, a guilty party is generally ordered to pay the amounts due plus penalties and fines. Some or all of his assets may be seized to compensate the government he owes. Sometimes, however, tax fraud is pursued as a criminal matter. In these instances, a person can be ordered to pay criminal fines and may be incarcerated.

Economy of Pakistan - at a Glance

The economy of Pakistan is 47th largest in the world (in nominal terms) and 27th largest in the world (in absolute dollar terms). Pakistan has a semi-industrialized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other industries. Growth poles of Pakistan's economy are situated along the Indus River; diversified economies of Karachi and Punjab's urban centers coexist with lesser developed areas in other parts of the country. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy.

GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06 due to economic reforms in the year 2000 by the Musharraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable.

Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

First five decades

When it gained independence in 1947 from UK. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade.

During the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing. Many countries sought to emulate Pakistan's economic planning strategy and one of them, South Korea, copied the city's second "Five-Year Plan" and World Financial Center in Seoul is designed and modeled after Karachi. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth. In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s. The economy recovered during the 1980s via a policy of deregulation, as well as an increased inflow of foreign aid and remittances from expatriate workers.

Recent decades

This is a chart of trend of gross domestic product of Pakistan at market prices estimated by the International Monetary Fund with figures in millions of Pakistani Rupees.

Doing Business

The World Bank (WB) and International Finance Corporation's flagship report Ease of Doing Business Index 2010 ranked Pakistan 85 among 181 countries around the globe. Pakistan comes highest in South Asia but also ranks higher than China, Russia and India which is at 133. The top five countries are Singapore, New Zealand, the United States, Hong Kong and United Kingdom.

The Government of Pakistan has granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical education, are intended there.

The economy today

Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of Balance of Payment crisis. "The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to $11.3 billion from an initial $7.6 billion.”

During the mid-2000s, Pakistan experienced a period of tremendous growth, averaging 7% yearly GDP growth between 2003-07. Due to its large population of 186 million, it was included in 2005 by the Goldman Sachs Global Economics Group as one of the "Next Eleven (N-11)" – a group of countries with economies that “might have the kind of potential for global impact that the BRICs projections highlighted, essentially an ability to match the G7 in size”.

By October 2007, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. Exceptional policies kept Pakistan's trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion.

Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent an overcoming of the present crisis wherein growth is a mere 3.5-4%.

Stock market

In the first four years of the twenty-first century, Pakistan's KSE 100 Index was the best-performing stock market index in the world as declared by the international magazine “Business Week”. The stock market capitalisation of listed companies in Pakistan was valued at $5,937 million in 2005 by the World Bank. But in 2008, after the General Elections, uncertain political environment, rising militancy along western borders of the country, and mounting inflation and current account deficits resulted in the steep decline of the Karachi Stock Exchange. As a result, the corporate sector of Pakistan has declined dramatically in recent times.

Growing middle class

Measured by purchasing power, Pakistan has a 30 million strong middle class, according to Dr. Ishrat Husain, Ex-Governor (2 December 1999 - 1 December 2005) of the State Bank of Pakistan. It is a figure that correlates with research by Standard Chartered Bank which estimates that Pakistan possesses a "a middle class of 30 million people that Standard Chartered estimates now earn an average of about $10,000 a year." Latest figures put Pakistan's Middle Class at 35 million strong. In addition, Pakistan has a growing upper & upper middle class, which was estimated at 6.8 million in 2002 and has now grown to 17 million people as of 2010, with relatively high per capita incomes.

On measures of income inequality, the country ranks slightly better than the median. In late 2006, the Federal Board of Revenue estimated that there were almost 2.8 million income-tax payers in the country.

Poverty levels have decreased by 10% since 2001 Foreign Companies which provide for Pakistani middle classes have been very successful. For example, demand for Uniliver products have recently been so high that even after doubling production the Anglo-Dutch company struggled to meet demand and it's Chairman stated "Pakistanis can’t seem to have enough".

Poverty alleviation expenditures

Pakistan government spent over 1 trillion Rupees (about $16.7 billion) on poverty alleviation programs during the past four years, cutting poverty from 35% in 2000-01 to 24% in 2006. Rural poverty remains a pressing issue, as development there has been far slower than in the major urban areas.

Demographics

With a per capita GDP of over $3000 (PPP, 2006) compared with $2600 (PPP, 2005) in 2005 the World Bank considers Pakistan a medium-income country, it is also recorded as a "Medium Development Country" on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 56% of adults are literate, and life expectancy is about 64 years. The population, about 168 million in 2007, is growing at about 1.80%.

Relatively few resources in the past had been devoted to socio-economic development or infrastructure projects. Inadequate provision of social services, high birth rates and immigration from nearby countries in the past have contributed to a persistence of poverty. An influential recent study concluded that the fertility rate peaked in the 1980s, and has since fallen sharply. Pakistan has a family-income Gini index of 41, close to the world average of 39.

Employment

The high population growth in the past few decades has ensured that a very large number of young people are now entering the labor market. Even though it is among the seven most populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India, and the Philippines. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult. Significant progress in taxation and business reforms has ensured that many firms now are not compelled to operate in the underground economy.

In late 2006, the government launched an ambitious nationwide service employment scheme aimed at disbursing almost $2 billion over five years.

Mean wages were $0.98 per manhour in 2009.Rate of unemployment is 25%.

High inflation and limited wage growth have drawn more women into the workforce to feed their families, in spite of cultural resistance and domestic abuse over the issue.

Tourism

Tourism in Pakistan is a growing industry. Major attractions include ruins of Indus valley civilization and mountain resorts in the Himalayas. Himalayan and Karakoram range (which includes K2, the second highest mountain peak in the world, attracts adventurers and mountaineers from around the world. Karachi and Lahore are major attractions for authentic Pakistani food and culture.

Rupee

The basic unit of currency is the Rupee, ISO code PKR and abbreviated Rs, which is divided into 100 paisas. Currently the newly printed 5,000 rupee note is the largest denomination in circulation. Recently the SBP has introduced all new design notes of Rs. 5, 10, 20, 50, 100, 500, 1000, and 5000 denomination, while the design work of Rs.10,000 note is in progress which will help the banking industry in keeping few notes in saving accounts. The new notes have been designed using the euro technology and are made in eye-catching bright colours and bold, stylish designs.

The Pakistani Rupee was pegged to the US Dollar until 1982, when the government of General Zia-ul-Haq, changed it to managed float. As a result, the rupee devalued by 38.5% between 1982/83 and 1987/88 and many of the industries built by his predecessor suffered with a huge surge in import costs. After years of appreciation under Zulficar Ali bhutto and despite huge increases in foreign aid the Rupee depreciated.

Foreign exchange rate

1 Pakistani Rupee (PKR) = 100 Paisa

The Pakistani rupee depreciated against the US dollar until the turn of the century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilized by lowering interest rates and buying dollars, in order to preserve the country's export competitiveness

• Exchange rates: Pakistani rupee (PKR) per US$1

PKR per US dollar 1995-2008
Year		Highest ↑			Lowest ↓
		Date	Rate		Date	Rate
1995			PKR 30.930
1996						PKR 35.266
1997			PKR 40.185
1998			PKR 44.550
1999			PKR 51.90
2000			PKR 53.6482
2001			PKR 61.9272
2002			PKR 59.7238
2003			PKR 57.752
2004			PKR 58.000
2007		Aug 05	PKR 60.75		Nov 01	PKR 60.50
2008		October 10	PKR 80.00		Apr 01	PKR 63.50
Source: PKR exchange rates in USD, SBP

Foreign exchange reserves

By October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised back its Foreign Reserves to $16.4 billion. Pakistan's trade deficit was at $13 billion, exports grew to $18 billion, revenue generation increased to become $13 billion and the country attracted foreign investment of $8.4 billion.

On October 11, 2008 State Bank of Pakistan reported that country's foreign exchange reserves had gone down by $571.9 Million to $7749.7 Million. The foreign exchange reserves had declined more by $10 billion to an alarming rate of $6.59 billion. In September 2010 According the State Bank Of Pakistan Pakistan's Foreign Reserves Stood at $16.99 Billion.

Structure of economy

The economy of the Islamic Republic of Pakistan is suffering with high inflation rates well above 26%. Over 1,081 patent applications were filed by non-resident Pakistanis in 2004 revealing a new-found confidence. Agriculture accounted for about 53% of GDP in 1947. While per-capita agricultural output has grown since then, it has been outpaced by the growth of the non-agricultural sectors, and the share of agriculture has dropped to roughly one-fifth of Pakistan's economy. In recent years, the country has seen rapid growth in industries (such as apparel, textiles, and cement) and services (such as telecommunications, transportation, advertising, and finance).

Sectors

Agriculture

Pakistan is one of the world's largest producers of the following commodities according to FAOSTAT, the statistical arm of the Food and Agriculture Organization of The United Nations, given here with the 2008 ranking:

• Apricot (3rd)
• Buffalo Milk (2nd)
• Chickpea (3rd)
• Cotton, lint (4th)
• Cotton, Seed (3rd)
• Dates (5th)
• Mango (6th)
• Onion, dry (4th)
• Oranges (11th)
• Rice,paddy (11th)
• Sugarcane (5th)
• Tangerines, mandarin orange, clementine (9th)
• Wheat (10th)

Pakistan's principal natural resources are arable land and water. About 25% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Pakistan irrigates three times more acres than Russia. Agriculture accounts for about 23% of GDP and employs about 44% of the labor force. Zarai Taraqiati Bank Limited is the largest financial institution geared towards the development of agriculture sector through provision of financial services and technical know how.

Industry

Pakistan's industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labour force.  Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.

The government is privatizing large-scale parastatal units, and the public sector accounts for a shrinking proportion of industrial output, while growth in overall industrial output (including the private sector) has accelerated. Government policies aim to diversify the country's industrial base and bolster export industries.

• Industries: textiles (8.5% of the GDP), fertilizer, cement, oil refineries, dairy products,food processing, beverages, construction materials, clothing, paper products, shrimp
• Industrial production growth rate: 6% (2005)
• Large-scale manufacturing growth rate: 19.9% (2005)

SME Sector

In Pakistan SMEs have a significant contribution in the total GDP of Pakistan, according to SMEDA and Economic survey reports, the share in the annual GDP is 40% likewise SMEs generating significant employment opportunities for skilled workers and entrepreneurs. Small and medium scale firms represent nearly 90% of all the enterprises in Pakistan and employ 80% of the non-agricultural labour force. These figures indicate the potential and further growth in this sector.

Automobile industry

Pakistan is an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years. Car ownership in Pakistan has risen by 40% per annum since 2001.

 CNG industry

As of 2010, Pakistan is one of the largest users of CNG (compressed natural gas) in the world. Presently, more than 3,000 CNG stations are operating in the country in 99 cities and towns, and 1000 more would be set up in the next two years. It has provided employment to over 50,000 people in Pakistan.

Cement industry

In 1947, Pakistan had inherited four cement plants with a total capacity of 0.5 million tons. Some expansion took place in 1956–66 but could not keep pace with the economic development and the country had to resort to imports of cement in 1976-77 and continued to do so till 1994-95. The cement sector consisting of 27 plants is contributing above Rs 30 billion to the national exchequer in the form of taxes.

Textiles

The Textile Industry is dominated by Punjab. 3% of United States imports regarding clothing and other form of textiles is covered by Pakistan. Textile exports in 1999 were $5.2 billion and rose to become $10.5 billion by 2007. Textile exports managed to increase at a very decent growth of 16% in 2006. In the period July 2007 – June 2008, textile exports were US$10.62 billion. Textile exports share in total export of Pakistan has declined from 67% in 1997 to 55% in 2008, as exports of other textile sectors grew.

Mining

Pakistan is endowed with significant mineral resources and emerging as a very promising area for prospecting/exploration of mineral deposits. Bases on available information, the country's more than 6,00,000 km² of outcrops area demonstrates varied geological potential for metallic and non-metallic mineral deposits. Except oil, gas and nuclear minerals regulated at federal level, Minerals are a provincial subject, under the constitution of Islamic Republic of Pakistan. Provincial governments are responsible for development and exploitation of minerals, besides, enforcing regulatory regime. In line with the constitutional framework the federal and provincial governments have jointly set out Pakistan first National Mineral Policy in 1995, duly implemented by the provinces, providing appropriate institutional and regulatory framework and equitable and internationally competitive fiscal regime.

In the recent past, exploration by government agencies as well as by multinational mining companies presents ample evidence of the occurrences of sizeable minerals deposits. Recent discoveries of a thick oxidized zone underlain by sulphide zones in the shield area of the Punjab province, covered by thick alluvial cover have opened new vistas for metallic minerals exploration. Pakistan has large base for industrial minerals. The discovery of coal deposits having over 175 billion tones of reserves at Thar in the Sindh province has given an impetus to develop it as an alternate source of energy. There is vast potential for precious and dimension stones.

The enforcement of Mineral Policy (1995) has paved way to expand mining sector activities and attract international investment in this sector. International mining companies have responded favorably to the NMP and presently at least four are engaged in mineral projects development.

Currently about 52 minerals are under exploitation although on small scale. The major production is of coal, rock salt and other industrial and construction minerals. The current contribution of mineral sector to the GDB is about 0.5% and likely to increase considerably on the development and commercial exploitation of Saindak & Reco Diq copper and gold deposits (world largest gold mine), Duddar zinc lead, Thar coal and gemstone deposits.

Services

Pakistan's service sector accounts for about 53.3% of GDP. Transport, storage, communications, finance, and insurance account for 24% of this sector, and wholesale and retail trade about 30%. Pakistan is trying to promote the information industry and other modern service industries through incentives such as long-term tax holidays.

The government is acutely conscious of the immense job growth opportunities in service sector and has launched aggressive privatisation of telecommunications, utilities and banking despite union unrest.

Communication

After the deregulation of the telecommunication industry, the sector has seen an exponential growth. Pakistan Telecommunication Company Ltd has emerged as a successful Forbes 2000 conglomerate with over US $1 billion in sales in 2005. The mobile telephone market has exploded fourteen-fold since 2000 to reach a subscriber base of 91 million users in 2008, one of the highest mobile teledensities in the entire world. In addition, there are over 6 million landlines in the country with 100% fibre-optic network and coverage via WLL in even the remotest areas. As a result, Pakistan won the prestigious Government Leadership award of GSM Association in 2006.

The contribution of the telecom sector to the national exchequer increased to Rs 110 billion in the year-end 2007-08 on account of the general sales tax, activation charges and other steps as compared to Rs 100 billion in the year-end 2006-07.

The World Bank estimates that it takes about 3 days to get a phone connection in Pakistan.

In Pakistan, the following are the top mobile phone operators:

1. Mobilink (Parent: Orascom Telecom Holding, Egypt)
2. Ufone (Parent: PTCL (Etisalat), Pakistan/UAE)
3. Telenor (Parent: Telenor, Norway)
4. Warid (Parent: Abu Dhabi Group / SingTel, UAE/Singapore)
5. Zong (Parent: China Mobile, China)

By March 2009, Pakistan had 91 million mobile subscribers - 25 million more subscribers than reported in the same period in 2008. In addition to the 3.1 million fixed lines, while as many as 2.4 million are using Wireless Local Loop connections. Sony Ericsson, Nokia and Motorola along with Samsung and LG remain the most popular brands among customers.

 Pakistan is on the verge of a telecom revolution and is by far the most attractive sector in Pakistan in terms of Foreign Direct Investment coming into the country. Since liberalisation, over the past four years, the Pakistani telecom sector has attracted more than $9 billion in foreign investments. During 2007-08, the Pakistani communication sector alone received $1.62 billion in Foreign Direct Investment (FDI) – about 30% of the country’s total foreign direct investment.

Present growth of state-of-the-art infrastructures in the telecoms sector during the last four years has been the result of the PTA's vision and implementation of the deregulation policy. Paging and mobile (cellular) telephones were adopted early and freely. Cellular phones and the Internet were adopted through a rather laissez-faire policy with a proliferation of private service providers that led to the fast adoption. With a rapid increase in the number of Internet users and ISPs, and a large English-speaking population, Pakistani society has seen an unparalleled revolution in communications.

According to the PC World, a total of 6.37 billion text messages were sent through Acision messaging systems across Asia Pacific over the 2008/2009 Christmas and New Year period. Pakistan was amongst the top five ranker with one of the highest SMS traffic with 763 million messages.

Pakistan is ranked 4th in terms of broadband Internet growth in the world, as the subscriber base of broadband Internet has been increasing rapidly. The rankings are released by Point Topic Global broadband analysis, a global research centre.

• Pakistan has more than 20 million Internet users in 2009. The country is said to have a potential to absorb up to 50 million mobile phone Internet users in the next 5 years thus a potential of nearly 1 million connections per month.
• Almost all of the main government departments, organisations and institutions have their own websites.
• The use of search engines and instant messaging services is also booming. Pakistanis are some of the most ardent chatters on the Internet, communicating with users all over the world. Recent years have seen a huge increase in the use of online marriage services, for example, leading to a major re-alignment of the tradition of arranged marriages.
• As of 2007 there were six cell phone companies operating in the country with nearly 90 million mobile phone users in the country.
• Wireless local loop and the landline telephony sector has also been liberalized and private sector has entered thus increasing the teledensity rate. In mid-2008, the Local Loop installed capacity reached around 5.5 million.
• Telecom industry created of 80,000 jobs directly and 500,000 jobs indirectly.

The Federal Bureau of Statistics provisionally valued this sector at Rs.982,353 million in 2005 thus registering over 91% growth since 2000.

Railways

A massive rehabilitation plan worth $1 billion over five years for Pakistan Railways has been announced by the government in 2005. A new rail link trial has been established from Islamabad-Pakistan via Teharan-Iran Via Istanbul-Turkey .Furthermore it would promote trade, tourism, and would also would serve as an effective link for the exports to Europe (as Turkey part of Europe and Asia].

Aviation

Pakistan International Airlines, the flagship airline of Pakistan's civil aviation industry, has turnover exceeding $1 billion in 2005. The government announced a new shipping policy in 2006 permitting banks and financial institutions to mortgage ships.

Private sector airlines in Pakistan include Airblue, which serves the main cities within Pakistan in addition to destinations in the Gulf and Manchester in the United Kingdom. The other private carrier is Shaheen Air International whose network covers the main cities of Pakistan and the Gulf.

Wholesale and retail trade

The Federal Bureau of Statistics provisionally valued this sector at Rs.1,358,309 million in 2005 thus registering over 96% growth since 2000.

Finance and insurance

A reduction in the fiscal deficit has resulted in less government borrowing in the domestic money market, lower interest rates, and an expansion in private sector lending to businesses and consumers. Foreign exchange reserves continued to reach new levels in 2007, supported by robust export growth and steady worker remittances.

Pakistan has been ranked 34 out of 52 countries in the World Economic Forum's first Financial Development Report, which was released in Pakistan through the Competitiveness Support Fund (CSF) in December, 2008. Under Factors, Policies and Institutions pillar, Pakistan ranks 49th in institutional environment, 50th in business environment and 37th in Financial Stability. In the Financial Intermediation Pillar Pakistan ranks 25th in banks, 42nd in non banks and 17th in Financial Markets. Under Capital Availability and Access, Pakistan ranks 33rd.

Pakistan's banking sector has remained remarkably strong and resilient during the world financial crisis in 2008–09, a feature which has served to attract a substantial amount of FDI in the sector. Stress tests conducted on June 2008 data indicate that the large banks are relatively robust, with the medium and small-sized banks positioning themselves in niche markets. Banking sector turned profitable in 2002. Their profits continued to rise for the next five years and peaked to Rs 84.1 ($1.1 billion) billion in 2006.

The credit card market continued its strong growth with sales crossing the 1 million mark in mid-2005.  Since 2000 Pakistani banks have begun aggressive marketing of consumer finance to the emerging middle class, allowing for a consumption boom (more than a 7-month waiting list for certain car models) as well as a construction bonanza.

The Federal Bureau of Statistics provisionally valued this sector at Rs.311,741 million in 2005 thus registering over 166% growth since 2000.

Ownership of dwellings

The property sector has expanded twenty-threefold since 2001, particularly in metropolises like Lahore. Nevertheless, the Karachi Chamber of Commerce and Industry estimated in late 2006 that the overall production of housing units in Pakistan has to be increased to 0.5 million units annually to address 6.1 million backlog of housing in Pakistan for meeting the housing shortfall in next 20 years. The report noted that the present housing stock is also rapidly aging and an estimate suggests that more than 50% of stock is over 50 years old. It is also estimated that 50% of the urban population now lives in slums and squatter settlements. The report said that meeting the backlog in housing, besides replacement of out-lived housing units, is beyond the financial resources of the government. This necessitates putting in place a framework to facilitate financing in the formal private sector and mobilise non-government resources for a market-based housing finance system.

The Federal Bureau of Statistics provisionally valued this sector at Rs.185,376 million in 2005 thus registering over 49% growth since 2000.

Public administration and defence

The Federal Bureau of Statistics provisionally valued this sector at Rs.389,545 million in 2005 thus registering over 65% growth since 2000.

Social, community and personal services

The Federal Bureau of Statistics provisionally valued this sector at Rs.631,229 million in 2005 thus registering over 78% growth since 2000.

Electricity

For years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. While the government claims credit for overseeing a turnaround in the economy through a comprehensive recovery, it has just failed to oversee a similar improvement in the quality of the network for electricity supply. Some officials even go as far as claiming that the frequent power cuts across Pakistan today are indicative of an emerging prosperity as there is fast-rising demand for electricity. And yet, the failure to meet the demand is indeed indicative of a challenge to that very prosperity. This is despite Pakistan having tremendous potential to generate wind power. Apart from this, most cities in Pakistan receive substantial sunlight throughout the year, which would suggest good conditions for investment in solar energy.

Recently, the Minister for Water and Power, Raja Pervez Ashraf, has claimed that load-shedding will end by December 2009 through employing rental power generation units and that the country will be self-sufficient by the year 2011. Critics argue that this is overly optimistic.

Power cuts continue by May 2011, despite the minister's claims.

Foreign trade, remittances, aid, and investment

Investment

Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-on-year to US$2.22 billion and portfolio investment by 276 per cent to $407.4 million during the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP) reported on April 24. During July–March 2005-06, FDI year-on-year increased to $2.224 billion from only $792.6 million and portfolio investment to $407.4 million, whereas it was $108.1 million in the corresponding period last year, according to the latest statistics released by the State Bank. Pakistan has achieved FDI of almost $8.4 billion in the financial year 06/07, surpassing the government target of $4 billion. Foreign investment had significantly declined by 2010, dropping by 54.6% due to Pakistan's political instability and weak law and order, according to the Bank of Pakistan.

Pakistan is now the most investment-friendly nation in South Asia. Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most barriers to the flow of capital and international direct investment have been removed. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors. Unlimited remittance of profits, dividends, service fees or capital is now the rule. Business regulations are now among the most liberal in the region. This was confirmed by the World Bank's Ease of Doing Business Index report published in September 2009 ranking Pakistan (at 85th) well ahead of neighbours like China (at 89th) and India (at 133rd).

Pakistan is attracting an increasingly large amount of private equity and was the ranked as number 20 in the world based on the amount of private equity entering the nation. Pakistan has been able to attract a large portion of the global private equity investments because of economic reforms initiated in 2003 that have provided foreign investors with greater assurances for the stability of the nation and their ability to repatriate invested funds in the future.

Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car industry). The privatisation process, which started in the early 1990s, has gained momentum, with most of the banking system privately owned, and the oil sector targeted to be the next big privatisation operation.

The recent improvements in the economy and the business environment have been recognised by international rating agencies such as Moody’s and Standard and Poor’s (country risk upgrade at the end of 2003).

Foreign acquisitions and mergers

With the rapid growth in Pakistan's economy, foreign investors are taking a keen interest in the corporate sector of Pakistan. In recent years, majority stakes in many corporations have been acquired by multinational groups.

• PICIC by Singapore based Temasek Holdings for $339 million
• Union Bank by Standard Chartered Bank for $487 million
• Prime Commercial Bank by ABN Amro for $228 million
• PakTel by China Mobile for $460 million
• PTCL by Etisalat for $1.8 billion
• Additional 57.6% shares of Lakson Tobacco Company acquired by Philip Morris International for $382 million

The foreign exchange receipts from these sales are also helping cover the current account deficit.

Foreign trade

Pakistan is a member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations.

Fluctuating world demand for its exports, domestic political uncertainty, and the impact of occasional droughts on its agricultural production have all contributed to variability in Pakistan's trade deficit.

In the six months to December 2003, Pakistan recorded a current account surplus of $1.761 billion, roughly 5% of GDP. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Exports grew by 19.1% in FY 2002-03. Major imports include petroleum and petroleum products, edible oil, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products.

Past external imbalances left Pakistan with a large foreign debt burden. Principal and interest payments in FY 1998-99 totaled $2.6 billion, more than double the amount paid in FY 1989-90. Annual debt service peaked at over 34% of export earnings before declining.

With a current account surplus in recent years, Pakistan's hard currency reserves have grown rapidly. Improved fiscal management, greater transparency and other governance reforms have led to upgrades in Pakistan's credit rating. Together with lower global interest rates, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage. Despite the country's current account surplus and increased exports in recent years, Pakistan still has a large merchandise-trade deficit. The budget deficit in fiscal year 1996-97 was 6.4% of GDP. The budget deficit in fiscal year 2003-04 is expected to be around 4% of GDP.

In the late 1990s Pakistan received about $2.5 billion per year in loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors. Increasingly, the composition of assistance to Pakistan shifted away from grants toward loans repayable in foreign exchange. All new U.S. economic assistance to Pakistan was suspended after October 1990, and additional sanctions were imposed after Pakistan's May 1998 nuclear weapons tests. The sanctions were lifted by president George W. Bush after Pakistani president Musharraf allied Pakistan with the U.S. in its war on terror. Having improved its finances, the government refused further IMF assistance, and consequently the IMF program was ended. The government is also reducing tariff barriers with bilateral and multilateral agreements.

While the country has a current account surplus and both imports and exports have grown rapidly in recent years, it still has a large merchandise-trade deficit. The budget deficit in fiscal year 2004-2005 was 3.4% of GDP. The budget deficit in fiscal year 2005-06 is expected to be over 4% of GDP. Economists believe that the soaring trade deficit would have an adverse impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 Rupees (March 2006) ) and other currencies.

One of the main reasons that contributed to the increase in trade deficit is the increased imports of earthquake relief related items, especially tents, tarpaulin and plastic sheets to provide temporary shelter to the survivors of earthquake of October 8, 2005 in Azad Jammu and Kashmir and parts of Khyber-Pakhtunkhwa, an official said. The rise in the trade gap was also fuelled by high oil import prices, food items, machinery and automobiles.

The Petroleum Ministry says that this year the bill of oil imports was expected to reach $6.5 billion against $4.6 billion in the last fiscal year, which is the main reason behind the all-time high trade deficit.

The EU is the single largest trading partner of Pakistan absorbing over one-third of the exports in 2003.

Exports

Pakistan's exports increased more than 100% from $7.5 billion in 1999 to stand at $18 billion in the financial year 2007-2008.

Pakistan exports rice, kinnows, mangoes, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods (renowned for footballs/soccer balls), Cutlery, surgical instruments, electrical appliances, software, carpets, rugs, ice cream, livestock meat, chicken, powdered milk, wheat, seafood (especially shrimp/prawns), vegetables, processed food items, Pakistani-assembled Suzukis (to Afghanistan and other countries), defense equipment (submarines, tanks, radars), salt, onyx, engineering goods, and many other items. Pakistan produces and exports cements to Asia and the Middle East. In August 2007, Pakistan started exporting cement to India to fill in the shortage there caused by the building boom. Russia is a growing market for Pakistani exporters. In 2009/2010 the export target of Pakistan was US $20 billion. As of April 2011,Pakistans exports stand at US $25 billion.

External Imbalances

Pakistan suffered a merchandise trade deficit of $13.528 billion for the financial year 2006-7. The gap has considerably widened since 2002-3 when the deficit was only $1.06 billion. Services sector deficit for 2006-2007 stood at $4.125 billion which equals the services export of $4.125 billion for the same year.

The combined deficit in services and goods stand at $17.653 billion which is approx 83.5% of country's total export of $21.136 (Goods and services). The rise in the trade gap has been attributed to high oil import bill, and rise in the prices of food items, machinery and automobiles.

Current account deficit - Current account deficit for 2006-7 reached $7.016 billion up by 41% over previous year's $4.490 billion.

Since the beginning of 2008, Pakistan's economic outlook has taken a dramatic downturn. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The middle term however may be less turbulent, depending on the political environment. The EIU hsd estimated that inflation should drop back to single digits in 2010, and that growth would pick up to over 5% per annum by 2011. However, the unprecedented floods of 2010 which encapsulated 20% of Pakistan's land area, have caused a monetary damage estimated to be in excess of $10bn, as a result of which real growth is almost flat and EIU's original targets will have to be revised. Much like previous natural disasters which have afflicted Pakistan, the floods of 2010 inflicted damage of epic proportions. However, the philanthropic nature of Pakistani people and widespread coverage by a fiercely independent and established media has proven yet again that Pakistan is an incredibly resilient nation.

Economic aid

Pakistan receives economic aid from several sources as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc. provides long term loans to Pakistan. Pakistan also receives bilateral aid from developed and oil-rich countries.

The Asian Development Bank will provide close to $6 billion development assistance to Pakistan during 2006-9. The World Bank unveiled a lending program of up to $6.5 billion for Pakistan under a new four-year, 2006–2009, aid strategy showing a significant increase in funding aimed largely at beefing up the country's infrastructure. Japan will provide $500 million annual economic aid to Pakistan. In November 2008, The International Monetary Fund(IMF) has approved a loan of 7.6 Billion to Pakistan, to help Stabilize and rebuild the country's economy. More recently the govt of Pakistan received an economic aid of US $5bn dollars out of which the US pledge of $1bn was described as a down-payment on the previously announced $1.5bn already promised to Pakistan for each of the next five years. The European Union promised $640m over four years, while reports said Saudi Arabia had pledged $700m over two years. Overall Friends of Pakistan had pledged $1.6 billion in aid, which would help Pakistan move forward on its way to self-reliance.

Remittances

The remittances of Pakistanis living abroad has played important role in Pakistan's economy and foreign exchange reserves. The Pakistanis settled in Western Europe and North America are important sources of remittances to Pakistan. Since 1973 the Pakistani workers in the oil rich Arab states have been sources of billions dollars of remittances.

The 7 million strong Pakistani diaspora, contributed US$8 billion to the economy in 2008. The major source countries of remittances to Pakistan include UAE, USA, Saudi Arabia, GCC countries (including Bahrain, Kuwait, Qatar and Oman), Australia, Canada, Japan, UK and EU countries like Norway, Switzerland, etc. .

For the first time in fiscal year 2010-11, remittances are expected to cross $10bn, which is reflective of the material success of the Pakistani community that is settled in the first world. An IMF research paper has revealed that workers’ remittances contribute 4% to the GDP of Pakistan and are equivalent to about 22% of annual exports of goods and services.

Government finances

• Fiscal year: 1 July - 30 June
• Budget outlay: Rs 3.259 trillion (FY2010/11)
• Revenues: $19.8 billion
• Expenditures:
• Debt - external: $50 billion (2010 est.)
• Economic aid - recipient: $1.2 billion (FY2010/11)

Revenues and taxation

Pakistan has a low tax/GDP ratio, which it is trying to improve. The current tax-to-GDP ration is estimated to be between 8%-9% which is far below developing other countries of the region such as India (15%) and Sri Lanka (18%). Recently, Pakistan's coalition government proposed the idea of imposing a Reformed General Sales tax which was modelled along the lines of VAT. However, with the war on terror having engulfed Pakistan's economy, the politically unpopular bill was not approved in the senate/parliament and has afforded some respite to the people of Pakistan who are already suffering from a stagnant economy and rampant inflation.

Expenditures (and the economic costs of War on Terror)

Government expenditures were $25 billion (2006 est.)

Pakistan has sustained immense socio-economic costs of being a partner in the international counter terrorism campaign. According to government estimates, the war on terror cost the Pakistani economy nearly US$8 billion a year in terms of lost exports, foreign investment, privatization, industrial output, tax collection (see table below for the government's estimation of the cost of ‘War on Terror’ to Pakistan as published in an IMF report).

(Rs billion)	2004/05	2005/06	2006/07	2007/08	2008/09
Direct Cost	67.103	78.060	82.499	108.527	114.033
Indirect Cost*	192.000	222.720	278.400	375.840	563.760
Total	259.103	300.780	360.899	484.367	677.793

'*On account of loss of exports, foreign investment, privatization, industrial output, tax collection, etc.

According to the IMF, the anti-terrorist campaign following the 9/11 attacks in the United States strained Pakistan’s budget, as allocations for law enforcement agencies had to be increased significantly, eroding resources for development in the country. In addition to human sufferings and resettlement costs, development projects are afflicted with delays which ultimately resulted in large cost over-runs. The heightened sense of uncertainty has contributed to capital flight and slowed down domestic economic activity, creating unease among foreign investors. There has also been massive unemployment in the terror-inflicted regions, as frequent bombings and worsening law and order situation have taken a toll on the socio-economic fabric of the country.

Sovereign bonds

Pakistan is expected to sell a dual-tranche sovereign bond worth $750 million on March 23, 2006 that analysts said should ensure a favorable reception in the bond market. The 10-year tranche would be $500 million and the 30-year portion $250 million. Pricing is expected during New York trading hours on March 23, 2006. The sources said that the 10-year tranche was expected to be priced at around 7.125%, while the longer-dated tranche was expected to be sold at around 7.875%, the top end of the indicative yield range of 7.75 to 7.875%.

The bonds, consisting of 10-year and 30-year tranches, had generated $1.5 billion in orders and a total size of as much as $1.25 billion had been anticipated for what is Pakistan’s third foray into the international debt market since 2004.

Government of Pakistan has been raising money from the international debt market from time to time.