Economy
Throughout the 1990s, Pakistan’s economy suffered for a number of reasons, but from 2002 to 2004
the economy has recovered as a result of changes in government policies and the resumption of international lending. Economic statistics do not reflect the reality of the economy, because official economic data omit the informal economy, which is estimated to equal about 30 percent of the formal economy. Agriculture employs the greatest proportion of the working population but accounts for less than 25 percent of gross domestic product (GDP). This discrepancy is the result of rapid growth in services and industry since the 1980s, although major industries, such as textiles and sugar, are heavily reliant on agriculture.

Since independence, economic growth rates have been impressive but also have fluctuated widely. These fluctuations have occurred largely because successive governments have emphasized different sectors through changes in subsidies, regulations, and state ownership of industry. Furthermore, shifts in international aid and foreign capital flows have influenced economic growth through changes in
government spending and budget deficits. Still, from 2002 to 2004 there were surpluses in the current
account, inflation was low, and export growth was the highest in almost a decade. Economic liberalization and deregulation began in the early 1980s, continued through the 1990s, and have
accelerated under the government of President Pervez Musharraf (1999). The government has shifted from state ownership of many industries and heavy regulation of the private economy to privatization of some state industries, deregulation, facilitation of capital flows, and reforms of the financial system and monetary policy. Still, lax fiscal and monetary policies, infrastructural deficiencies, a poorly developed
human resource base, and persistent market distortions that benefit a small elite of landowners, industrialists, and others undercut economic potential.

According to World Bank data, in 2003 Pakistan’s GDP was US$68.6 billion, gross national income (GNI) per capita was US$430, and PPP per capita was US$2,060. GDP grew an average of 5.4 percent annually from 1961 to 2003, but average annual GDP growth from 1993 to 2003 was lower, at 3.4 percent.

Tourism
According to government statistics, the number of foreign tourists declined throughout the 1990s, as
did earnings from foreign tourism. The number of foreign tourists ranged from 80,000 to 180,000 from the mid-1980s to the mid-1990s but dropped to around 70,000 annually thereafter. Pakistan receives about 6 percent of the foreign tourists who visit South Asia. Foreign exchange receipts from tourists peaked at US$156.5 million in 1990 but dropped to US$117 million by the end of the 1990s. The decline in foreign tourists is believed to be due to security concerns and lack of government effort to attract tourists.

Foreign Economic Relations
Pakistan is a member of the Asian Development Bank (ADB), the Colombo Plan, the South Asian Association for Regional Cooperation (SAARC), and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). It has freetrade arrangements (FTAs) with China, Sri Lanka, and the European Union, and by the end of 2004 had sought FTAs with Mexico and the United States. Historically, political issues have affected Pakistan’s for-eign trade and aid. In 1998 the United States and international donors imposed sanctions because of Pakistan’s successful nuclear tests. Those sanctions were dropped after the September 11, 2001, terrorist attacks because the United States regarded Pakistan as an important ally against transnational terrorists operating out of Afghanistan.

Government Overview
The government is based on the much-amended constitution of 1973, which was suspended twice (in
1977 and 1999) and reinstated twice (in 1985 and 2002). According to the constitution, Pakistan is a federal parliamentary system with a president as head of state and a prime minister as head of government.

Politics in Pakistan often have not operated according to the constitution. The military and Civil Service of Pakistan (CSP) frequently have been the preeminent actors in the country’s power structure, and in 1999 General Pervez Musharraf assumed power in a military coup. Moreover, there has been some concern that Pakistan could become a “failed state” because of the apparent inability of any single entity to control the country, the weakened productivity of a population beset by years of economic difficulties, and continuing problems of communal conflict and terrorism. Ethnic and provincial tensions often are manifested in rivalries between political parties, and several governments have been ended by assassination or military coup rather than by formal, electoral change.

Religion has played an important role in politics, and religious differences have been very salient in Pakistani government and civil society. The government has consistently been faced with tensions of whether and how to synthesize Islamic principles into an essentially secular and Western form of government. Religious differences among politically influential actors have become increasingly prominent since the early 1980s, when politics became more religiously oriented under the rule of General Zia ul-Haq (1977– 88). As religious groups’ access to government resources increased, groups competed for political resources and the capacity to promote their approach to Islam, and sectarian divisions often became violent.
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