Since then, however, a sea change has occurred in the world’s perception of Pakistan. The country is now a trusted member of the so called “international coalition against terrorism”, reaping unprecedented dividends from its "unconditional support" to the coalition.
The dramatic events of 11 Sept. meant a virtual turnaround for the fledgling economy of the south Asian nation. When the attacks occurred in New York and Washington Pakistan was still reeling under western economic sanctions for having conducted nuclear tests in 1998.
Its annual credit flows and investment had shrunk to a couple of hundred million dollars, foreign exchange reserves dwindled to less than $300 million and most foreign investors left the country.
Additionally, the International Monetary Fund (IMF) had linked loans to a stringent structural adjustment programme.
Today, guided by an approving nod from Washington, London, Paris and Berlin, the IMF and other international finance institutions are more generous than ever before, offering loans and grants.
Major western donors have lifted economic sanctions and rescheduled the debt Pakistan owes them, with the result that its foreign exchange reserves have surged beyond $11 billion.
Foreign debt, once a staggering $38 billion, is down by $2 billion with the government even contemplating earlier than scheduled repayment of some loans.
During Pakistan President Pervez Musharraf’s July visit to Washington, the Bush administration paved the way for $1.5 billion in new grants, and in re-profiling $12.5 billion in bilateral debt with the Paris Club – the group that provides credits to developing nations.
Pakistan raking in the dollars,
thanks to the US
Remittances by expatriate Pakistanis, particularly in the Gulf, have also more than doubled from less than $800 million a year to over three billion since 9/11 because of the crackdown on the 'hundi' system (informal banking channel), which most expatriates used in order to save time and money.
All these factors have combined to revive investor confidence. It sent the benchmark Karachi Stock Exchange (KSE-100) index beyond the 4000 mark for the first time in the country's 56-year history. The index had fluctuated between 1200-2000 points in previous years.
But do the rosy figures mean Pakistan is out of trouble ?
As far as Pakistan’s debt portfolio and financial health is concerned, probably yes.
“Three years down the road, Pakistan would no longer need IMF and World Bank assistance,” says a confident Finance Minister Shaukat Aziz.
Aziz believes the “expression of appreciation for Pakistan by US President George Bush and the promised $3 billion package would help enhance the cash flows to Pakistan and also attract fresh investments."
“Three years down the road, Pakistan would no longer need IMF and World Bank assistance”
Pakistani Finance Minister
But some external factors which economic experts see as a major impediment are still in place.
“Negative travel advisories (against visiting Pakistan) being issued by major countries to their citizens and businessmen and exaggerated accounts of events (related to sectarian violence and armed attacks) have had a very adverse impact on the investment climate,” says the country’s central bank chief Dr Ishrat Hussain.
Following a string of attacks on Christian and western targets in different parts of the country since March 2002, most western countries declared Pakistan unsafe, and advised its nationals not to travel there unless necessary.
Despite its peaceful environs and availability of almost every comfort, the capital Islamabad, for instance, is still a non-family station for most diplomats.
With a population growth of close to 3%, Pakistan needs a couple of billion dollars a year investment to generate new employment. But money is hard to come by in view of the negative image that accompanies Pakistan’s crackdown against pro-Taliban and al-Qaida groups.
"If enough revenue was not generated and investment stayed away, economic progress would stagnate and the government will once again have to resort to heavy borrowing as was done in the past," cautions Dr Hussein.
With massive structural reforms, unprecedented recoveries and new mechanisms to ensure repayment of loans in place, most commercial banks are at the moment awash with money, and are fighting for every fraction of the single-digit interest rates to lend money.
“Unless major countries remove their travel advisories, and until the threats by anti-US and anti-Musharraf groups loom, fewer investors would be ready to risk investments,” says Saqib Sheerani, the chief economist with the ABN-Amro Bank in Islamabad.
Sheerani says mere verbal appreciation and a stream of credits and grants do not automatically guarantee revival of economy.
“Big nations must repose confidence in the country’s security environment and nudge their investors to step forward to stake their money here,” he maintains.
Other analysts also believe that factors like internal and external security concerns, political instability, a shaky relationship with an unstable Afghanistan, and the perennial state of confrontation with its globally influential neighbour, India, still pose formidable challenges to the managers of Pakistan's economy.
In the words of political analyst Shahidur Rehman:
“Wooing domestic and foreign investment remains a daunting task for the government because investors would still opt to play cautiously unless convinced the economy can withstand internal political changes and sustain without external assistance.”