based on inherited occupation and physical separation of themselves from native peoples, and this system was justified religiously in scripts called Vedas that form the basis of Hinduism.

By 326 B.C., Chandra Gupta Maurya established the first empire in South Asia, but it was his grandson, Ashoka, who led the Mauryan Empire to political prominence around 200 B.C. In the following centuries, various powers exercised control in the subcontinent, although most only temporarily maintained dominance over particular regions. From A.D. 320–550, the Gupta Empire controlled much of the subcontinent with the assistance of locally based intermediaries.

Around 711, Arab general Muhammad bin Qasim introduced Islam into Sindh, and by the tenth century, Islam was further promoted by Turkish sultan Mahmud of Ghazni, who controlled Punjab. By the thirteenth century, a succession of Turkic rulers known as the Mughals ruled most of the Indian subcontinent, and their influence on architecture, cuisine, and language endures to the twenty-first century. However, Mughal rule eventually suffered from numerous difficulties related to controlling a large land area with distinct economies and cultures. One notable challenge to Mughal rule came from Sikh rulers who took control of the Punjabi capital Lahore in 1761. The Sikh ruler, Ranjit Singh, eventually controlled vast areas of Punjab by 1818 and Kashmir by 1819, but after Singh’s death in 1840, infighting and factionalism among Sikh leaders led to the gradual disintegration of their holdings into small principalities. The British took advantage of the dissipation of Sikh power and ended Sikh rule by 1849.

European Influence: Although European contact with South Asia began in 1498 with the Portuguese, by the early 1800s the British had emerged as the preeminent political and economic power in much of the subcontinent. British dominance was far from complete, with at best tenuous control over what are now Pakistan’s western provinces. The British East India Company initially administered most of the Indian subcontinent, but the Indian-led Sepoy Rebellion of 1857 seriously challenged British occupation and caused the British government to administer India directly. This near defeat for the British prompted changes in their administration of the subcontinent and in their attitudes toward Indians, particularly Muslims. Prior to 1857, Muslims were prominent in economics and administration, and Muslim leaders are believed to have led the Sepoy Rebellion to regain the political and economic advantages enjoyed under Mughal rule. The British responded by dropping Urdu and Persian as official languages and replacing them with English, thus rendering many Muslims functionally illiterate and unemployable. The British also placed Hindus in many positions previously occupied by Muslims. As a result, Muslims perceived Hindus as opportunistic accomplices to the British oppression of Muslims, and this impression would endure for decades.

Independence Movement: Muhammad Iqbal conceived the concept of a Muslim homeland called Pakistan (“Land of the Pure”) in the 1920s, but the establishment of Pakistan was most advanced by Mohammad Ali Jinnah, a Bombay lawyer who proved to be a shrewd leader of the Muslim League political party. Jinnah claimed that India contained two nations, one Hindu and one Muslim, and that Muslims could not safely exist in a Hindu-dominated India. The degree to which Jinnah’s objectives were motivated by religion is still debated, but his ideas resonated with Muslims who felt politically, economically, and socially discriminated against and with Muslims having theological interests in an Islamic state. At various times, the Muslim League acted independently of other groups and in shifting alliances with the colonial administration and the Congress Party of Mohandas Karamchand Gandhi. Nevertheless, its objective was always the establishment of an independent Muslim homeland.

World War II and widespread resistance to British rule in India created burdens that the British found too costly to bear, and in July 1947 the British announced their intention to withdraw from India. Pakistan was born as a bifurcated state in August 1947, divided by 1,600 kilometers of Indian soil and by economic and social divisions between a largely Bengali East Wing and a heavily Punjabi and Sindhi West Wing. The country also faced problems with absorbing millions of Muslim refugees from India, addressing substantial poverty, and establishing both a functioning government and a sense of national unity over a geographically and ethnically divided state. Just as daunting were the deficit of administrative personnel and limited material assets that curtailed the country’s capacity to address its difficulties.

Post-Independence and Civil War: The influential founding fathers, Mohammad Ali Jinnah and Liaquat Ali Khan, had passed away by 1951, and their deaths were ominous precursors to the subsequent series of short-lived governments that changed just as often by military coup as by election. Pakistan was initially governed by a Constituent Assembly responsible for drafting a constitution and issuing legislation until the constitution went into force. However, the constitution’s drafting was delayed by disagreements over how different regions would be represented and how the state would embody Islamic principles. Legislative paralysis prompted Governor General Ghulam Mohammad to dismiss the Constituent Assembly in 1954. This action is now seen as the beginning of “viceregal” politics in Pakistan, in which the military and civil bureaucracy, not elected officials, govern the country and maintain substantial influence over society and the provinces. A new Constituent Assembly wrote the first constitution in 1956 and reconstituted itself as the Legislative Assembly. However, regional rivalries between East and West Pakistan and ethnic and religious tensions threatened political stability, and on October 7, 1958, President Iskander Mirza disbanded the Legislative Assembly. Later that month, Mirza himself was overthrown by General Mohammad Ayub Khan.

Ayub Khan saw himself as a reformer who would bring much-needed stability to the country, and he started by establishing a system of local governments called Basic Democracies for communities to have meaningful input into politics. But Ayub quickly lost interest and turned toward the civil bureaucracy for policy advice and formation. A new constitution was promulgated in 1962, and it established a weak legislature (the National Assembly) and a president with substantial legislative, executive, and financial powers.

Possibly the most notable event of Ayub’s tenure was a 17-day war with India in 1965 over the nagging Kashmir dispute. Pakistan argued that under the terms of the 1947 partition, Muslim-dominant areas of the subcontinent should become part of Pakistan and claimed that India had pressured the Hindu ruler of Kashmir to accede to India at the time of partition, ostensibly against the wishes of the largely Muslim population. The 1965 war had the unintended consequences of interrupting impressive economic growth and deflating the military’s confidence in its own abilities. Amid worsening societal and political problems, substantial popular opposition, and his own declining health, Ayub Khan resigned in 1969.

Subsequently, General Agha Mohammad Yahya Khan became president and chief martial law administrator, and he attempted to reinstitute parliamentary democracy. However, festering tensions over representation in the National Assembly led to civil war between East and West Pakistan in 1971. With Indian assistance, East Pakistan seceded and became the independent nation of Bangladesh. At the same time, India and West Pakistan fought another 17-day war, mostly in West Pakistan, which ended in a cease-fire agreement. Largely as a result of Pakistan’s military losses, Yahya resigned in 1971, and Zulfiqar Ali Bhutto was appointed president, becoming the first civilian head of government in nearly two decades.

Emergence of Civilian Rule: Bhutto lifted martial law, and a new constitution came into effect in August 1973. The constitution was heavily concerned with the role of Islam, the distribution of power between the federal and provincial governments, and the division of responsibilities between the president and prime minister, the latter assuming greater authority than before. Bhutto nationalized numerous industries, and the government’s heavy involvement in the economy would have enduring economic repercussions. The country appeared to be democratizing, but political opposition grew against Bhutto’s repression of political opponents and alleged voting irregularities. In July 1977, Bhutto was overthrown, and General Mohammad Zia ul-Haq became chief martial law administrator. Bhutto eventually was sentenced to death on charges of conspiring to murder a political opponent and was executed in 1979.

Martial Law and Islamization: Zia adapted the structure of Ayub Khan’s Basic Democracies to a new system of local governments and also adopted various measures to create an Islamic state. When the Soviet Union invaded Afghanistan in 1979, Pakistan became the recipient of numerous Afghan refugees and large-scale foreign aid from the United States, China, Saudi Arabia, and others. The refugees and financial assistance continued until the war’s end in 1989.

Zia officially terminated martial law in 1985 by assuming the presidency and reinstating the 1973 constitution. However, he also added the Eighth Amendment, which empowered the president to appoint and dismiss the prime minister and provincial governors and to dissolve the national and provincial legislatures. When Zia died in an airplane crash in August 1988, Benazir Bhutto—head of the Pakistan People’s Party (PPP) and daughter of Zulfiqar Ali Bhutto—became prime minister. Pakistan thus became the first Muslim country with a female head of government.

The Restoration of Civilian Government: Bhutto’s government was plagued by ethnic conflict, severe economic problems, and a lack of legislative support. In October 1990, Mian Nawaz Sharif, leader of the Islamic Democratic Alliance (IDA), became prime minister and faced the same problems that troubled Bhutto. In 1993 Bhutto’s PPP won the National Assembly, and she once again became prime minister. However, in 1996 President Farooq Leghari dismissed Bhutto on charges of corruption, and in 1997 Nawaz Sharif replaced her.

In 1998 India conducted nuclear tests, and two weeks later Pakistan reacted by detonating five nuclear devices. Many countries responded with condemnation and sanctions, but Pakistan felt that it finally possessed sufficient deterrent force against its perennial rival, India. Deterrence failed to hold, however, and in October 1999 India and Pakistan engaged in a limited conflict (the Kargil War), which Pakistan was widely seen as precipitating because of its suspected support of militants who entered Indian-held Kashmir from Pakistani-held Kashmir. The conflict proved to be embarrassing for the government, and, with the economy suffering tremendously, General Pervez Musharraf overthrew Nawaz Sharif in late October 1999.

Return to Military Rule: Musharraf became both president and chief of army staff, and he further consolidated his power through various legal measures. After the September 11, 2001, terrorist attacks in the United States, Musharraf’s government benefited from an infusion of economic and military aid, because Pakistan is seen as an important ally in the war on terrorism. However, Pakistan was widely suspected of complicity in a terrorist attack on India’s parliament in December 2001. In an April 2002 national referendum, Musharraf’s tenure as president was extended to 2007. In late 2004, Musharraf reneged on a previous commitment to relinquish his position as chief of army staff, much to the chagrin of many secular and religious political parties, who demanded that elections be held in early 2005.

In 2005 Pakistan continued to face many of the same problems that have plagued the country since its inception: government instability, tense relations with India, ethnic tensions, political divisions among provinces, economic dependence on international aid, and weak prospects for democracy. However, Pakistan’s government continued to survive and society to endure in spite of such difficulties, occasionally exhibiting remarkable flexibility and resilience. Indeed, it is often difficult to tell if Pakistan is on the precipice of disintegration or on the verge of renewal.

GEOGRAPHY

Location: Located in South Asia, Pakistan borders Iran to

the southwest, Afghanistan to the west and north, China to

the northeast, and India to the east. The Arabian Sea marks

Pakistan’s southern boundary.

Size: Pakistan’s exact size is debated because of its disputed

border with India. According to the United Nations and the

Pakistan government, the country has a total area of 796,095

square kilometers. This figure, however, does not include the

Pakistan-administered portions of Jammu and Kashmir (know

as Azad Kashmir and the Northern Areas, with areas of 11,639

square kilometers and 72,520 square kilometers, respectively). These areas are claimed by Pakistan, but because their possession is disputed, they are not included in official land area statistics.

Land Boundaries: Pakistan shares borders with Afghanistan (2,430 kilometers), China (523 kilometers), India (2,912 kilometers), and Iran (909 kilometers).

Disputed Territory: Afghanistan disputes the legitimacy of its border with Pakistan, and at times Afghanistan’s governments have argued that all Pashtun (Pakhtun) territory in Afghanistan and Pakistan should be under Afghan control. Pakistan and India have disputed possession of Jammu and Kashmir since 1947, and the issue remains unresolved despite numerous cease-fire agreements between the two countries. Jammu and Kashmir is split between the two countries by a United Nations-monitored border called the Line of Control.

Length of Coastline: Pakistan’s coastline totals 1,064 kilometers along the Arabian Sea.

Maritime Claims: Under the 1982 United Nations Convention on the Law of the Sea, Pakistan claims a 200-nautical-mile exclusive economic zone, a 12-nautical-mile territorial sea, and a 24-nautical-mile contiguous zone for security, immigration, customs, and other matters.

Topography: Pakistan has a diverse array of landscapes spread among nine major ecological zones. Its territory encompasses portions of the Himalaya, Hindu Kush, and Karakoram mountain ranges, making it home to some of the world’s highest mountains, including K2, which at 8,611 meters above sea level is the world’s second highest peak. Intermountain valleys make up much of the North-West Frontier Province, and rugged plateaus cover much of Balochistan Province in the west. In the east, expansive, irrigated plains along the Indus River cover much of of Punjab and Sindh provinces, which have deserts as well (Cholistan in Punjab, Thar in Sindh).

Principal Rivers: The main rivers are the Indus (2,749 kilometers within Pakistan) and its tributaries: the Chenab (730.6 kilometers), Ravi (680.6 kilometers), Jhelum (611.3 kilometers), and Sutlej (530.6 kilometers). The navigable portions of these rivers are generally small and unconnected as a result of seasonal variations in water flows and the presence of substantial irrigation structures.

Climate: Most of Pakistan has a generally dry climate and receives less than 250 millimeters of rain per year, although northern and southern areas have noticeable climatic differences. The average annual temperature is around 27°C, but temperatures vary with elevation from –30°C to –10°C during the coldest months in mountainous and northern areas of Pakistan-administered Kashmir to 50°C in the warmest months in parts of Punjab, Sindh, and the Balochistan Plateau. Mid-December to March is dry and cool; April to June is hot, with 25 to 50 percent relative humidity; July to September is the wet monsoon season; and October-November is the dry post-monsoon season, with hot temperatures nationwide.

Natural Resources: Economically important natural resources include arable land, chromite, coal, copper, fireclay, gypsum, iron, limestone, oil, natural gas, rock salt, and silica sand.

Land Use: More than 40 percent of the working population is employed in agriculture, yet the per capita amount of agricultural land is declining, and there are significant natural limitations to increasing the quantity of arable land. According to official statistics for 2004, the country’s total land area is 79.6 million hectares, but only 59.3 million hectares have been surveyed. Out of the surveyed land area, 24.6 million hectares are classified as not available for cultivation, 3.6 million hectares are forest area, and 9.2 million hectares are unused but believed to be cultivable. Approximately 22 million hectares are used for cultivation, of which nearly 16 million hectares are actually sown, with the remainder left fallow. About 13.5 million hectares of the sown area are irrigated, and 6.5 million hectares are sown more than once per year. Most cultivable and irrigated land is located in the eastern provinces of Punjab and Sindh around the Indus River and its tributaries. Pakistan has an extensive but inefficient canal system for irrigation, and much of the crop area is rain fed, but precipitation tends to be unevenly distributed throughout the year.

Environmental Factors: Numerous environmental problems threaten the economy and the population’s health, and there is little indication of their abatement. A 1997 World Bank study estimated the annual cost of Pakistan’s environmental problems at US$1.8 billion in health expenditures, reduced labor productivity, and other costs. The availability of natural resources is limited by the dry climate and mountainous terrain, substantial population growth is increasing pressure on the resource base, and resource management has suffered from the emphasis on rapid economic growth and often-unregulated forms of economic productivity. As a result, human transformation of the environment is manifest in several problems. Population growth and poor water infrastructure have reduced per capita water availability from 53,000 cubic meters to 1,200 cubic meters, and heavy reliance on firewood has contributed to the world’s second highest rate of deforestation. Poor agricultural practices have led to soil erosion, groundwater degradation, and other problems that have hindered crop output and contributed to health problems for rural communities. Solid waste burning, low-quality fuels, and the growing use of fuel-inefficient motor vehicles have contributed to air pollution that in some cities—such as Islamabad, Lahore, and Rawalpindi—has exceeded levels deemed safe by the World Health Organization.

The government has expressed concern about environmental threats to economic growth and social development and, since the early 1990s, has addressed environmental concerns with new legislation and institutions such as the Pakistan Environment Protection Council. Yet, foreign lenders provide most environmental protection funds, and only 0.04 percent of the government’s development budget goes to environmental protection. Thus, the government’s ability to enforce environmental regulations is limited, and private industries often lack funds to meet environmental standards established by international trade organizations.

Time Zone: Pakistan is in a single time zone, Greenwich Mean Time plus 5.5 hours.

SOCIETY

Population: Pakistan has a large, mostly rural population with a high rate of growth. The government estimates the population at 152.8 million as of December 2004, not including 1.2 million refugees from Afghanistan (2002 estimate). From 1981 to 1998, population growth averaged nearly 2.7 percent annually. If this growth rate continues, the population will double approximately every 26 years. According to Pakistan’s 1998 census, the overall population density was 166.3 persons per square kilometer, but provincial population densities range from 18.9 in Balochistan to 358.5 in Punjab. Furthermore, the population is clustered in the eastern provinces of Punjab and Sindh, which contain 78.6 percent of the total population. According to the 1998 census, 67.5 percent of the population lived in rural areas. Only Sindh had roughly equal rural and urban populations (51.2 percent and 48.8 percent, respectively).

Demography: Pakistan’s fast-growing population has a substantial proportion of youths. In 2004, 40.2 percent of the population was aged 14 or younger, 55.7 percent was 15–64 years of age, and only 4.1 percent of the population was 65 and older. According to Pakistan government statistics, 52 percent of the population is male. In 2000 Pakistan’s crude birthrate was 29.1 births per 1,000, and the total fertility rate was 4.3 births per woman. The infant mortality rate was 79.8 deaths per 1,000 live births, and the crude death rate was 7.8 deaths per 1,000. Life expectancy at birth was 64 years for males and 66 years for females.

Ethnic Groups: Ethnic groups in Pakistan generally are categorized according to various combinations of religion, language, and sometimes tribe. Punjabis are the largest linguistic group (44.2 percent of the population) and often are divided into three occupational castes: Rajputs, Jats, and Arains. Pakhtuns (15.4 percent) are the dominant ethnic group in the North-West Frontier Province, but Pakhtuns belong to different tribes or kinship groups and have no central governing authority. Sindhis (14.1 percent) are dominant in Sindh and are divided into occupational and caste groupings. Balochis (3.6 percent) are dominant in Balochistan and are divided into various eastern and western tribes. Other ethnolinguistic groups include the Siraikis, who live mostly in Punjab; Urdu-speaking Muhajirs, refugees from India and their descendants who migrated to Pakistan during the 1947 partition and are concentrated in Sindh; and Brahuis, a Dravidian language group in Sindh and Balochistan.

Languages: Urdu is the national language and the language of most print media. English has official status and often is regarded as the language of the elite and upwardly mobile. Urdu and English often are used in government and business. Punjabi is the most common language, spoken by 44.2 percent of the population, followed by Pakhtu (15.2 percent), Sindhi (14.1 percent), Siraiki (10.5 percent), Urdu (7.8 percent), and Balochi (3.8 percent). Smaller linguistic groups include the Hindko in the North-West Frontier Province, the Farsi-speaking Hazaras of Balochistan, and the Brahuis in Sindh and Balochistan. Language often articulates ethnic identity, and provincial boundaries are linguistically based. Urdu has been promoted as a means of unifying ethnic groups, but it is the mother tongue of only the Muhajirs. Furthermore, many groups perceive the establishment of Urdu as the national language as threatening to their employment potential, political participation, and ethnic identity.

Religion: The overwhelming majority of the population (96.3 percent) is Muslim, of whom approximately 95 percent are Sunni and 5 percent Shia. Sunnis and Shias are subdivided into numerous sects. Approximately 1.6 percent of the population is Hindu, 1.6 percent is Christian, and 0.3 percent belongs to other religions, such as Bahaism and Sikhism. Some 0.2 percent of the population is Ahmadiyya (also known as Qadiani), a small but influential sect that maintains some Islamic beliefs but is considered heretical by orthodox Muslims and is not recognized as Muslim by Pakistani law.

The country was founded to promote religious freedom, and the constitution guarantees freedom of religion. However, Islam is the state religion, and the constitution states that religious practice is “subject to law, public order, and morality.” The government also has Islamic institutions such as the Federal Shariat Court and the Council of Islamic Ideology, which advise politicians on the congruence of legislation with Islamic injunctions. It is debatable whether the government has established such institutions for religious or political reasons, but the government has promoted Islam as a means of unifying numerous ethnic groups. Nevertheless, political, economic, and religious differences have been manifested in occasionally violent conflicts between religious communities, particularly between Sunni and Shia militias.

Education and Literacy: Pakistan has low indicators of educational attainment, and education has been underfunded for decades. According to the 1998 census, 43.9 percent of those aged 10 or older were literate, but the literacy rate was higher for males (54.8 percent) than for females (32.0 percent). The 2003 estimates for literacy were 45.7 percent for those 15 years of age and older (59.8 percent for males and 30.6 percent for females). The country’s enrollment rate for those aged 5 to 24 is 36 percent (41.2 percent for males, 30.4 percent for females), and literacy and enrollment rates tend to be higher in urban areas. In 2001 the government announced plans to institute universal primary education by 2010 and 78 percent literacy by 2011. However, more than 50 percent of the funds for this initiative are expected to come from international donors. During the 1980s and most of the 1990s, public expenditures on education averaged 2.5 percent of gross domestic product (GDP), but have fallen to less than 2 percent of GDP since 1998. Of the fiscal year (FY) 2004 budget’s current expenditures, US$161.1 million—1.4 percent—was allocated to education, as was US$201.6 million—1.7 percent—of the FY 2005 budget.

Free primary education is a constitutional right and is compulsory in every province except Balochistan. The education system is designed for 12 years of schooling, with five years in primary school, three in middle school, and four in high school. According to 2001 government figures, the system included 147,736 primary schools, 25,472 middle-level schools, 15,416 high schools and vocational institutions, 352 professional colleges, and 26 universities. In addition to public and private schools, an indeterminate number of mosque-administered madrassas provide free room, board, and theological education, which makes them an attractive option for poor families. Some madrassas are suspected of having links to religious militants, prompting the government to announce its intention of establishing greater regulation over these institutions.

Health: Pakistan’s health indicators, health funding, and health and sanitation infrastructure are generally poor, particularly in rural areas. About 19 percent of the population is malnourished—a higher rate than the 17 percent average for developing countries—and 30 percent of children under age five are malnourished. Leading causes of sickness and death include gastroenteritis, respiratory infections, congenital abnormalities, tuberculosis, malaria, and typhoid fever. The United Nations estimates that in 2003 Pakistan’s human immunodeficiency virus (HIV) prevalence rate was 0.1 percent among those 15–49, with an estimated 4,900 deaths from acquired immune deficiency syndrome (AIDS). AIDS is a major health concern, and both the government and religious community are engaging in efforts to reduce its spread.

In 2003 there were 68 physicians for every 100,000 persons in Pakistan. According to 2002 government statistics, there were 12,501 health institutions nationwide, including 4,590 dispensaries, 906 hospitals with a total of 80,665 hospital beds, and 550 rural health centers with a total of 8,840 beds. According to the World Health Organization, Pakistan’s total health expenditures amounted to 3.9 percent of gross domestic product (GDP) in 2001, and per capita health expenditures were US$16. The government provided 24.4 percent of total health expenditures, with the remainder being entirely private, out-of-pocket expenses.

Welfare: Indicators for education, health, and some other aspects of human development have improved since the early 1990s. According to Pakistan’s Ministry of Finance, government expenditures for the social sector and poverty reduction totaled roughly US$14.6 billion from fiscal year (FY) 2000 to FY 2004. Nevertheless, poverty increased in the late 1990s, and the country’s population growth reduced income growth. The proportion of the population living below the poverty line increased from 34 percent in 1991 to 44 percent by 2002, reversing decades of decline. Social service funding and institutions are inadequate to address the development problems faced by much of the Pakistani population. Provincial governments are responsible for providing social services but often lack the financial and institutional resources to do so. Most social services funding comes from the federal government and international aid, but corruption and institutional inefficiencies have hindered programs designed to alleviate unemployment, poverty, and other social ills. Furthermore, the economic, political, and educational opportunities of women and religious minorities have been limited by persistent discrimination in both government and society.

ECONOMY

Overview: 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.

Gross Domestic Product (GDP)/Power Purchasing Parity (PPP): 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. Similarly, per capita GDP grew at an annual average of 2.6 percent from 1961 to 2003 and 0.9 percent from 1993 to 2003. From 1974 to 2004, agriculture’s proportion of GDP declined from 35 to 23 percent, whereas the proportion created by services increased from 43 percent to 52 percent, and industry and manufacturing increased slightly from 22 percent to 25 percent.

Government Budget: In fiscal year (FY) 2004, Pakistan’s total expenditures were US$16.0 billion, and total revenues were US$13.1 billion, both higher than in previous years. The federal budget has two components: the development budget for capital investment and development programs and the ordinary budget covering current expenditures such as defense and debt servicing. In FY 2004 current expenditures accounted for 82.9 percent of total expenditures. Debt servicing accounted for 21.1 percent of overall expenditures, defense for 18.0 percent, and development programs for 15.9 percent. During the 1990s and early 2000s, current expenditures were approximately 80 percent of planned spending, with debt servicing and defense accounting, respectively, for 35 percent and 25 percent of all expenditures. Provinces have their own budgets and limited tax powers, but about 25 percent of the federal budget is distributed to provincial governments to provide agricultural and social services.

From 1993 to 2003, the budget deficit declined, from 8.1 to 4.5 percent of gross domestic product (GDP), and current revenues increased, from 18.1 to 20.8 percent of GDP. Historically, tax collection has been extremely poor as a result of the corrupt, poorly functioning tax administration and numerous tax exemptions. In the 1990s, an estimated 80 percent of tax revenues came from indirect sources, and only 1.1 million of the country’s approximately 130 million people were on the tax rolls. However, from 1999 to 2004 the government instituted several tax reforms that reduced some tax exemptions, decreased excise taxes, and lowered tax rates for banks and private limited companies.

Inflation: The exact figures for inflation rates vary by source, but it is clear that rates of inflation declined throughout the 1990s and early 2000s. According to World Bank figures, inflation peaked at 25 percent in 1974, ranged from approximately 4 percent to 11 percent in the late 1970s and 1980s, and rose to 13 percent in 1991. After 1991, inflation generally declined to 2.4 percent in 2002 and 4.2 percent in 2003.

Agriculture, Forestry, and Fishing: According to official sources, agriculture, livestock, fishing, and forestry produced an estimated 23.3 percent of gross domestic product (GDP) for FY 2004. Employment in this sector has declined as other economic sectors have grown. Approximately 43.1 percent of the working population was employed in agriculture, forestry, and fishing in 2002, down from 48.3 percent in 1992, but still the largest proportion of the workforce among all economic sectors.

The major crops are wheat, rice, sugarcane, and cotton. Because of the generally arid climate and low soil moisture, agricultural production relies heavily on irrigation, nearly all of which is found in the east, around the Indus River and its tributaries. Agricultural growth has averaged around 4 percent annually since independence, and from 1947 to 2003 total food crop production increased from 4.7 million tons to 25.9 million tons. Substantial agricultural growth began in the 1960s with the use of high-yielding crops, increased government prices for crops, and subsidies for irrigation water, fertilizer, and other inputs. By the 1980s, Pakistan had become a net exporter of food grains. However, by the 1990s cotton output had declined, and the country became a net importer of food grains as the rate of population growth continued to exceed the rate of agricultural growth. The country’s unfulfilled agricultural potential is often seen as the result of the domination of large landowners, deterioration in the irrigation network, soil degradation from fertilizers, and poor government investment in agricultural research.

Mining and Minerals: Mining and minerals historically have been a weak economic sector. Since 2000 mining and quarrying have accounted annually for around 1.4 percent of gross domestic product (GDP) and employed an estimated 0.1 percent of the working population. Chromite is the only metallic ore that has been exploited on a commercial scale, but the country has substantial deposits of copper and iron ores as well. Pakistan also has significant deposits of non-metallic ores such as anhydrite, dolomite, gypsum, limestone, marble, and rock salt.

Industry and Manufacturing: Since the mid-1960s, the industrial sector has produced 19 to 25 percent of gross domestic product (GDP), accounting for 24.5 percent of GDP in 2004. Manufacturing and construction dominate the industrial sector, accounting for around 19 percent of GDP. Since the 1980s, approximately 17 to 20 percent of the working population has been employed in the industrial sector (25 percent in 2004), mostly in manufacturing and construction. Although the industrial base has diversified since independence, the production base depends heavily on textiles and sugar. Manufacturing output is therefore vulnerable to adverse weather conditions and fluctuations in international prices for cotton and sugar. Various liberalization reforms have been pursued since the early 1980s but have been hindered by substantial corruption, frequent raw material shortages, the government’s tendency to provide generous concessions to particular sectors (such as sugar refining and yarn spinning), and a burdensome tax structure that has helped promote the development of the informal economy.

Energy: Economic growth, population growth, and rising urbanization have increased energy demand, much of which is met by imported energy sources because of the country’s limited domestic energy resources. Traditional resources, such as firewood and dung, are commonly used, particularly in rural areas, and the government plans to reduce firewood consumption by introducing solar power to rural areas. Coal has provided around 5 percent of total domestic energy supply for decades, but most is of poor quality and generally is used in brick kilns.

With regard to nontraditional sources, oil and natural gas have provided around 37 to 43 percent of total energy supplies each since the late 1970s, and the country is attempting to expand hydropower production. For decades, Pakistan has depended heavily on oil imports, and in FY 2003 imported oil provided 31.6 percent of total energy supplies—at a cost of US$3.1 billion. Domestic oil provided 6.7 percent of total energy supplies, and domestic recoverable petroleum reserves have fallen to less than 50 percent of their estimated original amount. However, natural gas production nearly doubled to 2.7 million cubic feet per day in FY 2003, providing 43.8 percent of the total energy supply. The government has considered pipelines that could import around 1.5 billion cubic feet of gas per day, but as of early 2005 these plans were still under review. Hydropower has declined from 17.7 percent of total energy supply in FY 1979 to 11.3 percent in FY 2003. The government is interested in reversing this trend, but the area with the greatest potential for hydropower expansion (the mountainous north) is difficult to access and would have high transmission costs. Finally, nuclear power production was meager until the 2001 inauguration of the country’s second nuclear power facility, and nuclear energy production increased to 1.2 percent of total energy supply in FY 2003.

Services: The services sector accounts for about 50 percent of Pakistan’s annual gross domestic product (GDP). From 2000 to 2004, transportation, wholesale and retail trade, finance, public administration, defense, and services collectively provided about 52 percent of GDP. Services alone were about 9 to 10 percent of GDP. The services sector has suffered from many of the same problems as the industrial sector, such as political corruption and crippling tax rates, and sectoral growth has been limited by a dearth of educational resources and skilled labor.

Banking and Finance: Multilateral creditors have been a major source of finance and a major influence on economic and social development policies. However, bilateral and multilateral creditors periodically have ceased lending for economic reasons, such as government unwillingness or inability to comply with loan conditions, or political reasons, such as the 1998 nuclear tests and the 1999 military coup. Loans generally have resumed after the government agrees to loan conditions or internationally influential countries reduce their opposition to continued loans. In spite of inexpensive labor, a large domestic market, and access to regional markets, investors often are repelled by corruption, infrastructural difficulties, and various law and order problems in Pakistan. The government has pursued various reforms and liberalization measures, but domestic opposition has weakened implementation.

Domestic banking suffered in the 1990s but has shown signs of improvement from 2002 to 2004. In the 1990s, the government borrowed heavily from the domestic banking system, which prevented interest rates from declining and contributed to growth in the money supply and subsequent inflation. In addition, major domestic manufacturers failed to honor debts to domestic banks. However, from 2002 to 2004 privatization and deregulation of oil, gas, communications, and finance led to increases in investment. Overall investment in the early 1990s was around 19 percent of gross domestic product (GDP) annually but fell to 14.7 percent of GDP by FY 2001 and then increased to 15.5 percent of GDP by FY 2003.

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.

Labor: Labor figures are difficult to assess, partly because of the large number of workers in the informal economy. According to government statistics for FY 2004, 30.4 percent of the total population is in the official, civilian labor force, with 28.1 percent classified as employed and 2.3 percent categorized as unemployed. Other figures put the unemployment rate at around 19.7 percent. A much greater percentage of men (83.1 percent) than women (16.9 percent) are active in the official civilian labor force. Agriculture, forestry, and fishing employ the greatest proportion of the civilian labor force (43.1 percent), followed by “community, social, and personal services” (15 percent), wholesale and retail trade (14.8 percent), and manufacturing (13.7 percent). These percentages have changed little since the 1960s. However, the informal economy employs the majority of workers—about 70 percent according to government data from 1974 to 2004—with most employed in wholesale and retail trade, manufacturing, or “community, social, and personal services.” Child labor is regarded as a prevalent problem. Although the exact number of child laborers is not known, official data indicate that 12.8 percent of those 10 to 14 years of age are active in the official labor force.

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 free-trade 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 foreign 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.

Imports: In 2003 imports totaled US$11.3 billion, up from around US$1.2 billion in the late 1960s. Imports of goods and services have constituted about 20 percent of gross domestic product (GDP) since the late 1960s, and since the early 1990s machinery, petroleum products, and chemicals have composed around 55 percent of imported goods. Most imports come from the United States, Japan, Kuwait, Saudi Arabia, Germany, the United Kingdom, and Malaysia. Imports increased throughout the 1990s, at least partly because the government reduced maximum tariff rates from 92 percent in 1994 to 35 percent in 1999.

Exports: In 2003 exports of goods and services totaled US$10.9 billion, up from around US$750 million in the late 1960s. Exports of goods and services have increased from around 10 percent of gross domestic product (GDP) in the late 1960s to 15 percent throughout the 1990s. Since the early 1990s, primary commodity exports have fallen from about 20 percent to 10 percent of exports, while manufactured goods have increased from 55 percent to 75 percent. Manufactured cotton textiles have accounted for about 60 percent of total exports since the early 1990s, and other manufactured goods (such as leather goods, pharmaceuticals, and sporting goods) and primary commodities (particularly rice) for 25 percent of exports. The primary importers of Pakistani goods are the United States, Germany, Japan, the United Kingdom, Hong Kong, the United Arab Emirates, and Saudi Arabia. Since 2000, Pakistan has promoted exports by rebating import duties, sales taxes, and income taxes, and by concessional export financing.

Trade Balance: Pakistan has had an annual trade deficit since the early 1970s. According to government data, the trade deficit in goods was US$1.5 billion in FY 1991, increased to US$3.7 billion in FY 1997, and thereafter declined to US$1.1 billion in FY 2003. A similar trend is evident in World Bank figures for Pakistan’s external balance on goods and services, with a deficit of US$691 million in 1970, US$3.1 billion in 1990, and US$444 million in 2003.

Balance of Payments: Data vary by source, and from 1993 to 2004 government institutions did not report relevant statistics according to International Monetary Fund guidelines for member states. However, it is clear that Pakistan has had balance of payments difficulties for decades, largely as a result of current account deficits ranging from US$750 million to US$2.7 billion from 1970 to 2001. Historically, current account deficits have been due to trade deficits. However, from 2002 to 2004 current account surpluses ranged from US$1.9 billion to US$4.2 billion as trade deficits declined and private transfers increased—particularly remittances from Pakistanis working outside the country. As a result of balance of payments problems, the official currency, the rupee, often has declined in value, and the government frequently has had to reschedule debt payments and resort to high-interest emergency borrowing.

External Debt: Estimates of the size of Pakistan’s external debt vary by source. However, observers generally believe that the combination of poor tax administration, high government expenditures, and heavy dependence on external funds has resulted in massive fiscal deficits that, at times, have nearly crippled the economy and rendered Pakistan one of the world’s most indebted countries. When the United States and international lending agencies imposed sanctions after Pakistan’s 1998 nuclear tests, the country was close to defaulting on external obligations. According to the World Bank and the State Bank of Pakistan, Pakistan’s total external debt was approximately US$3.4 billion in 1970, US$9.9 billion in 1980, US$20.6 billion in 1990, and US$36.1 billion in 2003 (about 52.6 percent of the gross domestic product).

Foreign Investment: Since the 1980s, the government has introduced reforms to attract foreign investment. Foreign investment has increased over time, but corruption, civil disorder, and occasional international economic sanctions have acted as major disincentives to investment. According to World Bank figures, foreign direct investment (FDI) in Pakistan increased from US$23 million in 1970 to US$612 million in 2003 (approximately 1 percent of the 2003 FDI in China). From 2000 to 2003, FDI increased in finance, transport, communications, mining, quarrying, oil, and gas, with the principal sources being Switzerland, the United States, the United Arab Emirates, and the United Kingdom.

Foreign Aid: The economy is heavily dependent on bilateral and multilateral aid, which substantially influence economic growth. Aid flows have been reduced as a result of international sanctions for Pakistan’s suspected support of insurgents in Kashmir and for the country’s 1998 nuclear tests. However, after September 11, 2001, the United States and other countries dropped economic sanctions against Pakistan because of its potential role in the war on terrorism. Prior to 2000, Pakistan had never completed an International Monetary Fund (IMF) lending program because of government unwillingness to comply with loan package conditions and political issues such as nuclear weapons tests or difficulties in Kashmir. However, from 2000 to 2004 Pakistan’s relations with the IMF showed marked improvement.

Currency and Exchange Rate: For decades Pakistan’s official currency, the rupee (Rs), has declined in value against the U.S. dollar. The official exchange rate was Rs4.76 to US$1 in 1970, Rs9.85 to US$1 in 1980, Rs21.61 to US$1 in 1990, Rs53.65 to US$1 in 2000, and approximately Rs59.34 to US$1 in late February 2005.

Fiscal Year: July 1 to June 30.

TRANSPORTATION AND TELECOMMUNICATIONS

Overview: Pakistan’s transportation infrastructure has suffered from government neglect. Although there are some signs of improvement, foreign observers often contend that the poor transportation infrastructure inhibits economic growth potential. Both the quality and quantity of government-funded rail and bus service have declined, and in some cases operations have ceased altogether. As a result, private buses, taxis, autorickshaws, and horse-drawn tongas meet most urban transportation demand. These vehicles are unregulated, and safety issues abound. Various government programs have attempted to improve transportation through highway construction and automobile imports, but these endeavors have been costly, and highway capacity is substantially underutilized. Statistics show an increase in freight and passenger traffic on roads, but the increase is believed to be due to the declining quality of rail service rather than to the increasing affordability of automobiles. Studies cite significant, accompanying problems with vehicular pollution, increasing traffic density, and high numbers of traffic fatalities.

By contrast, Pakistan’s telecommunications infrastructure has fared somewhat better, although the government’s periodic control of communications industries is believed to have limited service improvements. Legislation in 1991 encouraged private-sector participation in communications services by privatizing state-run communications providers and licensing communications provision. However, 1995 legislation granted the publicly traded Pakistan Telecommunication Company Limited (PTCL) a monopoly over telephone services. In 2003 the government announced that telecommunications would be deregulated, yet the results of this change were not yet apparent by early 2005.

Roads: Roads, road traffic, and motor vehicles all have increased substantially since the early 1990s. According to government statistics, from 1994 to 2003 total road length increased from 196,877 to 251,845 kilometers, and highways increased, from 104,001 to 151,028 kilometers. The total number of registered motor vehicles also increased from 3.5 million to 5.2 million, including 2.5 million motorcycles, 1.3 million automobiles, and 178,000 trucks. In the early 1990s, the government announced plans to shift passenger and freight traffic from roads to rail, but by 2004 the declining quality and quantity of rail service continued to prompt increases in private and commercial use of roads.

Railroads: The railroad system is publicly owned, but government funding has been insufficient to maintain the system. Government figures indicate that operating revenues exceeded operating expenses from FY 1994 to FY 2003, but the deterioration in the quantity and quality of service suggests that major problems persist. From 1994 to 2003, the quantity of track kilometers fell from 8,775 to 7,791 kilometers, and route kilometers dropped from 12,625 to 11,515 kilometers. Of the track kilometers, 7,346 kilometers were 1.676-millimeter gauge, and 445 kilometers were 1.000-millimeter gauge. Passenger journeys peaked at 85 million in FY 1989 and declined until FY 1999, after which they increased to 72.4 million in FY 2003. Freight tonnage fell from 8 million tons in FY 1994 to 6.2 million tons in FY 2003. In the same period, the number of locomotives decreased from 676 to 577, and the quantity of coaches fell from 2,831 to 1,843.

Since 1992, various privatization ventures have been terminated and placed back on the market, and the federal government has attempted to transfer responsibility for some rail services to local and provincial authorities. Urban and suburban passenger rail service is often irregular and slower than road transport, but the government plans to build passenger rail systems in Karachi, Lahore, Islamabad, and Rawalpindi. A proposed rail line connecting Pakistan with Iran has been stalled because of a lack of funding.

Ports: According to government statistics, the tonnage handled by ports increased from 30 million tons in FY 1994 to 41.2 million tons in FY 2003. In the same period, the number of twenty-foot-equivalent-units (TEUs) increased from 409,670 to 615,826. In 2004 Pakistan had two ports, Karachi and Port Qasim, both of which were upgraded in the 1990s. Karachi handles approximately 60 percent of import and export cargo and is linked by a daily container train to an inland terminal at Lahore. Port Qasim handles about 40 percent of import and export cargo. The first phase of a multipurpose port located at Gwadar on the Balochistan coast was expected to be operational in early 2005, with a second phase still under construction. A deepwater port at Keti Bandar, 100 kilometers southeast of Karachi, is planned as part of a private power project.

Inland and Coastal Waterways: Inland water transport basically has been nonexistent since the nineteenth century, although there have been government proposals to change this situation. Bridges, irrigation systems, and seasonal changes in water availability limit tremendously the navigability of former inland waterways, particularly the Indus River system. There is small-scale use between Sukkur and Kalabagh on the Indus River, and Pakistani government and transportation analysts have considered inland water routes linking Port Qasim with points on the Indus. However, the technical feasibility of these proposals is doubtful, and high capital costs limit their economic feasibility.

Civil Aviation and Airports: Since the 1980s, the air network has expanded. Pakistan has 50 airports with permanently surfaced runways. Karachi, Lahore, Peshawar, Quetta, and Rawalpindi handle both international passenger and cargo flights, and Multan and Turbat handle international cargo. The airports in Karachi and Lahore have expanded their facilities since 1994. From FY 1994 to FY 2003, international passengers increased from 4.1 million to 5.1 million, and international cargo increased slightly from 1.1 million tons to 1.2 million tons. In the same time period, however, domestic passengers declined from 9.1 million to 5.5 million, and domestic cargo fell from 243,000 tons to 187,000 tons. The major international airline is government-owned Pakistan International Airlines, and four other private airlines offer international passenger and cargo services. Pakistan International Airlines flights to New Delhi beginning in January 2004 have been viewed as a sign of improved relations between India and Pakistan.

Pipelines: In 2004 Pakistan had 9,945 kilometers of gas pipelines and 1,821 kilometers of oil pipelines. The government currently is considering several proposed gas pipelines linking Pakistan with Afghanistan, India, Iran, Turkmenistan, and others. As of early 2005, these proposals were still under consideration, at least partly because their proposed routes would go through areas of periodic civil unrest.

Telecommunications: From 1991 to 2002, the estimated number of radios increased only slightly from 10 to 10.2 million, and the estimated number of televisions was unchanged at 2.1 million. The government runs both Azad Kashmir Radio, with three stations, and Pakistan Broadcasting Corporation, with 35 stations. Three private radio stations also are in operation. Government-run Pakistan Television Corporation maintains four domestic television channels, and there are three private television broadcasters. Foreign channels are available by satellite and cable. Domestic phone service is poor. In the early 2000s, Pakistan had approximately 3.7 million telephones, 8 million cellular telephones, 600,000 personal computers, and 500,000 Internet users.