ECONOMY OF PAKISTAN: AN OVERVIEW 5

liberalization of the foreign exchange regime. Foreign investors can now bring in

and take back their capital, remit profits, dividends and fees etc., without any

restrictions. Foreign Portfolio Investors (FPI) can also enter and exit the market

without any restrictions or prior approvals. In the Karachi Stock Exchange with a

market capitalization of US$33 billion, over 650 listed companies showed

average returns of 15 per cent that were higher than those in most emerging

countries. This makes Pakistan an attractive place to invest for foreign portfolio

investors. As part of this liberalization, non-residents and residents are allowed to

maintain and operate foreign currency deposit accounts, and a market-based

exchange rate in the inter-bank market is at work.

The financial sector too, has been restructured and opened up to

competition. Foreign and domestic private banks currently operating in Pakistan

have been able to increase their market share to more than 80 percent of assets

and deposits. The interest rate structure has been deregulated and monetary

policy uses indirect tools such as open market operations, discount rates etc.

Domestic interest rates on lending have dropped to as low as 5 percent from 20

percent substantially reducing financial costs of businesses.

Central to the economic reforms process has been a clear progression

towards deregulation of the economy. Prices of petroleum products, gas,

energy, agricultural commodities and other key inputs are determined by market.

Imports and domestic marketing of petroleum products have been deregulated

and opened up to the private sector. The markets do not always function

effectively. Independent regulatory agencies have been set up to protect the

interests of consumers and end-users of utilities and public services.

Tax Reforms:

Taxation reform has figured prominently on the government's agenda, as

this is another area where the business community has innumerable grievances

and dissatisfaction with the arbitrary nature of tax administration. Tax reforms are