PAKISTAN: POLITICAL ECONOMY AND POST-2000 DEVELOPMENTS---8

largely to purchase industrial and infrastructure assets and financial institutions under the

privatization programme.

Under the changed circumstances, Pakistan’s macroeconomic outlook also improved. There

was a rise in export earnings, though these are still inadequate for a country of 160 million

people. By 2007 they had exceeded US$15 billion, from a level around US$10 billion in 2000.

Pakistan’s exports were still higher than India on a per capita basis, but it had nowhere near the

latter’s performance in the information technology business. Pakistan’s foreign exchange

reserves rose from the desperate level of US$200 million in 2000 to a purported US$13 billion

by 2006. The government also claimed that the country had paid off the more harmful high

interest component of the foreign debt, which still nevertheless stood above US$35 billion. The

external debt to GDP ratio also improved, leading to greater fiscal space that allowed for more

resource allocation to the development sector. The more ‘positive’ attitude towards Pakistan

among foreign donors had arguably the deleterious effect of renewed multilateral and bilateral

loan flows into the country, a process induced with the avid support of a bureaucracy that

should actually have been questioning the relevance and efficacy of adding on further debt.

The rapid rise in liquidity had a visible impact on Pakistan’s economy. Interest rates came down

sharply, and at one point hovered around historic lows of 5-6%. This led to a consumption

upturn, and also spurred investment to meet the increasing demand for goods and services. A

speculative boom in property also ensued, with major price rises taking property values to

unprecedented levels. These peaks were followed by downward swings; and overall they

represented a diversion from more productive employment of resources in infrastructural

development and in industrial deepening. The property value escalations indeed allegedly

diverted industrialists towards raising bank credit for quick returns on property speculation to the

neglect of their core businesses. The involvement of senior military personnel in land scams

also began to erode the Musharraf regime’s reputation. The cancellation of the allotment of

240,000 acres to ‘institutions’, in the area around the new seaport development of Gwadar, was

one of the grievances the regime had against the Chief Justice of Pakistan’s Supreme Court,

whose dismissal by Musharraf in March 2007 raised a popular political outburst.

The stock market, which had languished around the 1,200 index level in 2000, rose by 2006 to

over 12,000. Pakistan had the best performing stock market in the world for long periods since

2000 than any other country. Again, the index was highly skewed towards pockets of robustly