Riding on the strong economic fundamentals of last year Pakistan's economy has gathered greater momentum during the fiscal year 2003-04. Acceleration in growth accompanied by a sharp pick up in industrial production, a strong upsurge in investment, and a further strengthening of the external balance of payments have been the hallmarks of this year's performance. The pre-payment of high cost external debt, the strategic re-entry into the international capital markets through the floatation of a Eurobond and the re-basing of Pakistan's national accounts have been the other stellar occurrences of the fiscal year 2003-04. No efforts to revive the economy will be complete unless these macroeconomic gains are transferred to the masses in terms of an improved standard of living. The efforts of the last five years have started yielding positive results and this year has seen the incidence of poverty declining, enrolment in primary, middle and matric levels rising, and various quality of life indicators improving.

During this fiscal year, Pakistan succeeded in attaining; a higher than targeted growth in real GDP, powered by stellar growth in large-scale manufacturing and a continuing robust performance in services; a double-digit growth in per capita income, reaching $ 652; a strong rebound in investment, particularly in private sector investment owing to a rare confluence of various positive developments on the economic scene; low inflation and an investment-friendly interest rate environment; an unprecedented increase in credit to the private sector; sharp increases in the consumption of electricity and gas reflecting rising levels of economic activity; a reduction in the fiscal deficit; on target tax collection; a buoyant stock market with an all-time high aggregate market capitalization; a double-digit growth in exports and imports; workers' remittances maintaining their momentum with the current account balance remaining in surplus for the third year in a row; a continued accumulation of foreign exchange reserves and stability in the exchange rate; a sharp decline in the public and external debt burden; a lowering of the interest cost through the pre-payment of $ 1.17 billion of high cost external debt; and a successful return to the international capital markets through the floatation of a Eurobond.

From the grassroots perspective, the incidence of poverty has declined by 4.2 percentage points over 2001 figures. Other social indicators such as enrolment in primary, middle and matric levels; access to sanitation, safe drinking water, housing, electricity and gas have all showed marked improvements. Two successive years of strong growth along with over Rs.860 billion of cumulative spending over the last five years on social sector and poverty related programs is now beginning to bear fruit. Notwithstanding these improvements, much remains to be done, and this is that critical juncture in time when maintaining momentum through policy stability is paramount. While socio-economic and macroeconomic policies pursued during the year have had a strong influence on this across-the-board improvement, an increasingly broad and dynamic global recovery with industrial production and global trade picking up sharply, have aided Pakistan in this endeavor.

International Environment: Unlike in the past two to three years, this year has seen a relatively benign global economic environment after almost three years of weak and fragile growth in the world economy. A strong rebound in world trade, a robust recovery in the United States and emerging Asia, especially China, and the strongest showing for the Japanese economy since 1996 are offering grounds for optimism for the global economy in general and developing countries in particular. This optimism has encouraged the staff of the International Monetary Fund (IMF) to raise its forecast for global growth by about 0.5 percentage points to 4.6 percent in 2004 and 4.4 percent in 2005. Notwithstanding a strong and broad-based recovery in the major growth poles of the world economy, the Euro area is still exhibiting anemic growth of 1.7 percent for 2004. The United States has led the way with growth of 4.6 percent in 2004, supported by a resurgent Japan, with 3.4 percent. The growth momentum is exceptionally strong in emerging Asia where the Chinese economy is leading the way and is projected to grow by 8.5 percent in 2004. More robust income growth in the advanced economies is expected to stimulate activity in developing countries through trade, mainly in the form of higher export volumes. Developing countries including Pakistan have suffered from the slowdown in world trade in 2002, chiefly because of weak demand in the advanced economies. The pickup in global activity that began in 2003 and intensified in 2004 should translate into stronger and more sustained export growth for developing countries and this could be further augmented if progress is made in reducing trade barriers as envisaged in the Doha Round.

Notwithstanding a strong and broad-based recovery in the world economy there remain risks to the short-term outlook which will have a direct bearing on developing economies, including Pakistan. Oil prices have increased substantially from $ 26.5 per barrel in September 2003 to almost $ 42 per barrel on June 1, 2004. According to one estimate, a $ 5.0 per barrel increase in oil prices over the baseline price persisting for one full year will reduce global growth by 0.3 percent with an attendant impact on developing countries. Furthermore, the extra-ordinary rise in the price of oil fuels headline inflation which can have severe monetary policy implications. The stronger-than-expected global economic recovery, the depreciation of the US dollar against other major currencies, relatively low inventories, OPEC announcements of prospective production cuts, the 'fear factor' surrounding a possible disruption of supplies from the Middle East and some speculative activity have been mainly responsible for this unprecedented surge in oil prices. Without a stable and low oil price outlook, this global recovery seems tenuous at best.

GDP Growth: Real GDP growth, once again, surpassed the target (5.3 %) with a headline number of 6.4 percent during 2003-04 compared to last year's 5.1 percent rate. This buoyant growth was aided by a 13.1 percent and 5.2 percent growth in the manufacturing and services sectors, respectively. The performance of agriculture fell short of the target by growing at 2.6 percent against a target of 4.2 percent and last year's achievement of 4.1 percent. When compared with other developing countries in general and East and Southeast Asian countries in particular, Pakistan's growth performance has been quite impressive. Developing nations grew, on average, by 6.1 percent while East and Southeast Asian countries like Hong Kong, Singapore, Korea, Indonesia, Malaysia, Philippines, Bangladesh and Sri Lanka registered growth rates ranging from 1.1 percent to 5.5 percent in 2003-04. Few countries in the region, namely China, India and Thailand grew faster than Pakistan during this period. Fiscal stimulus in the shape of large public sector spending and a conducive interest rate environment provided important support to this growth picture in Pakistan.

Manufacturing: One of the most important developments of the year has been the sharp acceleration in manufacturing growth. Overall manufacturing grew by 13.4 percent in 2003-04 against a target of 7.8 percent and last year's 6.9 percent. This impressive growth was underpinned by the highest ever growth recorded in large-scale manufacturing which accounts for 68 percent of overall manufacturing, and exhibited broad-based growth of 17.1 percent against a target of 8.8 percent and last year's 7.2 percent. Improvements in the macroeconomic environment, a decline in the cost of capital, the availability of consumer financing at affordable rates, strong growth in exports and a general feel good mood in the economy have been responsible for this unprecedented growth in large-scale manufacturing. Over the last four years, the large-scale manufacturing sector has grown at an average rate of almost 10 percent per annum thereby increasing its share in GDP from 9.6 percent to 11.8 percent. Major industries that registered double-digit growth include: sugar, cement, cooking oil, jeeps and cars, motorcycles, motor tyres etc.

Construction: Another star performer has been the construction sector registering a growth rate of 7.9 percent against a target of 5.4 percent and last year's growth of 3.1 percent. Housing and construction has been identified as one of the major drivers of growth and the government has taken various budgetary and non-budgetary measures to boost this sector which has responded positively despite higher input prices. Another star performer has been the electricity and gas distribution sector which registered a massive increase of 22.5 percent in 2003-04 against a decline of 2.6 percent last year.

Per Capita Income: The sharp rise in per capita income which was witnessed last year continued during 2003-04, albeit at a relatively slower pace owing to a decline in net factor income from abroad (mainly workers' remittances). The per capita income in dollar terms increased by 12.0 percent from $ 582 last year to $ 652 during the outgoing fiscal year. Last year per capita income in dollars grew by 15.7 percent on the back of a massive increase in net factor income from abroad resulting in a two year per capita income average growth rate of 13.9 percent per annum.

Investment: Total investment rose to 18.1 percent of GDP in 2003-04 against 16.7 percent last year. Most importantly, fixed investment rose sharply to 16.4 percent of GDP against 14.8 percent last year. What is highly encouraging is the significant rise in private sector investment -from 11.2 percent to 11.7 percent of GDP. This year's growth is overwhelmed by massive investment in large-scale manufacturing by the private sector which grew by 25.4 percent during the year. Two inter-related sectors, construction and ownership of dwellings grew by impressive rates of 23.5 percent and 25 percent respectively, implying heavy investment in the housing and construction sector. National savings as a percentage of GDP remained at around 20 percent on account of a significant improvement in the current account balance. It is noteworthy that the national savings rate has increased by 8.3 percentage points since 1998-99.

Inflation: Tame inflation has also been one of the hallmarks of this government's macroeconomic policies. The rate of inflation as measured by changes in the Consumer Price Index (CPI) averaged 3.9 percent during the first ten months of the current fiscal year against 3.3 percent in the same period last year. Food and non-food inflation averaged 4.9 percent and 3.1 percent respectively as against 3.1 percent and 3.4 percent during the same period last year. Much of the surge in food inflation over last year has been due to both demand and supply factors resulting in an increase in the prices of wheat, wheat flour, rice, meat, edible oil and onions. The government has taken various measures to improve the supply situation of wheat including the import of 1.0 million tons of wheat with a concurrent wheat export ban. Central Banks around the world tend to focus on core inflation, which excludes the impact of food and energy prices. Core inflation basically represents policy (fiscal, monetary, exchange rate) induced inflation. Core inflation remained quite subdued owing to prudent macroeconomic policies pursued during the year and averaged 3.3 percent against the headline (overall inflation) number of 3.9 percent for the ten months of the current fiscal year.

Monetary Policy: The State Bank of Pakistan (SBP) continued with an easy monetary policy stance during the current fiscal year with a view to reinforcing the growth momentum that had picked up last year. Accordingly, the interest rate environment not only remained investor-friendly but middle class borrowers also benefited from such environment. The monetary expansion target was set to the tune of Rs.230 billion or 11.1 percent higher than last year. The monetary expansion during the first nine months (July- March) of the current fiscal year amounted to almost Rs.255 billion (higher by 12.3%) compared with an expansion of Rs.211 billion (higher by 12 %) in the same period last year. In other words the monetary expansion target was overtaken in the first nine months of the fiscal year. Unlike the previous two years, when the bulk of the monetary expansion resulted from a strong build up in the net foreign assets of the banking system, this year saw an unprecedented increase in private sector credit amounting to Rs.245 billion against an increase of Rs.107 billion during the same period last year. This also reflects a renewed private sector confidence in the basic macroeconomic fundamentals of the country. Almost 52 percent of the credit to the private sector went to manufacturing (Rs.126.4 billion). The benefits of the low interest rate environment also filtered down to middle class consumers as evidenced by the substantial increase in personnel loans amounting to Rs.50 billion during July-March 2003-04.

Government borrowing for budgetary support amounted to Rs.54 billion against a borrowing target of Rs.15 billion for the whole year. Three factors are responsible for the higher than targeted borrowing for budgetary support by the government. Firstly, the government had to borrow heavily from the banking system to finance the pre-payment of $ 1.17 billion of high cost external debt to the Asian Development Bank (ADB). Secondly, lower than projected external receipts for the budget and finally, lower investment in the national saving schemes. The accumulation of net foreign assets of the banking system remained subdued at Rs.50.4 billion compared to an accumulation of Rs.257 billion in the same period last year. On the whole, broad money supply grew by 12.3 percent against a target of 11.1 percent. It is expected that the current fiscal year may likely end with monetary expansion of around 15 percent. Two successive years of higher than targeted monetary expansion may give rise to inflationary pressure. However, the Central Bank is closely watching the inflationary situation.

As a result of the easy monetary policy stance, the weighted average lending rate declined by 289 basis points - from 7.58 percent in June 2003 to 4.69 percent in March 2004. The weighted average deposit rate also declined, though at a much slower pace, that is, from 1.9 percent to 1.3 percent during the same period - a decline of only 60 basis points. During this period the efficiency of the banking system also improved significantly with the spread between the lending and deposit rates declining from 568 basis points to 339 basis points - an efficiency gain of 229 basis points. The yield on 6 - month treasury bills remained stable at 1.6 percent during the year. It would not be out of place to mention here that the easy monetary policy stance perused by the Central Bank over the last three years has succeeded in lowering the entire term structure of interest rates. The weighted average lending rate declined from 13.74 percent in June 2001 to 4.69 percent in March 2004 - a decline of 905 basis points in less than three years. Similarly the yield of 6 - month Treasury Bills, which was as high as 12.88 percent in June 2001, declined to 1.68 percent in March 2004 - a decline of 1120 basis points during the same period. The export refinance rate, which is linked to the 6 - month Treasury rate, declined from 11.1 percent in July 2001 to 1.5 percent at the end March 2004, a hefty decline of 960 basis points which has helped improve the external competitiveness of the Pakistani exporter.

Stock Market: Another landmark achievement of the outgoing fiscal year has been the impressive growth in the share index of the Karachi Stock Exchange (KSE) - rising from 3403 points on June 30, 2003 to 5430 points on April 30, 2004 - an increase of 2027 points or 59.6 percent during the period. The aggregate market capitalization also increased by 92.4 percent, from Rs.746.4 billion to Rs.1436 billion during the period under review. In terms of US dollars the market capitalization of the KSE surged to $ 25 billion from $ 12.92 billion during the period under review. A number of factors have contributed to the persistence of the bullish trend in the stock market which include: a continuation of pro-growth economic policies; a stable macroeconomic environment; an acceleration in economic growth; a stable exchange rate; a brisk pace of privatization through the capital markets; a visible improvement in the Pakistan - India relationship; the availability of adequate liquidity in the market; good operating and financial results from the majority of blue chip companies and appropriate reforms initiated by the Securities and Exchange Commission of Pakistan (SECP).

Fiscal Policy: Prudent fiscal management is the foundation of a stable macroeconomic environment. Weak fiscal balance has been the major source of macroeconomic difficulties in the not too distant past. After almost five years of extensive efforts through the reform of the tax system and tax administration Pakistan has succeeded in attaining fiscal stability. The overall fiscal deficit that averaged nearly 7.0 percent of the GDP in the 1990s has declined to 3.3 percent in the outgoing fiscal year. The revenue deficit has been narrowed from 3.0 percent of GDP in the late 1990s to 0.2 percent and the primary balance has remained in surplus for the last many years. Public debt as percentage of GDP has also declined sharply and is now moving towards a sustainable level.

Pakistan has made considerable gain on fiscal side during 2003-04. The overall fiscal deficit declined from 3.7 percent of GDP in 2002-03 to 3.3 percent in 2003-04. The Central Board of Revenue (CBR) is targeted to collect Rs.510 billion - 10.5 percent higher than last year. The overall tax revenue is targeted to increase by 8.1 percent while on the expenditure side, total expenditure is estimated to rise by 6.6 percent but most of the increase is coming from the Public Sector Development Program (PSDP) - up by 17.6 percent. Current expenditure remains at last year's level with almost no growth. Interest payments and defense spending used to be the two largest items of overall expenditure followed by PSDP. As a result of prudent fiscal management, the share of interest payment in total outlay has declined sharply from 29.7 percent in 2001-02 to 21.1 percent in 2003-04. The share of defense in total outlay has remained stagnant at around 18.0 percent but that of PSDP, increased from 15.3 percent to 15.9 percent over the same period. As a percentage of GDP, interest payments have been declining while defense spending remained stagnant at 3.3 percent.

Another development on the fiscal side has been the near elimination of the revenue deficit in 2003-04. Over the last two years the revenue deficit has declined from Rs.76 billion (or 1.3% of GDP) to Rs.13.3 billion (or 0.2% of GDP). As per the Fiscal Responsibility Law the elimination of the revenue deficit was targeted to be achieved by 2007-08. However, Pakistan has almost reached the target four years in advance. Similarly, Pakistan has maintained a surplus in the primary balance over the last several years.

As a result of considerable improvement in fiscal balance, the public debt situation has improved immensely in recent years. Not only has the pace of accumulation been slowed but the burden of public debt has declined as well. During the outgoing fiscal year, public debt grew by only 2.8 percent. As percentage of GDP, public debt has declined from 75.2 percent last year to 69.7 percent in 2003-04 - a sharp decline of 5.0 percentage points in one year is a major achievement. Since public debt is a charge on the budget therefore its burden must be viewed in relation to government revenue. Public debt was 503.7 percent of total revenue last year; it has now declined to 487.7 percent in the current fiscal year.

Pakistan has made considerable gains toward fiscal consolidation. The overall fiscal deficit has been narrowed, the revenue deficit has nearly been eliminated and a primary surplus has been maintained for some time. Resultantly, public debt is fast moving towards a sustainable level. Even in countries with better fiscal management, maintaining and building on progress will be a continuing challenge. What is required is a prolonged commitment to fiscal discipline, which will come through a rule-based fiscal policy. Pakistan has already drafted a rule-based fiscal policy, enshrined in the Fiscal Responsibility and Debt Limitation Law, which has been approved by the Cabinet and has been sent to the Parliament for legislation.

Balance of Payments: Pakistan's external balance of payments gained further strength during the year under review. Both exports and imports registered robust growth; healthy increases in foreign exchange reserves continued despite heavy pre-payment of external debt; and the current account balance continued to remain in surplus for the third year in a row. A strong and broad-based recovery in the global economy also helped firm-up demand for Pakistani exportable goods. The inflow of workers' remittances continued its rising momentum, albeit at a slower pace; the exchange rate remained stable; and a substantial increase in FDI was recorded.

Exports: Exports grew by 13.1 percent during July-April 2003-04 against a hefty increase of 20.8 percent during the same period last year. When viewed against the backdrop of stellar growth (20.8%) last year, a higher double-digit growth rate in exports is one of the major achievements of the outgoing fiscal year. Given the performance of the first 10 months of the current fiscal year exports are likely to cross the target of $ 12.1 billion for the whole year. The higher unit values of exports, deeper penetration into the European and US markets, a sharp decline in the Export Refinance rate, and a competitive exchange rate have contributed to the surge in exports during the year. The surge in exports is underpinned by a strong growth in textile manufacturers and 'others' exports Textile manufacturers, accounting for 65.4 percent of total exports, registered an increase of 14.3 percent while 'other' exports covering 9.2 percent of total exports, grew by a hefty 48.6 percent. Almost 71 percent of the contribution to overall export growth came from textile manufactures and 26 percent came from 'other' exports. Primary commodities exports registered a decline of 1.5 percent mainly on account of very little export of wheat this year. Excluding the exports of wheat, primary commodities exports show an impressive growth of 12.8 percent. It is also encouraging to see the exports of engineering goods picking up at a much sharper pace. This year, exports of engineering goods grew by 33.4 percent - rising from $ 55.1 million to $ 73.5 million.

Imports: Imports grew by 19.0 percent during the first ten months (July - April) of the current fiscal year against a hefty increase of 22.5 percent in the same period last year. Most importantly, non-food non-oil imports are up by almost 32 percent against 23.5 percent last year. The exceptionally strong growth in non-food non-oil imports is one of the leading indicators of a surge in domestic economic activity. The salient features of this year's performance of imports include: impressive growth in the import of the machinery, chemical, metal and textile groups. The petroleum group registered a decline of 7.7 percent on account of 27.4 percent decline in the imports of petroleum products. In quantity terms, the import of petroleum products was down by 42.2 percent on account of a continuing surge in POL output by local refineries, an increased use of gas in industries and electricity generation, and lesser reliance on fuel oil-based thermal electricity owing to higher electricity generation through hydel. The major contributors to this year's rise in imports are the machinery group (27.1 %), followed by the agricultural / chemical group (22%), and metal group (7.0 %). The share of oil bills remained unchanged at 26.6 percent since last year. However, if the unprecedented rise in oil prices persists then given the rising level of economic activity Pakistan's oil bill is likely to cross $ 3.0 billion in 2004-05. If extrapolated for the remaining two months of the year, total imports may likely be in the neighbourhood of $ 14.5 billion for the whole fiscal year. As a result of the developments in exports and imports, the trade gap has widened from $ 1251.5 million to $ 2011.4 million during the first 10 months of the current fiscal year, showing a deterioration of 60.7 percent. Given the stronger than anticipated surge in domestic economic activity, the widening of the trade gap in the short-run is quite normal. The year is expected to close at a trade deficit of around $ 2.5 billion against the yearly target of $ 0.7 billion.

Remittances: The inflow of workers' remittances continued to maintain its momentum, albeit at a slower pace during the current fiscal year. However, when viewed against the yearly target of $3.6 billion, the performance has been impressive. The last fiscal year was an extra-ordinary year for the inflow of workers' remittances at $ 4.23 billion. Realizing the fact that a one-time adjustment has taken place, the current year target was set at $ 3.6 billion or $ 300 million per month. During the first ten months (July-April) of the current fiscal year, the flow of remittances was $ 3.21 billion or $ 321 million per month against $ 3.53 billion in the same period last year. Two points need to be noted as far as the inflow of remittances is concerned. First, as stated above, a one-time adjustment took place last year which is not expected to be repeated this year. Accordingly, against the actual receipt of $ 4.23 billion last year the target for the current year was set at $ 3.6 billion. Given the average monthly trend of inflows, the year is going to end with remittances of $ 3.8 billion. Second, last year's remittances also included $ 126 million which came through the Hajj Sponsorship Scheme. With the continuing build up in foreign exchange reserves the government decided not to launch the said Scheme this year. To that extent, the flow of remittances was expected to be less compared with last year. The United States remained the single largest source of cash remittances accounting for 31.5 percent, followed by the UAE with 15.8 percent and Saudi Arabia with a 14.8 percent share.

Current Account Balance: Sustaining a current account surplus for the third year in a row has been another major achievement for the outgoing fiscal year. The current account balance, excluding official transfers, remained in surplus at $ 1369 million (1.4% of GDP) during July-March 2003-04. However, the surplus was $ 2706 million during the same period last year. The contraction in the magnitude of the surplus was the outcome of higher deficits in the trade and services accounts as well as lower inflow of workers' remittances. Given the rising levels of domestic economic activity and the persistence of higher oil prices in international markets, imports are likely to grow at a higher pace, leading to a further widening of the trade balance. As a consequence, Pakistan may face difficulties in sustaining the surplus in the current account in the next fiscal year.

FDI: Pakistan has succeeded in attracting $ 760 million in foreign direct investment (FDI) during July-April 2003-04 against $ 696 million in the same period last year, thereby registering an increase of 9.3 percent. By the end of the current fiscal year, FDI is expected to cross $ 1.0 billion on account of the issuance of two cellular licenses amounting to $ 291 million each, the half proceeds of which are expected to be received before the end of the fiscal year. The bulk of the FDI has come in the oil and gas, transport and communication, and banking sectors. These three areas have accounted for 71 percent of the FDI this year. Almost 85 percent of the FDI has come from Switzerland, the United States, the United Kingdom, the UAE and Saudi Arabia.

Privatization: The privatization program has progressed at a much faster pace this year. By end-March 2004, Pakistan had completed or approved 139 transactions with gross proceeds of Rs.134 billion. Of this, a sum of Rs.33.1 billion was received during the first nine months (July-March) of the current fiscal year. A new feature of the privatization program has been the offering of shares to the general public through the stock market, which was well received. For example, in the case of OGDCL, 97,000 applicants purchased shares whose subsequent value increased by over Rs.8 billion. The response in the SSGC offering has been even greater with over a quarter million small applicants receiving shares through a transparent balloting process.

Foreign Exchange Reserves: Pakistan's foreign exchange reserves continued to rise despite the pre-payment of $ 1.17 billion of high cost external debt. By end-April 2004, foreign exchange reserves stood at $ 12.5 billion, sufficient to provide cover for almost one year of imports. In other words, Pakistan added $ 1.8 billion to its reserves during July-April 2003-04. The continued build up in foreign exchange reserves has provided strength to the Pakistani rupee viz, the US dollar. The inter-bank exchange rate per US dollar averaged Rs.57.46 in April 2004 as against Rs.57.74 in July 2003, showing a nominal appreciation of 0.5 percent. In general, Pakistan's exchange rate viz the US dollar has remained stable during the period under review.

External Debt: Until a few years ago Pakistan was facing serious difficulties in meeting its external debt obligations. Not only was the stock of external debt and foreign exchange liabilities growing at a breakneck pace but the debt carrying capacity remained stagnant. Consequently, the debt burden (external debt and foreign exchange liabilities as a percentage of foreign exchange earnings) reached an unsustainable level of 335.4 percent by 1998-99. Following a credible strategy of debt reduction, Pakistan has not only succeeded in reducing the stock of external debt and liabilities but at the same time built-up a substantial stock of foreign exchange reserves. The stock of external debt and liabilities were as high as $ 37.9 billion at the end of the 1990s but had been brought down to $35.8 billion by end March 2004 - a decline of over $ 2 billion. The surplus in the current account coupled with a continued build-up in foreign exchange reserves and higher foreign exchange earnings and the prepayment of expensive debt are the major factors responsible for the reduction in the total stock of debt and liabilities. As a percentage of GDP, external debt and liabilities stood at 51.7 percent in end June 2000, declined to 43 percent in end June 2003 and further to 37.8 percent by end March 2004. Similarly, external debt and liabilities as a percentage of foreign exchange earnings declined from 297.3 percent in 1999-2000 to 181.1 percent in 2002-03 and further to 168.7 percent by end March 2004. These statistics suggest that Pakistan's external debt burden has declined substantially over the last four years and is now fast approaching sustainable levels.