Pakistan is part of the southern region of the Asian continent that is known as South Asia – it is located on the crossroads of Asia and the Middle East, bordering China in its north-most area, India in the east and Iran and Afghanistan in the west. Pakistan is the world’s sixth most populous country with about 200 million people. It is the second largest economy in South Asia after India.
In the latest financial year ending June 2017, Pakistan recorded GDP growth of 5.3% on the back of a 9% growth in construction activities. Services, which account for nearly 60% of GDP, rose by 6% in the same period, thanks to strong growth in the finance and insurance as well as government service industries.
Pakistan is expected to maintain medium-term trend growth, with real GDP growth projected at 5.6% for 2018 amid rising infrastructure spending and the implementation of structural and economic reforms.
Power shortages have long been a challenge for Pakistani manufacturing industries. President Hussain has attempted to reform the country’s gas and power sector since taking office in 2013. His power policy includes an ambitious agenda to increase electricity generation, raise tariffs and improve efficiency.
Main Pakistani exports include textiles and garments, rice, leather and mineral products. Key imports include crude oils, petroleum products, machinery, chemical products, metals and transportation equipment. In 2016, China was Pakistan’s largest trading partner and import source, accounting for about 29% of Pakistan’s total imports. Pakistani exports are mainly shipped to the US, China and UK. Both the US and EU provide GSP benefits to Pakistan.
As a member of the South Asian Association for Regional Cooperation (SAARC), Pakistan is part of the South Asia Free Trade Area (SAFTA). Pakistan is also one of the member states of Central Asia Regional Economic Cooperation (CAREC) and Economic Cooperation Organization (ECO). In addition, Pakistan has signed bilateral trade agreements with China, Malaysia, Mauritius and Sri Lanka.
Pakistan’s first free trade agreement (FTA) with China entered into force in 2007. The two countries are negotiating an FTA upgrade with the last round of talk held in September 2017. On the other hand, Hong Kong concluded a comprehensive double taxation agreement (CDTA) with Pakistan which entered into force in November 2017.
Under the Belt and Road Initiative, the China-Pakistan economic corridor (CPEC) is being established as a collection of modern infrastructure projects including roads, rails and power plants for improving geographical connectivity in the region. The 392-km Multan-Sukkur section of the Peshawar-Karachi Motorway, a CPEC flagship project, began construction in 2016 for completion in August 2019.
Gwadar Port of Pakistan, operated by China Overseas Port Holding Co., started operations in November 2016. Located at the mouth of the Persian Gulf with close proximity to the Straits of Hormuz, the Gwadar Port provides China a key shipping route to the Middle East. In April 2017, China provided a loan of US$1.2 billion to Pakistan to help it ward off a currency crisis.
According to the State Bank of Pakistan, FDI inflow to Pakistan increased by 14% year-on-year (YOY) to US$2.45 billion during July 2017 to February 2018. China was the largest FDI source, investing US$1.37 billion in Pakistan during the period while Hong Kong’s FDI flow to Pakistan was US$34.5 million.
Pakistan is one of the most liberal foreign investment regimes in South Asia with 100% foreign equity permitted in the manufacture and infrastructure sectors. The Pakistani government offers a number of tax incentives to FDI projects in many sectors spanning infrastructure, electronics, telecommunications and IT services. Board of Investment is the primary agency responsible for facilitating and promoting both local and foreign investment in Pakistan.
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