Economic overview

Pakistan's economy

Pakistan's economy is made up of the services sector (50 per cent), industry/manufacturing (25 per cent) and agriculture (25 per cent). Agriculture, a sector which performed strongly in 2011, is a mainstay of the economy, accounting for up to 24 per cent of total Gross Domestic Product (GDP) and 57 per cent of export earnings, with 44 per cent of the country's population depending directly or indirectly on agriculture for their livelihood. Manufacturing is concentrated around the Karachi-Hyderabad region and Lahore. Industrial production is being severely impacted by growing energy shortages; Pakistan relies on imported oil for 35 per cent of its energy production, which is increasingly difficult to finance and a key contributor to Pakistan's growing deficits. 57 per cent of Pakistan's energy is produced domestically, principally in the form of gas from the east of the country, and hydro-electricity from dams at Tarbela and Mangla.

During the period 2004-2009, Pakistan experienced strong economic expansion due to growth in the manufacturing and services sectors, with GDP growth approximately seven per cent in 2004 and 2005. The onset of the global financial crisis caused Pakistan's GDP growth to fall sharply and in late 2008 Pakistani authorities embarked on a stabilisation program, supported by an International Monetary Fund (IMF) US$7.6 billion loan under a 23 month Stand-By Arrangement. In August 2009, the IMF extended the program to 25 months and raised its support to US$11.3 billion to help address increased risks and financing needs. In November 2011 Pakistan announced it would not seek to extend its IMF Stand-By Arrangement.

The IMF has noted that Pakistan's economy faces important challenges, stating in October 2012 that economic growth will need to accelerate in order to absorb the growing labour force and that a growing budget deficit, along with persistently high inflation and budgetary problems were undermining macroeconomic stability. The IMF noted that reducing the budget deficit will require higher revenue through tax reform to broaden the tax base. Reform of Pakistan's electricity sector also remains a major challenge. The IMF has projected GDP growth of between 3-3.5 per cent for the 2012-13 financial year.

Trade

Pakistan's merchandise exports stood at US$25.3 billion and imports at US$43.6 billion in 2011, resulting in a trade deficit of roughly US$18 billion. Pakistan's major exports in 2011 were linen (11.2 per cent of total); rice (8.1 per cent); and cotton yarn (7.9 per cent). Pakistan's major imports in 2011 were non-crude petroleum oils (20.6 per cent of total); crude petroleum oils (11.9 per cent); and palm oil (5.4 per cent). Pakistan's leading export markets in 2011 were the European Union (25 per cent of total), United States (15.1 per cent), Afghanistan (10.5 per cent) and the United Arab Emirates (7.6 per cent).

Bilateral relationship

Political relations

The Australian Government has intensified its engagement with Pakistan since 2008 in the areas of security and stability (including defence and law enforcement training), advocating for economic reform and development, building capacity and improving democratic governance.

There continues to be a range of high-level engagement activities between Australia and Pakistan. Prime Minister Gillard met with Prime Minister Raja Pervez Ashraf at the 9th Asia-Europe Meeting Summit in Vientiane, Laos in November 2012. Prime Minister Gillard also met bilaterally with Pakistan President Asif Ali Zardari at the Chicago NATO/ISAF summit on Afghanistan in May 2012. Foreign Minister Carr met with his counterpart, Foreign Minister Ms Hina Rabbani Khar at the Tokyo Conference on Afghanistan in July 2012. Former Prime Minister Mr Yusuf Raza Gilani, Foreign Minister Ms Hina Rabbani Khar and Commerce Minister Mr Makhdoom Amin Fahim visited Australia for CHOGM in October 2011.

As well, there is also an active program of official's level dialogue and engagement. In June 2012, Pakistan's Foreign Secretary Mr Jalil Jilani visted Australia for senior officials talks on the Australia-Pakistan relationship. AusAID senior officials met with Pakistani counterparts at the inaugural annual dialogue of the Australia Pakistan Development Partnership, in Islamabad in March 2012. The Defence-led Australia-Pakistan 1.5 Track Security Dialogue was held in Canberra in November 2012. Australia and Pakistan have also sought opportunities to further trade ties at the Australia-Pakistan Joint Trade Committee meeting in Canberra in March 2012. A range of officials also continue to meet under the Pakistan-Australia Joint Working Group on Border Control and Transnational Crime.

People-to-people links

Australia and Pakistan enjoy a common heritage and shared interests. Both countries are members of the Commonwealth and are federations with bicameral legislatures. Our people share a passion for sports and the arts, and our strong people to people links centre on an active and successful Pakistani community in Australia. Australia established diplomatic relations with Pakistan soon after the partition of British India (into India and Pakistan) in 1947 and has had a resident mission in Pakistan since 1948.

The Pakistani community in Australia is now more than 17,000 strong. In 2011-12, 2,860 Pakistani citizens arrived in Australia as either skilled or family migrants. As at 30 June 2012 there were 7,400 Pakistani student visa holders in Australia and Australia has become one of the largest markets for Pakistani students outside the United States and United Kingdom. In addition, Pakistan received 110 Australia Awards in 2011, and has been offered 143 in 2012. These awards promote knowledge, education links and enduring ties between Australia and Pakistan.

Development cooperation

Pakistan has made some progress towards meeting the United Nations Millennium Development Goals but not others, notably those in relation to extreme hunger and poverty, primary education, and maternal and child health. The United Nations Development Programme (UNDP) estimates that more than one fifth of the population live on less than US$1.25 a day. The maternal mortality rate is high, with around 260 out of 100,000 mothers dying during child birth. Child health and nutrition are a particular concern, with two out of every five children malnourished and one in eleven children dying before the age of five. According to the UNDP, nearly half of Pakistan's adult population is illiterate. Only two thirds of primary school-aged children are enrolled in school, of which almost a third will drop out before reaching secondary school. Pakistan ranked 145 out of 187 countries in the 2011 United Nations Human Development index.

Development cooperation is an important component of Australia's bilateral relationship with Pakistan. Australia's total official development assistance to Pakistan has grown substantially over the last six years, increasing from $16.9 million in 2006-07 to an expected $96.4 million in 2012-13.

Australia's aid program to Pakistan is guided by the Australia – Pakistan Development Partnership, signed by the foreign ministers of both countries in October 2011. The Partnership forms the basis of ongoing engagement with the Government of Pakistan (GoP) on development issues, and sets out the principles, mutual commitments and priorities for development cooperation between Australia and Pakistan.

The overall aim of Australian development assistance is to work with the Government of Pakistan towards a stable, secure and democratic country through social and economic development and poverty reduction in line with the Millennium Development Goals. The bilateral development cooperation program focuses on three primary sectors: opportunities for all (education), saving lives (health) and sustainable economic development (agriculture productivity and livelihoods). The Australian Government also supports good governance and provides humanitarian and post-disaster assistance as requested.

Australia's development cooperation program is helping Pakistani communities. For example, in 2011 Australia provided 1.56 million free textbooks for students and funding to assist more than 146,000 female students in Khyber Pakhtunkhwa province attend school. Australia also provides approximately 50 scholarships each year to enable Pakistani professionals to undertake masters-level study at Australian universities.

Australia also responded quickly to Pakistan government requests for assistance following the 2010 and 2011 floods. In response to the 2010 floods, Australia provided more than $75 million for humanitarian response and early recovery activities and provided medical assistance to over 11,000 people through a joint civilian-military medical facility in Punjab . In 2011, Australia provided food, shelter, water, sanitation and health care to assist more than 167,000 people affected by the floods in southern Pakistan.

Economic and trade relations

Australia-Pakistan total two-way trade in 2011-12 was $706 million, compared with $600 million in 2008 and $703 million in 2010. Currently, Australian exports to Pakistan consist primarily of food products, coal and fertilisers (excl. crude). Australia's major imports from Pakistan are textiles and rice. An Australia-Pakistan bilateral trade agreement has been in force since 12 July 1990. The agreement commits both parties to "facilitate, strengthen and diversify" trade. The Australia and Pakistan Joint Trade Committee, which met most recently in Australia in March 2012, addresses a range of bilateral trade and investment cooperation issues.

Austrade has three locally engaged Business Development Managers in Pakistan, one in each of Islamabad, Lahore and Karachi. Country management for Pakistan is the responsibility of Austrade's Regional Senior Trade and Investment Commissioner, who is based in New Delhi.

Australia and Pakistan are actively exploring avenues to expand trade and investment, particularly through agribusiness and agricultural science linkages. There are prospects for growth in trade and investment, particularly in: • education (tertiary, vocational and corporate training)

• agribusiness (dairy, crop production, quality issues, storage and handling)
• airports (design and construction)
• mining (oil and gas exploration and development)
• processed foods, and
• IT and communications products and services.

Future sectors that may provide opportunities for Australian trade and investment include:

• clean energy technologies (including clean coal, wind and renewables)
• medical technologies, and
• infrastructure investment.

With extensive natural resources, including oil and natural gas reserves, the fourth-largest coal reserves in the world and prospects for hydropower, Pakistan offers potential opportunities for Australia's mining expertise.

Security cooperation

Cooperation to combat transnational crime, such as terrorism financing and illegal migration, has been strengthened through the Pakistan Australia Joint Working Group on Border Management and Transnational Crime. The Australian Federal Police has a 25 year relationship with Pakistani law enforcement. Working together, Australian and Pakistani agencies have disrupted a significant amount of transnational crime, for example, through drug seizures. Through the provision of training programs and the supply of specialist training equipment, Australia is assisting Pakistan to build capacity to counter serious and sophisticated crime.

In 1907, the Australian Defence Force sent its first student to Quetta Command and Staff College, and has regularly filled a place there since. The Australia-Pakistan defence relationship has grown significantly over the past five years. In addition to the position at Quetta, the Australian Defence Force now sends a student to the National Defence University in Islamabad each year, conducts an annual counter-insurgency exchange between the Australian Command and Staff College and Quetta Command and Staff College, and Defence personnel periodically attend specialised courses in Pakistan. Australia has also increased the number of training positions offered to the Pakistan military in Australia from 70 positions in 2009 to over 140 in 2012. Defence has also established a post-graduate scholarship program for Pakistan with 13 places offered in 2012, in areas such as intelligence and counter-terrorism, logistics, maritime security policy and aerospace engineering. Many of the Pakistan military's senior officers have visited Australia for talks, and some for training earlier in their careers. Importantly, this has facilitated development of 'Chief-to-Chief' relations. Defence leaders engage through regular bilateral dialogue and, since 2010 the 1.5 Track Security Dialogue, which brings together senior leaders from respective militaries, government agencies and think tanks to discuss issues of mutual strategic interest.

Australia's membership of the Friends of Democratic Pakistan

Through Australia's foundation membership of the Friends of Democratic Pakistan (FODP) and participation in the International Contact Group on Afghanistan and Pakistan, Australia is working with Pakistan, and the international community, to ensure the best possible coordinated effort is made to support Pakistan.

The FODP is a diverse group that engages with Pakistan in high-level political and strategic dialogue to support its efforts to address its security, economic and development challenges. The FODP first met on the margins of the United Nations General Assembly in September 2008 and has since held three ministerial-level meetings. The foundation members were: Australia, Pakistan, United States, United Kingdom, Canada, United Arab Emirates, Saudi Arabia, France, Germany, Italy, Turkey, China, Japan, European Union and the United Nations. Members appointed since the inaugural meeting include: Sweden, Norway, Denmark, Spain, Netherlands, Republic of Korea, Iran, World Bank, Asian Development Bank and Islamic Development Bank. Egypt joined the FODP at the October 2010 Ministerial Meeting in Brussels. The FODP has produced two in-depth studies on Pakistan's energy and water management challenges and held a workshop on institutional capacity building in September 2011.

Pakistan Development Forum

The Pakistan Development Forum (PDF) is a high-level multilateral forum for dialogue between the Government of Pakistan, civil society and international donor partners on key development priorities. The PDF, which had not met since October 2007, was reconvened by the Government of Pakistan in November 2010 in response to the ongoing humanitarian crisis that followed the devastating 2010 floods. The meeting provided an important opportunity for donors to reaffirm their support for the Government of Pakistan, discuss ways to improve aid coordination, and engage with the Government of Pakistan on policies and strategies to address the country's many development challenges, including economic reform.

Australia's Special Envoy for Afghanistan and Pakistan

The appointment of Australia's Special Envoy for Afghanistan and Pakistan, Mr Ric Smith AO PSM, by the Prime Minister in March 2009, is a demonstration of the Government's commitment to coordinated and effective regional and international diplomacy.

Updated November 2012