It generates directly and indirectly about 70 percent of export earnings. Growth in the sector has declined from an annual average of 4.1 percent in the 1980s to 3.4 percent in the 1990s, and deteriorating productivity and increasing environmental damage threatens the sustainability of agricultural output. Pakistan's agriculture requires reforms to achieve sustainable production and marketing systems, modernization and diversification to improve competitiveness and higher value added, and a supportive policy and institutional environment for private investment. The ongoing ADB-financed sector strategy study will develop strategies and action plans to address these constraints 19 . Within the framework of this proposed loan, enforcement and improved implementation of agricultural income tax through harmonization of tax rates and coverage across provinces will be addressed.
Agriculture is also important in the context of rural development and poverty reduction.
In the rural areas where about 67 percent of the country's population lives, agriculture is the major sector for employment and income generation. Also, over 70 percent of the country's 36 million poor live in rural areas. However, success also requires specific measures such as better targeting, improved rural financial policies and mechanisms to enable small farmers and the landless to access financial services. While rural credit programs are being emphasized by the Government, much rural employment relies on the non-farm sector. Non-farm income is an important contributor to the livelihood of rural households, especially those in the lower income groups and among the landless and smaller farmers.