Pakistan's economy is heading towards a slow recovery from the severe downturn of the past two years.
Improved growth is based mainly on good cotton and food grain harvests.
The fragile balance of payments situation remains a principal area of concern. Exports expanded by 10.2 percent during this period, while imports increased by 9.3 percent due mainly to a sharp increase in the world oil price. The wider trade gap, coupled with a negative overall resource transfer from donors has exerted pressure on the balance of payments. The State Bank of Pakistan has purchased large amounts of dollars in recent months from the open market to fill the foreign exchange gap. Although Pakistan has managed to emerge from the worst of the crisis during 1998 and 1999, the economy remains weak and the medium-term outlook depends critically on the pace of structural reforms.