program was completed well before september 11, 2001 to the full satisfaction of the imf authorities that pakistan was able to secure a long - term restructuring of its paris club debt. the popular notion that the sept. 11 events helped pakistan obtain favorable terms on its paris club debt is contrary to the facts. we had already reached an agreement well before sept. 11 with the fund on a three - year poverty reduction and growth facility ( prgf ) of which the debt restructuring was an integral part. the success on the external debt front was absolutely essential for macroeconomic stability and we worked assiduously for almost a year prior to the approval of prgf to fulfill all the conditions pre - requisite for obtaining debt reprofiling on a long term basis. the short term consolidation of debt was rejected as an alternate and therefore the country had to suffer the harsh and onerous conditions specified by the imf under its stand - by program. concurrently with the debt restructuring, the country embarked on the fiscal policy reforms and consolidation by raising tax revenues, reducing expenditures, cutting down subsidies of all kinds and containing the losses of public enterprises. tax reforms were undertaken to widen tax base, remove direct contact between tax payers and tax collectors, introduce value - added tax as the major source of revenue, simplify tax administration and strengthen the capacity of the central board of revenue. although these reforms are still underway, the adoption of universal self assessment followed by random audit of selected tax returns, automation and reorganization of the tax machinery have begun to help improve tax collection although tax - gdp ratio has not yet improved. the next major thrust of the reform program was privatization of state - owned enterprises. fortunately, the privatization process was initiated in 1991 under the nawaz sharif government, continued under the benazir government, and further intensified under the musharraf government. thus, there is a wide political consensus and support for privatization because of an underlying belief that the government should not be in the business of running businesses but regulating the markets and laying down policies. pakistan ’ s record on privatization has been impressive and this has helped in stopping the hemorrhaging of public finances and easing the pressures on fiscal deficit. financial sector reforms in pakistan were also initiated early in the 1990s when private domestic banks were allowed to set up their shops along with the nationalized commercial banks. although these reforms were implemented with fits and start, they were accelerated in 1997 when the nawaz sharif government brought in professional managers and boards of directors

##ify its export structure with the non - textile share in exports having grown from 35 % in fy00 to 41 % by fy05 reflecting a shift from agriculture and primary commodity exports to labor intensive, higher value added manufacturing exports. within the textile sector, share of the medium to high value - added products ( knitwear, bedwear, ready made garments, towels and synthetic textiles etc. ) has improved. pakistan has stood to benefit from the post mfa regime. sale of a number of strategic industries, with management control, will over the next few years help improve efficiency of critical public services. in the short term, resources mobilized through the sale of these assets have helped augment foreign reserves, while reducing government debt obligations both have positive consequences. stock market of pakistan has outperformed expectations in terms of growth in the kse index and equity prices are at an all time high. besides speculative trading, this significantly manifests growing corporate and banking sector profitability and restoration of investor confidence. non - debt flows, close to $ 7. 6 billion, have now emerged to be a sizeable source of funding ; these include remittances of $ 4. 2 billion, privatization proceeds of $ 1. 6 billion, and foreign portfolio investments of $ 1. 8 billion. debt dynamics are favorable and foreign exchange reserves adequate. exchange rate has been stable but allowed to free float to correct for appreciation as and when it emerges because of movements in relative prices and currency movements of pakistan ’ s trading partners. ii. development of monetary policy formulation and its implementation economic performance has benefited from a highly supportive and accommodative monetary policy. aside from continued financing of the budget, the low interest rate environment over the last four years helped facilitate a sharp growth in private sector credit from rs. 18. 3 billion in fy00 to rs. 438 billion by end fy05, providing higher level of financing to the manufacturing and agriculture sector, while catering for consumer and personal loans, and trade and commerce financing. consequently, broad money growth exceeded nominal gdp growth and fuelled aggregate demand pressures that translated and manifested itself in a sharp rise in inflation, which reached 11. 1 % by april 2005. anticipating continued and further build up of these pressures, the central bank raised the discount rate in april 2005. continued monetary tightening over the past 12 months coupled with the decline in net foreign assets ( triggered by a rise in trade deficit ) would result in the containment of monetary expansion relative to