nominal terms and by about 9. 8 % in real terms. this has raised investment levels to rs 1. 42 trillion, equivalent to 20 % of gdp and is likely to result in a reversal of the declining trend observed in the preceding years. private investment accounts for two thirds of the gross fixed capital formation. second, the rise in imports, which, excluding crude and pol products, grew by 35 %. third, the rise in private sector credit which, while decelerating, still grew by 19 % in fy06 despite rising interest rates. fourth, foreign direct investment flows, excluding privatization proceeds, also contributed to the rise in investment. finally, high corporate profits have largely been reinvested in industry and there is a high degree of self financing taking place. furthermore, the government is confident that all spade work undertaken in the last few years will now pay off as approved or lined up industrial and infrastructure investments take off. the medium term development framework ( mtdf ) anticipates a rise in the investment / gdp ratio of 20. 7 % by 2010. early indications are that both domestic and foreign investors are upbeat about the future prospects, and there are already investment commitments lined up from gulf states. during its economic transition, pakistan will have to develop capacities to tolerate and finance the required level of trade deficit as fresh investments will bring in additional import demand. over this period, leveraging non - debt foreign flows will be critical to finance and sustain the external current account deficit. growth prospects for pakistan are fairly promising. sustainability of investment trends would, among others, depend on pakistan ’ s success in improving the business climate by removing investment constraints, continuity in financial reforms coupled with strong vigilance of credit growth, and success in curbing inflationary pressures and tendencies within manageable levels. the world bank report ‘ doing business in 2006 ’ has placed pakistan amongst the leading economic reformers of the world and the top one in south asia. for foreign businesses, investing in pakistan not only facilitates production but also provides opportunities to export to the middle east, and central and south asian markets. to attract investment, pakistan has fully liberalized its incentives framework. all economic sectors are open to foreign investment, foreign investors are allowed to hold 100 % foreign equity in all economic sectors, barring very few exceptions, and there is equal treatment given to local and foreign investors with flexibility to easily remit royalty, technical & franchise fee, capital, profits, dividends etc. no government sanction

since fy01 and tariff bands have been reduced from 42 to 4. almost half of the imports enjoy zero to 5 % tariff and the simple average tariff is now only 8. 5 % on dutiable & exempt imports taken together and the sro regime has been reduced to a bare minimum. the trade policy aims to promote exports, which despite reaching $ 16. 5 billion in fy06 relative to averages of $ 7 - 8 billion over early fy00, have to make more inroads to raise their share in world markets. pakistan is launching a stronger drive to revive its exports which can only grow on a sustainable basis if there is ( i ) sufficient surplus to export, ( ii ) if there is product, sector and geographical diversification combined with value addition through capacity building and enhancement, ( iii ) textile industry which contributes close to 60 % of export earnings positions, repositions itself to withstand new competitive forces emerging in the post quota regime, and ( iv ) the cost of infrastructure, which is still suffering from bottlenecks, is improved. medium term economic prospects and challenges high growth rates can be sustained. pakistan being at the crossroads of one of the ancient trade routes of the world and being richly endowed with natural resources has enormous potential and has shown increased resilience to withstand economic shocks both domestic and external. the economy is set to grow at around 7 % in fy07. in fy06, despite set backs to agriculture and the industrial sector, the buoyancy in the services sector helped real gdp to grow by 6. 6 %. structural changes underlying the real sectors, albeit slow, are emerging. in agriculture, it is worth mentioning that pakistan attained self sufficiency in major crops a long time back. notwithstanding, disruptions in production are inevitable given the uncertain weather conditions as well as low yields which require far reaching efforts in research and extension and appropriate use of inputs that have benefited from the rise in agriculture credit and fertilizer input use. more exploitation of water resources is critical to ensure timely supplies of water. in agriculture, significance of livestock, poultry and dairy products is visible and encouraging. the former accounts for 46. 8 % ( fy05 ) of agricultural value added and about 10. 7 % of the gdp, while providing livelihood to one third of the population, and the latter produces 28 billion liters of milk a year, whose value is more than that of the combined value of wheat and cotton.