##rofiling of the stock of official bilateral debt, ( b ) substituting concessional loans for non - concessional from international financial institutions, ( c ) pre - paying expensive loans and ( d ) liquidating short - term liabilities. debt ratio was thus reduced from 100 percent of gdp to 60 percent in five years time. trade policy in pakistan has been categorized by the world bank as one of the least restrictive in south asia along with sri lanka and this policy has gradually provided incentives to exporters to increase their market share in the global markets. exchange rate policy was pursued to maintain stability in the foreign exchange markets while at the same time keeping the competitiveness of pakistani exports intact. large accumulation of foreign reserves played an important role in stabilizing the exchange rate. 2. 2. structural reforms financial sector reforms financial sector has made the farthest progress by transforming itself into a market oriented, private sector dominated sector performing efficient intermediation. reforms that have been successfully implemented since 2000 spanned over a whole range of initiatives. prominent among them were ( a ) privatization of nationalized commercial banks and fostering competition, ( b ) strengthening regulatory supervisory and enforcement capacity of the sbp, ( c ) lowering the cost of capital by dealing with non performing loans, reducing corporate tax burden and bringing cost - income ratios down, ( d ) revising the legal structure particularly the foreclosure laws ( e ) broad basing access to the middle income and lower income groups by opening up provision of credit for agriculture, smes, consumer financing and micro credit ( f ) introducing and enforcing stringent corporate governance, internal controls, transparency and enhanced disclosure standards ( g ) liberalizing the foreign exchange regime and ( h ) promoting technological upgradation of the banking industry through ebanking, atms etc. a financial sector assessment carried out jointly by the world bank and the imf conclude that pakistan had been able to establish a sound, efficient financial system that can withstand exogenous shocks. the restructured financial system has responded well to the expansionary monetary policy that was pursued during the period 2001 / 02 – 2003 / 04 to stimulate aggregate demand and kick - start the economy. tax reforms tax reforms have attempted to widen the tax base, strengthen tax administration, promote self - assessment, eliminate whitener schemes, reduce multiplicity of taxes and tackle the culture of tax evasion and corruption. a new income tax ordinance has been introduced in 2001, which allows for universal self - assessment, uniform tax

announced by president musharraf in december 1999 consisted of four key elements : ( a ) restoration of macroeconomic stability and pakistan ’ s relationship with the international financial institutions. ( b ) structural reforms to remove distortions. ( c ) improving economic governance and reviving key institutions. ( d ) poverty alleviation through targeted interventions and social safety nets. the interconnection between economic growth, poverty reduction, structural reforms and improved governance is fairly strong in the case of pakistan. macroeconomic stability and the consequent rapid economic growth help reduce poverty in conjunction with investment in social sectors, targeted interventions and social safety nets. structural reforms are needed to strengthen the underpinning of macroeconomic policies and to remove microeconomic distortions affecting key sectors of the economy thus paving the way for accelerating economic growth. improved governance affects the quality of growth by allowing realization of higher returns on investment and is also conducive to poverty reduction through better delivery of social services to the poor. poverty reduction, as we know by now, can be achieved with rapid economic growth, structural reforms and improved governance. 2. 1. macroeconomic stability macroeconomic stability has been achieved through reduction in fiscal deficit, acquiring a surplus on the current account balance of payments, lowering of inflation, and a transformation of external debt profile. these have been brought about partially through the support of international financial institutions and the paris club bilateral creditors which significantly eased the external payments position that had been a major and consistent risk to the economy since 1998. fiscal deficit was reduced by pursuing a combination of four sets of policy measures ( i ) mobilizing additional tax revenues ( ii ) reducing subsidies to public enterprises and corporations and ( iii ) bringing about a significant decline in debt servicing payments and ( iv ) containing defence expenditures. monetary policy was kept reasonably tight during the first two years with money supply growth at about 9 percent. expansion in private sector credit, in the subsequent years, did not put much pressure as the government borrowing was limited to a manageable level. as the monetary conditions improved, the interest rate came down gradually to a single digit and demand for credit by private businesses picked up resulting in higher capacity utilization in manufacturing and increased industrial production. however, with the mounting of inflationary pressures in recent months, the state bank is taking measures to tighten its monetary policy ; the interest rates are expected to go up gradually in the coming months so as not to hurt the growth of the economy. external debt management focused on ( a ) rep