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

to china ( 200 % ), malaysia ( 162 % ), hong kong ( 443 % ), singapore ( 185 % ) and philippines ( 61 % ). • equity market capitalization as a percentage of gdp in pakistan was 31 % in 2005. although now it has increased to 40 % and in fact, went up to 44 % in april 2006, but it is still substantially low relative to malaysia ( 141 % ), thailand ( 67 % ) and korea ( 90 % ). • likewise, the volume of bonds outstanding as a percent of gdp is merely 5. 5 % in pakistan compared to malaysia ( 90 % ), singapore ( 68 % ) and china ( 27 % ), although in china the bulk of these bonds are sovereign. while pakistan has definitely improved quite a bit, when we compare ourselves to the region, we are still lagging far behind and for me this is where we should strive to make more inroads. in my view, not only is there more room for banking assets to grow, but more fundamentally, there is now need to finally jolt the non - bank financial sector more strongly. it is indeed noteworthy that the growth of kse 3 conservative estimates, as stated in the medium term development framework, 2005 - 2010, planning commission of pakistan. karachi stock exchange market capitalization has risen from under 2000 points to over 10, 000 points in the last few years, and went on to record highs of 12, 274 points on april 17, 2006. average daily turnover is remarkable, which, at 525 million shares, makes kse one of the most liquid markets. likewise the p / e ratio of 9. 45 is extremely attractive when compared with average price earning ratios of neighboring countries. likewise, kse ’ s dividend yield ratio also offers good prospects relative to other emerging markets. however, i still maintain that pakistan ’ s capital market lacks sufficient depth, breath and maturity. it is prone to structural vulnerabilities and manipulation. this is confirmed by the decline in the number of listed companies from 762 in the year 2000 to 658 in 2006. moreover, as i have already mentioned, market capitalization as a percentage of gdp is still low and there are very few listed debt securities. but there are promising prospects and with various stakeholders ’ efforts, the stock market has achieved many milestones. the stock exchanges have fully automated the trading system with a t + 3 settlement cycle. the shares are traded in dematerialized form and settlement