lt transition to the
modern world of high technology and internationalized markets. Prime
Minister Benazir BHUTTO has been under pressure from the IMF and
other donors to continue the economic reforms and austerity measures
begun by her predecessor, caretaker Prime Minister Moeen QURESHI
(July-October 1993). The IMF suspended a $1.5 billion Enhanced
Structural Adjustment Facility (ESAF) in mid-1995 because Pakistan
slowed the pace of economic reform. Islamabad's most recent budget -
announced in June 1995 - reversed some reforms agreed to by the IMF
earlier that year, including a slowing of tariff reform. In
mid-December 1995, however, the IMF approved a $600 million standby
arrangement and urged Pakistan to move forward with economic
liberalization. Islamabad has agreed to new economic targets with
the IMF, which could lay the basis for a return to an ESAF in 1996.
Little progress was made in the privatization of large state-owned
units in 1995. The sale of the power plant Kot Addu - scheduled for
April 1995 - was stalled by opposition from labor unions. The sale
of a 26% share of United Bank Limited and the Pakistan
Telecommunications Corporation to strategic investors was due to
take place in 1995 but has been pushed back to 1996. On the plus
side real GDP grew 4.7% in 1995, up from 3.9% in 1994: GDP should
grow even faster in 1996 as a result of an above average cotton
crop. Secondly, Islamabad reduced the budget deficit to 5.6% of GDP
at the end of FY94/95, down from 8% two years earlier. Thirdly,
Pakistan attracted $1.6 billion in foreign direct and portfolio
investment in FY94/95, more than double inflows of $650 million in
the previous fiscal year; financial agreements were reached on five
power projects in 1995, including the 1,300-MW $1.8 billion Hab
River project. Despite these improvements, the economy remains
vulnerable to crisis. Foreign exchange reserves fell dramatically in
1995, reaching a low of about $1 billion in early December 1995 -
only five weeks of import cover - before rising to $1.5 billion by
yearend. The trade deficit rose to $2 billion for the first six
months of FY94/95, triple the deficit of $600 million during the
same period in FY93/94. The government responded to this situation
with a package of stabilization reforms on 28 October 1995 which
included a 7% devaluation of the rupee, supplementary duties of 10%
on m