Dr. Salman Shah is the Advisor to the Prime Minister of Pakistan on finance, revenue, economic affairs and statistics.

An experienced academic and consultant, Dr. Shah holds a Ph.D. in Finance from Indiana University, Bloomington's Kelley School of Business Administration.  Dr. Shah has more than 16 years of teaching experience at leading universities that include University of Michigan, Indiana University, University of Toronto, and Lahore University of
Management Sciences (LUMS).

Before his current position with the present administration, Dr. Shah has served as the chairman of the Privatization Commission, advisor to the Small and Medium Enterprise Development Agency (SMEDA), advisor on public finance to the Government of Punjab, and served on the board of Governors of the State Bank of Pakistan, PIA, Foundation University and Bank of Punjab.    He has consulted with various international institutions and published papers in journals of international repute.

The economy is doing fairly well. Our indicators are very good. Last year we had 8.4% growth, which was almost the highest we have had in 20 years. This year, we will get between 6.5% to 7%. We just did a $300 million, 30-year bond offering, which was very successful. We have also done a $200 million, 10-year bond. For the first time, we came to the US market for the bond offerings. This should send a signal to investors, both in Pakistan and overseas, that Pakistan's economic reforms are for real and very smart investors are willing to put up money behind our claims. This is a recognition of our macroeconomic stability. Five years ago people would not even lend us for a month, and today they are willing to lend us money for 30 years. Our stock market has been a top performer in the emerging markets for several years now. It's the kind of economy that should figure in everyone's calculations.

The challenge is to keep the momentum going and grow at 6-8% for the next ten, twenty years. That's the recipe for not only eliminating poverty, but also modernizing the country, raising the standards of living, and creating employment opportunities which are badly needed in Pakistan. We need to make our economy very, very competitive.

The biggest change that Pakistan has seen in recent years is that from a very public sector dominated economy, we have really transformed it into a private sector economy. All the major commanding heights of the economy are now in the hands of the private sector. This is a very big change and it hasn't happened in all of South Asia. We are the only ones to be able to transform like this. As a result, I think we now have a very dynamic and profitable private sector, and the virtuous cycle of 'more investment, more capacity, and more profits' is in place.

If you really want to sustain this growth for a long period of time, you need world class institutions, in which world class entrepreneurs and companies can operate competitively, with low transaction costs. This means that the government's role is to focus on building an environment in which the private sector can flourish, and where the genius of the people of Pakistan can be put to work. We are now in that institution building phase. Our goal is to modernize our institutions, systems, and decision making processes. We also need to modernize our way of doing business, for which need civil service and judicial reforms, including world class commercial laws and credible arbitration facilities.

We are trying to modernize the government ministries, particularly the ministry of finance, as well as our markets, regulators, and the corporate sector. The goal is to enable private businesses to operate smoothly in Pakistan at low transaction costs. Most of my time on this visit to the US was focused on talking to various agencies and getting support for bringing in new systems for organizations like our Central Directorate of National Savings, the Debt Office, and also the State Bank.

Another element is to strengthen our ability to provide the basic inputs for the private sector, e.g. energy. We have to increase our energy security, which means our dependance on oil has to go down. We have to have more domestic sources of energy, like hydel power, where we have a big competitive advantage. It also means bringing gas pipelines into Pakistan and domestic exploration of oil and gas. Of course, the other part of the equation is better management of energy demands.

Being an agricultural economy, the third element is to create reliable inputs for the agricultural sector, most importantly water, at the right time, in the right quantity. This basically requires construction of large reservoirs on our river systems and managing the water very effectively.

Also, the basic advantage that Pakistan has is its people. As a mid-sized country, of 160 million people, we need to put a lot more skills in the hands of our people. We need more investment in higher education, technical education, vocational training, and building up the skill level so our people can compete at the global level.

Finally, the fifth element of our strategy is to create an enhanced physical infrastructure, including roads, ports, airports, and train systems. We have to reduce the cost of logistics and increase the speed of transportation by instituting efficient systems and managing logistics as a business. Our target is to connect Karachi to any other point in Pakistan within 36 hours.

We have already delivered a transformed economy. The macroeconomic stability has been recognized all over the world by the flotation of a 30-year bond. It's not something we are saying, but people are actually willing to put their money in support of our claim. The world now recognizes that you have the capacity to issue a 30-year bond as compared to when you couldn't even get financing for one month. That's one big difference.

Secondly, the privatization of government holdings has been extraordinary. We have almost completely reversed the nationalization process. Banking, telecom, manufacturing, are all in the private sector. We have successfully privatized some of the power sector, e.g. the Karachi Electric Supply Corporation. We have also privatized the Karachi Steel Mills. This is a different economy now. The resource allocation system, manufacturing are already, and very soon energy will also be, run by the private sector by outstanding companies.

We are also able to spend a lot more on infrastructure with the fiscal capacity we have created due to our macroeconomic reforms and by reducing our fiscal deficit. All the projects I mentioned in energy, water, transport and logistics, are not pies in the sky; they are a fact of life and are being executed. That's another big difference: to have the resources to spend on development. Five years ago, we didn't have a penny to spend. Our public sector development program was Rs.80-90 billion rupees; today it is close to Rs.300 billion.

Finally, we are in the process of financial innovation, deepening our capital markets, bringing private investments into infrastructure, developing private sector pension funds, real estate investment funds, private equity and all. There's so much activity and again, it's actually happening, not just something in the planning stage. There's a great deal of momentum and the economy today is almost double the economy from 6-7 years ago. If we sustain the growth, every 6-8 years the economy will double again.

So what's really different is that we are finally, hopefully on the road to sustainable, long-term, rapid development. Along with China, India, and Vietnam, investors now also talk about Pakistan. We are now on the radar screens of international investors, which is a very important achievement.

There are always constraints and obstacles in the process of development. In our case, unfortunately, the law and order perception works against us. But I think this does not mean that you give up. Instead, it means that you keep working to improve your systems, methods, and institutions to make the economy better, reduce the cost of transaction, and consequently create the opportunity for high returns on investment. Then, even if you can't convince the world about your security, you know you can convince them about the profitability they can achieve in Pakistan. That is also reflected in the multinational companies (MNCs) in Pakistan. Almost 70% of them are expanding and as they do, other companies in the world will also notice. The reason is that the profitability in Pakistan is the highest among the group for almost all of these MNCs. Whether you look at ABN AMRO, Citibank, Unilever, or any other MNC, their return on equity in Pakistan is extremely high compared to other countries. We are getting investment from different regions of the world and not all of them are impacted the same by the law and order perception. We have money coming in from the Middle East, East Asia, Europe. At the end of the day, it all adds up to your importance as an investment destination

We have a very intense partnership with the US. There's an ongoing, multi-year program of about $600 million a year for the next five years. We are working on a bilateral investment treaty, which will be a stepping stone towards a free trade agreement with the US. So we are working to strengthen our relationship with the US and broaden access to the US markets for our businesses. The response is very good and we are on track.

Under the PRGF, we did not take the last two tranches of the IMF loan approved for Pakistan. We did not need that money. Even though these were concessional funds, we left it for other countries who needed a growth facility. This was very well appreciated by the international community. It also means there will be no post-program monitoring for Pakistan which was important, because we wanted to completely restore our financial sovereignty.

Now, we have an upscale program with the World Bank. This program was roughly around $700 million a year and it has now been upscaled to $1.5 billion a year. So basically the idea for the Spring meetings is to ensure that everything's on track, expedite the various programs and projects, and evaluate where we are going. This gives us a good opportunity to work with the entire team and be able to resolve issues that can further facilitate the smooth implementation of projects in Pakistan.

What will drive the economy will be further developments in the financial sector, because it has huge potential for growth.

Then we have manufacturing, where I think textiles will do very well as we get better in our manufacturing processes and move towards more value added products. Automobiles and engineering sectors are also moving very rapidly. The growth in automobiles is almost 30% a year, while in electronics and consumer durables it is even higher, at around 50% a year.

In Pakistan's economy, growth is driven both by exports and domestic demand. So we will see the construction and services sectors growing as well, with a lot of activity across the board.

There is a secondary debt market but it is not very active. The reason is that the primary market is not very active in terms of longer tenures. Now that we have established a dollar denominated yield curve of upto 30 years, we want to do the same for the domestic market. For this purpose, we will be issuing Pakistan Investment Bonds (PIBs) of various maturities. Through these, we will create a yield curve for the domestic market, which should really help generate secondary market opportunities in Pakistan. We have also had good success in bringing down inflation, which is very important for establishing a yield curve. From 11% in April of 2005, we have come down to 6.9% in eleven months, which gives us the confidence that now we can start going for longer term paper in the domestic market.

That is true, but for all of this, you need a yield curve after which you can introduce mortgage finance, long-term finance, corporate DFCs can have a benchmark so they can issue long-term paper. This is very critical to the development of the financial markets. There ought to be a yield curve for government securities. We have one year t-bills, and a few 20-year outstanding, which the banks can't rely on for making decisions because they are so few. We really need to take this to the 30 year mark. We need to open up the complete range, with sufficient liquidity, so trading can take place.

It is a critical role. If you look at India and China, it is the overseas Chinese and the NRIs who have contributed a great deal to the development in their home countries. Overseas Pakistanis are doing it too, but they can do it in a much bigger way. Pakistan has the highest profitability amongst all emerging countries, including India and China. The returns you can make here are tremendous. I would encourage people to look at mutual funds as a key investment opportunity. One, it is the easiest and quickest way to invest, and secondly, there are many options to choose from. They can also look at creating Pakistan specific funds here in the US which invest in the stock markets in Pakistan. Green field projects are also very attractive.

It all depends on your expertise and background. There are people who have come back from the US and set up automobile companies in Pakistan. The government is there to help, but you don't really need it, because there are no major permissions required to set up a business. Talk to the Chambers of Commerce, the local business houses, and see how things are being done in different industries.

If you are really interested, you will find a project. Investments happen when there are profits to be made and it is best that you discover those profits yourself.

As you know, the earthquake was a very tragic and devastating natural disaster. Over 73,000 people died in an area almost 40% the size of Switzerland. And it was a very difficult area with bad communication and practically no infrastructure left. There were dire predictions that lots of people will die after the earthquake due to famine, disease, and cold weather. Fortunately that did not happen as predicted. The relief operations were very well managed with tremendous support from the people of Pakistan, volunteers, army, civil administrations, and of course, the international community. Thank God we managed it exceedingly well. A lot of international agencies are telling us that it was a very well managed relief operation for a natural disaster of this size.

We are now in the reconstruction phase. We have funds, we are well-organized, and we have formulated really well thought out strategies for housing, infrastructure, education, healthcare, and restoration of livelihood. We have international support and funding, and Insha Allah, we will be able to do a very good job of reconstruction. The Earthquake Rehabilitation and Reconstruction Authority (ERRA) is a dynamic organization with some outstanding people and we expect that in about three years, we will complete the reconstruction. We realize that some factors can cause delays, and we have formulated our strategies accordingly. For example, in housing, our aim is to have at least one room ready before the next winter sets in so that families can at least move in. Secondly, we are providing livelihood grants to be paid every month until the reconstruction effort is complete and the survivors' economic activity can be restored. We have some very good programs based on the global experience with natural disasters and these programs will continue until the reconstruction is done.

Having said that, continued support is very important. As people resume their normal life, we need all the help we can get from NGOs and private groups to help generate the resources to enable people to function normally and productively. The government cannot do everything. Our programs are focused on providing the means and resources to people, but there are a lot of other areas in which NGOs and private groups can help the affected population and we encourage and request them to continue doing so.