WASHINGTON, April 3: The military remains the most important political force in Pakistan followed by the ulema, landowners, industrialists, and small merchants, says the latest CIA report on the country.

The report, updated on March 15, describes Pakistan as “an impoverished and underdeveloped country,” which has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighbouring India.

But the report notes that IMF-approved government policies, bolstered by generous foreign assistance and renewed access to global markets since 2001, have generated “solid macroeconomic recovery” during the last five years.

The government, the report says, has made substantial macroeconomic reforms since 2000, most notably privatising the banking sector. Poverty levels have decreased by 10 per cent since 2001 and Islamabad has steadily raised development spending in recent years, including a 52 per cent real increase in the budget allocation for development in fiscal year 2007, “a necessary step towards reversing the broad underdevelopment of its social sector.”

The report says the fiscal deficit — the result of chronically low tax collection and increased spending, including reconstruction costs from the October 2005 earthquake — “appears manageable for now.”

According to the report, GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8 per cent range in 2004-06.

Inflation remains the biggest threat to the economy, jumping to more than 9 per cent in 2005 before easing to 7.9 per cent in 2006. The central bank is pursuing tighter monetary policy — raising interest rates in 2006 — while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit — driven by a widening trade gap as import growth outstrips export expansion — could draw down reserves and dampen GDP growth in the medium term, the report adds.

The report puts Pakistan’s revenues at $20.55 billion but the expenditures at $25.65 billion and public debt at 55 per cent of GDP. Military expenditures consume 4.5 per cent of GDP.

The agency, however, reports a “dramatic” improvement in the telecom infrastructure, noting that mobile cellular subscribership has skyrocketed, approaching 50 million in late 2006, up from only about 300,000 in 2000.

Pakistan had 72,765 internet hosts in 2006 providing service to more than 10.5 million across the country.

Commenting on Pakistan’s international disputes, CIA notes that talks and confidence-building measures “cautiously have begun to defuse tensions over Kashmir.”

The report observes that India and Pakistan have maintained their 2004 ceasefire in Kashmir and initiated discussions on defusing the armed stand-off in the Siachen glacier region.

Pakistan, with UN assistance, repatriated 2.3 million Afghan refugees leaving slightly less than a million, many of whom remain at their own choosing, the report adds.

CIA also points out that Pakistan has proposed and Afghanistan protests construction of a fence and laying of mines along portions of their porous border. Besides 1,084,208 Afghan refugees, the country has an undetermined number of internally displaced persons from the conflict in Waziristan while most of the 34,000 IDPS from the October 2005 earthquake have returned to their homes, the report adds.

Pakistan is also a key transit point for Afghan drugs, including heroin, opium, morphine, and hashish, bound for Western markets, the Gulf States, and Africa. The report also notes that financial crimes related to drug trafficking, terrorism, corruption, and smuggling remain problems.

The CIA Factbook 2007, counts Pakistan among “high risk” countries for food and waterborne diseases such as bacterial diarrhoea, hepatitis A and E, and typhoid fever.