The current macroeconomic indicators show that the economy is moving in the right direction and there is enough evidence to convince even skeptics that the economy is in a turnaround phase.

The effects of macroeconomic stability have started percolating from the external account to the productive sectors of the economy: manufacturing sector produced higher output during the last fiscal year, there is an increasing demand for credit, private investment is rising, export target was achieved and there are in-flows of capital goods in the country. All these are the result of the consistency in the government policies during the previous four years.

We review in the following paragraphs investment, GDP growth rate, growth in manufacturing and agriculture sectors from 1990- 91 to 2003-04. In developing economies like Pakistan, agriculture plays a pivotal role in the economic growth of the economy.

Any disturbance or disaster in this sector shakes the whole economy as majority of the population directly or indirectly depends on this sector for their livelihood. If agriculture and manufacturing sectors are considered two wheels of the economy, then investment is the engine of the economy.

Before nuclear tests, the total investment as percentage of the GDP was rising in the early nineties; however it started declining from 1993-94 onward (Figure 1). It declined from 19.4 per cent in 1993-94 to 17.3 per cent during the fiscal year 1997-98.

This decline in total investment badly affected overall performance of the economy, as low growth rates were observed in agriculture and manufacturing sectors during this period.

The economic growth rate was recorded high during the start of the last decade. This higher growth rate is attributed to large production in agriculture sector but it declined to 2.1 per cent in 1992-93, since agriculture sector experienced a negative growth rate of 5.3 per cent and manufacturing growth was recorded at 4.4 per cent as compared to the preceding year's 8.1 per cent.

In the coming years up to 1995-96, the growth rate improved because of agriculture sector but manufacturing sector did not show much improvement. The proceeding year again observed the lowest growth rate of the decade mainly due to dismal performance of both agriculture and manufacturing sectors.

The lowest growth rate in agriculture sector is attributed to pest and disease attacks on cotton crop and these attacks resulted in substantial production losses of the crop.

The low production of cotton crop badly affected textile industry. One important point is that total investment was low during this period. When Nawaz Sharif came into power for second time, he allocated much more investment funds to transport and communication and services sectors by decreasing investment expenditures in agriculture and electricity and gas sectors. So a negative growth rate for manufacturing sector and the lowest one for agriculture sector were reported for 1996-97.

Agriculture is considered the backbone of the economy of Pakistan; an increase in investment in this sector could bring about substantial changes in other sectors of the economy since most sectors directly or indirectly depend on agriculture for raw material, etc. However, due emphasis was not given to this sector.

The subsequent year of 1997-98 showed improvement in the economy as GDP growth rose from 1.7 per cent in 1996-97 to 4.2 per cent in 1998-99 (Figure 2). Total investment was again low as compared to the preceding year.

The performance of Pakistan's economy remains disappointing during 1998-99 owing to many reasons. Chief of them being economic sanctions slapped by the US, halting of the loans by the IMF, the Asian Development Bank, and the World Bank, world wide recession and depressed domestic demand. These pushed the economy down the hill.

When General Musharaf took over, foreign assistance was further stopped and it was made conditional to the restoration of democracy in the country. Many countries imposed economic sanctions on Pakistan.

In such circumstances, to revive the economy, the government cut down all development and non- development expenditures very much. Investment suffered more than other expenditures. Total investment as percentage of GDP remained very low. (Figure 2).

The 9/11 incident badly affected foreign direct investment and private investment in the country as the investors were uncertain about the security and law and order situations in the region because of the invasion of the US and her allied forces of Afghanistan. Pakistan being a neighbouring country of Afghanistan suffered more than other countries.

Further, relationships between Pakistan and India deteriorated. These and other factors hindered the investment, both domestic and foreign. Public sector investment was not coming due to financial restraint on the government side.

In such a scenario, the GDP growth rate declined to 3.9 per cent in 1999-00 as compared to the preceding year and it further declined to 1.8 per cent in the subsequent year. Total investment as percentage to GDP showed an increasing trend from 1999-2000 onward (Figure 2).

However, agriculture sector showed improvement and this improvement was attributed to more favourable weather and increase in support price of wheat, and this added strong output growth in agriculture.

During this period, crop situation was excellent especially output of wheat increased substantially and Pakistan was able to export surplus wheat after meeting its domestic needs.

However, during 2000-01, overall performance of the economy was again at its lowest level. There were two maim factors attributed to low growth rate of the economy. First, the 9/11 incident influenced the world economy and Pakistan was no exception.

Second, Pakistan experienced severe shortage of water and the rainfall was recorded very low during this year. The latter deteriorated the performance of agriculture sector. The next financial year recorded a growth rate of 5.1 per cent.

Performance of agriculture and manufacturing sectors improved as higher growth rates were recorded for these sectors as compared to the previous year. The financial year 2003-04 recorded further betterment in the performance of the economy.

The main sector causing this better performance was manufacturing sector as its growth rate was recorded as 13.4 percent and this was the highest growth rate achieved during the period 1990-2004.

This higher growth rate in manufacturing sector indicates that total investment in the country was rising. This could be attributed to the investment friendly and consistent policies of the government.

The government assured investors in the country and abroad that government friendly policies and law and order situation were conducive for investment in the country. In the year 2003-04, total investment improved rising to 18.1 per cent as compared to the preceding year's 16.7 per cent.

On the other hand, many European countries provided financial assistance and write-off or rescheduling of loans for the role Pakistan played against terrorism. Pakistan experienced record increase in the foreign exchange reserves and remittance. These favourable conditions caused a rise in total investment in 2003-04.