Country profile - Pakistan

Population: 137m Annual income per head: about $400 (less than 2% of the UK average) Main exports: rice, cotton, leather goods Total debts: $36bn Source: Fitch IBCA

The decision to lift sanctions is being seen as a reward for Pakistan, which has offered to support America's pursuit of Saudi-born dissident Osama Bin Laden, who has been identified as the chief suspect in the 11 September terror attacks on New York and Washington.

Reacting to the move, India's finance minister, Yashwant Sinha, said: "It's a good thing the sanctions have been lifted but it's a minor issue as far as the Indian economy is concerned.

"Except for certain defence supplies, sanctions have no meaning."

Foreign investment

There is little doubt that Pakistan's economy needs a helping hand.

But the ending of US sanctions has received a mixed reaction in Islambad, with some government sources calling it a "half measure".

Even by the standards of the region, Pakistan is poor country, which has been starved of foreign investment.

Its $60bn economy has a growth rate of 2.6%, well below averages in the region.

The country has suffered from a weak foreign exchange position and it relies heavily on international creditors for hard currency flows.

The takeover by the military, when General Musharraf ousted the former Prime Minister Nawaz Sharif in 1999, as well as mismanaged power projects, sent private investors running.

While poor weather has battered its cotton production.

Many Pakistanis have protested against possible military action in Afghanistan

Agriculture accounts for 25% of the country's gross domestic product (GDP).

The ending of sanctions, which included bans on foreign assistance, arms sales, government credits and US support for multilateral financial assistance, should open the door to more foreign aid.

It should also help delicate negotiations aimed at securing further funding from the International Monetary Fund (IMF).

First step

But senior Pakistani officials are stressing that there is still much more that the US could do to help the country's economy.

This is a process...and we hope it will not end here

Tariq Aziz, principal secretary to President Musharraf

President Musharraf's principal secretary, Tariq Aziz, said: "This is a process...and we hope it will not end here.

"To exhibit confidence and trust among the two countries, it's better that we keep on negotiating and ultimately the all sanctions should be lifted.

"That would create confidence-building measures and promote trust...which is very necessary."

Sanctions imposed at the time of the 1999 coup remain in place.

But the US decision to lift the nuclear test sanctions is being seen by some in Pakistan as the first step towards more widespread economic assistance.

Further strife

Nevertheless, President Musharraf risks further internal strife if he is seen as being too close to the US, with many Pakistanis supporting the Taleban and Islamic fundamentalism.

Such internal conflict could seriously damage the country's economy, potentially cancelling out any benefits from the ending of sanctions.

Foreign investors, which include Shell, chemicals giant ICI, oil explorer Lasmo, US banking firm Citigroup and BG, the former British Gas, are already concerned about becoming the target of anti-Western demonstrations.

Some companies are understood to have asked foreign national staff to leave the country.