Throughout Musharraf period (from 1999 to 2007), balance of payment was positive and that is why:
Pakistan external debt did not increased and Pakistan kept paying interest on debt taken by past crook.
Pakistan external debt to GDP ratio went down from over 60 percent (1999) to around 25 percent (June 2008).
Pakistan dollar reserves increased from below $1 billion to over $15 billion.
Pakistan National debt to GDP ratio went down from around 110 percent (1999) to around 52 percent (June 2008).
Pakistan currency did not devalue substantially and did not devalue from 2002 onward.
Pakistan came out of situation of being an international defaulter state (Pakistan technically defaulted in 1999) … something that affects a country most and is major cause of bringing misery to the country.
Pakistan external credit rating kept getting better and better (since 1999) until crooks got into power (2008).
Pakistan stock market kept performing as best stock market in the world (rose from below 1200 in 1999 to around 16000 in 2008 … a rise of 13 times from 1999.
Pakistan companies kept increasing dividend payments (for instance, average dividend of shares in 2007 rose around 10 times what it was in 1999)
Pakistan interest rate kept going down (Interest on savings was around 20 percent in 1999 that came down to around 5 percent at one time though it went up and was around 9 to 10 percent this year)
Pakistan average inflation that was over 10 percent during 1988 to 1999 (and most years during that decade saw over 10 percent inflation) got reduced to around 5 percent from 1999 to 2007 (there was seldom any year when inflation went above 10 percent).
Simple example for those who do not understand figures easily:
Let see what happens when balance of payment is negative:
Pakistan imports = $ 15 billion
Pakistan exports = $ 20 billion
Trade surplus would be $5 billion
Remittances to Pakistan = $ 5 billion
Pakistan exports plus remittances = $ 25 billion
Result = $10 billion surplus from trade and remittance.
But, at the same time if Pakistan spends $15 billion dollars on dollar interest payment, expenditure on foreign trips, health visits by people, other services, and other transfers than … overall balance of payment would be $5 billion negative.
$ 15 billion - $ 10 billion (because of trade surplus and remittance) = $5 billion balance of payment deficit.
So, to cover this balance of payment $5 billion deficit, Pakistan have to cover that with their reserves (if they have enough) or would have to borrow increasing external (dollar) debts.
Now let see what happens when balance of payment is positive:
Pakistan imports = $ 25 billion
Pakistan exports = $ 15 billion
Trade deficit would be $10 billion
Remittances to Pakistan = $ 5 billion
Pakistan exports plus remittances = $ 20 billion
Result = $5 billion deficit from trade and remittance.
If Pakistan pays $5 billion interest on past debts than total deficit would be $10 billion.
But, at the same time if Pakistan earns $15 billion dollars from services, grants and other ways than Pakistan would have $5 billion balance of payment surplus.
This $5 billion balance of payment surplus Pakistan can use to increase their reserves or pay back past external (dollar) debts.
I hope that from above example, one can see the affects clearly.
Now, after knowing this, let see what happened during 1988-99 and 1999-2008:
1988 to 1999 (period of corrupts and thugs):
1988 = Pakistan reserves around $1 billion plus external debt around $17 billion.
1999 = Pakistan reserves below $1 billion plus external debt $38 billion.
[Actually, external or dollar debt was much more than $50 billion dollars in 1998 but Crook thug Nawaz Ganja stole those dollars and converted it to Rupee debt at the rate of Rs 46 to a dollar (or around Rs 10 less than market rate)].
So, Pakistan resulting balance was around $21 billion negative for year 1988-1999 (it would have been around $35 billion negative if Nawaz crook had not stolen dollars of expatriates].
Now let see what happened from 1999 to 2007 (period of honest General):
1999 = Pakistan reserves less than $1 billion plus external debt $38 billion.
Oct 2007 = Pakistan reserves around $15.6 billion plus external debt $40 billion.
Shows that total balance of payment was around $13 billion positive … $15 billion increase in reserves but $2 billion increase in debt.
June 2008: present Pakistan external debt is 40.5 billion dollars.
Pakistan reserve is around $11 billion.