Country Report Pakistan April 2009

Outlook for 2009-10

• The political turmoil of March 2009 has strengthened the position of Pakistan's main opposition leader, Nawaz Sharif, and weakened that of the president, Asif Ali Zardari. However, Mr Sharif still has no clear path to power.
• The reinstatement of the Supreme Court chief justice, Iftikhar Chaudhry, has resolved immediate tensions, and a degree of stability is likely to return in the very short term. However, broader political stability will remain elusive.
• The new US policy for Pakistan and Afghanistan encompasses both military strikes and development assistance, but will also seek co-operation and "accountability" from Pakistan.
• Pakistan's acceptance of a US$7.6bn emergency financing package from the IMF means that it will lose considerable autonomy in setting economic policy.
• The government's focus on reining in the fiscal deficit means that it will have to cut back on expenditure. Nevertheless, the Economist Intelligence Unit expects the deficit to reach 6.5% of GDP in fiscal year 2008/09 (July-June).
• We expect real GDP growth to average 0.6% in 2008/09, down from 6% in 2007/08. Growth will rise to 2.3% in 2009/10.

Monthly review

• Following a Supreme Court ruling that barred Mr Sharif from holding public office, lawyers and opposition supporters organised an anti-government protest march that took place in mid-March.
• After pressure from the army chief, Ashfaq Kayani, Mr Zardari acquiesced to the protesters' demands and agreed to reinstate Mr Chaudhry, who had been sacked in 2007 by the previous president, Pervez Musharraf.
• Following the signing of a peace accord between the government and a militant Islamist group, Tehreek-e-Nafaz-e-Shariat-e-Mohammadi, sharia law began to be implemented in Swat, in Pakistan's north-west, in March.
• The US announced a new strategic approach to Pakistan and Afghanistan that narrows the scope of US goals in the region to battling Islamist terrorism specifically.
• The World Bank and the Asian Development Bank both plan to continue to boost their funding to Pakistan. Money will be directed primarily to poverty-reduction strategies.
• The large-scale manufacturing sector contracted by 5.4% year on year in the first seven months of 2008/09. Continued prolonged power outages and higher costs for utilities and raw materials were primarily responsible.

Source: Country Report