Country Report Pakistan February 2009

Summary

The terrorist attack on Mumbai, India's financial capital, in late November 2008 has led to a rise in tensions between Pakistan and India and will ensure a renewed focus on Pakistan's ability to rein in locally based terrorist groups.
Political stability is unlikely to improve greatly in 2009-10. Tensions between the government and the security forces could rise.
The Mumbai attack is leading to increased scepticism among Indian authorities about the peace process with Pakistan. If this is taken to an extreme, it could lead to India disengaging from the process.
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.
Economic policy will remain focused on crisis management in 2009. A sharp tightening of fiscal and monetary policy is the central tenet of the IMF's conditions for its assistance.
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 6.4% of GDP in fiscal year 2008/09 (July-June).
Real GDP growth (expenditure measure) is forecast to slow to just 1.2% in 2008/09, from 6% in 2007/08. High inflation will depress real wages and thus consumer spending. Growth will increase to 3.2% in 2009/10.

Pakistani troops enjoyed some military successes in January and early February against Islamist militants in the Federally Administered Tribal Areas (FATA). Nevertheless, militant attacks continued in the FATA and elsewhere.
The scientist who created Pakistan's nuclear programme and who passed on nuclear expertise to North Korea, Iran and Libya, Abdul Qadeer Khan, was released from house arrest in early February.
On February 10th the Pakistani government replied to the dossier presented by the Indian government in the wake of the Mumbai terrorist attack, saying that it was "insufficient" for it to take action and asking for more "evidence".
On February 1st the State Bank of Pakistan (SBP, the central bank) stopped providing foreign exchange to commercial banks for imports of furnace oil used in power stations.
Total textile exports rose by 0.5% year on year to US$5.2bn in the first half of 2008/09. However, exports of ready-made garments fell in value from US$645m to US$514m in the same period, according to data from the SBP.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;22
NAICS Code: 52;313