Country Report Pakistan January 2009

Outlook for 2009-10

• 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.
• The threat of Indian aggression will limit the extent of inter-party political rivalry in the short term, but political stability is unlikely to improve greatly in 2009-10. Tensions between the government and the security forces could rise.
• The Mumbai attack is very likely to lead to increased scepticism among the Indian authorities towards the peace process with Pakistan. If this is taken to an extreme, it could lead to India's disengagement 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 are the central tenets of the IMF's conditions for its assistance.
• The government's focus on reining in the fiscal deficit means that it will be forced to cut back on expenditure. Nevertheless, the Economist Intelligence Unit expects the deficit to reach 6.3% 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 3.1% in 2009/10.

Monthly review

• On January 1st India presented Pakistan with a dossier containing evidence linking Pakistan to the November terrorist attack on Mumbai.
• In mid-December Pakistan announced that it had scaled down military operations in its north-western areas in response to a perceived military threat from India.
• On January 3rd the prime minister's financial adviser, Shaukat Tarin, said that Pakistan was meeting all of its IMF targets, but it is in fact unlikely that the government will be able to meet its fiscal targets in 2008/09.
• On December 15th the Karachi Stock Exchange removed the artificial floor that it had imposed in August 2008 to prevent share prices from falling too rapidly. The benchmark index immediately fell to a two-and-a-half-year low.
• In early January extensive planned power cuts led to riots in several major cities. The government implemented some short-term measures to ease the crisis, but its debt to power-generation firms remains an issue.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;53;37;13;15;65;49;48;2834;80;70;39;22
NAICS Code: 52;44;336;211;23;53;22;517;3254;62;72;31;313

This report covers the following industry codes:
SIC Code: 60;53;37;13;15;65;49;48;2834;80;70;39;22
NAICS Code: 52;44;336;211;23;53;22;517;3254;62;72;31;313