Country Report Pakistan May 2009

Outlook for 2009-10

• The reinstatement of the Supreme Court chief justice, Iftikhar Chaudhry, has resolved some political 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 on suspected Islamist militants 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 expenditure. The Economist Intelligence Unit nevertheless expects the deficit to reach 5.6% of GDP in fiscal year 2008/09 (July-June).
• We expect real GDP to contract by 0.9% in 2008/09, and to recover only weakly, to growth of 2%, in 2009/10.

Monthly review

• A Supreme Court order preventing the chief minister of Punjab province, Shahbaz Sharif, from holding office was suspended on March 31st, and MrSharif resumed his position.
• Emboldened by a peace deal signed in February with the federal government, the Taliban have expanded their control in the North West Frontier Province (NWFP). The government has responded with a large-scale military offensive.
• The number of suicide bombings by Islamist militants has continued unabated; attacks have killed people in Chakwal, in Punjab province, and in the capital, Islamabad, as well as in the NWFP.
• The security situation in Baluchistan also declined dramatically after the mutilated bodies of three separatist politicians were found in early April. The discovery led to rioting across Baluchistan in which at least two people died.
• In mid-April the State Bank of Pakistan (the central bank) cut its benchmark discount rate by 100 basis points to 14%.
• The second IMF review of its US$7.6bn loan to Pakistan began on May 4th. The Fund seems likely to approve the third tranche of the emergency stand-by arrangement with Pakistan that was agreed in November 2008.
• Pakistan secured pledges of funding from international donors worth a total of US$5.3bn at a conference in mid-April.
• Inflows of remittances rose to US$739m in March, up from US$602m in March 2008 and US$641m in February 2009.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37;49
NAICS Code: 336;22