Pakistan Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	70
ISBN Number	not applicable
Product Code	BMI03429

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Summary

Battling On Multiple Fronts The road ahead for Pakistan, both politically and economically, will remain tortuous in 2009 with a confluence of new challenges having emerged. A more effective tackling of the militant threat, beyond the present military broadside, will remain of paramount importance, as will defusing brewing tensions with India. Although the new US President Barack Obama's strategy towards Pakistan is not entirely clear yet, with the controversial use of unmanned drones to strike militant hideouts along Pakistan's border with Afganistan having continued at the start of his tenure, we believe that he will adopt a more finely calibrated approach than his predecesor. As for the economy, there are incipient signs of stabilisation, but much work left to be done, particularly as far as reforming Pakistan's rickety fiscal regime is concerned.

The challenges facing the administration of President Asif Ali Zardari will not diminish in 2009, and could grow even more daunting. Tensions with arch-rival India remain heightened following the November 2008 terrorist attacks in Mumbai. Domestically, the battle against militants in the northwestern tribal areas is ongoing. On the economic front, although a balance of payments crisis has been averted on the back of a US$7.6bn IMF loan, the urgent need to ameliorate macroeconomic imbalances means that the government will be forced to tighten its belt further. While the IMF has acknowledged that this process of consolidation should not come at the cost of social stability, it is hard to see how the government could maintain any form of cushion for Pakistanis given its depleted resources and need to raise tax revenues.

Thanks to a US$7.6bn IMF rescue package Pakistan has, for the time being at least, averted a balance of payments crisis and possible sovereign default. A process of stabilisation, underpinned by tighter fiscal and monetary policy, is underway and will be helped by the steep fall in international commodity prices. Pakistan's yawning twin deficits, in the fiscal and current accounts, should come down tin 2009 as should inflation. Nonetheless, ongoing electricity and security problems, coupled with restrictive credit conditions and a weakening global economy - which will keep a definite cap on foreign investment inflows - is likely to drag growth lower in 2009, and we accordingly forecast real GDP growth to slow to 2.5% in FY2008/09 (July-June), less than half the rate in FY2007/08 and significantly below the near 7% average rate of expansion seen over the past five years.

The business environment will remain highly challenging throughout 2009, largely due to the stifling energy shortage, which has brought many industries to their knees, and the parlous security situation. The government has said that it wants to attract some US$10bn in foreign investment over 2009 - much of which it believes will come from the Gulf region - but BMI is not convinced that this will be possible, given the current bleak outlook for the global economy and climate of risk aversion. A large part of this investment would be solicited for infrastructural projects and the energy sector in particular, where a 3,000-3,500MW capacity shortfall needs to be plugged before year-end.

Content

Executive Summary
- Battling On Multiple Fronts
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Daunting Challenges
- The two overarching problems facing the government of President Asif Ali Zardari, namely the serious dislocations and
- slowing activity in the economy and the ongoing and seemingly growing security threat posed by militants, are unlikely to
- vanish over the near term
- Table: Political Overview
- Foreign Policy
- Sabres Likely To Rattle For A While Longer
- The aftershocks of the November Mumbai attacks are still being felt, with tensions between New Delhi and Islamabad
- still running high
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Economy To Lose Further Steam In 2009
- While macroeconomic stability has improved in the wake of the IMF bailout and as a result of softening commodity
- prices, economic activity is likely to continue to sputter over the short-to-medium term
- TABLE: ECONOMIC ACTIVITY
- Monetary Policy
- Monetary Policy Likely To Remain Tight In H109#
- Due to the stubbornness of inflation, the State Bank of Pakistan has fallen out of synch with the rest of the world as
- far as monetary policy is concerned, with most central banks now in full-fledged easing mode
- TABLE: MONETA RY POLICY
- Balance of Payments
- External Asymmetries To Remain
- Although a balance of payments crisis may have been averted, thanks in no small measure to an IMF bailout package
- and easing commodity prices, Pakistans external position is likely to remain vulnerable over the foreseeable future
- TABLE: BALANCE OF PAYMENTS
- Fiscal Policy
- A Flicker Of Light On The Fiscal Horizon
- The government has made notable progress in addressing the serious budgetary lapses seen over FY2007/08 (July-June)
- by phasing out onerous energy subsidies and lifting the sales tax
- TABLE: FISCAL POLICY
Chapter 3: 10-Year Forecast
- The Pakistani Economy To 2018
- Benign Prospects, But Far From Plain-Sailing
- As the past few years have shown, Pakistan, given prudent economic management and favourable external
- dynamics, has the capacity to lift growth fairly dramatically
- TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
- to spell trouble for the financial services sector in 2009
- table: Banks Leverage Ratios
- table: Assets As % of Home Country GDP
- table: Assets As % of Home Country GDP When Euro zone Is Considered Home Country
- table: Exposure As % of Total Exposure To Region
- table: Banks Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATI ONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- Table: Asia, FDI Annual Inflow s
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATI ONS
- Operational Risk
Chapter 6: Key Sectors
- Defence
- Table: Pakistans Armed Force s And Government Defence Expenditure, 2005-2012
- Autos
- Table: Pakistan Automotive Sector -- Historical Data And Forecasts
Chapter 7: BMI GLOBAL ASSUMPTIONS
- Global
- TABLE: GLOBAL ASSUMPTIONS
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Economic Activity
- TABLE: DEVELOPED STAT ES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS , REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- TABLE: EMERGING MARKET EXCHANGE RATES