Pakistan Infrastructure Report 2007

Pakistan's GDP grew 6.6% in the fiscal year ended June 2006, after averaging over 7% in the previous four years. BMI's newly released Pakistan Infrastructure Report 2007 forecasts an average construction growth rate in the region of 8% over 2006-2010. Increased spending on infrastructure development programmes covering the roads, railways and power segments, in addition to the ongoing reconstruction work in quake-hit areas, is expected to drive construction growth over the next few years. Pakistan has a number of major infrastructure projects on paper, including the US$43bn Model city on the islands of Bundal and Buddo near Karachi, the US$6.5bn Diamer-Bhasha dam and the US$5bn oil refinery in Baluchistan.

Pakistan has suffered from decades of internal political disputes and a costly, ongoing confrontation with neighbouring India. Its position as a military state is a major deterrent to foreign investment and even though the numbers have improved, they are still much lower than those for India and China. The increase in Pakistan's imports was more than double the rise in exports in fiscal 2006, further widening the country's large trade deficit. High international oil prices, inflation and a widening current account deficit will remain the biggest threats to the Pakistan economy. Rising steel and cement prices have been adding to the inflationary spiral caused by global oil prices even as concessions to boost the housing segment have proved futile as real estate prices have gone beyond the reach of the middle- and uppermiddle- income classes.

High economic and political risk, have pulled down Pakistan's score on BMI's Business Environment rankings. The country ranks 13th among 14 peers from the Asia region. Though it is taking steps to improve the state of its infrastructure, Pakistan requires large amounts of investment and its competitive environment is well below the regional average. BMI forecasts a slowdown in the industry from 2007 onwards. The potential for infrastructure growth in Pakistan is limited as long as the country is in the throes of political instability and has an under-developed business environment. At US$3.8bn, the construction industry is expected to contribute a little under 2% to Pakistan's GDP by 2010.