Pakistan Business Forecast Report Q1 2014

Business Monitor International
October 29, 2013
45 Pages - SKU: BMI5144213
Countries covered: Pakistan

Pakistan Business Forecast Report Q1 2014

Core Views
The leaders of India and Pakistan met face-to-face on the sidelinesof the UN General Assembly in September, demonstrating that relationsbetween the two nuclear-armed powers remain cordial despiterising tensions in recent weeks.
Against the backdrop of the high degree of political legitimacy conferredby the turnout in the 2013 general elections, the PakistanMuslim League-Nawaz (PML-N)’s strong showing suggests to usa more stable government setup over the coming years, and onethat will have more legislative freedom to enact its agenda. Thestrong and ongoing support for the PML-N as seen in the Augustby-elections illustrates the public’s continued patience with regardsto the party’s more conservative economic agenda.
2012 was one of Pakistan’s deadliest and most violent years onrecord, which makes the government and the Pakistani Taliban’speace overtures all the more significant.
Real GDP growth is forecast to slow further to 3.4% this fiscal year(FY2013/14 [July-June]) as the economy undergoes a painful – butnecessary – adjustment on the back of a general tightening in bothfiscal and monetary policy.
The economy is likely to continue to be plagued by the difficultiesposed by the long-running energy crisis and the still-poor securityenvironment.
Against our expectations, the rupee has weakened quite considerablyover the past few months, largely due to the IMF’s condition onthe necessity for the country to accumulate reserves. Setting asidethis weakness, we continue to believe that the country’s balance ofpayments outlook is sound.
The State Bank of Pakistan decided to hike its benchmark policyrate by 50 basis points to 9.50% in September, largely in line withour view. We see consumer price inflation averaging 9.0% this fiscalyear and expect another 50 basis points worth of further tightening.

The PML-N’s budget for FY2013/14 largely stuck to the party’s 2013manifesto. While it is implementation that matters most, we cannothelp but be encouraged by the administration’s ambitious agendato reverse the deterioration in Pakistan’s fiscal position. We arepencilling in a reduction of the government’s deficit to 6.8% of GDPin FY2013/14.

Major Forecast Changes

We have downgraded our FY2013/14 real GDP growth forecast to3.4% from 4.0% previously.

We have increased our FY2013/14 reverse repo rate forecast to10.00% from 9.00% previously.

Key Risks To Outlook

Upside Risks To Inflation: Should external financing fail to materialiseor should the government fail to mobilise its domestic resourcebase, it could result in further budgetary borrowings from the bankingsystem, thus stoking inflation.Downside Risks To Growth: The country’s energy crisis and bleaksecurity situation pose the most immediate and greatest downsiderisks to growth.



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