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Pakistan Country Risk Report Q2 2018

Pakistan Country Risk Report Q2 2018

Executive Summary

Core Views

We believe that real GDP growth in Pakistan likely peaked at 5.3% in FY2016/17 (July-June), and is likely to slow over the coming quarters. Political headwinds are likely to act as a drag on growth, while the success of CPEC is far from guaranteed. We forecast the economy to expand by 5.0% in FY2017/18 and 4.4% in FY2018/19, albeit risks are tilted slightly to the upside.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Growth Unlikely To Accelerate Further
We believe that real GDP growth in Pakistan likely peaked at 5.3% in FY2016/17 (July-June) and is likely to slow over the coming
quarters. Political headwinds are likely to act as a drag on growth, while the success of China-Pakistan Economic Corridor is far from
guaranteed. We forecast the economy to expand by 5.0% in FY2017/18 and 4.4% in FY2018/19, albeit risks are tilted slightly to the
upside GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: NET EXPORT AND IMPORT PARTNERS
TABLE: MAIN IMPORTS AND EXPORTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Currency Forecast
PKR: Devaluation Should Take Some Pressure Off
We expect the Pakistani rupee to stabilise following the mini-devaluation on December 12-15 as the weaker currency helps to ease
likely to remain considerably higher than that of the US TABLE: CURRENCY FORECAST
Monetary Policy
Rate Hikes Likely But Downside Risks Rising
2018 (July-June). Our current forecast marks a revision from our previous forecast of 125bps of interest rate hikes due to the BSP's
continued tolerance of rapid money supply growth Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Privatisation Drive To Stall As Elections Loom
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Chapter 2: 10-Year Forecast
The Pakistani Economy To 2027
combining to provide Pakistan with an opportunity to break out of its low-savings, low-income equilibrium. We forecast the savings rate
to rise back to 13.7% by end-FY2026/27, enabling investment to rise to 17.5% of GDP, which will see real GDP growth average 4.2%,
versus 3.9% over the past decade. Meanwhile, GDP per capita is set to rise to roughly USD2,200 from roughly USD1,400 at present,
marking a 4.3% annual increase TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Bilateral Relations With The US To Deteriorate Further
We believe that the US's decision to suspend security aid to Pakistan is likely to push Islamabad closer to Beijing and lead to a further
deterioration of bilateral relations. Pakistani authorities are unlikely to give in and ramp up measures to clamp down on extremism with
elections around the corner.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Instability To Prevail, But Outright Collapse Unlikely
Pakistan is at risk of experiencing years of instability and militant activity, but an outright collapse of the state is unlikely unless the core
province of Punjab becomes ungovernable. Under such circumstances, we would not preclude a military coup. Meanwhile, due to its
strategic importance, Pakistan's foreign allies will do everything they can to ensure its stability.
TABLE: SCENARIO MATRIX: EVOLUTION OF STATE
TABLE: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETAL FORCES
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
TABLE: MAIN ACTIVE TERRORIST GROUPS
TABLE: POLITICAL VIOLENCE RISK
TABLE: MAJOR CONFLICT FLASHPOINTS
TABLE: BUSINESS RESPONSE TO CONFLICT RISK
Transport Network
TABLE: ROAD RISKS
TABLE: RAIL RISKS
TABLE: PORTS AND INLAND WATERWAYS RISKS
TABLE: AIR TRANSPORT RISKS
Chapter 5: BMI Global Macro Outlook
EM Growth To Accelerate In 2018 While DMs Plateau
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES ’ REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS ’ REAL GDP GROWTH, % y-o-y

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