Market Research Logo

Pakistan Country Risk Reports Q2 2015

Pakistan Country Risk Reports Q2 2015

Core Views

Increased political stability is likely to result from the December 16 Peshawar school attacks in the near term, as opposition politicians come together to look for ways to fight the growing terrorist threat.

Over the longer term, the government has an opportunity to tackle terrorism from a grassroots level as it looks to implement a 20-part National Action Plan to combat the spread of extremism.

The Pakistani government's reform efforts are slowly bearing fruit, with efforts to reduce energy subsidies, broaden the tax base, and offload stakes in public sector enterprises all contributing to a substantially lower fiscal deficit in FY2013/14. We expect further progress in FY14/15, which should see the fiscal deficit fall further to 5.1% of GDP.

Lower oil prices and the ongoing reduction in government borrowing should allow the State Bank of Pakistan (SBP) to lower interest rates further over the coming months, as headline consumer price inflation (CPI) falls further. We expect another 50 basis point (bps) interest rate cut by the SBP in early 2015, and are forecasting CPI to average 4.5% in both FY14/15 (July-June) and FY15/16.

Despite an improving current account position owing to a declining oil import bill, we believe that Pakistan's precarious reserve position will encourage the SBP to steer the rupee gradually weaker in order to build up a greater reserve buffer. The success of the government's privatisation drive, and progress on the crackdown on terrorism are also likely to be key drivers of the currency in 2015.

Increased co-operation between Islamabad and Beijing, particularly in the area of energy infrastructure, should provide strong support to investment growth in Pakistan over the coming years. We see real GDP growth coming in at 4.0% in FY14/15, from 4.1% in FY13/14.

The SBP's increased efforts to boost the awareness of Islamic financial products are likely to be successful in boosting shari'a-compliant finance to 20% of the total banking sector by 2020. This, together with a reduction in public sector crowding out, should help arrest the steady decline in total banking assets as a share of GDP.

Major Forecast Changes

We have revised down our forecast for benchmark interest rates and consumer price inflation. We now expect another expect another 50bps interest rate cut by the SBP to 9.00% in early 2015, which marks a change from our previous forecast of rates remaining on hold at 9.50%. We have also revised down our forecast for CPI to average 4.5% in both FY14/15 (July-June) and FY15/16, from 7.6% and 6.5% previously.


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestics Politics
Taking A Tougher Stance On Terror
Increased political stability is likely to result from the December 16 Peshawar school attacks in the near-term, as opposition politicians
come together to look for ways to fight the growing terrorist threat. Over the longer term, the government has an opportunity to tackle
terrorism from a grassroots level as it looks to implement a 20-part National Action Plan to combat the spread of extremism.
Table: Politica l 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 – EV OLUTION OF STATE 
Table: SCENARIO MATRIX – CENTRIFUGAL VER SUS CENTRIPETAL FORCES
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Activity
China Assistance To Help Boost Investment
Increased co-operation between Islamabad and Beijing, particularly in the area of energy infrastructure, should provide strong support
to investment growth in Pakistan over the coming years. We see real GDP growth coming in at 4.0% in FY2014/15, from 4.1% in
FY13/14.
Table: Economic Acti vity
Fiscal Policy
Reforms Bearing Fruit
The Pakistani government's reform efforts are slowly bearing fruit, with efforts to reduce energy subsidies, broaden the tax base, and
offload stakes in public sector enterprises all contributing to a substantially lower fiscal deficit in FY2013/14. We expect further progress
in FY14/15, which should see the fiscal deficit fall further to 5.1% of GDP.
Table: Fisca l Policy
Monetary Policy
Further Rate Cuts Likely Amid Oil Collapse
Lower oil prices and the ongoing reduction in government borrowing should allow the State Bank of Pakistan (SBP) to lower interest
rates further over the coming months, as headline consumer price inflation (CPI) falls further. We expect another 50 basis point interest
rate cut by the SBP in early 2015, and are forecasting CPI to average 4.5% in both FY2014/15 (July-June) and FY15/16.
Table: Mon eta ry Policy
Exchange Rate Policy
PKR: Slight Depreciation In 2015
Despite an improving current account position owing to a declining oil import bill, we believe that Pakistan's precarious reserve position
will encourage the State Bank of Pakistan to steer the rupee gradually weaker in order to build up a greater reserve buffer. The success
of the government's privatisation drive, and progress on the crackdown on terrorism are also likely to be key drivers of the currency in
2015.
Table: Exchange Rate
Banking Sector
Shari'a Banking Push Continues
The State Bank of Pakistan's increased efforts to boost the awareness of Islamic financial products are likely to be successful in
boosting shari'a-compliant finance to 20% of the total banking sector by 2020. This, together with a reduction in public sector crowding
out, should help arrest the steady decline in total banking assets as a share of GDP.
Table: CURRENCY FORECAST
Chapter 3: 10-Year Forecast
The Pakistani Economy To 2024
South Asia's Serial Underperformer
Despite holding some of the hallmarks of an attractive emerging market growth story, Pakistan's economy has been stuck in a
secular growth downtrend for decades. This failure can largely been be put down to myopic government policies, a hostile business
environment, and acute security risks – three factors that are unlikely to change materially over the coming decade. For this reason,
we are forecasting a rather lacklustre 4.0% average annual expansion through to 2024, meaning that Pakistan will remain very much a
regional underperformer.
Table: Long -Term Mac roeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
Table: Operationa l Ris k
Availability Of Labour
Table: Asia – Avai labi lity Of Labou r Ris k
Crime Risk
Table: Asia – Crim e Ris k
Table: Crim e Statistics
Chapter 5: Key Sectors
Autos
Table: Autos Tota l Market – Histo rica l Data & Forecasts
Food & Drink
Table: Food Consumption Indicato rs – Histo rica l Data & Forecasts
Table: Hot Drin k Va lue/Vo lum e Sales, Production & Trad e – Histo rica l Data & Forecasts
Table: Mas Groc ery Retai l Sales By Format –Histo rica l Data & Forecasts
Other Key Sectors
Table: Oil & Gas Secto r Key Indicato rs
Table: Pharma Secto r Key Indicato rs
Table: Defenc e & Secu rity Secto r Key Indicato rs
Table: Telecoms Secto r Key Indicato rs
Table: Inf rast ructu re Secto r Key Indicato rs
Table: Freig ht Key Indicato rs
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Globa l Assumptions
Table: Develop ed Stat es, Real GDP GrowtH , %
Table: BMI VER SUS BLOOMBER G CONSENSUS RE AL GDP GROWTH FORE CASTS, %
Table: Em erging Markets , Real GDP Growth, %

Download our eBook: How to Succeed Using Market Research

Learn how to effectively navigate the market research process to help guide your organization on the journey to success.

Download eBook

Share this report