Market Research Logo

Pakistan Country Risk Report Q2 2016

Pakistan Country Risk Report Q2 2016

Core Views

A sharp drop in terrorist activity in 2015 is beginning to have positiveeffects on the Pakistani economy, following Islamabad’s aggressiveapproach against terrorists based in the North Waziristan borderregion that were stepped up following the Peshawar military schoolattacks in December 2014. While significant challenges remain, apromising change in tack by the establishment may be in the offing,with the potential to provide more medium-term stability.

We forecast real GDP growth to come in at 4.3% in FY2015/16and 4.2% in FY2016/17, helped by cheaper energy prices andan improved security situation. Pakistan’s chronically low savingsrate is finally beginning to increase, which will provide support forsustainable investment over the coming years.

The inflation cycle in Pakistan has likely turned and we expect theState Bank of Pakistan to begin hiking rates in mid-to-late 2016. Thatsaid, continued low oil prices will prevent the need for the centralbank to hike aggressively, and we are forecasting just 50 basis pointsof hikes in the benchmark rate this year from the current multi-yearlow of 6.00%.

The decline in crude oil prices is having a dramatic positive impacton Pakistan’s trade account. The trade deficit is narrowing despite asurge in the non-oil trade deficit, providing support to both economicgrowth and the country’s international reserve buffer.

The Pakistani government remains broadly on course in its effortsto narrow the country’s longstanding fiscal deficit, with the latest IMFloan disbursement testament to ongoing reform efforts. We continueto see the fiscal deficit narrowing over the coming years to 4.8% ofGDP in FY2015/16 and 4.4% of GDP in FY2016/17.

Pakistan is winning international recognition for the developmentof its Islamic financial sector, and we continue to expect Shariahcompliantbanking to grow in prominence over the coming yearswith the help of the authorities’ push to grow the sector.

Major Forecast Changes

We have made a sizable revision to our forecast for Pakistan’scurrent account, with the ongoing drop in oil prices likely to causea healthy current account surplus of 1.2% of GDP in FY2015/16.

This compares with a deficit of 1.0% in FY2014/15, and our previousforecast for a balanced current account position.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Upside Growth Potential Amid Energy And Security Gains
We forecast real GDP growth to come in at 4.3% in FY2015/16 and 4.2% in FY2016/17, helped by cheaper energy prices and an
improved security situation.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
Monetary Policy
Inflation Bottoming Out
The inflation cycle in Pakistan has likely turned and we expect the State Bank of Pakistan to begin hiking rates in mid-to-late
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy Framework
External Trade And Investment Outlook
Oil Price Drop Providing Major Support
The decline in crude oil prices is having a dramatic positive impact on Pakistan's trade account. The trade deficit is narrowing despite a
surge in the non-oil trade deficit, providing support to both economic growth and the country's international reserve buffer.
Outlook On External Position
TABLE: NET EXPORT AND IMPORT PARTNERS
TABLE: MAIN IMPORTS AND EXPORTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Fiscal Policy And Public Debt Outlook
Budget Remain On Course Despite Setbacks
The Pakistani government remains broadly on course in its efforts to narrow the country's longstanding fiscal deficit, with the latest IMF
loan disbursement testament to ongoing reform efforts.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
Currency Forecast
PKR: Stability With A Weakening Bias
While we continue to see slight weakness in the Pakistani rupee over the course of 2016, this weakness will likely be very minor
compared with prior years.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Pakistani Economy To 2025
South Asia's Serial Underperformer
Despite holding some of hallmarks of an attractive emerging market growth story, Pakistan's economy has been stuck in a secular
growth downtrend for decades.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestics Politics
One Year On, Terror Strategy Bearing Fruit
A sharp drop in terrorist activity in 2015 is beginning to have positive effects on the Pakistani economy, following Islamabad's aggressive
approach against terrorists based in the North Waziristan border region that were stepped up following the Peshawar military school
attacks in December 2014. While significant challenges remain, a promising change in tack by the establishment may be in the offing,
with the potential to provide more medium-term stability.
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
SWOT Analysis
Operational Risk Index
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: EXPORT AND IMPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: PAKISTAN – MACROECONOMIC DATA & FORECASTS

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