Market Research Logo

Pakistan Country Risk Report Q4 2018

Pakistan Country Risk Report Q4 2018

Risks are rising that Pakistan could enter into a recession over the coming 12 months, which, given its high positive working age population growth, would mean sub-2% real GDP growth. Given the country's huge external imbalances, either a spike in oil prices, political instability, a reduction in Chinese investment, or a global slowdown, could provide the catalyst for a recession.

Pakistan's external accounts are deteriorating rapidly, with the trade deficit falling to new record lows and foreign reserves dropping to dangerously low levels. A narrowing in the deficit is highly likely over the coming quarters as dollar availability dries up, resulting in a potentially destabilising drop in imports.

We expect the SBP to hike its policy rate further by 50bps to 7.00% in FY2018/19. The central bank's 50bps hike at its May 25 meeting will likely be insufficient to address the country's weakening currency, which is being driven by the widening fiscal and external deficits. Further increases in oil prices and rising interest rates in the US would make it more difficult for the SBP to balance growth and inflation risks, as well as support the currency.

We maintain our view that the Pakistani economy is increasingly in need of external financial assistance as its fiscal and external positions continue to deteriorate just two years after the end of the IMF's Extended Fund Facility arrangement. Pakistan's strategic geopolitical importance means that financial assistance will likely remain forthcoming, but any help is unlikely to put the country on a sustainable fiscal trajectory from where it can achieve quality long-term economic growth.

The SBP's decision to devalue the rupee by more than 4.0% on June 11-18, the third such move since December 2017, should help to ease some pressure on the country's external accounts, but is unlikely to prove sufficient. Large external imbalances and a deteriorating inflation picture suggest that the PKR still has further to weaken over the medium-to-long term, even as it is likely to remain stable in the near term given the upcoming election. We expect the rupee to weaken against the US dollar by an average of 4.0% per annum over the coming years, with risks skewed to the downside.

The July 25 general elections look set to be a closely fought race between the ruling PLM-N, which has a large grassroots support base, and the main opposition PTI, which has the implicit support of the powerful and respected military establishment. A PTI victory would likely see the trends of increased social conservatism and reduced fiscal conservatism deepen, undermining the PML-N's efforts to move the country more towards greater liberalism.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Recession Risks Rising In Pakistan
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
External Trade And Investment Outlook
Import Crunch On Its Way For Pakistan
Outlook On External Position
TABLE: NET EXPORT AND IMPORT PARTNERS
TABLE: MAIN IMPORTS AND EXPORTS
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
More Tightening On The Cards In Pakistan As Twin Deficits Widen
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Pakistan Country Risk Q4 2018ContentsFiscal Policy And Public Debt Outlook
Pakistan Increasingly In Need Of External Support
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
PKR: Pain Not Over Yet
TABLE: CURRENCY FORECAST
10-Year Forecast
The Pakistani Economy To 2027
Significant Opportunities For Growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Fiscal Liberalism And Social Conservatism To Endure In Pakistan After Elections
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Instability To Prevail, But Outright Collapse Unlikely
TABLE: SCENARIO MATRIX: EVOLUTION OF STATE
TABLE: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETAL FORCES
Global Macro Outlook
Pressure On EM Grows, As Do Divergences
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
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