Pakistan Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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  • Understand and measure the political, business environment and operational risks to your company
  • Gain insight on emerging trends that could support, strengthen or disrupt your activities in the market
  • Benefit from 10-year macroeconomic forecasts and insight into the structural characteristics of the economy
  • Get the long-term political outlook and explore possible scenarios for change
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Pakistan Country Risk Report
Product Price
$1,195.00

Core Views:

  • While the Pakistan government has had some success in reducing the number of terrorist attacks over the past 18 months, progress on addressing its root causes under the National Action Plan has been much less promising. Aside from the still-considerable potential for terrorist attacks, the lack of free speech and the growing use of blasphemy laws will make it difficult for the country to attract foreign investment.

  • We forecast the Pakistani economy to grow by 4.2% in FY2016/17, after an estimated growth rate of 4.7% in FY2015/16. Strong growth momentum and an expansionary budget will be supportive factors, but the rise in global oil prices will remove a major growth tailwind.

  • We are revising up our forecast for the Pakistani rupee, now expecting the SBP to maintain the current peg at roughly PKR104.7/USD, where it has been for most the year, rather than allow slight weakness. A combination of booming remittances and still-favourable terms of trade should keep dollar inflows strong, while increased financial account inflows should help to allow the central bank to build up reserves without the need to weaken the currency.

  • The 25bps cut in the benchmark interest rate in May will likely mark the last in the cycle, with near term inflation pressures rising. The next move will likely be a hike, which we expect to come in the latter part of 2016, but we do not expect a major hiking cycle as structural inflationary pressures will remain benign.

  • Pakistan's entry into the MSCI Emerging Markets Index will provide a significant boost to the country's portfolio account inflows over the coming years and highlights the progress made under the IMF-led reforms since 2013. However, continued reforms will be needed to ensure the country maintains its Emerging Market status and takes full advantage of the impending inflows.

Major Forecast Changes

  • We have made two changes to our Pakistan economic forecasts this quarter. Firstly, we are now pencilling in one rate hike by the SBP following their shock decision to cut the benchmark interest rate by 25bps in May. Indeed, it is likely that the SBP will look to reverse course as price pressures build over the coming months.

  • Secondly, we are now forecasting the currency to remain at the current level of PKR104.70/USD as the central bank has the willingness and ability to maintain the current peg over the coming fiscal year.

Key Risks

  • The risks to our real GDP growth forecast are tilted to the upside. The Pakistani economy faces a sweet spot of being very exposed to global energy prices yet relatively shielded from global growth weakness, and there are incipient signs that improved fiscal management and energy availability are driving a recovery in the crucial manufacturing sector.

Macroeconomic Forecasts (Pakistan 2014-2017)
Indicator 2014 2015e 2016f 2017f
National Sources/BMI
Real GDP growth, % y-o-y 4.0 4.2 4.7 4.2
Nominal GDP, USDbn 235.0 254.7 267.9 293.5
Consumer price inflation, % y-o-y, eop 8.2 3.2 5.5 6.0
Exchange rate PKR/USD, eop 100.52 104.73 104.70 106.79
Budget balance, % of GDP -5.5 -5.3 -4.8 -4.4
Current account balance, % of GDP -1.3 -1.0 1.2 1.0
Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Upside Risks To Growth As Savings Rate Rises
8
With the help of reduced oil import costs and increased remittances, Pakistan is seeing an increase in its savings rate, supporting an
With the help of reduced oil import costs and increased remittances, Pakistan is seeing an increase in its savings rate, supporting an
increase in investment
The textile and automotive sectors appear set to be the main beneficiaries of these trends, although the recent
Lahore terror attacks pose a risk to business confidence
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
9
TABLE: GOVERNMENT CONSUMPTION FORECASTS
9
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal Policy And Public Debt Outlook
10
Make Or Break For Privatisation Drive
10
Despite the progress made in terms of narrowing the fiscal deficit, the Pakistani government has thus far failed to get the privatisation
Despite the progress made in terms of narrowing the fiscal deficit, the Pakistani government has thus far failed to get the privatisation
drive off the ground
A successful privatisation of Pakistan International Airways would provide fresh impetus to the government's reform
drive, which despite impressive progress in recent years, has begun to flag
Structural Fiscal Position
11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
11
External Trade And Investment Outlook
12
Energy Dynamics Providing Boost To Textile Sector
12
Pakistan's balance of payments continue to benefit from low oil prices, which have allowed non-oil imports to surge and should be
Pakistan's balance of payments continue to benefit from low oil prices, which have allowed non-oil imports to surge and should be
supportive of economic growth
Meanwhile, the relatively strong performance of textile exports is an early sign of the positive impact of
the increased availability of energy in the country
Outlook On External Position
13
TABLE: NET EXPORT AND IMPORT PARTNERS
13
TABLE: MAIN IMPORTS AND EXPORTS
13
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
14
Monetary Policy
14
SBP To Remain On Hold Until FY2016/17
14
The SBP is likely to maintain its policy rate at 6
00% as inflationary pressures rise over the coming month, before beginning its hiking
cycle in fiscal year 2016/17
Monetary Policy Framework
15
Currency Forecast
16
PKR: Slight Weakness Within Range
16
The SBP will keep a tight grip on the Pakistani rupee over the coming months, allowing only slight depreciation in order to build up
The SBP will keep a tight grip on the Pakistani rupee over the coming months, allowing only slight depreciation in order to build up
foreign reserves and prevent a loss of external competitiveness
2
%below the current level
TABLE: BMI CURRENCY FORECAST
16
Chapter 2: 10-Year Forecast
19
The Pakistani Economy To 2025
19
Significant Opportunities For Growth
19
While a number of significant obstacles could impede Pakistan's growth recovery, several positive domestic and external factors may be
While a number of significant obstacles could impede Pakistan's growth recovery, several positive domestic and external factors may be
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 10
1%,
versus 3
0
%annual increase
TABLE: LONG-TERM MACROECONOMIC FORECASTS
19
Chapter 3: Political Outlook
23
SWOT Analysis
23
BMI Political Risk Index
23
Domestic Politics
24
Lahore Attack A Setback In Terror Fight
24
The March 27 attack in the Punjab capital of Lahore is a major blow to the government's hitherto progress in the fight against domestic
The March 27 attack in the Punjab capital of Lahore is a major blow to the government's hitherto progress in the fight against domestic
terrorism
While terrorist activity remains on a downtrend, the latest attack will be a blow to the country's overall business environment
as the government seeks to attract foreign investment amid its somewhat stalled economic reform and privatisation drive
TABLE: POLITICAL OVERVIEW
24
Long-Term Political Outlook
25
Instability To Prevail, But Outright Collapse Unlikely
25
Pakistan is at risk of experiencing years of instability and militant activity, but an outright collapse of the state is unlikely unless the core
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
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
26
TABLE: SCENARIO MATRIX - CENTRIFUGAL VERSUS CENTRIPETAL FORCES
27
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
TABLE: OPERATIONAL RISK
30
Economic Openness
31
TABLE: TOP 5 TRADE PARTNERS - PRODUCT IMPORTS (2011-2014), USDMN
34
TABLE: FREE TRADE AGREEMENTS
36
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
38
Availability Of Labour
39
TABLE: ASIA - AVAILABILITY OF LABOUR RISK
40
Chapter 5: BMI Global Macro Outlook
45
Global Macro Outlook
45
Emerging Markets Nearing Inflexion Point
45
TABLE: GLOBAL ASSUMPTIONS
45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
47
TABLE: MACROECONOMIC DATA & FORECASTS
49

Assess your risk exposure in Pakistan with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Pakistan with confidence.

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