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Pakistan Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views
Pakistan's Prime Minister Nawaz Sharif will withstand calls for his resignation by Pakistan Tehreek-e-Insaf (PTI) leader Imran Khan and cleric Tahir-ul-Qadri. However, the protests have weakened his authority, and an end to the demonstrations is likely to come as part of a deal with the powerful military elite to relinquish Sharif's control
of foreign affairs, which will undermine relations with India and put Pakistan's fiscal reform progress in jeopardy. The State Bank of Pakistan (SBP) held its benchmark policy rate at 10.0% at its September monetary policy meeting, and we expect this long pause to continue over the coming quarters. Despite a number of structural disinflationary forces at play in the Pakistani economy, which should see the trend of consumer price inflation (CPI) head lower over the coming years, we have made an upward revision to
our forecasts owing to the impact of the recent floods and renewed reform uncertainty. We forecast CPI to average 7.6% year-on-year (y-o-y) in Fiscal Year 2014/15 (July-June), from an average of 8.6% seen in FY2013/14.

The Pakistani government is moving ahead with its privatisation drive, looking to raise at least USD2bn through the international sale of shares in Pakistani energy and banking companies. Successful share sales in sales in Oil and Gas Development Co and Habib Bank would provide crucial support to the government's fiscal coffers, and
pave the way for more privatisations over the coming year. The recent political crisis and severe flooding throw into doubt our relatively strong real GDP growth forecast of at 4.0% for fiscal year 2014/15 (July-June). The anti-government protests have disrupted business operations to a degree over recent months, and will undermine business confidence. Meanwhile, the flooding seen in September in major growing regions of the country will adversely impact production of key crops.

The Pakistani rupee looks set to continue weakening over the coming months due to the country's widening trade deficit, still-high inflation and lingering political uncertainty. We forecast an end-year target of PKR105.00/USD and PKR110.25/USD by the end of 2015.

Major Forecast Changes
We have slightly revised our forecasts for the PKR and inflation. We see the rupee heading lower over the coming months, and forecast an end-year target of PKR105.00/USD and PKR110.25/USD by the end of 2015. Regarding inflation, we have revised up our average forecast for Fiscal Year 2014/15 to 7.6%, from 6.5%, owing partially to the impact of recent floods.

Table Of Contents

Pakistan Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Foreign Policy .. 8
Government To Make With Deal With Military To End Protests..8
Pakistan's Prime Minister Nawaz Sharif will withstand calls for his resignation by Pakistan Tehreek-e-Insaf (PTI) leader Imran Khan and
cleric Tahir-ul-Qadri. However, the protests have weakened his authority, and an end to the demonstrations is likely to come as part
of a deal with the powerful military elite to relinquish Sharif's control of foreign affairs, which will undermine relations with India and put
Pakistan's fiscal reform progress in jeopardy.
Table: Political Overview8
Table: SCENARIO MATRIX: EVOLUTION OF STATE ..9
Table: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETAL FORCES .. 9
Long-Term Political Outlook. 10
Instability To Prevail, But Outright Collapse Unlikely.10
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.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity 14
New Headwinds To Derail Growth Outlook..14
The recent political crisis and severe flooding throw into doubt our relatively strong real GDP growth forecast of at 4.0% for fiscal
year 2014/15 (July-June). The anti-government protests have disrupted business operations to a degree over recent months, and will
undermine business confidence. Meanwhile, the flooding seen in September in major growing regions of the country will adversely
impact production of key crops.
Table: Economic Activit y14
Fiscal Policy 15
No Dampening Privatisation Zeal..15
The Pakistani government is moving ahead with its privatisation drive, looking to raise at least USD2bn through the international sale
of shares in Pakistani energy and banking companies. Successful share sales in Oil and Gas Development Co and Habib Bank would
provide crucial support to the government's fiscal coffers, and pave the way for more privatisations over the coming year. 15
Table: Fiscal Policy.15
Monetary Policy. 17
Flooding, Protests Raise Inflation Outlook..17
The State Bank of Pakistan held its benchmark policy rate at 10.0% at its September monetary policy meeting, and we expect this long
pause to continue over the coming quarters. Despite a number of structural disinflationary forces at play in the Pakistani economy,
which should see the trend of CPI head lower over the coming years, we have made an upward revision to our forecasts owing to the
impact of the recent floods and renewed reform uncertainty. We forecast CPI to average 7.6% y-o-y in Fiscal Year 2014/15 (July-June),
from an average of 8.6% seen in FY2013/14.
Table: Mon etary Polic y..17
Exchange Rate Policy 18
PKR: Further Depreciation Ahead.18
The Pakistani rupee looks set to continue weakening over the coming months due to the country's widening trade deficit, still-high
inflation and lingering political uncertainty.
Table: Exch ang e Rate18
Table: BMI CURRENCY FORECAST.19
Chapter 3: 10-Year Forecast. 21
The Pakistani Economy To 2023. 21
South Asia's Serial Underperformer.21
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. 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.
Table: Long -Term Macro economic For ecasts 21
Chapter 4: Operational Risk. 25
SWOT Analysis.. 25
Operational Risk Index. 25
Operational Risk .. 26
Table: Operational Risk..26
Transport Network .. 27
Table: Transport Network Risk.28
Economic Openness . 30
Table: Economic Openn ess Risk ..31
Table: Top 5 Products Import ed (USDmn )..32
Table: Top 5 Trade Partn ers Product Exports (USDmn )33
Chapter 5: Key Sectors.. 35
Oil and Gas 35
Table: Headlin e For ecasts ..35
Table: Oil Production36
table: Oil Production36
table: Gas Production.37
Table: Gas Production.37
Real Estate 38
Table: For ecast Long -Term Offic e Net Yi elds , (%)..40
Table: Long -Term For ecast Retail Net Yi elds , (%)40
Table: For ecast Long -Term Industri al Net Yi elds 41
Other Key Sectors 43
table: Pharm a Sector Key Indic ators .43
table: Telecoms Sector Key Indic ators 43
table: Defence and Security Sector Key Indicators.43
table: Infrastructure Sector Key Indicators..44
table: Food and Drink Sector Key Indicators44
table: Autos Sector Key Indicators.44
table: Freight Key Indic ators ..44
Chapter 6: BMI Global Assumptions.. 45
Global Outlook 45
Big Emerging Market Revisions.45
Table: Glob al Asumptions .45
Table: Develop ed States, Real GDP Growt H, %..46
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 46
Table: Em erging Mark ets , Real GDP Growth , %.47

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