1. Market Research
  2. > Financial Services
  3. > Banking Market Trends
  4. > Pakistan Country Risk Report Q1 2017

Pakistan Country Risk Report Q1 2017

  • October 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views

We have revised up our forecast for real GDP growth in Pakistan for fiscal year 2016/17 to 4.8%, from 4.2% previously, due to ongoing reform efforts and the impact of Chinese investment. However, the heavy lifting on the economic reform front still lies ahead if the economy is going to grow close to its potential. The deadly attack on an Indian army camp in Kashmir, alleged to have been carried out by a local terrorist group with support from the Pakistani authorities, raises the risk of conflict between the two countries. We do not expect an explicit military response from New Delhi but note that the risks are high as the rhetoric from the Indian authorities has been particularly forceful. We continue to see the PKR/USD soft peg remaining in place for the remainder of 2016, but expect to see downward pressure on the currency over the medium term. The rupee has been one of the best performing currencies in the world in total return terms over the past year, and has now become significantly overvalued in real effective terms, posing downside risks to the currency as the low oil price windfall reverses. The Pakistani government continues to talk up plans for the sale of a number of key state-owned enterprises (SOEs) despite strong opposition and numerous technical difficulties that have held back the country's privatisation drive over the past year. However, with the government more than half way through its term, it is unlikely that Islamabad would want to use up a large amount of political capital on such widely unpopular policies, particularly in the absence of pressure from the IMF. Inflationary pressures are building in Pakistan, which should prompt the State Bank of Pakistan to begin hiking interest rates over the coming months. The widening of the trade balance hints at possible overheating, while the rise in oil prices should put further upside pressure on headline CPI. Major Forecast Changes We have revised up our forecast for real GDP growth in Pakistan for fiscal year 2016/17 to 4.8%, from 4.2% previously. The economy is performing well at present, with reform momentum still strong and low oil prices still providing support.

Table Of Contents

Pakistan Country Risk Report Q1 2017
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
Growth To Accelerate But Remain Below Potential.....................................................................................................................8
We have revised up our forecast for real GDP growth in Pakistan for fiscal year 2016/17 to 4.8%, from 4.2% previously, due to ongoing
reform efforts and the impact of Chinese investment. However, the heavy lifting on the economic reform front still lies ahead if the
economy is going to grow close to its potential.
GDP By Expenditure Outlook.................................................................................................................................... 8
TABLE: GDP GROWTH FORECASTS......................................................................................................................................................................9
TABLE: PRIVATE CONSUMPTION FORECASTS....................................................................................................................................................9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.........................................................................................................................................9
TABLE: FIXED INVESTMENT FORECASTS............................................................................................................................................................9
TABLE: NET EXPORTS FORECASTS......................................................................................................................................................................9
Fiscal Policy And Public Debt Outlook.................................................................................................................. 10
Window Of Opportunity Closing For Privatisation Drive...........................................................................................................10
The Pakistani government continues to talk up plans for the sale of a number of key state-owned enterprises (SOEs) despite strong
opposition and numerous technical difficulties that have held back the country's privatisation drive over the past year. However, with the
government more than half way through its term, it is unlikely that Islamabad would want to use up a large amount of political capital on
such widely unpopular policies, particularly in the absence of pressure from the IMF.
Structural Fiscal Position........................................................................................................................................ 10
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2015)................................................................................................................. 11
TABLE: FISCAL AND PUBLIC DEBT FORECASTS............................................................................................................................................... 11
Currency Forecast.................................................................................................................................................... 12
PKR: At Risk From A Rise In Oil Prices......................................................................................................................................12
We continue to see the PKR/USD soft peg remaining in place for the remainder of 2016, but expect to see downward pressure on the
currency over the medium term. The rupee has been one of the best performing currencies in the world in total return terms over the past
year, and has now become significantly overvalued in real effective terms, posing downside risks to the currency as the low oil price
windfall reverses.
TABLE: BMI CURRENCY FORECAST.................................................................................................................................................................... 13
Outlook On External Position.................................................................................................................................. 13
TABLE: MAIN EXPORT AND IMPORT PARTNERS............................................................................................................................................... 13
TABLE: MAIN IMPORT AND EXPORT CATEGORIES (2015)................................................................................................................................ 14
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE......................................................................................................................................... 14
TABLE: CURRENT ACCOUNT BALANCE FORECASTS....................................................................................................................................... 14
Monetary Policy........................................................................................................................................................ 15
Hints Of Overheating Pressures..................................................................................................................................................15
Inflationary pressures are building in Pakistan, which should prompt the State Bank of Pakistan to begin hiking interest rates over the
coming months. The widening of the trade balance hints at possible overheating, while the rise in oil prices should put further upside
pressure on headline CPI.
Monetary Policy Framework.................................................................................................................................... 15
TABLE: MONETARY POLICY FORECASTS.......................................................................................................................................................... 16
Chapter 2: 10-Year Forecast................................................................................................................... 17
The Pakistan Economy To 2025.............................................................................................................................. 17
Significant Opportunities For Growth.........................................................................................................................................17
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 8.00% by end-FY2024/25, enabling investment to rise to 16% of GDP, which will see real GDP growth average 4.1%,
versus 3.9% over the past decade. Meanwhile, GDP per capita is set to rise to USD2,276 from USD1,367 at present, marking a 5.0
%annual increase.
TABLE: LONG-TERM MACROECONOMIC FORECASTS..................................................................................................................................... 17
Chapter 3: Political Outlook................................................................................................................... 21
SWOT Analysis......................................................................................................................................................... 21
BMI Political Risk Index........................................................................................................................................... 21
Domestic Politics..................................................................................................................................................... 22
Uri Attack Raises The Risk Of Conflict.......................................................................................................................................22
The deadly attack on an Indian army camp in Kashmir, alleged to have been carried out by a local terrorist group with support from the
Pakistani authorities, raises the risk of conflict between the two countries. We do not expect an explicit military response from New Delhi
but note that the risks are high as the rhetoric from the Indian authorities has been particularly forceful.
TABLE: POLITICAL OVERVIEW............................................................................................................................................................................. 22
Long-Term Political Outlook................................................................................................................................... 23
Instability To Prevail, But Outright Collapse Unlikely................................................................................................................23
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 ........................................................................................................................................ 24
TABLE: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETAL FORCES ............................................................................................. 25
Chapter 4: Operational Risk................................................................................................................... 27
SWOT Analysis......................................................................................................................................................... 27
Operational Risk Index............................................................................................................................................ 27
Operational Risk....................................................................................................................................................... 28
TABLE: OPERATIONAL RISK................................................................................................................................................................................. 28
Business Crime........................................................................................................................................................ 29
TABLE: BUSINESS RESPONSE TO RISK IN PAKISTAN...................................................................................................................................... 31
Government Intervention......................................................................................................................................... 33
TABLE: BUSINESS TAXES..................................................................................................................................................................................... 34
TABLE: PERSONAL INCOME TAX......................................................................................................................................................................... 36
Chapter 5: BMI Global Macro Outlook................................................................................................... 41
Global Macro Outlook.............................................................................................................................................. 41
Broad Recovery But Three Notes Of Caution.............................................................................................................................41
TABLE: GLOBAL FORECASTS, 2015-2020........................................................................................................................................................... 41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %.................................................................................................................................... 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %................................................................................................................................... 43
TABLE: MACROECONOMIC DATA and FORECASTS.............................................................................................................................................. 45

View This Report »

Get Industry Insights. Simply.

  • Latest reports & slideshows with insights from top research analysts
  • 24 Million searchable statistics with tables, figures & datasets
  • More than 10,000 trusted sources
24/7 Customer Support

Talk to Veronica

+1 718 514 2762

Purchase Reports From Reputable Market Research Publishers
China Banking IT Solutions Market Shares, 2015: Market Maintains Stable Growth

China Banking IT Solutions Market Shares, 2015: Market Maintains Stable Growth

  • $ 7500
  • Industry report
  • October 2016
  • by IDC

"China's banking industry is facing three major challenges -- economic slowdown, interest rate liberalization reform, and internet finance, accompanied by dramatic changes in the banking business environment," ...

Blockchain Technology Market by Provider, Application, Organization Size, Vertical, and Region - Global Forecast to 2021

Blockchain Technology Market by Provider, Application, Organization Size, Vertical, and Region - Global Forecast to 2021

  • $ 5650
  • Industry report
  • October 2016
  • by MarketsandMarkets

“Need for transparency and immutability is driving the growth of the blockchain technology market” MarketsandMarkets estimates the global blockchain technology market to grow from USD 210.2 million ...

China Banking Industry IT Solutions Forecast, 2016-2020

China Banking Industry IT Solutions Forecast, 2016-2020

  • $ 5500
  • Industry report
  • September 2016
  • by IDC

"China's banking industry is facing three major challenges -- economic slowdown, interest rate liberalization reform, and internet finance, accompanied by dramatic changes in the banking business environment. ...

Uk Wealth Report 2016

September 2016 $ 4995

ref:plp2016

Reportlinker.com © Copyright 2016. All rights reserved.

ReportLinker simplifies how Analysts and Decision Makers get industry data for their business.