Core Views
We are projecting a recovery of 3.8% real GDP growth for FY 2011/12 (July-June), which is below consensus. Investment activity looks set to stay weak as interest rates remain high and as wholesale price inflation remains elevated. Public sector credit growth – a key driver of inflation – is showing clear signs of cooling, which in turn should help to ease money supply growth. As such, we are keeping to our downward bias on interest rates, pencilling in 100 basis points of cuts, which would take the State Bank of Pakistan’s reverse repurchase rate to 13.00%.
The explicitly unilateral mission by the US to kill Osama bin Laden and the consequent revelation of his hideout in Pakistan will almost certainly cause a rift in the US -Pakistan relationship. Having said that, our core scenario only sees a brief episode of political posturing, before relations return to their pre-raid levels
Major Forecast Changes
On the back of stronger-than-expected trade readings, we have revised our FY 2011/12 trade forecasts, projecting a deficit of US $9.1bn
(down from US $9.6bn).
Key Risks To Outlook
Downside Risks To Current Account Surplus: The current account’s recent move to surplus territory (through Q2-Q3 FY 2010/11) could be short-lived should remittance growth slow (from the Middle East in particular) and should the country’s terms of trade weaken (ie, a decrease in cotton prices and/or an increase in oil prices).
Upside Risks To Inflation: Should external financing fail to materialise or should the government fail to mobilise its domestic resource
base, this could result in further budgetary borrowing, which would stoke inflation.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Scenarios For US -Pakistani Relations Post-Bin Laden
The explicitly unilateral mission by the US to kill Osama bin Laden and the consequent revelation of his
hideout deep in the heart of Pakistan will almost certainly cause a rift in the already-fraught US -Pakistan relationship
Table: SCENARIO MATRIX: CENTRIFUGAL VERSUS CENTRIPETA L FORCES 8
Table: SCENARIO MATRIX: EVOLUTION OF STATE 8
Table: Pakistan Political Overview 9
Long-Term Political Outlook 10
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
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Growth Slows In FY2010/11; Rebound At Risk From Lack Of Investment
Provisional statistics show that Pakistan’s real GDP growth increased by more than was expected in
FY 2010/11 (July-June), increasing by 24%
Table: ECONOMIC ACTIVITY 14
Fiscal Policy 16
Dissecting The FY2011/12 Budget
Pakistan’s FY 2011/12 (July-June) budget aims to narrow the fiscal deficit to 40% of GDP by significantly
increasing its resources in order to mitigate a rise in expenditures
Table: FISCAL POLICY 16
Monetary Policy 19
Stabilising Inflation Bolsters Case For SBP To Ease
We believe that the State Bank of Pakistan (SBP) is poised to cut interest rates in the current fiscal year, as
inflationary pressures cool and as growth concerns come to the fore
Table: MONETARY POLICY 19
Trade Outlook 21
Positive Revision To Trade Forecasts
On the back of better-than-expected trade results over recent months, we have revised our trade forecasts
upwards for FY 2010/11 (July-June) and FY 2011/12
Table: CURRENT ACCOUNT 21
Chapter 3: 10-Year Forecast 23
The Pakistani Economy To 2020 23
Sustained Underperformance To 2020
Given Pakistan’s ongoing security woes, and the lack of a clear resolution to them, we see a period of relatively
subdued economic growth for the years ahead
Table: PAKISTAN Long-Term Macroeconomic Forecasts 23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Investment Climate 26
One Step Closer To Better EU Market Access; Large Obstacles Remain
The plenary of the EU parliament cleared the Autonomous Trade Concessions for Pakistan, bringing it one step
closer towards improved market access into the EU
Business Environment Outlook 27
Table: BMI Business And Operation Risk Ratings 28
Table: BMI Legal Framework Rating 29
Infrastructure 30
Market Orientation 31
Table: Labour Force Quality 31
TABLE: ASIA, ANNUAL FDI INFLOWS 32
Table: Trade And Investment Ratings 33
Operational Risk 34
TABLE: TOP EXPORT DESTINATIONS 34
Chapter 5: Key Sectors 37
Pharmaceuticals 37
Table: Generics Drug Market Indicators, Historical Data and Forecasts, 2007-2015 38
Table: OTC Medicine Market Indicators, Historical Data and Forecasts, 2007-2015 38
Table: Medical Device Market Indicators, Historical Data and Forecasts, 2007-201539
Table: Prescription Drug Market Indicators, Historical Data and Forecasts, 2007-2015 40
Table: Patented Drug Market Indicators, Historical Data and Forecasts, 2007-2015 40
Telecommunications 41
Table: Telecoms Sector – Fixed Line – Historical Data And Forecasts 42
Table: Telecoms Sector – Internet – Historical Data And Forecasts 42
Table: Pakistan Telecoms Sector – Mobile ARPU – Historical Data And Forecasts (PKR ) 43
Table: Telecoms Sector – Mobile – Historical Data And Forecasts 43
Other Key Sectors 44
Table: PAKISTAN Infrastructure Sector Key Indicators 44
Table: PAKISTAN Defence and Security Sector Key Indicators 44
Table: PAKISTAN Autos Sector Key Indicators 44
Table: PAKISTAN Food and Drink Sector Key Indicators 44
Table: PAKISTAN Oil and Gas Sector Key Indicators 45
Table: PAKISTAN Freight Transport Sector Key Indicators 45
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS 47
Table: EMERGING MARKETS AGGREGATE GROWTH 48
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST 49
Table: REAL GDP GROWTH CONSENSUS FORECASTS 4
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