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Pakistan Business Forecast Report Q4 2012

Pakistan Business Forecast Report Q4 2012 - new country guide report published

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2013-01-01 01:51:54 - Pakistan Business Forecast Report Q4 2012 - a new country guide report on

With elections due by early 2013, we see minimal scope for any major legislative initiatives following the recent election of Raja Pervaiz Ashraf as the country´s 17th prime minister. There remains an acute risk of another leadership scramble, as the government has yet to completely deal with the reopening of corruption cases against President Asif Ali Zardari.

Even though we expect Pakistan´s economic recovery to persist as domestic demand conditions continue to slowly improve, we believe that the economy´s prospects remain below par, and its outlook will be hampered by the government´s fiscal mismanagement, the long-running energy crisis, and the country´s substantial exposure to the EU. Given our outlook for a gradual improvement of the country´s terms of trade over the



next six to 12 months, with the price of oil projected to fall and the price of cotton forecast to rise, we expect an equally gradual narrowing of its trade and current account deficits.

The overall balance of payments picture remains clouded by a bleak export demand picture and still-lacklustre foreign investment inflows. The government´s FY2012/13 (July-June) budget plans do not inspire much confidence. Any fiscal consolidation will very likely be minimal given the sitting government´s lack of fiscal credibility, the lack of any major reforms on the expenditure and revenue side, and the fiscal indiscipline likely to result owing to the upcoming general elections.

Major Forecast Changes

In light of the recent (but temporary) acceleration of headline consumer price inflationary risks, coupled with strong signals from Pakistan´s currency and sovereign debt markets, we have abandoned our outlook for additional rate cuts, opting to stay neutral through to the end of our forecast period to 2021.

Key Risks To Outlook

Upside Risks To Inflation: Should external financing fail to materialise or should the government fail to mobilise its domestic resource base, it could result in further budgetary borrowings from the banking system, thus stoking inflation

Downside Risks To Growth: On a related note, should government borrowings from the banking system intensify, businesses´ struggle with tight credit conditions could worsen. Furthermore, a deeperthan- expected contraction of the EU´s economy would hamper the country´s already-weak export growth prospects. Looking at the recent trends of industrial production, private sector credit and export growth, our scepticism regarding Pakistan´s economic momentum has only been reinforced.

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Mike King
Phone: London: +44 (0) 203 086 8600

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