2010-09-08 12:26:05 -
Pakistan Business Forecast Report Q4 2010 - a new market research report on companiesandmarkets.com
The State Bank of Pakistan (SBP) released a preliminary estimate of FY 2009/2010 (July-June) real GDP growth on June 3 (prior to year-end), which showed an encouraging headline figure of 4.1%. Despite the encouraging figure, for now, we refrain from revising up our FY 2009/10 and FY 2010/11 growth estimates from 2.4% and 2.8% respectively, and await the final GDP breakdown by expenditure to better assess underlying dynamics. Nevertheless, we recognise the upside risks to these forecasts given the preliminary growth data in combination with increased base effects due a reduced FY 2008/09 growth outturn. That said, we remain cautious on the prospect of a return to the booming growth enjoyed through the middle of the last decade. Indeed, Pakistan
remains beset by challenges such as a destabilising insurgency and chronic lack of electricity generation capacity both likely to prove medium-term hurdles to sustained economic development.
Regarding internal security, the June 9 attack on a NATO convoy at a depot just outside Islamabad illustrates how Pakistan´s militant insurgency is increasingly reaching beyond the tribal regions and across the country. Indeed, major cities remain beset by terrorist atrocities despite gains by the Pakistani military in both the Swat Valley and South Waziristan. This indicates that Pakistan in all likelihood now faces a multiyear struggle against an elusive internal enemy.
Meanwhile, the IMF´s decision to approve another US $1.13bn disbursement to Pakistan is a positive development that we see as near-term supportive of the battered domestic economy. The move brings the IMF´s total disbursement to US $7.27bn since Pakistan entered into a 23-month US $11.3bn standby arrangement in late- 2008. In line with our expectations, Pakistan looks set to miss its end-FY 2009/10 (July-June) budget deficit target a prospect now recognised by the IMF who announced on May 14 that it would relax its requirement that Pakistan run a 4.9% of GDP budget deficit, instead allowing a 5.1% of GDP overspend.
Pakistan´s business environment remains weak and, therefore, ranks a lowly 114 out of 167 emerging markets in our business environment ratings. This ranking places Pakistan between Mauritania and Nicaragua. Going forward, we believe that Pakistan´s business environment will remain highly challenging, with the shaky security situation and a dire energy shortage continuing to weigh on economic activity, particularly much-needed investment. In a recent development indicative of Pakistan´s poor operating environment, a natural dam formed in early 2010 by a landslide on the Hunza River in northern Pakistan has produced a vast lake that is blocking a vital trade route and threatening to submerge heavily-populated areas.
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