New Market Report Now Available: Pakistan Business Forecast Report Q3 2013
New Country Reports research report from Business Monitor International is now available from Fast Market Research
Boston, MA -- (SBWire) -- 05/24/2013 --With general elections scheduled for May 11, we believe the incumbent Pakistan People's Party faces an uphill struggle for re-election. The government's handling of the economy and its relationship with the US are likely to be its key political liabilities. Unsurprisingly, based on the consolidated results of two nationwide polls, the Pakistan Muslim League-Nawaz is the current frontrunner.
Last year was one of Pakistan's deadliest and most violent on record, which makes the Pakistani Taliban's recent peace overtures all the more significant.
Economic data coming out of Pakistan paint a relatively encouraging picture with the economy looking poised to record a faster rate of growth this fiscal year, in line with our expectations.
While key structural headwinds have receded, they have not been resolved. Therefore, we are happy to keep our FY2012/13 real GDP forecast of 4.0%, just below the government's 4.3% target.
Setting aside our constructive macroeconomic outlook on the country, we believe that a potential balance of payments crunch could quickly undo the economic progress Pakistan has made in recent years.
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Our view for gradual weakness in the rupee continues to play out well. Given the balance of payments dynamics in play, we expect this gradual depreciatory trend to persist largely unabated.
The government unveiled its Strategic Trade Policy Framework for 2012-2015, which specifically prioritised the need to boost the country's export earnings. On balance, while the framework contains both positive and negative elements, we believe that it should improve the country's external trade prospects over the medium term.
Despite the State Bank of Pakistan (SBP)'s dovishness over the past two years, we do not expect the reverse repo rate to be taken below the 9.50% mark, taking into account rising inflationary pressure on the back of the ongoing surge in broad money supply growth.
The government's budgetary performance in the first half of FY2012/13 was neither encouraging nor alarming as the half-year budget deficit was largely unchanged from recent years. That said, the lack of any major fiscal reform suggests to us that another potential fiscal blowout could be store in Pakistan as deterioration in second-half budget discipline - a recurring phenomenon - coupled with rising electoral pressures could prove to be a dangerous mix.
The fiscal incentives introduced by the recently finalised and longawaited Special Economic Zones Act, 2012 should help to alleviate the weak state of investment activity in Pakistan. The recent law is a welcome move from the government.
Major Forecast Changes
We have nudged up our end-FY2012/13 and end-FY2013/14 consumer price inflation forecasts upwards to 8.5% and 9.0%, from 8.0% and 8.5% respectively.
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