Pakistan's Fragile Stability: Economic and Political Prospects Amidst Uncertainty

Strategic Insights -

Pakistan's fragile stability will persist as the country navigates through challenging economic and political landscapes. A relatively broad-based ruling coalition has emerged, reducing tensions, but inter-party relations remain volatile. Tensions between the government and the army may escalate due to the killing of Osama bin Laden, threatening political stability. The next general election must be held by 2013, with the Pakistan People's Party and the main opposition party, the Pakistan Muslim League (Nawaz), expected to dominate the contest.

Key Takeaways:

  • The Pakistani government will remain heavily dependent on concessional loans and emergency aid from multilateral institutions and bilateral donors due to the catastrophic floods of August-September 2010.
  • The country will be subject to increasing scrutiny from Western countries regarding non-humanitarian aid allocation, with a risk of funding curtailment due to the discovery of Osama bin Laden's presence in the country.
  • The disbursement of the sixth tranche of funds under Pakistan's standby agreement with the IMF has been suspended since August 2010, and negotiations with the government on structural economic reforms will continue until May 2011.
  • Pakistan's economy is expected to experience weaker growth in 2010/2011, mainly due to decelerating growth in private consumption and the impact of the floods.
  • Real GDP growth is estimated at 2.3% in 2010/2011, down from 4.4% in 2009/2010, and is expected to accelerate to 3.7% per year in 2011/2012-2014/2015.
  • Consumer price inflation stood at 13% year-on-year in April 2011, and is forecast to moderate to 7.1% in 2012-2015.
  • The Pakistan rupee will depreciate against the US dollar by 1.7% per year in 2011-2015.

Statistics:

  • 2.3%: Estimated real GDP growth in 2010/2011
  • 4.4%: Real GDP growth in 2009/2010
  • 13%: Consumer price inflation stood at year-on-year in April 2011
  • 7.1%: Average inflation rate forecast in 2012-2015
  • 1.7%: Average annual rupee depreciation against the US dollar in 2011-2015
  • $2.2bn: Estimated current-account deficit in 2010
  • $10bn: Estimated current-account deficit in 2015
  • $24.8bn: Estimated trade deficit in 2015

Sources:

  • The Economist Intelligence Unit
  • International Monetary Fund (IMF)
  • Pakistan's Ministry of Finance
  • State Bank of Pakistan (SBP)
  • Pakistan's Ministry of Commerce