EIU Pakistan February 2018

Country Forecast
Pakistan
February 2018
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Pakistan 1
Country forecast overview

Highlights • The Economist Intelligence Unit expects the Pakistan Muslim League
(Nawaz), or PML (N), to retain control of the National Assembly (the lower house
of parliament) until the next legislative election, which is due in July 2018.
• Shahid Khaqan Abbasi was elected prime minister in August 2017 and will
oversee the government's affairs for the remainder of the administration's term.
However, the PML (N) has announced that Shehbaz Sharif will be its candidate
for the premiership ahead of the election.
• The military will continue to play a dominant role in the country's politics,
particularly on issues relating to domestic security, foreign policy and the China-
Pakistan Economic Corridor (CPEC). We do not expect the military to replace the
government in the forecast period, as its key interests will not be threatened.
• The precarious security situation will remain a key source of instability in
2018-22. It will undermine growth by posing operational and strategic challenges
to infrastructure projects, while tarnishing Pakistan's investor appeal.
• Relations between India and Pakistan will remain fractious and prone to
setbacks in 2018-22. Meanwhile, China will remain Pakistan's leading economic
partner and strengthen transport links and energy infrastructure.
• We forecast that the fiscal deficit will average the equivalent of 5.3% of
GDP in fiscal years 2017/18-2021/22 (July-June). The need to provide adequate
funding for transport and energy projects under the umbrella of the CPEC, as
well as high expenditure on security, will add significantly to spending pressure.
• In 2017/18-2021/22 real GDP will grow at an average annual rate of 5.3%.
Infrastructure investment and consumption will drive this expansion, but the
poor business environment and structural impediments will weigh on growth.
• A consistently wide inflation differential with the US and an expanding
trade deficit mean that the Pakistan rupee will depreciate against the US dollar,
from PRs111:US$1 on average in 2018 to PRs123.9:US$1 in 2022.
• We expect the merchandise trade deficit to remain wide, at an annual
average of US$29bn, over 2018-22, as a result of continued demand for imported
investment goods and recovering global oil prices. We expect the current account
to remain in the red throughout the forecast period, with the shortfall averaging
the equivalent of 4% of GDP over 2018-22.
Key indicators 2017 2018 2019 2020 2021 2022
Real GDP growth (%; fiscal years
ending Jun 30th) 5.7 5.3 5.1 5.0 5.5 5.7
Consumer price inflation (av; %) 4.1 5.7 4.8 4.9 5.4 5.8
Budget balance (% of GDP;
fiscal years ending Jun 30th) -5.8 -5.6 -5.5 -5.4 -4.9 -4.9
Current-account balance (% of GDP) -4.8 -5.1 -4.3 -3.5 -3.5 -3.2
Short-term interest rate (av; %) 5.8 6.3 6.5 6.5 6.5 6.5
Exchange rate PRs:US$ (av) 105.5 111.0 115.2 118.2 121.7 123.9
Exchange rate PRs:¥100 (av) 94.0 99.7 105.3 113.6 121.7 123.7
Country Forecast February 2018 www.eiu.com © The Economist Intelligence Unit Limited 2018
2 Pakistan
Business environment Value of indexa Global rankb Regional rankc

rankings 2013-17 2018-22 2013-17 2018-22 2013-17 2018-22
4.83 5.04 69 75 16 17
a Out of 10. b Out of 82 countries. c Out of 17 countries: Australia, Bangladesh, China, Hong Kong,
India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea,
Sri Lanka, Taiwan, Thailand and Vietnam.
• Pakistan's business environment score improves in 2018-22. However, this

will be insufficient to prevent a drop in the global rank from 69th to 75th. Within
Asia, Pakistan will be ranked in last place in 2018-22.
Pakistan's business environment at a glance
Policy towards private enterprise and competition

2018-19: The government privatises some state-owned assets but its efforts are hampered by political resistance, opposition
within companies and persistent investor concerns about security and stability.
2020-22: Government efforts aimed at liberalising the economy continue, but problems remain with bureaucratic
inefficiency, and regulations remain burdensome.
Policy towards foreign investment

2018-19: Foreign investment remains concentrated in the telecommunications, banking, transport and energy sectors.
The government encourages investors to use the country as a base for manufacturers to produce goods for export.
2020-22: The government's efforts to leverage Pakistan's high population and robust economic growth to attract foreign
investment in consumer-oriented sectors see limited success, owing to slow progress on reforms.
Foreign trade and exchange controls

2018-19: Faced with a widening merchandise trade deficit, the government takes steps to discourage some imports,
particularly of luxury products.
2020-22: The last remaining restrictions on currency convertibility are unlikely to be removed, but the State Bank of
Pakistan (the central bank) becomes more independent and assertive.
Taxes
2018-19: Gas rates for industrial and commercial customers, which are subsidised, are increased, including those for large
users such as power plants.
2020-22: Most Pakistanis remain outside the tax net, but efforts to close tax loopholes for business and industry continue.
Financing
2018-19: Most lending consists of private bank loans to the public sector, but lending to the private sector grows modestly.
2020-22: Smaller, private banks merge as competition in the banking sector intensifies. The Islamic-finance subsector
develops. The role of microcredit banks and branchless banking continues to expand.
The labour market

2018-19: Child and bonded labour remain a problem. The low literacy rate curbs growth in the supply of skilled labour.
Female labour-force participation will remain low in Pakistan compared with the rest of Asia and globally.
2020-22: There is a risk of labour unrest as the government proceeds with its plans to privatise state-owned enterprises.
Infrastructure
2018-19: The Bin Qasim, Thar-I and Thar-II coal-fired power plants, under the China-Pakistan Economic Corridor (CPEC),
come online, adding generating capacity of 3,300 MW. Construction on an international airport in Gwadar begins.
2020-22: Renewable energy-based power plants are built to diversify electricity generation. The remaining energy projects
under the CPEC are completed.
Editors: Kamal Madishetty (analyst); Fung Siu (consulting analyst) Editorial closing date: January 26th 2018
All queries: Tel: (44.20) 7576 8000 Email: london@eiu.com Next report: To request the latest schedule, email schedule@eiu.com
Pakistan 3
Fact sheet
Annual data 2016 a Historical averages (%) 2012-16
Population (m) 193.2 Population growth 2.1
GDP (US$ bn; market exchange rate) 278.9 Real GDP growth 4.6
GDP (US$ bn; purchasing power parity) 1,014 Real domestic demand growth 4.9
GDP per head (US$; market exchange rate) 1,444 Inflation 6.1
GDP per head (US$; purchasing power parity) 5,246 Current-account balance (% of GDP) -1.6
Exchange rate (av) PRs:US$ 104.8 FDI inflows (% of GDP) 0.6
a Actual.
Background: The Islamic Republic of Pakistan was founded in 1947. East Pakistan (now Bangladesh) seceded in 1971. Since
independence, there have been several coups. The last was in 1999, when the chief of army staff, Pervez Musharraf, became
the chief executive of Pakistan. Mr Musharraf became president in 2001, and parliament re-elected him in 2007.
Mr Musharraf resigned as army chief in November 2007 and stood down as president in August 2008. The February 2008
general election resulted in a new coalition government, led by the Pakistan People’s Party, which was to become the first
elected administration in Pakistan to serve a full five-year term. The 2013 election was won by the Pakistan Muslim League
(Nawaz) and marked the first transition between elected governments in the country's history.
Political structure: Following a series of alterations to the constitution that increased the powers of the president at the
expense of parliament and the prime minister, parliamentary supremacy was restored in 2010, when both houses of the
legislature approved a landmark amendment to the charter that reversed the changes of the previous few years.
The National Assembly (the lower house of parliament) began a new five-year term in June 2013. Provinces are represented
in the lower chamber in proportion to the size of the population. An election to the Senate (the upper house), in which the
four provinces have equal representation, was held in March 2015. Senators serve terms of six years, and half the seats in
the upper house come up for re-election every three years.
Policy issues: Although Pakistan has been undergoing a process of economic liberalisation since Mr Musharraf’s rule,
political instability and the threat of terrorist violence have made the business operating environment difficult.
The government will need to reassure foreign investors and encourage foreign-investment inflows. Long-term economic
stability will depend on speeding up the privatisation programme, achieving greater growth in exports and maintaining
official inflows of remittances. The latter will be crucial as the country faces mounting strains on its balance of payments.
Taxation: The highest income tax rate stands at 30% and the lowest at 5%; the latter rate of tax is imposed on annual
incomes above PRs400,000 (around US$3,600). The corporate tax rate was lowered to 31% at the start of 2017.
Foreign trade: According to the IMF, merchandise exports (fob) stood at US$21.7bn in 2016, while imports (fob) totalled
US$42.7bn, yielding a trade deficit of US$21bn.
Major exports 2016a % of total Major imports 2016a % of total

Knitwear 10.8 Petroleum products 13.5
Cotton cloth 10.7 Crude petroleum 5.2
Rice 8.2 Palm oil 4.0
Cotton yarn 5.1 Telecommunications 2.5
Leading markets 2016b % of total Leading suppliers 2016b % of total

US 16.8 China 29.1
China 7.8 UAE 13.2
UK 7.6 Indonesia 4.4
Afghanistan 6.7 US 4.3
a State Bank of Pakistan. b IMF, Direction of Trade Statistics.
4 Pakistan
Outlook for 2018-22

Political outlook
Political stability The ruling Pakistan Muslim League (Nawaz), or PML (N), holds a comfortable
majority in the National Assembly (the lower house of parliament).
The Economist Intelligence Unit expects the party to retain control of
parliament until the next legislative election, in July 2018. We believe that the
PML (N) is well placed to win a majority at the next poll and remain in power.
In addition to the advantages of incumbency, the PML (N) will also benefit from
its legacy of modest improvements in economic growth.
The then-prime minister, Nawaz Sharif, was disqualified from holding public
office in July 2017 by the Supreme Court. He was replaced by Shahid Khaqan
Abbasi in August. The presumed loyalty of Mr Abbasi to the Sharif family was
a key reason why the party chose him, and he will oversee the government's
affairs until the next election. The PML (N) passed legislation in September 2017
that allowed Mr Sharif to be re-elected as party president, underscoring the tight
grip on political power held by members of the Sharif family. As we had
expected, in December 2017 Mr Sharif announced that his brother, Shehbaz
Sharif, the chief minister of Punjab province, would be the prime ministerial
candidate of the PML (N) at the next election.
Although we expect the PML (N) to win enough seats to retain control over the
National Assembly in the 2018 election, deep-seated animosities between the
provinces will impinge on its ability to pursue reforms in 2018-22 and carry out
infrastructure projects effectively. The PML (N) enjoys strong support in Punjab,
the most populous and wealthiest province. However, opposition leaders
regularly accuse the party of favouritism towards Punjab, stoking resentment
among voters in other provinces such as Balochistan and Sindh. We expect
disputes between the national and provincial governments to weigh on the
implementation of road and energy projects undertaken as part of the
China-Pakistan Economic Corridor (CPEC). The successful completion of CPEC
projects has taken on immense political importance for the PML (N). The
military also backs the CPEC and is actively involved in shaping the initiative.
Led by General Qamar Javed Bajwa, the military will remain a leading actor in
the country's politics, particularly with regard to guiding national security and
foreign policy. The military has a long-standing history of intervening in
politics. However, we do not expect it to replace the current or future govern-
ments unless its interests are threatened or basic law and order deteriorates;
neither scenario is part of our central forecast.
Militant groups will continue to pose a formidable threat to political stability
and social cohesion. Pakistan will remain vulnerable to terrorist attacks
throughout 2018-22, including in urban centres. The country's vast borderlands
with Afghanistan offer militant groups hideouts, making a complete victory
against Islamist terrorism unlikely in 2018-22. Nonetheless, success in containing
the number of high-profile terrorist attacks will be crucial to maintaining public
support for the ongoing military-led campaign against insurgent groups.
Pakistan 5
In addition, the government continues to struggle with a separatist movement

in Balochistan and regular related security incidents. The government and
military will struggle in vain to resolve this long-standing issue. Attacks by the
separatist movement could threaten infrastructure, such as the roads leading to
the port in Gwadar, which plays a crucial role in the development of the CPEC.
Election watch The next election for the National Assembly is due to be held in July 2018.
We believe that, given ongoing political turmoil, the PML (N) has little incentive
to bring the election forward and will therefore see out its term in office.
This will allow more time for the economic benefits from energy and road
infrastructure investments to filter through to voters.
Opposition parties such as the Pakistan People's Party and the Pakistan Tehreek-
e-Insaf (PTI) will seek to benefit from the political turmoil in the PML (N).
The PTI, in particular, is hoping to capitalise on the troubles of the ruling party
and expand its presence in Punjab. Social unrest stoked by Islamist groups also
poses a challenge to the PML (N), which could erode its traditional Punjabi vote
base. In the event that religiously backed political parties, such as the Milli
Muslim League, gain traction, the ruling party could lose additional seats in
Punjab. However, given its entrenched grip on the province, the PML (N) is
likely to maintain an overall electoral advantage. Moreover, the fact that
Shehbaz Sharif is the current chief minister of Punjab will enable the party to
build on its already-strong local base.
Although no civilian prime minister has served out a full term, the country
witnessed the first transfer of power between elected civilian governments in
its history at the 2013 parliamentary elections. We expect this to be repeated
in 2018, helping to strengthen Pakistan's democratic institutions.
International relations China will remain Pakistan's leading economic partner in 2018-22 as projects
under the umbrella of the CPEC are executed. The majority of funding will be
allocated to energy and transport infrastructure projects. Although public
sentiment towards China remains favourable, the financing terms of CPEC
investments will occasionally be a point of contention. This was highlighted by
the Chinese authorities' decision to suspend funding temporarily for three road
infrastructure projects in December 2017. Such disagreements, however, will not
fundamentally threaten the strengthening of bilateral co-operation.
In the Middle East, Pakistan will face a difficult diplomatic balancing act as it
seeks to maintain robust working ties with rivals such as Iran and Saudi Arabia.
Pakistan's relations with the US, its largest export market and an important
security partner, will remain tense. This will partly reflect the poor security
situation in Afghanistan. The Afghan government will continue to accuse
Pakistan of fomenting instability to retain its leverage in that country—a concern
that has also been consistently raised by the US administration.
Relations between Pakistan and India will remain fractious. However, we do
not expect irregular clashes along the border to prompt a full outbreak of
hostilities. The sovereignty dispute over Kashmir, which both sides claim in full,
will remain a major impediment to the normalisation of Indo-Pakistani ties in
the forecast period.
6 Pakistan
Economic policy outlook

Policy trends We believe that, owing to strong opposition from entrenched interests within
state-owned enterprises (SOEs), successive governments will make only slow
progress on privatisation. The initiative will, nevertheless, remain a key priority
for the leadership of the PML (N), which believes that it will help to put
Pakistan on a higher economic growth trajectory and expedite fiscal
consolidation. The privatisation process will remain fraught with political
complications, as many SOEs are overstaffed and successful restructuring
would involve severe job losses.
The business environment will remain poor throughout 2018-22, as government
efforts to implement reforms will face opposition from other political parties
and sections of civil society. For instance, we do not expect the authorities to
make significant progress on overhauling complex labour laws or improving
regulatory efficiency. Indeed, companies operating in Pakistan will continue to
face the most difficult operating environment among the 17 Asian economies
covered in our regional business environment rankings.
Another tough challenge facing the authorities will be to address chronic
electricity shortages effectively and with few additional costs for consumers.
The bulk of the CPEC's "early harvest" projects are expected to be operational
by 2018, which the government hopes will bolster its support base ahead of the
election. More power projects will come on stream by 2022, helping to narrow
the electricity shortfall (which stood at around 6,000 MW in August 2017).
Fiscal policy We expect the budget deficit to remain wide over the forecast period, averaging
the equivalent of 5.2% of GDP in fiscal years 2017/18-2021/22 (July-June). Fiscal
conditions have loosened markedly since an IMF programme ended in 2016.
The government had set an ambitious fiscal deficit target of 3.8% of GDP in
2016/17, but the actual deficit stood at 5.8%, according to the Ministry of Finance.
On the revenue side, numerous efforts to widen the tax net have had only
partial success. The majority of tax revenue is derived from indirect taxes,
making the tax system relatively regressive. Concerted efforts to widen the tax
base will lead to only a slight reduction of the budget deficit in 2017/18,
as spending pressures are expected to remain high at least until the elections,
which are scheduled for July 2018. Furthermore, the administration will face
some political difficulties in rationalising consumer power tariffs, which are
often too low to cover production costs, and improving revenue collection by
electricity distributors.
In our view, the fiscal deficit is likely to narrow only slowly in subsequent
years, as the pressure to increase development expenditure, which includes
infrastructure, will remain high throughout the forecast period. Moreover, given
the parlous domestic security situation, military spending will remain high,
hampering fiscal consolidation efforts and leaving little leeway to expand
funding for social welfare programmes.
Pakistan 7
Monetary policy The State Bank of Pakistan (SBP, the central bank) sanctioned a 25-basis-point
increase in its benchmark interest rate, the target rate, to 6% following a
monetary policy meeting in January. We now expect the SBP to continue to
tighten monetary policy throughout 2018 as it strives to prevent a build-up of
inflationary expectations. These will be fanned by persistent exchange-rate
weakness, rising global oil prices and higher government expenditure
compared with the previous year. The central bank will then keep the target
rate close to 6.5% over the remainder of the forecast period, as inflationary
pressures are expected to largely remain under control.
Economic forecast
Economic growth We forecast that real GDP (measured on an expenditure basis) will expand
by 5.3% a year on average in 2017/18-2021/22. Economic growth will continue to
be supported by progress on CPEC energy projects and improved domestic
business sentiment. Pakistan's large population and robust growth rates will
also attract higher levels of foreign direct investment from non-Chinese
companies towards the end of the forecast period. However, such investment
will have a domestic focus and is unlikely to spur a significant increase in
employment in export-oriented industries. Consumption will therefore remain
tied closely to the agricultural sector and remittance inflows. Moreover, low
investment in human capital and the existence of barriers to women entering
the workforce make it unlikely that Pakistan will benefit fully from a potential
"demographic dividend" during the forecast period.
The annual average growth rate of 5.3% in 2017/18-2021/22 masks a slight
upward revision to our forecasts for 2017/18-2018/19 in the light of changes
made to our real GDP forecast for China, where we now expect real GDP to
grow by 6.4% in 2018, compared with 5.8% previously. Given the fact that China
is Pakistan's second-largest export market, we now expect Pakistan's real GDP to
grow by an annual average of 5.2% in 2017/18-2018/19, compared with 5.1%
previously. We continue to expect the US to record a shallow cyclical downturn
in 2020. The resulting volatility on global financial markets and the weak
external environment will dampen the growth outlook for Pakistan in 2019/20.
However, as external demand recovers and global economic activity revives,
Pakistan's GDP growth will start to accelerate again.
Despite the steady growth outlook, macroeconomic risks arising from
imbalances in the external sector will persist. In addition, we expect risks in the
banking sector to build gradually, as a large amount of credit has been extended
to the poorly performing textiles sector. The authorities' ability to adopt
stimulus measures in the event of a sharper than expected downturn in
economic activity will be limited heavily by the country's stretched fiscal
accounts.
Inflation We have revised up our forecast for consumer price inflation following an
adjustment to our global oil price outlook for 2018-19. We now expect consumer
prices in Pakistan to increase by an annual average of 5.2% in 2018-19, compared
with 5.1% previously. Our forecast assumes that electricity tariffs will be
8 Pakistan
increased in several steps over the forecast period as the authorities pass on
some of the cost of expanding power infrastructure to consumers. The feed-
through effects of the weakening of the Pakistan rupee against the US dollar
and the pick-up in global oil prices will also add to consumer price pressures.
We expect consumer prices to increase by an annual average of 5.2% in 2019-22.
Our inflation outlook assumes normal monsoon rainfalls over the coming
years, but there is a risk that poor harvests could temporarily push up prices in
any given year.
Exchange rates We expect the exchange rate to weaken to an annual average of PRs111:US$1 in
2018. We maintain our view that the local currency will continue to weaken
against the US dollar in 2019-22. We also believe that the SBP will continue to
operate a managed exchange-rate regime in 2018-22, using foreign-exchange
reserves to prevent sharp movements in the Pakistan rupee's value. Similar to
the action that it took in December 2017, it is likely to make occasional changes
to its target range for the Pakistan rupee:US dollar exchange rate. We expect the
SBP to keep the currency at around PRs110:US$1 in the first half of 2018 in a bid
to smooth excess exchange-rate volatility ahead of the parliamentary election,
but it will depreciate further in the second half of the year.
Over the medium term, several factors will put depreciatory pressure on the
currency. These include a wide merchandise trade deficit, increasing debt
repayments, a large fiscal deficit and rising policy interest rates in the US until
early 2020. Given Pakistan's reliance on imports of consumer goods and a
heavy debt burden denominated in foreign currency, the SBP will be keen to
ensure that this depreciation proceeds in a gradual manner. However, the
central bank's ability to manage this in a sustained fashion will be constrained.
We expect total international reserves (including gold) to provide three months
of import cover in 2022, down from an estimated four months in 2018, making
the exchange rate highly vulnerable to domestic and exogenous shocks.
External sector We forecast that the current-account deficit will average the equivalent of 3.9%
of GDP in 2018-22. The large shortfall will remain a key source of macro-
economic risk over the coming years. We continue to expect the merchandise
trade deficit to remain wide in US dollar terms over the forecast period and
to be a major contributor to the current-account shortfall. Exports will be
supported by gains in global trade growth and stronger demand from the EU.
However, Pakistan's exporters (particularly in the garment sector) will struggle
to take full advantage of these opportunities because of infrastructure
constraints, as well as growing competition from the garment sectors in other
parts of South and South-east Asia.
The primary income deficit, in particular, could come under the scrutiny of the
authorities once Chinese companies begin to repatriate profits from CPEC
energy projects. The subdued economic outlook for Gulf countries—some of the
main destinations for overseas Pakistani workers—will weigh on remittance
inflows in the initial part of the forecast period, but the surplus on the
secondary income account will remain substantial.
Pakistan 9
Mounting strains on its external accounts mean that there is a growing risk that
Pakistan may require another IMF bail-out package after the 2018 election.
However, our core forecast remains that the country will instead use other
sources of external finance available to it (such as commercial loans and
government bond issuance). Our forecast is based on the assumption that oil
prices (dated Brent Blend) will average US$60.9/barrel a year over 2018-22.
In the event of a much sharper than anticipated increase in oil prices, balance-
of-payments problems could reach a level that would make another IMF
package necessary.
10 Pakistan
Data summary
Global outlook
2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
International assumptions (%)
World GDP growth 2.4 2.8 2.8 2.3 3.0 2.9 2.9 2.4 2.8 2.8
US GDP growth 1.7 2.6 2.9 1.5 2.2 a 2.3 2.4 0.9 2.1 2.0
EU28 GDP growth 0.3 1.8 2.3 1.9 2.5 2.2 1.9 1.7 1.8 1.8
Asia & Australasia growth 4.6 4.1 4.2 4.1 4.5 4.3 4.4 4.0 4.2 4.2
World trade growth 3.3 3.1 2.3 2.3 4.6 4.3 4.0 2.8 3.8 3.7
US CPI 1.5 1.6 0.1 1.3 2.1 a 2.2 2.3 1.3 1.8 1.9
EU28 CPI 1.5 0.5 0.0 0.3 1.7 1.8 1.7 1.7 1.8 1.9
Manufactures export price -0.3 -0.1 -4.6 -1.8 3.5 4.2 4.0 3.1 3.8 3.3
Oil price (Brent; US$/b) 108.9 98.9 52.4 44.0 54.4 a 63.0 60.0 57.8 60.6 63.3
US$ 3-month commercial paper rate 0.1 0.1 0.2 0.5 1.1 a 1.7 2.5 2.3 1.5 1.8
¥:US$ (av) 97.6 105.9 121.0 108.8 112.1 a 111.3 109.4 104.0 100.0 100.2
¥:€ (av) 129.6 140.7 134.3 120.4 126.6 a 132.5 129.1 125.3 120.5 124.0
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Gross domestic product, at current market prices

2013 a 2014 a 2015 a 2016 a 2017 a 2018 b 2019 b 2020 b 2021 b 2022 b
Expenditure on GDP (PRs bn at current market prices; fiscal years ending Jun 30th)
GDP 22,386 25,169 27,443 29,103 31,862 35,302 39,903 44,498 49,990 56,258
Private consumption 18,092 20,391 21,890 23,286 26,075 28,917 32,243 35,629 39,740 44,191
Government consumption 2,463 2,709 3,011 3,288 3,787 4,341 4,913 5,548 6,302 7,252
Gross fixed investment 2,990 3,281 3,871 4,061 4,517 5,060 5,625 6,284 7,104 8,106
Exports of goods & services 2,972 3,081 2,910 2,659 2,642 2,958 3,207 3,374 3,675 4,040
Imports of goods & services 4,490 4,696 4,679 4,657 5,668 6,555 6,716 7,036 7,591 8,091
Stockbuilding 358 403 439 466 510 581 630 700 760 760
Domestic demand 23,903 26,784 29,212 31,100 34,889 38,899 43,412 48,160 53,906 60,308
Expenditure on GDP (US$ bn at current market prices; fiscal years ending Jun 30th)
GDP 231.2 244.4 270.6 278.9 304.0 326.2 353.4 380.7 417.6 457.0
Private consumption 186.9 198.0 215.8 223.2 248.8 267.2 285.5 304.8 332.0 359.0
Government consumption 25.4 26.3 29.7 31.5 36.1 40.1 43.5 47.5 52.6 58.9
Gross fixed investment 30.9 31.9 38.2 38.9 43.1 46.8 49.8 53.8 59.3 65.8
Exports of goods & services 30.7 29.9 28.7 25.5 25.2 27.3 28.4 28.9 30.7 32.8
Imports of goods & services 46.4 45.6 46.1 44.6 54.1 60.6 59.5 60.2 63.4 65.7
Stockbuilding 3.7 3.9 4.3 4.5 4.9 5.4 5.6 6.0 6.3 6.2
Domestic demand 246.9 260.0 288.0 298.1 332.9 359.4 384.4 412.1 450.3 489.9
Economic structure (% of GDP at current market prices; fiscal years ending Jun 30th)
Stockbuilding 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.5 1.4
Exports of goods & services 13.3 12.2 10.6 9.1 8.3 8.4 8.0 7.6 7.4 7.2
Imports of goods & services 20.1 18.7 17.1 16.0 17.8 18.6 16.8 15.8 15.2 14.4
a Actual. b Economist Intelligence Unit forecasts.
Pakistan 11
Gross domestic product, at constant prices

2013 a 2014 a 2015 a 2016 a 2017 a 2018 b 2019 b 2020 b 2021 b 2022 b
Real expenditure on GDP (PRs bn at constant 2005/06 prices; fiscal years ending Jun 30th)
GDP 10,162 10,637 11,140 11,750 12,417 13,070 13,732 14,418 15,204 16,071
Private consumption 7,865 8,305 8,545 9,137 9,926 10,410 10,918 11,421 11,986 12,566
Government consumption 1,112 1,129 1,221 1,321 1,463 1,587 1,714 1,844 1,988 2,163
Gross fixed investment 1,333 1,366 1,582 1,687 1,827 1,962 2,098 2,249 2,440 2,672
Exports of goods & services 1,243 1,225 1,147 1,129 1,126 1,184 1,229 1,262 1,302 1,365
Imports of goods & services 1,555 1,559 1,534 1,713 2,124 2,277 2,417 2,548 2,712 2,895
Stockbuilding 163 170 178 188 199 205 190 190 200 200
Domestic demand 10,473 10,970 11,526 12,334 13,415 14,164 14,920 15,704 16,614 17,601
Real expenditure on GDP (% change; fiscal years ending Jun 30th)
GDP 4.4 4.7 4.7 5.5 5.7 5.3 5.1 5.0 5.5 5.7
Exports of goods & services 13.6 -1.5 -6.3 -1.6 -0.2 5.1 3.8 2.7 3.2 4.8
Imports of goods & services 1.8 0.3 -1.6 11.7 24.0 7.2 6.1 5.4 6.4 6.7
Stockbuilding (% contribution to
GDP growth) 0.1 0.1 0.1 0.1 0.1 0.1 -0.1 0.0 0.1 0.0
Domestic demand 3.0 4.7 5.1 7.0 8.8 5.6 5.3 5.3 5.8 5.9
Real contribution to GDP growth (%; fiscal years ending Jun 30th)
External balance 1.2 -0.2 -0.5 -1.8 -3.5 -0.8 -0.7 -0.7 -0.9 -0.8
Gross domestic product by sector of origin

2013 a 2014 a 2015 a 2016 a 2017 a 2018 b 2019 b 2020 b 2021 b 2022 b
Origin of GDP (PRs bn at constant 2005/06 prices; fiscal years ending Jun 30th)
GDP at factor cost 9,819 10,217 10,632 11,111 11,697 12,312 12,936 13,582 14,322 15,139
Agriculture 2,104 2,156 2,202 2,208 2,285 2,346 2,414 2,475 2,539 2,610
Industry 1,999 2,090 2,198 2,325 2,442 2,550 2,652 2,766 2,912 3,070
Services 5,716 5,971 6,232 6,577 6,970 7,417 7,870 8,341 8,871 9,459
Origin of GDP (real % change; fiscal years ending Jun 30th)
Agriculture 2.7 2.5 2.1 0.3 3.5 2.7 2.9 2.5 2.6 2.8
Industry 0.8 4.5 5.2 5.8 5.0 4.4 4.0 4.3 5.3 5.4
Services 5.1 4.5 4.4 5.5 6.0 6.4 6.1 6.0 6.4 6.6
Origin of GDP (% of factor cost GDP; fiscal years ending Jun 30th)
Agriculture 24.8 24.9 25.1 24.6 24.7 24.1 23.6 23.0 22.4 21.8
Industry 21.0 21.0 20.1 19.4 19.1 18.8 18.5 18.1 17.9 17.7
Services 54.1 54.2 54.9 56.0 56.3 57.1 58.0 58.9 59.7 60.6
12 Pakistan
Growth and productivity

2013 a 2014 a 2015 a 2016 a 2017 a 2018 b 2019 b 2020 b 2021 b 2022 b
Growth and productivity (%; fiscal years ending Jun 30th)
Labour productivity growth 3.5 3.7 3.1 3.4 3.2 2.8 3.0 2.7 3.0 3.4
Total factor productivity growthc 3.5 3.7 2.9 3.3 3.2 2.5 2.4 2.1 2.4 2.5
Growth of capital stock 1.5 1.6 2.8 3.2 3.2 4.1 4.4 4.7 5.1 5.6
Growth of potential GDP 4.8 4.7 4.9 5.6 3.2 5.6 5.5 5.1 5.6 5.7
Growth of real GDP 4.4 d 4.7 d 4.7 d 5.5 d 3.2 5.3 5.1 5.0 5.5 5.7
Growth of real GDP per head 2.2 d 2.5 d 2.6 d 3.4 d 3.2 3.3 3.1 3.1 3.6 3.9
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Total factor productivity growth cannot be measured directly.
It is calculated by dividing GDP growth by employment growth and estimated growth in the capital stock. d Actual.
Economic structure, income and market size

2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
Population, income and market size
Population (m) 181.7 185.5 189.4 193.2 197.0 200.8 204.6 208.4 212.1 215.8
GDP (US$ bn at market
exchange rates)d 231.2 244.4 270.6 278.9 304.0 a 326.2 353.4 380.7 417.6 457.0
GDP per head (US$ at market
exchange rates)d 1,270 1,320 1,430 1,440 1,540 1,620 1,730 1,830 1,970 2,120
Private consumption (US$ bn)d 186.9 198.0 215.8 223.2 248.8 a 267.2 285.5 304.8 332.0 359.0
Private consumption per head
(US$)d 1,030 1,070 1,140 1,160 1,260 1,330 1,400 1,460 1,570 1,660
GDP (US$ bn at PPP) 839.5 894.4 948.8 1,013.5 1,090.3 1,174.1 1,252.0 1,322.4 1,414.1 1,520.1
GDP per head (US$ at PPP) 4,620 4,820 5,010 5,250 5,530 5,850 6,120 6,350 6,670 7,040
Personal disposable income (PRs bn) 20,340 b 22,940 b 24,679 b 26,229 b 29,390 33,705 37,851 41,887 46,967 51,817
Personal disposable income
(US$ bn) 200.1 b 226.9 b 240.1 b 250.4 b 278.7 303.6 328.6 354.5 385.8 418.2
Growth of real disposable income
(%) 2.2 b 5.7 b 3.1 b 6.8 b 8.7 8.4 5.6 4.8 5.5 4.0
Memorandum items
Share of world population (%) 2.53 2.55 2.58 2.60 2.63 2.66 2.68 2.71 2.73 2.76
Share of world GDP (% at market
exchange rates) 0.30 0.31 0.37 0.37 0.38 a 0.39 0.41 0.42 0.44 0.46
Share of world GDP (% at PPP) 0.81 0.82 0.83 0.85 0.87 0.88 0.89 0.91 0.95 0.96
Share of world exports of goods (%) 0.14 0.13 0.14 0.14 0.13 0.13 0.13 0.14 0.14 0.15
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years ending June 30th; based on fiscal-year
exchange rates.
Fiscal indicators
2013 a 2014 a 2015 b 2016 b 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
Fiscal indicators (% of GDP; fiscal years ending Jun 30th)
Government expenditure 21.5 20.0 19.6 a 19.9 a 21.3 a 21.4 21.2 20.9 20.6 20.6
Interest 5.1 5.8 4.8 4.8 4.6 4.6 4.7 4.5 4.6 4.5
Non-interest 16.4 14.2 14.8 15.1 16.7 16.8 16.6 16.4 16.1 16.1
Government revenue 13.3 14.5 14.3 a 15.3 a 15.5 a 15.9 15.7 15.5 15.7 15.6
Budget balance -8.2 -5.5 -5.3 a -4.6 a -5.8 a -5.6 -5.5 -5.4 -4.9 -4.9
Primary balance -3.1 0.2 -0.5 0.2 -1.2 -1.0 -0.8 -0.9 -0.4 -0.5
Government debt 55.9 b 56.0 b 57.4 59.5 60.8 60.8 59.7 59.2 58.0 56.7
Pakistan 13
Monetary indicators
2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
Monetary indicators
Exchange rate PRs:US$ (av) 101.63 101.10 102.77 104.77 105.46 a 111.03 115.18 118.15 121.73 123.90
Exchange rate PRs:US$ (year-end) 105.68 100.46 104.87 104.81 110.43 a 114.10 117.56 120.14 122.31 123.99
Exchange rate PRs:¥100 (av) 104.17 95.51 84.92 96.33 94.04 a 99.73 105.25 113.61 121.73 123.65
Exchange rate PRs:¥100 (year-end) 100.41 83.82 87.19 89.75 98.00 103.20 109.88 118.60 122.31 123.62
Real effective exchange rate (av),
CPI-based 91.78 b 98.05 b 106.28 b 107.78 b 109.66 106.53 105.98 105.06 104.21 104.54
Purchasing power parity PRs:US$
(av) 27.99 27.62 29.31 28.83 29.40 a 30.85 32.51 34.02 35.95 37.25
Money supply (M2) growth (%) 14.8 10.5 12.8 15.5 13.4 12.6 13.8 11.5 16.1 16.3
Domestic credit growth (%) 19.6 7.8 12.0 13.8 15.7 13.4 14.8 11.5 16.0 16.3
Lending rate (av; %) 10.3 10.5 8.4 6.9 6.9 7.6 7.8 7.8 7.8 7.8
Deposit rate (av; %) 5.1 5.1 4.1 3.2 2.9 3.6 3.9 3.9 3.9 3.9
Short-term interest rate (av; %) 8.8 9.2 7.0 5.8 5.8 6.3 6.5 6.5 6.5 6.5
Employment, wages and prices

2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
The labour market (av)
Labour force (m) 59.7 60.1 61.0 62.2 63.6 65.4 66.9 68.3 69.8 71.1
Labour force (% change) 1.3 0.6 1.6 1.9 2.4 2.7 2.3 2.1 2.2 1.9
Unemployment rate (%) 6.2 6.0 5.9 5.8 b 5.8 6.0 6.3 6.2 6.1 5.8
Wage and price inflation (%)
Consumer prices (av) 7.7 7.2 2.5 3.8 4.1 a 5.7 4.8 4.9 5.4 5.8
Consumer prices (year-end) 9.2 4.3 3.2 3.7 4.6 a 5.2 4.9 5.2 5.6 5.7
Producer prices (av) 7.8 4.8 -2.5 1.7 3.5 a 4.0 4.2 3.3 3.8 4.1
GDP deflator (av) 7.0 7.4 4.1 0.5 3.6 5.3 7.6 6.2 6.5 6.5
Private consumption deflator (av) 7.2 6.7 4.3 -0.5 3.1 5.8 6.3 5.6 6.3 6.1
Government consumption deflator
(av) 6.4 8.4 2.8 0.9 4.1 5.7 4.8 4.9 5.4 5.8
Fixed investment deflator (av) 7.9 7.0 1.9 -1.7 2.7 4.3 4.0 4.2 4.2 4.2
14 Pakistan
Current account and terms of trade

2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
Current account (US$ bn)
Current-account balance -4.4 -3.6 -2.8 -6.9 -14.7 -16.8 -15.3 -13.5 -14.8 -14.6
Current-account balance (% of GDP) -1.9 -1.5 -1.0 -2.5 -4.8 -5.1 -4.3 -3.5 -3.5 -3.2
Goods: exports fob 25.1 24.8 22.7 21.7 23.1 24.5 25.6 27.9 29.6 32.6
Goods: imports fob -41.2 -42.7 -39.8 -42.7 -52.1 -55.1 -55.8 -55.5 -58.1 -60.8
Trade balance -16.1 -17.9 -17.1 -21.0 -29.0 -30.6 -30.2 -27.6 -28.5 -28.2
Services: credit 4.9 5.8 5.9 5.1 5.4 5.8 6.2 6.4 7.0 7.7
Services: debit -8.0 -8.5 -8.8 -8.9 -9.9 -10.6 -11.1 -12.1 -13.4 -14.7
Services balance -3.0 -2.6 -2.9 -3.8 -4.5 -4.8 -4.9 -5.7 -6.4 -7.0
Primary income: credit 0.5 0.5 0.7 0.7 0.5 0.8 0.8 0.8 0.8 0.9
Primary income: debit -4.5 -4.8 -5.7 -5.5 -5.6 -6.5 -7.5 -8.3 -9.0 -9.8
Primary income balance -4.0 -4.3 -5.0 -4.9 -5.1 -5.7 -6.7 -7.5 -8.1 -8.9
Secondary income: credit 18.7 21.5 22.4 22.9 24.1 24.5 26.6 27.5 28.5 29.8
Secondary income: debit -0.1 -0.3 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.3
Secondary income balance 18.7 21.2 22.2 22.7 23.9 24.3 26.4 27.3 28.3 29.6
Terms of trade
Export price index (US$-based;
2005=100) 147.2 151.8 144.4 135.3 b 138.1 139.8 140.7 140.5 144.0 148.4
Export prices (% change) -2.3 3.1 -4.9 -6.3 b 2.0 1.2 0.7 -0.1 2.4 3.0
Import price index (US$-based;
2005=100) 195.3 194.2 180.3 161.9 b 170.2 174.4 162.3 157.2 154.7 151.7
Import prices (% change) 2.3 -0.6 -7.1 -10.2 b 5.2 2.4 -6.9 -3.1 -1.6 -1.9
Terms of trade (2005=100) 75.4 78.2 80.1 83.6 b 81.1 80.1 86.7 89.4 93.1 97.8
Memorandum item
Export market growth (%) 1.8 b 4.0 b 4.1 b 2.6 b 4.5 3.3 3.4 1.8 3.6 3.6
Foreign direct investment

2013 a 2014 a 2015 a 2016 a 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
Foreign direct investment (US$ bn)
Inward direct investment 1.3 1.9 1.6 2.3 2.5 2.6 3.3 3.2 4.4 4.8
Inward direct investment (% of GDP) 0.6 0.8 0.6 0.8 0.8 0.8 0.9 0.8 1.1 1.1
Inward direct investment
(% of gross fixed investment) 4.3 5.9 4.2 6.0 5.8 5.6 6.6 6.0 7.4 7.3
Outward direct investment -0.21 -0.12 -0.03 -0.05 -0.08 -0.08 -0.08 -0.08 -0.09 -0.09
Net foreign direct investment 1.1 1.7 1.6 2.3 2.4 2.5 3.2 3.1 4.3 4.7
Stock of foreign direct investment 25.1 33.2 34.4 41.9 44.4 47.0 50.3 53.5 57.9 62.7
Stock of foreign direct investment
per head (US$) 138 179 182 217 225 234 246 257 273 290
Stock of foreign direct investment
(% of GDP) 10.9 13.6 12.7 15.0 14.6 14.4 14.2 14.0 13.9 13.7
Memorandum items
Share of world inward direct
investment flows (%) 0.05 0.10 0.06 0.11 0.11 0.11 0.13 0.13 0.17 0.18
Share of world inward direct
investment stock (%) 0.11 0.13 0.13 0.15 0.15 0.15 0.15 0.15 0.16 0.17
Pakistan 15
External debt
2013 a 2014 a 2015 a 2016 b 2017 b 2018 c 2019 c 2020 c 2021 c 2022 c
External debt
Total external debt (US$ bn) 57.9 61.1 65.8 72.7 82.6 95.1 98.0 105.7 112.7 120.6
Total external debt (% of GDP) 25.0 25.0 24.3 26.1 27.2 29.1 27.7 27.8 27.0 26.4
Debt/exports ratio (%) 128 126 135 154 170 189 187 189 191 188
Debt-service ratio, paid (%) 15.3 9.8 7.7 8.9 13.4 12.1 21.2 16.2 16.0 15.5
Data sources and definitions

The sources for global and domestic data refer to historical data. The source for all
forecast data, unless otherwise stated, is The Economist Intelligence Unit
Global data
US and OECD GDP growth: OECD
World trade growth: Economist Intelligence Unit aggregates
OECD and US consumer price inflation: OECD
Oil prices: dated Brent Blend
US$ 3-month commercial paper rate: IMF, IFS
Domestic data
GDP: expenditure on GDP at constant market prices on a fiscal-year basis (ending
on June 30th of year indicated)
GDP growth: Ministry of Finance, Economic Survey
US$ GDP: IMF, IFS
Population: Federal Bureau of Statistics, Pakistan Statistical Yearbook; Ministry of
Finance, Economic Survey; UN, World Development Report
GDP per head: growth in real GDP deflated by population growth
Inflation: based on a combined cost-of-living index for industrial, commercial and
government employees; Ministry of Finance, Economic Survey; Prime Minister’s
Secretariat, Consumer Price Index Data
Exchange rate: IMF, IFS; Financial Times
Balance of payments: IMF, IFS
Foreign debt: World Bank, International Debt Statistics
Foreign direct investment: UNCTAD, World Investment Report
Abbreviations
IFS: International Financial Statistics
UNCTAD: UN Conference on Trade and Development

EIU Pakistan February 2018

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EIU Pakistan February 2018

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Country Forecast

Symbols for tables

Country forecast overview

Business environment Value of indexa Global rankb Regional rankc

• Pakistan's business environment score improves in 2018-22. However, this

Policy towards private enterprise and competition

Policy towards foreign investment

Foreign trade and exchange controls

The labour market

Major exports 2016a % of total Major imports 2016a % of total

Leading markets 2016b % of total Leading suppliers 2016b % of total

Outlook for 2018-22

In addition, the government continues to struggle with a separatist movement

Economic policy outlook

Gross domestic product, at current market prices

Gross domestic product, at constant prices

Gross domestic product by sector of origin

Growth and productivity

Economic structure, income and market size

Employment, wages and prices

Current account and terms of trade

Foreign direct investment

Data sources and definitions

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