Country Report Pakistan April 2023

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Country Report
Pakistan
Generated on April 25th 2023

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Pakistan 1
Pakistan
Summary
2 Briefing sheet
Outlook for 2023-27

4 Political stability
4 Election watch
5 International relations
6 Policy trends
6 Fiscal policy
7 Monetary policy
7 International assumptions
8 Economic growth
8 Inflation
9 Exchange rates
9 External sector
10 Forecast summary
Data and charts

11 Annual data and forecast
12 Quarterly data
13 Monthly data
14 Annual trends charts
15 Monthly trends charts
16 Comparative economic indicators
Summary
16 Basic data
18 Political structure
Recent analysis
Politics
21 Forecast updates
Economy
23 Forecast updates
26 Analysis
Country Report April 2023 www.eiu.com © Economist Intelligence Unit Limited 2023

Pakistan 2
Briefing sheet
Editor: Sumedha Dasgupta
Forecast Closing Date: April 17, 2023
Political and economic outlook

Pakistan is an emerging-market economy in South Asia with chronic imbalances on its fiscal
and external accounts. Concerns about political stability, domestic security and weakness in
economic fundamentals limit its attractiveness to investors.
EIU expects the government, led by Shehbaz Sharif as prime minister, to serve out its
parliamentary term until August 2023. Our baseline forecast is for the opposition Pakistan
Tehreek-e-Insaf (PTI) party, led by Imran Khan, to win the subsequent national election.
Political stability is tenuous, and violence will escalate in the coming months.
The State Bank of Pakistan (SBP, the central bank) will tighten monetary policy further, taking
the policy rate to a record-high 23% by the third quarter of 2023, to combat inflation and adhere
to the IMF's preference for a hawkish policy stance. Thereafter, we forecast the policy rate to
be held steady until mid-2024, amid subdued growth.
We forecast that real GDP will contract by 0.2% in fiscal year 2023/24 (July-June), compared to
estimated growth of 1.5% in 2022/23, reflecting infrastructure damage from floods, subdued
consumption, muted global demand and high interest rates stifling investment. We forecast
growth to pick up to an average of 2.8% in 2023/24-2026/27.
We expect Pakistan to default on its external debt obligations in 2023-24, as it has limited
foreign-exchange reserves to service its external debt, and an IMF loan will end by the third
quarter of 2023, after which access to bilateral lending will be limited.
Poor policy choices over many years have put the economy in a much weaker position than
other emerging Asian markets such as Bangladesh. Even with the reforms that are currently
under way, economic growth will undershoot its potential in 2023-27.
We believe that Pakistan will strengthen ties with China and Russia, at the expense of its
relations with Western governments. Relations with India will remain strained, while Pakistan
will assist (but not recognise) the Taliban government in Afghanistan.
Key indicators
2022a 2023b 2024b 2025b 2026b 2027b
Real GDP growth (%)c 6.2d 1.5 -0.2 1.5 3.0 4.1
Consumer price inflation (av; %) 19.9 30.3 20.8 6.1 5.2 5.3
Government balance (% of GDP)c -7.9d -5.6 -5.5 -6.0 -5.4 -5.1
Current-account balance (% of GDP) -3.2 -2.9 -2.1 -2.8 -3.1 -2.6
Short-term interest rate (av; %) 13.5 18.8 18.5 16.9 13.9 11.0
Unemployment rate (%) 9.3 9.6 9.9 9.2 8.6 7.8
Exchange rate PRs:US$ (av) 204.87 278.29 293.25 302.50 302.25 305.50
a EIU estimates. b EIU forecasts. c Fiscal years ending June 30th. d Actual.

Pakistan 3
Key changes since March 10th

We have revised down our real GDP growth estimate for 2022/23 and now forecast a mild
contraction in 2023/24. Private consumption, investment and exports will provide little support
for growth amid strong inflation, high interest rates and political uncertainty.
We have raised our forecast for consumer price inflation in 2023 from 24% to 30.3%, in line with
observed monthly trends, as supply disruption will continue amid damage from floods. An
import crunch will also reduce supplies of essentials.
We have raised our forecast for producer price inflation in 2023 from 26.6% to 30.2%, despite an
expected moderation in global commodity prices, as the steep depreciation in the domestic
currency will continue to spur imported inflation.
We now expect the Pakistan rupee to depreciate more steeply, to an average of PRs278.3:US$1
in 2023 (from our previous forecast of RPs258.2:US$1), amid concern over debt sustainability,
political stability and external public debt default.
We have revised down our forecast for the current-account deficit in 2023 from the equivalent
of 3.2% of GDP to 2.9%, as import volumes will be significantly lower as a result of an inability
to pay for imports with limited foreign exchange.
The month ahead

May 1st—Consumer price inflation (April). We expect inflation to remain elevated at above
30%, as a shortage of food and fuel maintains price pressures. Demand will have spiked during
the holy month of Ramadan, exacerbating these shortages.
May 4th—Summit of foreign ministers of the Shanghai Cooperation Organisation (SCO). India,
as SCO president, has invited Pakistan to attend the gathering. We believe that Pakistan,
though reluctant, will participate to support China's bid to reinvigorate the SCO. Discussions
are likely to centre on energy security, including Central Asia's role.
Major risks to our forecast

Scenarios, Q1 2023 Probability Impact Intensity
Very
A military coup takes place in 2023 Moderate 15
high
Very
Disbursements from the IMF are cancelled permanently Moderate 15
high
The IMF package stalls for a long period or Pakistan is unable to secure a
Moderate High 12
future package
Critical infrastructure faces an abrupt crisis owing to natural disasters Moderate High 12
Imran Khan is disqualified from contesting the election, leading to
Moderate High 12
violent protests
Note: Scenarios and scores are taken from our Operational Risk product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.

Pakistan 4
Source: EIU.
Outlook for 2023-27

Political stability
Political stability is extremely tenuous in Pakistan. Governments rarely serve a full term, and the
political environment will remain fractious even after the scheduled national election in the second
half of 2023. The current ruling coalition, led by the Pakistan Muslim League (Nawaz), or PML (N),
which took office in April 2022 after winning a no-confidence vote against the then government,
only commands a thin parliamentary majority. The opposition mainly comprises the former ruling
Pakistan Tehreek-e-Insaf (PTI), led by the erstwhile prime minister, Imran Khan.
EIU expects the PML (N) government to serve the remainder of the current parliamentary term, to
August 2023, although there is a small possibility that an election will be held sooner. This could
happen if enough members defected to nullify the majority. However, this is not our core forecast;
the election is most likely to be held around October.
There have been widespread public protests since March, including stampedes that have led to
loss of life, on issues including persistently high inflation and shortages of crucial items such as
food and medicines. Law and order will remain fragile, as we do not expect these shortages to be
resolved soon.
Our baseline view is for Mr Khan to win the election, buoyed by public dissatisfaction with the
austerity measures pursued by the PML (N) government. However, the outlook for political
stability is unlikely to improve. Pakistan's fragile balance-of-payments position means that
Mr Khan's government will still need to look externally to meet its financing needs. The conditions
attached to such loans will be politically challenging to implement.
Mr Khan's government is also likely to have a poor relationship with Pakistan's powerful military
(including its intelligence wing). The army chief, Lieutenant-General Asim Munir, has a troubled
relationship with Mr Khan, who has been critical of the military's influence in the country since
leaving office. A lack of co-operation from the military will hamper decision-making in areas
including the economy, defence and domestic security. There is a moderate risk that the military
will intervene to prevent Mr Khan from taking office, should he win the election; a coup would
probably spark widespread social instability.
Political stability will also face security challenges from Islamist groups such as the Tehrik-i-
Taliban Pakistan (also known as the Pakistani Taliban), as well as a separatist movement in
Balochistan. Terrorist attacks surged in Pakistan in early 2023, and this trend will intensify in the
lead-up to the election. Any truce is unlikely to last. Increased attacks on non-nationals and
demonstrations on religious issues are expected to recur during our forecast period.
Election watch
Assuming that parliament is dissolved in August, the general election will have to be held by
October 2023. The ruling PML (N)-led coalition has lost popularity owing to austerity measures
imposed under the aegis of the IMF, which have further increased the cost of living and raised tax
burdens.
We believe that Mr Khan's PTI is likely to emerge as the winning party because of public
disenchantment with the government. However, there is a moderate risk that the elections will be
neither free nor fair, in order to prevent a victory for Mr Khan; this would be ensured tacitly by
the military. Pending corruption charges against Mr Khan also threaten his ability to contest the
polls. A PTI-led governing coalition, similar to the incumbent ruling alliance, is unlikely to have a
large enough majority to govern freely, and political stability will be fragile.
We expect domestic protests, violence and terrorism to increase in the run-up to the election. The
result may also be contested stiffly irrespective of the outcome, leading to further violence in the
aftermath of the ballot.

Pakistan 5
International relations
China will remain Pakistan's leading economic and strategic partner in 2023-27, driven partly by its
rivalry with India. However, the country is likely to limit lending related to the China-Pakistan
Economic Corridor (CPEC) throughout the period, amid concern about Pakistan's debt
sustainability, as well as significant cost overruns and completion delays on many ongoing
projects. Pakistan will continue to take a tough line against any local terrorist groups that target
Chinese-backed infrastructure projects. China is also likely to nudge Pakistan to opt for a fresh
IMF loan package in the second half of 2023, despite conditions that are difficult to implement, as
this would be the only way Pakistan could avoid a sovereign debt default. Chinese loans account
for 30% of Pakistan's external debt stock.
We expect relations between India and Pakistan to remain hostile in 2023-27. The decades-long
sovereignty dispute over Kashmir (where Pakistan and China are united in creating infrastructure)
and India's concerns about cross-border terrorism will keep ties strained. The Pakistani armed
forces' support for militant groups in Indian-controlled Kashmir raises the risk of terrorist activity
by non-state actors, which would spur covert military operations from India. However, we expect
that both sides' nuclear arsenals will deter full-blown military conflict.
The relationship between Pakistan and the US is unlikely to improve over 2023-27, especially as
the US enhances its engagement with India, and assuming that Mr Khan—known for his antiUS
rhetoric—returns to power. Pakistan resumed its dialogue with the US under the USPakistan
Trade and Investment Framework Agreement in early 2023, although any consensus on the
creation of freer trade flows is not expected until at least 2025. Alienation from the US and its allies
has spurred Pakistan to foster good relations with Russia, and Pakistan has refused to condemn
that country for its invasion of Ukraine.
Relations between Pakistan and Afghanistan will come under strain occasionally as border
disputes continue. However, we believe that Pakistan will continue to engage with the Taliban to
maintain its influence in Afghanistan, and will use the Taliban's offices to mediate truce talks with
terrorist groups operating in the border areas.
Pakistan will maintain good relations with Saudi Arabia, Qatar and the UAE as it increasingly
seeks financial support from these countries to bolster its foreign-exchange position; however,
only moderate support will be forthcoming after the IMF package expires in 2023.

Pakistan 6
Policy trends
We expect Pakistan to default on its external public debt obligations by early 2024. Although the
ongoing US$6.5bn extended fund facility (EFF) from the IMF was scheduled to end in June 2023,
US$2.6bn is left to be disbursed over two tranches. The disbursements have been stalled over
many months because of delays in the implementation of reforms, leading us to believe that the
package will not conclude within the stipulated time frame, and the IMF will grant a three-month
extension. However, this will result in additional problems for the government, as it will have to
enact further unpopular measures as the national election approaches and budget for austerity in
the upcoming fiscal year, 2023/24 (July-June).
The ending of the EFF will prevent Pakistan from generating enough revenue, bilateral loans or
foreign-exchange reserves to repay debt obligations, pay for imports and rebuild the economy
following the devastating floods in 2022. We expect the government not to opt for another IMF
package in 2023, as the attendant requirements will be too difficult to implement as challenges to
growth rise. The government will instead rely on bilateral donors, bond markets and other
multilaterals that may not impose such stringent conditions.
The government's policy priority this year will be the gradual reconstruction of infrastructure
damaged by the floods. In January Pakistan secured US$8.5bn in loan pledges from bilateral,
multilateral and commercial institutions for flood-relief efforts (the government's stated
requirement was US$16.3bn). Longer-term priorities include establishing bilateral trade agreements
with countries including Turkey and Iran, although this is unlikely before the latter part of our
forecast period.
Policymaking will routinely be subject to military interference. The logistics and transport sectors
in particular, which are dominated by military-backed entities, will become less competitive than
sectors with no military intervention. Greater military involvement in the economy could also
increase expropriation risks for foreign investors in the energy and extractive industries.
Fiscal policy
As long as the IMF package is in place, the government will focus on implementing austerity
measures required by the IMF. In line with conditions laid down by the Fund in January, the
government aims to raise additional revenue of PRs170bn (US$611m) over the 2022/23 budgetary
target of PRs7.5trn (US$26.9bn). This will be achieved in part through an increase in natural gas
and electricity tariffs.
The IMF has requested progressive taxation (with richer income segments taxed more highly), as
well as better targeted subsidies that reach only the lower-income population. These could be
incorporated in the next budget, for 2023/24. The current budget had already increased personal
income tax rates and imposed a "super tax" on profits in some sectors. The expenditure budget is
skewed towards a higher allocation for defence, and this trend will continue.
The budgeted fiscal deficit for 2022/23 stands at 4.9% of GDP, but we forecast that the
government will record a wider deficit, equivalent to 5.6% of GDP, given lower economic growth
expectations and increased expenditure commitments resulting from the floods. We also expect
taxation measures imposed in early 2023 to help the government to peg the budgeted fiscal deficit
at 5.5% of GDP in 2023/24, which we believe will be acceptable to the IMF, given debt-repayment
needs and a recessionary slowdown in activity.
A lack of fiscal space will force the government to refrain from typical pre-election populist
measures, such as providing cash handouts to poorer sections of the population.

Pakistan 7
Monetary policy
Although global commodity prices will soften in 2023, inflation will remain a significant problem
because of supply disruption and a weak currency. The State Bank of Pakistan (SBP, the central
bank) has indicated a proclivity to anchor inflationary expectations rather than focus on growth
concerns. We believe that it is approaching the end of an extended bout of drastic tightening,
during which the policy rate has risen by over 10 percentage points in a 12-month period since the
first quarter of 2022. We forecast two more 100-basis-point rate increases by the third quarter of
2023, taking the policy rate to a historic high of 23%.
A return to policy loosening before mid-2024 is unlikely, given inflationary pressures and
conditions associated with IMF lending. After that, the loss of domestic growth momentum, lower
inflation and a global shift towards looser policy settings will enable the SBP to begin lowering
the policy rate—at a relatively gradual pace—back towards 10%. We expect the central bank to
introduce further capital controls on US dollar transactions to slow the outflow of that currency in
2023.
International assumptions
2022 2023 2024 2025 2026 2027
Economic growth (%)
US GDP 2.1 0.7 1.2 2.0 2.1 1.9
OECD GDP 2.8 0.8 1.5 1.9 2.0 1.9
World GDP 3.1 2.0 2.5 2.7 2.7 2.7
World trade 4.3 2.1 3.3 3.6 3.7 3.8
Inflation indicators (% unless otherwise indicated)
US CPI 8.0 4.0 2.2 1.9 2.0 2.1
OECD CPI 8.9 5.7 2.8 2.3 2.1 2.1
Manufactures (measured in US$) -0.4 5.6 4.9 3.6 3.1 2.4
Oil (Brent; US$/b) 99.8 87.0 85.0 81.0 76.7 71.8
Non-oil commodities (measured in US$) 14.6 -9.0 -2.1 -0.7 -1.5 -1.5
Financial variables
US$ 3-month commercial paper rate (av; %) 2.1 5.1 5.0 4.0 3.1 2.6
¥ 3month money market rate (av; %) 0.1 0.1 0.1 0.1 0.1 0.1
¥:US$ (av) 131.46 123.58 110.61 107.75 110.25 108.75
PRs:US$ (av) 204.87 278.29 293.25 302.50 302.25 305.50

Pakistan 8
Economic growth
We forecast that real GDP will grow by 1.5% in 2022/23, decelerating sharply from 6.2% in 2021/22,
and will enter recessionary territory in 2023/24. Unemployment is widening from agriculture to the
industrial sector, as raw material shortages and power outages have caused the closure of some
companies in the fertiliser, steel and textile sectors since late 2022. The shortage of fertiliser
imports also bodes ill for a recovery in agriculture after the loss of arable land in the floods in
2022. The slowing expansion of private consumption will inhibit growth in the services sector.
Elevated inflation and the lagged effects of interest-rate rises have dampened consumption, as
was evident in the holy month of Ramadan, when demand for food and discretionary purchases
usually rises. Private consumption is expected to contract in 2023/24 as the loss of income streams
becomes more widespread and a lack of imports keeps the prices of essentials extremely high. We
expect export growth to be lacklustre in 2023 as growth slows in the US and Europe, though some
support will come from the Gulf region, as well as increased export competitiveness resulting from
a weak currency. Investment impetus will be muted, owing to higher interest rates, the imposition
of the super tax on certain sectors and uncertainty over the outlook for demand. Growth will
receive slight support from government spending, primarily to restore housing and agricultural
land.
Rate cuts, weaker inflationary pressure and a gradual recovery in export growth in 2025-27 will
provide some support to expansion. Real GDP growth will average 2.8% a year in 2024/25-2026/27.
Economic growth
(%; fiscal years ending Jun 30th) 2022a 2023b 2024b 2025b 2026b 2027b
GDP 6.2 1.5 -0.2 1.5 3.0 4.1
Private consumption 10.1 1.5 -2.2 1.3 2.9 4.0
Government consumption -3.4 4.0 4.0 5.5 4.0 3.3
Gross fixed investment 2.5 2.0 2.0 4.0 5.0 4.3
Exports of goods & services 8.4 2.0 2.9 4.9 4.5 4.9
Imports of goods & services 15.6 -2.3 -3.4 4.8 4.5 4.2
Domestic demand 7.9 1.6 -1.1 1.8 3.1 4.0
Agriculture 3.0 0.5 3.0 2.0 2.5 2.0
Industry 7.2 4.0 3.2 6.0 6.3 7.0
Services 6.2 3.7 -3.5 -1.3 0.8 2.0
a Actual. b EIU forecasts.
Inflation
Consumer price inflation will accelerate from 19.9% in 2022 to 30.3% in 2023, despite a moderation
in global commodity prices. High inflation in Pakistan stems largely from deepening supply
shortages across multiple goods, as a result of the forced curtailment of imports due to
precariously low foreign-exchange reserves, which are barely sufficient to cover two weeks of
restricted imports. In order to unlock the next tranche of the EFF, the government raised sales tax
and federal excise duties. The impact of these additional revenue measures has yet to play out
fully, and will compound inflation further in the months ahead.
We forecast that producer price inflation will decelerate slightly from 31.3% in 2022 to 30.2% in
2023, although high commodity prices will abate. The sharp weakening of the Pakistan rupee has
exacerbated imported inflation. Additionally, some domestic pressures on the supply side will
persist owing to infrastructure damage caused by the floods.

Pakistan 9
Exchange rates
In accordance with the IMF's recommendations, the central bank shifted to a more market-driven
valuation of the currency in 2023; the Pakistan rupee subsequently depreciated by 25% against
the US dollar in nominal terms over the first quarter of the year. Strong depreciatory pressures will
persist in the remainder of 2023 amid political turbulence, lacklustre growth and rising investor
concerns about Pakistan's debt sustainability after the conclusion of the IMF package.
The cash-strapped country needs to repay US$77.5bn in external debt between April 2023 and
June 2026, while near-term debt-servicing will amount to US$4.5bn between April and June 2023.
Pakistan's liquid foreign-exchange reserves with the SBP stood at US$4.2bn at end-March 2023,
portending a continued inability to defend the currency in the face of strong depreciatory
pressures. We forecast that the rupee will stand at PRs290.8:US$1 at end-2023, depreciating from
PRs226.5:US$1 a year earlier.
The rupee will continue to trend weaker in 2024-27, reflecting persistently large current-account
and fiscal deficits, along with relatively high inflation. Large knee-jerk depreciations in the value of
the currency will continue, given the central bank's limited resources for counteracting
depreciatory pressures.
External sector
We forecast that the current-account deficit will narrow from 3.2% of GDP in 2022 to 2.9% of GDP
in 2023, driven by a lower trade deficit. We expect the value of goods imports to contract in 2023
as commodity prices soften, while a much weaker ability to pay for imports (due to low foreign-
exchange cover) will reduce import volumes significantly. However, the current-account deficit
will remain fairly large, owing to a sharp moderation in export growth as major trade partners (the
US and Europe in particular) face stagnant growth. Demand from Gulf nations will provide some
support for exports, while a weaker currency will also support shipments.
The current-account deficit will average 2.7% of GDP in 2024-27, driven primarily by low goods
import volumes, resulting from continuing stresses in foreign-exchange reserves, as exports rise
modestly. The deficit will be characterised by low levels of domestic value added in exports
(stemming from the slow adoption of technology, low labour productivity and a difficult local
business environment) and a reliance on energy imports.
Dwindling foreign-exchange reserves (as external financing flows decline in the latter part of 2023,
amid a persistent current-account deficit) will force the government to halt at least some
repayments of external debt by early 2024 at the latest. Our baseline forecast assumes subsequent
restructuring and some limited debt forgiveness.

Pakistan 10
Forecast summary
Forecast summary
(% unless otherwise indicated)
2022a 2023b 2024b 2025b 2026b 2027b
Real GDP growthc 6.2d 1.5 -0.2 1.5 3.0 4.1
Industrial production growth 6.1 1.0 -3.8 6.0 5.3 5.0
Agricultural production growthc 3.0d 0.5 3.0 2.0 2.5 2.0
Unemployment rate (av) 9.3 9.6 9.9 9.2 8.6 7.8
Consumer price inflation (av) 19.9 30.3 20.8 6.1 5.2 5.3
Consumer price inflation (end-period) 24.5 26.9 14.8 5.6 3.3 5.3
Short-term interbank rate 13.5 18.8 18.5 16.9 13.9 11.0
Central government balance (% of GDP) c -7.9d -5.6 -5.5 -6.0 -5.4 -5.1
Exports of goods fob (US$ bn) 31.5 24.3 22.0 24.6 26.1 28.2
Imports of goods fob (US$ bn) -65.6 -52.5 -49.0 -54.4 -60.5 -64.0
Current-account balance (US$ bn) -11.9 -8.7 -6.1 -8.3 -10.1 -9.3
Current-account balance (% of GDP) -3.2 -2.9 -2.1 -2.8 -3.1 -2.6
External debt (year-end; US$ bn) 126.6 127.7 125.7 125.5 124.8 124.9
Exchange rate PRs:US$ (av) 204.9 278.3 293.3 302.5 302.3 305.5
Exchange rate PRs:US$ (end-period) 226.5 290.8 296.9 302.4 304.9 308.1
Exchange rate PRs:¥100 (av) 155.8 225.2 265.1 280.7 274.1 280.9
Exchange rate PRs:€ (av) 215.9 303.3 329.9 348.6 352.1 360.5
a EIU estimates. b EIU forecasts. c Fiscal years ending June 30th. d Actual.

Pakistan 11
Data and charts

Annual data and forecast
2018a 2019a 2020a 2021a 2022b 2023c 2024c
GDPd
Nominal GDP (US$ bn) 356.1 320.9 300.4 348.3 376.5a 298.5 287.0
Nominal GDP (PRs bn) 39,190 43,798 47,540 55,796 66,950a 73,867 82,509
Real GDP growth (%) 6.2 2.5 -1.3 6.5 6.2a 1.5 -0.2
Expenditure on GDP (% real change)d
Private consumption 7.2 5.6 -2.9 9.4 10.1a 1.5 -2.2
Government consumption 5.5 -1.6 8.5 1.8 -3.4a 4.0 4.0
Gross fixed investment 10.3 -11.1 -6.7 4.5 2.5a 2.0 2.0
Exports of goods & services 10.0 13.2 1.5 6.5 8.4a 2.0 2.9
Imports of goods & services 15.7 7.6 -5.1 14.5 15.6a -2.3 -3.4
Origin of GDP (% real change)d
Agriculture 3.9 0.9 3.9 3.5 3.0a 0.5 3.0
Industry 9.2 0.2 -5.7 7.8 7.2a 4.0 3.2
Services 6.0 5.0 -1.2 6.0 6.2a 3.7 -3.5
Population and income
Population (m) 219.7 223.3 227.2 231.4b 235.8 240.5 245.2
GDP per head (US$ at PPP) 5,236 5,375 5,278 5,748b 6,408 6,616 6,594
Recorded unemployment (av; %) 5.8b 9.3b 11.5b 13.2b 9.3 9.6 9.9
Fiscal indicators (% of GDP)d
Central government revenue 13.3 11.2 13.2 12.4 13.5a 14.3 14.7
Central government expenditure 19.1 19.1 20.3 18.5 21.4a 20.0 20.1
Central government balance -5.8 -7.9 -7.1 -6.1 -7.9a -5.6 -5.5
Net public debt 55.6b 57.9b 60.8b 58.2b 56.6 57.1 56.8
Prices and financial indicators
Exchange rate PRs:US$ (end-period) 138.79 154.87 159.59 176.52 226.47 290.77 296.88
Consumer prices (end-period; % change) 5.8 12.4 8.0 12.3 24.5 26.9 14.8
Stock of money M2 (end-period; % change) 11.0 12.2 17.7 14.4 10.6 6.8 7.4
Lending interest rate (av; %) 7.9 12.4 9.9 8.1 13.7 16.1 14.2
Current account (US$ m)
Trade balance -31,911 -22,881 -22,172 -37,518 -34,134 -28,141 -26,981
Goods: exports fob 24,842 24,800 21,941 29,068 31,451 24,316 21,979
Goods: imports fob -56,753 -47,681 -44,113 -66,586 -65,585 -52,457 -48,960
Services balance -5,737 -4,425 -2,593 -3,308 -3,199 -3,551 -2,184
Primary income balance -5,440 -6,114 -4,914 -4,436 -5,346 -6,226 -6,177
Secondary income balance 24,229 24,862 29,028 33,000 30,808 29,193 29,198
Current-account balance -18,859 -8,558 -651 -12,262 -11,871 -8,724 -6,144
External debt (US$ m)
Debt stock 99,224 107,883 115,695 130,433b 126,583 127,731 125,672
Debt service paid 6,099 11,078 9,877 12,338b 21,902 19,549 19,107
Principal repayments 3,526 8,061 7,321 9,709b 17,873 14,596 14,297
Interest 2,573 3,017 2,556 2,629b 4,029 4,953 4,810
Debt service due 6,099 11,078 9,877 12,338b 21,902 19,549 19,107
International reserves (US$ m)
Total international reserves 11,709 16,463 18,251 22,811 9,926 7,858 7,978
a Actual. b EIU estimates. c EIU forecasts. d Fiscal years ending June 30th.
Source: IMF, International Financial Statistics.

Pakistan 12
Quarterly data
2021 2022
1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr
Output
Manufacturing index (2005/06=100) 125.1 114.0 113.8 122.0 144.7 132.3 112.1 115.0
Manufacturing index (% change, year on year) 9.6 40.6 10.2 5.6 15.7 16.1 -1.5 -5.8
Prices
Consumer prices (2015/16=100) 142.4 145.1 148.4 156.7 160.4 168.5 185.6 195.7
Consumer prices (% change, year on year) 7.8 10.5 8.6 11.0 12.6 16.2 25.1 24.9
Wholesale general (2008=100) 291.2 300.9 315.6 345.4 360.4 397.9 440.5 445.9
Wholesale general (% change, year on year) 10.1 18.9 18.0 24.8 23.8 32.3 39.6 29.1
Financial indicators
Exchange rate PRs:US$ (av) 158.58154.44164.28174.33177.37195.25224.08222.77
Exchange rate PRs:US$ (end-period) 152.61157.31170.67176.52183.51204.38228.05226.47
Discount rate (end-period; %) 8.00 8.00 8.25 10.75 n/a n/a n/a n/a
Short-term interest rate (av; %) 7.21 7.28 7.32 8.69 10.16 12.99 15.23 15.73
Treasury bill rate (av; %) 7.54 7.59 7.63 11.32 n/a n/a n/a n/a
M1 (end-period; PRs bn) 18,40319,80820,08520,44420,68322,15722,66122,963
M1 (% change, year on year) 16.5 15.1 16.6 13.9 12.4 11.9 12.8 12.3
M2 (end-period; PRs bn) 21,98523,69023,90424,71924,72726,79827,26127,335
M2 (% change, year on year) 15.3 14.7 15.2 14.4 12.5 13.1 14.0 10.6
Stockmarket KSE 100 index (end-period; Nov 1st
44,58847,35644,90044,59644,92941,54141,12940,420
991=1,000)
Sectoral trends
Cotton yarn production index (non-seasonally
101.2 101.5 101.5 101.6 101.7 101.5 101.5 72.8
adjusted; 2005/06=100)
Cotton fabric production index (non-seasonally
101.0 101.0 101.1 101.1 101.2 101.0 101.2 86.5
adjusted; 2005/06=100)
Foreign trade (US$ m)
Exports fob 7,046 6,617 6,996 8,129 8,225 8,432 7,174 7,086
- - - - - - - -
Imports cif
16,268 16,891 18,715 21,848 18,296 21,278 16,340 14,888
- - - - -
Trade balance -9,222 -9,166 -7,802
10,274 11,719 13,719 10,071 12,846
Foreign payments (US$ m)
- -
Merchandise trade balance -7,380 -9,285 -8,901 -9,927 -8,989 -6,317
10,194 10,659
Services balance -596 -573 -877 -1,262 -1,415 -1,465 -281 -38
Primary income balance -800 -1,082 -1,006 -1,548 -1,306 -1,436 -1,028 -1,576
Net transfer payments 8,150 8,395 8,551 7,904 7,630 8,506 7,852 6,820
Current-account balance -626 -2,545 -3,526 -5,565 -3,992 -4,322 -2,446 -1,111
Reserves excl gold (end-period) 15,08017,53320,65319,02813,50711,090 8,607 6,159
Sources: State Bank of Pakistan, Statistical Bulletin; IMF, International Financial Statistics.

Pakistan 13
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate PRs:US$ (av)
2021 160.36 159.25 156.14 153.31 153.54 156.45 160.03 164.43 168.38 171.95 173.48 177.56
2022 176.53 175.68 179.90 184.85 196.08 204.81 220.42 220.88 230.94 220.69 222.60 225.02
2023 235.04 267.07 281.34 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Exchange rate PRs:US$ (end-period)
2021 160.13 158.11 152.61 153.87 154.23 157.31 162.51 166.27 170.67 171.76 176.15 176.52
2022 176.74 177.47 183.51 185.69 199.04 204.38 239.72 218.74 228.05 220.42 223.96 226.47
Money supply M1 (end-period; % change, year on year)
2021 19.5 19.6 16.5 16.4 13.7 15.1 15.9 15.6 16.6 14.9 14.8 13.9
2022 12.7 11.1 12.4 13.1 13.3 11.9 11.9 12.9 12.8 13.4 13.3 12.3
2023 12.8 14.5 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Money supply M2 (end-period; % change, year on year)
2021 17.8 17.8 15.3 15.2 13.2 14.7 14.8 14.6 15.2 13.6 13.6 14.4
2022 13.0 11.5 12.5 13.2 14.1 13.1 13.7 14.3 14.0 15.4 14.4 10.6
Deposit rate (av; %)
2021 3.6 3.6 3.5 3.5 3.5 3.5 3.6 3.6 3.6 3.7 3.8 4.6
2022 5.1 5.0 4.9 5.2 6.2 7.0 7.0 7.5 7.6 7.7 7.8 8.1
Lending rate (av; %)
2021 7.8 7.7 7.7 8.0 8.1 8.2 8.1 7.6 7.9 8.2 8.7 9.7
2022 10.8 10.3 10.6 11.9 12.9 13.6 15.1 15.3 15.3 16.1 15.9 16.6
Manufacturing production (% change, year on year)
2021 3.8 4.8 22.6 73.8 33.1 24.0 4.6 19.3 7.6 5.3 6.0 5.4
2022 8.9 12.3 26.2 15.4 21.4 11.8 -1.9 0.0 -2.7 -7.6 -6.1 -3.8
2023 -7.9 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Stockmarket KSE 100 index (end-period; Nov 1st 1991=1,000)
2021 46,386 45,865 44,588 44,262 47,896 47,356 47,055 47,420 44,900 46,219 45,072 44,596
2022 45,375 44,461 44,929 45,249 43,078 41,541 40,150 42,351 41,129 41,265 42,349 40,420
2023 40,673 40,510 40,001 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2021 5.7 8.7 9.1 11.1 10.9 9.6 8.4 8.4 9.0 9.2 11.5 12.3
2022 13.0 12.2 12.7 13.4 13.8 21.3 24.9 27.3 23.2 26.6 23.8 24.5
Wholesale prices (av; % change, year on year)
2021 6.4 9.5 14.6 16.6 19.4 20.9 17.3 17.1 19.6 21.2 27.0 26.2
2022 24.0 23.6 23.8 28.1 29.6 38.9 38.5 41.2 38.9 32.6 27.7 27.1
Total exports fob (US$ m)
2021 2,614 2,068 2,364 2,218 1,671 2,728 2,340 2,247 2,409 2,464 2,901 2,764
2022 2,614 2,834 2,777 2,897 2,624 2,911 2,254 2,483 2,437 2,384 2,389 2,313
Total imports cif (US$ m)
2021 6,036 4,601 5,631 5,242 5,297 6,352 5,575 6,577 6,563 6,369 7,899 7,580
2022 6,036 5,853 6,407 6,661 6,760 7,857 4,993 6,054 5,293 4,581 5,154 5,153
Trade balance fob-cif (US$ m)
2021 -3,422 -2,533 -3,267 -3,024 -3,626 -3,624 -3,235 -4,330 -4,154 -3,905 -4,998 -4,816
2022 -3,422 -3,019 -3,630 -3,764 -4,136 -4,946 -2,739 -3,571 -2,856 -2,197 -2,765 -2,840
2023 -2,632 -1,843 -1,461 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Foreign-exchange reserves excl gold (end-period; US$ m)
2021 14,406 14,449 15,080 17,013 17,520 17,533 19,254 21,609 20,653 18,614 17,432 19,028
2022 17,030 17,866 13,507 11,937 11,083 11,090 9,293 9,578 8,607 9,693 8,603 6,159
2023 4,003 4,847 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

Pakistan 14
Annual trends charts

Pakistan 15
Monthly trends charts

Pakistan 16
Comparative economic indicators
Basic data
Land area
769,095 sq km
Population
225.2m (2021; UN)

Pakistan 17
Main towns
Population in millions (Ministry of Finance, Pakistan Economic Survey 2009-10)
Karachi: 13.4
Lahore: 7.2
Faisalabad: 2.9
Climate
Subtropical, cold in highlands
Weather in Karachi
Hottest month, June, 2834°C (average daily minimum and maximum); coldest month, January, 13
25°C; driest month, October, 1 mm average monthly rainfall; wettest month, July, 81 mm average
rainfall
Languages
Urdu is the national language. English is widespread in business circles and as a second language
Measures
Imperial system, changing to metric. Local measures include 1 seer = 0.933 kg; 1 maund = 40 seers
= 37.32 kg
Numbers are still commonly expressed in crores and lakhs: 1 crore = 10m, written 1,00,00,000; 1
lakh = 100,000, written 1,00,000, although in 1978 the internationally accepted system of millions,
billions and so on was introduced
Currency
Pakistan rupee (PRs); PRs1 = 100 paisa. Average exchange rate in 2022: PRs204.9:US$1
Time
5 hours ahead of GMT
Fiscal year
July 1st-June 30th
Public holidays
March 23rd (Pakistan Day); May 1st (Labour Day); May 4th (Eid al-Fitr); July 11th (Eid al-Adha);
August 14th (Independence Day); August 8th (Ashura); October 9th (Eid-i-Milad-un-Nabi);
December 25th (birth of Quaid-e-Azam). (Eid al-Fitr, Eid al-Adha, Ashura and Eid-i-Milad-un-Nabi
are dependent on the Islamic lunar calendar and the actual dates for these holidays may, therefore,
vary slightly from those listed)

Pakistan 18
Political structure
Official name
Islamic Republic of Pakistan
Form of state
Pakistan 19
Federal parliamentary democracy
The executive
The president, Arif Alvi, was sworn into office for a five-year term in September 2018. The prime
minister and head of government, Imran Khan, presides over a cabinet of ministers chosen from
the elected members of parliament
National legislature
The National Assembly (the lower house) has 342 seats, 272 of which are elected on a first-past-
the-post basis. Of the remainder, 60 are reserved for women and ten for non-Muslim minorities;
these are allocated on the basis of proportional representation, to parties that win more than 5% of
the directly elected seats. The Senate (the upper house) has 100 members: 22 are elected by each
of the four provincial assemblies, eight are tribal representatives and four are representatives from
the lower house
National elections
An election to the National Assembly was held in July 2018. The next lower-house poll
is scheduled to be held in the second half of 2023. An election for half of the seats in the Senate
was held in March 2018; a ballot for the other half of the seats took place in March 2021
National government
The Pakistan Tehreek-e-Insaf (PTI) coalition government, led by Imran Khan, was ousted from
power in April 2022 through a no-confidence motion. Following this, Shehbaz Sharif of the
Pakistan Muslim League (Nawaz), or PML (N), was sworn in as prime minister in a coalition
comprising of parties like the Pakistan People's Party (PPP) and independents
Provincial government
Elections for Pakistan's four provincial assemblies were held in July 2018. The provinces enjoy
considerable autonomy; this has caused tensions with the central government in the past. The
next provincial elections are due to be held in 2023
Main political organisations

PTI, PML (N), PPP, MQM, Jamiat Ulema-e-Islam (Fazl), Pakistan Muslim League (Functional),
National People's Party, PML (Q), Awami National Party, Tehreek-e-Labbaik Pakistan (TLP),
Balochistan Awami Party
Key ministers
Prime minister: Shehbaz Sharif
President: Arif Alvi
Commerce: Syed Naveed Qamar
Defence: Khawaja Muhammad Asif
Defence production: Muhammad Israr Tareen
Education & professional training: Rana Tanveer Hussain
Finance: Ishaq Dar
Foreign affairs: Bilawal Bhutto Zardari
Health: Abdul Qadir Patel
Human rights: Ehsaan-ur-Rehman Mazari
Information & broadcasting: Marriyum Aurangzeb
Information technology & telecommunications: Syed Aminul Haque
Interior: Rana Sana Ullah Khan

Pakistan 20
Planning, development & special initiatives: Ahsan lqbal Chaudhary
Railways & aviation: Khawaja Saad Rafique
Religious affairs & interfaith harmony: Mufti Abdul Shakoor
States & frontier regions: Muhammad Talha Mahmood
Central bank governor

Jameel Ahmad

Pakistan 21
Recent analysis
Generated on April 25th 2023
The following articles were published on our website in the period between our previous forecast and this one,
and serve here as a review of the developments that shaped our outlook.
Risk
Forecast updates
Pakistan’s removal from EU list is positive for trade flows
April 3, 2023: Foreign trade & payments
What's happened?
On March 29th the EU approved the removal of Pakistan from its "high-risk third countries" list,
which includes countries with deficiencies in their regimes to counter money-laundering and the
financing of terrorism. While this delisting is likely to have a positive impact on Pakistan's
exports and remittance income over the medium term, foreign investment inflows will remain
limited by the country's unstable political and macroeconomic conditions.
Why does it matter?

The improvement in transparency and governance in Pakistan's otherwise opaque financial
sector will reduce the regulatory burden affecting Pakistani companies doing business with the
European bloc. According to news reports from Pakistan, this will benefit credit and financial
institutions, auditors, tax advisors, notaries, estate agents and individuals involved in trading
goods, among others.
While the removal from the list will facilitate a pick-up in trade with the EU over the medium term,
the deteriorating global demand environment in 2023 means that we do not expect Pakistan's
exports to gain meaningful traction any time soon. The EU accounts for 27% of Pakistan's
exports, with textiles being the major component.
With this development, the risk of international sanctions on the banking sector has been reduced
further. However, despite reduced international scrutiny of Pakistan's financial sector, we do not
expect a substantial increase in foreign investment into the country during our forecast period

Pakistan 22
(2023-27). A poor business environment, worsening macroeconomic fundamentals and political
instability will act as major disincentives to foreign investment.
The removal of Pakistan from the list will also support the inflow of overseas workers' remittances
through formal channels rather than the illegal and informal hawala route. This will play an
important role in partially financing the large current-account deficit and supporting rural
consumption.
This development comes after the Financial Action Task Force, an international policy watchdog,
removed Pakistan from its grey list in October 2022. Pakistan has been able to avoid potential
international action against its financial sector through the diplomatic support of its traditional
allies, including China and Turkey.
What next?
Pakistan will continue to depend heavily on the US and Europe, as both export destinations and
sources of financial assistance, in the medium term. For this reason, we believe that its politically
active military and civilian leaders will seek to keep a check on terrorist-financing activities in
order to keep the country off such regulatory lists. However, poor governance, an inefficient legal
system, fractious politics and a relatively opaque financial systems mean that loopholes will
persist and a moderate risk of heightened international scrutiny resuming over the forecast period
will remain.

Pakistan 23
Politics
Forecast updates
Political uncertainty will mar economic revival in Pakistan
March 16, 2023: Political stability
What's happened?
On March 14th–15th law enforcement officials clashed with workers of the main opposition party,
the Pakistan Tehreek-e-Insaf (PTI), in the city of Lahore, while attempting to arrest the former
prime minister, Imran Khan, who is also the PTI's leader, on the orders of a court in an alleged
corruption case. This highlights extreme political polarisation ahead of a general election due this
year, and reinforces political stability risks, which will continue to dampen business confidence.
Why does it matter?

The developments validate our expectation that the government led by the Pakistan Muslim
League (Nawaz), or PML(N), and the Pakistan People's Party (PPP) will increasingly attempt to
embroil Mr Khan in judicial cases in order to dent his growing popularity. We believe that the
military, which is an important power broker, will use its influence to increase pressure on Mr
Khan through judicial channels, especially as the current army chief has an antagonistic
relationship with Mr Khan.
The trend of using the judiciary to stifle or remove opposition is not new in Pakistan, and we
believe that these attacks on Mr Khan and his party will be stepped up as national elections
approach in late 2023. Since August 2022 a number of judicial cases have been brought against
Mr Khan, with charges ranging from terrorism, sedition, criticising the military and obtaining
election funding through extra-judicial means.
The populace's disenchantment with the incumbent government has been growing as a result of
difficult austerity measures imposed under the IMF aegis, which have significantly raised the cost
of living and doing business in Pakistan. This increases Mr Khan's electoral prospects in late 2023
if, as we assume, the elections are contested fairly and freely, although this is far from assured. In
the coming months there will be further political strife, accompanied by increased incidents of
political violence on the streets, although a large-scale breakdown of law and order is not our core
forecast. In addition to Mr Khan's possible conviction, senior leaders of the PTI are likely to be
pressurised into switching allegiance ahead of the national elections.
What next?
We expect that Mr Khan will be able to contest the national elections despite the current
posturing by the government. We reiterate the risk that Pakistan's worsening political situation
opens the door for possible military intervention. Irrespective of political outcomes, the volatile
political situation will prevent any meaningful turn in waning foreign investment sentiment
towards Pakistan in 2023, and we maintain our view that a sovereign debt default will occur by
2024. Economic growth will remain anaemic in 2023/24 (July-June) amid economic and political
challenges, which will hinder productive policymaking.
Democratic norms in Pakistan will worsen

March 29, 2023: International relations
What's happened?
The Pakistani government has decided not to attend the US-led Summit for Democracy, which
started on March 28th, for the second consecutive year. The government is also contemplating
setting up a multi-agency task force to assist law enforcement authorities in cracking down on
online criticism of Pakistan's military by citizens. These developments underscore the

Pakistan 24
deteriorating democratic environment in Pakistan, and is in line with EIU's assessment of the
country in its 2022 Democracy Index.
Why does it matter?

Such moves will not only worsen the domestic political climate, but will also complicate Pakistan's
relations with the West. Pakistan's refusal to attend the US-led summit shows the importance it
attaches to being viewed favourably by China, a long-term strategic ally, who would have been
irked by Pakistan's attendance. This is especially relevant at a time when Pakistan's access to its
IMF package has been stalled for many months, leading to a dire foreign-exchange crunch. The
participation in the summit would have signalled the Pakistan government's intentions to repair
strained ties with the US, and would have possibly eased its path to the next IMF tranche.
We believe that the planned task-force will target citizens criticising the army, in a bid to
silence growing dissension with the army's interference in political and policy matters. The
military, which is an important power broker in Pakistan and holds the final say on important
policy decisions, has also been roundly criticised by the former prime minister, Imran Khan, who
leads the opposition Pakistan Tehreek-e-Insaaf (PTI) party.
The anticipated suppression of freedom of speech will draw more international attention to the
state of Pakistan's democracy. EIU's 2022 Democracy Index ranks Pakistan 107th out of the
167 countries surveyed, putting it among the 36 countries considered "hybrid regimes". The
country's ranking has deteriorated by three places from 2021, and further deterioration is likely in
the years ahead.
What next?
Pakistan's military will maintain its outsized role in politics throughout our forecast period (2023-
27), leading to continuing deterioration in the country's democratic norms and human rights
record, although we expect some civil society resistance to grow gradually. Pakistan could face
opprobrium at future international fora, owing to the authorities' increasingly heavy-handed
tactics against political opponents, which, in conjunction with a poorly performing economy, will
reduce foreign investment into Pakistan. The erosion of democratic values also raises the risk that
the national elections, scheduled for end-2023, may also be delayed and not be freely contested.
Asia week ahead: a sensitive US stopover for Tsai Ing-wen

March 31, 2023: International relations
Taiwan's president, Tsai Ing-wen, will conclude her trip to the US and Latin America around

Pakistan 25
April 5th. Ms Tsai is likely to forgo official meetings with senior US leaders, but she will visit
Guatemala and Belize, two of the dozen countries that recognise Taiwan diplomatically.
The Chinese administration will be watching her visit closely and will probably react strongly to a
planned meeting between Ms Tsai and Kevin McCarthy, the speaker of the House of
Representatives (the lower house of Congress, the US parliament). Read more.
Politics and policy

Political parties in Thailand will nominate candidates, including their preferred choice for the
role of prime minister, between April 3rd and 7th. The election is due on May 14th. EIU believes
that the opposition Puea Thai Party will perform strongly but is likely to form a coalition
government by garnering support from parties with military ties. Read more.
India will host a conference on disaster-resilient infrastructure on April 4th-5th. Experts around
the world will focus on solutions to create resilient and inclusive infrastructure, along with
policies to share with those countries most vulnerable to the impact of climate change. Read more.
Geopolitics and strategy

Japan's foreign minister, Hayashi Yoshimasa, is set to visit China on April 1st. This will be the
first visit to China by a Japanese cabinet minister since the outbreak of covid-19. Mr Hayashi will
aim to de-escalate tensions following the detention in China of a Japanese national accused of
spying. Japan hopes to develop an active framework for bilateral consultation, such as high-level
economic dialogue. Talks on launching a defence hotline to avoid accidental clashes in the East
China Sea are also expected during the visit. Read more.
Economics and markets

Central banks in Australia, India, New Zealand and Pakistan will announce monetary policy
decisions on April 4th-6th. We expect the State Bank of Pakistan to increase the policy interest
rate by 100-200 basis points. Persistent inflationary pressures will prompt the Reserve Bank of
India to sanction a 25-basis-point increase in policy interest rates. Read more.
Highlights from last week

Indonesian president seeks to turn a new page on ties with Singapore. The president of
Indonesia, Joko Widodo (known as Jokowi), is keen to secure international commitment to his
capital city project amid a tougher investment climate. Read more.
Tech in China: chips will lag behind the world by 10-20 years. China's investments should entail
self-sufficiency and even advantages in the mature technologies of the 2000s and 2010s.
Read more.
UK gains approval to join the Comprehensive and Progressive Agreement for Trans-Pacific
Partnership (CPTPP). However, smooth ratification by the UK will not answer more difficult
questions over the future enlargement of the pact. Read more.

Pakistan 26
Economy
Forecast updates
Consumption will ebb further in Pakistan
March 23, 2023: Economic growth
What's happened?
Household consumption in Pakistan has been slowing as households are struggling to cope with
elevated inflation for food staples amid a loss of income. EIU believes that this will affect sales of
food and discretionary items during the Muslim holy month, Ramadan, which began on
March 22nd.
Why does it matter?

The slowdown in household consumption, which will be particularly made evident during the
festive period, will contribute to slowing real GDP growth to a marginal 1.9% in 2022/23 (July-
June), from which it is expected to recover only slightly to 2.1% in 2023/24, as stresses to the
Pakistan 27
growth trajectory will persist. Export growth is expected to be lacklustre in 2023 as growth slows in
the US and Europe. Investment impetus will also be muted, owing to higher interest rates, the
imposition of the super tax on certain sectors, as well as uncertainty on the demand outlook.
The covid-19 pandemic led to stagnating or falling incomes for many households in the past
three years. Subsequently, the floods in 2022 affected agricultural incomes massively, while the
closure of some companies in the fertiliser, steel and textile sectors since late 2022—owing to
electricity and raw material shortages—has also led to layoffs in the industrial sector.
Foreign remittance income from overseas workers also forms an important supplement to domestic
income for several households, especially in rural areas. Worker remittances fell from US$30.9bn in
2021 to US$29.5bn in 2022, despite the rise in oil prices in 2022. As oil prices moderate over 2023-
24, remittances from the Gulf economies will fall further. Remittances from economies in
North America and Europe (which made up about 35% of remittances in 2021/22) will also slow
in 2023-24 owing to slowing growth and monetary tightening, limiting employment growth there.
Lower remittances will adversely affect rural consumption over the next few months.
This has been compounded by persistently elevated inflation for electricity and gas, as rates were
raised by the government to comply with the IMF's conditions for continued access to the
IMF package. Prices for staple food items have been rising amid destruction of crops due to the
floods and an inability to import enough substitutes due to an acute foreign-exchange crisis,
which we expect will continue intermittently over 2023-24.

Pakistan 28
What next?
The slowdown in consumption will continue, especially among the rural segment of the
population, which has been more affected by the floods destroying agricultural land. Urban
consumption will also moderate gradually over 2023, as higher interest rates due to persistent
monetary tightening will raise borrowing costs and curb discretionary consumption. Lacklustre
consumption, which accounts for more than 80% of GDP, will keep GDP growth tepid till mid-2024.
More monetary tightening on the cards for Pakistan in April

March 27, 2023: Monetary policy outlook
What's happened?
EIU expects the State Bank of Pakistan (SBP, the central bank) to raise the policy interest rate by
100-200 basis points at its meeting on April 4th. The rate increase will follow a tightening of
300 basis points in March, which took the policy rate to its highest-ever level of 20%.
Why does it matter?

The continued monetary tightening will be in line with our belief that the SBP needs to enact rate
increases with the purpose of taming elevated inflation and strong inflationary expectations,
while also following the recommendations of the IMF in order to secure the remaining tranches of
the stalled US$6.5bn extended fund facility (EFF).
Consumer price inflation averaged around 28% year on year in January-February, considerably
overshooting the SBP's tolerance level, as supply shortages have impinged on the availability of
most goods. Compounding the floods in 2022 that depleted food supplies, an acute shortage of
foreign exchange has stymied imports that would have alleviated supply pressures. Concurrently,
power shortages have led to industrial closures in sectors such as steel and fertilisers, further
raising input costs.
The review of the EFF has been stalled since late October, because of disagreements between the
government and the Fund on a range of fiscal issues. In order to unlock the next tranche of the
EFF, the government enacted a series of unpopular reforms in early 2023, including the imposition
of additional revenue measures worth PRs170bn (US$658m), allowing the exchange rate to be
market-determined and raising sales tax and federal excise duties. However, the IMF has asked for
confirmation from bilateral lenders to ensure the balance of payments is fully financed; it has also
requested the imposition of a permanent surcharge of PRs3.82 per unit on electricity and the
adoption of a hawkish monetary policy. In line with the last requirement, we expect policy
tightening to continue till mid-2023.

Pakistan 29
In the latest Treasury bill auction, cut-off yields on short-term certificates rose by 50-114 basis
points, which also adds credence to our expectation of further rises in the policy rate.
What next?
We believe that monetary tightening will continue over the first half of 2023, as it seems
increasingly likely that the IMF programme will not conclude in June 2023 as scheduled, but
will be pushed into the second half of the year. This will prove electorally unworkable for the
government, as austerity measures will further sap the popularity of the incumbent administration
led by Shehbaz Sharif. This will open the door for the opposition leader, Imran Khan, to secure a
victory if a free and fair election is held (the likelihood of which is also receding).
Monetary tightening will continue in Pakistan

April 6, 2023: Monetary policy outlook
What's happened?
On April 4th the monetary policy committee of the State Bank of Pakistan (SBP, the central bank)
raised the policy interest rate by 100 basis points, taking it to a record level of 21%. This followed
data from the Pakistan Bureau of Statistics, which showed that consumer price inflation
accelerated to an all-time high of 35.4% year on year in March, from 31.6% in February.

Pakistan 30
Why does it matter?

EIU believes that the degree of cumulative monetary tightening enacted in Pakistan will throttle
investment and consumption as engines of growth over 2023, amid an already bleak external
sector outlook. The persistent monetary tightening was in line with our expectations and will
tighten liquidity conditions further without meaningfully taming inflation, which is driven largely
by supply-side crunches. The move is also Pakistan's attempt to adhere to the IMF's
recommendation to maintain tight monetary policy stance, in light of the prolonged stalling of the
Fund's extended fund facility (EFF) for the country.
In order to unlock the next tranche of the EFF, the government enacted a series of unpopular
reforms in early 2023, including the imposition of additional revenue measures worth PRs170bn
(US$658m), allowing the exchange rate to be market-determined and raising sales tax and federal
excise duties. The impact of these additional revenue measures has yet to play out fully, and will
compound inflation further in the months ahead.
High inflation in Pakistan stems largely from deepening supply shortages across multiple
goods, as a result of the forced curtailment of imports due to precariously low foreign-exchange
reserves, which are barely enough to cover two weeks of restricted imports. The sharp weakening
in the Pakistan rupee, which has depreciated by 25% against the US dollar in nominal terms over
the first quarter of 2023, in response to worsening macroeconomic fundamentals, has exacerbated
imported inflation.

Pakistan 31
Consumer prices rose by 31.5% on average during the first quarter of 2023, compared to 19.9% in
2022. Food prices rose by a steep 47.2% in March, and a shortage of food grains has caused
stampedes and deaths at food distribution centres during the holy month of Ramadan. Prices in
the transport category rose by 55%, reflecting an upward adjustment to administered prices of
petrol and diesel. Core inflation (excluding volatile food and energy components) accelerated
steadily in both urban and rural areas, reaching 18.6% and 23.1% respectively in March.
What next?
We expect consumer price inflation to average 30% in 2023. We believe that the central bank will
continue to tighten monetary policy until the third quarter of 2023, in an effort to tame inflation
and align with the IMF's recommendations, which will further dampen already muted economic
growth.
Asia week ahead: more central banks join rate rise “pause”
April 6, 2023: Monetary policy outlook
EIU expects the Bank of Korea (BOK, South Korea's central bank) to leave its policy rate setting
unchanged again at its meeting on April 11th. Central banks in Australia and India have now also
decided to "pause" on tightening, following the emergence of global financial instability.
We expect the BOK to start lowering rates from early 2024, in response to high levels of
household debt and weaker household spending capacity. Read more.
Politics and policy

Japan will hold local elections on April 9th, to select prefectural governors and assembly
members. The popularity of the ruling Liberal Democratic Party has risen recently, helped by the
profile of the prime minister, Kishida Fumio, who undertook high-level engagement with leaders
from Ukraine, South Korea and India in March. Read more.
Geopolitics and strategy

The IMF and World Bank will hold their spring meetings in Washington DC on April 10th-
16th. Key talking points will include slowing global growth, the effects of significant
synchronised monetary tightening, global inflation, the impact of high debt levels and recent
turmoil in the financial sector. Read more.
Pakistan's finance minister, Ishaq Dar, will lead a delegation attending meetings with the IMF
and the World Bank. The delegation will aim to unlock funding for the cash-strapped state, which
Pakistan 32
is teetering on the brink of a sovereign debt default. Read more.
The G7 will hold a ministerial-level meeting for climate, energy and the environment under its
Japanese presidency on April 15th-16th. This year is the revised target date set by the G7 to
mobilise US$100bn in climate aid for poorer countries (initially scheduled for 2020). Read more.
Economics and markets

China will release external trade data for March on April 13th. Further normalisation of the
supply chain could assist with shipments, but there is still unlikely to be a significant
improvement from January-February, when both exports and imports declined. Read more.
Singapore will release GDP data for January-March 2023 on April 14th. Real GDP growth is
expected to moderate to 1.5% year on year, from 2.1% in the final quarter of 2022, as a result of
monetary tightening and weaker external demand. Read more.
Highlights from last week

Japan's monetary normalisation will affect global markets. The central bank's gradual approach
to monetary policy normalisation will mitigate the risk of market dislocation. Read more.
Asia macro outlook: Q2 2023—the impact of China's reopening. China's reopening has
brightened the outlook for some economies, with banking sector problems having emerged as a
risk. Read more.
RBA pauses rate increases, but one more remains likely. The central bank's shift to a less
hawkish stance will introduce downward pressure on the Australian dollar. Read more.
Analysis
Asia macro outlook: Q2 2023—the impact of China's reopening
April 4, 2023: Economic growth
Asia's growth outlook for 2023 has brightened, helped by China's reopening. Global banking
instability has emerged as a downside risk to EIU's forecast, but Asia's banks appear well
insulated from broader sectoral strains.
A consumption-led recovery in China's growth will boost a small number of tourism-reliant

Pakistan 33
Asian economies as Chinese visitors return. Asia's commodity exporters will receive more
limited benefits, given the still-tepid state of Chinese investment.
The conclusion of global monetary policy tightening will help to stabilise interest rates and
exchange rates in Asia. However, stubborn inflation means there will be little space to lower
local interest rates in 2023.
Economic conditions have not been as challenging so far in 2023 as we previously anticipated.
Then, we were expecting Asia's growth to be unchanged from 2022, when it was pulled down by
China's zero-covid policy. Now, the outlook is brighter. China's economic reopening arrived earlier
and was more sudden than we anticipated. Demand in the US and the EU, the primary markets for
Asian exports, has so far proved resilient to higher interest rates. We now forecast Asia's regional
GDP growth to accelerate to 4% in 2023, from 3.2% last year.
Instability in the Western banking system has emerged as a downside risk to our forecast.
As we have noted, Asia's banking systems are well insulated but not immune from the collapse of
Switzerland's Credit Suisse and two regional US banks. These individual bank failures mean there
is a limited direct channel for financial contagion, although there will be some indirect effects in
Asia stemming from a tighter global credit environment, selling pressures on local banks and
weaker demand. Parallels with the 2008-09 global financial crisis appear limited, though; Asia's
banks have been risk-averse in their lending and are much better capitalised than in the earlier
period.
China's reopening: limited regional spillover

China's reopening will be a major factor shaping the outlook for Asia in 2023. Our real GDP
growth forecast for China in 2023 now stands at 5.7%, compared with 4.7% in late 2022. Private
consumption spending will drive this rebound, as the services sector normalises and consumers
spend savings built up over the pandemic. We have a more conservative outlook on investment
Pakistan 34
growth, with the property market still struggling and the authorities switching to a tighter fiscal
position. The contribution to growth made by exports will fall as global growth decelerates.
China's reopening will benefit Asian economies exposed to its consumer sector. Firmer demand
for imported consumer goods will help to lift agricultural shipments from South-east Asian
economies, for example. However, the main focus will be on a revival in Chinese outbound
tourism. We have upgraded our forecasts for GDP growth in Hong Kong and Thailand, two
markets that relied heavily on mainland Chinese visitors in the pre-pandemic era. Challenges in
restoring international flights and resuming large-scale visa and passport issuance in China
suggest that the rebound in travel will build gradually, but will become more discernible in the
second half of 2023 and in 2024.
The benefits of China's reopening will be less apparent to Asian commodity producers.
Our forecast upgrades for Australia and Indonesia have been more modest than might have been
expected, given that China is the largest market for both countries' exported commodities. This
reflects our view of a still-tepid investment environment in China. Markets also appear to have
come round to this view, with the prices of hard commodities that are sensitive to Chinese
demand, such as crude oil, gas and iron ore, having fallen back after jumping initially on news of
China's reopening.
There could also be negative spillovers for the region from China's reopening. Concerns that
Chinese demand will exert pressure on commodity prices, complicating efforts to tame inflation in
the region, now seem misplaced. In fact, the normalisation of the country's supply chains seems
likely to act as a disinflationary force. However, China's reopening could also galvanise investor
sentiment in its economy, drawing capital that might have otherwise been routed to emerging
markets elsewhere in Asia. There may also be a return of Chinese entrepreneurs and talent from
markets that lured them away during the pandemic, such as Singapore. Overall, we believe that
higher geopolitical risk and poor prospects for the liberalisation of China's business environment
mean that these are risks to watch rather than likely developments.

Pakistan 35
Interest rates: less pressure for tightening but no scope

to cut
Global banking instability will reduce the impetus behind monetary policy tightening in Asia.
Central banks in the region have raised policy rates at a less aggressive pace than the Federal
Reserve (Fed, the US central bank) since 2022. Global economic uncertainty will further encourage
a less hawkish approach, even if a majority of Asia's major central banks do not have financial
stability as an explicit objective of their monetary policy (in such cases, macroprudential measures
will be used rather than policy rates). Even before the recent volatility, we had expected most of
the central banks in the region that have engaged in tightening to bring their rate rises to an end
by mid-2023, similar to the Fed. Vietnam's central bank has recently gone so far as to cut its policy
rates.
Still, interest rates are generally unlikely to move back down quickly. Economic conditions will
not be so grim as to prompt such action, and with inflation forecast to remain stubbornly above-
target in many markets, a shift to accommodative policy settings would undermine the credibility
of central banks in terms of fulfilling their core mandate. We no longer forecast interest-rate cuts
in Australia and India in 2023, for example, and believe that even the Bank of Japan (that country's
central bank) will take steps this year to begin normalising its ultra-accommodative policy
settings. An environment of higher borrowing costs will encourage households and businesses
to deleverage and to be more selective in their spending and investment decisions. We are
forecasting reductions in interest rates in 2024, but they are only moderate in scope.

Pakistan 36
Exchange rates: a more stable outlook, with downside

risks
Changes in the monetary policy environment will help to underpin confidence in local
currencies. The conclusion of the Fed's rate increases in mid-2023 will end the scope for further
major adjustments in interest-rate differentials across markets. This will be supportive of Asian
currency valuations, after significant depreciations across the region in 2022 (averaging 8% in
nominal terms), driven by expectations of Fed tightening.
Moderating import bills will also help to stabilise exchange rates. High prices for imported
energy weighed on the trade balances of many Asian economies in 2022. The easing in prices for
crude oil and natural gas that we forecast will help to reverse this trend, supporting demand for
local currencies, even if the challenging outlook for exports is likely to prove an offsetting factor.
Japan's narrowing trade deficit will contribute to an expected strengthening in the value of the yen
against the US dollar this year, after its slump last year.
Volatile markets will remain exceptions to greater exchange-rate stability. Significant currency
depreciation is still expected in Pakistan, for example, as it undergoes ongoing economic strife and
political uncertainty. Sustained global financial instability is one of the principal risks that could
lead to a return of downward pressure across a wider number of Asian currencies, as capital
departs from emerging markets in search of safe-haven assets.

Pakistan 37
Global business environment improves

April 13, 2023: 5-year summary
Singapore, Canada and Denmark will be the three countries with the best business
environment over the next five years, according to EIU's latest business environment
rankings.
Several west European countries plus the US, Hong Kong and New Zealand make up the
remaining top ten geographies in our ranking largely supported by strong levels of economic
and political stability.
The biggest improvements over the past year are in the business environments of Vietnam,
Thailand, Belgium, Sweden, India and Costa Rica. The biggest deteriorations are in China,
Bahrain, Chile and Slovakia.
Two major trends stand out. First, the outlook for China's business environment has
deteriorated as a result of greater policy uncertainty, US-China tensions and a more
challenging longer-term outlook for growth.
In our latest rankings China is behind markets such as Malaysia, Thailand, Vietnam, Mexico
and India, which are seeking to attract manufacturing investment away from China.
Second, east European countries have been badly hit by the fallout of the war in Ukraine,
resulting in reduced market opportunities. By contrast, western Europe has weathered the
situation well.
The changes in our business environment rankings (BER) over the past year illustrate the impact
on global operating environments of the war in Ukraine; the ensuing spike in inflation and cost-of-
living crisis; and the current combination of fiscal loosening, monetary tightening and an
economic slowdown. The BER measures the attractiveness of the business environment in 82
countries on a quarterly basis, using a standard analytical framework with 91 indicators. Our
ranking for the second quarter of 2023 shows that North America and western Europe continue to
be the best places in the world to do business. Asia ranks third, ahead of eastern Europe, while
Latin America marginally outperforms the Middle East and Africa (MEA).

Pakistan 38
North America and western Europe: best in the world for

business
Canada ranks second in the BER and the US ranks fourth, unchanged from a year ago. The fact
that ten of the top 20 countries in the global ranking are in western Europe reflects the region's
political stability, large and competitive domestic markets, and openness to world trade. Many
west European countries were able to roll out significant fiscal support for citizens and businesses
during 2022 as rising inflation raised the cost of living. The short-term economic outlook for the
region is subdued, given rapid monetary tightening. However, in the medium term greater
spending under the €750bn EU recovery fund will support businessfriendly investment in the
digital sector, the green agenda and the transition away from reliance on Russia in the energy
sector.
Biggest winners: Compared with one year ago, Belgium improves its ranking by seven spots and
Sweden by six. Belgium's improvement reflects a more open foreign direct investment (FDI) policy,
with a new federal mechanism providing a clearer framework from January 2023. Belgium's robust
institutional framework, pro-business policy orientation, high-quality network infrastructure and
location at the heart of the EU support its ranking. Sweden also improves its ranking on the back
of better scores for political and economic stability. Sweden is one of the world's most digitally
advanced economies and has progressed further than many of its peers in decarbonisation,
meaning that it is well placed to respond to transformative trends in technology and the
environment.

Pakistan 39
Biggest losers: Slovakia falls by seven spots. As elsewhere in the region, monetary tightening
has weighed on financing opportunities. In addition, Slovakia's market opportunities score has
deteriorated sharply, with growth in foreign trade set to slow amid continued supply-chain
disruptions and elevated input costs for its energy-intensive manufacturing sector. Latvia drops
by six places, driven by deteriorating scores for financing and the labour market—it has a
shrinking labour force, persistent emigration of young workers, and skills shortages. Serbia also
drops by six spots. Serbia's labour-market score is deteriorating owing to low digital skills levels
and one of the lowest labour-force participation rates in Europe.
Asia: reorienting away from China

Singapore will retain the world's best business environment in the forecast period, with Hong
Kong, New Zealand, Australia, Taiwan and South Korea also ranking in the global top 20. As a
region, Asia's score for policy towards foreign trade is improving. This partly reflects the impact
of regional free-trade agreements (FTAs) adopted in the past five years, the effects of which will
be felt in our five-year forecast period (2023-27).
Biggest winners: the Asian countries that have improved their ranking the most over the past
year are Vietnam, Thailand and India. Vietnam is our overall biggest mover worldwide, climbing 12
spots, while Thailand improves by ten places and India by six. Vietnam and Thailand, which have
favourable policies for foreign investors, are benefiting from firms pursuing a China+1 policy of
having supply chains in both China and another Asian market. This reflects China's zero-covid
policies, which have constrained business operations, and also allows firms to mitigate
geopolitical risk associated with the US-China relationship. Vietnam's score rises on the back of an
improving economic outlook, and Thailand's as a result of greater economic stability. India has
historically struggled to attract manufacturing investment but is now well placed to benefit from
similar trends. A strong, stable economy and access to a large labour supply form the basis of its
appeal to investors. Policy reforms are making it easier to do business in India, and we expect
major improvements in areas such as infrastructure, taxation and trade regulation, boosting
investment.

Pakistan 40
Biggest loser: China is our biggest loser globally, falling by 11 spots in the second-quarter
rankings compared with a year earlier. Although the end of the zero-covid policy is positive for
firms operating in China, regulatory changes stemming from the statist direction of economic
policy, as well as rising local costs, weigh on its business environment and limit opportunities for
international investors. China now ranks below Malaysia, Thailand, Vietnam and India.
Latin America: narrowly outperforming the Middle East

and Africa
Latin America scores poorly for political effectiveness, reflecting problems with corruption, crime,
weak institutions and often incoherent policy towards business. Inflows of FDI—mainly to
commodity-related sectors, but also to services (such as commerce, restaurants and finance) and
manufacturing—boomed in 2022 in many Latin American economies. This FDI miniboom could
continue into 2023. Improvements will be recorded in countries that are undergoing reforms, but
these will be slower than in other emerging-market regions, reflecting governability difficulties. By
global comparison, Latin America's tax policy stands out as being particularly poor, reflecting
costly and unwieldy systems in most countries. Moreover, the tax burden is now set to rise,
reflecting the need to narrow fiscal deficits after the pandemic.
Biggest winner: Costa Rica improves its global ranking by six spots, driven by higher
infrastructure and technological readiness scores. Broad political consensus on maintaining a
market-friendly, open economy has helped the country to secure a wide network of FTAs and has
made it attractive to investors. This, along with accession to the OECD in May 2021, supports
Costa Rica's strong score for policy towards foreign investment.
Biggest losers: Chile drops by nine spots compared with last year, and Colombia by six, with
scores for the political environment and policy towards foreign investment declining for both. In
Chile this reflects policy uncertainty associated with an unresolved constitutional reform process
that creates uncertainty and hurts political effectiveness, as well as the left-wing government's
plans to expand the role of the state in the economy. That said, Chile remains Latin America's top-
ranked country in the BER, at 30th in the global ranking. In Colombia economic policy under the
left-wing president, Gustavo Petro, will become more interventionist and state-driven, involving
stricter regulations for the oil sector.
Middle East and Africa: the lowest-ranking region

MEA's overall score in the BER is the lowest of any region. The ranking for the MEA region
continues to be weighed down by poor governance and endemic insecurity, including the
spillover from the conflicts in Syria, Yemen and Libya, alongside political unrest in a number of
countries, including Iraq and Lebanon. Cuts in capital spending in the context of post-pandemic
fiscal tightening have constrained the region's macroeconomic score, but on the positive side, this
has pushed countries to support business-friendly reforms, such as improved frameworks for
public-private partnerships and foreign investment. Israel and the Gulf states are the highest-
ranked countries in the region, with the latter's scores improving in recent years in line with rising
oil prices and growing absorptive capacity for new investment. Qatar, Saudi Arabia and the

Pakistan 41
United Arab Emirates will improve further in 2023-27. Both the Middle East and Africa typically
suffer from weak corporate governance and regulation, as well as poorly trained labour forces and,
in countries such as Angola, Nigeria and the Gulf states, an overreliance on hydrocarbons.
Nonetheless, rates of return can be high for firms that master the region's complicated political and
regulatory climate.
Biggest winner: No countries in the Middle East or Africa see improvements in our ranking of the
scale recorded in other regions. South Africa sees a modest rise, up by four spots, but this
reflects improvement from a low base given the disruptions to critical public services such as
power supply that characterise the business environment at present.
Biggest losers: Bahrain falls by nine spots, and Kuwait by six, both owing to deteriorating
market opportunities scores as a consequence of falling (albeit still comparatively high) global oil
prices, which represent a large share of fiscal and export receipts. Lack of progress on regulations
and reforms also weighs on these countries' business environment scores.

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Democratic norms in Pakistan will worsen

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Asia week ahead: a sensitive US stopover for Tsai Ing-wen

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More monetary tightening on the cards for Pakistan in April

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Monetary tightening will continue in Pakistan

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