PAKISTAN

GDP growth is forecast to rise by 4.8% in the financial year 2016-17. Exports will grow at a slow pace. Reasons include low cotton and rice prices, limited demand in partner economies, and deteriorated price competitiveness. Domestic demand growth will remain firm. It should benefit from cheap oil prices and solid remittances inflows. Investment growth may pick up gradually with robust credit growth and solid Foreign Direct Investment (FDI) inflows related to the China-Pakistan Economic Corridor project.

In the short run, risks are elevated. First, an appreciation of the real exchange rate could further hinder price competitiveness. Second, weaker economic prospects in China and the GCC could result in lower FDIs and remittances. Third, tighter global financing conditions could translate into lower capital inflows. Fourth, a rise in oil prices would undermine the external position. In the longer term, external vulnerabilities, political and security uncertainties may contribute to weaker growth prospects.

A poor business environment and a difficult political landscape might deter investors. The World Bank’s Doing Business 2016 survey ranks Pakistan 138th out of 189 economies. The country’s specific weaknesses include the tax environment, contract enforcement, and adequate power supply.

Political stability remains fragile. The current government is ridden by corruption scandals, a fragmented political scene, security issues, and uneasy relations with neighboring countries (e.g. India, Afghanistan).