Pakistan Business Forecast Report Q4 2012

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
New Prime Minister, Same Direction?
As expected, the ruling Pakistan People's Party (PPP)-led coalition's strong majority was able to ensure stability by easily electing senior
PPP leader Raja Pervaiz Ashraf as the new prime minister With elections due by early 2013, we see minimal scope for any major
legislative initiatives stemming from this leadership change Moreover, there remains an acute risk of another leadership scramble at the
helm, as the government has yet to completely deal with the reopening of corruption cases against President Asif Ali Zardari
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Instability To Prevail, But Outright Collapse Unlikely
Pakistan is at risk of experiencing years of instability and militant activity, but an outright collapse of the state is unlikely unless the core
province of Punjab becomes ungovernable Under such circumstances, we would not preclude a military coup Meanwhile, owing to its
strategic importance, Pakistan's foreign allies will do everything they can to ensure its stability
TABLE: SCENARIO MATRIX – EVOLUTION OF STATE
TABLE: SCENARIO MATRIX – CENTRIFUGAL VERSUS CENTRIPETAL FORCES

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Scepticism Regarding Early FY2011/12 GDP Release
The early release of the country's FY2011/12 (July-June) provisional national accounts, although susceptible to revision, showed the
country rebounding strongly last fiscal year against our previous expectation of a continued slowdown from FY2010/11 Our scepticism
regarding the state of the country's ongoing recovery has only been reinforced by the continued weakness of industrial production and
export growth trends
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Oil Collapse To Aid Narrowing Of Current Account Deficit
With oil prices having collapsed from their March peak, the upside pressure on Pakistan's import bill has substantially diminished Given
our outlook for a gradual improvement of the country's terms of trade over the next six to 12 months, we expect an equally gradual
narrowing of its trade and current account deficits
TABLE: CURRENT ACCOUNT
Monetary Policy
Switching To A Neutral Policy Rate Outlook
Given the recent acceleration of headline inflationary risks, coupled with strong signals from Pakistan's currency and sovereign debt
markets, we are abandoning our outlook for additional policy rate cuts, opting to stay neutral through our forecast period to 2021
TABLE: MONETARY POLICY
Fiscal Policy
FY2012/13 Budget: Same Story, Different Year
The government's FY2012/13 (July-June) budget plans do not inspire much confidence, given that it largely represented the status
quo Any fiscal consolidation will likely be minimal given the sitting government's lack of fiscal credibility (and its overly optimistic
assumptions), the lack of any major reforms on the expenditure and revenue side, and the fiscal indiscipline likely to result due to the
upcoming general elections
TABLE: FISCAL POLICY

Chapter 3: 10-Year Forecast
The Pakistani Economy To 2021
Sustained Underperformance To 2021
Given Pakistan's ongoing security woes and the lack of a clear resolution to them, we see a period of relatively subdued economic
growth for the years ahead Indeed, while we acknowledge that Pakistan has the potential to enjoy economic growth as experienced
elsewhere in emerging Asia, we believe that conditions within the country will conspire against this, causing a protracted period of
underperformance
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
Infrastructure
TABLE: ASIA, ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
TABLE: TOP EXPORT DESTINATIONS
Operational Risk

Chapter 5: Key Sectors
Pharmaceuticals
TABLE: PHARMACEUTICAL SALES
TABLE: PRESCRIPTION DRUG SALES
TABLE: PATENTED DRUG MARKET
TABLE: OTC MEDICINE SALES
TABLE: GENERIC DRUG SALES
Telecommunications
Executive Summary
TABLE: FIXED LINE
TABLE: INTERNET
TABLE: MOBILE ARPU (PKR)
TABLE: MOBILE
Other Key Sectors
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: FOOD & DRINK SECTOR KEY INDICATORS
TABLE: FREIGHT KEY INDICATORS
TABLE: OIL & GAS SECTOR KEY INDICATORS
TABLE: DEFENCE & SECURITY SECTOR KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
The Cycle Has Turned
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 49