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Pakistan Country Risk Report

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Pakistan Country Risk Report

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Q4 2024
www.fitchsolutions.com/bmi

Pakis
akistan
tan
Country Risk R
Report
eport
Includes 10-year forecasts to 2033
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Pakistan Country Risk Report | Q4 2024

Contents
Executive Summary...................................................................................................................................................................... 5
Key View ........................................................................................................................................................................................................................................... 5
Political Risk Key View................................................................................................................................................................................................................. 7
Economic SWOT............................................................................................................................................................................................................................ 8
Political SWOT ................................................................................................................................................................................................................................ 9

Economic Outlook.......................................................................................................................................................................10
Growth In Pakistan Will Accelerate In FY2024/25 ........................................................................................................................................................10
GDP By Expenditure Outlook .................................................................................................................................................................................................14

External Trade And Investment Outlook .............................................................................................................................17

Pakistan Current Deficit Will Widen, But Remain Small ...............................................................................................................................................17
Outlook On External Position ...............................................................................................................................................................................................21

Monetary Policy Outlook...........................................................................................................................................................24

More Rate Cuts From State Bank Of Pakistan In H2 2024 .........................................................................................................................................24
Monetary Policy Framework ..................................................................................................................................................................................................28

Fiscal Policy And Public Debt Outlook..................................................................................................................................30

Pakistan Will Miss Budget Target, Deficit Will Still Narrow .........................................................................................................................................30
Structural Fiscal Position .........................................................................................................................................................................................................34

Currency Forecast .......................................................................................................................................................................37

PKR: Currency Will Remain Stable In 2024.......................................................................................................................................................................37

10-Year Forecasts.........................................................................................................................................................................41
Pakistan Will Remain An Underperformer ........................................................................................................................................................................41

Political Outlook...........................................................................................................................................................................46
Pakistan: Legal Wins Offer No Way Back For Imran Khan ...........................................................................................................................................46

Long-Term Political Outlook ....................................................................................................................................................49

Political Instability To Remain The Norm ..........................................................................................................................................................................49

Global Macro Outlook .................................................................................................................................................................52

H2 2024 Will Bring Greater Election Uncertainty ..........................................................................................................................................................52

Index tables ...................................................................................................................................................................................68

Macroeconomic Forecasts........................................................................................................................................................72

This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.

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© 2024 Fitch Solutions Group Limited. All rights reserved.

All information, analysis, forecasts and data provided by Fitch Solutions Group Limited are for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.

All content, including forecasts, analysis and opinion, is based on information and sources believed to be accurate and reliable at the time of publishing. Fitch Solutions
Group Limited makes no representation or warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for
any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.

This report from BMI – A Fitch Solutions Company is a product of Fitch Solutions Group Limited; UK Company registration number 08789939 ('FSG'). FSG is an affiliate of
Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.

Copyright © 2024 Fitch Solutions Group Limited.

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Executive Summary
Key View
Core Views

• As we had predicted, economic activity in Pakistan was stronger than most analysts had expected in FY2023/24 (July 2023-June
2024). Economic growth in Pakistan will accelerate from 2.4% in FY2023/24 to 3.2% in FY2024/25, driven by monetary easing,
improved agricultural output and slowing inflation. Risks are heavily weighted to the downside.
• We think that Pakistan’s current account deficit will remain small but will widen from 0.8% of GDP in FY2023/2024 to 1.0% of
GDP in FY2024/2025. The slightly wider overall deficit will be due to a larger trade deficit, which will widen from 7.5% of GDP in
FY2023/2024 to 7.7% of GDP in FY2024/25. Risks are weighted towards a wider deficit, which could be caused by a jump in oil
prices or lower-than-expected grain production.
• Pakistani policymakers have had more success than we had expected in stabilising the rupee, and we now think that the big falls
in the currency are behind us. We expect that the rupee will only weaken a touch over the remainder of 2024, slipping from
PKR278/USD to PKR290/USD. Risks remain weighted heavily towards a larger rather than a smaller depreciation.
• Easing inflation in Pakistan will provide the State Bank of Pakistan (SBP) with the space to cut its key policy rate from 22.00% to
16.00% in 2024. We expect that policymakers at the SBP will continue to loosen policy over the longer term, to 14.00% by end of
2025. The key risk to this forecast is towards faster-than-expected inflation, which would cause policymakers to slow their easing
cycle.
• We expect that Pakistani policymakers will miss their ambitious budget targets, but we still expect that the deficit will narrow,
slipping from 7.4% in FY2023/24 to 6.7% of GDP in FY2024/25. Provided that the government remains on the current policy
trajectory, the country will probably succeed in negotiating a longer-term deal with the IMF. Risks remain weighted towards a
much larger deficit. The economic recovery is fragile and another shock would quickly push up the cost of servicing Pakistan’s
large government debt burden.
• Despite several successful legal appeals, opposition leader Imran Khan will remain imprisoned for the foreseeable future. We
expect that the PML(N)-led government will remain in power over the coming 18 months and will succeed in pushing through
with IMF-mandated fiscal reforms. In the unlikely event that the government is replaced, the most likely alternative is a military-
backed technocratic administration rather than fresh elections.

Key Risks

• The risks to our growth outlook are heavily weighted to the downside. Pakistan’s economy remains very fragile in the face of
external shocks. Given that 40% of Pakistanis work in agriculture, another flood or drought would prose a significant risk to the
economy. The country’s fragile political situation could also derail the recovery. While Pakistan’s establishment parties were
successful in creating a new coalition government following the February election, the strong electoral performance of
independent candidates backed by jailed opposition leader Imran Khan suggests that there is significant dissatisfaction with the
current political elite. Another round of protests in urban areas could disrupt economic activity.

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Macr
Macroec
oeconomic
onomic FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2025)
Indicator 2022 2023e 2024f 2025f
Real GDP gr
groowth, % yy-o-y
-o-y 6.2 -0.2 2.4 3.2
Nominal GDP
GDP,, USDbn 367.8 369.3 355.5 357.5
Consumer pric
pricee inflation, % yy-o-y
-o-y,, eop 21.3 29.7 6.2 10.6
Ex
Exchange
change rrate
ate PKR per USD, eop 226.47 281.92 278.00 310.00
Budget balanc
balance,
e, % of GDP -7.9 -7.7 -7.4 -6.7
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -4.8 -0.6 -0.8 -1.0
e/f = BMI estimate/forecast. Source: National sources, BMI

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Political Risk Key View

Please Note: BMI is enhancing its risk analysis with a new scoring system following its acquisition of GeoQuant, a market-leading
provider of political risk data. From March 27 2024, risk scores are inverted: zero now represents the lowest risk and 100 represents
the highest risk. This allows for clearer, industry-standard assessments. For further details, please refer to our updated methodology
document.

Core Views

• Political Risk: Political risk in Pakistan will remain highly elevated in 2024 and 2025. While allies of opposition leader Imran Khan
won a plurality of seats in the February 2024 election, Pakistan’s establishment parties managed to form another coalition
government. This administration, lacking popular support, faces the daunting challenge of managing an economy that is
beginning to recover following the 2022/23 crisis and addressing fragile security concerns. Further protests by Khan’s
supporters – many of whom believe that their party has been targeted by Pakistan’s establishment – are likely. Pakistan receives
a 60.6 out of 100 on our Political Risk Index.
• Governance: While Pakistan is formally a parliamentary democracy, the country’s influential military establishment is widely
understood to play a crucial role in governing the country. The armed forces have executed coups d'état in 1958, 1977 and 1999
and former prime minister Imran Khan has alleged that the military was behind his removal from office in 2022. Pakistan receives
a 42.8 on the Governance sub-component of our Political Risk Index.
• Society: Pakistan is a society divided along ethnic, linguistic, geographical and economic lines. The government faces the
daunting challenge of managing disputes between the more liberal urban centers and the more religious rural areas, between
Punjab and the smaller provinces, and between landowners and the large rural populace. Pakistan receives a 76.6 out of 100 on
the Society sub-component of our Political Risk Index.
• Security: While the frequency and lethality of terrorist attacks in Pakistan has decreased significantly compared to a decade
ago, militants still kill several hundred individuals annually. Attacks are concentrated in economically marginal areas, with
relatively few targeting the larger cities. We believe tensions between Pakistan and India will remain elevated, though the
deterrence provided by the two states’ nuclear arsenal means that an outbreak of war remains unlikely. Pakistan receives a 48.6
out of 100 on the Security sub-component of our Political Risk Index.
• Election Watch: Pakistan’s next parliamentary election is scheduled for 2029. However, it is highly likely that the country will see
a change of government before this date. No Pakistani prime minister has ever completed a full five-year term in office.

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Economic SWOT

Strengths Weaknesses

• Pakistan's population reached 245mn in 2024, growing by • Pakistan suffers from chronic current account and fiscal
an average 2.4% per annum over the prior decade. This deficits. This leaves the economy vulnerable to external
creates a large internal market. shocks and the government dependent on aid and loans
from multilateral institutions and bilateral partners.
• Incomes are low and much of the population relies on the
agricultural sector.
• Political instability and continued security threats discourage
inbound FDI.

Opportunities Threats

• Rising rates of urbanisation, with the UN forecasting the • Pakistan's balance of payments remains vulnerable to a spike
proportion of city dwellers climbing from 36.0% of the in commodity prices particularly since the country is a net oil
population in 2015 to more than 50% by 2050, should importer.
continue to serve as a key driver of economic growth. • Renewed political turmoil threatens to undermine reform
• Pakistan's strengthened geopolitical ties with Mainland efforts and weaken investor sentiment.
China should bring benefits through increased investment.

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Political SWOT

Strengths Weaknesses

• Pakistan's government and military have strong relationships • Political parties tend to be dominated by personalities,
with Beijing and Washington. The country's key strategic families or certain groups rather than being defined by
location means that foreign powers have a strong interest in policies, while the military continues to wield significant
its stability. influence.
• Pakistan's military has successfully maintained stability in • No prime minister has completed a full term since Pakistan
the country's core areas. Violence has usually been limited to gained independence in 1947, with regular bouts of political
economically peripheral regions. instability weighing on investor confidence.
• Relations with India remain tense. The border dispute
between the two nuclear-armed neighbours, which have
gone to war three times since independence, will likely
remain unresolved.

Opportunities Threats

• An increase in Chinese investment under the China-Pakistan • The country's weaker economic outlook and high inflation
Economic Corridor (CPEC) could provide the government could lead to a rise in social unrest.
with the resources to address the poor security situation in • In the event of a worsening economic situation or another
Balochistan, which poses the main threat to the completion acute political crisis, the army may intervene to form a new
of CPEC projects. government.
• The Taliban's takeover of neighbouring Afghanistan and the
ongoing political crisis in the centre have emboldened local
extremist groups such as the Pakistan Taliban Group (Tehrik-
i-Taliban Pakistan), and led to an increase in terrorist attacks.

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Economic Outlook
Growth In Pakistan Will Accelerate In FY2024/25
Key View

• Economic growth in Pakistan is forecast to accelerate from 2.4% in FY2023/24 to 3.2% in FY2024/25.
• As we had predicted, economic activity in the country was stronger than most analysts had expected in FY2023/24.
• Risks to our forecasts are weighted to the downside. Pakistan’s economy remains highly vulnerable to external shocks, which
could easily tip the country into another crisis.

We remain more optimistic than most analysts about Pakistan, and we hold an above-consensus view that GDP will
expand by 3.2% in FY2024/25 (July 2024 to June 2025). While growth was a bit weaker than we had expected at the start of the
2024 calendar year, recent figures have validated our core view that the economy would continue to recover following deadly
floods in 2023. Indeed, preliminary figures from the government suggest that the economy expanded by 2.4% in FY2023/24, much
faster than the 1.8% consensus forecast collected by Focus Economics (see chart below). There are three key reasons for our
optimistic view about growth in FY2024/25.

Recovery Will Gain Pace

Pakistan – Real GDP, % y-o-y

Note: Forecasts refer to July-June fiscal years. Source: Haver, BMI

First, we expect that the vital agriculture sector will continue to recover. The proximate cause of Pakistan’s economic crisis
in 2023/24 was a devastating flood, which disrupted agricultural activity. Beyond the human costs – the flood killed over 1,000
people – the disaster caused significant economic pain in a country where 40% of the population work in agriculture. Grains
production rebounded in 2024 and our Agribusiness team expects that conditions will remain favourable in the 2025 harvest year
(see chart below).

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Grain Production Will Bounce Back

Pakistan - Grain Production, mn tonnes

f = forecast. Source: BMI

Cotton production will slip from 6.7mn 480-pound bags in 2024 to 6.5mn bags in 2025. Even so, production will remain elevated by
recent standards. This would be the second largest harvest since 2019. Strong output in the agricultural sector will boost exports,
support, rural incomes, and help to contain inflation. Easing FX shortages will allow an increase in ginning and other processing
activities.

Second, we think that inflation will ease sharply, slipping from 11.8% y-o-y in May 2024 to just 6.2% in December 2024 (see
chart below). Slower inflation will, in part, reflect the improve agricultural production described above. We also expect that the big
falls in Pakistan’s currency are now behind us, and that a broadly stable exchange rate will reduce inflationary pressures.

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Inflation Will Slow, Policy Will Ease

Pakistan - Inflation & Policy Interest Rate, %

*December. **Calendar year average. Source: Haver, BMI

Disinflation will help to protect consumers’ incomes and is a key reason why we expect that the growth of consumer spending will
pick up from 2.6% in FY2023/24 to 3.4% in FY2024/25.

Third, we predict policy easing in late 2024 and into 2025. With inflation slowing, we think that policymakers at the State Bank
of Pakistan will continue to loosen monetary policy. We expect that the key policy rate will be cut from 20.5% in June 2024 to
16.00% by December 2024 and to 14.00% by December 2025 (see chart above). Fiscal policy will, admittedly, continue to tighten.
But we expect that the authorities will use increased disbursements from the World Bank and the IMF to protect spending on social
programmes and growth-boosting capital investments. In June 2024, for instance, the World Bank approved another USD1.0bn for
the DASU hydropower project.

Risks to our forecast are weighted heavily to the downside. Pakistan’s economy remains very fragile in the face of external
shocks. The authorities have very limited fiscal buffers and the World Bank’s latest Crisis Preparedness Gap Analysis rated the
country as 'basic' or below on all five of its key metrics (see table below).

World Bank Crises Pr

Prepar
eparedness
edness Gap Analy
Analysis
sis
Rating Score (1-5)
Legal and Institutional FFoundations
oundations Basic 2.3
Under
Understanding
standing and Monitoring Risks Basic 2.0
Financial Pr
Prepar
eparedness
edness Unmet 0.8
Primar
Primaryy R
Response
esponse Nascent 1.5
Social and Liv
Livelihood
elihood Suppor
Supportt Nascent 2.2

Source: World Bank, BMI

Given that 40% of Pakistanis work in agriculture, another flood or drought would prose a significant risk to the economy. The
country’s fragile political situation could also derail the recovery. While Pakistan’s establishment parties were successful in creating a
new coalition government following the February election, the strong electoral performance of independent candidates backed by

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jailed opposition leader Imran Khan suggests that there is significant dissatisfaction with the current political elite. Another round of
protests in urban areas could disrupt economic activity.

Pakistan Gr
Groowth Outlook
Indicator FY2023/24e FY2024/25f Notes
Real GDP
GDP,, % chg 2.4 3.2 The economic recovery will
continue, but growth will be
weak by recent standards.
Household cconsumption,
onsumption, pp 1.5 2.0 Slowing inflation will allow
contribution to headline gr
groowth consumer spending to recover.
Gr
Gross
oss fix
fixed
ed capital fformation,
ormation, pp -2.3 0.3 Stability in the FX market will
contribution to headline gr gro
owth encourage private sector
investment.
Go
Govvernment cconsumption,
onsumption, pp -0.8 -0.1 Fiscal austerity will ease in
contribution to headline gr
groowth FY2024/25.
Net eexpor
xports,
ts, pp ccontribution
ontribution to 3.4 -0.6 Net exports boosted headline
headline gr
gro owth growth in FY2023/24 as a result
of a sharp fall in imports, but
improved domestic demand will
cause imports to rise in FY2024/
25.

e/f = estimate/forecast. Source: BMI

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GDP By Expenditure Outlook

We forecast that real GDP growth will average 3.5% over the next decade, essentially in line with the performance between FY2012/
13 and FY2021/22. However, risks are weighted to the downside. The combination of falling agricultural production, currency
weakness and political instability that caused growth to stall in 2022/23 could easily reoccur. On the other hand, we believe that a
meaningful acceleration is very unlikely without significant structural reforms.

GDP Gr
Groowth FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023 2024f 2025f 2026f 2027f
Nominal GDP
GDP,, PKRbn 66,623.6 84,657.8 94,938.7 102,603.4 112,590.1 123,553.0
Real GDP gr
groowth, % yy-o-y
-o-y 6.2 -0.2 2.4 3.2 3.8 3.8
GDP per capita, PKR 282,512.9 352,028.5 387,173.4 410,497.7 442,024.7 476,089.8
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

GDP Gr
Groowth FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Nominal GDP
GDP,, PKRbn 135,587.8 148,799.8 163,304.4 179,228.5 196,711.4 215,906.1
Real GDP gr
groowth, % yy-o-y
-o-y 3.7 3.7 3.7 3.7 3.7 3.7
GDP per capita, PKR 512,921.2 552,785.5 595,936.6 642,637.9 693,194.5 747,957.6
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Private Consumption: We estimate that private consumption will make up 85.1% of GDP in FY2024/25 and we believe that this
share will remain relatively stable over the coming years. Given the consistent weakness of Pakistan's export sector and the
country's low savings rate, private consumption has long been the key driver of economic growth. Significant remittance flows from
the country's large diaspora help to keep private consumption stronger than domestic incomes would otherwise allow.

Priv
Private
ate Consumption FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023 2024f 2025f 2026f 2027f
Priv
Private
ate final cconsumption,
onsumption, PKRbn 57,122.4 71,306.5 80,593.0 87,281.5 96,034.1 105,664.4
Priv
Private
ate final cconsumption,
onsumption, % of GDP 85.7 84.2 84.9 85.1 85.3 85.5
Priv
Private
ate final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 6.7 1.6 2.8 3.2 3.8 3.8
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Priv
Private
ate Consumption FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Priv
Private
ate final cconsumption,
onsumption, PKRbn 116,260.4 127,919.0 140,746.8 154,860.9 170,390.3 187,477.0
Priv
Private
ate final cconsumption,
onsumption, % of GDP 85.7 86.0 86.2 86.4 86.6 86.8
Priv
Private
ate final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 3.8 3.8 3.8 3.8 3.8 3.8
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

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Government Consumption: We estimate that government consumption will make up 9.4% of GDP in 2024/25, and that this
share will decline slightly over the coming 10 years. The government's limited capacity to raise tax revenue will continue to keep
government spending lower as a share of GDP than in most other Asian emerging markets. We also expect that spending will fall in
real terms in FY2024/25 due to spending cuts imposed as part of an IMF deal.

Go
Govvernment Consumption FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023 2024f 2025f 2026f 2027f
Go
Govvernment final cconsumption,
onsumption, PKRbn 6,993.7 8,241.1 8,952.0 9,676.1 10,564.4 11,534.2
Go
Govvernment final cconsumption,
onsumption, % of GDP 10.5 9.7 9.4 9.4 9.4 9.3
Go
Govvernment final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y -1.3 -7.2 -1.2 3.0 3.0 3.0
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Go
Govvernment Consumption FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Go
Govvernment final cconsumption,
onsumption, PKRbn 12,593.0 13,749.1 15,011.2 16,389.3 17,893.8 19,536.5
Go
Govvernment final cconsumption,
onsumption, % of GDP 9.3 9.2 9.2 9.1 9.1 9.0
Go
Govvernment final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 3.0 3.0 3.0 3.0 3.0 3.0
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Fixed Investment: Gross capital formation has been chronically low in Pakistan for many years and makes up 11.8% of GDP.
Investment spending has been (and, we expect, will continue to be) held back by a low savings rate and a limited ability to attract
foreign direct investment.

Fix
Fixed
ed Inv
Investment
estment FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023 2024f 2025f 2026f 2027f
Fix
Fixed
ed capital fformation,
ormation, PKRbn 9,333.9 10,093.5 11,430.2 12,294.8 13,358.3 14,513.8
Fix
Fixed
ed capital fformation,
ormation, % of GDP 14.0 11.9 12.0 12.0 11.9 11.7
Fix
Fixed
ed capital fformation,
ormation, rreal
eal gr
groowth % yy-o-y
-o-y 5.7 -17.8 3.0 2.5 2.5 2.5
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Fix
Fixed
ed Inv
Investment
estment FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Fix
Fixed
ed capital fformation,
ormation, PKRbn 15,769.2 17,133.3 18,615.3 20,225.5 21,975.0 23,875.9
Fix
Fixed
ed capital fformation,
ormation, % of GDP 11.6 11.5 11.4 11.3 11.2 11.1
Fix
Fixed
ed capital fformation,
ormation, rreal
eal gr
groowth % yy-o-y
-o-y 2.5 2.5 2.5 2.5 2.5 2.5
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

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Net Exports: Pakistan's net export deficit accounts for around 8.4% of GDP as imports outstrip exports due to a heavy dependence
on imported goods. Over the long term, despite efforts to boost the country's manufacturing export sector, reliance on energy
imports will likely see the share of headline GDP remain broadly similar.

Net Expor
Exports
ts FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023 2024f 2025f 2026f 2027f
Net eexpor
xports
ts of goods and ser
servic
vices,
es, PKRbn -7,965.7 -6,431.0 -7,517.8 -8,204.9 -9,045.0 -9,971.3
Net eexpor
xports
ts of goods and ser
servic
vices,
es, % of GDP -12.0 -7.6 -7.9 -8.0 -8.0 -8.1
Net eexpor
xports
ts of goods and ser
servic
vices,
es, rreal
eal gr
groowth % yy-o-y
-o-y 15.5 -25.3 6.0 4.0 4.0 4.0
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Net Expor
Exports
ts FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Net eexpor
xports
ts of goods and ser
servic
vices,
es, PKRbn -10,992.3 -12,117.9 -13,358.8 -14,726.7 -16,234.8 -17,897.2
Net eexpor
xports
ts of goods and ser
servic
vices,
es, % of GDP -8.1 -8.1 -8.2 -8.2 -8.3 -8.3
Net eexpor
xports
ts of goods and ser
servic
vices,
es, rreal
eal gr
groowth % yy-o-y
-o-y 4.0 4.0 4.0 4.0 4.0 4.0
f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

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External Trade And Investment Outlook

Pakistan Current Deficit Will Widen, But Remain Small
Key View

• We think that Pakistan’s current account deficit will remain small but will widen from 0.8% of GDP in FY2023/2024 to 1.0% of
GDP in FY2024/2025.
• The slightly wider overall deficit will be due to a larger trade deficit, which will widen from 7.5% of GDP in FY2023/2024 to 7.7%
of GDP in FY2024/2025.
• Risks are weighted towards a wider deficit, which could be caused by a jump in oil prices or lower-than-expected grain
production.

We think that Pakistan’s current account deficit will be smaller than the IMF’s expectations but will widen a touch
compared to the previous year, from 0.8% of GDP in FY2023/2024 to 1.0% of GDP in FY2024/2025 (IMF: 1.2% of GDP). The
deficit will remain in line with the long-term average and be much smaller than the 5.4% of GDP reported in 2021/22 (see chart
below).

Deficit Will Remain Small, But Widen Slightly

Pakistan – Current Account balance, % of GDP

Note: e/f - estimate/forecast. Source: Haver, BMI

The wider overall deficit will be due to a larger trade deficit, which will widen from 7.5% of GDP in FY2023/2024 to 7.7% of
GDP in FY2024/2025. Two key drivers are at work here.

First, economic growth in Pakistan will pick up in FY2024/25, which will boost import demand (see chart below). We
expect that economic growth in Pakistan will pick up from 2.4% in FY2023/24 to 3.2% in FY2024/25.

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Imports To Grow In Tandem To Real GDP

Pakistan – Real GDP and Import Growth, % chg y-o-y

Note: e/f - estimate/forecast. Source: Haver, BMI

Second, we expect that higher energy prices will push up the country's import bill. Pakistan has few domestic sources of
energy. Over the past 10 years, hydrocarbon imports have accounted for 24.6% of total imports (see chart below).

Hydrocarbons Plays A Big Part In Imports

Pakistan - Import Composition, %

Source: Haver, BMI

Our Oil & Gas team forecasts that brent crude oil prices will average to USD85/bbl in 2024 and USD82/bbl in 2025. The rise in
crude oil prices will push up the import bill. We expect crude imports to be 2.2 % of GDP for FY2024/25 from 1.8% of GDP in
FY2023/2024 (see chart below).

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Oil Prices To Drive Up Oil Imports

Pakistan - Crude Oil Imports, USDmn & Crude Oil Imports, % of GDP

e/f = BMI estimate/forecast. Source: Haver, BMI

The widening of the trade deficit will, however, be partially offset by positive developments in the agricultural sector.
Our Agribusiness team forecasts that Pakistan will harvest record high wheat crops in 2024 and 2025. We expect wheat production
to climb to 28.8m tonnes in 2025 and rice production to climb to 9.5m tonnes (see charts below).

Agriculture Sector To Hit Record High

Pakistan - Wheat Shortage (LHC) & Rice Surplus (RHC), mn tonnes

f = BMI forecast. Source: USDA, BMI

While wheat production will still fall short of domestic demand, we estimate that the imports will slip from USD1.8bn in 2023 to
USD1.2bn in 2024 and USD1.0bn in 2025. Conversely, the country’s rice surplus will grow from USD1.3bn in 2023 to USD1.8bn in
2024 and USD1.9bn in 2025. Reduced wheat imports and increased rice exports will both help to reduce the impact of strong
domestic demand and rising oil prices.

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The wider trade deficit will leave the country even more dependent on remittances. Fortunately for Pakistan, remittance
inflows picked up in the first quarter of 2024 (see chart below). Given the country's large diaspora, we expect that inflows will remain
strong going into 2025.

Remittances Picked Up In Early 2024

Pakistan - Workers Remittance, USDmn & Remittance Growth, % chg y-o-y

Source: Haver, BMI

Even with Pakistan’s overall current deficit remaining small – an average of just 1.1% of GDP over the coming five
years, Pakistan will face trouble financing this deficit. Pakistan’s difficult business environment deters FDI, leaving the
country dependent on foreign borrowing, grants from friendly governments and IMF bailouts. While our core view remains that
Pakistan’s political importance means that foreign partners will continue to provide funding, a reliance on this form of occasional
emergency funding will frequently prompt worries about the sustainability of the balance of payments position.

However, risks are weighted towards a wider deficit. One key risk comes from oil prices. If violence in the Middle East pushes up
global oil prices, this would weigh heavily on Pakistan’s import bill. It is also possible that poor weather conditions within Pakistan
could disrupt agricultural production, which would cut exports and raise imports.

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Outlook On External Position

International Investment Position: Pakistan is heavily dependent on imports and has a long history of wide current account
deficits. The country has built up significant external liabilities. This includes both official debt issued by the state and private debt
owed by non-financial corporations. With the exception of the central bank's (limited) reserves, the economy has few FX assets.

The depreciation of the Pakistani rupee in 2022 and 2023 has raised questions about the sustainability of Pakistan's external debt.
The country succeeded in rolling over significant debt payments in mid-2023, but this has not addressed the underlying problem.
While we forecast that Pakistani policymakers - and their international partners - will succeed in avoiding an acute debt crisis, we
think that the country's debt levels will remain elevated over the duration of our forecast period.

External Debt Burden Will Remain Large

Pakistan - Total External Debt (2022-2033)

e/f = BMI estimate/forecast. Source: World Bank QEDS, BMI

Current Account: We expect that Pakistan will remain dependent imports to meet a large share of its domestic energy and
consumer goods needs. While remittances from the country's large diaspora will help to cover these imports, we expect that the
current account will remain in deficit over the duration of our forecast period. We forecast that the deficit will average 1.1% of GDP
between 2024/25 and 2026/27. FDI inflows will not be sufficient to cover this shortfall, which will leave the country dependent on
portfolio inflows and foreign borrowing.

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Current Account Will Remain In Deficit

Pakistan - Current Account Balance (2022-2033)

e/f = BMI estimate/forecast. Source: State Bank of Pakistan, BMI

Main Expor
Exportt And Impor
Importt P
Par
artner
tnerss
Main Export Destinations % Of Total Main Import Sources % Of Total
US 21.7 China (Mainland) 18.9
China (Mainland) 7.2 UAE 10.7
UK 7.1 Qatar 7.0
Germany 6.1 Saudi Arabia 6.0
Netherlands 5.3 Singapore 5.4

Source: SBP, BMI

Financial Account: Inflows into the financial account have historically comprised of FDI, loans and foreign assistance, although the
ongoing privatisation drive has seen an increase in portfolio liabilities. The State Bank of Pakistan (SBP) tends to intervene heavily in
the currency market in order to keep the rupee stable against the US dollar, which has tended to lead to wide swings in the bank's
reserve holdings. The SBP has adopted a 'market-determined' exchange rate, which has most likely reduced the currency
intervention from the central bank.

Main Expor
Exports
ts And Impor
Imports
ts Pr
Products
oducts
Main Export Products % Of Total Main Import Products % Of Total
Textiles 62.3 Petroleum 33.7
Food 16.0 Agricultural-Related 15.9
Chemical And Pharmac
Pharmaceutical
eutical Pr
Products
oducts 5.2 Food 15.6
Leather 2.3 Machinery 8.7
Spor
Sportt Goods 1.6 Textile 8.2

Source: SBP, BMI

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Curr
Current
ent Ac
Acccount Balanc
Balancee FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023e 2024f 2025f 2026f 2027f
Balanc
Balancee of tr
trade
ade in goods, USDbn -39.1 -24.1 -23.5 -23.6 -25.6 -26.0
Balanc
Balancee of tr
trade
ade in goods, % of GDP -10.6 -6.5 -6.6 -6.6 -7.0 -7.0
Balanc
Balancee of tr
trade
ade in ser
servic
vices,
es, USDbn -5.8 -0.8 -0.7 -4.4 -3.0 -2.7
Balanc
Balancee of tr
trade
ade in ser
servic
vices,
es, % of GDP -1.6 -0.2 -0.2 -1.2 -0.8 -0.7
Primar
Primaryy inc
income
ome balanc
balance,
e, USDbn -5.2 -5.7 -7.0 -5.6 -5.7 -6.6
Primar
Primaryy inc
income
ome balanc
balance,
e, % of GDP -1.4 -1.6 -2.0 -1.6 -1.6 -1.8
Sec
Secondar
ondaryy inc
income
ome balanc
balance,
e, USDbn 32.7 28.2 28.1 30.1 30.1 30.2
Sec
Secondar
ondaryy inc
income
ome balanc
balance,
e, % of GDP 8.9 7.6 7.9 8.4 8.2 8.1
Curr
Current
ent ac
acccount balanc
balance,
e, USDbn -17.5 -2.4 -3.0 -3.4 -4.3 -5.1
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -4.8 -0.6 -0.8 -1.0 -1.2 -1.4
e/f = BMI estimate/forecast. Source: State Bank of Pakistan, BMI

Curr
Current
ent Ac
Acccount Balanc
Balancee FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Balanc
Balancee of tr
trade
ade in goods, USDbn -26.7 -27.4 -28.1 -28.8 -29.6 -30.3
Balanc
Balancee of tr
trade
ade in goods, % of GDP -7.0 -7.0 -7.0 -7.0 -7.0 -7.0
Balanc
Balancee of tr
trade
ade in ser
servic
vices,
es, USDbn -1.2 -1.3 -1.3 -1.3 -1.4 -1.4
Balanc
Balancee of tr
trade
ade in ser
servic
vices,
es, % of GDP -0.3 -0.3 -0.3 -0.3 -0.3 -0.3
Primar
Primaryy inc
income
ome balanc
balance,
e, USDbn -6.8 -7.0 -7.1 -7.3 -7.5 -7.7
Primar
Primaryy inc
income
ome balanc
balance,
e, % of GDP -1.8 -1.8 -1.8 -1.8 -1.8 -1.8
Sec
Secondar
ondaryy inc
income
ome balanc
balance,
e, USDbn 30.6 31.0 31.8 32.6 33.4 34.3
Sec
Secondar
ondaryy inc
income
ome balanc
balance,
e, % of GDP 8.0 7.9 7.9 7.9 7.9 7.9
Curr
Current
ent ac
acccount balanc
balance,
e, USDbn -4.2 -4.7 -4.8 -4.9 -5.0 -5.1
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -1.1 -1.2 -1.2 -1.2 -1.2 -1.2
f = BMI forecast. Source: State Bank of Pakistan, BMI

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Monetary Policy Outlook

More Rate Cuts From State Bank Of Pakistan In H2 2024
Key View

• Pakistani policymakers cut their key rate from 22.00% to 20.50% in June 2024, and we think that they will cut it to 16.00% by the
end of the year.
• Risks are weighted towards faster-than-expected inflation, which would cause policymakers to keep their key rate higher for
longer.

We had always expected that the State Bank of Pakistan (SBP) would loosen policy this year, and policymakers made
their first cut even earlier and more than we or consensus had expected. On June 10 2024, the SBP cut its policy rate by
150 basis points (bps) (Consensus: 100bps) to 20.5% (see chart below). We retain our view that SBP will cut its policy rate to 16.00%
by the end of 2024 (see chart below) as we expect inflation to continue its downward trend towards the target rate of 5-7% and the
rupee to remain stable throughout.

More Cuts Ahead For SBP

Pakistan - Policy Interest Rate, %

Source: Haver, BMI

We expect that inflation will continue to slow over the remainder of the year. One of the key drivers of its recent slowdown was a
sharp decline in food prices; the headline inflation slowed down more than policymakers expected, from 17.3% y-o-y in April to
11.8% in May (see chart below).

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Disinflation Will Persist, Prompting More Rate Cuts

Pakistan - Inflation, %

Source: Haver, BMI

We still expect that headline inflation will continue to slow throughout the year, slipping from 11.8% in May to 6.2% in December
(see chart above). While there are risks of inflation resurging due to adjustments in electricity and gas prices, the monetary policy
committee mentioned that 'cumulative impact of earlier monetary tightening is expected to keep inflationary pressure in check.'

We also expect that the Pakistani rupee will remain pretty stable over the remainder of the year, which will open up
more space for interest rate cuts. For the past six months, the Pakistani rupee hovered around PKR 278/USD, and we expect
that the rupee will only weaken slightly over the remainder of 2024, slipping to PKR 290/USD (see chart below). Policymakers’
success in cracking down on the parallel market has allowed the currency to be adjusted to a more defensible rate and it would take
a substantial shock to disrupt the rupee.

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Pakistani Rupee Will Remain Stable

Pakistan - Exchange Rate, PKR per USD

Source: Haver, BMI

If inflation continues to slow, policymakers will be encouraged to cut their key policy rate to prevent a painful rise in
real rates. Real interest rates rose from 4.6% in April to 10.2% in May and this will weigh on investment and thereby growth. If the
policy rate remains unchanged, we expect that real interest rates would shoot up to over 15% for the remainder of the year (see
chart below). Furthermore, we expect US fed will begin its cutting cycle in September, which will help to create more space for the
SBP to cut their rates in the upcoming months.

Real Rates Will Skyrocket, Prompting More Cuts

Pakistan - Real Interest Rates, %

Source: Haver, BMI

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Outlook For Next Meeting

We expect that policymakers will cut their key rate at their next meeting. At their last meeting, policymakers said 'real interest rate
still remain significantly positive, which is important to continue guiding inflation to the medium-term target of 5-7%. However, an
extremely high real interest rate can dampen investments and thereby suppress the already moderated economic growth, thus we
believe that policymakers will adjust policy rate in step with inflation.

Long-Term Rate Trajectory

We expect that policymakers at the SBP will continue to loosen policy over the longer term, 14.00% by end of 2025. As inflation
eases, we think that policymakers will gradually cut their key policy rate to bring down real rates, which we think will rise sharply in
2024 (see charts above).

Risks To Outlook

Risks are weighted towards faster-than-expected inflation, which would cause policymakers to slow their easing cycle. The
upcoming release of FY25 budgetary measures and adjustments in energy tariffs can cause a sharp increase in short-term inflation
and deter policymakers from cutting rates.

Monetar
Monetaryy P
Policy
olicy Outlook
Forecast 2024 2025 Notes
Policy rrate,
ate, % 16.00 14.00 Policymakers have begun to cut their key rate and will
continue to do so in the upcoming meetings.

Inflation, av
avee % yy-o-y
-o-y 13.90 8.9 Inflation will continue to ease. Depreciation poses the
key upside risk.

Real GDP gr
groowth,%* 2.7 3.2 The economy will pick up in 2024 as output rebounds
following recent floods.

Ex
Exchange
change rrate
ate PKR290 per USD PKR310 per USD The big depreciation is behind us, the authorities will
keep the currency relatively stable in 2024.

*Fiscal Years. Source: BMI

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Monetary Policy Framework

The inflationary shock that hit in Pakistan in 2022 and 2023 has now passed, and inflationary pressures will continue to ease in
2024.

Inflation To Ease Slightly But Remain Structurally Elevated

Pakistan - Consumer Price Inflation (2015-2033)

e/f = BMI estimate/forecast. Source: Pakistan Bureau of Statistics, BMI

Inflation Credibility: Pakistan has suffered from structurally high inflation over the past decade, with the State Bank of Pakistan
(SBP) frequently accepting price growth exceeding its official price target. At times, the SBP's direct financing of the government has
itself caused inflationary pressures. The SBP responded with interest rate hikes in 2022 and 2023 when a combination of rising food
prices, currency weakness and subsidy cuts prompted an inflationary spike. Legislation passed in 2022 has banned direct financing
of the budget deficit and Pakistan's IMF deal may prompt a move towards more orthodox policymaking.

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CPI Basket Heavily Weighted Towards Food

Pakistan - Consumer Price Basket, %

Source: SBP, BMI

Central Bank Targets And Operations: In January 2022, the upper house of parliament approved the SBP Autonomy Bill, which
gives the central bank autonomy to target inflation instead of economic growth and restricts the government from borrowing from
it. The law was backed by the IMF as a reform to increase the independence of central bank policy. This enabled Pakistan to fulfill the
conditions for the sixth IMF Executive Board progress review, enabling the disbursement of USD1.0bn from the previously stalled
USD6.0bn Extended Fund Facility Programme.

Monetar
Monetaryy P
Policy
olicy FFor
orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023e 2024f 2025f 2026f 2027f
Consumer pric
pricee inflation, % yy-o-y
-o-y,, eop 21.3 29.7 6.2 10.6 10.0 10.0
M2, PKRbn 27,602.6 36,839.7 41,313.5 44,648.9 48,994.7 53,765.3
M2, % yy-o-y
-o-y 13.6 33.5 12.1 8.1 9.7 9.7
Centr
Central
al bank policy rrate,
ate, % eop 16.00 22.00 16.00 14.00 12.00 12.00
e/f = BMI estimate/forecast. Source: National sources, BMI

Monetar
Monetaryy P
Policy
olicy FFor
orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Consumer pric
pricee inflation, % yy-o-y
-o-y,, eop 10.0 10.0 10.0 10.0 10.0 10.0
M2, PKRbn 59,002.4 64,751.7 71,063.6 77,993.1 85,600.9 93,953.7
M2, % yy-o-y
-o-y 9.7 9.7 9.7 9.8 9.8 9.8
Centr
Central
al bank policy rrate,
ate, % eop 12.00 12.00 12.00 12.00 12.00 12.00
f = BMI forecast. Source: National sources, BMI

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Fiscal Policy And Public Debt Outlook

Pakistan Will Miss Budget Target, Deficit Will Still Narrow
Key View

• While we expect that Pakistani policymakers will miss their ambitious budget targets, we still expect that the deficit will narrow,
slipping from 7.4% in FY2023/24 to 6.7% of GDP in FY2024/25.
• Provided that the government remains on the current policy trajectory, the country will probably succeed in negotiating a
longer-term deal with the IMF.
• Risks remain weighted towards a much larger deficit. The economic recovery is fragile and another shock would quickly push up
the cost of servicing Pakistan’s large government debt burden.

While we do not expect that Pakistan will meet the ambitious fiscal targets set out in the FY2024/25 budget, we do
think that the fiscal deficit will narrow over the coming fiscal year (July 2024-June 2025). Our core forecast is that the
country’s headline deficit will narrow from 7.4% of GDP in FY2023/24 to 6.7% of GDP in FY2024/25. The government, by contrast, is
targeting a shortfall of just 5.9% of GDP (see chart below). Our expectation of a wider deficit is largely due to our belief that revenue
collection will fall below the government’s forecasts. There are two key reasons for this view.

Deficit Will Narrow, But Gradually

Pakistan – Fiscal Balance, % of GDP

Source: Ministry of Finance, BMI

First, we think Pakistan’s economy will expand by just 3.2% in FY2024/25, well below the government’s 3.6%
target. Weaker growth will depress tax revenue and the slow recovery will keep social spending needs higher than the government
is anticipating.

Second, we think that administrative and political obstacles will prevent the authorities from raising the debt-to-
GDP ratio as aggressively as they intend. The budget plan presented by the finance minister in June assumed that the
government would be able to raise the tax-to-GDP ratio by 1.7 percentage points (pps) of GDP, but we think that the ratio will only
rise by 1.0pp.

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The authorities did, admittedly, raise the revenue-to-GDP ratio by an impressive 3.0pp of GDP FY2023/24. Replicating this success
will be difficult. While the FY2023/24 budget included significant changes, including subsidy cuts and reforms to cash handouts, the
FY2024/25 budget based its revenue raising plans on the benefits of faster economic growth and hikes to the income tax rate (see
chart below).

Income Tax Hikes, But No Widening Of Tax Net

Pakistan – Income Tax Rate by Income Level, %

Note: Tax bands also include one-off payments, which are not shown. Source: Ministry of Finance, BMI

The reason for low government revenue generation in Pakistan is not low tax rates (which are near peers’) but poor
compliance in the context of a highly informal economy. Official figures suggest that just 5mn out of Pakistan’s population of
240mn pay any income tax. The rest either earn too little to be recorded into the system or work in informal roles which are not
registered for tax purposes. About 40% of Pakistanis work in the agricultural sector. Without widening the tax net, it will be
impossible to meaningfully increase the revenue-to-GDP ratio. We expect that progress will be slow, and that revenue will remain
smaller as a share of GDP than in peer economies over the entirety of our forecast period (see chart below).

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Tax Take Will Remain Small

Emerging Markets - Government Revenue, % of GDP

e/f = BMI estimate/forecast. Source: National sources, BMI

Raising revenue collection to the levels seen elsewhere in emerging market (EM) Asia would require both a huge improvement in
the administrative capacity of the state and an increase in the willingness of the population to pay taxes. Indeed, given that the
current government seems to enjoy little popular support, we expect that they will find it particularly difficult to push through any
tax measures.

Incremental improvements will, however, be welcomed by the IMF and Pakistan’s other creditors. We expect that
policymakers will succeed in negotiating a new loan from the Fund, which will help to stabilise the economy.

The fiscal outlook also depends heavily on the outcome of debt negotiations with the IMF and the future cost of
financing Pakistan’s large debts. Our forecast is based on the assumption that talks will continue, and that debt servicing costs
will gradually return to their pre-crisis levels (see chart below). If, however, debt servicing costs remain closer to the elevated levels
seen in 2023/24, then meeting the current fiscal targets would require a politically impossible level of fiscal tightening.

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Crisis Fading, Debt Burden A Key Challenge

Pakistan – Public Debt Servicing, % of Government Revenue

Source: Ministry of Finance, BMI

Indeed, it is worth stressing that even under our core scenario debt servicing costs will remain equivalent to around 40% of total
government revenue over the medium term (see chart above). This is very elevated compared to almost all EMs. It also suggests
that Pakistan’s fiscal position will remain highly vulnerable in the event of any future increase in borrowing costs.

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Structural Fiscal Position

Government Debt: Pakistan has a large government debt-to-GDP ratio equivalent to approximately 73.0% of GDP at end-FY2024
owing to persistent fiscal deficits and the 2023 currency shock. High interest costs and defence spending are a constant drag on
the fiscal accounts. With roughly half of the debt denominated in foreign currency, the government has often found itself facing
external imbalances, most undertaking the IMF's External Fund Facility agreement in 2022.

Government Debt Will Peak In Late 2020s

Pakistan - Gross Debt & Fiscal Balance (2015-2033)

e/f = BMI estimate/forecast. Source: National sources, BMI

Fiscal Deficit: Pakistan ran a fiscal deficit of 7.4% of GDP in FY2023/24, but we expect that the shortall will narrow to 6.7% of GDP
in FY2024/25. Despite the government's attempt to increase its tax base, we expect that the deficit will remain large over the
coming years. On the expenditure front, while the government has signalled its intention to rein in current spending such as
subsidies, we think that progress will be slow.

Main R
Reevenue And Expenditur
Expendituree Categories
Main Sources Of Revenue % Of Total Main Areas Of Expenditure % Of Total
Dir
Direct
ect tax
taxes
es 32.9 Mark-up Payment 34.0
Sales tax 28.5 Defence 15.1
Non-T
Non-Tax
ax rreevenue 17.9 Subsidies 13.3
Custom tax 10.4 Development 7.5

Source: Finance Ministry, BMI

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Government Share Of GDP: Government spending is likely to come in higher than government taxation. This is mainly due to
the country's unsophisticated tax system that allows for tax evasion among others. According to the Ministry of Finance in 2019,
only 1.0% of the population pays taxes. Expenditure is expected to remain high with a significant portion going into debt servicing
and the military.

Governmet Expenditure Will Remain Higher Than Revenue

Pakistan - Government Spending & Revenue (2015-2033)

e/f = BMI estimate/forecast. Source: Ministry of Finance, BMI

Fiscal And Public Debt FFor

orecasts
ecasts (P
(Pakistan
akistan 2022-2027)
Indicator 2022 2023e 2024f 2025f 2026f 2027f
Total rreevenue, PKRbn 8,035.4 9,635.0 13,671.2 15,390.5 17,451.5 19,768.5
Total rreevenue, PKR, % yy-o-y
-o-y 16.4 19.9 41.9 12.6 13.4 13.3
Total eexpenditur
xpenditure,
e, PKRbn 13,295.3 16,533.4 20,714.8 22,215.7 24,379.0 26,028.5
Total eexpenditur
xpenditure,
e, PKR, % yy-o-y
-o-y 29.0 24.4 25.3 7.2 9.7 6.8
Budget balanc
balance,
e, PKRbn -5,259.9 -6,521.4 -7,043.6 -6,825.2 -6,927.5 -6,260.0
Budget balanc
balance,
e, % of GDP -7.9 -7.7 -7.4 -6.7 -6.2 -5.1
Total go
govvernment debt, USDbn 260.1 269.7 274.6 286.0 299.5 306.2
Total go
govvernment debt, % of GDP 70.7 73.0 78.1 81.7 82.6 82.3
e/f = BMI estimate/forecast. Source: National sources, BMI

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Fiscal And Public Debt FFor

orecasts
ecasts (P
(Pakistan
akistan 2028-2033)
Indicator 2028f 2029f 2030f 2031f 2032f 2033f
Total rreevenue, PKRbn 21,694.1 23,808.0 26,945.2 29,572.7 32,457.4 35,624.5
Total rreevenue, PKR, % yy-o-y
-o-y 9.7 9.7 13.2 9.8 9.8 9.8
Total eexpenditur
xpenditure,
e, PKRbn 28,541.2 31,745.6 35,334.5 39,300.8 43,741.7 48,714.5
Total eexpenditur
xpenditure,
e, PKR, % yy-o-y
-o-y 9.7 11.2 11.3 11.2 11.3 11.4
Budget balanc
balance,
e, PKRbn -6,847.1 -7,937.6 -8,389.3 -9,728.1 -11,284.3 -13,090.0
Budget balanc
balance,
e, % of GDP -5.0 -5.3 -5.1 -5.4 -5.7 -6.1
Total go
govvernment debt, USDbn 313.1 321.3 328.9 338.0 348.6 360.7
Total go
govvernment debt, % of GDP 82.0 82.1 81.9 82.1 82.5 83.3
f = BMI forecast. Source: National sources, BMI

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Currency Forecast
PKR: Currency Will Remain Stable In 2024
BMI P
Pakistan
akistan Curr
Currency
ency FFor
orecast
ecast
2023 Spot 2024 2025
PKR per USD, av
avee 280 279 280 294

PKR per EUR, av

avee 323 298 322 359

Policy rrate,
ate, % eop 22.00 20.50 16.00 14.00

Source: Haver, BMI. Last updated: June 28 2024

Key View

• We expect that the rupee will remain stable at about PKR280 per USD over the remainder of 2024.
• The authorities’ ability to maintain the current exchange rate depends on the current account deficit remaining narrow, a
continuation of the strict crackdown on the parallel market and inflows from the IMF and foreign partners bringing in necessary
FX.
• If the authorities are forced to loosen their grip on the rupee, then we expect that the currency will fall to at least PKR325 per
USD.

Short-Term Outlook (three-to-six months)

We expect that the Pakistani rupee will remain stable against the US dollar over the remainder of 2024. After a series of
painful depreciations in 2022 and early 2023, the currency has been held at about PKR280 per USD since December 2023 (see
chart below).

Stability Will Continue

Exchange Rate, PKR per USD

Source: Haver, BMI

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Policymakers have clearly decided to use the exchange rate as a key policy tool in the fight against inflation. This has
worked quite well in recent months, with inflation slowing after the spike in 2022 and 2023. Continuing with the current policy
framework will give the central bank the space to loosen monetary policy and may boost the popularity of the country’s coalition
government.

While we were initially skeptical that the authorities would succeed in keeping the currency stable, there are three reasons why we
expect that the currency will be held at the current rate over the coming months.

First, we expect that policymakers will continue to use administrative measures to crack down on the parallel
market and discourage capital outflows. The Pakistani authorities have had more success than we had expected in
suppressing the parallel market and using administrative measures to suppress dollar demand. While this is seldom a sustainable
strategy over the long term, we expect that policymakers have the incentive and resources to continue over the remainder of the
year.

Second, we think that Pakistan’s current account deficit will remain narrow in FY2024/25. While the deficit will widen a
touch (from 0.8% of GDP in FY2023/24 to 1.0% of GDP in FY2024/25), it will be small by historical standards. This will limit
downward pressure on the currency.

Third, we think that the IMF and other foreign partners will provide much-needed FX. Pakistan’s FY2025 budget was
written in consultation with the IMF and included several new revenue-raising measures. While we do not think that the ambitious
plan will be fully implemented, we expect that it will be enough to unlock further funding. Pakistan’s FX reserves started to recover in
early 2023, and are already around the three months of import cover recommended by the IMF (see chart below, note that our
forecast does not yet include IMF disbursements, the timing of which is unclear).

Reserves Have Bounced Back

Pakistan - FX Reserves, Months of Imports

Source: Haver, BMI

Even if the country does not receive more funding from the IMF, we expect that partners (including, notably Saudi Arabia) would be
willing to step in in the event that the country faced a real lack of funds. Pakistan is, like Egypt, seen by its partners as 'too big to fail'.

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Long-Term Outlook (six-to-24 months)

Over the longer term, we expect that the rupee will continue to weaken against the US dollar. We expect that the
currency will slip to PKR310/USD by the end of 2025 and to PKR332/USD by the end of 2026. There are two key reasons for this
view.

First, while inflation in Pakistan will ease, it will remain faster than in the US. This will put continuous downward pressure
on the currency, which the authorities will have to allow to adjust in order to maintain export competitiveness and limit import
demand (see chart below).

Inflation Will Remain Elevated

Pakistan & US - Average Inflation, % y-o-y

e/f = BMI estimate/forecast. Source: National sources, BMI

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Second, we think that political risk in Pakistan will remain elevated, which will put pressure on the rupee. The
country’s coalition government is made up of parties that performed poorly in the February 2024 election and most local sources
suggest that jailed opposition leader Imran Khan remains the country’s most popular politician. This will make it difficult for the
government to push through painful fiscal reforms and makes protests likely.

Risks To Outlook

Risks to our forecast are weighted significantly towards another sharp depreciation. If the economy faces another
external shock as a result of rising energy or food import costs, a political crisis, a disruption to IMF and bilateral support, or an
increase in fears about the sustainability of Pakistan’s external debt, this would likely create downside pressures that the authorities
would not be able to resist. While Pakistan’s real effective exchange rate remains weaker below its 10-year average, it has
appreciated significantly since early 2023 (see chart below).

PKR Has Appreciated In Real Terms

Pakistan - REER

Source: Haver, BMI

This suggests that, if the present currency regime were abandoned, the currency would fall sharply. We expect that the rupee the
currency would quickly fall back to the PKR308/USD low recorded in November 2023, and would probably weaken past our
previous forecast of PKR325/USD.

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10-Year Forecasts
Pakistan Will Remain An Underperformer
Key View

• We expect that Pakistan’s economy will underperform its key regional peers over the coming 10 years. Growth in the country will
average just 3.5% over the 10 years to FY2032/33, about half the pace of growth in Bangladesh or India.
• If governance improves and policymakers are able to address the significant infrastructure deficit, it is possible that Pakistan
could follow the manufacturing-driven growth path of Bangladesh. We do not, however, believe that this is likely.
• The more likely alternate scenario is one in which political and social crises cause growth to slow even further.

Base Case

We expect Pakistan will continue to underperform its regional peers over the coming years. Between 2023/24 and
2032/33, we expect that growth in the country will average just 3.5%, compared to 5.4% in emerging market (EM) Asia (excluding
Mainland China) (see chart below, left). This comparatively poor performance will see Pakistan’s GDP per capita fall farther behind
India’s. Whereas the country’s GDP per capita was 78% of India’s in 2019, we expect that this ratio will fall to just 51% by 2032 (see
chart below, right).

Pakistan Will Fall Behind Regional Peers

Pakistan – Real GDP Growth, % (LHC) & Pakistan's GDP per Capita, % of India (RHC)

Note: BMI forecasts after 2023, GDP per Capita calculated at PPP rates. Source: BMI

Headline growth in the country will be boosted by rapid population growth. We expect that Pakistan’s population will rise
from 240mn in 2023 to 284mn in 2032. Structural factors, however, will prevent the country from making the most of this
demographic dividend.

First, we think that the combination of a high birth rate, low incomes and limited local savings will keep the
investment rate too low to close Pakistan’s large infrastructure gap. Whereas the best-performing Asian EMs have
investment rates of 20 to 25% of GDP, we expect that Pakistan’s will remain below 15% (see chart below). This will not be enough to
facilitate the development of new export industries. Given low savings, even sustaining this level will require running large current
account deficits.

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Investment Spending Will Remain Low

Pakistan - Investment & Savings, % of GDP

f = BMI forecast. Source: Pakistan Bureau of Statistics, BMI

Other factors will also add to the fragility of the external position. Pakistan is already heavily-dependent on imported fuels, and we
expect that rapid population growth will cause food consumption to outpace production, creating demand for yet more imports
(see chart below).

We expect that the rupee will remain under pressure. Given policymakers’ preference for a managed currency regime, we expect
that the currency will experience recurrent sharp adjustments.

Wheat Consumption Will Outstrip Production

Pakistan - Wheat Production & Consumption

f = BMI forecast. Source: National sources, BMI

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We also expect that political and security risks will frequently disrupt economic output and will deter foreign investment. Political
disputes will often prompt large-scale protests and we think that the civilian government will continue to clash with the influential
armed forces. Indeed, there is a considerable risk of a temporary return to military rule at some point over the coming 10 years.
Security threats will also remain elevated, though the situation will probably remain less precarious in Lahore, Karachi and other
economic centres.

Long-T
ong-Term
erm Gr
Groowth Outlook
Impulse View Notes
Tailwind Rapid population Pakistan's large population will rise sharply over the coming decade, providing a boost to
growth consumption and encouraging foreign firms to enter the market.
Tailwind Too big to fail The country's key geopolitical position will encourage foreign partners to provide financial
support in order to reduce the risk of a full-blown economic crisis in a fragile and nuclear-armed
state.
Headwind Elevated political and Ethnic divisions, economic inequality and debates over the role of religion in public life will keep
security risk political tensions high. We also expect intermittent conflict between the civilian government
and the influential military. The security situation will remain fragile, though most violence will
probably be limited to economically marginal areas.
Headwind Low investment rate A low investment rate will probably prevent Pakistan from closing the large infrastructure gap
that holds back productivity and has prevented the development of export-orientated industry.
Headwind Fragile balance of Pakistan's limited export industries and dependence on imported food and fuel will result in
payments position persistent trade deficits. The country is heavily dependent on remittances and foreign
assistance to meet its external payments. The rupee will remain under pressure, and currency
shocks like those seen in 2022 will probably reoccur.

Source: BMI

Bullish Scenario

If political risk fades and the government is able to boost investment spending, Pakistan could follow the Bangladeshi model of
export-orientated, labour-intensive manufacturing. The country has a large workforce and is located close to importing markets in
the Middle East and India. Pakistan’s low income levels create significant scope for rapid catch-up growth. With the right policies and
a big increase in investment, Pakistan should be able to sustain growth of over 6.0% per year (see chart below).

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Acceleration Or Recurrent Crises

Pakistan - Real GDP Growth, %

Note: BMI forecasts after 2023, Bearish forecast assumes recurrent crises but no war with India. Source: BMI

Bearish Scenario

It is more likely, however, that another wave of economic crises will cause the economy to stall. This could be prompted by
worsening political or security risks or a natural disaster like the floods that pushed the economy into recession in 2022 (see chart
above). The worst-case scenario would be a direct conflict with India. This would pose a potentially existential risk to the economy.

Long-T
ong-Term
erm Macr
Macroec
oeconomic
onomic FFor
orecasts
ecasts (P
(Pakistan
akistan 2023-2033)
Indicator 2023e 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f 2032f 2033f
Nominal GDP
GDP,, USDbn 369.3 355.5 357.5 366.2 372.1 381.6 391.4 401.4 411.7 422.3 433.2
Real GDP gr
groowth, % yy-o-y
-o-y -0.2 2.4 3.2 3.8 3.8 3.7 3.7 3.7 3.7 3.7 3.7
GDP per capita, USD 1,535 1,449 1,430 1,437 1,433 1,443 1,453 1,464 1,476 1,488 1,500
Population, mn 240.49 245.21 249.95 254.71 259.52 264.34 269.18 274.03 278.89 283.78 288.66
Consumer pric
pricee inflation, % yy-o-y
-o-y,, av
avee 30.9 13.9 8.9 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0
Ex
Exchange
change rrate
ate PKR per USD, av
avee 280.36 279.96 294.00 320.85 343.31 367.34 393.06 420.57 450.01 481.51 515.21
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -0.6 -0.8 -1.0 -1.2 -1.4 -1.1 -1.2 -1.2 -1.2 -1.2 -1.2
e/f = BMI estimate/forecast. Source: National sources, BMI

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Disclaimer

Our long-t
long-term
erm macr
macroec
oeconomic
onomic ffor orecasts
ecasts ar
aree based on a vvariety
ariety of quantitativ
quantitativee and qualitativ
qualitativee ffact
actor
ors.
s. Our 10-y
10-year
ear ffor
orecasts
ecasts assume in most cases
that gr
groowth eevventually cconv
onvererges
ges ttoo a long-t
long-term
erm trtrend,
end, with ec
economic
onomic pot potential
ential being det determined
ermined by ffactactor
orss such as capital inv
investment,
estment,
demogr
demographics
aphics and pr productivity
oductivity gr groowth. Because quantitativ
quantitativee fr
framew
ameworks
orks oft
often
en ffail
ail ttoo captur
capturee kkey
ey dynamics behind long-t long-term
erm gr groowth
det
determinants,
erminants, our ffor orecasts
ecasts also rreflect
eflect analy
analysts’
sts’ in-depth kno
knowledge
wledge of subjectiv
subjectivee ffact
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orss such as institutional str strength
ength and political stability
stability.. W
Wee
assess trtrends
ends in the ccomposition
omposition of the ec economy
onomy on a GDP by eexpenditur
xpendituree basis in or order
der ttoo det
determine
ermine the degr
degreeee ttoo which priv
privat atee and
go
govvernment cconsumption,
onsumption, fix
fixed
ed invinvestment
estment and the eexporxportt sect
sectoror will driv
drivee gr
groowth in the futurfuture.
e. TTak
aken
en ttogether
ogether,, these ffact
actor
orss ffeed
eed int
intoo our
pr
projections
ojections ffor
or eexxchange rrat
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es, eext
xternal
ernal ac
acccount balanc
balanceses and int
inter
erest
est rrat
ates.
es.

Source: BMI

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Political Outlook
Pakistan: Legal Wins Offer No Way Back For Imran Khan
Please Note: BMI is enhancing its risk analysis with a new scoring system following acquisition of GeoQuant, a market-leading
provider of political risk data. From March 27 2024, risk scores are inverted: zero now represents the lowest risk and 100 the highest.
This allows for clearer, industry-standard assessments. For further details, please refer to our updated methodology document.

Key View

• Despite several successful legal appeals, opposition leader Imran Khan will remain imprisoned for the foreseeable future.
• We expect that the PML(N)-led government will remain in power over the coming 18 months and will succeed in pushing
through with IMF-mandated fiscal reforms.
• In the unlikely event that the government is replaced, the most likely alternative is a military-backed technocratic administration
rather than fresh elections.

Although opposition leader Imran Khan has recently won several recent legal appeals, we expect that he will remain
in prison over the foreseeable future. Most analysts were surprised when judges – who were expected to side with the
government – quashed two of the legal cases against Khan in April and June. The opposition leader remains in prison, having lost a
third appeal regarding the legality of his most recent marriage (see chart below).

Imr
Imran
an Khan's LLegal
egal W
Woes
oes
Issue Sentence Date Issued Status
Leaking SState
tate Secr
Secrets
ets ("Cypher Case") 10 Years Imprisonment Jan 30th 2024 Annulled on June 3 2024
Declar
Declaration
ation of Assets ("T
("Toshakhana
oshakhana R
Ref
efer
erenc
encee Case") 14 Years Imprisonment Jan 31st 2024 Suspended on April 1 2024
Illegal Marriage 7 Years Imprisonment Feb 3rd 2024 Upheld on June 27 2024

Note: Only selected cases shown. Source: BMI

Even in the unlikely event that the Pakistan’s usually government-friendly judicial system overturned all of the over 100 charges
against Khan, we expect that the government would bring a new case against him rather than allow the popular opposition leader
to go free. Indeed, in June a close advisor to Prime Minister Shehbaz Sharif was quoted as saying 'Imran Khan’s main agenda is to
destabilise the country and spread chaos and anarchy in the country that’s why the government will certainly try to keep him
behind bars as long as possible.'

We retain our long-held view that the government will remain in power over the medium term and succeed in
pushing through with its fiscal consolidation plan. While allies of Khan performed better than most observers – including BMI
– had expected in the February 2024 general election, the incumbent Pakistan Muslim League - Nawaz (PML(N)) succeeded in
forming a coalition government with a large parliamentary majority (see chart below). There are two key reasons why we expect that
this alliance will endure over the medium term.

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PML(N) In Strong Parliamentary Position

Pakistan - National Assembly Seats

*Includes Khan's supporters, **Confidence & Supply Agreement; 168 seats needed for majority. Source: BMI

First, supporters of Imran Khan have not been able to organise a large-scale protest movement. In early 2024, we
expected that the February election – in which Khan’s party was banned from contesting – would spark large-scale protests such as
those that followed the opposition leader’s arrest in March 2023. In the event, the opposition decried the process as unfair, but did
not take to the streets. There was, similarly, no widespread mobilisation in response to the FY2025 (July-June) budget. This suggests
to us that the opposition is either unwilling or unable to mount a large-scale protest movement that would seriously destabilise the
government.

Second, the PML (N)-led coalition enjoys the clear support of Pakistan’s politically influential armed forces. While
Khan worked closely with the army when he first took power in 2018, his relations with key generals subsequently broke down.
Given that Khan has claimed that the army attempted to assassinate him and that the opposition leader’s supporters attacked
military installations during the 2023 protest movement, we expect that the leadership of the armed forces will now throw its
support behind the PML(N)-led government.

We thus expect that the government will succeed in pushing through with its IMF-supported fiscal consolidation
plan. We think that the government will miss its ambitious budget targets, but still think that the deficit will narrow from 7.4% in
FY2023/24 to 6.7% of GDP in FY2024/25. This will almost certainly be enough to unlock further funding from the IMF and other
foreign partners.

If we are wrong and the coalition does collapse, the most likely alternative is a military-backed technocratic
government rather than new elections. Given the coalition’s commanding parliamentary majority, the government is only likely
to collapse in the event of a sharp increase in violence or a painful economic crisis prompting a widespread protest movement. We
expect that the military will succeed in preventing a big rise in terrorist attacks and the economy will pick up. If, however, we are
wrong and the government is forced to resign, then we expect that the army would respond by installing a technocratic
administration. Another election would raise the prospect that Khan’s allies would gain a parliamentary majority, an outcome that
we do not believe that the army would be willing to accept.

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Against this overall backdrop, Pakistan scores 60.6 out of 100 in our Political Risk Index (a higher score denotes higher risk). The
country scores 42.8 for Governance, 76.6 for Society, and 48.6 for Security.

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Long-Term Political Outlook

Political Instability To Remain The Norm
Key View

• Political and security risks in Pakistan are much more elevated than in most Asian EMs.
• However, security challenges are, for the most part, contained in economically-peripheral regions.
• We forecast that state institutions will succeed in maintaining order in most of the country and that the existing elite will remain
in power. The military will remain politically influential, but are unlikely to take de-jure control of the country.

Pakistan is a pivotal country for global security owing to its large population, key strategic location and its nuclear arsenal. The
country remains locked in a decades-long rivalry with India, and relations between the two nuclear-armed states frequently flare up
due to territorial disputes. Domestically, Pakistan's government and its influential military (which has ruled the country for much of
its history) face violent campaigns by Islamist and separatist movements in many provinces. While our core view is that the
authorities will succeed in maintaining stability in the the core cities, Pakistan will almost certainly remain a fragile state where the
government is unable to fully enforce its authority in all regions of the country.

Challenges And Threats To Stability

Weak Institutions: Although the main political parties have ideological differences, they are largely personality- or family-
dominated and this has led to accusations of nepotism, patronage and corruption. This has proved a source of public anger and
unrest. In this climate, no prime minister has been able to complete a five-year term in office since Pakistan’s independence in
1947.

Powerful Military Establishment: The military is arguably Pakistan's strongest and most respected institution, and it has ruled
the country for roughly half of its 65 years of existence. While the military has acted as a stabiliser during crises (the 1999 coup was
initially welcomed) the population tends to eventually tire of military rule and demand the return of democracy.

Economic Inequality: Pakistan's per capita GDP is very low and Income inequality is high, both vertically (ie, between different
segments of society) and horizontally (between different provinces and regions). Education levels are low, as evidenced by a very
high degree of illiteracy, especially in rural areas and among women.

Demographic Pressures: Pakistan's population is increasing rapidly, with the UN forecasting it to rise from 231mn in 2021 to
263mn in 2030. In addition, the proportion of the population aged below 25 is very high at 54% and is expected to remain high at
50% in 2030. Urbanisation rates are also increasing, albeit slowly and will reach 40.0% by 2030 (from an estimated 37.5% in 2021).
This backdrop makes it all the more urgent for both the government and the private sector to create sufficient job opportunities in
order to absorb the expanding labour force. The rising population also threatens to create pressures on Pakistan's agricultural
production and water supply.

Islamist Militancy: The combination of rapid population growth, the weak education system and the lack of opportunities for
economic advancement provides fertile ground for the growth of Islamist militancy. This is being exacerbated by the ongoing
insurgency in Afghanistan, which is leading to knock-on effects in Pakistan, as evidenced by the increasing terror activities of the
Pakistani Taliban.

High Ethnic Diversity: Pakistan is a culturally diverse state, with the largest linguistic group, the Punjabis, accounting for roughly
44% of the population. Other significant linguistic groups that have demonstrated separatist tendencies include Pashtuns (15%
nationally, but an overwhelming majority in the Afghan border regions), Sindhis (14%) and Baluchis (4%). Also noteworthy are

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tensions between the majority Sunni Muslim population and the Shi'a minority, which comprise 10-15% of the total.

Scenarios For Political Change

Over the coming decade, we see several possible scenarios for Pakistan's evolution, based on different permutations of military rule,
civilian rule, moderate ideology and radical Islamist ideology.

Best Case Scenario - Continued Civilian Rule: In this scenario, the civilian government maintains its authority and the
population remains committed to supporting moderate political parties rather than radical movements. The army will manage to
keep a lid on Islamist militancy and Pakistan retains its generally pro-western alignment.

Alternate Scenario - Lasting Military Rule: Pakistan has alternated between civilian and military rule for its entire history as an
independent state, but the country could move towards more lasting military rule if military elites lose faith in the ability of the
political class to govern the country or protect their interests. Pakistan's armed forces took power through military coups in 1958,
1977 and 1999, and have remained politically influential even when civilian governments are nominally in power. Even when taking
power directly, the army coopted civilian leaders and maintained at least some of the state's nominally democratic institutions. If,
however, the armed forces intended to control the country for a long period, they could impose institutional changes to
fundamentally alter the constitution and solidify their position.

Other Scenarios - Unity Versus Fragmentation: In addition to how the military-versus-civilian and moderate-versus-radical
dynamics play out, there are two other forces to consider, namely the forces of unity (centripetal forces) and disunity (centrifugal
forces). These can have both peaceful and violent manifestations. Pakistan is vulnerable to centrifugal pressures, which could
substantially weaken government control. Western powers all have a vested interest in preventing Pakistan's disintegration and will
continue to provide the country with substantial economic assistance.

Sc
Scenario
enario Matrix: Centrifugal V
Ver
ersus
sus Centripetal FFor
orcces
Disunity Prevails Unity Prevails
Peac
eaceful
eful Pakistan experiences growing separatism, but these pressures Pakistan remains a peaceful and unified entity; the
outc
outcome
ome are contained as the government adopts a looser structure government maintains authority throughout most of the
allowing for greater autonomy for its provinces. country.
Violent Pakistan undergoes violent fragmentation as the army Pakistan remains nominally unified, but the government
outc
outcome
ome struggles to contain Islamist militants and separatist regions; loses de facto control of border regions and vast tracts of
the latter become de facto independent states. territory countrywide to Islamist militants.

Source: BMI

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Pakistan - P
Political
olitical Ov
Over
erview
view
System of go
govvernment Federal republic, constitution restored on December 15 2007. Executive power rests with the prime
minister, and the cabinet is drawn from parliament. Bicameral legislature led by 342-seat National
Assembly (five-year term, elected by universal suffrage).
Head of state President Asif Ali Zardari
Head of go
govvernment Prime Minister Shehbaz Sharif
Last election Presidential - March 9 2024
National Assembly - February 8 2024
Senate - April 2024
Composition of curr
current
ent The National Assembly has a total of 342 seats. The government consists of PML (N), MQM-P, IPP, BAP,
go
govvernment NP, PML(Z). The government has a confidence and supply agreement with the PPP

Key figur
figures
es Minister of Defense - Khawaja Muhammad Asif; Foreign Minister - Muhammad Ishaq Dar; Chief of Army
Staff - General Syed Asim Munir Ahmed Shah; Minister of Finance - Muhammad Aurangzeb
Main political par
parties
ties (number of Pakistan Muslim League-Nawaz (PML-N, 93 seats): Punjab-based umbrella party run by Shehbaz and
seats in National Assembly) Nawaz Sharif.
Pakistan People's Party (PPP, 68 seats): Sindh-based party controlled by the Bhutto-Zardari family.
Supports the PML-N led government.
Sunni Ittehad Council (SIC, 85 seats). After Imran Khan's Pakistan Tehreek-e-Insaf was prevented from
running under their own banner, independents backed by Khan joined the SIC (a small religious
grouping) in order to gain party status in the assembly.
Muttahida Qaumi Movement (MQM, 22 seats): Formed by Altaf Hussain to defend the rights of Urdu-
speakers in the province of Sindh. Often blamed for ethnic violence in Karachi.
Extr
Extra-parliamentar
a-parliamentaryy opposition Militant groups linked to the Taliban and al-Qaeda include Lashkar-e-Jhangvi and the Tehrik-i-Taliban
Pakistan (the Pakistani Taliban). Other religious militants group include the Harkat-ul-Mujahideen. The
government has also outlawed the Sipah-e-Sahaba Pakistan and Tehreek-e-Jaferia Pakistan.
Ne
Next
xt election Presidential - 2029
National Assembly - February 2029
Senate - March 2029
Ongoing disputes The state of Jammu and Kashmir is divided between India and Pakistan. Pakistan controls the Northern
Areas and Azad Kashmir, while India controls Jammu, the Kashmir valley and Ladakh. India and Pakistan
also share a disputed border in the Rann of Kutch, which lies in India's Gujarat and Pakistan's Sindh.
Key rrelations
elations Close military and economic links with Beijing. Ally of the US during the War on Terror. Protracted rivalry
with India

Source: BMI

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Global Macro Outlook

H2 2024 Will Bring Greater Election Uncertainty
The outlook for the global economy has continued to improve marginally, and we now forecast global real GDP to grow by 2.5% in
2024. While this is only a marginal change compared with last month's estimate of 2.4%, it underlines that we are significantly more
optimistic than we were in January (when we expected growth of just 2.1%). While we previously expected tightening developed
market (DM) monetary policy to prompt a global slowdown, we now expect that growth will be essentially unchanged from 2023. A
large portion of the improvement in this month's growth outlook was driven by upward revisions in several major emerging markets
(EMs) such as India (6.5% to 7.0%), Chile (1.8% to 2.7%), Russia (2.9% to 3.4%) and Turkiye (0.6% to 2.7%), which helped to offset
some downward revisions in Saudi Arabia (2.1% to 0.7%), South Africa (1.4% to 1.0%) and Argentina (-1.9% to -3.8%).

Global Growth Remains Resilient

Global - Evolution Of 2024 Growth Forecasts, % (LHC) & Key Changes To Growth Forecast Since May, pp (RHC)

Source: Bloomberg, BMI

Several factors help to explain the resilience of the global economy in H1 2024. First, although monetary policy remains tight,
financial conditions eased significantly in late 2023, which helped to support growth. Second, while fiscal policy tightened, this did
not happen as quickly as we had expected. Third, the inventory and trade cycles have strengthened from 2023 as businesses
stocked up again. Lastly, slowing inflation and tight labour markets have kept household purchasing power resilient.

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Easier Financial Conditions And Still-Wide Deficits Have Helped Growth

US - Financial Conditions Index (LHC) & 12M Budget Balance, % of GDP (RHC)

Source: Bloomberg, BMI

Two major dynamics will help shape the outlook for global growth over the rest of 2024 and into 2025. First, we believe that inflation
will continue to soften, which will allow a larger number of central banks to ease. While EMs already have a large head start, a larger
number of major central banks are also starting to ease policy. The European Central Bank cut its policy rate by 25 basis points (bps)
to 3.75% in June, and we forecast that it will cut it by only a further 50 basis points to 3.25% by the end of 2024. Other central banks
in Canada, Sweden and Switzerland have also cut, and we expect easing cycles to commence in the US, South Korea, Australia and
New Zealand later in 2024.

Central Banks Cutting, With More Cuts To Come

Global - Central Bank Diffusion Index 2M Average*, (LHC) & Changes In Policy Rate, bps (RHC)

*Negative readings denote cuts. Source: Bloomberg, BMI

That said, we have tapered our expectation for interest rate cuts by the US Federal Reserve (Fed) from 75bps in 2024 to 50bps and
now expect that the Fed funds rate will end the year at 5.00%. While US policymakers maintained a somewhat cautious tone at their
June meeting, the month-on-month inflation prints in May (0.0% for headline and 0.2% for core) came in below expectations, and
we expect that inflation will ease further as rents come down and the labour market softens. This should allow the Fed to cut
interest rates, starting in September.

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Leading Indicators Point To Softer Inflation Prints Ahead

US - Rent Related Inflation (LHC) & Labour Market Indicators, % (RHC)

Source: Bloomberg, Haver, BMI

Global Election Cycle: The Easy Part Is Over

The election cycle will pose risks to the global economy in H2 2024. While our core view for 2024 was for broad policy continuity as
incumbent parties would mostly remain in power this year (Taiwan, China; Indonesia; India; Mexico; and South Africa), the second
half of the year will prove more challenging. We expect a change in the UK, where we forecast the Labour party will win following 14
years in opposition. In France, President Emmanuel Macron’s decision to call for snap elections will cast a long shadow over
policymaking in the next 12-24 months. We think that the US election is a tossup, and policy uncertainty will remain elevated as we
move closer to the November elections and beyond. In addition, debt ceiling concerns will resurface when the current deal expires
in January 2025.

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Global - Macr
Macroec
oeconomic
onomic FFor
orecasts
ecasts (2021-2028)
2021 2022 2023 2024f 2025f 2026f 2027f 2028f
Real GDP Growth (%)
US 5.8 1.9 2.5 2.1 1.4 2.5 1.9 1.7
Eurozone 6.0 3.4 0.5 1.0 1.5 1.6 1.7 1.7
Japan 2.6 1.0 1.9 0.9 1.0 0.9 0.9 0.9
China (Mainland) 8.1 3.0 5.2 4.7 4.4 4.2 3.9 3.7
World 6.1 3.0 2.6 2.5 2.5 2.9 2.7 2.6

Consumer Inflation (avg)

US 4.7 8.0 4.2 2.9 1.8 2.3 2.5 2.5
Eurozone 2.6 8.4 5.5 2.3 2.0 2.3 2.3 2.3
Japan -0.3 2.5 3.3 2.3 1.6 1.2 1.0 1.0
China (Mainland) 0.9 2.0 0.2 0.0 1.5 1.3 1.0 1.0
World 4.5 8.0 6.0 5.0 3.4 2.7 2.6 2.6

Interest Rates (eop)

Fed funds rate 0.25 4.50 5.50 5.00 3.00 3.00 3.00 3.00
ECB refinancing
-0.50 2.00 4.00 3.25 2.50 2.00 2.00 2.00
rate
Japan overnight call
-0.10 -0.10 -0.10 0.10 0.10 0.10 0.10 0.10
rate

Exchange Rates (avg)

USD per EUR 1.18 1.05 1.08 1.09 1.12 1.12 1.12 1.12
JPY per USD 110 131 140 145 132 130 125 120
CNY per USD 6.45 6.74 7.08 7.17 7.15 7.13 7.17 7.18

Oil Prices (avg)

OPEC basket (USD/
69.89 101.17 82.95 84.00 81.00 80.00 80.00 80.00
bbl)
Brent crude (USD/
70.95 99.04 82.18 85.00 82.00 81.00 81.00 81.00
bbl)

Note: May include territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Bloomberg, local sources, BMI

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Global And R
Regional
egional - R
Real
eal GDP Gr
Groowth, % Chg Y
Y-o-y
-o-y,, And Ex
Exchange
change Rates (2021-2028)
2021 2022 2023 2024f 2025f 2026f 2027f 2028f
World 6.1 3.0 2.6 2.5 2.5 2.9 2.7 2.6
De
Devveloped mark
markets
ets 5.5 2.6 1.6 1.5 1.5 2.1 1.8 1.7
Emer
Emerging
ging mark
markets
ets 6.9 3.7 4.2 3.9 3.9 4.0 3.9 3.8
Asia (e
(exxcluding Japan) 7.5 4.0 5.5 5.1 4.9 4.8 4.5 4.4
Latin America 6.7 3.7 2.2 1.7 1.8 2.7 2.6 2.5
Emer
Emerging
ging EEur
urope
ope 7.5 1.9 3.3 3.1 2.1 2.7 3.1 3.0
Sub-Sahar
Sub-Saharan
an Africa 4.2 3.5 2.5 3.2 3.7 3.8 3.8 4.0
Middle East and Nor
North
th Africa 5.3 5.3 2.4 2.4 3.9 3.7 3.7 3.4

Developed Market Exchange Rates (avg)

2021 2022 2023 2024f 2025f 2026f 2027f 2028f
Eur
uroozone USD per EUR 1.18 1.05 1.08 1.09 1.12 1.12 1.12 1.12
Japan JPY per USD 110 131 140 145 132 130 125 120
Switz
witzerland
erland CHF per USD 0.91 0.95 0.90 0.91 0.95 0.96 0.96 0.98
UK USD per GBP 1.38 1.23 1.24 1.25 1.25 1.22 1.20 1.18

Emerging Market Exchange Rates (avg)

2021 2022 2023 2024f 2025f 2026f 2027f 2028f
China (Mainland) CNY per USD 6.4 6.7 7.1 7.2 7.2 7.1 7.2 7.2
South K
Kor
orea
ea KRW per USD 1,144 1,291 1,306 1,305 1,290 1,180 1,100 1,100
India INR per USD 73.9 78.6 82.6 82.0 81.5 83.5 85.2 86.9
Br
Brazil
azil BRL per USD 5.39 5.16 4.99 5.20 4.90 5.05 5.10 5.15
Me
Mexic
xico
o MXN per USD 20.3 20.1 17.8 17.8 19.0 17.5 17.0 17.0
Russia RUB per USD 73.7 68.5 85.2 93.1 97.3 97.0 96.4 96.9
Turkiy
urkiyee TRY per USD 8.9 16.5 23.8 34.1 41.3 47.3 52.0 57.2
South Africa ZAR per USD 14.8 16.4 18.5 19.4 20.2 20.5 20.9 21.3

Note: May include territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Bloomberg, local sources, BMI

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Developed Markets: Economic Resilience May Be Short-Lived

We left our economic growth forecast for DMs unchanged at 1.5% in June. This is a bit more optimistic than our forecast in
January (1.1%) but would still be a slowdown compared with growth of 1.6% in 2023 (see chart below). While DMs held up better
than we had expected in Q1 2024, we think that the ongoing effects of tight monetary policy will still weigh on economic activity
later in 2024. Higher-for-longer interest rates in the US, with the start of the easing cycle now expected to commence September
rather than July, keep risks to our growth forecast tilted to the downside, particularly if other central banks respond to a more
hawkish US Fed by delaying their own rate cuts.

More Optimistic Than In January

DMs - Real GDP Growth, % (2015-2024)

Source: BMI

Finland is the only DM where we expect that GDP will fall in 2024 (see chart below). Our outlook for most of the largest
economies has not changed from May. We forecast a modest recovery in Germany, with growth rebounding to 0.3% in 2024
following a 0.2% contraction in 2023. We expect growth of 0.9% in France and 2.2% in Spain. Outside Europe, we still forecast
growth of 0.9% in Japan, 1.5% in Australia and 2.1% in the US. Italy and Canada are the only major DMs for which we have updated
our growth projections in June. For 2024, we now forecast that both Italy and Canada to grow by 0.9%, marking an increase from our
previous forecasts of 0.7% for Italy and 0.6% for Canada.

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Finland Will Be The Exception

Selected DMs - Real GDP Growth, % (2024f)

Source: BMI

In May, most of the largest DMs recorded an expansion in private sector activity. The expansion was especially strong in
the US and Spain. The composite purchasing managers' index (PMI) remained in expansion territory, signifying growth across these
economies. However, France was an exception, where the PMI fell below the threshold of 50, suggesting a contraction. Overall, the
manufacturing sector continued to weigh on growth in most of the biggest DMs, including Canada, Italy, France, Germany and
Australia. Only Japan, the UK and the US saw a modest expansion in manufacturing, with Spain experiencing a more significant
uptick. The services sector was robust, with growth observed across all the economies we monitored. Spain stood out with its
service sector expanding considerably.

Private Sector Activity Strengthening

Selected DMs - Composite PMI, index

Source: Haver, BMI

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Centre Holds In EU Parliamentary Elections, Supporting Policy Continuity

As we had expected, the centrist alliance that runs the European parliament retained its majority in June’s
election. This suggests that EU Commission President Ursula von der Leyen will receive another term and that EU policymakers will
continue to push the European Green Deal. Even so, the strong performance of far-right parties may lead to a tougher stance on
migration and some adjustments to the Green Deal in favor of business support and some deregulation. Therefore, we anticipate
that policymaking will become more complex and President von der Leyen will have to seek alliances beyond her traditional
partners to secure her position for the next term

The big surprise of the election came in France, where President Macron responded to the strong performance of the
far right by calling for snap parliamentary elections. We expect that his centrist bloc will succeed in forming the next
government, but we highlight policy risk if the vote results in a hung parliament.

De
Devveloped Mark
Markets
ets - R
Real
eal GDP Gr
Groowth FFor
orecasts,
ecasts, % Y
Y-o-y
-o-y (2021-2028)
2021 2022 2023 2024f 2025f 2026f 2027f 2028f
Developed Markets Aggregate Growth 5.5 2.6 1.6 1.5 1.5 2.1 1.8 1.7

G7 5.4 2.2 1.7 1.4 1.2 1.9 1.7 1.5

Eurozone 6.0 3.4 0.5 1.0 1.5 1.6 1.7 1.7
EU-27 6.0 3.4 0.5 1.1 1.7 1.8 1.9 1.8

Selected Developed Markets

Austr
Australia
alia 5.0 3.7 2.1 1.5 2.3 2.6 2.6 2.6
Austria 4.2 4.8 -0.8 0.4 1.8 1.6 1.7 1.6
Belgium 6.9 3.0 1.4 1.1 1.5 1.4 1.2 1.0
Canada 5.3 3.8 1.2 0.9 1.2 2.5 2.2 1.9
Cz
Czech
ech R
Republic
epublic 3.6 2.4 -0.3 1.6 2.5 3.8 3.7 2.8
Denmark 6.8 2.7 1.9 1.6 2.0 1.9 2.0 2.0
Finland 2.8 1.3 -1.0 -0.3 1.6 1.0 1.1 1.2
Fr
Franc
ancee 6.4 2.5 0.9 0.9 1.2 1.4 1.5 1.2
Germany 3.2 1.8 -0.2 0.3 1.1 1.2 1.4 1.6
Hong K
Kong,
ong, China 6.5 -3.7 3.2 2.0 2.2 2.2 2.2 2.2
Ir
Ireland
eland 15.1 9.4 -3.2 2.8 3.0 3.9 3.8 3.9
Isr
Israel
ael 9.7 6.4 1.9 1.2 4.1 3.4 3.7 3.7
Italy 8.3 4.0 0.9 0.9 1.1 1.3 1.3 1.3
Japan 2.6 1.0 1.9 0.9 1.0 0.9 0.9 0.9
Netherlands 6.2 4.4 0.1 0.6 1.5 1.4 1.4 1.4
Nor
Norway
way 3.9 3.3 0.3 0.8 1.2 1.8 1.8 1.8
Por
ortugal
tugal 5.7 6.8 2.3 2.2 3.1 3.2 3.2 3.2
Singapor
Singaporee 9.7 3.8 1.1 2.0 2.4 2.9 2.9 2.9
South K
Kor
orea
ea 4.1 2.6 1.4 2.7 2.9 2.8 2.8 2.7

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2021 2022 2023 2024f 2025f 2026f 2027f 2028f

Spain 6.4 5.8 2.5 2.2 2.0 2.2 2.0 2.0
Sweden 5.9 1.2 -0.2 0.4 1.7 1.7 1.7 1.7
Switz
witzerland
erland 5.1 2.5 1.3 0.7 1.2 2.9 2.3 1.7
Taiwan, China 6.6 2.5 1.4 3.5 2.8 2.7 2.7 2.6
UK 8.7 4.3 0.1 0.8 1.1 1.7 1.9 1.6
US 5.8 1.9 2.5 2.1 1.4 2.5 1.9 1.7

Note: May include territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Local sources, BMI

Emerging Markets: Slight Upward Revisions

We have made slight upward revisions to our EM growth forecasts in June. We moved our forecasts for both 2024 and
2025 from 3.8% to 3.9% (see chart below). This was largely due to a more optimistic view on India.

Minor Forecast Revisions

EMs - Real GDP Growth, % (2022-2026)

e/f = estimate/forecast. Source: BMI

Activity

Data released over the past month were strong, suggesting that the momentum built up in Q1 2024 was retained in
most economies. Our GDP-weighted manufacturing index did decline slightly, but this was mostly due to a slip in Brazil. Readings
in most EMs remained above the 50-mark threshold that divides contraction from expansion. Most consumer confidence measures
increased, and export growth picked up across almost all EMs (see charts below).

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Inflation

Early data suggest that the EM-wide disinflationary trend reversed in May, with the majority of EMs reporting faster inflation last
month than in April. This was the first time since January 2023 that a majority of EMs reported accelerating inflation (see chart
below). In most cases, however, the accelerations were very small. In Poland, for example, inflation ticked up from 2.5% y-o-y in April
to 2.6% in May. This suggests that, as in DMs, the final disinflationary steps towards a pre-crisis pace of price growth will be the most
difficult.

We retain the view that the general trend over the coming 18 months will remain disinflationary. We forecast that median inflation
will average 4.5% in 2024 and then slip to 3.5% in 2025. We expect that the pace of further disinflation will be very slow.

Policy

Despite the slight uptick in inflation, EM policymakers continued to loosen policy last month. This continued the trend that has been
in place since mid-2023. Argentina’s 2,000bps cut was in a league of its own. However, we also saw interest rate cuts in Colombia
(-50bps), Chile (-50bps), Brazil (-25bps) and Peru (-25bps). Policymakers also cut their key rates in the Czech Republic (-25bps) and
Hungary (-25bps).

Hawkish comments from the US Fed in June suggest that US policymakers will keep their key rate on hold until September. Even so,
we expect that all of the EM central banks mentioned above will cut their key rates at least once more in 2024, with policymakers in
Colombia cutting the most (from 11.75% to 8.75%). We also expect interest rate cuts in India and Mainland China, where
policymakers kept rates on hold this month (see chart below).

Policymakers in Africa continued to buck the EM-wide trend, with central banks hiking key interest rates in Angola (+50bps), Zambia
(+100bps) and Nigeria (+150bps) but cutting in Mozambique (-75bps). We expect another 100bps of interest rate hikes in Nigeria
and another 100bps of cuts in Mozambique. We also expect 50bps of cuts in South Africa, though this could be postponed if
political risk prompts another bout of rand weakness that pushes up inflation.

EM Asia: More Signs Indian Growth Peaked In FY2023/24

We revised our forecasts for 2024 growth forecast for EM Asia up from 5.0% to 5.1% as a result of a slightly more
optimistic forecast for India. Figures released in June showed that growth at the end of FY2023/24 was stronger than we – or
most analysts – had expected (see chart below). This created some carry-over effects into FY2024/25. Even so, we expect that
growth will slow to 7.0% in FY2024/25. The weaker GVA figures for FY2023/24 suggest that the headline figure may have
overstated the pace of underlying growth in 2023. We doubt that Prime Minister Narendra Modi losing his parliamentary majority
will have a significant effect on economic policymaking.

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Upward Revision To FY2023/24

India - Real GDP Growth, %

f = forecast. Source: BMI

We have left our other key forecasts for EM Asia unchanged. We expect that growth in China will slow to 4.7% in 2024 and to 4.4% in
2025. In Indonesia, by contrast, we think that growth will pick up from 5.1% in 2024 to 5.7% in 2025.

SSA: All Eyes On South Africa

Attention in Sub-Saharan Africa (SSA) focused on South Africa in June, where a poor showing by the African National
Congress (ANC) has forced the creation of the first multi-party government in 25 years. Cyril Ramaphosa was
reappointed as president with the support of 283 out of 400 members of the national assembly, suggesting that the newly formed
Government of National Unity has far more support in the chamber than the leftist Progressive Caucus (see chart below). Political
tensions will, however, remain elevated. Members of the opposition have referred to the governing alliance, which includes a party
with a white leader, as 'the return of apartheid. The new government will face a daunting economic challenge; a contraction in
output in Q1 2024 prompted us to revise down our 2024 growth forecast for South Africa from 1.4% to 1.0%.

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GNU Has Large Majority

South Africa - National Assembly, seats

Source: IEC, local media, BMI

We left our other forecasts largely unchanged. We expect that growth in Nigeria will pick up from 3.0% in 2024 to 3.5% in 2025 and
that growth in Kenya will remain strong at 5.5% in 2024 and 5.4% in 2025.

EM Europe: Upward Revisions, Key Views Unchanged

We revised our 2024 growth forecast for EM Europe from 2.3% to 3.1%, the biggest increase to any of our regional
views (see chart below). This change was due to stronger-than-expected Q1 2024 growth in Russia and Turkiye, but in both cases
we still think that growth will slow over the coming 18 months. A strong Q1 2024 result in Russia prompted us to move our 2024
forecast from 2.9% to 3.4%, but we think that the economy faces the risk of overheating.

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A Rare Upward Revision For EM Europe

EMs - 2024 Growth Forecast, %

*MENA figure excludes conflict-hit countries. Source: BMI

Growth was also stronger than we had expected in Turkiye. While we moved our 2024 forecast up a touch, we retain the view that
the economy will fall into recession. Continued stimulus makes the timing of the recession unclear, but we expect a big slowdown in
2025. We left our main forecasts for Poland (2.6%), Hungary (1.6%) and the rest of EM Europe unchanged.

Middle East And North Africa: OPEC+ Deal Prompts Major Revisions

The extension of OPEC+ production cuts caused us to make significant revisions to our economic forecasts across
the Middle East and North Africa (MENA). In aggregate, we moved our 2024 growth forecast from 2.8% to 2.4%. The largest
revision was to our 2024 forecast for Saudi Arabia, which we cut from 2.1% to 0.7% (see chart below). We also made smaller
revisions to our forecasts for the UAE (4.0% to 3.8%), Kuwait and Oman.

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Big Revisions In MENA

MENA - Real GDP Growth Forecast, % (2024)

*Fiscal years ending March 31 (2024=2024/25). **Fiscal years ending June 31 (2024=2023/24). Source: BMI

We left our core forecasts for Egypt, where we expect growth of 3.2%, unchanged. We expect that growth across the region will pick
up in 2025 as oil production rises and disruptions caused by the war in Gaza ease.

Latin America: Darkening Outlook In Argentina

We became a bit less optimistic about growth in Latin America this month, reducing our 2024 forecast from 1.8% to
1.7%. This would be much weaker than the 2.2% growth recorded in 2023 and would make Latin America the worst-performing
region of the EM world. The key revision was driven by a more pessimistic view about Argentina, where we now expect that output
will fall by 3.8% in 2024 (see chart below). We changed our view following evidence that fiscal tightening in the country will be even
more aggressive than we previously assumed. While the government is pushing on with reforms that may (in time) boost output,
the adjustment process will be very painful.

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More Pessimistic About Argentina

Latin America - Real GDP Growth Forecast, % (2024)

Source: BMI

Elsewhere, we raised our 2024 forecast for Chile from 1.8% to 2.7%. Growth was stronger than we had expected in Q1 2024, and we
think that the mining sector will perform well over the remainder of the year. We left our 2024 growth forecast for Brazil unchanged
at 2.1%, but severe flooding in the south of the country poses a key downside risk. Mexico's June 2 election resulted in an even
stronger mandate for Claudia Sheinbaum than we (or most analysts) had expected. While this caused the peso to fall, the currency
has begun to stabilise, and we think that fears of major constitutional reforms that would weaken independent institutions are
overdone.

Emer
Emerging
ging Mark
Markets
ets - R
Real
eal GDP Gr
Groowth FFor
orecasts,
ecasts, % Y
Y-o-y
-o-y (2021-2028)
2021 2022 2023 2024f 2025f 2026f 2027f 2028f
Emerging Market Aggregate Growth 6.9 3.7 4.2 3.9 3.9 4.0 3.9 3.8

Latin America 6.7 3.7 2.2 1.7 1.8 2.7 2.6 2.5
Ar
Argentina
gentina 10.7 5.0 -1.6 -3.8 2.5 1.5 2.3 2.6
Br
Brazil
azil 4.8 3.0 2.9 2.1 1.8 2.5 2.4 2.4
Chile 11.3 2.1 0.2 2.7 2.5 2.2 2.7 2.6
Colombia 10.8 7.3 0.6 1.3 2.2 2.7 2.6 2.3
Me
Mexic
xico
o 5.7 3.9 3.2 2.3 1.2 3.4 2.7 2.6

Middle East And North Africa* 5.3 5.3 2.4 2.4 3.9 3.7 3.7 3.4
Saudi Ar
Arabia
abia 5.1 7.5 -0.8 0.7 5.0 3.6 4.1 3.6
UAE 3.8 7.9 3.6 3.8 6.7 7.4 5.2 4.7
Ir
Iran**
an** 4.7 3.8 4.3 4.0 1.8 1.8 2.0 2.0
Algeria 3.4 3.1 3.6 2.8 1.8 2.2 2.4 2.2
Egypt*** 3.3 6.7 3.8 3.2 4.2 4.4 4.1 4.1

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2021 2022 2023 2024f 2025f 2026f 2027f 2028f

Sub-Saharan Africa 4.2 3.5 2.5 3.2 3.7 3.8 3.8 4.0
South Africa 4.8 1.9 0.7 1.0 1.4 1.6 1.5 1.4
Keny
enyaa 7.6 4.8 5.6 5.5 5.4 5.3 5.3 5.5
Ethiopia 5.6 5.3 6.0 6.8 7.0 7.2 7.3 7.2
Nigeria 3.6 3.3 2.9 3.0 3.5 3.6 3.4 4.2

Emerging Asia 7.5 4.0 5.5 5.1 4.9 4.8 4.5 4.4
China (Mainland) 8.1 3.0 5.2 4.7 4.4 4.2 3.9 3.7
India** 9.7 7.0 8.2 7.0 6.6 6.5 6.4 6.4
Indonesia 3.7 5.3 5.0 5.1 5.7 5.3 5.3 5.2
Malay
Malaysia
sia 3.3 8.7 3.7 4.4 4.5 4.0 3.9 4.0
Philippines 5.7 7.6 5.6 6.2 6.7 6.8 6.7 6.7
Thailand 1.5 2.6 1.9 2.8 3.6 3.7 3.7 3.6

Emerging Europe 7.5 1.9 3.3 3.1 2.1 2.7 3.1 3.0
Russia 5.9 -1.2 3.6 3.4 2.1 1.1 0.8 0.8
Turkiy
urkiyee 11.4 5.5 4.5 2.7 0.1 3.0 4.3 3.9
Hungar
Hungaryy 7.1 4.6 -0.9 1.6 3.2 3.3 2.9 2.8
Romania 5.7 4.1 2.1 2.7 3.1 3.3 3.7 4.0
Poland 6.9 5.3 0.2 2.6 3.5 3.7 3.8 3.8

Note: May include territories, special administrative regions, provinces and autonomous regions. *MENA aggregate excludes Libya, Syria and Yemen. **Fiscal years ending March
31 (2024 = 2024/25). ***Fiscal years ending June 31 (2024 = 2023/24). f = forecast. Source: BMI

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Index tables
Please Note: BMI is enhancing its risk analysis with a new scoring system following its acquisition of GeoQuant, a market-leading
provider of political risk data. From March 27 2024, risk scores are inverted: zero now represents the lowest risk and 100 represents
the highest risk. This allows for clearer, industry-standard assessments. For further details, please refer to our updated methodology
document

Political Risk Inde

Indexx
Political Risk Security Regional Global
Governance Social Risk Trend
Score Risk Rank Rank
Japan 11.8 9.0 10.8 16.7 - 1 3
New Z
Zealand
ealand 17.8 2.0 15.2 36.5 + 2 6
South K
Kor
orea
ea 18.8 17.3 24.9 13.3 - 3 8
Austr
Australia
alia 19.7 6.0 33.9 21.5 + 4 9
Singapor
Singaporee 22.8 14.4 20.5 30.6 - 5 19
Kiribati 33.5 19.5 36.4 39.0 = 6 41
Mongolia 35.3 30.8 27.5 37.7 - 7 45
Hong K
Kong,
ong, China 36.9 31.3 29.4 39.7 - 8 55
Taiwan, China 37.4 17.0 37.1 51.2 + 9 59
Malay
Malaysia
sia 37.5 27.9 41.6 35.2 + 10 61
Indonesia 40.4 33.0 48.1 31.5 - 11 73
Macao, China 40.8 43.3 33.0 44.9 + 12 75
Thailand 41.6 38.5 37.2 36.9 - 13 77
Brunei Darussalam 42.2 30.5 31.2 52.7 - 14 81
China (Mainland) 42.4 43.3 43.6 28.2 + 15 82
India 44.1 29.2 65.6 31.1 - 16 88
Cambodia 44.4 43.4 36.3 39.3 + 17 89
Vietnam 44.4 43.1 40.9 35.9 + 17 89
Fiji 45.3 30.5 43.5 50.5 - 19 93
Philippines 45.7 34.8 46.3 44.3 - 20 94
Bhutan 50.1 41.3 44.2 49.7 = 21 106
Nepal 51.9 39.6 49.7 51.8 = 22 109
Sri Lank
Lankaa 52.2 39.2 67.2 39.0 + 23 113
Bangladesh 54.2 42.7 59.1 46.7 - 24 120
Timor
Timor-L
-Leste
este 55.0 46.9 49.4 51.5 = 25 121
Papua New Guinea 58.7 47.6 57.9 53.2 - 26 130
Pakistan 60.6 42.8 76.6 48.6 - 27 134
Laos 60.9 55.6 53.8 53.1 + 28 135
Nor
North
th K
Kor
orea
ea 64.6 69.8 37.7 59.1 + 29 152
Afghanistan 67.1 57.0 57.4 64.3 = 30 160

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Political Risk Security Regional Global

Governance Social Risk Trend
Score Risk Rank Rank
My
Myanmar
anmar 80.9 63.0 68.6 83.6 - 31 181
Regional av
aver
erage
age 43.8/Global av
aver
erage
age 47.8/Emer
47.8/Emerging
ging Mark
Markets
ets av
aver
erage
age 53.2

Note: May include territories, special administrative regions, provinces and autonomous regions. Scores out of 100; 0 = lowest risk; 100 = highest risk. Source: BMI Country Risk
Index

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Shor
Short-T
t-Term
erm EEcconomic Risk Inde
Indexx
Score Trend Regional Rank Global Rank
Taiwan, China 19.6 - 1 2
South K
Kor
orea
ea 22.9 - 2 5
Austr
Australia
alia 26.5 + 3 14
Malay
Malaysia
sia 27.3 - 4 16
Philippines 29.6 + 5 22
China (Mainland) 29.8 - 6 24
Hong K
Kong,
ong, China 31.7 = 7 31
Indonesia 31.7 - 7 31
Vietnam 31.7 + 7 31
New Z
Zealand
ealand 31.9 + 10 35
Bangladesh 32.1 + 11 38
Singapor
Singaporee 32.3 = 12 39
India 34.4 + 13 46
Japan 35.4 - 14 50
Thailand 35.4 + 14 50
Brunei Darussalam 36.5 = 16 53
Macao, China 43.5 = 17 72
Papua New Guinea 47.1 + 18 84
Kiribati 50.8 = 19 103
Nepal 52.1 = 20 107
Sri Lank
Lankaa 52.1 = 20 107
Cambodia 53.5 = 22 120
Mongolia 54.0 - 23 121
Fiji 54.4 = 24 125
Timor
Timor-L
-Leste
este 57.3 = 25 139
Pakistan 59.8 + 26 152
Bhutan 62.7 = 27 162
Laos 65.0 + 28 165
Afghanistan 68.1 = 29 175
My
Myanmar
anmar 69.6 + 30 179
Nor
North
th K
Kor
orea
ea 74.6 = 31 182
Regional av
aver
erage
age 43.7/Global av
aver
erage
age 47.5/Emer
47.5/Emerging
ging Mark
Markets
ets av
aver
erage
age 51.5

Note: May include territories, special administrative regions, provinces and autonomous regions. Scores out of 100; 0 = lowest risk; 100 = highest risk. Source: BMI Country Risk
Index

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Long-T
ong-Term
erm EEcconomic Risk Inde
Indexx
Score Trend Regional Rank Global Rank
Taiwan, China 18.8 + 1 1
Austr
Australia
alia 21.7 = 2 10
South K
Kor
orea
ea 23.0 - 3 13
New Z
Zealand
ealand 26.7 + 4 16
China (Mainland) 27.9 - 5 23
Singapor
Singaporee 28.0 = 6 24
Malay
Malaysia
sia 29.6 = 7 31
Hong K
Kong,
ong, China 31.3 = 8 36
Philippines 31.6 = 9 38
Japan 32.1 = 10 42
Thailand 32.3 + 11 43
Indonesia 32.6 = 12 45
Vietnam 33.3 + 13 48
Bangladesh 35.6 + 14 52
India 39.2 - 15 62
Macao, China 41.9 = 16 69
Brunei Darussalam 44.3 = 17 75
Papua New Guinea 50.7 = 18 108
Cambodia 52.3 = 19 114
Nepal 53.9 = 20 125
Pakistan 54.0 = 21 126
Kiribati 55.2 = 22 134
Fiji 57.9 = 23 148
Mongolia 58.4 - 24 150
Sri Lank
Lankaa 59.3 = 25 158
Timor
Timor-L
-Leste
este 60.8 + 26 163
Laos 61.2 + 27 168
Bhutan 62.6 = 28 173
My
Myanmar
anmar 71.6 + 29 179
Afghanistan 72.5 = 30 181
Nor
North
th K
Kor
orea
ea 75.5 = 31 184
Regional av
aver
erage
age 44.4/Global av
aver
erage
age 46.2/Emer
46.2/Emerging
ging Mark
Markets
ets av
aver
erage
age 50.6

Note: May include territories, special administrative regions, provinces and autonomous regions. Scores out of 100; 0 = lowest risk; 100 = highest risk. Source: BMI Country Risk
Index

Note: Our BMI indices are updated frequently; as a result, the scores in this section may not match those in other sections of the
report.

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Macroeconomic Forecasts
Macr
Macroec
oeconomic
onomic FFor
orecasts
ecasts (P
(Pakistan
akistan 2023-2028)
Indicator 2023e 2024f 2025f 2026f 2027f 2028f
Nominal GDP
GDP,, USDbn 369.3 355.5 357.5 366.2 372.1 381.6
Nominal GDP
GDP,, EURbn 321.1 306.4 308.2 315.7 320.7 329.0
Real GDP gr
groowth, % yy-o-y
-o-y -0.2 2.4 3.2 3.8 3.8 3.7
GDP per capita, USD 1,535 1,449 1,430 1,437 1,433 1,443
GDP per capita, EUR 1,335 1,249 1,233 1,239 1,235 1,244
Population, mn 240.49 245.21 249.95 254.71 259.52 264.34
Unemplo
Unemployment,
yment, % of labour ffor
orcce, eop 6.5 6.0 5.9 5.5 5.1 5.1
Consumer pric
pricee inflation, % yy-o-y
-o-y,, av
avee 30.9 13.9 8.9 10.0 10.0 10.0
Lending rrate,
ate, %, av
avee 8.6 8.6 8.6 8.6 8.6 8.6
Centr
Central
al bank policy rrate,
ate, % eop 22.00 16.00 14.00 12.00 12.00 12.00
Priv
Private
ate final cconsumption,
onsumption, % of GDP 84.2 84.9 85.1 85.3 85.5 85.7
Priv
Private
ate final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 1.6 2.8 3.2 3.8 3.8 3.8
Go
Govvernment final cconsumption,
onsumption, % of GDP 9.7 9.4 9.4 9.4 9.3 9.3
Go
Govvernment final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y -7.2 -1.2 3.0 3.0 3.0 3.0
Fix
Fixed
ed capital fformation,
ormation, % of GDP 11.9 12.0 12.0 11.9 11.7 11.6
Fix
Fixed
ed capital fformation,
ormation, rreal
eal gr
groowth % yy-o-y
-o-y -17.8 3.0 2.5 2.5 2.5 2.5
Ex
Exchange
change rrate
ate PKR per USD, av
avee 280.36 279.96 294.00 320.85 343.31 367.34
Ex
Exchange
change rrate
ate PKR per EUR, av
avee 303.18 305.16 329.28 359.35 384.51 411.42
Goods and ser
servic
vices
es eexpor
xports,
ts, USDbn 35.2 33.8 31.1 34.8 35.7 38.2
Goods and ser
servic
vices
es impor
imports,
ts, USDbn 60.0 57.9 59.1 63.5 64.5 66.1
Balanc
Balancee of tr
trade
ade in goods and ser
servic
vices,
es, USDbn -24.8 -24.1 -28.0 -28.7 -28.7 -28.0
Balanc
Balancee of tr
trade
ade in goods and ser
servic
vices,
es, % of GDP -6.7 -6.8 -7.8 -7.8 -7.7 -7.3
Curr
Current
ent ac
acccount balanc
balance,
e, USDbn -2.4 -3.0 -3.4 -4.3 -5.1 -4.2
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -0.6 -0.8 -1.0 -1.2 -1.4 -1.1
For
oreign
eign rreser
eservves eexx gold, USDbn 9.6 11.5 12.8 14.4 16.1 18.0
Impor
Importt cco
over
er,, months 1.9 2.4 2.6 2.7 3.0 3.3
Budget balanc
balance,
e, USDbn -28.4 -26.4 -23.8 -22.5 -18.9 -19.3
Budget balanc
balance,
e, % of GDP -7.7 -7.4 -6.7 -6.2 -5.1 -5.0
e/f = BMI estimate/forecast. Source: National sources, BMI

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Macr
Macroec
oeconomic
onomic FFor
orecasts
ecasts (P
(Pakistan
akistan 2029-2033)
Indicator 2029f 2030f 2031f 2032f 2033f
Nominal GDP
GDP,, USDbn 391.4 401.4 411.7 422.3 433.2
Nominal GDP
GDP,, EURbn 337.4 346.1 355.0 364.1 373.5
Real GDP gr
groowth, % yy-o-y
-o-y 3.7 3.7 3.7 3.7 3.7
GDP per capita, USD 1,453 1,464 1,476 1,488 1,500
GDP per capita, EUR 1,253 1,262 1,272 1,283 1,293
Population, mn 269.18 274.03 278.89 283.78 288.66
Unemplo
Unemployment,
yment, % of labour ffor
orcce, eop 5.1 5.1 5.1 5.1 5.1
Consumer pric
pricee inflation, % yy-o-y
-o-y,, av
avee 10.0 10.0 10.0 10.0 10.0
Lending rrate,
ate, %, av
avee 8.6 8.6 8.6 8.6 8.6
Centr
Central
al bank policy rrate,
ate, % eop 12.00 12.00 12.00 12.00 12.00
Priv
Private
ate final cconsumption,
onsumption, % of GDP 86.0 86.2 86.4 86.6 86.8
Priv
Private
ate final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 3.8 3.8 3.8 3.8 3.8
Go
Govvernment final cconsumption,
onsumption, % of GDP 9.2 9.2 9.1 9.1 9.0
Go
Govvernment final cconsumption,
onsumption, rreal
eal gr
groowth % yy-o-y
-o-y 3.0 3.0 3.0 3.0 3.0
Fix
Fixed
ed capital fformation,
ormation, % of GDP 11.5 11.4 11.3 11.2 11.1
Fix
Fixed
ed capital fformation,
ormation, rreal
eal gr
groowth % yy-o-y
-o-y 2.5 2.5 2.5 2.5 2.5
Ex
Exchange
change rrate
ate PKR per USD, av
avee 393.06 420.57 450.01 481.51 515.21
Ex
Exchange
change rrate
ate PKR per EUR, av
avee 440.22 471.04 504.01 539.29 577.04
Goods and ser
servic
vices
es eexpor
xports,
ts, USDbn 39.1 40.1 41.2 42.2 43.3
Goods and ser
servic
vices
es impor
imports,
ts, USDbn 67.8 69.6 71.3 73.2 75.1
Balanc
Balancee of tr
trade
ade in goods and ser
servic
vices,
es, USDbn -28.7 -29.4 -30.2 -30.9 -31.7
Balanc
Balancee of tr
trade
ade in goods and ser
servic
vices,
es, % of GDP -7.3 -7.3 -7.3 -7.3 -7.3
Curr
Current
ent ac
acccount balanc
balance,
e, USDbn -4.7 -4.8 -4.9 -5.0 -5.1
Curr
Current
ent ac
acccount balanc
balance,
e, % of GDP -1.2 -1.2 -1.2 -1.2 -1.2
For
oreign
eign rreser
eservves eexx gold, USDbn 20.2 22.6 25.3 28.4 31.8
Impor
Importt cco
over
er,, months 3.6 3.9 4.3 4.7 5.1
Budget balanc
balance,
e, USDbn -20.9 -20.6 -22.3 -24.2 -26.3
Budget balanc
balance,
e, % of GDP -5.3 -5.1 -5.4 -5.7 -6.1
f = BMI forecast. Source: National sources, BMI

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ondon, E14 5GN, UK
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IS
ISSN:
SN: 2058-0061
Cop
opy
y Deadline: July 2024

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