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Country Report

Pakistan

January 2009

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Pakistan 1

Monthly Report January 2009 www.eiu.com © The Economist Intelligence Unit Limited 2009

Pakistan

Executive summary 2 Highlights

Outlook for 2009-10 3 Political outlook 5 Economic policy outlook 6 Economic forecast

Monthly review: January 2009 10 The political scene 12 Economic policy 13 Economic performance

Data and charts 15 Annual data and forecast 16 Quarterly data 17 Monthly data 19 Annual trends charts 20 Monthly trends charts

Country snapshot 21 Political structure

Editors: Anjalika Bardalai (editor); Gerard Walsh (consulting editor)

Editorial closing date: January 16th 2009

All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: To request the latest schedule, e-mail [email protected]

2 Pakistan


Executive summary

Highlights

January 2009

• The terrorist attack on Mumbai, India!s financial capital, in late November 2008 has led to a rise in tensions between Pakistan and India, and will ensure a renewed focus on Pakistan!s ability to rein in locally based terrorist groups.

• The threat of Indian aggression will limit the extent of inter-party political rivalry in the short term, but political stability is unlikely to improve greatly in 2009-10. Tensions between the government and the security forces could rise.

• The Mumbai attack is very likely to lead to increased scepticism among the Indian authorities towards the peace process with Pakistan. If this is taken to an extreme, it could lead to India!s disengagement from the process.

• Pakistan!s acceptance of a US$7.6bn emergency financing package from the IMF means that it will lose considerable autonomy in setting economic policy.

• Economic policy will remain focused on crisis management in 2009. A sharp tightening of fiscal and monetary policy are the central tenets of the IMF!s conditions for its assistance.

• The government!s focus on reining in the fiscal deficit means that it will be forced to cut back on expenditure. Nevertheless, the Economist Intelligence Unit expects the deficit to reach 6.3% of GDP in fiscal year 2008/09 (July-June).

• Real GDP growth (expenditure measure) is forecast to slow to just 1.2% in 2008/09, from 6% in 2007/08. High inflation will depress real wages and thus consumer spending. Growth will increase to 3.1% in 2009/10.

• On January 1st India presented Pakistan with a dossier containing evidence linking Pakistan to the November terrorist attack on Mumbai.

• In mid-December Pakistan announced that it had scaled down military operations in its north-western areas in response to a perceived military threat from India.

• On January 3rd the prime minister�s financial adviser, Shaukat Tarin, said that Pakistan was meeting all of its IMF targets, but it is in fact unlikely that the government will be able to meet its fiscal targets in 2008/09.

• On December 15th the Karachi Stock Exchange removed the artificial floor that it had imposed in August 2008 to prevent share prices from falling too rapidly. The benchmark index immediately fell to a two-and-a-half-year low.

• In early January extensive planned power cuts led to riots in several major cities. The government implemented some short-term measures to ease the crisis, but its debt to power-generation firms remains an issue.

Outlook for 2009-10

Monthly review

Pakistan 3


Outlook for 2009-10 Political outlook

The Indian government!s allegations of Pakistani involvement in the terrorist attack on India!s financial and cultural capital, Mumbai, in late November 2008 presented the Pakistani government with another potential crisis. Economic policymaking had temporarily become its main focus, given the worsening economic conditions. The finalisation of an IMF bailout package in mid-November has averted a full-blown economic crisis, at least in the short term. Meanwhile, the fallout from the Mumbai attack has led to a sharp escalation of tensions with India and a renewed international focus on Pakistan!s respon-sibility to rein in locally based terrorist groups. In combination, these develop-ments will ensure that security issues once again come to dominate the government!s agenda. The issues that divide the Pakistan People!s Party (PPP), which leads the coalition government, and the Pakistan Muslim League (Nawaz), or PML (N), the second-largest party in parliament, remain unresolved, but the threat of external aggression will lead to a reduction in inter-party rivalry in the very short term. However, there is a strong risk that tensions between the government and the security forces will increase.

In the aftermath of Indian accusations of Pakistani responsibility for the Mumbai attack, the PML (N) assured the government of its full support. The leader of the opposition in the National Assembly (the lower house), Chaudhry Nisar Ali, said that the PML (N) was "setting all political differences aside". India is thus occupying a similar role to that previously played by Pervez Musharraf, the president of Pakistan until August 2008. While he was in power Mr Musharraf represented a common enemy who was capable of uniting the PPP and PML (N), which have a deep historical enmity. It was only after the former president had resigned that the differences between the two parties came to the fore, leading eventually to the PML (N)!s departure from the ruling coalition. The domestic political issues that divide the two parties remain unresolved, but their importance will be secondary given the need for Pakistani politicians to maintain at least the impression of a united front to counter criticism from India.

Conversely, the latest developments are likely to reverse the nascent narrowing of the gulf between the political and security establishments. Co-operation between the government and the military appeared to improve slightly in October, as the holding of a security-focused parliamentary session signalled a key change within Pakistan. For the past decade, parliament was not consulted on national security, which remained the domain of the military. By calling the session, the government appeared to be signalling the supremacy of parliament over the military. However, the military has made it clear that it has reser-vations about the way the government has responded to India!s accusations. It asserted its influence almost immediately after the attack on Mumbai by covertly forcing the government to retract its promise to send the director-

Domestic politics

4 Pakistan


general of the Inter-Services Intelligence (the military intelligence agency) to India to assist in the investigation of the attack.

It is difficult to overestimate the extent to which the Mumbai attack has complicated the outlook for Pakistan!s relations with India and the US. Whether or not India takes any specific diplomatic or military action against Pakistan, the damage to bilateral relations has already been done, and the challenge will now be to ensure that hostilities do not escalate further. The biggest danger is of India launching a retaliatory attack on militant training camps in Pakistani-administered Kashmir or in Pakistan proper. However, government-level relations between India and Pakistan are much stronger than they have been in the past, and, thus far, both governments have shown restraint in their responses. The president of Pakistan, Asif Ali Zardari, has expressed in unusually forthright terms a desire not to let the current situation derail the ongoing process of normalising bilateral relations, although he will be constrained in his policies by the weakness of the government and, more importantly, by the significant influence that the military retains, particularly in matters of national security and defence. Meanwhile, the Mumbai attack is very likely to lead to increased disillusionment and scepticism among the Indian authorities about the sincerity and effectiveness of the supposed recent improvement in bilateral relations. If this scepticism is taken to an extreme, it could lead to India!s disengagement from the peace process.

Pakistan!s relations with the US were already under severe strain, owing to the latter!s policy of conducting attacks on suspected Islamist militants in Pakistan without the permission of the Pakistani government. In early December the government covertly reiterated its opposition to this policy by asserting that "the steadfast resolve of the Pakistani nation [is] to defend its honour and dignity as well as Pakistan!s sovereignty, political independence and territorial integrity". (It is likely that this comment was aimed as much at India as at the US.) The Mumbai attack will ensure that the US increases its pressure on Pakistan to combat locally based terrorist groups. However, there is also a strong risk that US policy will further destabilise politics and security in South Asia.

In focus

Pakistan: Squeezed between two giants

In the short term Pakistan!s international relations will be determined by the scale of any Indian response to the unprecedented terrorist attack on its premier city, Mumbai, in late November 2008. However, in the medium term US policy in South Asia will have an inordinate influence"both directly and indirectly"on Pakistan!s foreign policy. The Mumbai attack has returned security issues to the forefront of Pakistani policymaking, and the US, which in recent months has been applying increasing pressure on Pakistan to clamp down on Islamist militants operating within its territory, will now make these calls even louder. The US!s overriding preoccupation in the region is its fight against Islamist militancy, both because of its global "war on terror" and because attacks by militants based in Pakistan are killing an increasing

International relations.

Pakistan 5


number of US troops in Afghanistan. As such the US is very alarmed at the prospect of any increase in tension between Pakistan and India, not only because of the broad implications for security in the region (both countries possess nuclear weapons) but because the deployment of Pakistani troops to its eastern border (which it shares with India) will lessen its effectiveness in fighting militants in north-western areas (which border Afghanistan). Another complicating factor is that US policy towards India has also shifted in recent months. The recent finalisation of the Indo-US civil nuclear co-operation deal will form the centrepiece of a closer strategic partnership between the two countries. This prospect has caused enormous consternation in Pakistan. There is a risk that increased US pressure on the government to crack down on militants will be interpreted in Pakistan as a prioritisation of Indian goals in the region above"or at least alongside"those of the US itself. This risk is pivotal, for it has potentially drastic consequences for security in the region. If Pakistan felt that growing ties between the US and India were backing it into a corner, there is almost no chance of any serious progress being made against Islamist militancy. This is because militant groups have always been viewed as a proxy force against India, both in Kashmir, which India and Pakistan both claim in full but rule in part, and, since 2002, in Afghanistan, where India!s diplomatic and economic influence has grown considerably. It is very unlikely that Islamist militancy in Pakistan will be contained in the near future, and US efforts to force the issue"at least in terms of unilateral military action"are as likely to worsen the situation as improve it. Perceived US interference in the region may seriously undermine the government!s will to tackle the problem. But, even with the best of intentions, a range of problems will hamper the government!s ability to improve the situation. Foremost among these is the government!s dependence on a military that has traditionally sought to undermine it and that has already expressed reservations about the handling of the current crisis by the president, Asif Ali Zardari. Moreover, there is a serious flaw in both the Pakistani and US strategies that has yet to be addressed: namely, that the more effective a military campaign is, the greater the incentive for militants to simply disperse, reforming only when operations have died down. Finally, there is the increasing evidence that militant groups that initially fought for local causes (primarily the Kashmir issue) have now combined their regional goals, training and tactics with the broader movement of global Islamist jihad.

Economic policy outlook

The finalisation of emergency financing worth US$7.6bn from the IMF in mid-November and the fact that in recent weeks several key macroeconomic indicators have stabilised have averted an economic crisis, at least in the short term. However, the government will have difficulty in forcing a significant improvement in indicators such as consumer price inflation and the fiscal position; its task will be complicated not only by a range of domestic factors, but also by the worsening international economic environment. Moreover, economic management will have to share centre stage with issues of national security and international diplomacy, which rose to the fore in the wake of the Mumbai terrorist attack. The task of the government and the State Bank of

Policy trends

6 Pakistan


Pakistan (SBP, the central bank) will be partly simplified in the sense that these institutions will lose considerable autonomy in economic policymaking as a result of Pakistan!s acceptance of IMF assistance.

The budget for fiscal year 2008/09 (July-June) expected an increase in total government spending of nearly 30% compared with 2007/08, but the govern-ment has had to change tack owing to the worsening economic conditions and the pressing need to address the fiscal imbalance. Revenue collection (as a percentage of GDP) is likely to fall in 2008/09 in line with sharply slowing economic growth. However, a reduction in the fiscal deficit, to be achieved through cuts in government expenditure, is a central plank of the financing package that was finalised with the IMF in November. The Economist Intelligence Unit expects government spending to fall from 21.7% of GDP in 2007/08 to 20.5% in 2008/09, allowing the deficit to fall, but not by enough to meet the IMF!s target of 4.2% of GDP in 2008/09. We forecast that the fiscal deficit will narrow from 6.8% of GDP in 2007/08 to 6.3% in 2008/09. An increase in revenue collection will enable the deficit to continue to narrow, to 5.9%, in 2009/10.

In its first quarterly report for 2008/09 the SBP noted that interest rates had been raised by a cumulative 500 basis points between July 2007 and December 2008 in response to "the carryover of macroeconomic stresses of the preceding year which had grown in size during the current year". These stresses included high inflation, aggregate demand pressures and monetisation of the fiscal deficit. Consumer price inflation has now stopped rising and the government has pledged to stop borrowing from the SBP. Nevertheless, inflation remains only slightly below its August 2008 peak of 25.3% year on year, and we expect the government to find it extremely difficult to honour its promise regarding central bank borrowing. The IMF may insist on further monetary tightening in 2009 to facilitate a contraction in demand. We expect the SBP to have to wait until the second half of 2009 to begin to lower interest rates, once inflationary pressures have started to abate.

Economic forecast

International assumptions summary (% unless otherwise indicated)

2007 2008 2009 2010

Real GDP growth World 4.9 3.4 0.7 2.5

Japan 2.4 0.1 -1.7 0.5

US 2.0 1.1 -2.0 0.7

Exchange rates ¥:US$ 117.8 103.6 93.0 92.0

US$:� 1.37 1.46 1.29 1.30

Financial indicators ¥ 3-month Gensaki rate 0.61 0.75 0.23 0.48

US$ 3-month commercial paper rate 5.06 2.18 1.55 2.20

Monetary policy

International assumptions

Fiscal policy

Pakistan 7


International assumptions summary (% unless otherwise indicated)

2007 2008 2009 2010

Commodity prices Oil (Brent; US$/b) 72.7 97.0 35.0 50.0

Cotton (US cents/lb) 64.8 71.5 63.5 77.3

Food, feedstuffs & beverages (% change in US$ terms) 30.9 29.1 -26.6 1.3

Industrial raw materials (% change in US$ terms) 11.2 -5.6 -33.4 11.3

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

The global outlook has continued to deteriorate sharply as the effects of the worsening financial crisis that started in the US in 2007 spill over into the real economy. Global growth at purchasing power parity rates will be just 0.7% in 2009. The economy in the US, Pakistan!s largest export market, is forecast to shrink in 2009, with GDP contracting by an expected 2%. It will recover slightly, to grow by 0.7%, in 2010. Recession in the US will be partly offset by growth in China and India, but even these economies will suffer from the effects of the global economic downturn. Moreover, risks are firmly on the downside; the most significant of them is a worsening of the financial crisis beyond what is currently expected, which would cause even more serious disruptions to the real economy.

Gross domestic product by expenditure (PRs m at constant 1999/2000 prices where series are indicated; otherwise % change year on year; fiscal years ending Jun 30th)

2007a 2008 a 2009b 2010b

Private consumption 3,885.6 4,214.0 4,266.2 4,406.4

4.8 8.5 1.2 3.3

Public consumption 532.1 559.5 577.4 599.4

-9.6 5.1 3.2 3.8

Gross fixed investment 975.7 1,008.7 998.6 1,020.6

16.0 3.4 -1.0 2.2

Final domestic demand 5,393.4 5,782.2 5,842.3 6,026.3

5.0 7.2 1.0 3.2

Stockbuilding 87.9 93.2 85.0 90.0

0.1c 0.1 c -0.1c 0.1c

Total domestic demand 5,481.4 5,875.4 5,927.3 6,116.3

5.0 7.2 0.9 3.2

Exports of goods & services 988.5 900.6 869.0 884.1

2.3 -8.9 -3.5 1.7

Imports of goods & services -974.8 -953.9 -904.0 -924.4

-2.8 -2.1 -5.2 2.3

Foreign balance 13.8 -53.3 -34.9 -40.3

1.0c -1.2 c 0.3c -0.1c

GDP 5,495.1 5,822.1 5,892.3 6,076.1

6.0 6.0 1.2 3.1

a Actual. b Economist Intelligence Unit forecasts. c Contribution to real GDP growth (as a percentage of real GDP in the previous year).

Although consumer price inflation began to decline in November, inflation remains close to the record high reached in August, and this will continue to have a negative impact on real wages and consumer spending in the forecast

Economic growth

8 Pakistan


period. The austerity measures demanded by the IMF as part of its emergency financing package will also squeeze domestic demand. We therefore expect private consumption to grow by just 1.2% in 2008/09, down sharply from a rate of 8.5% in 2007/08, according to the government!s provisional figures. Moreover, the global financial crisis has provoked a liquidity crunch in Pakistan. This means that investment growth, previously an important driver of economic expansion, is set to contract in 2008/09. The government!s need to contain the fiscal deficit means that public consumption growth will also be significantly curtailed. We therefore expect real GDP growth of 1.2% in 2008/09, down from 6% in 2007/08. Growth will accelerate slightly, to 3.1%, in 2009/10, when private consumption growth will also rise, to 3.3%, and growth in investment will recover to 2.2%.

Pakistan is overly reliant on textile exports. The sector has been under-performing, and the wide range of domestic factors impeding its revival, combined with a contraction in world trade in 2009 (implying drastically reduced demand for Pakistani exports), mean that the net contribution of trade to the economy will be neutral in 2009-10.

Year-on-year consumer price inflation slowed to 23.3% in December, compared with 24.7% in November, but it is still relatively close to the high of 25.3% that it reached in August. The rate of inflation is likely to remain elevated in the months ahead. Food price inflation remains high, at 27.9% in December, which was the 16th consecutive month of double-digit increases. Transport and communications prices rose by 25.7% year on year, owing to the knock-on effects of the government�s removal of fuel subsidies in September. Rising transport costs are likely to trigger another round of inflation as the higher costs are passed through to the prices of goods. This in turn will further cement inflationary expectations. Continued rapid growth in the money supply, higher import duties, increases in utility prices and the continued weakness of the Pakistan rupee will also stoke price pressures. As a result, consumer price inflation will average 12.7% in 2009, compared with 20.3% in 2008. Greater economic stability should see consumer price inflation moderate further, to 6%, in 2010.

The Pakistan rupee depreciated by 21% against the US dollar in 2008, reflecting investors! fears of poor political prospects, rising prices and slowing economic growth. However, the rate of depreciation slowed following the finalisation of the IMF package, falling to 7.3% quarter on quarter in the fourth quarter of 2008, from 12.8% in the third quarter. We forecast that the rupee will average PRs79.8:US$1 in 2009, a depreciation of 11.8% compared with 2008. In 2010 the nominal rate of depreciation will moderate to 2.4% (with the currency averaging PRs81.7:US$1). The boost to investor confidence and the improve-ment in Pakistan!s economic fundamentals provided by the IMF!s financing package will be the main factors limiting the weakness of the rupee in 2009-10, but the risks to this forecast are firmly on the downside.

Weak merchandise export growth and faster import growth (fuelled by strong private consumption growth in the first half of 2008, as well as by high

Inflation

Exchange rates

External sector

Pakistan 9


international oil prices) widened the current-account deficit in 2008; a concurrent reduction in foreign inflows led Pakistan to the brink of a balance-of-payments crisis in the fourth quarter of the year. The IMF!s emergency financing package forestalled the crisis and the disbursement of funds worth US$3.1bn in November meant that the current-account deficit is estimated to stand at US$9.3bn in 2008, or the equivalent of 5.5% of GDP. The IMF pro-gramme that Pakistan must follow includes traditional austerity measures designed to reduce domestic demand. These measures, together with a sharp slowdown in real GDP growth, mean that we expect imports to contract in 2009, allowing the current-account deficit to narrow to US$7.1bn (4.9% of GDP). Significantly lower international oil prices in 2009 will also aid this improve-ment by reducing the import bill. In 2010 import growth will resume in line with stronger economic growth, but exports will also grow again after contracting in 2009. However, export growth will continue to lag import growth (as it has done every year since 2004) as a range of structural factors impedes Pakistan!s ability to boost exports. As a result, the current-account deficit will widen again in 2010 to US$8.1bn, or 5.2% of GDP.

Forecast summary (% unless otherwise indicated)

2007 a 2008 b 2009c 2010c

Real GDP growthd 6.0 6.0 a 1.2 3.1

Industrial production growth 5.5 -0.8 -5.1 3.7

Agricultural production growthd 3.7 1.5 a 2.1 2.8

Unemployment rate (av) 7.6 b 7.4 8.5 8.9

Consumer price inflation (av) 7.6 20.3 12.7 6.0

Consumer price inflation (year-end) 14.2 b 16.1 9.2 5.9

Short-term interbank rate 9.3 11.5 14.0 10.6

Central government balance (% of GDP)d -4.5 -6.8 -6.3 -5.9

Exports of goods fob (US$ bn) 18.1 20.2 18.3 19.2

Imports of goods fob (US$ bn) -28.8 -33.9 -28.1 -29.9

Current-account balance (US$ bn) -8.3 -9.3 -7.1 -8.1

Current-account balance (% of GDP) -5.7 -5.5 -4.9 -5.2

External debt (year-end; US$ bn) 38.0 b 43.1 45.2 48.5

Exchange rate PRs:US$ (av) 60.7 70.3 79.8 81.7

Exchange rate PRs:¥100 (av) 51.6 67.9 85.8 88.8

Exchange rate PRs:� (av) 83.1 102.9 102.5 106.2

Exchange rate PRs:SDR (av) 93.2 111.5 119.1 123.6

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years (ending June 30th).

10 Pakistan


Monthly review: January 2009

The political scene

The November 2008 terrorist attack on Mumbai, India!s financial and cultural capital, has placed Pakistan�s embattled president, Asif Ali Zardari, under increasing pressure. Since late December conciliatory verbal exchanges between Mr Zardari and the Indian government have been coupled with growing tension along the border. The president has also come under pressure from both India and the US to take action against Islamist militants based in Pakistan.

On January 1st India presented Pakistan with a dossier containing evidence linking Pakistan to the Mumbai attack, which India blames on a Pakistan-based group, Lashkar-e-Taiba (LeT). The militant Islamist group, banned by the Pakistani government in 2002, was originally set up by Pakistan�s military intelligence agency, the Inter-Services Intelligence (ISI), to fight in Indian-administered Kashmir. Concerns that elements of the ISI remain sympathetic to Islamist groups continue to bedevil relations between India and Pakistan.

Pakistan arrested several LeT leaders in early January, as well as officials from Jamaat-ud-Dawa (JuD), an Islamic charity that India and the US have accused of being a front for LeT. Despite JuD!s disavowing of any links with LeT, the UN Security Council passed a resolution on December 10th declaring it a terrorist group and therefore subject to UN sanctions. This was a move that had been specifically sought by India and the US. The panel specifically designated four men connected to JuD and LeT as terrorists. These included the founder and leader of the LeT, Hafiz Mohammad Saeed, and the suspected mastermind of the Mumbai attacks, Zaki-ur-Rehman Lakhvi.

On January 15th security forces conducted a wide-ranging crackdown against Islamist militants which resulted in more than 70 people being arrested; another 124 people being placed under surveillance; and the closure of 20 offices, 94 schools, two libraries and six websites linked to JuD. Among those detained were Mr Lakhvi and Mr Saeed. Until his arrest, the latter was operating out of his house in Lahore, and has openly incited strikes against Indian and Western targets and publicly declared that �Christians, Jews and Hindus are enemies of Islam". Despite the arrests, many in India reacted sceptically to the news of the crackdown, alleging that it was more of a publicity stunt designed to appease Western powers than a sincere attempt to co-operate with India in its investigation of the Mumbai attack and, more broadly, to fight wholeheartedly against Islamist extremism. The announcement of the crackdown was made by Pakistan!s interior minister, Rehman Malik, and was subsequently reported in mainstream domestic and foreign media. In the wake of the announcement, India!s foreign minister, Pranab Mukherjee, complained, "Instead of being informed through the media, I would be happy to receive a direct response from Pakistan through existing diplomatic channels."

Pakistan acts against Islamist militants

Pakistan 11


Pakistan has been reluctant to allow other countries! security forces to interrogate those arrested. Moreover, it has ruled out the possibility of extraditing those arrested to India, in defiance of India!s main request in the wake of the attack and despite earlier statements which suggested that extradition might be an option if India were to provide evidence of Pakistani involvement in the attack. Speaking to the National Assembly (the lower house) on January 13th, the prime minister, Yusuf Raza Gilani, clarified Pakistan!s view that the dossier submitted by India contained "information", not "evidence".

Heightened tensions with India are in turn disrupting Pakistan�s military operations in the Federally Administered Tribal Areas (FATA), which border Afghanistan. In mid-December Pakistan announced that it had scaled down its operations in FATA following allegations that Indian jets had violated Pakistani airspace on December 12th (India denies this). Airstrikes against militants in two districts within FATA, Swat and Bajaur, were cut back as jets were redeployed and a planned operation against militants in the Khyber area was postponed owing to fears that India planned �surgical strikes� against militant training camps within Pakistan.

A F G H A N I S T A N

P A K I S T A N

North-West FrontierNorth-West FrontierProvinceProvince

FederallyFederallyAdministeredAdministeredTribal AreasTribal Areas

North West FrontierProvince

FederallyAdministeredTribal Areas

Chitral

Swat

Kohistan

Naran

HaripurSwabi

Buner

Kohat

KurramAgency

Hangu

Karak

Bannu

Lakki

Dera Ismail Khan

Tank

SouthWaziristan

NorthWaziristan

Dir

ShanglaBattagram

Abbottabad

Mardan

Malakand

Charsadda

NowsheraPeshawar

KhyberAgency

MohmandAgency

BajaurAgency

Orakzi Agency

ShanglaBattagram

Abbottabad

Mardan

Malakand

Charsadda

NowsheraPeshawar

KhyberAgency

MohmandAgency

BajaurAgency

Orakzi Agency

North West Frontier Province and the FederallyAdministered Tribal Areas

Military activity in the north-west is disrupted

12 Pakistan


Despite the lack of any improvement in relations with India, the Khyber operation did take place in early January. It came after several attacks by militants on convoys of supplies for US and NATO troops operating in Afghanistan. Pakistan temporarily blocked the supply route while the campaign was ongoing and NATO troops in Afghanistan confirmed that they were aware of the operation, which allowed Pakistan to demonstrate both the extent of the security threat that it faces and the country!s importance to the success of the stabilisation mission in Afghanistan. Attempts to find alternative routes into Afghanistan (other than through Khyber) have largely failed, and around three-quarters of supplies are still transported through Pakistan. The supply route was reopened after three days, but it seems unlikely that militant attacks on the supply lines will end. Given the imminent �surge� of an extra 30,000 US troops into Afghanistan (the incoming US president, Barack Obama, has repeatedly emphasised his intention to prioritise Afghanistan in his foreign policy), securing these routes will become of even greater importance. However, the security situation is increasingly unstable in north-western Pakistan, particularly around Peshawar, the capital of the North West Frontier Province, where the Taliban have an increasing level of influence. Several girls! schools as well as video and music shops have been attacked in the town�s suburbs.

It seems increasingly clear that Pakistan is co-operating with US-led forces in Afghanistan to a much greater extent than the Pakistani government is willing to admit. Its reticence is largely on account of domestic resentment of continuing US drone attacks in FATA, which are reinforcing underlying anti-US sentiment. The US military suggested that the ongoing operations in the Bajaur district of FATA were driving militants across the border into Afghanistan, where they were being intercepted by US and Afghan troops. The ongoing operations also involve increased co-operation in intelligence sharing and border interdiction.

Economic policy

On January 3rd the prime minister�s financial adviser, Shaukat Tarin, said that Pakistan had met all of the targets set by the IMF in connection with the stand-by facility extended in November 2008. Mr Tarin said that government borrowing will be kept to PRs242bn (US$3.1bn) in fiscal year 2008/09 (July-June), below the official target of PRs258bn, and that the government had lowered administered petrol prices from PRs87 per litre to PRs57 per litre as global oil prices fell. However, other reports suggest that Pakistan is failing to meet at least some IMF targets. It is widely believed that the government will miss an ambitious tax collection target of PRs1.4trn for 2008/09. The IMF also expects the government to secure a level of zero borrowing for the first nine months of 2008/09, which seems highly unlikely to be achieved.

The tax collection target for the first half of 2008/09 was PRs515bn. However, the indications are that the government may not have raised much more than PRs400bn during that period, despite high rates of inflation that should have boosted the collection of various sales taxes. With expenditure rising more rapidly than revenue collection, it seems highly unlikely that the government

Doubt about Pakistan's ability to meet IMF targets remains

Pakistan 13


will meet the IMF target of a 4.2% fiscal deficit in 2008/09 (the deficit stood at an estimated 6.8% in 2007/08).

If, as seems likely, the government misses its targets, three options will arise. The first would be for the government to renegotiate the deal with the IMF. This would lead to tighter conditions and a consequent reduction in the economic policy options available to the government. The second option would be for the government to raise existing taxes or to introduce new ones. Given the economic downturn and the risk that tax increases would exacerbate inflationary pressures (which, although decreasing, are still strong), this is another unpalatable option. Nevertheless, there are indications that the government is considering ending tax exemptions on food and medicines.

The third option would be for the IMF to grant Pakistan a waiver. It appears that the IMF!s stand-by facility assumes a relatively high oil price, which would have a positive effect on government taxes on petroleum and related products. This could provide a pretext for allowing Pakistan to miss its targets so early in the package. The second instalment of the stand-by arrangement is due in March. Successive governments have attempted to increase levels of tax compliance, but these have had little long-term impact.

Economic performance

On December 15th the Karachi Stock Exchange (KSE) removed the artificial floor that it had imposed in August to prevent share prices from falling too rapidly. The move had been criticised by investors for effectively ending stockmarket activity, as trading volumes were negligible while share prices were held artificially high. (The benchmark KSE 100 index had been held at 9,144, which was still almost 40% below the highs achieved in 2007.)

Worried about the prospect of capital flight in the wake of the floor!s removal, the government asked the IMF for a PRs30bn, 12-month "put" option to prevent excessive stock-price declines. Although the IMF demurred, it did approve the creation of a PRs20bn stockmarket support fund. The fund, called the State Enterprise Fund, was launched by the state-owned National Investment Trust (NIT) on January 13th. The fund is financed by the NIT and three other state-owned firms (National Bank of Pakistan, State Life Insurance and Employees! Old-Age Benefits Institution), and it will invest money in a few specific shares and then resell the shares to overseas Pakistanis to help to support the market.

The KSE 100 fell to a two-and-a-half-year low after the floor was removed on December 15th, and it then continued to decline for the next 13 trading sessions. By January 5th it had reached 5,918"35% below the floor level. However, the announcement on January 2nd of NIT!s intention to purchase shares stabilised the index, and the market even rose for several sessions. By January 14th the index was around 3% higher than it had been at the beginning of the month.

In early January extensive planned power cuts, or load-shedding, led to riots in several cities, including Faisalabad, Rawalpindi, Multan and Lahore. Electricity shortages of up to 4,500 mw per day have led to load-shedding of up to 18

The KSE removes the stockmarket floor

Power shortages lead to riots

14 Pakistan


hours a day in rural areas and ten hours a day in many cities. (By contrast, the energy shortfall in January 2008 was 3,500 mw per day.)

The lack of power has already forced the closure of hundreds of thousands of textile factories since December. On January 10th the All Pakistan Textile Mills Association threatened to close all of its mills if the government did not meet a series of demands that included an interest-rate reduction and the waiving and/or postponement of payments to the Water and Power Development Authority, one of the main state-owned power generation and transmission companies. Unemployment is already rising in Faisalabad, one of the centres of Pakistan�s textile industry, where about one-half of the 200,ooo-odd textile centres have been closed since December. The textile sector is still responsible for two-thirds of Pakistan�s export earnings, but it is suffering both from increased competition (notably from China) and from the effects of power shortages. Garment exports fell by 20% year on year in the first four months of 2008/09, and with Pakistan!s main export markets in recession, prospects for the sector are bleak.

In recent months the government has cut back fuel imports to conserve foreign exchange. Given its persistent foreign-exchange shortfall, the government does not appear to have a coherent strategy to tackle the power shortages. In the wake of the riots it implemented some short-term measures, including ending gas load-shedding and supplying power-generation companies with 30,000 tonnes of furnace oil per day. The latter measure is expected to add 2,700 mw of power to the system by the end of January.

The government�s claim that the power shortfall stemmed from the closure of two hydroelectric dams (Tarbela and Mangla) was contradicted by the chief executive of the Karachi Electric Supply Corporation (KESC), Naveed Ismail, who said that his company did not have the finance to purchase oil and gas. One of the major obstacles to improving the power situation in Pakistan remains the government!s debt to power-generation companies like KESC. This ensures that the generation companies in turn lack the funds to pay the oil and gas companies. According to the minister for water and power, Raja Pervez Ashraf, the combined energy-related debt of the government and the power companies now totals PRs400bn, with the government owing PRs160bn.

The energy crisis has also exacerbated political tensions. Mr Ashraf, a member of the Pakistan People!s Party (PPP), claimed that the protests were organised by opponents of the government (which is a PPP-led coalition) and tried to put the blame for the crisis on the previous government, which was led by a former army chief, Pervez Musharraf.

Remittances from Pakistanis working overseas fell significantly in October 2008, compared with the year-earlier period. However, in November remittances rose by 23% year on year, to US$620.5m. In the first five months of 2008/09 total remittances were worth just under US$3bn, a 15% year-on-year rise. Remittances from the UAE stood at US$146m in November, almost double the US$75m that was remitted in the previous month. However, the slowdown in construction activity in the Middle East seems certain to negatively affect remittances in the coming months.

Remittances rose in November

Pakistan 15


Data and charts Annual data and forecast

Pl ea se se e g ra p hi c b el ow

2004a 2005a 2006a 2007a 2008 b 2009c 2010c

GDP

Nominal GDP (US$ bn) 98.0 109.9 127.3 145.7 171.2 a 146.2 154.6

Nominal GDP (PRs bn) 5,641 6,500 7,623 8,723 10,478 a 11,625 12,481

Real GDP growth (%) 7.4 7.7 6.2 6.0 6.0 a 1.2 3.1

Expenditure on GDP (% real change)

Private consumption 10.1 12.9 1.0 4.8 8.5 a 1.2 3.3

Government consumption 1.4 1.7 48.3 -9.6 5.1 a 3.2 3.8

Gross fixed investment -6.1 13.5 19.9 16.0 3.4 a -1.0 2.2

Exports of goods & services -1.5 9.6 9.9 2.3 -8.9 a -3.5 1.7

Imports of goods & services -8.6 40.5 18.7 -2.8 -2.1 a -5.2 2.3

Origin of GDP (% real change)

Agriculture 2.4 6.5 6.3 3.7 1.5 a 2.1 2.8

Industry 16.3 12.1 4.1 8.0 4.6 a 2.7 3.7

Services 5.8 8.5 6.5 7.6 8.2 a 0.1 3.0

Population and income

Population (m) 155.4 158.1 161.0 163.7b 166.4 169.2 172.1

GDP per head (US$ at PPP) 2,025 2,152 2,316 2,480b 2,681 2,707 2,776

Recorded unemployment (av; %) 7.7 7.7 7.7 7.6b 7.4 8.5 8.9

Fiscal indicators (% of GDP)

Central government revenue 14.1 13.3 14.0 12.7 14.9 14.2 14.8

Central government expenditure 16.1 16.5 18.2 17.2 21.7 20.5 20.7

Central government balanced -2.0 -3.2 -4.2 -4.5 -6.8 -6.3 -5.9

Net public debt 56.6b 53.9b 51.5b 50.6b 49.9 52.2 55.3

Prices and financial indicators

Exchange rate PRs:US$ (end-period) 59.12 59.83 60.92 61.22 79.54 80.73 82.30

Consumer prices (end-period; % change) 7.4 8.5 9.4 14.2b 16.1 9.2 5.9

Stock of money M2 (end-period; % change) 20.5 16.5 14.6 19.5 20.3 11.3 8.2

Lending interest rate (av; %) 5.0 8.2 9.9 10.2b 12.4 13.3 12.5

Current account (US$ m)

Trade balance -3,396 -6,340 -9,647 -10,640 -13,701 -9,823 -10,696

Goods: exports fob 13,297 15,433 17,049 18,121 20,245 18,319 19,169

Goods: imports fob -16,693 -21,773 -26,696 -28,761 -33,946 -28,142 -29,865

Services balance -2,584 -3,830 -4,912 -5,006 -6,253 -5,794 -6,263

Income balance -2,363 -2,514 -3,131 -3,735 -4,107 -4,540 -4,610

Current transfers balance 7,526 9,079 10,941 11,084 14,732 13,019 13,463

Current-account balance -817 -3,605 -6,750 -8,297 -9,330 -7,138 -8,105

External debt (US$ m)

Debt stock 35,547 33,173 35,909 38,002b 43,106 45,218 48,543

Debt service paid 4,266 2,425 2,281 3,759b 2,837 3,345 3,712

Principal repayments 3,519 1,698 1,427 2,691b 1,887 2,353 2,620

Interest 747 727 854 1,067b 950 992 1,092

Debt service due 2,566e 2,425 2,281 3,759b 2,837 3,345 3,712

International reserves (US$ m)

Total international reserves 10,616 10,948 12,816 15,689 9,511 7,365 7,867

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal years (ending June 30th). e Difference compared with total paid is owing to debt prepayment.

Source: IMF, International Financial Statistics.

16 Pakistan


Quarterly data Pl ea se se e g ra p hi c b el ow

2006 2007 2008

4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

Output

Manufacturing index (1999/2000=100) 192.4 218.4 220.0 203.6 197.0 230.5 222.7 191.5

Manufacturing index (% change, year on year) 5.6 5.8 6.8 7.0 2.4 5.5 1.2 -5.9

Prices

Consumer prices (2000=100) 143.1 143.9 146.3 150.8 155.9 161.7 174.6 187.7

Consumer prices (% change, year on year) 8.3 7.2 7.1 7.1 8.9 12.4 19.3 24.5

Wholesale general (2000=100) 150.2 150.2 154.9 161.4 168.5 176.1 197.4 216.7

Wholesale general (% change, year on year) 7.4 5.5 6.7 8.3 12.2 17.2 27.5 34.3

Financial indicators

Exchange rate PRs:US$ (av) 60.73 60.80 60.68 60.51 60.96 61.26 66.32 74.25

Exchange rate PRs:US$ (end-period) 60.92 60.71 60.52 60.71 61.22 62.72 68.28 78.04

Discount rate (end-period; %) 9.50 9.50 9.50 10.00 10.00 10.50 n/a n/a

Money market rate (av; %) 9.68 10.05 8.83 8.89 9.42 8.98 11.48 n/a

Treasury bill rate (av; %) 8.81 8.82 8.90 9.06 9.18 9.62 10.41 n/a

M1 (end-period; PRs bn) 2,700 2,749 2,986 3,004 3,230 3,188 3,359 n/a

M1 (% change, year on year) 17.1 11.2 16.0 17.5 19.6 16.0 12.5 n/a

M2 (end-period; PRs bn) 3,647 3,766 4,024 4,092 4,358 4,367 4,649 n/a

M2 (% change, year on year) 14.6 16.5 18.3 20.1 19.5 16.0 15.5 n/a

Stockmarket KSE 100 index (end-period; Nov 1st 1991=1,000) 10,041 11,272 13,772 13,354 14,077 15,126 12,289 9,180

Sectoral trends

Cotton yarn production (�000 tonnes) 717.1 710.7 712.6 740.4 744.6 718.5 711.2 736.3

Cotton fabric production (m sq metres) 245.7 225.4 249.9 256.8 253.9 252.8 253.0 254.5

Foreign trade (US$ m)

Exports fob 4,154 3,971 4,598 4,421 4,238 4,774 5,620 5,223

Imports cif -7,469 -7,525 -8,120 -8,056 -8,895 -11,009 -12,006 -10,815

Trade balance -3,315 -3,554 -3,522 -3,635 -4,657 -6,235 -6,386 -5,592

Foreign payments (US$ m)

Merchandise trade balance -2,566 -2,312 -2,091 -2,369 -3,868 -4,774 -4,285 n/a

Services balance -1,066 -1,014 -696 -1,594 -1,702 -1,547 -1,464 n/a

Income balance -971 -804 -967 -951 -1,013 -753 -1,192 n/a

Net transfer payments 2,691 2,596 3,045 2,644 2,799 3,285 2,747 n/a

Current-account balance -1,912 -1,534 -709 -2,270 -3,784 -3,789 -4,194 n/a

Reserves excl gold (end-period) 11,543 12,141 14,248 14,726 14,044 11,664 9,233 5,597

Sources: State Bank of Pakistan, Statistical Bulletin; IMF, International Financial Statistics.

Pakistan 17


Monthly data Pl ea se se e g ra p hi c b el ow

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Exchange rate PRs:US$ (av) 2006 59.85 59.88 60.00 59.98 60.07 60.19 60.29 60.33 60.49 60.59 60.71 60.89

2007 60.90 60.78 60.71 60.73 60.66 60.65 60.42 60.49 60.63 60.69 60.98 61.22

2008 61.22 61.22 61.34 63.77 67.80 67.37 70.85 74.56 77.34 80.34 80.00 n/a

Exchange rate PRs:US$ (end-period) 2006 59.84 59.94 59.98 60.05 60.19 60.26 60.36 60.35 60.56 60.60 60.78 60.92

2007 60.77 60.81 60.71 60.73 60.76 60.52 60.40 60.65 60.71 60.75 61.22 61.22

2008 61.22 61.22 62.72 64.52 67.10 68.28 71.49 76.11 78.04 81.62 78.82 n/a

Money supply M1 (end-period; % change, year on year) 2006 2.4 1.8 6.6 7.0 7.9 9.2 15.2 15.7 18.7 19.5 17.9 17.1

2007 17.0 16.7 11.2 11.8 13.3 16.0 15.2 18.5 17.5 16.2 17.9 19.6

2008 17.4 17.9 16.0 14.7 13.6 12.5 n/a n/a n/a n/a n/a n/a

Money supply M2 (end-period; % change, year on year) 2006 16.0 16.6 15.6 16.0 16.7 15.1 14.1 14.7 15.7 16.4 15.1 14.6

2007 14.0 14.4 16.5 16.2 16.3 18.3 18.2 20.4 20.1 18.5 19.7 19.5

2008 18.7 17.9 16.0 15.1 14.6 15.5 n/a n/a n/a n/a n/a n/a

Deposit rate (av; %) 2006 2.6 2.8 2.8 2.9 2.9 2.9 3.1 3.1 3.2 3.4 3.6 3.7

2007 3.7 3.8 3.9 3.9 4.0 4.0 4.0 4.1 4.1 4.1 4.1 4.1

2008 4.2 4.2 4.2 4.2 4.2 5.2 5.5 5.6 5.9 6.2 6.5 n/a

Lending rate (av; %) 2006 9.8 10.2 10.1 10.3 10.2 9.9 10.2 10.6 11.0 11.1 11.0 11.2

2007 10.7 10.5 10.6 10.6 10.6 10.3 10.4 10.5 10.5 11.0 10.7 11.0

2008 10.8 10.8 10.9 10.9 11.3 12.8 13.1 13.3 14.4 15.5 14.7 n/a

Manufacturing production (% change, year on year) 2006 4.9 20.0 10.7 11.0 16.0 20.8 13.2 9.0 7.2 4.5 10.1 2.6

2007 4.7 3.8 8.7 9.4 5.2 5.8 5.7 7.9 7.6 7.4 4.6 -4.2

2008 9.3 4.0 3.7 4.8 2.9 -3.9 -4.4 -6.7 -6.8 n/a n/a n/a

Stockmarket KSE 100 index (end-period; Nov 1st 1991=1,000) 2006 10,523 11,456 11,486 11,342 9,801 9,989 10,498 10,064 10,513 11,328 10,619 10,041

2007 11,272 11,180 11,272 12,370 12,961 13,772 13,740 12,214 13,354 14,321 13,999 14,077

2008 14,017 14,934 15,126 15,122 12,131 12,289 10,584 9,208 9,180 9,183 9,187 5,865

Consumer prices (av; % change, year on year) 2006 8.8 8.0 6.9 6.2 7.1 7.7 7.6 8.9 8.7 8.1 8.1 8.9

2007 6.6 7.4 7.7 6.9 7.4 7.0 6.4 6.5 8.4 9.3 8.7 8.8

2008 11.9 11.3 14.1 17.2 19.3 21.5 24.3 25.3 23.9 25.0 24.7 n/a

Wholesale prices (av; % change, year on year) 2006 10.8 9.9 8.4 8.1 9.1 9.0 8.4 8.2 8.0 6.7 7.4 8.0

2007 5.3 5.0 6.2 6.0 6.8 7.3 7.6 8.0 9.3 11.8 12.6 12.1

2008 15.6 16.4 19.7 23.5 28.2 30.6 34.0 35.8 33.2 28.4 19.9 n/a

Total exports fob (US$ m) 2006 1,257 1,292 1,536 1,450 1,527 1,510 1,334 1,499 1,413 1,263 1,375 1,517

2007 1,176 1,272 1,523 1,469 1,585 1,544 1,472 1,465 1,485 1,378 1,539 1,320

2008 1,464 1,538 1,772 1,791 1,921 1,909 1,879 1,564 1,780 1,519 1,528 n/a

Total imports cif (US$ m) 2006 2,037 1,854 2,269 1,656 2,330 2,986 2,383 2,524 2,442 2,131 2,774 2,564

2007 2,330 2,572 2,623 2,574 2,750 2,797 2,574 2,747 2,735 3,385 3,161 2,349

2008 3,529 3,658 3,822 4,100 3,882 4,024 3,549 3,460 3,807 3,468 2,724 n/a

18 Pakistan


Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Trade balance fob-cif (US$ m) 2006 -779 -563 -733 -206 -803 -1,476 -1,049 -1,025 -1,030 -869 -1,399 -1,048

2007 -1,154 -1,300 -1,100 -1,104 -1,165 -1,252 -1,102 -1,283 -1,250 -2,007 -1,622 -1,029

2008 -2,065 -2,120 -2,050 -2,309 -1,962 -2,115 -1,670 -1,896 -2,027 -1,948 -1,196 n/a

Foreign-exchange reserves excl gold (end-period; US$ m) 2006 9,925 9,894 9,831 11,531 11,400 11,560 11,180 11,263 10,952 11,103 11,045 11,543

2007 11,405 11,917 12,141 12,391 12,398 14,248 14,197 14,456 14,726 15,056 14,732 14,044

2008 13,464 12,800 11,664 11,098 9,207 9,233 8,413 6,914 5,597 4,648 6,733 n/a

Sources: IMF, International Financial Statistics; Haver Analytics.

Pakistan 19


Annual trends charts Pl ea se se e g ra p hi c b el ow

Annual trends charts

Current-account balance(% of GDP)

Trade balance(% of GDP)

Source: Economist Intelligence Unit. Source: Economist Intelligence Unit.


Real GDP growth(% change)

Consumer price inflation(% change, year on year; av)


Principal exports fob, 2007/08(share of total; fiscal year Jul-Jun) (share of total; fiscal year Jul-Jun)

Principal imports, 2007/08

Other4.3%

Othermanufactures18.4%

Textiles56.0%

Petroleum7.2%

Food14.0%

Machinery16.9%

Other16.7%

Chemicals15.0%

Petroleum30.8%

Transport3.5%

Metals6.8%

Food10.3%

-2.0

0.0

2.0

4.0

6.0

8.0

10.0 World Asia (excl Japan) Pakistan

10090807060520040.0

5.0

10.0

15.0

20.0

25.0 World Asia (excl Japan) Pakistan

1009080706052004

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0 Asia (excl Japan) Pakistan

1009080706052004-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0 Asia (excl Japan) Pakistan

1009080706052004

20 Pakistan


Monthly trends charts Pl ea se se e g ra p hi c b el ow

Monthly trends charts

Price inflation(% change, year on year)

Monetary aggregates(% change, year on year)

Foreign trade(US$ m; goods only)

Foreign-exchange reserves(US$ m)

Exchange rate(PRs:US$; av; inverted scale)

Oil: Brent, Dubai & WTI spot prices(US$/b; av)

Source: Economist Intelligence Unit.Source: Economist Intelligence Unit.



40

50

60

70

80

90

100

110

120

130

140

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

85.0

80.0

75.0

70.0

65.0

60.0

55.0

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

4,000

6,000

8,000

10,000

12,000

14,000

16,000

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0 M2 M1

AprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0 Producer prices Consumer prices

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

-3,000

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000 Balance Imports Exports

OctJulAprJan08

OctJulAprJan07

OctJulAprJan06

OctJulApr2005

Pakistan 21


Country snapshot

Political structure

Islamic Republic of Pakistan

Federal parliamentary democracy (since October 2002); however, the president retains a controlling role and can dismiss parliament, making the political system in effect a quasi-dictatorship

Asif Ali Zardari was elected president on September 6th 2008. Yusuf Raza Gilani is the prime minister and head of government

The bicameral legislature was dissolved on November 14th 2007; a caretaker government was in place from November 15th 2007 to March 17th 2008, when a new parliament was sworn in. The National Assembly (the lower house) has 342 seats, 272 of which are elected on a first-past-the-post basis. Of the remainder, 60 are reserved for women and ten for non-Muslim minorities; they are allocated on the basis of proportional representation to parties that win more than 5% of the directly elected seats. The Senate (the upper house) consists of 100 senators. Of these, 22 are elected by each of the four provincial assemblies, eight are tribal representatives and four are representatives from the lower house

Elections for the National Assembly took place on February 18th 2008. A presidential election was held on September 6th 2008

The Pakistan People!s Party (PPP) and the Pakistan Muslim League (Nawaz), or PML (N)"the two parties that won most seats in the February 2008 National Assembly election"led a coalition government until August 25th, when the PML (N) left the coalition

Elections for Pakistan!s four provincial assemblies were held on February 18th 2008 (at the same time as the National Assembly election). The provinces enjoy considerable autonomy, but this has caused tensions with central government

PPP; PML (N); Pakistan Muslim League (Quaid-i-Azam), or PML (Q); Muttahida Majlis-i-Amal (MMA, which comprises six religious parties, including Jamaat-i-Islami and Jamiat-i-Ulema-i-Islami); Muttahida Qaumi Movement (MQM); National Alliance (comprising several small parties led by the Millat Party); Awami National Party (ANP); Tehrik-i-Insaf (TI); Jiye Sindh Qaumi Mahaz

President Asif Ali Zardari Prime minister Yusuf Raza Gilani

Defence, commerce (acting) Chaudhry Ahmed Mukhtar Finance, revenue, economic affairs & statistics Syed Naveed Qamar Foreign affairs Shah Mehmood Qureshi Information & broadcasting Sherry Rehman Local government & rural development Ghulam Bilour Ports, shipping, privatisation & investment Syed Naveed Qamar Water & power Raja Pervez Ashraf

Saleem Raza

Form of state

The executive

National legislature

National elections

National government

Main political organisations

Official name

Provincial government

Central bank governor

Key ministers

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