Pakistan

Pakistan

Last updated: January 2023

Pakistan lags behind its Middle East and North African (MENAP) counterparts on measures of per capita income and creditworthiness, while measures of the business climate are in line with peers. The government’s US$6 billion Extended Fund Facility (EFF) arrangement from the IMF, extended through to June 2023, supports external financing needs and the government’s reform agenda; however, the pandemic has exacerbated existing structural issues. Growth prospects are stronger than peers, but weak public and external finances and geopolitical tensions remain key risks to the outlook.

The above chart is a cobweb diagram showing how a country measures up on four important dimensions of economic performance—per capita income, annual GDP growth, business climate rank and creditworthiness. Per capita income is in current US dollars. Annual GDP growth is the five-year average forecast between 2023 and 2027. Business climate is measured by the World Bank’s 2019 Ease of Doing Business ranking of 190 countries. Creditworthiness attempts to measure a country's ability to honour its external debt obligations and is measured by its OECD country credit risk rating. The chart shows not only how a country performs on the four dimensions, but how it measures up against other countries in the region.

Economic reopening supported the return to work for most informal workers and boosted incomes in 2021 and 2022. The “Ehsaas program”, launched by the government in March 2019, promises eligible families essential supplies at steep discounts and unconditional direct cash transfers. Pakistan’s IMF EFF program includes measures that aim to strengthen social safety nets and alleviate harm to the poor from price increases and tariff reforms.

Country risk

Country risk in Pakistan is high. The OECD country risk grade is 7. The three major ratings agencies have sub-investment grade sovereign credit ratings. Pakistan’s credit risks have been amplified by rising inflation, deteriorating foreign reserves, a weak exchange rate, and heightened political and social risks. This indicates a high risk that Pakistan will be unable and/or unwilling to meet its external debt obligations.

Pakistan underperforms most of the Middle East region on various measures of governance. Political stability remains an ongoing challenge. Corruption is perceived as high and widespread due to gaps in accountability and enforcement of penalties. Strengthening institutions and governance is a priority of the government. Reform measures such as enhancing the independence of anti-corruption bodies and improving the capacity of banks to report anti-money laundering practices will likely help in this regard.

The risk of expropriation in Pakistan is high. This stems from long delays, lack of transparency, consistency, and impartiality in the legal system which makes it difficult for private enterprises to seek legal recourse from the government. Legislation to protect foreign investment from expropriation and the 2013 Investment Policy underline the government's commitment to protecting foreign investor interests and mitigate risks of expropriation.

Political risk is high. Prime Minister Shehbaz Sharif of the Pakistan Muslim League-Nawaz has a slim parliamentary majority and faces an environment of expanding current account deficits and high inflation that will challenge governability. A large military influence and a volatile security situation remain constraints on the political and business environments.

Bilateral relations

Pakistan was Australia’s 40th largest trading partner in 2021. Total goods and services trade amounted to $1.8 billion in 2021. Major Australian exports to Pakistan include education, fruit and vegetables and coal. Textiles are Australia’s largest import from Pakistan.

Pakistan has extensive energy resources, including oil, natural gas, and coal. Energy supplies in Pakistan present a wide range of opportunities for Australian oil and gas, power, and infrastructure businesses. Snowden Mining Consultants, BHP, SMEC, and CE Bartlett are Australian companies that have previously conducted business in mining and infrastructure projects in Pakistan.

Remote learning supported Pakistan student enrolments in Australian institutions through the pandemic. Easing international border restrictions helped tourism arrivals recover in 2022 following the pandemic-induced slump in 2020 and 2021. Another year of open international borders and pent-up demand for travel should support further recovery in tourism, and broader services exports, in 2023.

Bilateral investment between Pakistan and Australia is small. Trade and investment opportunities may exist in education, agribusiness, processed foods, and IT and communication goods and services. As Pakistan's food retail market becomes more dynamic, there exists a market entry opportunity for overseas producers. For example, the emergence of franchised quick service restaurants and eCommerce will increase demand for imported packaged food and beverages. That could benefit Australian exports, given Australia is regarded as a supplier of quality and healthy food products.

Useful links

Department of Foreign Affairs and Trade

Pakistan Country Brief

Austrade

Pakistan Market Profile