Country risk in Pakistan is high with an OECD country credit grade of 7. This is akin to a speculative grade sovereign rating, which indicates an elevated risk of Pakistan being unable and/or unwilling to meet its external debt obligations.
Pakistan is ranked 136 out of a possible 190 countries on the World Bank’s ease of doing business scorecard. Businesses find it difficult to enforce contracts, trade across borders, pay taxes, register property, get electricity and deal with construction permits when compared to the rest of the Middle East. But resolving insolvency, protecting minority investors and getting credit is easier.
The risk of expropriation in Pakistan is moderate to high. This stems from large delays, lack of transparency, consistency and impartiality in the legal system, making it difficult for private enterprise to seek recourse from the government. Corruption is also perceived as high and widespread. To reduce expropriation risks, most foreign investors include contract provisions that provide for international arbitration.
Pakistan underperforms most of the region on the various measures of governance. Rule of law, regulatory quality and political stability are poor in Pakistan. Not surprisingly, political risk is also elevated. But the democratic transfer of power between civilian governments, the second time in Pakistan’s 71-year history, and Imran Khan’s promise of weeding out corruption does add some upside for the outlook.