Country risk

Country risk in Pakistan is high. The OECD country grade is 7. The three major ratings agencies have sub-investment grade sovereign credit ratings. This indicates a high risk that Pakistan will be unable and/or unwilling to meet its external debt obligations.

The World Bank ranks Pakistan 108th out of 190 economies in the ease of doing business survey. Compared to the rest of the Middle East, businesses operating in Pakistan find it more difficult to enforce contracts, pay taxes, register property and get electricity. But resolving insolvency and protecting minority investors is easier relative to regional peers.

Pakistan underperforms most of the Middle East region on the various measures of governance. Political stability remains an ongoing challenge. Corruption is perceived as high and widespread. Strengthening institutions and governance is a priority of the government. 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. To reduce expropriation risks, most foreign investors include contract provisions that provide for international arbitration.

Political risk is high, notwithstanding the recent democratic transfer of power between civilian governments. A large military influence and volatile security situation remains a constraint on the political and business environments. In addition, cross-border terrorism and a decades-long dispute over Kashmir will remain major risks to Pakistan-India relations.