Pakistan will remain heavily dependent on concessional loans and emergency aid from multilateral institutions and bilateral donors. The catastrophic floods of August-September 2010 heightened this reliance, as it is estimated that billions of US dollars are likely to be required in the medium term for reconstruction and rebuilding. Western countries are unlikely to tie crisis-linked humanitarian aid to specific political concessions, but non-humanitarian aid from the West will continue to be subject to conditions, such as promises by Pakistan to do more to combat Islamist militancy. In this context, Pakistan will welcome further offers of investment from China, which is already a staunch and relatively uncritical ally.

The US will remain Pakistan's most important donor and strategic partner by far, but the bilateral relationship is complex and will continue to be subject to significant tension. US policy towards Pakistan encompasses development assistance, military aid and targeted assassinations of senior militants using unmanned aircraft. The US also seeks co-operation and accountability from Pakistan. The US would continue to face difficulties in its attempts to nullify Islamist militancy in the region even were it to receive unstinting and effective long-term co-operation from Pakistan's government and military. But the US is most unlikely to receive this degree of assistance, especially as it is considered by the Pakistani government to be using its presence in South Asia merely to advance its own priorities. The US has, for example, been trying to strengthen its relationship with India. But the stronger the overtures that it makes in that direction, the less likely will it be that the Pakistani authorities will co-operate fully with it in cracking down on Islamist militants, given that the use (either tacit or overt) of militants as a proxy force that has the potential to be used against Indian interests has been embraced by Pakistani governments for decades. Meanwhile, the arrest in January of a US citizen, Raymond Davis, in Pakistan following his killing of two Pakistanis and the subsequent revelation that he was an operative of the main US intelligence office, the Central Intelligence Agency, has cost the US even more credibility and popularity among the Pakistani public (anti-US demonstrations have proliferated since January). The resolution of the two-month-long bilateral diplomatic crisis (facilitated by the payment of "blood money" to relatives of the men shot by Mr Davis) will not by itself cause the heightened mistrust between the US and Pakistan to dissipate. Evidence of strained ties continues to manifest itself; for example, Pakistan boycotted a trilateral meeting on Afghanistan in March in protest against the killing of 39 people in a US drone attack.

The home secretaries of India and Pakistan met on March 28th-29th and the two countries' foreign ministers are scheduled to meet in July. The ongoing bilateral dialogue is extremely positive, in the light of the fact that official contact was suspended following the terrorist attack on India's financial capital, Mumbai, in November 2008-but the range and intractability of the disputes that plague the bilateral relationship is daunting. Talks will continue, and the issue of crossborder terrorism will remain at the forefront of discussions, but we do not expect any major, rapid improvement in ties.