In 2010/11 growth is likely to be constrained by shortages of energy and water, ongoing security concerns and the after-effects of the August-September 2010 floods. Weaker expansion will be mainly a result of slowing growth in private consumption as inflation stays high and millions of people remain displaced following the floods. But the disaster will have a positive effect on government consumption and investment, as the need for post-flood reconstruction will be paramount. Such work will go ahead in spite of the government's promise to curtail expenditure in order to cut the fiscal deficit (much of the required funds will come from foreign governments and multilateral institutions). We estimate real GDP growth in 2010/11 at 3%, down from 4.4% in 2009/10, reflecting the damage caused by the floods. Economic expansion will accelerate to an average of 3.9% a year in 2011/12-2014/15 as growth in private consumption strengthens.

The external balance will subtract from economic growth throughout 2011-15. Growth in exports of goods and services (on a national-accounts basis) is forecast to average 7.3% a year in 2011/12-2014/15, whereas import growth will average 10.9%. The gap between export and import growth will have been widest in 2010/11, when exports will be hobbled by flood-induced damage to the cotton crop (a crucial input for Pakistan's largest export earner, the textile industry), and also to infrastructure and power networks (which will affect the industrial sector more broadly). Import growth will be especially strong in that year, owing to post-flood reconstruction. Export growth will recover in 2012/13-2014/15, but import expansion will also remain vigorous, boosted by continued growth in private consumption.

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