Outlook for 2011-15

• Inter-party tensions have risen. Much political conflict in the forecast period will remain highly personalised, and prospects for a substantial improvement in political effectiveness are therefore remote.
• Although the spectre of a no-confidence motion against the government has been averted for the time being, another political crisis that could lead to the fall of the administration and the holding of a snap poll remains a possibility.
• The US will remain Pakistan's most important donor and strategic partner, but the bilateral relationship is complex and will remain fraught with tension.
• Pakistan will remain heavily reliant on concessional loans and emergency aid from multilateral institutions and bilateral donors. The catastrophic flooding of August-September 2010 has only heightened this dependency.
• Further disbursements from the emergency stand-by agreement with the IMF may be in jeopardy because of the Pakistani government's repeated failure to implement structural economic reforms mandated by the Fund.
• Real GDP growth in 2010/11 (July-June) will be constrained by power shortages and the effects of the floods. Growth will accelerate to an average annual rate of 3.9% in 2011/12-2014/15, from an estimated 3% in 2010/11.

Monthly review

• On March 16th a Pakistani court acquitted a US citizen, Raymond Davis, on charges of murder after relatives of the men he was accused of killing testified that they had accepted money as compensation.
• In early March Pakistan tested a nuclear-capable surface-to-surface missile, the Hataf-2 rocket, which it has co-developed with China.
• Around 50 people were killed in targeted attacks in Pakistan's largest city, Karachi, during a two-week period in March. Large parts of the city were partially shut down because of the violence.
• In March the State Bank of Pakistan (the central bank) announced that the benchmark interest rate, the discount rate, would remain unchanged, at 14%.
• An IMF mission visited Pakistan during the first ten days of March to hold discussions on the country's macroeconomic situation. However, the Fund gave no indication of whether scheduled disbursements would go ahead.
• Consumer price inflation decelerated again in February, to 12.9% year on year, from 14.2% in January and 15.5% in December 2010.
• Inflows of remittances from Pakistanis working overseas surged in February, rising by 43.5% on a yearly basis and 2.3% month on month, to US$845.3m.

The temporary withdrawal from the government of a major coalition partner, the Muttahida Qaumi Movement (MQM), in January added to Pakistan's already extensive political woes. The government has survived the recent crisis, but the events of January have highlighted its weakness. Having lain dormant throughout much of 2010, tensions between political parties had been rising since September, and inter-party relations remain extremely volatile. Much political conflict during the forecast period will remain highly personalised, and prospects for a substantial improvement in political effectiveness are therefore remote. The resolution of the most recent crisis, and the fact that the government avoided facing a confidence vote and possible collapse, should be seen as a temporary reprieve rather than a harbinger of greater political stability in the months ahead.

The main political forces in the country-the Pakistan People's Party (PPP), which leads the coalition government; the MQM; and the largest opposition party, the Pakistan Muslim League (Nawaz), or PML (N)-will continue to try to advance their own agendas even at the expense of government effectiveness and political stability. The PPP's actions in recent months have demonstrated that it will prioritise the aim of preserving the ruling coalition above other considerations, but its policy reversals smack of desperation and merely serve to underscore its weakness. A major risk is that the government has set a precedent, so that any future inter-party squabbles will again trigger a threat to the existence of the coalition, once more leading officials to make concessions in order to avoid collapse. (In early March the government diluted a policy announcement that it had made just days earlier, after consultations with the MQM. The policy concerned fuel-price rises-the same issue that triggered the MQM's withdrawal from the coalition in January.)

The position of the unpopular president, Asif Ali Zardari, will also remain tenuous. The recent crisis occurred against a backdrop of attempts by other political participants, including the judiciary, to capitalise on Mr Zardari's increasing weakness, and there remains the risk that he could be forced out of office by judicial intervention. The government's failings notwithstanding, the removal of Mr Zardari through quasi-legal means would highlight the shallow nature of the recent return to full democracy in Pakistan.

One slightly positive factor for the government is the fact that the parties that have pitted themselves against the PPP-the PML (N) and MQM-are arch-rivals. Notwithstanding the two parties' agreement on some issues, it is unlikely that they will be able to band together to form a united opposition. Nevertheless, the extent to which the opposition is currently able to exploit the government's weakness was highlighted by the PPP's decision in early February to dissolve the entire cabinet and replace it with a new, smaller one. The decision was driven by the ten-point list of demands that the PML (N) had issued the government in January, and the threat that the PML (N) would take an increasingly tough stance against the government if its demands were not met by a mid-February deadline. The PPP's predicament was underscored again in late February, when the PML (N) ousted the PPP from the Punjab provincial assembly on the grounds that it had failed to deal with its ten-point agenda.

Under the leadership of General Ashfaq Kayani, the army has withdrawn from direct participation in politics. However, in a country with a long history of military coups, it remains possible that continued bungling by a civilian government might prompt the army to assert itself politically once more. That said, there are numerous reasons why the army would prefer not to take direct control in the near future.

The next general election must be held by 2013. Pakistan's political landscape can change significantly within months, but it is likely that the contest will be primarily a tussle between the two largest parties, the PPP and the PML (N). In October 2010 Pervez Musharraf, the former military ruler who later became the country's civilian president, launched a new party, the All-Pakistan Muslim League, from the UK, where he has lived in exile since being forced to resign as president in 2008. Mr Musharraf has vowed to contest the next general election, saying that he will return to Pakistan before the poll. He retains a degree of influence in the military but was hugely unpopular during his last months in office, and the Economist Intelligence Unit therefore doubts his ability to stage a triumphant return to politics.

The government's loss of its legislative majority in January raised the spectre of a possible no-confidence motion, and a snap election had it been defeated. Although this threat has been averted for now, another political crisis that might lead to the fall of the government and an early election is a possibility. The PML (N) is unlikely to push for such an outcome, however, as its chances of winning a snap poll are not assured and as it would prefer to remain in opposition while the country remains beset by grave political, security and economic problems.

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.

The scheduled disbursement of the sixth tranche of funds under Pakistan's stand-by agreement (SBA) with the IMF is still pending because of the repeated failure of the government to implement structural economic reforms mandated by the Fund. The disbursement was first delayed until September 2010, subject to the fifth review of the agreement, which was to have been conducted in August. The review was rescheduled for early December, but again did not take place. In late December the IMF approved a nine-month extension of the SBA until the end of September 2011. The Fund has said that it will continue negotiations on the fifth review, but in January it expressed displeasure with the authorities' decision to reverse a fuel-price increase and, more importantly, to delay further the imposition of a revised general sales tax (RGST).

The latter measure is a condition of continued support under the SBA, but has been postponed repeatedly since mid-2010. It is highly unlikely that the PPP will be able to garner the broad-based political support necessary for economic reforms such as the RGST. Indeed, in early March MQM and PML (N) leaders voiced explicitly their intention to oppose the government if it pushed ahead with measures such as tax reform. Its decision in early January to reverse the fuel-price rise signalled that it would be willing to sacrifice its commitment to reform if necessary in order to prop up the government. The reforms therefore appear unlikely to be passed in the next six months, raising the question of how far the IMF's patience with Pakistan will extend. In recognition of the political impasse, the government will discuss with the Fund the possibility of implementing the needed reforms via executive order-although this too would provoke a backlash from the MQM and PML (N).

The State Bank of Pakistan (SBP, the central bank) expects the federal budget deficit to be in the range of 6-6.5% of GDP in fiscal year 2010/11 (July-June), based on the fact that the shortfall in the first half of 2010/11 alone was equivalent to 2.9% of projected annual GDP. Given the poor prospects for the introduction of the RGST and the fact that spending pressures have increased, owing to the floods, we estimate that the budget deficit will average 6.7% of GDP in 2010/11, up from an estimated 6.3% in 2009/10. This is well above the deficit target set by the IMF, of 4.7%, and would make 2010/11 the second consecutive year in which the budget deficit exceeded the Fund's target by a significant margin. (In 2009/10 the deficit was 1.2 percentage points higher than the IMF target of 5.1%.) Continued high government spending, coupled with delays and shortfalls in budgetary support from multilateral donors, mean that we expect the deficit to narrow only slightly in 2011/12-2014/15, to an average annual rate of 5.4%.

The SBP kept its benchmark interest rate, the discount rate, on hold in March, owing to a diminishment of "immediate risks to macroeconomic stability". However, the rate of year-on-year consumer price inflation has been in double digits every month bar one since January 2008, and Pakistan will continue to rely on monetary policy to tackle high inflation, despite evidence that supply-side problems (such as the hoarding of foodstuffs and the destruction of crop land and grain-storage facilities in the floods), as well as the government's reliance on the SBP for deficit financing, are more important than strong domestic demand in pushing up prices. The central bank noted explicitly that it expects risks to macroeconomic stability to increase again in 2011/12, and so we expect monetary policy to be tightened again in the second half of 2011. Assuming that inflation moderates in the second half of 2011 and remains relatively subdued in 2012-15, we believe that the SBP will then be keen to reduce interest rates again to spur economic growth.

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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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Consumer price inflation stood at 12.9% year on year in February-the 38th consecutive month (with one exception) in which prices have risen at double-digit rates. Inflation will remain elevated in coming months, as the floods destroyed an estimated 10-15% of farmland as well as grain-storage facilities, thereby generating supply-side pressures. More broadly, upside inflationary pressures abound; they include rising international commodity prices, the depreciation of the Pakistan rupee against the US dollar, the fuel-price rise announced in early March and the widening fiscal deficit, which has led to a resurgence in government borrowing from the central bank. However, the government's postponement of the introduction of the RGST will temper inflationary pressures somewhat. We forecast consumer price inflation at 10.2% in 2011, down from 13.9% in 2010. Inflation should then moderate, to average 6.9% in 2012-15.

The Pakistan rupee will depreciate against the US dollar by an average of 2.5% a year in 2011-15. The boost to investor confidence resulting from bilateral pledges of aid and assistance, together with intervention by the SBP in foreign-exchange markets to limit volatility, will be the principal factors limiting rupee weakness, but the main risks to our exchange-rate forecast are on the downside.

Imports contracted sharply in 2009, but import growth resumed in 2010 and will remain strong in 2011-15, in line with high international oil prices and stronger demand for basic commodities and construction materials. Export growth will be weak, as even before the floods a range of structural factors was impeding Pakistan's ability to expand its overseas sales. As a result, the trade deficit will widen steadily to reach US$25bn in 2015, compared with an estimated US$11.6bn in 2010. The current-account deficit will widen in tandem, from an estimated US$2.5bn in 2010 to US$10.8bn in 2015. As a proportion of GDP, the current-account deficit will rise steadily from an estimated 1.4% in 2010 to 4.2% in 2015.

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In mid-March the two-month-old controversy over Raymond Davis, a US citizen and contractor for the US Central Intelligence Agency (CIA), who was being detained by Pakistani authorities, was resolved. On March 16th a court in the capital of Punjab province, Lahore, acquitted Mr Davis on charges of murder after relatives of the men he was accused of killing testified that they had accepted money as compensation. This is in accordance with the sharia principle of diyya, or compensation paid to a victim's survivors. The relatives of the men who were killed had been under pressure by Pakistani officials to accept such a settlement for weeks, and had been refusing; ultimately, however, they accepted payment of around US$2m in total. It is widely assumed that the US government paid the "blood money", but US officials have denied this.

There was public unrest throughout Pakistan following the settlement. Protest rallies occurred in Lahore, Karachi (the capital of Sindh province and Pakistan's commercial hub) and Peshawar (the capital of Khyber-Pakhtoonkhwa) as well as in the national capital, Islamabad. In some areas of Karachi a partial strike was observed at the request of several Islamic groups. The US government closed its embassy and consulate in Islamabad on March 18th in anticipation of possible violence. Protest rallies were led by various political parties, lawyers, students and religious groups, and were mostly anti-US, although many were also critical of the Pakistani government.

In early March Pakistan tested a nuclear-capable surface-to-surface missile, the Hataf-2 rocket, which it has co-developed with China. The test demonstrates Pakistan's growing reliance on China for its military hardware. The scale of arms purchases by Pakistan is surprising, given the country's precarious fiscal position. It has ordered 250 JF-17 jet fighters (which are also co-produced with China) for delivery over the next decade, along with other plane models, six submarines and eight frigates. Pakistan's ability to pay for these is in doubt, and the value of the contracts is unknown. It would appear that China frequently writes off the money owed, instead valuing Pakistan's strategic role as a regional counterweight to India.

Pakistan's attempts to balance its relationship with Western countries and its relationship with China were noted by the UK defence secretary, Liam Fox, at a meeting in March. He criticised Pakistan of being an ally of the West only when it is convenient. However, many in Pakistan would accuse the West of adopting the same policy towards that country. At the same meeting, the new US special envoy to Afghanistan and Pakistan, Marc Grossman, said that he hoped ties between the US and Pakistan could move ahead following the resolution of the dispute over Mr Davis.

Around 50 people were killed in targeted attacks in Karachi during a two-week period in March. Large parts of the city were partially shut down because of the violence. Karachi's precarious ethnic balance has been affected by the migration into the city of tens of thousands of ethnic Pashtuns who have been displaced as a result of ongoing conflict in the Federally Administered Tribal Areas, or who have been attracted by economic opportunities. Many of those killed in the recent violence were ethnic Pashtuns. Political activists from the Muttahida Qaumi Movement (MQM), which dominates the political landscape in Karachi, have also been targeted. Pashtuns blame the MQM for the violence, which erupted on March 12th (during the 1990s Karachi was riven by violence between two factions of the MQM). The MQM denies any involvement in the recent violence and has blamed terrorists and the so-called extortion mafia (criminal groups who extort money from businessmen).

In late March shopkeepers in one area of Karachi staged a demonstration in protest against extortionist threats that have been made against them. The Karachi Chamber of Commerce and Industry (KCCI) has called for a general strike on April 5th to protest against increasing lawlessness in the city, and, in particular, the rising incidence of extortion and kidnapping of businessmen for ransom. In early March the KCCI had set up a crisis-management unit to monitor cases of extortion and kidnapping. The unit was inaugurated by the federal interior minister, Rehman Malik, but was shut down on March 31st because it was deemed to be completely ineffective.

In its most recent monetary policy statement, which was released on March 26th, the State Bank of Pakistan (SBP, the central bank) announced that the benchmark interest rate, the discount rate, would remain unchanged, at 14%. The governor of the SBP, Shahid Kardar, argued that keeping rates on hold would strike the right balance between taming inflation and boosting GDP growth given that immediate threats to the macroeconomic environment have subsided. However, the SBP said that the stabilisation of the macroeconomic environment could be assumed only for the next two months, and noted specifically that "there is little room for complacency as the risks to the economy may increase if meaningful economic reforms are not initiated to address the structural weaknesses".

Foremost among these structural weaknesses is the fiscal position. The SBP noted that government borrowing from the central bank had moderated, and expressed confidence that officials would keep to the borrowing limits agreed between them and the SBP. However, the SBP called for "implementation of a credible medium-term budgetary framework and renewed efforts to abide by the principles of the Fiscal Responsibility and Debt Limitation Act (2005)" to ensure than fiscal consolidation is sustainable. Year-on-year growth in public debt was 14.8% in 2010, and nearly one-half (45%) of total tax revenue is being used for interest payments on debt. Once public-sector salaries and pensions are added to the fiscal burden, this leaves little room for any public investment or development spending.

Reports in Pakistan suggest that the government is planning to seek another loan from the IMF to repay existing loans from the Fund. Pakistan has received US$8bn of the US$11.3bn stand-by agreement (SBA) that was finalised in 2008. (The original agreement was for US$7.6bn, but the amount of the facility was increased in August 2009.) The IMF has halted the release of the remaining tranches of the SBA owing to the Pakistani government's failure to implement structural reforms-in particular, to introduce the revised general sales tax. The last disbursement was made in May 2010. Pakistan must begin repaying monies to the Fund in 2012, and repayments must be completed by 2016.

An IMF mission visited Islamabad in the first ten days of March to hold what it called "constructive discussions with government and central bank officials on the recent developments, the outlook for Pakistan's economy for the rest of fiscal year 2010/11 (July-June) and 2011/12, and on economic policies to restore macroeconomic stability". However, the statement, which was released after the Fund's visit, gave no indication of the future of the SBA, stating only that discussions on the reform programme would continue.

In late March, however, reports in the Pakistani media indicated that officials intend to re-open negotiations with the Fund in June, after it presents the budget for 2011/12. Three options are reportedly being considered: allowing the existing IMF-loan programme to continue (and extending it beyond its current expiry date of September 30th); merging the existing programme into a new one; or completing the existing programme and then entering into a new one.

Although any new amount borrowed from the IMF is likely to be relatively small, continued support from the Fund is crucial as it sends a positive signal to other lenders, notably the Asian Development Bank and the World Bank. However, the continued absence of structural reform means that the Fund's acquiescence in this purported plan is questionable. Pakistan's finance minister, Abdul Hafeez Shaikh, is scheduled to visit the US capital, Washington, in mid-April, and will hold talks with the IMF while he is there. The Pakistani government is reported to be focusing on boosting the direct tax take. The proportion of the population that pays income tax has barely changed in decades.

In the event that no further support is forthcoming from the IMF, the authorities would appear to have few other options, apart from perhaps hoping that either China or wealthy countries in the Gulf might consider stepping in to fill the void. There would be few takers were Pakistan to float a sovereign bond.

The World Food Programme (WFP, a UN agency) has criticised government policies that have contributed to high food prices in Pakistan: the WFP's director for Pakistan, Wolfgang Herbinger, noted in March that malnutrition levels are rising despite the country recording decent harvests. One reason for this is that the government increased the wheat support price by 120%, in a move that benefited big landlords but harmed poor Pakistanis.

This policy has also faced criticism within Pakistan. A former advisor to the Ministry of Finance, Ashfaque Hasan Khan, called the government's decision to increase the wheat support price, from PRs425 (around US$5) per 40 kg in early 2008 to PRs950 at present, "criminal". According to Mr Khan, a 10% increase in the wheat support price raises the retail price level by 3%-a 120% price rise would have increased the price of wheat by 32%. Domestic wheat prices in Pakistan are now higher than international prices.

Given that parliament is dominated by feudal landlords, the increase in the wheat support price appears wholly self-serving. Wheat is the main staple food input Pakistan. The increase in its price means that fewer Pakistanis can afford two proper meals a day. However, the government claims that increasing the farm gate price of wheat encourages farmers to grow more of the crop, and also helps to prevent smuggling of wheat to Afghanistan. Officials argue that they are attempting to help poorer Pakistanis. Around 4.6m families receive PRs1,000 per month under the Benazir Income Support Programme, a scheme that has been in effect across the country since 2008/09. However, millions of Pakistanis who are slightly better off than that do not benefit from the scheme (only families earning less than PRs6,000 per month are eligible to receive cash grants under the programme). According to the WFP, levels of malnutrition in Sindh province are now 21-23% of people living there; Mr Herbinger noted that the rate at which it is considered an emergency is 15%, and called the incidence of malnutrition in Sindh "well above African standards".

Consumer price inflation slowed again in February, decelerating to 12.9% year on year from 14.2% in January and 15.5% in December 2010. The figure for February was also just lower than the year-earlier 13% rate of inflation. Overall, price rises continued to be led by high food-price inflation, which registered 17.7% in that month, compared with 20.4% in January. Medicine prices increased by 16.3% year on year in February, and transport and communication prices rose by 12.3%.

In its most recent monetary policy statement, the SBP noted that expectations of high inflation were becoming entrenched. It cited three factors responsible for the trend of declining price rises: the reduction of the impact on food prices of the catastrophic flooding of August-September 2010; the government's failure to pass rising international oil prices to consumers and a reduction in official borrowing from the SBP. It stated that inflationary trends in the months ahead would depend on government policy regarding fuel subsidies and central-bank borrowing.

Inflows of remittances from Pakistanis working overseas surged in February, rising by 43.5% year on year and 2.3% month on month, to US$845.3m. This took total remittances in the first eight months of 2010/11 to US$6.9bn, up by 21% compared with the year-earlier period. The steady rise in remittance inflows is attributed largely to the ongoing effects of the Pakistan Remittance Initiative, a programme launched by the SBP, the Ministry of Overseas Pakistanis and the finance ministry in 2009 to encourage the inflow of remittances through official, rather than underground channels. An analyst at one of the leading financial groups in Pakistan, BMA Capital, was quoted in an international newspaper, The Express Tribune, as saying that the proportion of remittances coming through illegal channels has declined from around 50% to 30% since the initiative was launched. In recent months the relative stability of the Pakistan rupee against other currencies has also helped to reduce underground transfers of remittances; in 2008-09, when the local currency was depreciating rapidly against the US dollar and other currencies, some overseas Pakistanis may have held back remittances in anticipation of further declines.

However, the ongoing socio-political unrest in the Middle East and North Africa-the source of a significant proportion of remittances to Pakistan-may yet threaten the continued inflow of funds. The SBP flagged this as a risk in its March monetary policy statement. If remittance inflows were to drop substantially, the effect on the current-account balance would be grave as other sources of financial inflows, such as foreign direct and portfolio investment and transfers from bilateral donors, have been weaker than expected. (For example, according to the SBP, in the first half of 2010/11 the amount of money received from external sources for official-budget financing was just PRs48bn (US$560m), compared with a budget estimate of PRs230bn for the full fiscal year.)

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Please see graphic below

Please see graphic below

Please see graphic below

Land area

769,095 sq km

Population

156.8m (June 2006 official estimate)

Main towns

Population in millions, June 2003

Karachi: 10.1

Lahore: 5.6

Faisalabad: 2.3

Climate

Subtropical, cold in highlands

Weather in Karachi

Hottest month, June, 28-34°C (average daily minimum and maximum); coldest month, January, 13-25°C; driest month, October, 1 mm average monthly rainfall; wettest month, July, 81 mm average rainfall

Languages

Urdu is the national language. English is widespread in business circles and as a second language

Measures

Imperial system, changing to metric. Local measures include 1 seer = 0.933 kg; 1 maund = 40 seers = 37.32 kg

Numbers are still commonly expressed in crores and lakhs: 1 crore = 10m, written 1,00,00,000; 1 lakh = 100,000, written 1,00,000, although in 1978 the internationally accepted system of millions, billions and so on was introduced

Currency

Pakistan rupee (PRs); PRs1 = 100 paisa. Average exchange rate in 2010: PRs85.2:US$1

Time

5 hours ahead of GMT

Fiscal year

July 1st-June 30th

Public holidays

February 16th (Eid-i-Milad-un-Nabi); March 23rd (Pakistan Day); August 14th (Independence Day); August 31st (Eid al-Fitr); November 9th (Allama Iqbal Day); November 7th (Eid al-Adha); December 6th (Ashura); December 25th (birth of Quaid-i-Azam). (Ashura, Eid-i-Milad-un-Nabi, Eid al-Fitr and Eid al-Adha are dependent on the Islamic lunar calendar, and their dates may therefore vary slightly from those listed)

Official name

Islamic Republic of Pakistan

Form of state

Federal parliamentary democracy

The executive

Asif Ali Zardari was elected president in September 2008. Yusuf Raza Gilani is the prime minister and head of the government

National legislature

The National Assembly (the lower house) has 342 seats, 272 of which are elected on a first-past-the-post basis. Of the remainder, 60 are reserved for women and ten for non-Muslim minorities; they are allocated, on the basis of proportional representation, to parties that win more than 5% of the directly elected seats. The Senate (the upper house) has 100 members. Of these, 22 are elected by each of the four provincial assemblies, eight are tribal representatives and four are representatives from the lower house

National elections

Elections for the National Assembly took place in February 2008; the next National Assembly election is due in 2013. A presidential election was held in September 2008; the next presidential poll is due to take place in September 2013. An election for one-half of the seats in the Senate was held in March 2009; the next Senate election (also for one-half of the seats in the chamber) is due in March 2012

National government

The Pakistan People's Party (PPP) and the Pakistan Muslim League (Nawaz), or PML (N)-the two parties that won most seats in the February 2008 National Assembly election-led a coalition government until August 2008, when the PML (N) left the coalition

Provincial government

Elections for Pakistan's four provincial assemblies were held in February 2008 alongside the National Assembly election. The provinces enjoy considerable autonomy, and this has caused tensions with central government

Main political organisations

PPP; PML (N); Pakistan Muslim League (Quaid-i-Azam), or PML (Q); Muttahida Majlis-i-Amal (MMA, which comprises six religious parties, including Jamaat-i-Islami and Jamiat-i-Ulema-i-Islami); Muttahida Qaumi Movement (MQM); National Alliance (comprising several small parties led by the Millat Party); Awami National Party (ANP); Tehrik-i-Insaf (TI); Jiye Sindh Qaumi Mahaz

President: Asif Ali Zardari

Prime minister: Yusuf Raza Gilani

Key ministers

Commerce: Makhdoom Amin Fahim

Defence: Chaudhry Ahmed Mukhtar

Finance: Abdul Hafeez Shaikh

Foreign affairs: Vacant

Industries & production: Manzoor Ahmed Wattoo

Information & broadcasting: Firdous Ashiq Awan

Interior: Rehman Malik

Investment: Saleem Mandviwalla

Labour & manpower: Khurshid Ahmed Shah

Law, justice & parliamentary affairs: Babar Awan

Planning & development: Makhdoom Shahabuddin

Privatisation: Naveed Qamar

Central bank governor

Shahid Kardar