Pakistan’s impressive progress

After years of upheaval, Pakistan is making impressive progress, and appears to offer plenty of potential for investors.

Pakistan "is more readily thought of as a pit of instability than as a source of opportunity," as The Economist puts it. Yet after years of upheaval, it is making impressive progress, and appears to offer plenty of potential, says Dimitra DeFotis in Barron's. One encouraging development has been a marked decline in political violence, despite sporadic headline-grabbing horrors.

The number of civilian fatalities in terrorist incidents declined from over 3,000 to under 1,000 in 2015, notes Bader Al Hussain on SeekingAlpha.com. In 2013, Pakistan for the first time was handed from one civilian government to another after years of military rule.

The macroeconomic backdrop has also brightened considerably. The government has stuck to the terms of a $6.6bn loan package from the International Monetary Fund that began in 2013. The revenue collection system has been improved and subsidies cut, helping reduce a budget deficit that peaked at 8% of GDP. The annual overspend is now under 2%. The state hasalso begun to restructure or sell off struggling public companies.

The fall in the oil price has been a boon because it uses imported fuel for around 40% of its power supply. That has helped tame inflation and underpin growth, which has ticked up to 5% after averaging 3.4% in the past five years. And the long-term outlook is encouraging. Chinese investment in Pakistan's infrastructure, worth $46bn over the next decade, could be a "game-changer", says Al Hussain. Power plants are being prioritised.

The business culture is solid: Pakistan is actually ahead of India in the World Bank's ease-of-doing-business rankings. A population of 195 million, the world's sixth-biggest, implies plenty of scope for consumption to rise strongly in future. Coca-Cola's Pakistan operations notched up double-digit growth in the first quarter. The stockmarket, meanwhile, could soon be promoted from "frontier" to "emerging market" status by index provider MSCI, thus drumming up more interest. One to keep an eye on.

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