Forecast from The Economist

General Pervez Musharraf, the president and chief of army staff, will continue to dominate the political scene in the forecast period, although his position is becoming more insecure. General Musharraf, who came to office in a military coup in 1999, retains the power to dismiss parliament and the prime minister (and thereby impose full military rule) in his capacity as chairman of the National Security Council. His firm control over the army remains his ultimate guarantor of power. The opposition is severely critical of his rule, and has been aggressively campaigning for a return to full democracy. Despite being weak, the opposition is gaining popularity. The government’s support for the US-led “war on terror” has raised political tensions within Pakistan, and militant groups in Waziristan and Baluchistan will continue to try to undermine federal rule. Real GDP will slow from 6.6% in fiscal year 2006/07 (July-June) to 6.1%, in 2007/08, largely owing to a slowdown in the manufacturing sector. High international oil prices, inflation and a widening current-account deficit remain the biggest threats to the economy.

Key changes from last update

Political outlook
An attack in late October by the Pakistani army on a Madrassa (Muslim religious school) in the North-West Frontier Province (NWFP) led to the deaths of over 80 religious students whom the Pakistani government alleges were terrorists. The move has angered the local population and is likely to lead to increased violence in the province.

Economic policy outlook
The Oil and Gas Development Company, Pakistan’s largest state-owned energy exploration company, is planning to double its budget and begin a series of overseas ventures for the first time. Strong real GDP growth will continue to force planners to seek new energy supplies.

Economic forecast
The Economist Intelligence Unit has revised up its forecast for real GDP growth in 2006/07 from 6.4% to 6.6%. The revision reflects our improved expectations for the monsoon; the agricultural sector will benefit from favourable weather conditions.

Source: The Economist

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