South Asia Investor Review

Just like the bad old days BRIGHTLY painted Tata lorries, laden with sacks of onions, wait in the noon heat at the Wagah border post between India and Pakistan. Once past customs, the onions will go on to Lahore and beyond. But the lorries must turn back. Their produce is laboriously loaded onto smaller vans, driven by locals. Pakistan's costly imports of food ($3.5 billion in the first ten months of this fiscal year, which ends on June 30th), fertilizer ($823m) and fuel (over $8.6 billion) may pull the economic rug from under its newly installed government, which presented its first budget, belatedly, on June 11th. The State Bank of Pakistan (SBP), the central bank, reckons the country's current-account deficit might reach 7.8% of GDP this fiscal year, its highest ever. Growth has slowed to 5.8%, inflation has quickened to over 19% and the government's budget deficit, at about 7% of GDP, is the highest in ten years. Such macroeconomic disarray will be familiar to the coali...

Pakistan's central bank expects economic growth will come in between 5.5 percent and 6 percent in fiscal 2008, which ends June 30, down from 7 percent the previous year. This forecast comes on the heels of dire talk of economic "meltdown" by the new leadership that is facing serious political instability amid serious differences in the PPP-PML(N) coalition government. The ongoing unease with new leadership is continuing to accelerate loss of confidence in Pakistan's economy by businesses, investors and consumers. In a quarterly report released Saturday, the State Bank of Pakistan said the economy was showing "increasing signs of stress" as a result of both homegrown and international factors. A disappointing wheat harvest will likely impact the key agriculture sector, while chronic power shortages - both households and businesses face regular load shedding - have slowed industries including steel and textiles, it said. With the dramatic rise in international...