Pakistan is a country confronting a range of daunting challenges. Embroiled in a war on its lawless north-western border with Afghanistan, Pakistan has experienced a dramatic deterioration in its domestic security in recent months - a situation that is not helped by ongoing political instability. These severe problems, combined with the global financial crisis and the subsequent worldwide economic slump, have taken their toll on government coffers.
Following a surge in food and fuel prices in the middle of 2008, which pushed headline inflation up to 25%, the country entered a downward economic spiral in the latter half of that year. As its trade and budget deficits ballooned out of control, Pakistan was forced to seek assistance from the International Monetary Fund, which granted the country an $11.3bn credit facility under a 25-month stabilisation programme. Although the programme has enjoyed some progress, fiscal consolidation continues to be adversely affected by low economic activity - particularly in the country's badly hit manufacturing sector - and the challenging security environment.
