Reuters study concludes Pakistan collapse risk is hyped

Advances by Taliban militants, political uncertainty and economic troubles have raised alarm among Western politicians and analysts about the stability of Pakistan’s government and the safety of its nuclear weapons. A powerful package on May 14 by our political risk specialists looked at how realistic these fears are, and what they could mean for markets. The central analysis concluded that Pakistan may have a weak and feckless government and militants sympathetic to al Qaeda may control large swathes of its territory, but the country is not about to implode - and, in fact, most risks are on the upside. The analysis showed that the macroeconomic picture is far brighter than six months ago when Pakistan appeared to be heading for sovereign default, and the downside risks are muted by the fact that if the government becomes even more ineffective, or if security deteriorates badly, that makes a coup more likely — a market-positive outcome.