SINGAPORE It has a weak and feckless government, is beset by poverty and corruption, and militants sympathetic to al Qaeda control large swathes of its territory.
And yet despite the prophets of doom, Pakistan is not about to implode. In fact, analysts say, most risks are on the upside.
Nervously watching the Taliban expand ever closer to Islamabad, senior U.S. officials have warned of looming disaster. Pakistan "poses a mortal threat to the security and safety of our country and the world," said Secretary of State Hillary Clinton.
The worst-case scenario goes like this: Taliban militants extend their grip across Pakistan, undermining the government of President Asif Ali Zardari with a succession of bomb attacks in key cities. In the ensuing chaos, the world is faced with the specter of a failed state run by nuclear-armed militants.
Frightening, but the chances of it happening are negligible.
"The Taliban are not going to take over the Pakistani government," said University of Michigan professor Juan Cole.
"A few thousand tribesmen can't take over a country of 165 million with a large urban middle class that has a highly organized and professional army."
BAD BUT NOT CATASTROPHIC
Nobody expects much good news out of Pakistan anytime soon. But that does not mean the situation is going to get significantly worse and seriously spook global markets.
"Pakistan is bad, let's be in no doubt about that," said Alistair Newton, senior political analyst at Nomura.
"But at the moment, and except in very low probability scenarios, I would say the risks are largely internalized, with the exception of the possibility -- which I would put higher -- of further terrorist attacks in India with Pakistani fingerprints on them."
Despite the alarm last month when the Taliban took control of areas just 100 km (60 miles) from Islamabad, geographical proximity does not translate into being anywhere near seizing overall power in Pakistan. That would require winning control of Punjab and Sindh, and analysts see little chance of that.
"They don't have the capability at the moment to take over Punjab and Sindh," said Maria Kuusisto, Pakistan analyst at Eurasia Group in London. "We're talking about 6-7,000 fighters and the Pakistani army has more than 500,000 men."
The army has already launched a major assault on the Taliban in Swat, and any attempt by militants to threaten the capital would inevitably elicit a swift military response.
"The Taliban is hardly going to muster the will or the force to launch what would have to be a conventional attack against Islamabad," Newton said. "That would be a sure-fire recipe for them getting carved apart by the Pakistani army."
To make inroads into Punjab or Sindh the Taliban would need some degree of popular support there. "But there is no popular sympathy for them controlling Punjab and Sindh," Kuusisto said.
Whatever the outcome of the offensive in Swat, analysts say, the Taliban will remain a destabilizing force.
"They have the ability to carry out coordinated and very sophisticated terrorist attacks," Kuusisto said. "That in itself is a big worry for the country in the short- and medium-term."
But while the security situation is bad and may get worse, that is still far from a doomsday scenario.
"A significant deterioration in the security situation is not impossible -- we are heading in that direction -- but this talk of the whole country being 'Talibanized' is an exaggeration," said Chietigj Bajpaee, South Asia analyst at Control Risks.
RISKS ON THE UPSIDE
Pakistan's stock market .KSE surged at the start of 2009 but has tumbled over the past month on heightened security concerns.
The macroeconomic picture, however, is far brighter than six months ago when Pakistan appeared to be heading for sovereign default, partly thanks to an IMF loan and more than $5 billion in aid from the 'Friends of Pakistan' group of countries.
Its 5-year Credit Default Swap spread, which struck a peak of around 3,500 basis points in February when there were doubts about the country's ability to make a $500 million bond redemption, has since tightened to 2,090 basis points.
"There is always headline risk for Pakistan because of the conflict in the Swat Valley but that is really a sideshow," said Vijay Chander, head of credit strategy at Standard Chartered. "The macro position is stronger with IMF money coming through."
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.
"In the event of a military coup, markets might actually be quite reassured relative to President Zardari," Newton said.
Eurasia Group regards the possibility of a coup in Pakistan as the most significant global "fat tail" risk of 2009, meaning a scenario that is not necessarily probable but which is possible and would have significant geopolitical implications.
So if Pakistan is not doomed, why the U.S. rhetoric?
Analysts said the warnings of disaster served two main purposes -- to push the U.S. Congress and allied governments into quickly authorizing substantial aid for Islamabad, and to try to spur Pakistan's reluctant government to take on the Taliban rather than seek to reach an uneasy accommodation.
"The Taliban takeover scenario was totally hyped," Kuusisto said. "It was politically motivated, totally intentional hype."