Economic headache awaits Pakistan's next government

By Faisal Aziz and Simon Gardner

KARACHI (Reuters) - Whoever wins Pakistan's upcoming general election can be sure of one thing -- there will be no economic honeymoon.

With annual inflation at its highest in over a decade, the rupee at 6-year lows against the dollar, a hefty trade deficit, pressure from high international oil and food prices and domestic energy shortages, there are pressures on all fronts.

"There are numerous challenges ahead. There are heaps of trouble," said Asad Sayeed, director of private analysis group the Collective for Social Science Research.

"They (the previous government) have left a monumental mess, virtually on every front."

Compounding matters, whoever comes to power in what will mark a long-awaited transition from military to civilian-led rule, will also face the tug of populist expectations of a mainly rural electorate struggling in the face of high food prices.

Consumer prices in January rose 11.86 percent from a year earlier, their highest level in 10-½ years, which analysts attribute to food shortages they say are due to a weaker agricultural crop and government mismanagement.

President Pervez Musharraf's caretaker government blames wheat smuggling to neighboring Afghanistan and hoarding by shopkeepers for the shortfall.

"Inflation is high and it's accelerating, the government's borrowing is out of control," said Sakib Sherani, chief economist for ABN Amro Pakistan.