ISLAMABAD: Pakistan's parliament elected former water and power minister Raja Pervez Ashraf as the new prime minister on June 22 after the incumbent Yusuf Raza Gilani was disqualified by the Supreme Court.
In April, the court found Gilani guilty of contempt for refusing to reopen corruption cases against President Asif Ali Zardari.
While the latest decision was another blow to the ruling Pakistan People's Party (PPP), it is unlikely to lead to the fall of the unpopular government.
The decision comes at a time when ties between Islamabad and Washington have been stuck at their lowest in years.
Relations between the United States and its ally Pakistan deteriorated after a NATO cross-border air attack that killed 24 Pakistani soldiers last November.
The incident prompted Pakistan to reassess ties with the U.S., and in mid-April, parliament approved recommendations from its national security committee, including a demand that America ends drone strikes in Pakistan.
In early July, the U.S. apologised for the November incident and Pakistan agreed to reopen land routes that supply NATO troops in Afghanistan that it closed in response to the November incident. The move brought Islamabad some diplomatic relief, but protests from thousands of Pakistanis.
The U.S. wants Pakistan to chase the militant groups on its soil which take advantage of the porous border with Afghanistan to attack NATO and Afghan troops there. Pakistan's cooperation is critical to U.S.-led efforts to stabilise Afghanistan as NATO combat troops prepare to leave the country by the end of 2014.
Tensions have heightened further over the sentencing of Pakistani doctor Shakil Afridi, said to have helped the CIA find Osama bin Laden. His 33-year jail term drew sharp criticism from Washington, which responded by cutting aid to Pakistan by $33 million.
RATINGS (Unchanged unless stated):
MOODY's: Caa1 (Downgraded from B3 on July 13)
Here is a summary of key risks to watch in Pakistan:
POLITICAL VIOLENCE, GOVERNMENT WEAKNESS
New prime minister Raja Pervez Ashraf is already coming under similar pressure from the Supreme Court as did Gilani. He has been ordered to re-open cases against Zardari and provide evidence of having done so by July 25, or face the threat of disqualification, a move which would further discredit a widely scorned government.
Chief Justice Iftikhar Chaudhry has won notoriety by taking on senior politicians, and while the stability of the government has been called into question by the recent changes in personnel, for ordinary Pakistanis, the latest ructions have only deepened frustrations with their everyday hardships.
Many political leaders are viewed as incompetent and corrupt, and have offered little guidance. President Zardari's government is weak, dependent on unreliable coalition partners, and has limited control over the military. It has failed to tackle corruption or implement economic reforms. Serious problems in formulating and implementing policy will continue to deter investment.
The government also faces growing political opposition.
The Pakistani military, which has governed the country for more than half of its history, is often seen as the real driving force behind Pakistan's foreign and security policies.
What to watch:
- How the new prime minister performs.
- Any move by the military to more openly influence political developments.
- Tussles between the government and the court are likely to drag on, and could paralyse government decisionmaking.
WORSENING RELATIONS WITH AMERICA
An American investigation into the November border incident found that both U.S. and Pakistani forces were at fault, putting further strain on already deeply damaged ties. Pakistani officials said the attack was "deliberate".
Though the reopening of the NATO supply lines has ended one diplomatic dispute, fresh disagreement is brewing over the sentencing of Shakil Afridi, who is alleged to have helped the CIA find bin Laden using a house-to-house vaccination drive as a cover.
His 33-year jail term brought swift condemnation from Washington, including from Secretary of State Hillary Clinton, who said the decision was "unjust and unwarranted". The U.S. has cut aid to Pakistan by $33 million in response, $1 million for every year that Afridi faces jail.
Tension also remains over Pakistan's perceived unwillingness hunt down certain militant groups. Washington has long pushed for action, military or otherwise, against the Haqqani militant network, one of NATO's deadliest foes in Afghanistan, which is thought to operate mainly from Pakistani region North Waziristan.
Islamabad has repeatedly said its forces are overstretched and it cannot afford to provoke a general tribal uprising.
Reflecting American frustration with Pakistan, and the suspicion that there are links between Pakistan's powerful spy agency and militant groups, there have been many proposals to make U.S. aid conditional on more cooperation in fighting militants.
What to watch:
- Pakistan-U.S. negotiations over changes to their relationship after Pakistan's parliament reviewed ties. When reached, any agreement will impact Pakistan's cooperation in stabilising Afghanistan.
- Any further attack on Pakistan by NATO forces in Afghanistan could conceivably break the alliance completely, putting the war effort in Afghanistan at risk.
- More aid cuts. Pressure is mounting in the United States to penalise Islamabad for failing to act against militant groups and, at worst, helping them.
- Any further accusations from Washington, how Islamabad responds, and the tone of the rhetoric from both sides. The United States wants Pakistan to bring the Haqqani network into peace negotiations, but is wary of exerting too much pressure on Pakistan and forcing a break in ties.
Violence continues to affect parts of the southern port city of Karachi, Pakistan's financial hub. After several months of relative quiet in the city, violence - some of it politically motivated - has flared again recently.
More than 1,600 people were killed in the city last year, over half of them in political and sectarian violence, and Pakistan's paramilitary forces are often deployed there to stabilise violent districts.
The violence and instability are a huge deterrent to foreign investment. Investors are particularly sensitive to attacks in Karachi, home to key financial markets and the central bank.
Violent but isolated protests against Pakistan's increasingly severe power crisis have occurred in several towns across Pakistan's largest province of Punjab. Although the trouble is not on a scale to widely disrupt law and order, frequent power outages across the country have in the past led to street violence.
What to watch:
- Any escalation of Pakistan's power crisis which could lead to violent protests, and the authorities' reaction to those protests.
- Further attacks by militants. The assaults on high-profile military facilities have shown the continued ability of Taliban fighters to attack even protected targets. Whether talks with the Taliban materialise officially.
Relations between Afghanistan and Pakistan are strained, with cross-border attacks reported by both sides.
Tension between the neighbours has been heightened by accusations from some Afghan lawmakers that Pakistan's spy agency, the Inter-services Intelligence (ISI), is behind assassinations and suicide bombings in Afghanistan, something Pakistan vehemently denied.
Pakistan is critical to the stability of the region, and in late February it urged the Afghan Taliban to enter direct peace talks with the Afghan government, a sign that Islamabad may be increasing its support for reconciliation across the border.
What to watch:
- Drone attacks. Any drone attack that results in large numbers of civilian deaths could further damage the U.S.-Pakistan relationship. AGENCIES