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Can Nawaz Sharif Save Pakistan’s Economy?

July 2013
By Anumita Raj

Regardless of what the outsiders think, politicians, analysts and citizens in Pakistan all agree on what the most pressing concern within the problem-prone country is and what the newly-elected Nawaz Sharif administration’s first priority should be - electricity.

Notoriously crisis-hit, the power sector in Pakistan is barely able to supply power to the citizens and keep its creditors at bay. The electricity shortage in the country has reached 6000 MW. Even in large cities like Lahore and Karachi, rolling blackouts can last up to 20 hours a day. As a result, Pakistan's economy has been hit badly by a government that is unable to overcome its power woes, leaving irrigation-dependent farmers, manufacturers and industrialists at the mercy of an unreliable Pakistan Electricity Power Company Limited (PEPCO). Manufacturing hubs like Faisalabad, where textile industries once flourished, have been forced to shut down en masse, unable to literally keep the lights on. Hundreds of thousands of jobs are lost annually, as even the wealthy and powerful industrialists struggle to pay for private generators.

Meanwhile, Pakistan's GDP growth rate for FY 2012-2013 was down to 3.59% with estimates suggesting that it will only reach 3.65% by the end of 2013. Any attempt at investing in new industries has been hit by the power shortage. At the same time, Pakistan has struggled to attract foreign investment due to the dangerous and unpredictable security situation in the country. In the next couple of years, as the United States looks to significantly reduce its presence and investment in the region, outside funds could be drying up for Pakistan. It has also repeatedly taken loans from the International Monetary Fund (IMF) and has struggled to repay its loans. All the while, in a country with more than 70 million people living below the poverty line, and millions more hovering around it, less than 1% of the population pays taxes. So the question presents itself, can Nawaz Sharif save the economy?

Before Nawaz Sharif took power, many trade watchers and financial analysts took solace in the fact that he had been a businessman; they were confident that he would not only understand the situation and its urgency, but would also come prepared with a plan to set things right. By all accounts, Sharif has taken all the right steps in his first few weeks in power. The biggest step has been his trip to China. Pakistan-China trade is at USD 12 billion at present, a figure that Pakistan hopes will grow significantly after this trip. Making a trip to China within a month of being installed as Prime Minister indicates that Nawaz Sharif, and by extension his entire government hopes for China's role in Pakistan's growth. As discontent has grown in the Pakistan-US marriage and the differences look increasingly to be irreconcilable, politicians in Pakistan have consistently elevated China's importance to the country. During the trip, the two governments successfully signed 8 Memorandums of Understanding (MoU). Pakistan hopes that inviting China to invest in its infrastructure, including in rail lines and roads, will beget better relations and an investment in the power sector. The biggest victory for Sharif may be the agreement for the Kashgar-Gwadar economic corridor. The corridor will include a railway line as well as the formation of numerous special economic zones along the corridor in an effort to boost bilateral trade. Domestically, he has taken the effort to prove that the economy will be his priority by taking steps such as appointing private sector managers to run trouble-prone state-run companies, a move that proved to be profitable when he tried it the last time he was in power. Public sector companies like the Pakistan International Airlines have been warned of privatization if they are unable to get their house in order.  

The answer to the question “Can Nawaz Sharif save Pakistan’s economy?” remains contingent on several factors, not all of which are under the Prime Minister’s control. First and foremost is the question of political will. Almost every new administration that has come into power is initially optimistic and gung-ho about reviving Pakistan’s flagging economy. New budgets are proposed, new projects are inaugurated and new schemes are launched. Almost all eventually fail due to the lack of political will. In-fighting in Pakistan’s political circles is legendary and projects such as the Kalabagh Dam are yet to take off despite being in public consciousness for the better part of almost 3 decades mainly due to political differences. In this regard, Nawaz Sharif may actually hold an advantage and may be in control of the sustenance of political will. Sharif holds a clear majority in the parliament and does not have a major alliance partner to pacify. Moreover, his party controls Punjab, the most populous, prosperous and prominent province in the country. Within his party, his role is unlikely to be usurped as he and his brother, the Chief Minister of Punjab, Shahbaz Sharif rule their party, Pakistan Muslim League – Nawaz, with an iron fist. All this means that Sharif will likely be able to sustain political will towards rejuvenating the economy.

What are out of his control are two vital factors. One, Pakistan’s relationship with the United States remains vital to the former’s economy. Aid from the US is still urgently needed (this refers to aid given to the country’s civilian government, not the enormous inflow of aid from the US to Pakistan’s Armed Forces). However, the US–Pak relationship continues to be dictated by the establishment, with the civilian government having limited say over the matter. Second, the Pakistani state is still plagued by terror attacks, despite the fact that Nawaz Sharif has vowed to address terrorism in the country as a matter of priority. With the security situation so poor, and showing few signs of any immediate relief, foreign companies, the Chinese included, are unlikely to commit to investment in Pakistan. More troubling is the fact that energy projects, vital to the economy, are routinely attacked by terror groups in an effort to cripple the government.

However, there are promising signs for the future. Nawaz Sharif, in a bid to resolve the energy crisis has shown willingness to bolster relations with traditional rival India. At present, his government is even considering a proposal to buy electricity from India, an idea that is controversial to say the least. Regardless of whether this proposal materializes, the administration considering this initiative speaks to Sharif’s resolve in the matter. There has also been movement towards reviving hydropower projects in Pakistan with the help of foreign partners such as Saudi Arabia and IMF, although any such project could take between 5-7 years to start generating power. On the economic front, major provinces such as Sindh and Punjab have been actively courting foreign investment, in particular from China. So while Nawaz Sharif may not have a magic wand to wave over Pakistan and fix its economic woes, the steps he has taken suggest that he is serious about resolving the issue and could bear fruit sooner rather than later if sustained.

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