The Economic Challenges Facing Pakistan’s New Prime Minister

06.14.2013 | Emad Sohail
Photo: Daily Dawn
Photo: Daily Dawn

“Now it should be decided forever that Pakistan’s survival, protection, sovereignty, progress, prosperity and respect in the international community depends upon strengthening democracy in Pakistan.”

Nawaz Sharif – Prime Minister of Pakistan

In the May 11 general electionsNawaz Sharif became Pakistan’s newest elected prime minister. For the first time in the country’s 65-year history, a democratically elected government has handed over power after completing its term and holding a fair election. The transfer of power is indeed a successful continuity of democracy in Pakistan. However, the country’s economy remains in a state of confusion, with expanding budget, energy, education, employment, fiscal development, and public deficit problems. The former government did not have a clear direction to overcome these financial challenges, and they will now become a top concern for the new government.

“Key factors that affected all sectors of the economy are poor governance and corruption in the country. One of another most important negative factor is decline in investment to GDP ratio from 20pc to 13pc, which is the one of the root cause of the slowdown in GDP grow”.

Sartaj Aziz, Economist and Former Finance Minister

Sharif is the first Pakistani leader to serve three terms. He was elected prime minister in 1990 and 1997. Sharif has been viewed as a pro-business conservative, who comes from a Pakistani business family that made its wealth in the steel industry, and has widespread support from the business community . Sharif believes that his strong mandate will give him a chance to improve Pakistan’s limping economy by solving problems such as a fiscal meltdown, jobs, power and gas outages, circular debt, inflation, bad governance, corruption, lawlessness, and spillover from the war in neighboring Afghanistan.

“I do actually see a lot of resolve. They have a very strong mandate.”

Werner Liepach, Country Director – Asian Development Bank

Many economists believe that in the last 5 years, government economic policies were a complete failure. Industrial growth has been hanging near zero percent, the investment rate has declined, inflation is high (double digits for the last 5 years), industrial growth is badly affected due to the energy crisis, causing companies to struggle (how to run businesses without a reliable source of electricity?), foreign exchange reserves are declining, budget deficits average seven percent of GDP, and public debt has doubled. The table below shows some comparisons of the Pakistani economy over the last decade:

Pakistan Economic Overview Year (2002-2007) Year (2008-2013)
Economic growth 6 % 3 %
People living below the poverty line 30 % 40 %
Fiscal deficit 4% of GDP 7% of GDP
Public debt Rs. 4.5 Trillion Rs. 15 Trillion
Rupee Value (against the US dollar) Rs. 60 Rs. 100

“Economic Policies of the government were total failure! Government has shown lack of interest in resolving economic issues of the country. The country is facing Rs. 1200 to Rs. 1400 billion loss annually in term of revenue collection due to ongoing energy crisis that was created artificially in order to introduce rental power plants. During five years, foreign direct investment remained at lowest ebb, food inflation increases manifold, budget deficit has gone up and economic growth remained at the lowest side. Never in the history of this country has the nation seen such a fiscally irresponsible government.”

Umer Ayub Khan, Former State Minister for Finance and Economic Affairs

Pakistan International Airlines, Pakistan Steel Mills, and Pakistan Railways, the major public sector enterprises, have also not performed well over the last five years. The government lacks transparency in hiring of staff and officials in public sector entities, leading to huge financial losses.

“Pakistan’s economic situation was never so bad in 65 years, as it was in last five years. Country’s economic growth at average remained at lower side of three percent; unemployment increases resulting in higher poverty rate.”

Dr. Ashfaque Hasan Khan, Economist

 There is still a long struggle ahead when it comes to engaging the government to revive the Pakistani Economy. Sharif’s administration has to address economic concerns and map out a strategy with business community and international support to address country’s economic problems by creating an environment of wealth creation through investment, alleviating poverty, increasing the annual GDP growth rate, moderating inflation, stablizing the rupee, managing the debt, promoting entrepreneurship for youth and women, encouraging human development, promoting peace through business, generating employment, improving corporate governance for public sector enterprises, and ensuring tax and revenue collection. It is a difficult task, one which can only be carried out with the continued support of the business community.