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Can Sharif's govt turnaround Pak's dwindling economy?

As Nawaz Sharif has started his third stint as prime minister of Pakistan, the question on most people's mind is whether he will be able to improve the state of the economy and address the country's immediate challenges, which include power shortages, unemployment, lack of investment and rising inflation. Imtiaz Ahmad reports.

world Updated: Jun 05, 2013 23:20 IST
Imtiaz Ahmad

As Nawaz Sharif has started his third stint as prime minister of Pakistan, the question on most people's mind is whether he will be able to improve the state of the economy and address the country's immediate challenges, which include power shortages, unemployment, lack of investment and rising inflation.

Even prior to his assumption of office, Sharif was in consultation with Saudi Arabia and China for a helping hand. Saudi Arabia, it is believed, will help with oil supplies as well as investment in Pakistan's private sector while China will cooperate on infrastructure and energy projects.

"We are hopeful that both Saudi Arabia and China will help us in our immediate challenges," Sharif told reporters earlier.

On Wednesday, soon after he was voted the leader of the house in Parliament, Sharif told the nation that he was keen on Pakistan regaining its economic independence. He said that he envisaged an economic link from Gwadar to China and that he would deliver on a number of projects which would help lift the country out of its economic quagmire.

While foreign exchange reserves are at a comfortable level, Pakistan's immediate challenges include investment in infrastructure and energy - power shortages have crippled many factories all over the country.

Also, the country is facing inflationary pressure caused by rising fuel prices. "We are facing a number of challenges which will continue to bog down the government," says economist Ashfaq Khan.

But there is a plan that is being followed, say insiders. The third party with which Sharif's economic team has also held consultations is the IMF, with which the government hopes to enter into yet another structural adjustment programme. But this may be an unpopular step for which the Sharif government may not be prepared to undertake at so early a stage in its tenure.

A programme with the IMF will give a much-needed direction to the economy.

The IMF has already indicated that Pakistan needs to take unpopular measures like re-aligning the rupee against the dollar, raising rates for public utilities and cutting down on subsidies, particularly in the agriculture sector.

This may cause a lot of anger in the short term, warn analysts. The bigger question is whether the Sharif government will also be serious about enhancing the country's miniscule tax base, a move that is seen as politically unpopular.

Power is a top priority. Sharif's energy team has already met with heads of power utilities and proposed a plan under which power theft, which is as high as 20% in some areas, could be addressed. At the same time, Sharif's advisors have also hinted at looking at the option of nuclear power in the longer term.

Privatisation is another area where the government intends to move quickly. Sharif intends to sell off loss-incurring public utilities. To jump-start the private sector, tax breaks and incentives are being considered in the budget which will be announced in almost a week from now.

The bigger challenge remains corruption, which has sapped the economy. Sharif says that his government will address this issue seriously and address the complaints of the business community in this regard.

The country's main tax collection arm, the Federal Board of Revenue, is known for its corrupted staff.

Another issue is Sharif's weakness for high-profile infrastructure projects. Within minutes of securing his vote of confidence, Sharif announced a motorway from Khunjerab to Karachi with the help of a Pakistan-China consortium. While this sounds an attractive proposition, analysts say that this money is best spent where it is needed more.

Observers also warn of Sharif's desire to dole out money in the form of loan schemes, which could come at the expense of the tax payer and donor agencies. Much of this money is used for political purposes and almost never returned.

For the new government to "pick Pakistan out of the economic downturn it is facing" in the words of Sharif, may also require attention in other areas. As pointed out by Maulana Fazlur Rehman, the head of the JUI-F party, who spoke in parliament on Wednesday soon after Sharif secured his vote of confidence, "there can be no improvement in the economy unless there is an improvement in the country's law and order situation." The question now is where to begin.

Analysts say that all issues are inter-related and one cannot be fixed without the other. Law and order will continue to challenge the new prime minster as it did the previous government. There is more that can cause problems in the short term.

Sharif has categorically announced that drone attacks would not be tolerated which brings into question the future of Pakistan-US relations.

"These relations are crucial for Pakistan to work with the IMF and other donor agencies," says economist Kaiser Bengali. You have to play one side or another, he added, and with that comes the price one has to pay.