Since taking oath as the country’s premier in highly contentious May 2013 general elections, Nawaz Sharif has not enjoyed a smooth ride.
His government has experienced nervous times and seemed shaky amid all the political drama, high profile terrorist attacks and economic challenges. Somehow, he has managed to survive and develop a consensus among all major political parties around the major problems confronted by Pakistan today. The country has made significant progress against the scourge of terrorism, massive power outages and socioeconomic disparities. Sharif seems to have waved the magic wand over Pakistan’s economy and, more importantly, the good work of his government is being applauded by international lending agencies.
The International Monetary Fund (IMF) has commended Pakistan for implementing effective monetary and fiscal policies that have attracted strong capital inflows in the economy. Expressing its confidence in Pakistan’s economic progress and reforms, the IMF has recently approved release of $501 million funds for the country.
In another report, the Asian Development Bank (ADB) has pointed out that Pakistan is on the path to economic revival but needs to attract greater investment in the power sector to fully leverage lower global oil prices. The ADB expects Pakistan to grow at a modest pace of 4.2 percent and 4.6 percent in 2015 and 2016, respectively.
However, the country’s long-term economic stability will largely hinge on continuous prudent financial management of government expenditures and modernization of the crippled infrastructure.
It was only a few months ago that Pakistan was staring at serious economic difficulties in the form of double-digit inflation, 8 percent budget deficit and dwindling foreign exchange reserves. Today, the economic situation is far brighter. The government has successfully narrowed the budget deficit, last month’s inflation eased to 3.2 percent and foreign remittances have crossed the $16 billion mark. Sharif has also shown a commitment to undertake new power-related projects, such as building a liquefied natural gas terminal for imports from Qatar.
The drop in global oil prices has turned out to be a blessing for the Sharif government as it has lowered the country’s fuel import bill and helped consolidate macroeconomic indicators by passing on the benefit of lower prices to domestic consumers.
Over the past six months, Pakistan’s central bank has also cut the discount rate thrice to now 8 percent — the lowest level in 13 years.
Setting aside the good news, Pakistan still has a long road to travel for increase in the tax-to-GDP ratio, ensuring inclusive growth and reducing its public debt. The country needs to focus on improving its investment and trade climate so that a solid foundation can be laid for sustainable growth.
The authorities need to focus on making the ailing power sector financially viable for investors, while also accelerating the sale of sick government-owned enterprises. At the same time, greater resource allocation is required for health and education sectors to develop the country’s human and social capital. The success of these structural reforms, which have far-reaching consequences, will prove to be a stern test for the government, but could well decide the economic fate of Pakistan.
