What will Nawaz Sharif’s victory in elections in Pakistan mean for Pakistan?

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nomi king 6 months 1 Answer 82 views

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  1. Generally, it’s a positive for the economy and markets, as the PML-N is viewed
    as pro-business. Focus on infrastructure projects will more than likely also continue.

    His history is such, that he has been twice Prime Minister in the 90s, he is credited with the Privatisation programme and reforms in Public Sector Enterprises (PSEs), prefers infrastructure projects such as motorways, metros and taxi schemes, which may or may not be always economically feasible. He boasts a more experienced economic team than the PPP, enjoys good relations with US and China, and has shown leanings towards the religious right and has very close relations with Saudi Arabia and UAE.

    Given that he has an experienced economic team and past record of business friendly policies, capital markets will welcome a PML-N govt. with a likely re-rating. Focus on infrastructure projects and exports would be positive for cements, textiles and steel while progress on circular debt would improve the outlook for energy.

    The biggest criticism of the outgoing PPP government was macro mismanagement, particularly its failure to contain the energy deficit which caused a dent in industrial production and resulted in lacklustre GDP growth over the past five years. Hence, one of the key expectations from the PML-N, would be to implement energy reforms and work out a solution on the energy deficit. Interestingly, both the PTI and PML-N, as part of their manifestos, have outlined a three-pronged approach to the energy crises which include: (1) the import of cheaper fuels, such as gas instead of furnace oil; (2) conversion of some existing power plants from furnace oil to coal and (3) improving administration within the energy sector where non-recoveries are approximately US$1 bn a year, while more than US$3 bn are spent annually to plug the deficits of state-owned energy companies.

    The PML-N has a better track record than the outgoing PPP government on economic management. It is generally viewed as pro-business and being credited with the privatisation process in 1991 as well as reforms in the banking sectors including installation of professional management at then state-owned banks such as UBL, HBL and NBP in the late 1990s. Mr Sharif’s overall economic record was also marginally better than the PPP during his two short tenures in the 1990s (see the following figure) and given his image of an efficient administrator, we believe his return to power would be a positive catalyst for a post-election rally.

    One of the major challenges for the PMLN would be to negotiate a new IMF programme to stabilize the forex reserves of the central bank which have fallen by US$5.4 bn over the past 12 months to nearly a five-year low of US$6.7 bn. The caretaker team recently held technical-level talks with the IMF in Washington where an understanding was reached that the next government could approach the fund for a US$5 bn extended fund facility (EFF) programme. The facility would be crucial to manage the balance of payments situation considering US$2 bn of IMF repayments are due in 2H13. That said, in order to access the EFF programme or obtain financing facilities of other lending institutions, the government would be required to implement some key economic reforms which include adjusting power tariffs, containing fiscal expenditures, broadening the tax base and depreciation of the PKR versus the USD.

    Pakistan’s Economic Snapshot

    Subnote and History:
    A steel mill industrialist and business magnate, Nawaz Sharif twice became Prime Minister from November 1990 to July 1993 and February 1997 to October 1999 when his government was dismissed in a military coup by President Musharraf. After remaining in exile for seven years (2000-07) he returned to Pakistan in late 2007. Mr Sharif started his political career under the tutelage of former dictator Zia-ul-Haq in the 1980s and remained close to the military establishment until 1999. He also served as the Chief Minister of Punjab in the late-1980s and led the right wing military alliance IDA (Islamic Democratic Alliance) to victory in the 1990 general elections. He started the privatisation programme and economic liberalisation policy in the 1990s, de-regulating major industries andstrengthening the private sector. Though considered a better administrator than his traditional rival, the PPP, Nawaz Sharif has also suffered from various allegations of corruption and political favours to friends in the business community.

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