Friday, May 11, 2018

Nawaz Sharif's Report Card 2013-18

The last five years of Pakistan's outgoing government of the Pakistan Muslim League (Nawaz) have seen the revival of Pakistan's economy and completion of many long delayed infrastructure and energy projects. Mr. Nawaz Sharif deserves full credit for it.  At the same time, the PML government is responsible for slow progress on human development indicators, major decline in exports, growing twin deficits of budget and external accounts, mounting public debt and lack of transparency in financial matters.  It is the lack of transparency that has been brought in sharp focus with the removal of Prime Minister Nawaz Sharif by the nation's Supreme Court in the aftermath of Panama Papers. The leak of these papers revealed his family's ownership of undeclared and unexplained substantial assets abroad.

Terrorism Toll in Pakistan. Source:


Pakistan achieved 5.8% growth in gross domestic product (GDP) in fiscal 2017-18, the highest in the last 13 years.  Many long delayed projects ranging from roads, ports, dams and irrigation projects to power plants were finally completed.  Examples of such long delayed projects include M8 and M9 motorways, Lyari Expressway, New Islamabad Airport, Neelum-Jhelum Hydroelectric Project and Kachhi Canal. The PMLN government's performance was boosted by a number of factors including the following:

1. Pakistan Army's anti-terror operations Zarb e Azb and Radd ul Fasad dramatically reduced the level of violence and significantly improved security in the country. It resulted in increased confidence of businesses, investors and consumers in the economy. 

2.  Growth of Chinese investment in China Pakistan Economic Corridor (CPEC) related infrastructure and energy projects. Ongoing execution of CPEC projects is transforming some of the least developed areas of Pakistan and creating hundreds of thousands of new jobs.

3. Major decline in energy prices, particularly prices of liquified natural gas (LNG), helped boost the energy and the power sector which in turn helped increase industrial production and transport sectors.  Pakistan is now among the world's fastest growing LNG markets


Structural problems in Pakistan's economy remained unaddressed. Current account deficits widened as exports declined and imports jumped, putting pressure on the nation's foreign exchange reserves. Increased deficit spending resulted in bigger budget deficit and heavy borrowing. Public debt and debt service costs climbed. School enrollment and literacy rates remained essentially flat in the last 5 years and Pakistan continued to rank low on human development indices. Here are some of the details:

1.  Pakistan's exports have plummeted from about $25 billion in 2013-14 to about $20 billion in 2016-17 under PMLN government.  Exports in first 9 months of current fiscal year 2017-18 have been recorded at $17 billion.  The trade deficit for the first nine months of fiscal 2017-18 reached $27.3 billion.  This situation has forced the government to borrow more in international debt markets at commercial rates. The country now faces the prospect of going back to the International Monetary Fund (IMF) for yet another bailout.

2.  Pakistan's net primary enrollment is stuck at about 57% while the literacy rate is flat at about 60%. This is in spite of fact that the country now spends almost as much on education as on defense.  Pakistan's public spending on education has more than doubled since 2010 to reach $8.6 billion a year in 2017, rivaling defense spending of $8.7 billion. Private spending on education by parents is even higher than the public spending with the total adding up to nearly 6% of GDP. Pakistan has 1.7 million teachers, nearly three times the number of soldiers currently serving in the country's armed forces. Unfortunately, the education outcomes do not yet reflect the big increases in spending. Why is it? Let's examine this in some detail.

Mujhe Kyun Nikala (Why was I ousted?): 

When former Prime Minister Nawaz Sharif repeatedly asks "Mujhe Kyun Nikala" (Why was I ousted),  he appears to be arguing that, because of his government's unquestionably better performance than his predecessor PPP government's,  he deserves to be forgiven without explicitly asking for forgiveness.  What are his sins? His biggest sin is that he and his family have accumulated large amount of unexplained wealth in offshore shell companies during his three terms as Pakistan's prime minister. He and his family did not disclose this wealth until they were forced to acknowledge it after Panama Papers leaks.  They were given ample opportunity by the Pakistan Supreme Court to prove that it was acquired by legitimate means. But they failed to do so.

Mr. Sharif and his family are not unique as owners of unexplained offshore wealth. Washington-based Global Financial Integrity (GFI) estimates that developing countries have lost as much as $13.4 trillion through unrecorded capital flight since 1980. Bloomberg reports that Pakistanis own $150 billion worth of undeclared offshore assets, attributing this estimate to Syed Muhammad Shabbar Zaidi, a partner at Karachi-based A.F. Ferguson and Co. -- an affiliate of PricewaterhouseCoopers LLP.

Iqama (Foreign Residency) vs Panama:

Mr. Sharif says that he was removed for "iqama", not "Panama". What he doesn't acknowledge is that having "iqama" (foreign residency) facilitates "Panama", the hiding of assets in offshore locations.

Assets held by people in offshore tax havens are tracked by their country of residence, not by their citizenship, under OECD sponsored Agreement On Exchange of Information on Tax Matters. Pakistan is a signatory of this international agreement.  When Pakistan seeks information from another country under this agreement,  the nation's FBR gets only the information on asset holders who have declared Pakistan as their country of residence. Information on those Pakistanis who claim residency (iqama) in another country is not shared with Pakistani government. This loophole allows many Pakistani asset holders with iqamas in other countries to hide their assets. Many of Pakistan's top politicians, bureaucrats and businessmen hold residency visas in the Middle East, Europe and North America.


The last five years of Pakistan's outgoing government of the Pakistan Muslim League (Nawaz) have seen the revival of Pakistan's economy and completion of many long delayed infrastructure and energy projects. Mr. Nawaz Sharif deserves full credit for it.  At the same time, the PML government is responsible for slow progress on human development indicators, major decline in exports, growing twin deficits of budget and external accounts, mounting public debt and lack of transparency in financial matters.  It is the lack of transparency that has been brought in sharp focus with the removal of Prime Minister Nawaz Sharif by the nation's Supreme Court in the aftermath of Panama Papers. The leak of these papers revealed his family's ownership of undeclared and unexplained substantial assets abroad.

Related Links:

Haq's Musings

South Asia Investor Review

CPEC Transforming Pakistan's Least Developed Regions

Pakistan: The Other 99% of the Pakistan Story

How Pakistan's Corrupt Elite Siphon Off Public Funds

Bumper Crops and Soaring Credit Drive Tractor Sales

Panama Leaks

How West Enables Corruption in Developing Countries

Declining Terror Toll in Pakistan

Riaz Haq's YouTube Channel


Anonymous said...

Even the progress is unsustainable growth bought by unsustainable borrowing in foreign currency resulting in net negative fforex reserves and consumption at the expense of badly needed investment. ns deserves an F.

Habibullah said...

Such a truthful analysis of Nawaz’s performance !The modus operandi in his time was to select a few development projects through which he could earn a handsome commission cut.This resulted in increasing the ultimate cost of the projects and increased debts.He was not at all interested in the projects which could help the masses in getting better civic amenities in health,water,
food and electricity etc.

Riaz Haq said...

Country’s (Pakistan's) installed electricity capacity increases by 30pc to 29,573MW

Economic Survey 2017-18 unfolds that Pakistan’s installed capacity to generate electricity has surged up to 29,573MW by February 2018 which stood at 22,812MW in June 2013, showing the growth of 30 percent.

As far as the transmission and distribution losses are concerned, the Economic Survey says average losses were at 18.9 percent in 2013 which have now reduced to 17.9 percent in 2018 showing the government has succeeded to reduce the losses by 1 percent.

The recovery of the billed amount of electricity sold to the consumers stood at 89.6 percent. During the period from 2013 to 2018, as many as 39 projects with cumulative capacity of 12,230MW have been added. Due to significant improvement in the energy mix, the country’s reliance on expensive oil has been reduced.

The better energy supply has helped large scale manufacturing (LSM) and in turn manufacturing to both grew above 6 percent in FY 2017-18, which is an 11-year high. In power sector, per capita electricity consumption is considered one of the most important economic welfare indicator regarding availability of affordable energy. Pakistan is bestowed with enormous hydro and coal potential which, if carefully exploited, can ensure our future energy security on long-term basis. Further, the expansion in generation capacity requires supporting expansion in the transmission infrastructure for evacuation of the power.

China-Pakistan Economic Corridor (CPEC) is another major breakthrough in the development of the country’s energy sector, under which financial outlay of around $35 billion has been made for energy sector projects including power generation and transmission projects to be implemented in IPP mode. In case of natural gas, the gap between demand and supply was widening due to increase in gas demand and depletion of existing sources.

The government has made efforts to exploit indigenous resources as well as import gas though transnational pipelines and LNG to mitigate the shortfall. Indigenous crude oil meets only 15 percent of the country’s total requirements, while 85 percent requirements are met through imports of crude oil and refined petroleum products. The indigenous and imported crude is refined by six major and two small refineries. The present government not only made concerted efforts for upgradation of existing refineries, but also made addition of six depots with inland freight equalisation margin. Further, to promote fuel efficiency, the government has introduced marketing of 92 RON premier motor gasoline replacing the existing 87 RON PMG under the regulated environment.

Pakistan has large indigenous coal reserves estimated at over 186 billion tons which are sufficient to meet the energy requirements of the country on long-term basis. There has been significant increase in import of coal due to commissioning of new coal based power plants at Sahiwal and Port Qasim.

Riaz Haq said...

India’s Power Mess Is Enron Times 20
Banks are on the hook for $26 billion in loans to stressed electricity projects.

Enron Corp. is long gone, but the scandal it left behind in India has beguiled the country’s lenders for almost two decades.

However, if the bankers who financed the U.S. energy company’s unviable power plant in Maharashtra state aren’t ruing that 2,000-megawatt debacle any more, it’s only because they’re now staring at a mess 20 times bigger.

India’s total electricity-generation ability is 344,000 megawatts, a 72 percent increase over six years. The country, notorious for its outages, still doesn’t have a power surplus. But coal-fired plants in the private sector that ran at 84 percent capacity utilization at the start of the decade are struggling to stay alive with load factors of 55 percent. As much as 40,000 megawatts of capacity — equal to 20 Enron plants — has become stressed assets for the banking system.

Struggling to Stay Open
Capacity utilization of India's coal-based power plants in the private sector has collapsed

Lenders, on the hook for $26 billion, are yet to classify these exposures as nonperforming, let alone provide for losses out of (their increasingly nonexistent) profits. However, now that the central bank is forcing them to clean up their act, they’re trying to think of creative solutions. According to BloombergQuint, the banks will convert debt that’s unsustainable into equity and sell those shares to a jointly owned asset management company. The AMC will hawk its controlling stakes in power producers after a turnaround.

A better idea may to be to fix the underlying profitability of the power business.

Forget long-term power purchase agreements. State utilities are shy to sign such contracts anyway and prone to ditch them at the first hint of cheaper electricity in the wholesale market. Let most of the demand and supply move to exchanges with open access for all bulk buyers and sellers, says Hemant Kanoria, chairman of India Power Corp., a 99-year-old company involved in both electricity generation and distribution.

The share of power trading in the country’s overall demand-supply equation has been stagnant for years at about 10 percent. This needs to change.

The other big issue, as Kanoria rightly notes, is coal. India has no shortage of the fuel, but its dominant miner, which met 95 percent of its 600 million ton production target last year, needs to crack the whip on underperforming subsidiaries.

Power plants’ coal inventories are falling, and linking domestic availability to whether a producer has a long-term electricity purchase agreement with a state utility isn’t helping. Rather than continue with a less-than-satisfactory auction system, let Coal India Ltd. fix a price at which it would assure supply to whoever is willing to pay and take away the feedstock.

Running Low
Despite massive growth in India's power capacity, coal inventory at electricity plants is below this decade's average

Finally, financing costs, which have ballooned to half of the total expense of putting up a power plant, need a tweak. Restructuring unserviceable loans into other instruments — such as preference shares — would give producers some breathing room, Kanoria says.

It’s silly of lenders to expect that debt with annual interest rates of 16-percent-plus won’t eventually turn bad. Dragging borrowers to the bankruptcy tribunal won’t solve anything. Most assets would sell for scrap value; jobs would be lost. Sweeping the problem under the carpet of an asset management company may preserve employment, but the immediate financial hit to banks could upset their already weak capital position. Besides, if existing owners are booted out, who will run the plants?

It was relatively easy to leave Enron’s Indian unit in the care of a couple of state-run companies, as the government did in 2005. That can’t be a template for a problem 20 times larger.

Riaz Haq said...

Pakistan’s external debt soars to record $91.8b
By Shahbaz Rana /

Pakistan’s external debt and liabilities have soared to a record $91.8 billion, showing an increase of over 50% or nearly $31 billion in the past four years and nine months, the State Bank of Pakistan (SBP) has reported.

The external debt and liabilities of $91.8 billion as of March-end suggest that the figure may touch $100 billion very soon as the country faces grave challenges in meeting growing external financing requirements. Pakistan is scheduled to make some bullet debt and interest payments in the last quarter (April-June) of the current fiscal year, according to sources in the finance ministry.

The $91.8-billion external debt and liabilities were higher by $30.9 billion or 50.6% compared to the level recorded in June 2013 when the Pakistan Muslim League-Nawaz (PML-N) government came to power.

Of the total external debt and liabilities, the government’s public debt obligations including foreign exchange liabilities were $76.1 billion at the end of March.

In the past four years and nine months, the public debt-related obligations increased 42.5% or $22.7 billion, showed the central bank data. In June 2013, the external public debt including foreign exchange liabilities stood at only $53.4 billion.

A major hike came in the external debt contracted by issuing sovereign bonds and taking expensive commercial loans.

Since June 2013, the PML-N government has acquired a whopping $42.6 billion in external loans, which is taking its toll on the national exchequer due to the mounting debt servicing cost.

Starting from July 2013, with every passing year, the quantum of external debt has kept growing due to the government’s inability to implement policies that could have ensured sufficient non-debt creating inflows.

The International Monetary Fund (IMF)’s first post-programme monitoring report shows Pakistan’s gross external debt in terms of exports was 193.2% in 2013, which is projected to deteriorate to an alarming 316% in June this year.

During this period, Pakistan’s gross external financing requirements have swelled from $17.2 billion to $24 billion.

Riaz Haq said...

#Pakistan signs contract for construction of 878km 600KV HVDC #power #transmission line from Matiari in #Sindh to #Lahore. #CPEC #China @steelguru #SteelGuru

Pakistan Today reported that Pakistan Prime Minister Shahid Khaqan Abbasi witnessed signing of agreements between Power Division of Pakistan and State Grid Corporation of China, for construction of 878 kilometres 600 KV HVDC Bipole Transmission Line from Matiari to Lahore. The signing ceremony was held here at the PM House.

Under the agreements, which are part of the Pakistan China Economic Corridor, two Convertor Stations with AC Switching Stations at Matiari and Lahore; two Electrode Stations at Matiari & Lahore each and three Repeater Stations along the route of the line will also be constructed.

During the briefing about the agreements, the prime minister was informed that with the launching of “China Pakistan Economic Corridor” energy portfolio, planning for evacuation of power from the upcoming power plants, including Thar, Port Qasim, nuclear and at Hub, became a challenge for NTDC.

Accordingly, HVDC Transmission Line was planned under CPEC for which Cooperation Agreement was signed in 2015 between NTDC and State Grid Corporation of China.

This flagship project is first of its kind in Pakistan and also the first being executed under the Government of Pakistan Transmission Policy-2015 on Build, Own, Operate and Transfer basis for 25 years.

The project has a completion time of 27 months and Commercial Operation Date has been fixed at March 1, 2021.

Project Implementation Agreement (IA) was signed by MD PPIB and Shu Yinbiao, Chairman of State Grid Corporation of China while Transmission Service Agreement, Land Lease Agreement, O & M Agreement was signed by Shu Yinbiao from the Chinese side and MD NTDC on behalf of the Power Division.