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.
Highlights:
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.
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.
Lowlights:
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.
Summary:
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
