As Imran Khan, a charismatic former athlete but untested chief executive, takes up the reins in Pakistan, can he plug the drain plaguing the country's gains?
Barring the decades spent under military rule, Pakistan will witness this month for the first time since 1971 a chief executive who doesn’t hail from the two political dynasties that have long dominated its civilian politics.
Known earlier for his socialite lifestyle, and winning the 1992 cricket World Cup, Imran Khan’s rise to the top job as prime minister comes 22 years after he began waging a populist campaign against those whom he most famously referred to in a 2011 TedxTalk in Karachi as “criminals that are running the country”.
That sentiment resulted in the swell in public opinion against what commentators within the country routinely say is its biggest challenge, even beyond extremism: corruption.
Pakistan has been battling a 16-year civil insurgency on its borders with Afghanistan”
Since retiring from cricket, Khan has had other achievements to his name, including founding the non-profit Shaukat Khanum cancer research hospitals, named after his mother who succumbed to cancer, and where the majority of patients are treated for free.
However, among the causes he has been most vocal about is how the country’s struggle with terrorism had been discussed for so long that the core concern, Pakistan’s finances, risked being forgotten.
Forced to pick sides in a US-led war, the country has been battling a 16-year civil insurgency on its borders with Afghanistan that has left it hosting 1.45 million displaced people, the world’s largest refugee population according to the United Nations High Commission for Refugees (UNHCR).
The conflict has only recently begun showing any signs of abating, but the added burden of conflict, Khan alleges, has haemorrhaged Pakistan’s economy by $70bn because of “a war Pakistan should never have been involved in”.
Khan has promised he will extract Pakistan out of the conflict by mending relations with the US and its neighbours.
At the time of writing, the government in waiting had also indicated it would push hard against ill-gotten domestic wealth that Khan says the elite and powerful have long siphoned into offshore properties; after a three month tax amnesty scheme ended in July, the country has furnished a list of 1,000 persons to be prosecuted who have not declared taxable real estate in the UK.
Similar charges led Pakistan’s Supreme Court in June to sentence Khan’s political rival and former prime minister Nawaz Sharif to 10 years in prison for being unable to account for how he came to own four properties at the Avenfield Apartments in London’s richest district, Mayfair.
Expected finance minister Asad Umer, formerly the CEO of the country’s largest private corporation, Engro Group, has said the government will next go after 500 persons who hold similarly undeclared and taxable properties in the UAE.
Khan’s pursuit of ill-gotten wealth is part of a larger, as yet unformalised plan to address the country’s precarious financial situation. For a country with the world’s 14th largest GDP by purchasing power parity, Pakistan has an astoundingly narrow revenue base: less than one percent of its more than 207 million people pay income tax.
And while the previous civilian administration, only the second to ever complete a full term in office in 71 years, instituted a number of policies to grow state revenues, Pakistan’s annual collections remain abysmally low: in 2018, the country’s Federal Board of Revenue said it had collected roughly $12bn in income tax at current dollar rates ($1 = 123PKR); expat remittance inflows in 2017 totalled $19.62bn.
“That low rate of tax collection is what has exacerbated the foreign reserves situation that led to the devaluing of the rupee,” says Zaheer Khan, chief financial officer at Sharjah-based Bukhatir Group, which has held multiple interests in Pakistan over the past decade.
In less than a year, Pakistan has devalued its rupee four times – imports outnumbering exports fourfold in value have led to foreign reserves dwindling to a mere $9bn. Recent reports quoting the country’s incoming leadership say it will reach out to the IMF for an emergency cash infusion of $12bn to cover its current account deficit in the short term before it can institute reforms.
Growing the revenue base is at the heart of all challenges the country faces, says Starzplay founder Maaz Sheikh. Sheikh introduced his Dubai-based streaming service in his native Pakistan on August 14, the country’s independence day. In his own words, he would love for the costs that foreign-backed companies have to put up with be reduced, “but given that Pakistan needs to raise reserves, I’m sure that’s not going to happen any time soon”.
The other looming challenge stems from Pakistan’s biggest asset, it’s youth, according to Enshaa CEO Raza Jafar. According to results from the country’s last census held earlier this year, close to two-thirds of Pakistanis haven’t yet reached 30 years of age; 29 percent of the country is between 15-29 years of age, making it the second youngest population in South Asia after Afghanistan.
At its current rate of growth, Pakistan needs to create 4.5 million jobs, or roughly one million per year, over the next five years. However, with 76 percent of its young dropping out of school, according to the UNDP, it has a massive gap to breach. Jafar says the youth bulge carries both opportunity and disaster with it.
“If even one million were to pay $500 in taxes over the year, that’s $500m that the country will be raising annually. But if it can’t get them included into the workforce, then even the introduction of a harvester to an agriculture dependent economy could put millions others out of jobs.”
In his address to the country after the elections last month Khan has campaigned on the promise of making sure “those children left behind will be my priority as Prime Minister.” All eyes now rest on how he intends to do that.
GDP: Pakistan has the world’s sixth largest population and the world’s third fastest growth rate among economies with GDPs (when adjusted for purchasing parity) over $1tr – the fifth fastest overall. Yet it has a nominal GDP of $313bn, lagging behind the UAE, which has a population of roughly 9.5 million and a GDP of $400bn.
Stock market: Pakistan’s benchmark KSE-100 Index was the best performing in Asia in 2016, averaging a 46 percent dollar return over the year. In 2017, it was the world’s worst performing index, plummeting 20 percent. Year to date it has returned investors 5.7 percent who are bullish again after the elections on July 25, 2018.
Reserves and currency: A current account deficit of $15.2bn in 2017 due to debt obligations and net imports had Pakistan’s foreign reserves dipping below $9.5bn from a peak of $24bn in 2016. To ease export pressures, the Pakistani Rupee has been devalued four times in 12 months. Analysts say this was inevitable given the strength of the dollar, but only widening the tax net can improve the condition of its reserves. “All-weather friend” China has jumped in with $2bn in bilateral inflows to stem dwindling reserves and allow time for the country to contemplate reaching out to the IMF to bail it out of paying for its large imports bill over the course of the year.
Politics: This is only the second time in Pakistan’s 71-year history that a civilian government has transferred power to another. No prime minister in the last 40 years has ever completed a full term.
Arabian Business speaks to Pakistani business leaders in the UAE to get their take on the historic elections – and the issues that demand the new PM’s attention the most
Maaz Sheikh, CEO, StarzPlay Arabia
“I’m hopeful that success stories in the local e-commerce and technology sector can be added to with dedicated policy.
For instance, telecoms in Pakistan are deregulated – Mobilink is backed by Orascom, Telenor by its Dutch parent, Zong by ChinaMobile – and there are lessons to be learned here. The industry offers customers a lot of choice including some of the best data rates in the world, as well as employing a significant number of people. Because of foreign ownership, getting incorporated was a cumbersome process that took five months and a lot of paperwork so it could definitely be eased.”
Zaheer Khan, chief financial officer, Bukhatir Group
“In general, the business environment can benefit from a liberalisation of exchange rate controls – foreign exchange and currency flows. The process right now is cumbersome and, if improved, will give investors a lot of assurances in terms of opening a business, winding it down, moving capital around and expanding. What any foreign investor wants is stability on the ground.
“The law and order situation has improved over the last couple years, but question abound whether any political set up is going to stick around. Only the keenest would invest otherwise, the rest will always look to rationalise capital elsewhere.”
Raza Jafar, CEO, Enshaa
“The biggest challenge at this point is youth unemployment and job creation. In nations such as Pakistan, where agriculture is the biggest employer, we don’t have to wait for AI or high-tech to replace jobs. Simple automation that has existed elsewhere is new to Pakistan.
“Forget driverless cars, even the introduction of harvesters could result in a widespread loss of jobs. We need to study the total number of jobs simple automation could impact.”