Pakistan's Interim Government Pledges To Continue Reforms
ISLAMABAD — A MONTH after the fall of Prime Minister Nawaz Sharif, Pakistani businesses remain worried about the future pace of economic reforms.
The Sharif government, which tried to introduce large-scale deregulation of the economy, was ousted April 18 by President Ghulam Ishaq Khan, who dissolved parliament after a four-month power struggle.
Mr. Sharif, Pakistan's first prime minister with a background in business rather than in the feudal elite, sought to remove bureaucratic constraints and privatize the largely unprofitable public-sector industries.
For the first time Pakistanis were exposed to new experiences such as being able to open foreign-exchange accounts in local banks and buying brand new yellow cabs with only a 10 percent down-payment, paying the rest in installments. Procedures for getting the government's permission to set up new factories once took several years, but Sharif's deregulation program allowed businessmen to get the paperwork done in three to four months.
"Now we have to see if Pakistan will continue to stick to that agenda," says a leading businessman in Lahore, the nation's second-largest city and Sharif's hometown.
The interim government of Prime Minister Balakh Sher Mazari, which will rule until the elections July 14, says it will not reverse any of the reforms.
In a recent speech before the upper house of parliament, the Senate, Mr. Mazari said, "We will neither put a brake on the economic measures put under way by the previous government, nor will we disregard the obligations of the government of Pakistan incurred under those measures."
Sardar Farooq Leghari, the new finance minister, also said in his first meeting with journalists after assuming office that the new government will continue to honor Pakistan's entire international and domestic contractual obligations. "Market-oriented concepts will continue to apply. We will continue to work towards further liberalization of the economic system and we are going to work towards even greater deregulation," he said.
But signs of uncertainty continue. The South Korean conglomerate, Daewoo, announced recently that it has frozen plans to invest up to $400 million in setting up new industries near Karachi until the elections are held.
In addition, stock prices on the Karachi Stock Exchange continue to suffer from nervousness among investors. The KSE-100 index has only just recovered to 1,107 points, the level it was at before the market fell sharply on April 19 in response to Sharif's downfall.
Broker Arif Habib does not expect a return of momentum in the market for the next three to five months, after a new government takes office.
The interim government intends to examine alleged cronyism in Sharif's privatization program - selling factories to favored investors. But many businessmen, especially those who were involved in buying factories, are concerned that such a review would only upset investors and make it difficult for any future government to rid itself of state-owned factories.
Under Sharif, the government set aside 102 public-sector factories for privatization and was able to finalize sales for 62 of them before its downfall. The program was taken forward on the argument that private-sector managers would boost profitability of factories that were earning only about 1.5 or 2 percent on assets.
As businessmen examine their options, Pakistan awaits the interim government's budget, which is due to be announced June 10.
The growing budget deficit leads the list of strains on the country's economy. Last year, the Sharif government set a target of $2.44 billion, or about 5 percent of national economic output, for the deficit. But damage to the country's infrastructure caused by floods last summer, and recession in the textile industry are expected to help raise the deficit to more than $3.76 billion.
Pakistan's overall economic growth rate, projected earlier at around 6 percent, is now expected to be lower.