While the news of Nawaz Sharif's victory in last week's general election in Pakistan sent out a wave of optimism and hope for the future of the country, few would deny that Pakistan's new leader has his work cut out for him.
Pakistan's economy is in dire straits. The country's foreign exchange reserves have dwindled to dangerously low levels; inflation, unemployment and corruption are rampant; the country is facing a terrible energy crisis and the ongoing geopolitical tension, sectarian and political violence have all but scared investment away.
Yet the election on May 11, which had a record turnout and marked the first-ever transition from one democratically elected government to another, was a positive step for Pakistan at this crucial time and many foreign investors believe that Sharif, who was prime minister before the 1999 military coup led by Gen. Pervez Musharraf, is the best man to get Pakistan back on track, economically and otherwise.
The news of his victory sent the Karachi stock market soaring, and it should continue to see some good support going forward, since Sharif's victory removes a certain degree of uncertainty for investors, said Daniel Broby, CIO of Silk Invest, a London-based firm investing in frontier markets, Pakistan included.
The prospects for Pakistan's economy also look more positive: Broby highlighted better times for the manufacturing sector, which, he said, should benefit from lower taxes under the new government. And Sharif is a businessman and has always been pro-enterprise, so there's a chance for much-needed privatization in bulky, state-owned enterprises as well.
Sharif's victory also increases Pakistan's chances of inking a new deal with the International Monetary Fund (IMF), Broby said. Pakistan badly needs IMF funding in order to stabilize its external finances and set up the policy framework necessary for fiscal and energy sector reforms, among others.
However, Pakistan's reliance on IMF and other external sources of funding is also one of its greatest drawbacks, and true economic change can only come about if that dependence decreases and there's an improvement in the country's fiscal situation.
