Nawaz Sharif's Great Challenge

May 14, 2013 Topic: Domestic PoliticsElectionsPolitics Region: Pakistan

Nawaz Sharif's Great Challenge

Pakistan's new man on top inherits a country wracked by crisis.

Politics is a long game. And in Pakistan, perhaps no politician understands this better than Nawaz Sharif, who will be the country’s prime minister for the third time. Exiled for seven years, he will be sworn into the office of prime minister by Asif Ali Zardari, Pakistan’s president and a man once imprisoned by Sharif. The general who overthrew Sharif in 1999, Pervez Musharraf, now sits in his Islamabad villa under house arrest, awaiting trial. Politics is indeed a long game.

But alongside the games, there is work to do. A massive nation with great potential is in a state of paralysis, veering toward failure as it faces a seemingly insurmountable set of challenges that multiply with each passing day. The government Sharif will run is bankrupt. It is dependent on foreign rent to stay afloat—aid from the United States and other countries, loans from international lending agencies and remittances from overseas Pakistanis.

The Pakistani state takes in far too little revenue from domestic sources—and the little that trickles in is sucked out by predatory forces, among whom are the country’s political elite. Seventy percent of Pakistan’s parliamentarians did not file their federal income taxes in 2011. In the same year, only 768,000 people overall paid federal income taxes—this in a country of 190 million. The failure is collective. Agricultural income—one of the largest contributors to Pakistan’s GDP—is not taxable. And Pakistan’s corporations are notorious tax evaders. The amount of federal revenue lost annually to tax evasion is around $10 billion, give or take a few billion, which is roughly the amount of the fiscal deficit. And that deficit could double by the year’s end. For Pakistan to stay afloat, the free ride for its elite must end.

State-owned enterprises are equal participants in the bankrupting of Pakistan. Bloated and inefficient tools of political patronage, they cost Pakistan an estimated $4 billion a year. The national airline and rail network and a host of other companies need to be restructured, rehabilitated, and possibly even privatized in a transparent and competitive process. The military too takes part in the fleecing of Pakistan, especially in lucrative real estate dealings.

Sharif was given another chance by Pakistanis because a critical mass of them sees his party as the best hope to revive the country’s economy. According to a Pew poll conducted shortly before Saturday’s elections, 91 percent of Pakistanis are dissatisfied with their country's direction. Eighty-one percent view the country's economy as bad. President Zardari, who leads the party that ran the previous government, has an 83 percent disapproval rating. In contrast, 66 percent of those polled approve of Sharif. And their primary concerns are corruption, crime, inflation, unemployment, and terrorism.

Much like Bill Clinton in 1992, Sharif knows, “It’s the economy, stupid.” His campaign rhetoric centered on reviving the economy. The cabinet Sharif will form will be far superior to the one that preceded it. It will likely contain thoughtful people (like Ishaq Dar, Sartaj Aziz, Ahsan Iqbal, Khurram Dastgir-Khan and Daniyal Aziz) who are cognizant of the need for deep reform. But Sharif must overcome his obsession with mega infrastructure projects, like national highways and a “bullet train.” He must focus on growth, job creation (especially for the country’s youth), and radically expanding the coverage of quality primary and secondary education—especially for girls. Pakistan’s rural majority should not be neglected by Sharif, which is based in urban Punjab. Antipoverty and vocational training programs instituted by the previous government should be continued.

Though Sharif largely avoided the issues of foreign policy and terrorism during the campaign, he is well aware that Pakistan’s fiscal and economic mess is inextricably linked to its deepening insecurity. The country’s head and feet are on fire. Tens of thousands of Pakistanis have been killed in the years after 9/11. The insurgency in the northwest continues and the Pakistan Taliban has enmeshed itself into the complicated wars that are taking place in the southern port city of Karachi, Pakistan’s economic backbone. The terrorist threat in Pakistan will sustain itself and evolve into more pernicious forms as long as there is no political settlement to the war in Afghanistan and the military remains committed to using jihadists as force multipliers.

Sharif has called for a policy of noninterference in Afghanistan, which is easier said than done. He is also one of the country’s most vocal proponents of peace with India and can capitalize on the momentum for normalization built by the preceding government and the goodwill for him in New Delhi.

But the way to peace in the region starts at home. Sharif, a staunch advocate of civilian control of the military, should bolster the Defense Committee of the Cabinet—Pakistan’s equivalent of a national-security council. It needs a permanent secretariat led by a cabinet-level official. The National Counterterrorism Authority established in April must be built into a full-fledged institution that allows for interagency and interprovincial information sharing. Sharif must work with, not against, his army, to develop a comprehensive national-security and counterterrorism strategy.

Finally, Sharif’s greatest challenge might end up being the festering conflict in Karachi. The most powerful party in the city, the Muttahida Quami Movement, led by the London-based Altaf Hussain, feels politically threatened. Accustomed to being part of federal and provincial coalitions, its share of seats are not needed to form governments this time around. At the same time, most other political parties in the Sindh province, where Karachi is located, will obstruct local-government elections, which are vital for Karachi to function, but also essential for the MQM to continue to retain its hold over the city. With this in mind, Hussain threatened not only violence yesterday, but also the city’s secession from the federation. Secession is nearly impossible, but an escalation of violence is. And it would be devastating for Pakistan’s economy.

From London, Hussain is essentially holding a gun to Karachi’s head. He can play the role of spoiler for the city, Sharif, and Pakistan. In the 1990s, Sharif’s government launched a military operation against the MQM in Karachi, the memories of which remain fresh in the minds of locals. He must figure out a way to politically communicate with the MQM. Failure to do so could eventually serve as a fatal blow for his government and bring irreparable damage to Pakistan.

Arif Rafiq is an adjunct scholar at the Middle East Institute and president of Vizier Consulting, LLC, which provides strategic guidance on Middle East and South Asian political and security issues. He tweets at: @arifcrafiq.