Pakistan's Prime Minister Imran Khan as he arrives to attend the opening ceremony of the Future Investment Initiative FII conference taking place in Riyadh, Saudia Arabia. AFP/Fayez Nureldine
Pakistan's Prime Minister Imran Khan as he arrives to attend the opening ceremony of the Future Investment Initiative FII conference taking place in Riyadh, Saudia Arabia. AFP/Fayez Nureldine

Imran Khan must shift from populist to pragmatic



Rarely does a national leader speak as frankly as Prime Minister Imran Khan has this week, but never before has Pakistan faced as grave an economic crisis as is now looming overhead.

After two months in the job, Mr Khan has had time to study the books he inherited from the previous administration and, as he has made clear, they make for disturbing reading.

In the past three years, Pakistan’s total external debt has shot up from $66 billion to more than $95bn and Mr Khan has inherited a record trade deficit of more than $37bn, which has continued to rise, despite three consecutive devaluations of the rupee.

Transparency and accountability were key platforms of Mr Khan's campaign and, to his credit, he opted for some straight talking in an interview with The National.

Pakistan is facing the worst debt crisis in its history. Without further loans, it will soon be unable to service its debts or pay for imports.

In short, he said, as he headed to Saudi Arabia’s Future Investment Summit, “we’re desperate”. In addition to seeking support from Saudis and other Gulf states, that desperation could drive Pakistan back into the arms of the International Monetary Fund for what would be its 13th and largest loan from the organisation since 1988.

Pakistan’s current budgetary shortfall is in the region of $12bn – twice the size of the last IMF loan in 2013. Asad Umar, Mr Khan’s finance minister, has insisted that this is the last time Pakistan will go cap-in-hand to the IMF.

Certainly, repeated bailouts are not a long-term solution and not a realistic alternative to badly needed root-and-branch reforms of financial institutions and government departments, and a determined assault on corruption.

But while borrowing to pay debt is always a dangerous gambit, Pakistan has run out of options. What matters now is how the government manages the economy in the breathing space provided and how the burden of paying for any loan is distributed among the country’s 210 million citizens.

There is much to be done, and quickly. But, as Greece’s comeback from economic disaster has shown, such apparently hopeless situations can be turned around.

Government spending must be drastically curbed. Already Mr Khan has started to cut government subsidies – despite promises to the contrary, from this month consumers will pay a more realistic price for gas.

He might also be forced to put on hold his ambition to create an Islamic welfare state. As a priority, Pakistan must restore its trade balance, boosting global sales of its main export, textiles, and reducing its reliance on cheap Chinese goods.

It is true that Pakistan’s crisis was created by the corruption and irresponsible spending of previous administrations.

But the measure of Mr Khan’s leadership will be whether he can set aside the populist idealism that put him on the road to office and embrace the pragmatism that Pakistan now so badly needs.

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The top three teams progress to the Asia Qualifier

Final: UAE beat Qatar by nine wickets

Third-place play-off: Kuwait beat Saudi Arabia by five runs

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2 Qatar 5 4 1 8

3 Saudi 5 3 2 6

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Ruwais timeline

1971 Abu Dhabi National Oil Company established

1980 Ruwais Housing Complex built, located 10 kilometres away from industrial plants

1982 120,000 bpd capacity Ruwais refinery complex officially inaugurated by the founder of the UAE Sheikh Zayed

1984 Second phase of Ruwais Housing Complex built. Today the 7,000-unit complex houses some 24,000 people.  

1985 The refinery is expanded with the commissioning of a 27,000 b/d hydro cracker complex

2009 Plans announced to build $1.2 billion fertilizer plant in Ruwais, producing urea

2010 Adnoc awards $10bn contracts for expansion of Ruwais refinery, to double capacity from 415,000 bpd

2014 Ruwais 261-outlet shopping mall opens

2014 Production starts at newly expanded Ruwais refinery, providing jet fuel and diesel and allowing the UAE to be self-sufficient for petrol supplies

2014 Etihad Rail begins transportation of sulphur from Shah and Habshan to Ruwais for export

2017 Aldar Academies to operate Adnoc’s schools including in Ruwais from September. Eight schools operate in total within the housing complex.

2018 Adnoc announces plans to invest $3.1 billion on upgrading its Ruwais refinery 

2018 NMC Healthcare selected to manage operations of Ruwais Hospital

2018 Adnoc announces new downstream strategy at event in Abu Dhabi on May 13

Source: The National

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”