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New Pakistani Leaders Might Turn the Lights Back On

Pakistan’s new president and prime minister are good news for that country’s embattled garment sector. They have been moving aggressively to combat the ills that have brought sector growth to a standstill. The energy crisis and security uncertainty have both hindered expansion in a garment industry that was once poised to capture share from China and Bangladesh.

The election on July 29th of Mamnoon Hussain as President of Pakistan is also a good sign for the garment and apparel industry. Hussain, a leading textile businessman from Karachi, is a largely unknown party loyalist. His post is largely symbolic, but it underscores the vital role the garment and apparel sector plays in generating foreign currency for the country.

Prime Minister Nawaz Sharif, elected earlier this year, has pledged to end the energy crisis, and has taken steps to do so. The new energy policy aims to attract new investments and remedy a supply-demand gap that, at its peak, amounted to over 5,500 megawatts. The government has moved to raise power rates and shift from an oil and natural gas mix to additional hydro and coal. His background as an industrialist has made him hypersensitive to the concerns of business.

The government has also paid down 480 billion rupees ($4.7 billion) of circular debt this month, which refers to unpaid bills owed to utilities. This should increase generating capacity by allowing more fuel orders. The move was unwritten by an International Monetary Fund loan for $5.3 billion, tied to energy reforms and other policy changes.

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Markets have responded to the good news, with the Karachi Stock Exchange rising nearly 40% this year in local currency. The exchange has benefited from a peaceful transfer of power in May and capital flows from investors moving out of the BRIC economies as their growth has slowed.

Another source of growth is so-called black money. Investors have been allowed to buy shares since January 2012 without having to declare where their money came from. The intent of the policy is to bring cash into the formal economy and make it taxable. It is regarded as an amnesty, and will expire in 2014.

Despite the good news, Pakistan’s economy is only expected to grow by about 3.6% this year. Sharif expects to beat that forecast, with 4.4% growth.

The new government has a majority in Parliament and a broad mandate to pursue its agenda.

Pakistan has been suffocated by fuel shortages and political gridlock, but the current ruling coalition is rapidly demonstrating its ability to overcome those challenges. Paired with a regionally competitive minimum wage of 10,000 rupees ($98) per month, large amounts of internal capital, and robust export infrastructure, Pakistan is likely to regain its foothold as an exciting growth area for the garment and apparel export sector.