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Verdict on corruption allegations against Pakistani PM likely to undermine ruling party's re-election prospects in 2018

Published: 4/17/2017

Allegations of corruption against Prime Minister Nawaz Sharif originating from leaked documents the Panama Papers have emerged as the greatest threat to government stability in Pakistan.



IHS Markit perspective

Outlook and implications

• The verdict of Pakistan's Supreme Court on its investigation into allegations of corruption against Prime Minister Sharif and his family – stemming from leaked documents the Panama Papers – is likely to be announced in the coming months.

• Although feasible, the Supreme Court is unlikely to remove Prime Minister Sharif, as the judges have consistently criticised both sides for submitting unsatisfactory evidence.

• The most likely scenario, therefore, is of a compromise verdict in which key members of the Sharif family with the closest connections to the controversial offshore investments are disqualified from holding political office.

• Such a verdict would undermine Sharif's re-election prospects in 2018, as it would bolster opposition support in the crucial province of Punjab and potentially trigger infighting within the ruling party.

Risks

Government instability; Bribery and corruption

Sectors or assets

All

Prime Minister Nawaz Sharif addresses his party at a convention in Hyderabad, Pakistan, on 27 March 2017.

PA 30710759

Pakistan's Supreme Court is likely to announce a verdict in its high-profile inquiry into corruption allegations against Prime Minister Nawaz Sharif and his family over the coming months, although no timeline has been set. The inquiry by a five-judge panel of the country's apex court began in November last year, before concluding in late February 2017. This inquiry followed months of political wrangling between the ruling Pakistani Muslim League-Nawaz (PML-N) and Imran Khan's Pakistan Tehreek-e-Insaf (PTI) in the wake of the April 2016 leaked documents known as the Panama Papers. During the hearings, the PTI's legal team argued that documents from the leak showed that Prime Minister Sharif had lied to parliament and to the public about his family's foreign investment holdings, particularly over their ownership of four upmarket properties in London.

The investigation – referred to as ‘Panamagate' domestically – has emerged as the greatest threat to the stability of the PML-N government, with the PTI claiming that the leaked documents provide grounds for Prime Minister Sharif's removal. The expectation of a high-impact ruling by the Supreme Court was heightened on 11 April when a judge on the inquiry panel said that the court's judgment would "endure for centuries". There is precedent for the judiciary dismissing a sitting prime minister, most recently in June 2012, when the Supreme Court disqualified former prime minister Yousaf Raza Gillani from holding a parliamentary seat due to a contempt of court conviction. For the PML-N, the court's impending verdict comes at a potentially destabilising moment, less than a year before parliamentary elections are due to be held, and at a time when the government's relations with the military have been relatively stable (see Pakistan: 6 March 2017: Pakistan's new counter-militancy operation indicates improving government-military relations but increasing interstate war risks with Afghanistan). More broadly, the saga has triggered unprecedented national scrutiny of the Pakistani political elite's propensity to amass wealth outside the country and conceal it from the public.

Outlook and implications

Although feasible, the Supreme Court is unlikely to remove Prime Minister Sharif, as the judges have consistently criticised both sides during its hearings for submitting inadmissible evidence. Unlike in other countries where the Panama Papers have impacted government stability, the Pakistani judges have also deliberated on whether the leaked documents can be admissible in court as evidence, given that no individuals are available to stand as witnesses to defend their authenticity. Moreover, the Pakistani Supreme Court has also reined in its interventionist approach since Gillani's removal in 2012, especially since the retirement of former chief justice Iftikhar Muhammad Chaudhry in December 2013. As such, it remains difficult to foresee the court handing down a deeply destabilising verdict resulting in a change of prime minister.

The court, however, has also commented on the inability of the prime minister's legal team to provide hard evidence disproving wrongdoing by the Sharif family. This suggests that the ruling party is unlikely to emerge unscathed from the verdict. The most likely scenario, therefore, is of a compromise verdict in which key members of the Sharif family with the closest connections to the controversial offshore investments are disqualified from holding political office.

While Prime Minister Sharif himself would be allowed to complete his remaining tenure in this scenario, the PML-N's otherwise strong prospects in the 2018 election would be undermined for two reasons. Firstly, a damaging verdict for Sharif by the Supreme Court would likely bolster the PTI's campaigning, as the opposition party has made anti-corruption central to its policy platform. This is crucial because the PTI is the PML-N's primary political opponent in Punjab, Pakistan's largest province, and winning the election in Punjab is essential to forming a cohesive government following an election. Secondly, the verdict may trigger infighting within the PML-N, especially if Prime Minister Sharif's daughter, Maryam Nawaz, is barred from holding political office. She has emerged as an influential leader within the PML-N since 2013, and is perceived domestically as being Sharif's chosen successor. If she is barred, Sharif's nephew Hamza – son of Sharif's brother and Punjab chief minister Shabaz Sharif – will increasingly be viewed as a viable alternative. However, Prime Minister Sharif has previously been reluctant to give his brother greater power, indicating a greater likelihood of a power struggle within the PML-N ahead of the 2018 election.

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