When Pakistan’s Prime Minister Nawaz Sharif and India’s Prime Minister Manmohan Singh last week walked out of their meeting on the sidelines of the UN General Assembly’s annual gathering in New York, neither could claim much by way of significant success.

For Sharif, emerging from his first meeting with Singh since being elected as Pakistan’s prime minister for the third time in May this year, it was nothing short of a diplomatic disaster.

Notwithstanding the smiles over the meeting between the leaders of South Asia’s two nuclear-armed states, Singh’s decision to name Pakistan as the epicentre of global terrorism just ahead of the meeting caused deep embarrassment to his counterpart in Islamabad. Vitally, Singh missed possibly his last opportunity to make peace with Pakistan and reverse the rivalry of the past 66 years between the two neighbours.

Back from New York, Sharif must now reconcile with the multiple challenges at home, which have significantly weakened Pakistan’s outlook and may have contributed to its failure of being taken seriously beyond its frontiers.

For the moment, the domestic challenges facing Sharif’s government may be a blessing in disguise, given that they will momentarily overshadow the ‘epicentre of terrorism’ charge. But going forward, Sharif’s failure to tackle these challenges will only deepen the rapidly growing risks for the country.

On Friday, an intervention by the Supreme Court finally forced Sharif’s regime to back away from a deeply controversial plan that would have seen a staggering rise in domestic electricity tariff – it was reportedly planned to be raised by up to 200 per cent for certain categories of low-income consumers.

The plan, which is the latest bit of evidence of continuing failures, appeared to be no less than the ultimate evidence of insanity in the country’s ruling echelons. The planned tariff increase provoked an outcry across Pakistan, and for good reason.

It appeared to be the handiwork of a regime that simply remains incapable of predicting a harsh public reaction to controversial policy choices.

The power tariff plan follows a significant depreciation of the Pakistani rupee, which has lost ground in Sharif’s tenure, losing nearly 10 per cent of its value in recent months. The slide of the Pakistani currency has happened in tandem with some of the worst incidents of terrorist violence in memory, notably the recent major attacks in Peshawar.

One immediate outcome of the recent violence has been none other than the complete erosion of confidence in Sharif’s already thin ability to tackle the unrest. For his critics, and justifiably so, the decision to launch fresh peace talks with the Taliban following a so-called All Parties Conference, has marked one of the worst capitulations by a Pakistani regime to the perpetrators of extreme violence.

This dismal state of affairs across Pakistan only points towards one powerful reality, which decision-makers like Sharif have tragically failed to grasp. Faced with multi-pronged adversities all around, the solutions to the many dilemmas lies fundamentally within the country, not outside.

Since his election as prime minister, for the first time – a historical first – Sharif appears to have ignored the realities on the ground and chosen to seek a consolidation of the country’s young democracy.

The latter – consolidation of democracy – is indeed a necessary ingredient for Pakistan to move forward and end the widespread uncertainty in the country. Yet, without credible and sustainable reforms, Pakistan’s outlook is gloomy. Specifically, this is the core point which Sharif must immediately address to begin overseeing Pakistan’s journey towards progress.

But since his return to power, Sharif has instead overseen one controversial set of policies after another. In tandem with the decision to extend an olive branch to the Taliban, the government embarked upon what could easily be characterised as a set of absurd choices for the economy. For instance, an unprecedented decision to allow Pakistan’s notoriously corrupt tax officials to gain direct access to any bank account across the country, ostensibly for purposes of detecting untaxed wealth, already appears to have backfired. It was a naive idea to begin with in a country where most individuals continue to keep their wealth away from the banking system.

An already modest-sized banking industry will hardly succeed in attracting individual Pakistanis in a country with one of the world’s poorest saving rates. The scary factor is that the official decision has other implications for the economy. There is much anecdotal evidence to suggest that the decision may have forced affluent Pakistanis to begin converting their rupee wealth into foreign exchange – a prelude to more capital flowing out of Pakistan.

This palpable erosion of economic confidence became all too visible when, according to newspaper reports, Yasin Anwar, the governor of Pakistan’s Central Bank, recently told members of Pakistan’s upper house of parliament known as the Senate that a staggering $25 million is leaving the country every day. That amounts to about $9 billion every year, which is clearly an unsustainable figure for a country like Pakistan.

All this points to a massively disturbing trend: Sharif’s failure to oversee a rapid improvement in Pakistan’s internal outlook will only be at the peril of the country’s increasingly dismal outlook.

By contrast, a concerted effort to address policy failures and set the pace for an improved future will help lift Pakistan’s profile on the international stage.

It is also possible that the next time the prime minister meets with his counterpart from another country like India, he may end up being taken more seriously than what transpired on the sidelines of the UN in New York last week.

The writer is a political and economic analyst. This article has been reprinted from the Gulf News.