EDITORIAL: Prime Minister Shehbaz Sharif has constituted a seven-member Economic Advisory Council (EAC) under his own chairmanship and, in a significant break with precedent no cabinet colleague or a serving bureaucrat has been nominated as a member.
One could support this measure by pointing out that in the past the motive behind setting up such a council was to prohibit prominent members selected from criticising government policies in the media while taking few of their suggestions on board.
Thus the EAC under the chairmanship of the prime minister leads one to conclude that it may provide a more unbiased assessment of the finance ministry’s policies to the chief executive of the country who would then be able to engage directly with the finance minister in private (or in public) to implement timely mitigating measures.
The EAC composition can therefore be fully supported, given that the state of the economy remains a source of very serious concern to all stakeholders in spite of some visible improvements. Recent data released by the Pakistan Bureau of Statistics reveals that foreign direct investment inflows in April this year increased by a whopping 172 percent compared to the year before, however, outflows increased by 22 percent.
July-April 2024 inflows compared to the comparable period of 2023 were 179.3 percent higher with outflows 709.3 percent higher. Total direct investment inflows July-April 2023 were 109 percent lower than the comparable period of the current year; however, what should be a source of concern that notwithstanding such high percentage increases this year the actual amount of FDI has been appallingly low – 414 million dollars in April this year compared to 177.1 million dollars in April 2023 with outflows estimated at 55.2 million dollars in April 2024 compared to 45.2 million dollars last year. This low amount is in spite of the clamour by many a foreign company, particularly those set up under the umbrella of
China Pakistan Economic Corridor, that due to a dearth of foreign exchange reserves they are unable to remit their profits (to their shareholders) or import critical inputs to continue their operations.
The macro picture is even more disturbing as total foreign investment inflows (direct, portfolio, foreign public investment and debt equities) were calculated at 341.4 million dollars July-April 2023 and 659.3 million dollars in the comparable period of this year – a rise of 317.9 percent.
This data does not look healthy in actual terms though in percentage terms it is impressive. A comparison with other countries in the region shows how Pakistan is actually faring in this respect: India with net inflows of around 15 billion dollars and Bangladesh 901 million dollars.
The two South Asian countries compelled to go on an International Monetary Fund bailout package, notably Sri Lanka and Pakistan, have suffered low inflows for obvious reasons. On 12 May 2024 a relevant Sri Lankan minister stated that the country is expected to sign a 3 billion dollars deal with Sinopec China to set up a refinery.
Similar reports are circulating in Pakistan with the expectation that contract negotiations are underway to set up a refinery with inflows from friendly countries – Saudi Arabia and the UAE – yet so far these deals have not materialised.
A word of caution would be to ensure that deals made for foreign inflows may be carefully vetted by a competent legal team before signing as the general public is paying a very heavy price for the deals struck under the umbrella of CPEC in terms of higher tariffs and load-shedding as the country’s depleted foreign exchange reserves, strengthened through borrowing, are disabling the contractually agreed payments in dollars. And disturbingly, it is the delay in these payments that account partly for the current account surplus for April this year compared to the same month last year.
Given the foregoing, it is imperative that the EAC has at least one monetary policy expert with the capacity to determine the cost of not importing fuel and not repatriating profits as agreed on the national output as well as on all future foreign direct investment inflow decisions by foreign investors.
One can only hope that this skill set, rare amongst our finance ministry officials, be strengthened to ensure that a cost benefit analysis is undertaken on decisions that would have serious implications on the macroeconomic indicators as well as the well-being of the general public.
Copyright Business Recorder, 2024
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