EDITORIAL: With the country on the verge of sovereign default, which could cascade into a domestic debt restructuring as well, the government has announced with the country’s establishment fully onboard a medium- to long-term investment (and assets selling/leasing) plan with a view to defusing the growing uncertainty and panic in country.
The scheme is being termed ‘Plan B’ or an alternative strategy to deal with the economic challenges in the aftermath of likely Pakistan-International Monetary Fund (IMF) programme break-up. IMF’s protracted procrastination in relation to the programme is no secret. The programme will be dead in the water if the staff-level agreement with the Fund is not signed before the end of current fiscal year — June 30, 2023.
The plan envisages increased government-to-government deals, which would include sell-off/privatisation of state enterprises, leasing of assets and operations of government-owned commercial entities to generate funds in foreign currency.
The plan also relies on increased help from China some countries in the Gulf for rollover of existing debt and further loans to ensure timely repayments against sovereign debt. For this purpose the setting up of a “single- window” interface for investors by establishing Special Investment Facilitation Council (SIFC) would help in enlisting help of friendly countries.
In this regard, it is important to note that the council will comprise, among others, the representatives of military. The main emphasis, according to the plan, will be on foreign direct investment (FDI) in order to boost exports from Pakistan in a substantive manner.
Our policymakers must not lose sight of the fact that attracting foreign investment is like feeding pigeons; when you start feeding them, they come one by one, but if they get scared on account of any reason, then not just one but all of them flee together. At this moment, strict restrictions on repatriation of dividends on foreign private FDI, along with an unfortunate history of not honouring the commitments made by a government when it is replaced by its opponents, are scaring investors.
Both foreign and local investors are being pushed to repatriate capital through formal and informal channels alike. A foreign investor before selecting an investment destination evaluates the country risk that consists of the state of its economy, the level of confidence of the investors already operating in that country, availability of the requisite infrastructure, internal law and order environment, ease of doing business, operating legal frame work, and most importantly, the consistency/continuity in taxation, industrial and commercial policies.
Unless the investor has comfort as regards the stated factors, the government’s initiative, SIFC, would not be able to successfully attract foreign investors in a meaningful manner.
With the large amount of debt to be repaid in the coming fiscal year, the country needs nothing short of $15 billion of long-term debt or (preferably) investment over the next six months to take the economy out of this defaulting mode.
The government officials are claiming that they are expecting over $20 billion in investment from Saudi Arabia, the UAE and Qatar in various fields. It is highly unlikely that $20 billion plus commitments would be available within the next fiscal year owing to a variety of factors, including the upcoming general election that can throw up a government that could be hostile, if not inimical, to the incumbent government’s policies. And if that does not happen, a foreign debt restructuring is inevitable.
The way things stand, the government is hard pressed to arrange $6 billion gross financing requirement for the pending 9th review of the IMF, and without this (along with compliance with other conditions) the IMF programme will come to a seemingly premature but widely expected end by June 30, 2023.
Once relieved of the commitments made with the Fund under its programme, the government would have increased flexibility and may swiftly resort to schemes such as ‘no questions asked’: final tax regime for businesses as in vogue for exporters based on turnover and foreign remittances through banks into rupee bank accounts that would serve to significantly augment the tax revenue and foreign exchange reserves.
To stem the specter of physical shortages, supply chain disruptions amid high inflation and the increasing numbers falling below the poverty line, in the immediate or short term, there is a compelling need to chalk out a plan on how to steer through this crisis and let the ship float to see sunny days once the storm is over.
Needless to say, once the storm is over, you won’t remember how you made it through and how you managed to survive. May ‘Plan B’ act as a catalyst to inject some new energy into efforts aimed at weathering the current economic storm successfully.
Copyright Business Recorder, 2023