EDITORIAL: Prime Minister Shehbaz Sharif highlighted his government’s one-year achievements though he hastened to add that numerous economic challenges still need to be tackled.
There is overwhelming evidence that the 7 billion dollar International Monetary Fund’s Extended Fund Facility programme was critical to averting the threat of a looming default as, without it, Pakistan would not have been able to meet its external obligations, given that other multilaterals and bilaterals, including friendly countries, refused assistance in the recent past without a strictly monitored Fund programme in place.
In this context, it is relevant to note the newly-elected government concluded economic discussions with Fund staff on 23 May 2024 though the staff-level agreement was deferred till 12 July 2024 subject to the implementation of prior conditions, which may well have been the reason behind the delay in seeking Board’s consideration on 25 September 2024 — a prerequisite for the tranche release.
The Prime Minister, as is his style, was overly effusive in his praise of all domestic stakeholders involved, and singled out the Chief of Army Staff (COAS) who, he pointed out, played a key role in convincing friendly countries to support the country.
As a key member of the Special Investment Facilitation Council the COAS has also been in the forefront of resolving all issues pertaining to foreign direct investment (FDI), an overarching objective of the current dispensation, whose success can be measured in terms of 20-plus billion dollar worth of Memoranda of Understanding (MoUs) already signed with multiple friendly countries. These MoUs have not yet been transformed into binding contracts and FDI remains under 1.5 billion dollars per year, which the Prime Minister stated would begin to flow into the country after terrorism is rooted out.
While terrorist attacks are certainly an impediment to the inflow of direct foreign investment (as opposed to portfolio investment which can leave a country within a matter of minutes and was the trigger for the 1978 Asian financial crisis) yet the government would be well advised to consider two critical elements.
First, countries who are the largest recipients of FDI are the US, China, several European countries for example Germany, the UK, France, and India — countries that have a long history of a stable political economy. In other words, the economic and political climate for investment must be conducive to domestic investment which, in turn, will act as the signal to foreign investors to enter our market.
In Pakistan today large-scale manufacturing sector continues to be in the negative territory as per government data and hence it maybe a tad premature to rely on a rise in FDI anytime soon. True that the bulk of the MoUs were signed with friendly countries yet it bears thinking that these countries resisted extending loans/rollovers to Pakistan without the IMF umbrella.
And, secondly, FDI was regarded as being at the heart of globalisation but with the emergence of a multipolar new world order globalisation (envisaging free movement of goods and services, technology, investment, people and information) is under a serious challenge.
Pakistan has begun to facilitate visas to foreign nationals; however, there is little reciprocity and Western countries as well as the UAE are making visas to Pakistani nationals a serious challenge.
The Prime Minister further contended that his government has achieved macroeconomic stability and in this context, one can appreciate the narrowing of the current account deficit (though in recent weeks with the rise in imports and the curtailment of exports due to external factors the threat of a rise has resurfaced) and a rise in remittances are favourable signs.
Moreover, the Prime Minister talked of his government’s drive to resolve the 400 billion rupees pending tax cases and ending the 850 billion rupees losses from state-owned entities (SOEs) that are borne by the national kitty at the taxpayers’ expense. These again are policies that must be supported; however, their early resolution is not assured.
In addition, the privatisation of SOEs remains a serious challenge for the government, especially given the amateurish way that the government tried to privatise PIA and therefore one would hope that lessons were learned from that fiasco.
A quicker way to resolve its very narrow fiscal space, not reliant on IMF prior approval, would be to slash current expenditure which the government raised inexplicably by 21 percent in the current year’s budget.
Part of the rise was due to the 20 to 25 percent increase in government employees’ salaries as well as payment of pensions, paid for at the taxpayers’ expense. It is hoped that the government demands a sacrifice from the major recipients of current expenditure for two years, a sacrifice amounting to a trillion and a half rupees at least, which would then translate into reduced reliance on raising indirect taxes further whose incidence on the poor is greater than on the rich as well as borrowing domestically and internationally.
Copyright Business Recorder, 2025