EDITORIAL: Senior leadership of Pakistan’s Special Investment Facilitation Council (SIFC) — federal and provincial including caretaker prime minister Anwaarul Haq Kakar, senior members of his cabinet as well as the chief minister Punjab Mohsin Naqvi — and the Chief of Army Staff Asim Munir effectively used their attendance at the Conference of Parties (COP) 28, a global climate summit, hosted by the UAE to sign multi-billion dollar memoranda of understanding (MoUs).
This was revealed in a post by the Prime Minister’s office which noted that “the MoUs will unlock billion dollars of investment in several sectors including energy, information technology, manpower, mineral exploration, food security and defence, from the UAE and Kuwait to Pakistan and will help realise various initiatives envisioned under SIFC.”
While sceptics refer to non-binding MoUs signed in the past that were not translated into binding contracts yet this time around there is a focus on engagement by all stakeholders that would no doubt provide a comfort level to a prospective foreign investor in this country.
Pakistan’s previous administrations lacked a forward-looking approach in signing contracts with international partners, a factor evident in not only failure in the international arbitration court nine times out of ten due to the contracts signed (Reko Diq, Karkey) or simply not considering the actual impact of the signed contract on the general public upon project completion (an example being the energy contracts signed under the China Pakistan Economic Corridor during Nawaz Sharif’s tenure as the prime minister, which are the root cause of the unaffordable tariffs today).
To give the benefit of the doubt to previous administrations perhaps their over-arching objective was to attract foreign investment at whatever cost — short, medium or long term — and hope that inflows alone would resolve the cyclical balance of payments problems, thereby compelling the country to go on yet another International Monetary Fund (IMF) bailout programme. That this situation has been pervasive in our economic history is evident from the fact that Pakistan is currently on its 24th IMF programme.
Two factors mitigated against the realisation of this objective. First, actual inflows remained small in spite of the MoUs, no more than 2 billion dollars a year maximum, because the Pakistan economy did not provide an attractive enough ground. This was in marked contrast to neighbouring India with stable macroeconomic indicators as well as significant foreign exchange reserves.
One would sincerely hope that the Caretaker set-up not only begins to focus on reforms in the power and tax sectors, the two most poorly performing sectors in the economy, and also slash current expenditure to create fiscal space that would increase Pakistan’s leverage with international lenders in particular and foreign investors in general.
And second, foreign investors are reluctant to agree to Pakistan law and arbitration in Pakistan and some Gulf Cooperation Council (GCC) states have already expressed their lack of trust in domestic dispute resolution mechanism in recent negotiations on Bilateral Investment Treaties (BIT) and indicated that they will not sign on the dotted line without the clause to allow for international arbitration.
While no doubt the Law Ministry did vet all the contracts signed during previous administrations yet these contracts by and large favoured the foreign investors over and above domestic consumers.
It is not yet clear whether the Law Ministry has the legal expertise to review the fine-print in contracts and ensure that domestic consumers are not forced to pay a heavy price in future and for this purpose one hopes that the Law Ministry is strengthened to include those with the necessary expertise and proven record in defending Pakistan in the international legal system.
Thus while one fully supports the efforts of the senior leadership of this country to engage with GCC countries to attract foreign investment yet ideally a lawyer with the requisite curriculum vitae should have also accompanied the team.
Learning from past shortcomings or mistakes is a critical component of any country’s history. And while the SIFC provides a fertile ground for foreign inflows yet expert legal opinion on any contract must be taken before a final decision on signing a contract is made.
Copyright Business Recorder, 2023
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