EDITORIAL: During their initial months in power nearly all Pakistani administrations exhibit a level of optimism that is not only unrealistic but more disturbingly not backed by appropriate policies that would lend a comfort level to independent economists that the targets are achievable.
Since 2019 this state of affairs has been further compromised by the country being on an International Monetary Fund programme - 2019 Extended Fund Facility (EFF), 2023 Stand-By Arrangement and 2024 another EFF - which necessitated implementation of a range of contractionary fiscal and monetary policies accompanied by a cessation of all incentives, with negative repercussions on national output.
In the same spirit of optimism the current economic team leaders have been rhetorically claiming that reforms are under way though at present only those reforms that envisaged higher utility charges for consumers have been implemented – policies that are increasingly alienating the general public from the government.
The structural benchmarks agreed with the IMF are however pending - privatisation due to the lack of the necessary homework as well as poor investment climate in the country, amply reflected by the failed attempt to privatise PIA, renegotiation of contracts with Independent Power Producers (IPPs) limited to local investors while the Chinese investors are rightly insisting the government meets its contractual obligations, tax reforms are pending as reliance on indirect taxes whose incidence on the poor is greater than on the rich is to the tune of over 75 percent, and finally, the budgeted current expenditure continues to cater to the needs of the elite which is funded by borrowing – externally and internally.
Without an active IMF programme, the capacity of the government to meet its external obligations, payment of interest as well as the principal as and when due, would not be met, triggering the prospect of a default.
In this scenario, the government is talking the same language as it did in the past by focusing on potential rather than realistic objectives notably identifying issues and implementing reforms that remain impediments to the achievement of the salutary objectives.
Minister for Planning, Development and Special Initiatives Ahsan Iqbal has highlighted the export potential of 60 billion dollars in five years time, a potential that he also highlighted in his previous 10-year visions which remain unmet.
The Minister of Finance Aurangzeb is currently in Saudi Arabia attending the Emerging Markets Conference 2025, which has focused on regional economic cooperation, financial policies and development strategies.
Pakistan’s development strategy since February 2024 elections has been through attracting foreign direct investment – an attraction that was to be focused on friendly countries, notably China, Saudi Arabia and the United Arab Emirates.
This approach is unique as those countries that are at present attracting the bulk of the world foreign direct investment, including China at 747 billion dollars January-November 2024 and India at 29.7 billion dollars in six months last year, began by first putting their own house in order defined as developing domestic industry as well as providing adequate infrastructure at competitive prices.
This could be one reason why the numerous memoranda of understandings signed with friendly countries have yet to translate into binding contracts.
According to the Finance Division report titled Update and Outlook, Pakistan’s FDI inflows were 1329 million dollars in the first six months of the current year – an amount that is too little compared to global FDI of 1.3 trillion dollars in 2023.
However, it is also relevant to note that world FDI is on the decline as globalisation, a policy associated with unipolarity defined as one superpower, has been replaced with multi-polarity and US-led sanctions as well as Trump’s recent policy decision of reciprocity in tariffs has sounded its death knell. There seems to be little focus within Pakistan’s officialdom to take measure of the changing world order and this may account for the continued low FDI inflows.
The government needs to not only position itself within the changing global order but also focus on achieving domestic investment potential.
Copyright Business Recorder, 2025
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