The overarching economic strategy of the incumbent government is not quite focused on achieving macroeconomic stability, though that is certainly a stated objective, or to implement pro-growth policies — pledged repeatedly by senior members of the cabinet but derailed due to the ongoing International Monetary Fund (IMF) programme’s contractionary conditions — but to attract foreign direct investment as the overarching objective that would resolve economic fragility as well as periodic balance of payments issues.
This was baldly stated in paragraph 15 of the Memorandum of Economic and Financial Policies, an attachment to the Letter of Intent signed off by the Minister for Finance (Muhammad Aurangzeb) and Governor State Bank of Pakistan (Jameel Ahmed) on Pakistan’s behalf, a prerequisite for the programme approval and tranche disbursement by the IMF dated 11 September 2024: “Since attracting high-quality FDI is a key underpinning of our growth strategy, dividends on foreign investments can be repatriated freely, with no preference given to any particular investor or group of investors.
In this regard, banks have already cleared the backlog of pending dividend/profit payments. Going forward, we will collect information from banks at a monthly frequency on the stock of dividend/profit payments pending execution, which have cleared any necessary regulatory processes.
As part of our medium-term agenda, we will continue to upgrade our FX market framework and infrastructure by developing, among others, (i) a revised, more robust, regulatory regime for Exchange Companies; (ii) an FX swap mechanism for Islamic institutions; and (iii) a local USD clearing mechanism.“
Special Investment Facilitation Council (SIFC) was established on 20 June 2023, with the highest representation from the civilian (federal and provincial) and military leadership in the apex committee (chaired by the prime minister and Chief of Army Staff) with sectoral councils set up with relevant representation again from civilian and military leadership.
It was designed to act as a single window to facilitate investors (to provide a single window inexplicably the stated goal for decades of several previous administrations – inexplicable because the lacunas in its implementation no doubt remain), establish cooperation among government departments and fast-track project development.
The objective of the SIFC was to “shorten lengthy business processes through a cooperative and collaborative whole-of-the-government approach with the representation of all stakeholders. It is aimed at capitalizing on Pakistan’s untapped potential in key sectors of defence production, agriculture, mining, information technology (IT) and energy through domestic and foreign investments.”
Twenty-one months after SIFC’s establishment the number of Memoranda of Understanding and the total envisaged investment is extremely impressive – over 40 to 50 billion dollars from multiple MoUs signed with several countries (including those signed during the 8 to 10 April 2025 high-powered Pakistan Minerals Investment Forum); however, actual inflows as per the Finance Division in its monthly (March) Economic Outlook and Update are not yet noteworthy: 1618 million dollars (July-February 2025) against 1148 million dollars in the comparable period last year.
In 2024 total FDI was tabulated at 2346 million dollars and time will tell if the March to June inflows this year will be greater than 822.4 million dollars to surpass last year’s total though the consensus is that with the ongoing global market turmoil due to Trump tariffs, including the ongoing trade war with China and the reportedly challenging conditions set by the IMF for the second staff level agreement may act as deterrents.
Pakistan has never ever been a major destination for FDI even when compared to regional countries like China (with over 160 billion dollars in 2023) and India (42.1 billion dollars in the first half of 2025) and the reason could well be the state of their economy compared to ours.
The question is whether the SIFC can offer fiscal and monetary incentives to attract prospective foreign investors. If the IMF prescription agreed by the government is strictly adhered to then probably not.
The IMF’s October documents with respect to industry urge the removal of “microeconomic distortions and fostering a more competitively neutral business environment, Pakistan could develop more technologically complex sectors and foster productivity gains…..to develop production in these higher complexity industries Pakistan needs a level playing field for business, avoiding targeted policies aimed at picking winners.
Greater integration to global trade and easier access to imports, both as intermediate inputs for production and as final goods to promote domestic competition, will increase competition and further enhance productivity.
The removal of fiscal incentives, such as tax exemptions or subsidized credit, would further reduce the existing misallocation of resources and promote price discovery across firms.“
With respect to agriculture, the Fund notes that “Long-standing government interventions in agricultural commodities have created distortions inhibiting the sector’s productivity and harming Pakistan’s medium-term potential.
Government price setting and procurement operations have made the agricultural sector unresponsive to changing consumer preferences, exacerbated price volatility and hoarding, undermined the incentives for innovation, misallocated resources, and placed a burden on fiscal sustainability. Going forward, these interventions should be discontinued.“
The SIFC has approved the Green Pakistan initiative to reclaim waste, barren, and unused government land across Pakistan starting with the Cholistan desert with authorities having approved 4121 cusecs of water to irrigate 0.6 million acres by constructing six canals – two each in Sindh, Balochistan, and Punjab out of which 5 will be on the Indus with the sixth on the Sutlej.
The intent is to seek 6 billion dollars FDI from Saudi Arabia, Bahrain, and the United Arab Emirates over the next three to five years for corporate farming with the salutary objective of cultivating 1.5 million acres of barren land and mechanizing (with import of dozens of agriculture equipment containers from China) the existing 50 million acres of farm land in the country.
However, Sindh is increasingly restive and the Sindh government has sent a letter to the Council of Common Interests maintaining that IRSA had no right to issue certificates of water availability and Sindh’s Irrigation Minister Jam Khan Shoro has warned that the canals would turn Sindh barren – a claim rejected by the federal government. There is a need to undertake a cost benefit analysis: the cost of federal provincial disharmony against the projected economic gains from this project.
FDI is being sought in those sectors where there is a dearth of domestic investment interest either because of the large costs involved or lack of local expertise or indeed an amalgam of the two. But here there are three mitigating factors which makes Pakistan not an attractive place to invest: (i) a fragile macroeconomic situation with foreign exchange reserves sourced mainly to foreign debt thereby making repatriation of profits a challenge in spite of pledges to the contrary; (ii) litigation and threat of strikes remains the norm in spite of the fact that it has foreign contracts have cost the country hundreds of millions of dollars in penalties in international arbitration awards; and (iii) supporting FDI through fiscal and monetary incentives, which is the norm, will now be a challenge under the ongoing IMF programme.
To conclude, an immediate action by the government must be to increase its leverage with the Fund. This can almost certainly be achieved through a 2 to 3 trillion rupee cut in its current expenditure in the budget for next year, which would reduce the pressure on making the fiscal policy even more contractionary and, at the same time, allow the State Bank to adjust its discount rate by allowing the Pakistan Bureau of Statistics to present credible price data and not continue presenting a Consumer Price Index of 0.7 percent for March 2025 mainly due to the rupee-dollar parity remaining constant in spite of the dollar declining against other major currencies of the world (to enable the government to extol its performance) while core inflation is raised to 8.2 percent, 0.1 percent higher than the December 2024 rate (to justify keeping the discount rate at 12 percent).
Copyright Business Recorder, 2025
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