Asian Development Bank observed that the Public Private Partnership (PPP) policy framework and related laws and regulations need to be finalised and approved at the earliest in Pakistan. The capacity in the public sector to develop PPP projects for private sector financing also needs to be strengthened by bringing in outside expertise as necessary.
In a report of ADB on "Structure and Composition of Pakistans Private Sector", ADB experts suggested that the feasibility for infrastructure projects in the key sectors prepared in the public sector should mandatorily examine the scope and opportunity for private sector participation.
Capital markets need to be deepened and encouraged to provide long-term finance to support the role of the private sector in infrastructure development. Given that the responsibility for development of many infrastructure sectors rests with the provincial and local governments, these lower tiers of government must be fully involved in the identification of PPP projects and in closing deals with private sector parties. To do this, provincial and local governments need to significantly build up their capacity to partner with the private sector on infrastructure projects.
According to ADB report, Pakistans private sector has developed and matured significantly on the back of the overall improved macroeconomic environment and strengthened business conditions marked by privatisation and liberalisation of the economy. Major challenges, however, continue to confront the private sector. The macroeconomic outlook faces renewed problems arising from rising deficits and inflation and a major financing gap that threatens the fiscal space for public investment.
The business environment is still saddled with governance and institutional bottlenecks and rigidities in factor markets that raise the cost of doing business and impact on Pakistans international competitiveness. The private sector itself faces major tasks of introducing improved business operational procedures, strengthening corporate governance and accountability to shareholders, diversifying into non-traditional sectors to take advantage of international markets conditions, and adopting modern technology and raising the quality of human resources for higher productivity and value added. This section attempts to relate these challenges to the prospects for private sector development in Pakistan and identifies key areas for improvement in the business environment to catalyse higher private sector participation in economic development.
Of Pakistans total gross fixed investment of 21.3 per cent of GDP in FY2008, private sector investment is estimated at 15.6 per cent of GDP. Contributing about 73 per cent of the total investment in Pakistan in FY2007 compared to about 65 per cent in FY2001, private sector investment grew rapidly, until FY2008 when it fell on account of the worsened economic fundamentals amidst deepening political uncertainty.
The overall increase in private investment in recent years has been complemented by a significant increase in public sector investment in infrastructure and social sectors. Primary sectors which have had robust growth in private sector investment include manufacturing, mining and quarrying, construction, transport and communication, and wholesale and retail trade.
Regarding the Foreign Direct Investment, the ADB report said that with limited domestic savings constraining domestic investment, the Government resorted to promoting foreign direct investment through encouraging green field investments, privatisation of public assets, and portfolio investment. Total foreign investment jumped to a record $8.4 billion in FY2007 against only $559 million in FY2003 before coming down to 5.2 $ billion in FY2008.