October witnessed two major events: National Debt Conference jointly organised by PRIME and Business Recorder, and an International Investment Conference organised by the government; the first highlighted how public debt (especially external debt) had been accumulated and misspent over the decades, and the second presented rosy prospects of Pakistan's economy.
These events, occurring in succession, served one good purpose from the investors' point of view; the events foretold investors how funds invested in Pakistan's public debt are likely to be utilised and prospects of value generation by such fund utilisation to create the requisite repayment capacity - a contradiction that is sapping away the investor confidence.
Addressing the International Investment Conference, Federal Finance Minister Ishaq Dar announced a 'future roadmap' for pushing up GDP growth rate to over seven percent by 2018, and also making Pakistan a "globally competitive" country, with particular emphasis on achieving macroeconomic stability through what he sensibly called 'inclusive' growth.
Highlights of Dar's roadmap include: lowering inflation to a single digit figure; investment-to-GDP and tax-to-GDP ratios rising to 20 and 15 percent respectively, exchange reserves touching $22 billion, exports rising to $32 billion level, industrial sector's growth going up by 8 percent, and public debt falling to 55 percent of the GDP courtesy reduction in fiscal deficit to 4% of GDP.
The rosiest part was a promise to spend 4 percent of GDP on education and health sectors. Equally rosy were his promises about reducing power shortages, meeting natural gas shortfall with enhanced supplies via imports and increased exploration and production, alleviating poverty, and support for the society's vulnerable sections - promises too rosy to believe.
According to Dar, the one pillar on which hinges his Investment Strategy 2013-17 is public-private dialogue for policy formulation. Indeed it is a confidence-building measure, but isn't determining development priorities the state's own responsibility? Much of what so far have been the outcomes of this 'dialogue', are the lo-priority Metro Bus and new National Highway projects.
Sliding power generation capacity that the PML-N kept quiet on during PPP's tenure in office was bound to cripple the economy. That being so, shouldn't repair/revamp of the existing power generation and distribution system have been the top priority, and building the Metro Bus, highways, dams, and coal-fired and nuclear power plants the next priority?
The key pillar of Dar's strategy is a campaign to induce FDI which, unfortunately, is needed urgently because successive regimes neither repaired the damage caused to the country's image by terrorism, nor cleansed the governance system to improve Pakistan's rating on crucial yardsticks - infrastructure, competitiveness, governance, regulation, corruption, poverty, crime, etc.
Yes, Pakistan did issue Eurobonds worth $2bn to global markets but on very unfavourable terms. The exercise that did succeed was divesting UBL and PPL shares worth $400m, along with domestic subscription of Rs 15.3bn, but that was due to the present state of these entities and their record of reasonable earnings - realities not reflected by state-owned entities (SOEs) like PIA and PSM, that Dar proposes to privatise.
Investment planning implies analysing past trends in niche-specific sectors, speed and profile of state policy changes impacting those sectors, perception about capability of the in-office regime to fulfil its promises, above all, its integrity. Neither are Pakistan's official data bases reliable, nor our governments exhibited prudence in revising fiscal policies impacting business and industry.
Another pillar of Dar's strategy - investment facilitation - requires co-ordination on policymaking between the federation and the provinces to ensure that policy and regulatory stability guarantee a secure future to the investors (at least in the mid-term). With provinces now empowered to levy taxes (often thoughtlessly), investors cannot be assured such stability.
Dar assured foreign investors that his government won't 'tolerate' any obstruction to investment. Did he discuss his investment strategy in detail with the provinces, and did they agree not to upset the promises being made therein? Here, it is worth recalling the fate of the Arab Gulf states' offer to invest in our agriculture sector (and build its non-existent infrastructure), using the corporate route.
The last pillar of Dar's strategy is development of special economic zones (SEZs) and networks that closely co-ordinate with the stakeholders. Pakistan has no option but to offer costly concessions to foreign investors; besides tax concession it must offer security, and SEZs with requisite and efficient infrastructure, but what is its record on developing SEZs? It is far from impressive.
Dar blamed the pathetic state of the economy on the 'sit-ins' by the opposition parties although these sit-ins began only in mid-August and did not disrupt the economic activity. What continue to hurt the economy are insecurity, power shortages, inflation, and the economy's loss of competitiveness. Consequently, while exports are going down, cheap imports are rising.
Profit-making SOEs provide revenue; privatising them is fiscally inadvisable, especially in a period of gross fiscal mismanagement and accusations about PML-N's benefiting from it. No wonder partial privatisation of profit-making SOEs prompted filing of petitions against their sell-off. The proposed partial divestment of OGDCL shares, though now permitted by the Supreme Court, may be difficult.
That's so because this move has triggered PPP-inspired unrest in OGDCL's labour union, although OGDCL will remain state-managed even after its partial privatisation. Same will be the fate of efforts to privatise PIA and PSM. Besides, should SOE divestment proceeds fund the government's current expenditure, or should they be invested in restructuring sick SOEs to privatise them?
Shaukat Tarin was part of the last PPP government; besides identifying SOEs for privatisation, he drafted an 'austerity plan' for implementation during PPP's tenure. The PPP implemented neither because it uses SOEs as venues for enriching its favourites and over-burdening them with party workers (mostly unskilled). That's why rapidly rising SOE losses escalated public debt.
Put together, Pakistan's performance in adopting austerity, making prudent use of public debt, containing inflation, repairing its eroding physical infrastructure, and ensuring that SOEs don't become bleeding wounds, is hardly the track record that can attract foreign investment. Unless fiscal prudence is exhibited credibly, this won't happen.
Undoing this mess implies sincere hard work beginning with re-defining development priorities, total revamp of the management philosophy of the state, instead of leaving the SOEs headless appointing competent professionals not cronies, to run them and giving them realistic targets for revival, and instituting a tough accountability system that enforces discipline besides mandating best possible performance.
A track record built up by the above strategy (as did Malaysia under Mahathir Muhammad) will credibly improve Pakistan's image and attract foreign investment even without offering the favours it now has to. Instead of offering rosy promises, can the PML-N do that? That's the unanswered question.