March 12, 2019
After the last government’s poor financial performance, Pakistan is still recovering from growth which was fueled by short term debt and declining investments. The economy was in shambles and Pakistan was almost on the verge of bankruptcy by the end of the year 2018. In these circumstances, the Pakistan Tehreek-e-Insaf (PTI) government has chosen to control the supply side of policies with the aid of reduction in government spending to encapsulate austerity drives and increase taxes.
So what should be the government’s focus in order to boost investment in the country? A major highlight from Finance Minister Asad Umer’s speech on the new mini-budget was the relief and incentives being given to the investors to ensure ease of doing business. According to recent stats, Pakistan is ranked at the 136 in the Ease of Doing Business Index (EDBI), and 173 in terms of complicated tax systems. The investment-to-gross domestic product (GDP) ratio of Pakistan has been stagnant at approximately 15 percent, while countries like China, India and South Korea have been able to sustain the ratio to more than 30 percent. Therefore, the new government should aspire to raise the investment-to-GDP ratio to at least 20-25 percent during the government’s five-year tenure. Such a move will improve job creation, productivity, and exports.
Recently, the Finance Supplementary (Second Amendment) Bill, 2019 was passed by the National Assembly, which is termed as a business-friendly reform package. This is because a tax reform package would encourage investment, promote industrial growth as well as boost the country’s stagnant exports. Before this announcement, Abdul Razak Dawood, who is the Adviser to the Prime Minister on Commerce, Trade, Textile, and Investment has also said that the bill would allow investment opportunities and business activities will increase in the country. Regarding this, the Chairman Pakistan Afghanistan Joint Chamber of Commerce and Industry (PAJCCI) Zubair Motiwala acknowledged decisions of the government and speculated that it would help to boost exports and investment.
Following these encouraging policies, the State Bank of Pakistan reported that private sector borrowing has jumped by over 92 percent to Rs600.5 billion during the July-February 22 period, compared to Rs312 billion in the same period last year. These numbers are encouraging for the government as the private sector continues to borrow at a stronger pace despite a steep rise in interest rates, which shows increased confidence of investors in the economy of Pakistan.
Foreign investment in Pakistan is also showing positive trends with countries like the United Arab Emirates (UAE) and Turkey showing interest in investments. Turkey has further expressed interest in developing a legal framework for tourism infrastructure planning, allocation of public properties to the investors, determination, and classification of qualities of hospitality facilities based on international standards. The main focus would be the rendering of technical support to Pakistan in order to facilitate promotional marketing of tourism, advertising a positive image of the country and production of promotional material.
In early October last year, PM Imran Khan spoke at the Future Investment Initiative Conference (FIIC) in Riyadh, where he discussed Pakistan’s economic challenges and invited foreign investors to invest in the country. In this conference, the PM communicated the policy of his tenure that is to enable an environment for investment. He further added that the plan is not just to attract foreign and overseas investors, but also Pakistani investors as well.
The crown prince of Saudi Arabia visited Pakistan last month, showing staunch support and promising $20 billion in investment. Haroon Sharif, who chairs Pakistan’s Board of Investment claimed that the UAE has also nearly finalised plans to establish an oil refinery in Pakistan with an anticipated production capacity of about 300,000 barrels. This project would entail $8 billion in investments.
Recently, Foreign Minister Shah Mehmood Qureshi held a meeting with a delegation led by Luxembourg Foreign Minister Jean Asselborn. Both governments have exchanged views on bilateral relations, trade, and matters of mutual interests. Furthermore, agreement exchange of delegations for enhancing bilateral ties besides cooperation in science, technology and education sectors.
Conclusively, the investment landscape of Pakistan shows some promising trends but in order to fully upturn prevalent economic conditions, more effort from the government is required. Firstly, a multiplicity of taxes and redundant procedures hurt businesses. Pakistan is advised to transform its entrepreneurial environment by encouraging cottage industries to improve the domestic market. By easing the procedures to start a business, the investors could be encouraged by allowing construction permits as indicators through one-window or online operations. Moreover, reforms in contract enforcement, tax payments and protecting intellectual property rights among others are also needed.