SIFC, a step in right direction
By Dr Allaudin Khilji
Our critique and acceptance of any development is based upon our political leaning. We are happy to use a utility but equally annoyed because it was developed by someone, we do not like.
Complacency and undue criticism is our national sport and we tend to stay where we are no matter how heavy the price is. It is crisis situation in all five security domains; political, economic, social, climate hazards and geo-strategic. For a change, let us take this bitter pill and try to analyse through a rationale approach not through discriminatory approach.
The steps initiated during care taker set up have, substantially contributed to stabilise the situation. Try to see the change and its affect on masses.
Special Investment Facilitation Council is a move in same direction.
World Bank Report of 2023 states that Pakistan’s economy is estimated to have shrunk up to a dangerous mark, resulting elevated inflation, and difficulties with its balance of payments. Positive growth is projected to return in FY2023/24, but at a rate of only 1.7 percent. The economy remains dependent on capital inflows to finance substantial fiscal and current account deficits. Import controls intended to narrow the trade deficit have also impeded the supply of industrial raw materials and depressed growth more than expected. These controls have been removed this year as an IMF lending program and through measures enacted by Army, has stabilized the currency and boosted business confidence. Nonetheless, the economy still faces substantial challenges from continued inflation pressures, tight fiscal policy related to debt repayments. . Pakistan’s foreign exchange reserves remain low, leaving the country with limited buffers against external shocks.
Inflation has been declining globally, but has remained elevated in South Asia particularly Afghanistan, Pakistan, Sri Lanka. Falling commodity prices were dampening inflation until energy prices started to increase more recently. Historically, inflation in South Asia has tended to be less driven by global developments than elsewhere, but recent global shocks interacted with local vulnerabilities in many countries, triggering currency depreciations and large increases in domestic inflation.The rise in global prices resulting from the end of the pandemic and Russia’s invasion of Ukraine worsened local vulnerabilities in several countries in the region, leading triggering currency depreciations and large increases in domestic inflation.
In the World Bank report published in October 2023, it is recommended that Pakistan give importance to private investment because it is very important for the recovery of the country’s economy – Pakistan is working on it since April.Establishment of SIFM under the supervision of PM aims to Strengthening private investment. Boost in private investment require the presence of complementary infrastructure, a supportive institutional and business friendly environment, a sound financial system, and fewer distortionary policies affecting markets.
Effective public investment and high-quality infrastructure can crowd in private investment. Public infrastructure projects, have the potential to spur investment and economic activities in the surrounding area. Better public institutions also tend to attract more private investment and FDI. Surveys of firms regularly show that policy and regulatory uncertainty, followed by taxation and burdensome regulations, are the most critical barriers to private sector investment Allowing greater scope for competition could unleash private investment. For example, in Pakistan, certain tax policies discourage investment in the tradable sector, and certain investment laws discriminate against foreign investors.
In Bhutan, Nepal, and Pakistan, reducing subsidies or budgetary support to state-owned enterprises could allow for greater private sector participation while also increasing fiscal space . In Pakistan, similarly, state- owned enterprises tend to have low investment rates, while also consuming government resources equivalent to around 23 percent of the fiscal deficit in FY2023.
Private investment also depends on access to finance. Adverse liquidity shocks caused by troubled banks can hinder investment.
The World Bank report mentions five factors for increasing private investment, consumer demand, credit facilities, profitable industry, resource utilization and business community confidence.
Pakistan SIFC is a co-ordinating body for encouraging private sector and marking major projects like China’s NDRC.
Private investment in China has also been greatly affected after the corona virus.
current focus in China is to launch large national level programs, franchises and supply chain are the second and third priorities. As many as 2,900 development projects worth $440 billion have been earmarked in China. SIFC, which works under PM and executive body have made some solid progress in identification of projects which provide good opportunities to investors and will contribute towards stabilising national economy.
China’s economy depends on small and medium-sized industries – and 90% of the entire country’s business comes from this industry
Pakistan’s economy has a heavy debt load on its shoulders, which is neither allowing the infrastructure to move forward nor is it proving helpful in training skilled people. SIFC is out of box solution and it is working.
World Bank Study also indicate that In Pakistan, government spending was significantly higher in election years fiscal deficits were significantly larger in election years.
What is required now is fair and free elections and trust of stake holders in the results of elections. The next elected government will actually be the main actor to pull country out of crisis situation. The efforts of care taker set up and security establishment is to provide a reasonably stable economic environment for jump of towards consolidation. Nation is keeping its fingers crossed for a positive outcome.