AMID much fanfare, the government last week announced an “economic revival plan” focused on what it calls “untapped potential in key sectors of the economy” to attract foreign direct investment from “friendly countries”.
the Special Investment Facilitation Council, to undertake this task. Any initiative to address the dire economic situation is to be welcomed. But serious measures have to be rooted in reality and not reflect wishful thinking.
A policy aim that sidesteps the country’s macroeconomic crisis and deteriorating state of public finances can only be construed as a flight from reality. Patchwork measures taken in isolation of the overall economic environment won’t work.
The roots of Pakistan’s economic crisis lie in chronic fiscal deficits, responsible for its perpetual balance-of-payments problems, high inflation and macroeconomic instability.
What is needed, therefore, is a comprehensive plan to address structural issues and chart a path to sustainable growth that can end the vicious cycle of high budget/ balance-of-payments deficits, rising debt and chronic foreign exchange crises, which have led to repeated IMF bailouts.
Unless structural issues are tackled, the country will not escape from the trap of anaemic growth, low savings and investment, high deficits, heavy borrowing, growing indebtedness and soaring inflation.
Investment levels only increase in an environment of economic and political certainty and stability, which can build confidence. Uncertainty undermines investment prospects and keeps investors hesitant.
It is a predictable and liberal business regulatory framework and commitments of policy continuity by governments that can foster a positive investment climate.
No one invests long-term capital if the rules of the game are frequently changed. Moreover, a level playing field for investors is necessary to attract significant investment — something the recent policy announcement fails to do, and therefore marks a step backwards in investment facilitation.
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