At this critical juncture in Pakistan’s history, an assessment of the economic fundamentals and the surrounding socio-political elements is required to illuminate a plan of financial recovery against a backdrop of inflationary pressures, the crucial negotiation of a bailout programme, and the recalibration of foreign relations to foster flexibility on deposits and sovereign liabilities.
The ever-welcoming runways of Allama Iqbal International Airport, saw the return of a jubilant Premier Sharif on April 10, 2024, with promises of riches and a normalization of ties. As part of the $25 billion commitment of Saudi Arabia to Pakistan, we have been promised the imminent arrival of $5 billion as a symbol of Crown Prince Muhammad bin Salman’s continued support and confidence in the government of Pakistan. Such was the enthusiasm of our Saudi counterparts that a delegation consisting of Foreign Minister of the Kingdom of Saudi Arabia Prince Faisal bin Farhan and members of King Salman bin Abdulaziz’s cabinet were sent as emissaries to re-assure Islamabad of incumbent financial support.
It appears that the winds of change are upon us, as the arrival of this ‘investment’ will ease the task of our Finance Minister Muhammad Aurangzeb, as he negotiates a structural bailout programme with our patrons in the West. The $5 billion deposit by the Saudi government, would not only serve to re-assure the IMF regarding Pakistan’s active network of friends, but also signals tacit support from the White House. As per US diplomat Donald Lu’s testimonial wish to see Pakistan as a “country that’s peaceful, democratic, and prosperous”, it is quite clear where Washington currently stands. The present government has seemingly restored the status quo, between the traditional benefactors in the US and the Kingdom of Saudi Arabia
While this news is welcome in the corridors of power, it is natural to question the basis of routine economic intervention on the part of foreign powers as opposed to a model of domestic or private creation of wealth. The former has been a lifeline for Pakistan throughout its history, whereas the latter was halted or hindered on one premise or another. This time, Premier Sharif’s government is faced with a dilemma of choosing one model over another.
With a crown of thorns atop his head, our prime minister has the Herculean task of re-organizing the economy, while maintaining fragments of support for his political party. Therein lies the problem which has presented itself to successive governments in the form of a Gordian knot, and which none have managed to unravel.
Despite arduous debate and reflection, the issue of privatization of loss-making state-owned entities remains outstanding. The ailments afflicting Pakistan International Airlines have been well-known since the turn of the past decade. It is no secret that the national carrier has been used as a corporate trojan horse by political parties to curry favours with party workers and loyalists. The result is that the airline has collapsed under the burgeoning debt of almost Rs846 billion. Although, the Ministry of Privatisation is working overtime to ensure a swift sale of the majority equity stake in PIA, this will only address one small issue of a multi-faceted problem that ails the economy.
A fundamental principle that underpins a productive economy is the presence of a sound politico-legal structure that facilitates and secures foreign investment, while maintaining avenues for repatriation of profits by foreign investors. One can hardly forget the judicial fiascos surrounding the Reko Diq mines and the Karkey dispute, coupled with a persistent and misguided sentiment of protecting ‘national interests,’ through an unfettered utilization of the suo-motu jurisdiction as per Article 184 (3) of the constitution of Pakistan. The result is that the markets are left with little appetite for risks and the circus that we call the Pakistani economy.
The volatility surrounding the transfer of power between governments and the dismissal of sitting governments in recent years has understandably deteriorated investor confidence. The ensuing bedlam has in fact fuelled scepticism and pessimism regarding the outlook of Pakistan’s economy – as identified by multiple credit agencies around the world. The situation has been exacerbated by the kneejerk enactment of imprudent monetary practices either to sustain populist sentiments or to sabotage the terms of incumbent governments.
In the face of so many issues lies an opportunity to rebuild and restructure. The inauguration of the SIFC and the numbers presented at its inception may have been unfairly dismissed at first glance as wishful thinking, but the tangible steps taken by the Saudi government have gone to cement the SIFC’s importance in Pakistan. The reason for this is as simple as the concept of the SIFC itself – cut through the red tape.
Rather than having to deal with flimsy commitments and regular procrastination on the part of different political governments, foreign governments can make investments with a special investment fund that relies on the cooperation of the civilian government, with the support of the armed forces as far as logistical and security concerns are in play. This will not only serve to re-establish some of the confidence lost in recent times, but also provide an avenue for multiple governments to invest in the development and prospective prosperity of Pakistan.
To this end, the SIFC should be treated as a roadmap for the creation of investment funds which have the protection of the government of Pakistan. These investment funds should not only invite investment from only governments but also private/corporate entities and expatriates. To achieve this objective, there is a requirement for an agreement between all parties involved in the political process – the establishment, government of the day and the opposition regarding the way forward: not to compromise the foundational stability of the state. In that, there is a requirement for the re-assurance of all overseas and domestic Pakistanis that their remittances and taxed income will not be squandered away and that there will be accountability for government expenditure – federal and provincial.
The ribbon to tie it all up neatly in a nice and attractive package for investors is the development and enforcement of judicial controls to ensure enforcement of contracts and effective relief measures devoid of political and commercial motivations. This will not only sustain confidence regarding security of investment, but also instil a sense of reliability on the judiciary – not only as an avenue to settle political scores, but as a platform to enforce commercial securities and commitments.
If history has taught us anything, one need only strike through a Gordian knot, for those who profess to unravel it will only end up with unfulfilled promises.
The writer is a lawyer.