Imperatives of FDI Growth During the PTI Government

Syed Ali Kashif

Qualification: MBA from IBA, Karachi
DAIBP – Distinction On Pakistan Level In "Agricultural Credit" And Qualified "Accounting" & "Business Communication" From Institute Of Bankers In Pakistan(IBP)
Area Of Interest In Banking: Treasury & Funds Management , Sme, Investment Banking & Corporate Financing, SBP Export Refinance, Islamic Banking, General Banking & Human Resources Management

Almost one year down the line, from its coming into power, the PTI government looks determined to uplift the economy and alleviate the travails of finances of Pakistan. With their satisfactory economic performance during the past one year, the current situation in the national and international economic corridors accords us a vantage point to gauge where they came from and where they are heading at least in terms of economic decision-making. The FDI stood at $426 million prior to coming into power of PTI government. It now stands at $1 billion after the PTI government came into power.

An expert says, dollar inflows into the country be it through foreign direct investments, portfolio investments, remittances, improvement in current account deficit, borrowing from IMF or any financial institution improves its parity with dollar in terms of local currency.

Pakistan's foreign direct investment (FDI) which is just 0.6% as a percentage of GDP (2019) increased by USD 73.4 mn in July, 2019, compared with an increase of 130.4 USD mn in the previous month. Pakistan's foreign direct investment in USD mn net flows is updated monthly available from July 1997 to July 2019.

From the capital structure chapter, we know that any company or any country has to have mix of both debt and equity in its structure. We must borrow to our productive purposes. That is theoretically correct. However, if the borrowing record is littered with corruption and wasteful spending, and major sectors of economy like large agriculturalists, stock brokers, property barons, etc. do not pay tax at all, the proposition becomes quite debatable.

Second element of capital structure is equity or for simplicity, it is FDI in this context. FDI fuels economic growth in any country. In Pakistan's historical perspective, FDI has played pivotal role, historically.

The FDI reached an all-time high of USD 1.3 bn in June 2008 and a record low USD 367.5 mn in Oct 2018.

As there has been a constant cut in the flows of foreign aid to the developing countries like Pakistan, so the private capital flows have become the dominant source of financing to the developing countries.

Pakistan's vicious cycle of borrowings from foreign governments and multilateral institutions, graft, waste and accumulation of more debt to repay old debts leads one to believe that the rulers have been putting excessive burden on the people and mortgaging their future by borrowing more and more while indulging in wasteful and unproductive spending. Pakistan external debt is at $ 106 billion, after the recent IMF borrowing deal closed in last month.

From the internal front, we must try to explore resources like gold and copper reserves in Reko Dik, which are expected to fetch $ 1 trillion if explored efficiently, on one hand. If explored efficiently. On the other hand, we could cut our imports, which the PTI government has been doing. Besides, that our tax-to-GDP ratio must be raised from 10% to 17% to meet out government's PKR 8.00 trillion in tax revenues target. Also improvements in current account deficits is highly recommended here.

Foreign investors want commensurate returns in lucrative oil & gas sector (USD 13,180 mn July 2019), resilient banking sector (USD 16,005 mn increase, June 2019), booming chemical sector USD 3,980 mn, July 2019), growing food sector (USD 5,430 mn, July 2019) and the profitable cigarettes & tobacco sector (USD 3,009 mn, July 2019). They would prefer to come and make foreign direct investments in industrial sectors that they hold lucrative to them.

PM, Imran Khan's government must propagate to the international investors that thanks to the competent and highly professional leadership of general Qamar Jawed Bajwa, at the GHQ, Pakistan nowadays braces for a peaceful business environment, with conducive tax regime with tax collection of USD 30,355.319 mn, June 2019 , short term interest rates (13.90% (July 2019), Consumer Price Index 10.3% (july 2019) exchange rate against USD (PKR 158.83, July 2019) increased exports USD 2,102 mn (up by 24.1%, may 2019) decreased imports (USD 5,042 mn (down by 10 %,may 2019), therefore translating into enhanced trade balance of USD 2,647 mn (June 2019) supportive infrastructure, ample power supply (power production 15,139 GWh (July 2018) , cheap labour (labour force participation rate of 53.3%, 2018) and vibrant demand for industrial produce (industrial production index growth rate increased by 3.2%, May 2019), equity market index (31,938.15 basis points, July 2019) . PTI must carve out an investor friendly plan to woo the international investors and thereby could enhance and pull off for Pakistan's by year end, posting strong foreign direct investments figures in the industrial sectors which makes for only 10% of GDP and has a massive upside potential in future given the sincere intentions of PM Imran Khan's government to cover each and every stakeholder's interest.

Though, we have trusted friends like China, Saudi Arabia, Qatar, UAE, Malaysia who had already responded with their financial support in Pakistan's tough economic times, we should be vying for FDI in the global arena where our economic fundamentals are perceived to be investors friendly and like different countries of the international economic corridors in North and South America, Africa, Scandinavian and Asia Pacific regions. The perception that there is economic malaise in Pakistan should be dispelled, and strongly rejected for the sake of strengthening the current political setup.

The world today has been witnessing unprecedented economic growth with huge pool of liquidity seeking investment. The PTI government is proposed to reduce its heavy debt level (USD 106 billion) by use of domestic resources (exploration of Reko Dik) and by improving macro-economic imbalances.

It is imperative that the incumbent PTI government shall rise to the challenge of increasing FDI and would not let this historic opportunity to squander away. It is expected that they will be able to pull-off a decent FDI figure by the year end.