Local investors should come forward to activate the
foreign investors
From Shamim Ahmed Rizvi,
Islamabad
Aug 13 - 19, 2001
From economic point of view Pakistan is faced with
a dilemma. On the external front the proverbial hostile international
donors like World Bank and the IMF etc. are all praise for the
economic reforms carried out by the present government and are making
generous offers of economic assistance for future. The local
investors, however, are not coming forward despite all assurance and
incentives offered by the present rulers. This apathy of the local
investors is also hampering the inflow of foreign investment resulting
in a serious state of economic stagnation.
The World Bank in its Country Assistance Strategy (CAS)
report released recently has praised Pakistan's economic reforms
programme and acknowledged that reform agenda is "getting
strength and creditability". The World Bank report noted with
appreciation that Gen. Musharraf Government has made a significant
progress in implementing the reform programme particularly on macro
economic stabilization, governance and devolution which is
"sufficient to place Pakistan in the high base case lending
scenario". The IMF has released the third tranche of loan under
standby arrangement which is a history in case of Pakistan signifying
a certificate of satisfaction on Pakistan economic policies. 'The
economist,' London in its latest issue has certified that the present
Pakistan government has established creditability with the
international creditors by introducing firm economic reforms which
successive government in the past had failed to achieve.
According to World Bank Mission chief in Pakistan,
Mr. Jhan Wall, the agenda is on the right track. The only requirement
is restoration of investment climate and reduction in interest rates.
Investment and investor confidence are still not coming despite
measures and gestures over the months from the President and his
Finance Minister. However, interest rates have not come down
substantially for borrowers, though depositors are getting a pittance
on their savings. The domestic investors, business and industry have
to be wooed to invest. Foreign investment, be it from overseas
Pakistanis or Foreign Direct Investments, will follow. This has
happened in many countries. It should happen here too.
The hope of economic revival and improvement in
living standards is gradually fading. The growth rate that was quite
respectable until 1995-96 has, more or less, stagnated since then and
averaged only slightly more than the population growth. The present
government set an ambitious target of 5 per cent growth in the
beginning of 2000-01 but later revised it downward to 4.5 per cent in
order to conform to the IMF projections. But actually we ended with
2.8 per cent. As is well known, the prospects for 2001-02 are also not
any better. Simply put, the evolving situation is, to say the least a
very ominous precursor of the difficult times lying ahead. The
assertion by various government functionaries that shortage of
irrigation water is responsible for the dismal growth is only partly
true.
Resort to the printing press beyond a certain limit
would be highly inflationary and destabilizing.
The realization by the Finance Minister about the
crucial role of local investment, particularly at this juncture, is
very timely. Progress in the desired direction is probably the only
way to revive growth impulses in the economy. However, the government
needs to adopt a multi-pronged strategy on an urgent basis. It appears
that certain measures are going to be implemented soon. Wealth tax was
withdrawn last year and, according to the Finance Minister, the
statute would now be rescinded. Also, a law would be promulgated in
the coming days, ensuring that no questions are asked at any time
about the remittances or investments coming from abroad through proper
banking channels.
However, a lot of ground has still to be covered in
order to allay the fears of entrepreneurs and stimulate local
investment. Government statements almost on a daily basis show that
the situation on the borders is explosive. Within the country, the law
and order situation has deteriorated to an extent that safety of life
and property cannot be guaranteed. Low level government functionaries
harass the investors as a matter of routine. NAB, notwithstanding its
declared intention of nabbing the compute elements of society, has
frightened the business community. No wonder that in this kind of
environment entrepreneurs are looking for greener pastures abroad and
the pious pronouncements of the Finance Minister generally prove to be
a cry in the wilderness.
The Policy Framework, to a certain extent, is also
not conducive to savings and investment. Cost of financial
intermediation remains high due to increasing amount of non-performing
loans and over-employment in the banking industry with the result that
the real rate of return to depositors is depressed and investors have
to pay higher interest rates. The rate of profit on government saving
schemes has been reduced considerably. Obviously, the incentive to
save is diminished if households and other entities are not adequately
compensated for their preference to hold financial assets. Although
the government has clarified a number of times that continuity in
policies would be ensured, people in general and the moneyed class in
particular are apprehensive. Therefore on balance, while the emphasis
of the Finance Minister on attracting local investors is in keeping
with the exigency of the situation, the ground realities do not
inspire much confidence unless that have in-built mechanism that
accord protection against revision of immunities and abuse of
estoppels.
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