Nov 23 - 29, 2009

Speaking at a press conference chairman board of investment (BoI) Salim H Mandiwala said that a public-private delegation would go to Houston and New York to seek investments for the energy sector of Pakistan. According to him, some companies from United States of America would be interested in the energy sector. The delegation comprising members from different public and private companies would be ready by the next month, he said. 'The delegation will be energy-focused.'

He also said Pakistan would sign a bilateral investment treaty with Germany by end of December and this would be an enhanced version of previous investment agreement between the two countries. Since previous bilateral investment agreement signed sometime during the starting days of Pakistan was ineffective in increasing investments from Germany in Pakistan and 'orthodox there is a need to accouter the treaty with some upgraded components', said BoI chief.

As per the new version, typically government of Germany will give insurance coverage to companies aspiring to invest in Pakistan. During a visit to Pakistan, Joachim Steffens (German Ministry of Finance) confirmed to news reporters in Islamabad that a bilateral investment agreement was on the anvil. Reportedly, he said five companies approached government of Germany to support them establish businesses in Pakistan. Energy, agriculture, and engineering are the potential sectors companies are eying.

The media briefing in Karachi by BoI chief was well timed as a substantial fall in growth of foreign direct investment was registered in the first four months of current fiscal year and news of developments could alone corroborate efforts of the institution in attracting foreign investments. He said on his visit to Germany prime minister Syed Yusuf Raza Gilani would sign the enhanced investment agreement.

Investment has emerged a victim of political and security problems in the country. Both foreign and domestic investors are fearing of uncertain conditions. Adding insult to injuries are some measures stifling growth of the economy. High interest rate is an issue to have caused slump in trade and industrial activities. Although, foreign investments are not directly affected by up in interest rate, slowdown in economic activities could have negative implications for them.

Overall, foreign direct investment slid to $621.8 million from $1,329 million, exhibiting 53.2 percent decline in July-October 2009-10 over corresponding period last fiscal year. FDI from Germany also saw negative growth during the four months of current fiscal year and it was recorded at $7.6 million in July-October as opposed to $10.6 million previously. FDI from USA also declined 15.4 percent to $229 million from $270.8 million. Investments from Germany grew during 2008-09 over preceding year. Germany held third position in investments from nine European countries in to Pakistan in FY09 after United Kingdom and Switzerland.

According to the chairman, the government is bringing down interest rate to spur economic growth. He is convinced that high interest rate cannot hobble foreign investors. It is a matter of disappointment for local investors, he told this correspondent on the sideline of the conference. State bank is expected to adopt a soft stance on monetary management and to bring down discount rate from 13 percent in the upcoming policy announcement. It is generally believed that reduction in discount rate is imminent since inflation increase of which is forwarded as a reason of up in interest rate and that is believed to be arrested only through restricting money supply in the market is heading downward. Core inflation is likely to touch a single-digit figure by this month end, in view of consistent decline in year-on-year inflation since October 2008. Year on year inflation came down to 11 percent last month. CPI non-food saw a slippage to 10 percent year-on-year in October 2009 as against 19.7 percent in October 2008. It seems that economic managers are ready to inject low cost funds in the economy in coming months and they are convinced to base policy decision on other indicators besides inflation.

Federal minister for finance Shaukat Tarin in a televised press conference recently said that inflation would not be sole determinant of interest rate in future. Many against single criterion of setting benchmark discount rate would have welcomed this statement. And, even if inflation remains stagnant, downward revision of interest rate seems inevitable to get economy out of stabilization mode.

Restraining liquidity is perhaps no more a measure as funding limits to various banks have increased, albeit exporting industry is a focus. As compared to last fiscal year, refinancing limit to exporters has been increased 58 percent in the current fiscal year. Funds under export refinance scheme is on concessionary markup, therefore they are not affected adversely of increase in lending rate. This measure will not give a boost to private sector credit across the board unless markup concession is given to all rather than to exporting industry alone. A level playing field is ensured indeed by bringing down interest rate to below 10 percent. That whether this will give rise to investments remains to be seen.