Tag Archives: governance

Oil tankers in the port city of Karachi. (Photo: The Asian)

There is an economic paradox in Pakistan: despite instability, corruption, lack of governance, and severe and growing macroeconomic imbalances, the private sector remains buoyant.

In his recent testimony before the Senate Finance Committee, the Governor of the State Bank of Pakistan painted a bleak picture of the country’s macroeconomic situation. Under the current government, the national debt has doubled to $131 billion, according to the Secretary of Finance, driving increasing inflationary pressures.

However, even in the face of this worrying news, Pakistan’s business community remains confident. The Overseas Investor’s Chamber of Commerce, a body representing 105 foreign companies that invest in Pakistan, recently released a member survey in which foreign investors termed doing business in Pakistan “highly risky”, mainly due to volatile situation in the country, especially in the port city of Karachi. Despite this, respondent have indicated that they will continue their operations and majority of them have expansion plans in the next two to three years. Perception and Investment Survey 2011 suggests that 85 percent of the respondents perceived an increase in sales and 66 percent expected rise in profits.

The OICCI president commented that “The survey findings should be taken seriously, as they represent the collective voice of foreign investors who play a leading role in Pakistan’s economic growth by contributing about 22 percent of the total tax collection and 29 percent of the GNP.”

The survey showed that investors viewed the government’s policies as business-friendly, but also indicated issues with implementation of these policies. It also noted the bottlenecks in tax policy and refund claims, which continue to negatively impact investors despite regular engagement with the authorities concerned to resolve these issues. Foreign companies were particularly concerned with intellectual property rights enforcement, which is considered a significant roadblock especially for firms in high-growth, high-value added industries such as media, software, and high technology.

The current government has also halted the reform of the corporate boards of state-owned enterprises, which comprise a large part of Pakistan’s economy and drained $2.5 billion from the 2010-2011 state budget. Economic pressure will continue rise as large IMF loans come due. Even though these loans were made on concessional terms, they still represent a huge burden on Pakistan’s external debt, which the IMF expects to increase by $2 billion in 2011-2012 and top $72 billion by 2015-16. Scheduled payments on IMF loans will also increase from $1.2 billion in 2012 to $4.3 billion by 2014, placing a further burden on the Pakistani government and economy.

In addition to law and order, energy supply, political stability, the economic challenges facing the next government will be gigantic and will require careful and pragmatic approach toward economic reforms in the country, not only to encourage multinational companies to continue operating in Pakistan but also to incentivize Pakistani businesses to expand, create job opportunities and contribute in the economic growth of the country. For this confidence building measures such as improving governance and transparency in state owned enterprises, reduction in government expenditure, improved tax structure to ensure significant reduction in tax evasion and minimal intervention in the private sector business will be essential ingredients.