No shortcuts: The SIFC alone can’t save Pakistan from economic meltdown

Finally, Pakistan has gone through the process of electing a new parliament for the next five years and all provincial and federal governments have been formed and are in place.

Keeping the economic team and financial requirements of Pakistan in mind, the argument under discussion among the country’s business community today is that Pakistan’s newly elected Prime Minister Muhammad Shehbaz Sharif has even fewer options to get the country out of its immense economic crisis and that looking at the Gulf and China can be practical for foreign investment. 

However, this will not be such a trouble-free move because the recently established high powered body, the Special Investment Facilitation Council (SIFC), has still to bring more tangible deals to their conclusion. So far, the only major thing on its roster is the signing with Abu Dhabi Ports group of a 50-year concession deal with Karachi Port Trust for a joint venture that will see an investment of $220 million in Pakistan over ten years.

But a country with such critical accumulation increases of its loans cannot wait around for future investments. Instead, structural economic reforms are the immediate need rather than looking solely at direct foreign investments. This is why PM Sharif has directed relevant authorities to make recommendations for reducing government expenditure and overall reform of the economic system. The foremost move in this regard is the digitization and automation of the Federal Board of Revenue (FBR) to increase revenue collection and prevent tax evasion, corruption, and snubbing smuggling. In this attempt again, Pakistan is looking at friends like the UAE and China to execute their administrative models because both would be leading partners in business activities in Pakistan.

A country with such critical accumulation increases of its loans cannot wait around for future investments. Instead, structural economic reforms are the immediate need.

Shazia Anwer Cheema

According to the IMF’s Public Financial Management (PFM) data, Pakistan’s national budget had PKR7.3 trillion earmarked solely for interest payments which is higher than tax revenue collection of PKR 6.9 trillion. Tax collection in Pakistan is “indirect tax based” which constitutes 60 percent of total tax revenue, or direct taxes (40 percent of revenue), approximately 70 percent of which is derived from withholding taxes. By December 2023, Pakistan’s total debt increased by nearly a quarter year-on-year to Rs 62.48 trillion. 

Global lenders like the IMF, World Bank, and Asian Development Bank have been insisting for a long time that Pakistan’s economy needs “structural reforms” and that is why this subject now becomes the center of economic debate in the country. 

Immediate structural reforms are measures targeted to remove inefficiencies in the economic structure to optimize resource allocation and increase productivity and employment and they can be achieved only through widening the tax net, loading off wasteful government expenditures on unproductive state-owned enterprises like Pakistan International Airlines, Pakistan Railways, Pakistan Steel Mills and protecting domestic industries by reducing the import bill. Shunning off huge state-sponsored Public Sector Development Programs (PSDP) and moving to public-private partnerships is a much needed move to control yearly increases in domestic as well as foreign loans. 

The situation mentioned above is enough to understand that foreign investments alone cannot help Pakistan immediately. The amount received from selling state enterprises can manage debt retirement and salary bills as Pakistan is earning only half of its total expenditure and the rest is met through further loaning each year. 

Pakistan is looking at China and UAE for designing its future economic model and history has testified that these countries have achieved exceptional growth since the 1980’s through self-reliance, minimizing public salary bills, the capacity building of citizens through better vocational skill education, and traditional education institutions. Pakistan cannot take short-cuts to get out of an economic meltdown-- the result of an incompetent half-a-century-governance system. In fact, there are no shortcuts if Pakistan is serious about getting results when it seeks foreign investments through initiatives like the SIFC.

- The writer is an author, columnist, and foreign affairs expert who writes for national and international media. She can be reached at @ShaziaAnwerCh Email: [email protected]