LAHORE, Aug 19: Pakistan must continue to attract substantial foreign direct investment (FDI) in order to finance its ever-expanding current account deficit, failing which will result in slowdown of economic growth, Dr Salman Shah, adviser to the prime minister on economic and financial affairs said on Saturday. He said that devaluation by Re1 will cost Rs35bn to the national economy.
“It is of critical importance for us to continue to lure considerable amount of FDI if we wish to maintain the current momentum of economic growth. Right now, there is no problem as we are getting sufficient FDI and considerable foreign exchange in the shape of remittances to bridge the current account deficit. But should we falter in attracting substantial FDI in future, we shall have to resort to the harder choices of either devaluing the currency or hiking the interest rates or using our foreign exchange reserves to cover the yawning current account deficit,” he added.
Pakistan’s current account deficit swelled to $5.5 billion in the FY06, and was financed through FDI of $3.5 billion, which included $1.5 billion privatisation proceeds and $2 billion green field foreign investment.
However, Dr Shah was hopeful that Pakistan would receive additional remittances this fiscal compared to the last year because of the ongoing oil boom in the Middle East as well as will manage to attract FDI to the tune of $6-7 billion in line with its potential, he told a small gathering of traders and businessmen at the Lahore Chamber of Commerce and Industry (LCCI).
Dr Shah, who visited the LCCI in order to sell the economic and financial policies of the government and to motivate them to invest in the economy, was given a cold shoulder by industrialists and exporters, who stayed away from the meeting. His presentation on investment was attended by only a few businessmen and small traders, and the LCCI management had to call in its employees to fill in the vacant chairs.
“Dr Shah has nothing new to say or offer to us,” a leading exporter of garments told Dawn over telephone when asked as to why his community had stayed away from the meeting. “Most businessmen, just like me, were well aware of what he was going to say. They (the government) don’t care a fig for us. That is precisely why exporters and manufacturers stayed away from the meeting, choosing to give their precious time to their business instead of wasting it in listening to Dr Shah’s sermons and claims.
In his presentation, prepared for briefing foreign investors on Pakistan’s economic potential to lure them into investing in the GDRs (Global Depository Receipts) of OGDC--the government intends to list on the London Stock Exchange--Dr Shah gave an overview of the economic, financial and other reforms and policies framed in the last seven years, the success achieved, and future strategy for maintaining the present momentum of growth in the country.
While dilating on the economic successes of the government, the adviser also conceded that the country needed to quickly increase exports to 15 per cent of the GDP from the current 12-13 per cent, raise its revenues as percentage of GDP and enhance savings rate to 25 per cent from the present 16 per cent in order to strengthen the national economy.
The adviser told his audience that the government planned to issue GDRs of 5-10 per cent shares of OGDC for the international investors. He said Pakistan had never been active in the international equity market in the past. “But if Pakistan has to grow at the pace at which it is growing now, we will soon be a major economy. This will require discarding the traditional sources of finances like the Asian Development Bank and the World Bank and look to international capital markets and investors for meeting our financial requirements,” he said.
Urging the local businessmen and investors to invest in different sectors of the economy, he said local and foreign investment was needed to maintain the current GDP growth rate of 6-8 per cent, create millions of jobs and alleviate poverty. “Any future plan we have for the country’s economy has to be driven and implemented by the private sector. The private sector has to be the engine of growth,” he added.
He said Pakistan offered excellent opportunities of investment to both local and foreign investors. “We are a big economy of 160 million people with GDP of $135 billion and per capita income of $846. Private consumption in Pakistan is leading the aggregate demand and a large consumer market is emerging, he said adding the country was fast becoming a regional trade, energy and transport corridor for Asia. There are lots of opportunities for the investors to invest and make money.
He said the acquisition of Union Bank Limited by Standard Chartered Bank was a welcome sign for the economy as it reflected a confidence of international financial institutions and investors in Pakistan’s economy and would help improve the banking and financial services.
In response to demands for devaluation, Dr Shah said if the Pakistani currency was devalued by just Re1 against dollar, it would result in an additional burden of Rs35 billion on the economy as the country’s total external debt stood at $35 billion. “Devaluation is not advisable if we want to maintain stability,” he said. He advised the businessmen, particularly exporters, to enhance their competitiveness by increasing their productivity, becoming efficient, and cutting unnecessary costs instead of calling for depreciation of the currency.
“Stop looking towards Islamabad, and start looking for markets and becoming more productive and efficient,” he told the businessmen.
