THE GDP growth target set in the FY16 budget appears achievable. But it might not be driven by the reluctant private sector, which finds the business environment not yet congenial for long-term investment in industry.

Like the outgoing year, the government would probably be a bigger investor, aided by Chinese investment inflows under the China-Pakistan Economic Corridor (CPEC). But at this point of time, private investment seems unlikely to pick up pace as the business class is not particularly enthused by the budgetary measures.

“I expect the idle private capital to flow into trading, real estate and construction but not towards industry. The government’s intent, reflected in the budget, disappointed us. It did not broaden the tax base. The current tax regime burdens us unfairly. It did little to bring the cost of doing business down to make trade viable, and it did not commit to immediately clearing tax refund claims,” a top tycoon who did not wish to be identified told Dawn over phone from Lahore.

“They talk about the market economy but are not inclined to treat the private sector as the ‘engine of growth’. I believe they like to do everything themselves in their own way. They wield power and they set the direction, which, in our opinion, is not right,” another embittered businessman commented.

According to the Pakistan Economic Survey 2014-15, released last Thursday, total investment in the country was 15.5pc of GDP this year. The share of public investment was more than double that of the private sector. The survey also revealed that the growth in public sector investment was reported to be 25.5pc, against the 9.6pc rise in private sector investment.

Privatisation Commission Chairman Mohammad Zubair defended the government, which, he said, was committed to generating space and facilitating the private sector to actively partake in the country’s development. He admitted that the low private sector investment poses a challenge that the government is trying to handle.

“The budget is loaded with pro-business measures. A three-year tax holiday has been announced for investment in Khyber Pakhtunkhwa. Irritants have been removed to promote trade with Afghanistan and Central Asian countries; a Rs64.1bn textile package has been announced; and there are multiple incentives for investment in the agriculture supply chain etc. But broadening the tax base is easier said than done.”

Regarding the investment trends in the outgoing year, he said “this is worrisome. We would like to reverse it. In the days and weeks ahead we will engage the private sector and do all in our reach to persuade them to invest, as Pakistan’s future holds the promise of very high returns”.

Zubair was not able to explain the harsh reaction of the business community — which is perceived as the PML-N’s prime constituency — to the budget.

Former finance minister Shaukat Tareen was apprehensive. “There is a spattering of incentives to improve the investment-to-GDP ratio from 15.1pc to 16.5pc, but I do not see a major surge. There is no target plan in the budget to improve the performance of manufacturing or agriculture. And no measures were introduced to push banks to lend to the private sector rather than investing in PIBs,” he said.

“Well, I don’t think investors would like to anchor in KP given the current security situation. Trading is much safer and highly rewarding, and industrialists are fast switching to it. With the GIDC and the creeping petrol price increases, the cost of doing business was jacked up even before the budget,” commented Majyd Aziz, a business leader of Karachi.

“The infrastructural bottlenecks are not permitting the full utilisation of installed capacity. Who in his right mind would want to expand in this environment?”

Dr Hafiz Pasha, who headed the country’s economic team in the past, doubted the reported 15.1pc rate of investment during 2014-15.

“It is sad that successive governments have so easily resorted to creative accounting practices to create illusions. I believe the investment figures in the Pakistan Economic Survey are exaggerated. Allocation figures were used to calculate public investment instead of actual disbursement, which was 20pc lower according to the government’s own commission,” he pointed out over phone from Lahore.

“Except for energy, oil and mining, I do not see any balancing, modernisation and replacement (BMR) or any major private sector project coming up anywhere in the country. Weary of coping with threats to life and property, people are relocating and shifting their surplus funds abroad,” another business leader of Karachi told Dawn.

“With a pro-business party in power that directed the economy out of a difficult spot, low oil prices bringing inflation down to record low levels, and the rising economic giant willing to help Pakistan, everything is set to take off,” a pro-government businessman tried to make a case.

“The recovery, which is based more on exogenous factors such as low oil prices and donors’ generosity, is not dependable. Its quality and sustainability will depend on business sentiments and the private sector investment,” an expert remarked.

Published in Dawn, Economic & Business, June 8th, 2015

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