Powered by the China-Pakistan Economic Corridor projects, particularly in energy and infrastructure, Pakistan’s investment scene may be preparing to pick itself up, albeit slowly.

Total investment is estimated to have inched up to 15.8pc of GDP during the current year compared to last year’s 15.6pc, although the current year’s target of 17.7pc was missed by a wide margin.

Fixed investment also increased slightly to 14.2pc of GDP against 14pc last year, staying significantly behind the target of 16.1pc.

Although a proportionate increase has not translated into an overall investment rate, the sliding investment-to-GDP ratio has not only been arrested but has also inched up

The country has been a low investment-low saving trap for quite a few years and even higher rates achieved in the past could not be sustained in the long run.

Pakistan’s investment climate has been under clouds in recent years as the investment-to-GDP ratio declined and the overall global investment flows also fell.

More steps are needed to restore investor confidence. Privatisation — a key area of private investment — has been on a standstill after the government moved, rather half-heartedly, to get rid of loss making entities like the Pakistan Steel, Pakistan International Airlines and power sector companies, owing to political expediency.

Privatisation could have triggered domestic contribution instead of just facilitating Chinese investment because it is not unrealistic to expect quality foreign investment in the current environment — one which is tilted towards one side while local private investment is sluggish.

Pakistan’s domestic savings rate — stuck at around 10pc of GDP for the last decade — has also limited the scope for increasing investment. Public investment was constrained by the limited fiscal space owing to low tax revenues, high current expenditures and loss making entities.

A report last week by the United Nations Conference on Trade and Development noted foreign direct investment to Pakistan rising by 56pc last year because of large amounts of foreign funds flowing to CPEC related projects.

Although a proportionate increase has not translated into an overall investment rate, perhaps mainly because of lag impact, the sliding investment-to-GDP ratio has not only been arrested but has also inched up.

This should be taken as a positive sign to build upon with better savings rates for sustainable economic growth and avoid entering a boom-bust cycle.

During the current year, major improvement was witnessed in PSDP investment and general government spending as it increased to 4.3pc of GDP compared to last year’s 3.8pc — well above the target of 3.9pc of GDP set for the current year.

Sadly though, private sector investment during the current year went down, partially because of the crowding out factor by the government for budget financing. Private investment dropped to 9.9pc of GDP against 10.2pc of last year and missed the target of 12.2pc.

The planning commission believes that the economic activity in infrastructure, construction, transport, energy and allied sectors provided a favourable environment for growth and encouraged investment in the country.

Since 2010-11, investment to GDP ratio has increased by 1.09 percentage points: derived both by public and private investment. It said that private investment has the potential to grow more due to the expected investment in CPEC related activities.

Therefore, the target for the total investment-to-GDP ratio has been kept at a significantly higher level of 17.2pc for next year (2017-18). This is even lower that the 17.7pc target set for the current year. Yet, the government sees the aim for next year as realistic and important to achieve sustained and inclusive growth.

The target for fixed investment has been set at a realistically lower level of 15.6pc of GDP for the current year given the ambitious target of 16.1pc was earlier missed significantly.

Public investment including general government has also been rationalised at 4.5pc while private investments are projected to grow to a healthy rate of 11.2pc — up almost 1.3pc.

National savings remained at 13.1pc of GDP as against the target of 16.3pc, according to the planning commission as consumption grew by 10.3pc in 2016-17 from 6.3pc in 2015-16 leading to sub-par growth of savings, given the inverse relationship between the two.

National savings have not been increasing at the same pace at which the middle class is growing. The planning commission expects this to pick up in-line with consistent growth in the industrial sector, increase in private sector credit and expected completion of early harvest CPEC projects.

According to the planning commission, the investment target is achievable given improvement in ease of doing business, affordable energy supply, reduced political uncertainty, prospects of higher profit and enhanced capacity utilisation rate.

Investment under CPEC is expected to improve the overall investment climate. The spill-over effect from public investment under CPEC is expected to catalyse the private sector and foster public private partnership.

Moreover, the lagged impact of current investments, including CPEC investments by the government and private local and foreign investors, coupled with a prudent monetary and fiscal policy, is expected to bolster the economy, the planning commission believed.

Published in Dawn, The Business and Finance Weekly, June 12th, 2017