Economic and political turmoil has topped the headlines about Pakistan for the last several months. No wonder Moody’s Investor Service downgraded Pakistan’s risk outlook from ‘stable’ to ‘negative’, citing heightened external vulnerability and the country’s ability to secure additional external financing to meet its needs, and weak institutions and governance strength that add to the uncertainty around the future direction of macroeconomic policy and the current International Monetary Fund (IMF) programme.
But for Mian Muhammad Mansha, one of Pakistan’s most influential businessmen, all these troubles can be overcome provided “we’re able to tell the untold story of the country’s rich, untapped business opportunities, change the world’s perception about us, and convince foreign investors that it’s no longer business as usual to attract foreign direct investment (FDI) to shore up our foreign currency reserves and boost growth.
“Our problems will be solved only when foreign investors start to invest here. You can’t build foreign reserves with exports alone. India has accumulated reserves of $650 billion mainly by attracting FDI.”
In the recent months, Pakistan has witnessed its finances deteriorate as the two-month-old coalition led by the PML-N delayed tough decisions, including reversal of the fiscally unsustainable fuel and power subsidies, for fear of political backlash with Imran Khan’s PTI on roads to secure an early election, as well as heightened uncertainty in the international markets on commodity super cycle spawned by Covid-related supply disruptions and exacerbated by Russia’s invasion of Ukraine.
“You can’t build foreign reserves with exports alone; India has accumulated reserves of $650bn mainly by attracting FDI”
Though a 40 per cent increase in fuel price and a 47pc boost in electricity prices have brought the government a step closer to securing the much-needed agreement with the IMF that will help it access the remaining $3bn of the existing loan and unlock funds from other multilateral and bilateral sources to avert default, the deal is not expected to finalise before implementation of other prior actions in the next budget.
According to prominent economist Hafiz Pasha, the country needs about $37bn in foreign financing during the fiscal year to meet its needs.
Mian Mansha advised the government to close the deal with the IMF, privatise the state-owned enterprises (SOE) that are costing taxpayers up to $3.5bn a year, bring in foreign direct investment, reopen borders with India, boost trade with Afghanistan and beyond, improve the business climate in the country by ensuring policy consistency and build trade infrastructure to put the nation back on the growth track. He is of the view that all these actions need to be taken without delay.
“The government must play on the front foot; business as usual cannot work any longer. These measures are imperative to change Pakistan’s perception as a country where rule of law is respected and investors are protected.
“Reopening trade with India might help Pakistan come off the Financial Action Task Force’s so-called grey list and ease its economic difficulties. If the government has to implement legal, judicial, governance, and other reforms to change Pakistan’s image as an investor-friendly destination, it mustn’t think twice about that,” the chairman of the Nishat Group and MCB Bank told Dawn in an interview.
“Growth comes with perception about the future outlook of an economy. If we change the perception of the country, it’ll change the mindset of (foreign) investors and give us growth next year.
“For once, the coalition (comprising parties with divergent political views) is in power; this affords us a great opportunity to take difficult and longstanding decisions that no single political party has ever been in a position to make on its own.”
Mian Mansha, who has built his vast business empire comprising textiles, banking, carmaking, cement, energy, dairy, agriculture, real estate and other sectors of the economy, strongly believes that the coalition should produce rapid growth through its budget for the next year “without worrying about the fiscal deficit”.
He doesn’t agree with the widely-held view that it will be difficult for the Shehbaz Sharif government to produce a growth budget with its hands tied by the IMF or without creating macroeconomic imbalances.
“My advice to the government is to beg, borrow or steal (dollars) to stabilise the economy and external sector (as quickly as it can), and then move towards rapid growth.
“It has a lot of margin for that. We should know that the IMF suggests what is good for an economy. The IMF doesn’t stop you from growing the economy or reducing tax rates; it looks at the bigger picture and wants you to stop wasting money on unproductive subsidies, or on the loss-making state-owned enterprises, or such things that would create deep macroeconomic imbalances.
“Once the economy starts growing, it will yield a lot bigger tax revenue than you can hope to collect by boosting the tax rates. The deficit will not matter any longer. We mustn’t just look at the budgets; these are just a small part of the economy.
“The bigger economy exists outside the budget and the public sector; we should grow that and tap the hitherto untapped potential of the country and opportunities it offers.”
The government is reported to have pitched the budget deficit target of 4.8pc of the size of the economy or Rs3.77 trillion to the IMF for the next fiscal year, which the multilateral lender wants to be adjusted further through a combination of expenditure cuts and additional revenue mobilisation.
The Fund is also demanding that Pakistan fix next fiscal year’s tax collection target at Rs7.25tr, which will require the imposition of additional taxes of around Rs300bn, including withdrawal of agriculture tax exemptions and increase in the burden on the salaried class, according to a report.
“Just like fuel and power prices subsidies, the SOEs are also a source of distortions in the market and the economy. We should fix these distortions by privatising them. This will not only bring economic dividends for the government but also improve the quality of services being provided to the people, creating goodwill for it. Look at the benefits the privatisation of banking and telecom has brought to people.
“Privatisation will enhance growth, boost taxes, encourage market competition and attract foreign direct investment. Why not privatise now and unleash growth? Why wait? By establishing trade and investment ties with India and privatising public-sector companies we can boost growth and change our perception in the eyes of the world. Unless we show to the world that we mean business, no one is going to come to invest,” he concludes.
Published in Dawn, The Business and Finance Weekly, June 6th, 2022