Zina Kumok
Updated on: October 13, 2024 7:00 am GMT
The alarmingly low domestic investment in Pakistan is casting a shadow over its economic landscape, raising concerns among both local and foreign investors. The Ferozepur Road Industrial Association (FRIA) has called on the federal government to improve governance and transparency to provide a more stable environment for investment. With the country struggling to achieve even a modest growth rate, stakeholders believe that immediate reforms are crucial for economic recovery.
Challenges in Domestic Investment
The sentiment surrounding domestic investment in Pakistan is increasingly concerning. Shahbaz Aslam, the senior vice chairman of FRIA, highlighted that the current investment levels send a negative signal to potential foreign investors. He noted that a lack of government responsiveness to the private sector’s needs exacerbates the situation.
Aslam emphasized the urgent need for government strategies that do not only focus on short-term fixes but also encompass a long-term vision for sustainable economic growth. His calls come in the context of Pakistan’s broader economic difficulties, which have been compounded by ongoing political unrest and governance issues.
Key Issues Affecting Investment
According to Aslam, several structural issues are holding back Pakistan’s economic potential:
- Poor governance and a broken judicial system
- Outdated laws and a complicated tax system
- Lack of transparency within government operations
- Ineffective bureaucracy and duplicated governmental processes
- Underutilization of human, natural, and water resources
- Inadequate data for effective planning
- Frequent policy execution flaws
These factors contribute to a low Gross Domestic Product (GDP) growth rate, which has historically remained below its potential. Aslam pointed out that the country’s reliance on borrowing and foreign aid to close fiscal gaps is unsustainable, especially given the rising burden of national debt.
The Call for Immediate Reforms
In light of these challenges, Aslam urged the government to implement a clear and robust economic strategy. He outlined two critical actions that could lead to a turnaround:
- Immediate Freeze on Borrowing: Stopping both domestic and foreign borrowing could help stabilize the economy.
- Promote Transparency: Establishing transparent governance could cultivate investor confidence.
Aslam stressed that the current debt levels are alarming, with the government consistently spending more than its revenue. This has led to increasing reliance on both internal and external debt solutions.
Concerns Over Monetary Policy
Aslam further criticized the State Bank of Pakistan (SBP) for maintaining a tight monetary policy, which he argues discourages investment and production. He pointed out that the current policy rate, driven by directives from the International Monetary Fund (IMF), has made borrowing increasingly expensive, particularly for small and medium enterprises (SMEs), which already face challenges in accessing credit.
He expressed skepticism about the effectiveness of high-interest rates in controlling food inflation, noting that increases in interest could further inflame costs for businesses that are already struggling with rising commodity prices and a depreciating rupee.
Economic Stress and Inflation
The economic stress faced by Pakistan is evident, particularly in rising inflation, driven by global price pressures and local currency decline. High-interest rates reportedly reduce the economy’s capacity to absorb additional costs, straining businesses already challenged by existing financial burdens.
Aslam described inflation in Pakistan as “cost-push,” largely due to external market pressures and the unstable exchange rate. This volatility only complicates the landscape further, making it difficult for businesses to plan effectively.
Looking to the Future
As Pakistan grapples with these economic concerns, the path forward remains uncertain. Aslam believes that the timing is critical for the government to address these issues. Stakeholders in the business community are urging the administration to create a more conducive environment for both local and foreign investors.
The FRIA is advocating for a policy shift that prioritizes long-term economic stability over short-term gains. Addressing the outline of governance and transparency can help rebuild trust among investors, which is essential for attracting the necessary capital to spur growth.
Conclusion
Pakistan’s economy needs quick action from the government to fix some long-standing problems. The FRIA suggests that better governance and smart investment plans are important. For Pakistan’s economy to thrive, it must have strong policies and a clear, welcoming environment for businesses. If these changes don’t happen, Pakistan might struggle to grow, making both local and foreign investors nervous about putting their money into the country.
