SIFC and Pakistan’s future

Pakistan’s economy has witnessed several challenges in the past few years. The country was on the verge of default up until a few months back. Some quarters blame the PDM’s coalition government for edging Pakistan to default. Others put the responsibility on the PTI government for reneging from its commitment to the IMF.

Although the immediate threat of default has been averted, a lot is yet to be done. Political stability, in the interim setup, is better compared to the preceding governments. The role of the SIFC and the military leadership’s active participation therein and its impact on the future of Pakistan require further analysis.

Economists Daron Acemoglu and James A Robinson in their book ‘Why Nations Fail’ cite the example of a few countries where the respective economies prospered despite the absence of fully functional democratic institutions. The past and present political systems of China, South Korea – under the leadership of General Park Chung Hee – and Singapore – in Lee Kuan Yew’s era – have witnessed economic advancement despite these countries not meeting the yardstick of Westminster’s democracy.

Contrary to this, many nations under democratic rule do not meet modern economic standards. Pakistan ranks low in Ease of Doing Business. Political instability, red-tapism, unskilled labour, bureaucratic inertia, corruption, and unideal situation of enforcement of contractual rights and obligations are a few reasons for the country’s low ranking.

With a high-powered executive body such as the SIFC in place, the foregoing challenges can be mitigated. Investors will not have to navigate through the cumbersome process for setting up the shop. The SIFC’s committees have been carefully formed with the objective of the seamless implementation of goals.

Unfortunately, the 18th Amendment – enacted in 2010 – has not delivered the desired results. With 60 per cent of tax receipts going to provinces, the federal government resorted to heavy borrowing to meet its budgetary targets. The SIFC aims to bolster FDI, which cannot be translated into reality without restoring the confidence of investors in the entity called Pakistan.

Stringent measures – for example, the crackdown against foreign currency hoarders, commodities hoarders, increase in tax receipts, crackdown against petroleum products’ smuggling, crackdown against commodities’ smuggling and the mass exodus of illegal migrants in the country – have reaped positive results. Investor confidence, after the formation of the SIFC, is reflected in the performance of the Pakistan Stock Exchange.

Agriculture is one of the top priorities of the SIFC. I had the opportunity to call upon the Uzbek ambassador to Pakistan, back in 2018, who confided that the per-hectare agricultural yield of Uzbekistan is twice as much as Pakistan. Modern agricultural practices are not followed here due to a host of reasons. Pakistan presently is better positioned for corporate farming compared to agro-industry.

Apart from raw material suppliers, a huge employee base and product buyers, industries have to deal with a dozen different government agencies. However, a farmer primarily engages with the provincial revenue department alone.

With millions of acres of cultivable land in Pakistan, corporate farming will not only ensure food security in Pakistan but also export surplus produce to the GCC and other countries. India, the largest exporter of rice, imposed a moratorium on the export of non-basmati white rice in July, which spiralled the global prices of rice. Pakistan is poised to fully capitalize on the opportunity accentuated further by the fact that a good yield is expected this year.

The United States Department of Agriculture (USDA) has projected that Pakistan’s rice exports will jump 40 per cent to 4.8 million tons in the current fiscal year, fetching an additional $1.0 billion in exports. Pakistan is expected to have rice production of 9.0 million tons in FY2024, significantly higher than the output of 5.5 million last year due to devastating floods.

Pakistan’s entry in new markets – Mexico and Russia – is also anticipated to have a positive impact on Pakistan’s GDP this year. The agriculture sector is projected to play a significant role in achieving the target of 3.5 per cent in 2024. With the expansion of Pakistan’s cultivable area (extensification) through corporate farming, an increase in oilseed production is foreseen which will have a positive impact in terms of foreign exchange savings.

The IT sector is also one of the focal areas of the SIFC. The government’s recent decision to allow IT companies to retain 50 per cent of their foreign exchange proceeds to service their subscription and other payment requirements is expected to have a positive impact on IT receipts. The government is also vying to ensure the availability of PayPal and Stripe payment gateways services in Pakistan.

The SIFC’s role in curbing smuggling, foreign exchange hoarding and a host of other steps, in turn addressing the concerns of the FATF, has made the ecosystem of Pakistan conducive for PayPal and Stripe gateway services in the country. The availability of international payment gateways will give an immediate impetus to the freelancing community, which consequently will scale up foreign remittances in the country.

The SIFC’s focus on the energy sector is expected to increase FDI in this sector. The setting up of refineries will make Pakistan less dependent on imported refined petroleum products. Pakistan has a massive potential in renewables, which will be further augmented by corporate farming. Biomass production will increase in the backdrop of expanded corporate farming that will help alleviate the country’s energy woes.

Power generation through clean energy sources will help face the climate challenge as well. The looming situation of smog in Punjab will also be partly eased by corporate farming.

The SIFC’s role in mines and mineral development will hold sway in growth of Pakistan’s GDP. With almost one-window operations under the auspices of the SIFC, improved law-and-order situation and an enabling environment for investors, the mineral sector is also anticipated to witness foreign investment.

The demand for lithium, against the backdrop of the popularity of EVs in the global market, has witnessed unprecedented growth in the past few years. The global lithium market is expected to grow from $65.9 billion in 2021 to $273.8 billion by 2030, at a compound annual growth rate (CAGR) of 19.3 per cent.

Gilgit-Baltistan and Balochistan are known to have lithium deposits. The role of the military in the SIFC is a positive indication for foreign investors because the challenge of law and order can only be met by the Pakistan Army.

Growth in Pakistan’s GDP will create fiscal space for education, healthcare and spending in other social sectors, which will empower people with an informed decision-making process.

The SIFC’s active participation in economic decision-making followed by an effective implementation mechanism, with a sense of collective responsibility, will eventually strengthen the political and democratic institutions of Pakistan.

The writer is a freelance

contributor. He can be reached at: awais_anwer1@hotmail.com