he narrative on Pakistan’s economic fortunes seems to have changed suddenly — from a broken and shrinking economy starved of foreign exchange, escalating electricity tariffs, ever increasing petrol prices, rampant inflation and missing sugar — to an almost sudden jubilation of a discovery (perhaps seen previously only in countries that have suddenly discovered oil or gas).

In Pakistan’s case, the flipping of economic narrative seems to involve the newly established Special Investment Facilitation Council— a hybrid civil-military forum — meant to fast-track economic development by harnessing foreign direct investment through bilateral investment treaties, mostly through Gulf Cooperation Ccouncil countries. This platform is now being presented as an innovative idea that has the potential to address the country’s economic and financial woes.

The SIFC has surfaced almost overnight having been established through the Board of Investment (Amendment) Act, 2023. It primarily targets (at the initial stage) investment in nine fields (it is not clear how these priorities were selected) that include defence, agriculture, infrastructure development, strategic initiatives, logistics, minerals, information technology, telecommunication and energy. The SIFC has the explicit mandate to improve ease of doing business by facilitating timely decision making, avoiding duplication of effort, fast tracking investment and project implementation.

Over a relatively short span, the SIFC apex committee has approved dozens of projects. These include Saudi Aramco Refinery, the TAPI Gas Pipeline, Thar Coal Rail Connectivity, 245 MW hydropower projects in Gilgit-Baltistan, handover of 85,000 acres of land to a single (unidentified) investor, the establishment of cloud infrastructure and telecom infrastructure deployment.

The SIFC is, in essence, a vehicle to promote foreign investment through bilateral investment treaties. Prior to the advent of BITs, the only protection for foreign investors globally was the customary international legal rule of minimum standard of treatment and the so-called Hull rule. The Hull rule dealt exclusively with cases of expropriation and, therefore, provided no general protection against discriminatory treatment.

The BITs, on the other hand typically ban discriminatory treatment against foreign investors and include guarantees of compensation for expropriated property or funds, and free transfer and repatriation of capital and profits. BITs and their binding investor -state dispute settlement provision are meant to overcome the dilemma facing host countries who are willing to denounce exploiting foreign investors after the investment has been undertaken. Over the last few decades, BITs have become “the most important international legal mechanism for the encouragement and governance” of FDI.

Despite the large and increasing number of BITs globally, the key question is: do these treaties fulfill their stated purpose and attract more FDI? Generally, the evidence suggests that a country’s power to attract FDI depends on the strength of its economic fundamentals, the political climate and the quality of institutions rather than the creation of a legal structure for protection of the investor. Countries perceived as more risky by investors do seem to attract more as a result of BIT arrangements.

However, this comes at a significant cost. Host countries invest enormous effort in terms of time and scarce resources to negotiate, conclude, sign and ratify BITs and make significant concessions to satisfy the investors. Such treaties represent a non-trivial interference, with complex and binding clauses to satisfy the appetite and concerns of the investors. Virtually any public policy regulation can be challenged through the dispute settlement mechanism agreed under BITs if it affects foreign investors.

Pakistan is eyeing an investment of more than $100 billion over the course of next five years. The amount is not trivial for a country which has received just under $10 billion in the five preceding years.

Handling of legal disputes under BITs can be complex and costly as in most cases resolution of such conflicts is not subject to the standard juridical systems of the parties to the treaties. Rather, it is governed by tribunals or similar bodies specified in the treaty.

Two most important bodies of the type are the World Bank’s private arbitration forum for investment disputes, the International Centre for Settlement of Investment Disputes (ICSID) and the United Nations Commission on International Trade Law (UNCITRAL). Thus, domestic courts and national legal systems are completely marginalised. In most cases, the arbitration process is marked by a relative lack of transparency, with limited public accountability even in cases involving legitimate public interest and having significant public impact.

In a nutshell, BITs seriously restrict the ability of host states to regulate foreign investment. One could even say that, through BITs, developing countries are trading sovereignty for credibility.

With the establishment of SIFC, Pakistan is eyeing an investment of more than $100 billion over the course of next five years. The amount is not trivial for the country that has received just under $10 billion over the five preceding years. Operationalising $100 billion for a country that has been facing a perpetual cycle of balance of payment crisis for more than a decade is not a small feat by any means.

FDIs are non-debt creating flows. However, not all FDI inflows are beneficial for growth and economic development. Pakistan’s long-term development needs to be driven by exports and investment — particularly export-supporting foreign direct investment. FDI inflows do not in themselves promote inclusive growth or support job creation. FDI that allows for technological spillovers, creation of forward or backward linkages is most beneficial for growth and productivity. None of these essential aspects are adequately addressed as part of the narrative surrounding the SIFC.

The SIFC should also not be treated as a vehicle of balance of support (i.e., the difference between money flowing in a country at a point in time and the money flowing out to rest of the world) especially as the planned SIFC projects are leveraging Pakistan’s today and future national assets.

Without a clear redistribution policy, leveraging assets belonging to Pakistan’s future generation is a risky venture. Lack of accountability around the decision-making and limited and opaque information around these projects is another concern. Military oversight itself is not a panacea; a clear and accountable governance structure is, but that is missing.

In other parts of the world, such initiatives would be interpreted as further centralisation of power. Long-term economic policy is not based on good intentions, particularly in a country where public policy is already fraught with decisions that have benefited a few. As a nation, we are perhaps rightly sceptical about the merits of the SIFC given that not much has been done to create local buy-in, conduct local consultations, or lay out clear redistributive polices and accountability structures. Pakistanis must be in the driving seat; they have the right to demand the dividends and must be consulted when their future assets are being collateralised.

The writer is an international development expert with more than fifteen years of experience of working in South Asia, Middle East and East Africa. She can be contacted at Saadia_refaqat@yahoo.com. View expressed in this article are the author’s own