Ayesha Mudassar

Pakistan’s total investment-to-GDP ratio has hit a record low of 13.5% in the outgoing fiscal year 2022-23, with the financial sector experts attributing this decline to concerns about sovereign default, uncertain taxation policies, restrictions on the outbound repatriation of profits and continuing political tensions. The State Bank of Pakistan (SBP) reported that the investment-to-GDP ratio remained at 15.4% in 2018-19, 14.7% in 2019-20, 14.4% in 2021-22, and 15.6% in 2021-22. As per the SBP estimates, Foreign Direct Investment (FDI) decreased by almost 29% in April and 23% in the first 10 months of the current fiscal. According to Mohammad Habib, Chief Executive Officer of Pakistan Business Council, the gigantic decline in profits and dividends has discouraged foreign investors, and it may take years to restore their confidence. The profits and dividends on foreign investments declined by 83% in the first 10 months of the current fiscal year, according to SBP data.

Speaking to WealthPK, Additional Secretary Board of Investment Ambreen Iftikhar said that in 2021, South Asia received foreign investment of $175 billion, out of which only $2 billion were invested in Pakistan. “The factors contributing to the declining foreign investment include high production costs, regulatory obstacles, and depressed business confidence,” she added. The data reveals that fixed investment as a percentage of GDP declined from 14% to barely 11% during the first 10 months of the current fiscal. Private investment also witnessed a major drop, decreasing from 10.5% to 8.8% of GDP. Furthermore, public sector investment as a percentage of GDP reduced from 3.5% to 3.1%, below the target of 3.3%. Low investment rate is hampering efforts to achieve inclusive and sustainable economic growth for Pakistan as it has limited the government's ability to address infrastructure and social sector issues, leading to increased reliance on loans.

Experts believe that macroeconomic stability is a prerequisite for fostering an investment-friendly climate in the country. Ensuring robust external sector liquidity, improving sovereign credit rating, and incentivising firms with high-growth potential are necessary to attract investment. President of Lahore Chamber of Commerce and Industry, Kashif Anwar, emphasises the need for effective implementation of the “Investment Promotion Activity” initiative, as it envisages easing regulatory obstacles to improve the investment climate in the country. This initiative was launched by the Lahore chamber in collaboration with USAID towards the end of 2022 to help foster investment in Pakistan. BOI additional secretary Ambreen Iftikhar believes the board’s “Invest Pakistan Initiative” has the potential to transform Pakistan's investment landscape.

Credit : Independent News Pakistan-WealthPk