Pakistan’s newfound economic fortune | Political Economy | thenews.com.pk

Pakistan’s newfound economic fortune

The 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 Special Investment Facilitation Council (SIFC)

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.

Bilateral Investment Treaties (BITs)

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.

Challenges and Concerns

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.

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.

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.

The Sustainable Development Goals (SDGs)

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

SDGs, Targets, and Indicators Analysis:

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 16: Peace, Justice, and Strong Institutions

The article discusses Pakistan’s economic fortunes and the establishment of the Special Investment Facilitation Council (SIFC) to attract foreign direct investment. These issues are connected to SDG 8, which focuses on promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. The article also mentions investment in infrastructure development, which aligns with SDG 9’s target of building resilient infrastructure, promoting inclusive and sustainable industrialization, and fostering innovation. Additionally, the involvement of a hybrid civil-military forum in the SIFC highlights the importance of strong institutions and peace, which are part of SDG 16.

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries.
• SDG 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation.
• SDG 9.1: Develop quality, reliable, sustainable, and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being.
• SDG 16.6: Develop effective, accountable, and transparent institutions at all levels.

Based on the article’s content, the targets mentioned above can be identified. The article discusses Pakistan’s aim to attract over $100 billion in investment over the next five years, which aligns with SDG 8.1’s target of sustaining per capita economic growth. The establishment of the SIFC and its focus on infrastructure development and innovation also align with SDG 8.2 and SDG 9.1. Furthermore, the article highlights the need for clear and accountable governance structures, which relates to SDG 16.6.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Gross domestic product (GDP) growth rate
• Investment inflows
• Infrastructure development projects approved
• Ease of doing business index
• Transparency and accountability measures implemented

The article mentions Pakistan’s aim to achieve a higher GDP growth rate through attracting investment, which can be used as an indicator to measure progress towards SDG 8.1. The approval of infrastructure development projects by the SIFC can be used as an indicator for SDG 9.1. The improvement in ease of doing business, facilitated by the SIFC, can be measured using relevant indices. Additionally, the implementation of transparency and accountability measures can be monitored to assess progress towards SDG 16.6.

Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: thenews.com.pk

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