Pakistan's economy is today confronted by severe threats, the greatest which is our fiscal instability and the country's alarming dependance on loans. Debt and liabilities amount to over two percent of the GDP, which is expected to accumulate in the coming years in the absence of corresponding revenue increase and cost management. Pakistan obtained record high $10.1 billion in foreign loans during 2016-17, primarily to repay old debts and support its foreign exchange reserves, after the government's failure to mobilize non-debt-creating foreign inflows. It is reported that about 37 percent or $3.9 billion of the total external borrowing, is from China, which includes $2.3 billion in commercial loans and another $1.6 billion under bilateral economic assistance. About $4.4 billion of these loans were used in external debt servicing. The $10.1 billion loans were 26.3 percent ($2 billion) higher than the government's own estimates which it had placed in the parliament in June last year. Out of this, $2.3 billion came from Chinese financial institutions, $445 million from Noor Bank of the UAE, $650 million from a consortium of Suisse Bank, UBL and ABL, $275 million from Citibank and $700 million from London's Standard Chartered Bank.

Inefficiency in public-sector enterprises continues to consume the loans, instead of generating revenue to pay them back. Unless companies like Discos are set right, fiscal losses and circular debt will continue unabated. The government also failed in the privatisation or restructuring of these companies

In 2017, Pakistan became a $300-billion economy after achieving 5.3 percent economic growth, the highest in a decade. However, its exports declined more than 20 percent from the peak and it desperately needs FDI for creation of new jobs.

The UNDP, in its latest issue of "Development Advocate Pakistan on Financing for Development," stated that unless the real sectors are revitalized, growth would remain elusive, unemployment would rise and living standards would decline, and thus the capacity to generate resources for financing development and social protection would remain highly constrained. Pakistan's landscape for Financing for Development (FFD) has not been robust and the macroeconomic indicators show little improvement. With the election years 2007-08 and 2012-13 culminating in a serious economic crisis, Pakistan was forced to approach the International Monetary Fund for a bailout. This renders 2017-18 as "make or break" years for the economy. The report further states that there are two paths available - either consolidate or build upon gains to undertake policy reforms that would help in speeding up economic growth to reach six to seven percent a year; or, fritter away the gains and pursue populist measures, appeasing powerful interest groups, backtracking on reforms and yielding to pressures. A more disconcerting feature has been the setback in Pakistan's market share in world exports.

While there has been overall buoyancy in global markets, Pakistan has lost its share from 0.15 percent to 0.12 percent while its competitors - India and Bangladesh - have more than doubled their shares. Over the last decade, Pakistan's exports have grown by four percent, compared to 12 percent in Bangladesh and 10 percent in India, and are declining for the last two years. Exports used to finance 80 percent of imports in the early 2000s, but this ratio has declined to less than 50 percent in recent years. If Pakistan is able to regain its lost market share in the world market or attain the export/GDP ratio of 10 percent only, it would be able to cut down its external borrowing requirements by at least one half and manage its external accounts without any stress.

Pakistan's public-sector fiscal policy discerned from the fiscal trends has not helped in meeting the objectives of inclusive growth, equity, social protection or environmental sustainability. It has been driven largely by short-term crisis management considerations as the economic managers were faced with persistently high fiscal deficits, and resources had to be found to finance these deficits, said the report. Pakistan's tax capacity is 22.3 percent of GDP, while it is collecting 11 percent. Sales and corporate tax rates can be brought down to provide incentives to the private sector for expansion and new investment if the tax net is widened and eligible taxpayers are brought within it.

Repatriation of profits and dividends, external debt servicing on existing loans and disappearance of Coalition Support Funds inflows would amplify the deficit. Therefore, reliance has to be placed on boosting exports of goods and services and inflows of FDIs.

On the expenditure side, the 18th Amendment to the Constitution and the 7th National Finance Commission Award has exacerbated the difficulties in maintenance of fiscal discipline. While the federal government is saddled with inflexible expenditure items such as debt-servicing, defence, pensions and salaries, it is assigned only 40 percent of taxable revenues to take care of this huge expenditure. The capacity of the provinces to spend is impaired because they have concentrated all administrative and financial authority in their hands, refused to devolve functions of the delivery of basic public services and refused to allocate sufficient resources and powers to the district governments. Pakistan's performance in acquiring FDI has been disappointing. It received $2.41 billion in FDI in fiscal year 2017, up 5 percent, compared to the previous year, but much lower than the record high of $5.4 billion received in fiscal year 2008. FDI from leading western economies has been on the decline in Pakistan for some years. FDI from the UK fell to just $69 million in FY17, down 54 percent from $151 million in the previous year.

About 120 British companies, many of them world renowned, operate in Pakistan in sectors like consumer goods, banking, energy, pharmaceuticals and education.

There is also good news and some opportunities. The Asian Development Bank said on Thursday that Pakistan's economic growth rate for 2016-17 surpassed the estimate that the international lender had projected three years ago.

Another good news is that foreign investors are once again looking at Pakistan largely driven by CPEC, which promises faster connectivity and wider accessibility to markets. This will meet the energy needs of the country and lead to the establishment of over 30 special economic zones all over the country. While large multinational companies from the OECD countries are shying away on account of the growing uneven playing grounds for them in Pakistan, there is a growing interest of small and medium enterprises (SMEs) to enter the Pakistani market through investments, JV, technology transfer and trading.

America's SMEs are trying to invest in Pakistan, giving entrepreneurs here an opportunity to launch joint ventures with them, Stephen P Knode, Commercial Counsellor of the United States, says.

"It will not only provide Pakistan entrepreneurs new technology and capital, but will also open new avenues for export of their products," he said. Additional resources are being invested in helping UK-based companies looking to do business with Pakistan, in line with Britain's commitment to increase trade with Pakistan. A new Deputy Director for Trade was appointed in Islamabad and the trade teams have been increased in both Karachi and Lahore, with an ambition to supporting UK-Pakistan relations across the length and breadth of the country. Matt Lister, Britain's new Deputy Director for Trade, said: "I am really excited and honoured to have been appointed Deputy Director for Trade in Pakistan. Working with colleagues in Pakistan and in the UK, my aim is to fulfil the potential for trade between our two countries identified by the International Trade Secretary. My focus will be to help UK companies increase their trade with Pakistan, or to establish a presence in the market here.

"As Britain leaves the EU our aim is to strengthen Pakistan's access to UK markets. The UK also has an ambition to expand our trade relationships with Pakistan in the future." Director for Trade and Deputy High Commissioner, Belinda Lewis, said. "During their visits over the past year, the Foreign Secretary, Development Secretary and Home Secretary all talked about the potential for the UK and Pakistan to do more trade together. As Trade Director, I'm delighted to see more British companies winning business here, right across a range of sectors.

"With a shared history and shared future, we are well placed to support the increased prosperity of both our nations. The new, and growing British trade team in Pakistan will help deliver the huge potential in the Pakistan market."

Dutch experts will provide free consultancy services to reorganize the SME sector of Punjab on modern scientific lines, said Odulfus Van Summeren of PUM Dutch Foundation. He was addressing at a function in the Faisalabad Chamber of Commerce and Industry (FCCI), which was also attended by Regional Business Co-ordinator Bilal Afzal, Assistant Manager Maqsood Anwar and External Relation Department officer Muhammad Hasnain of SMEDA.

Summeren explained that PUM is a non-profit organization consisting of 3,000 senior experts from 70 different disciplines. After their retirement these experts provide free services to the SME sector for various developing countries. He further said that Pakistan is the 70th target country to which the Dutch experts will provide free consultancy services. He is on an initial visit to Pakistan and during this visit, he said, he will have negotiations with stakeholders to identify the issues faced by the SME sector of Punjab. In this connection, he is visiting the FCCI to identify their issues along with necessary remedial steps needed to facilitate the SME sector. After compiling a comprehensive report, he said, he will recommend PUM to send experts from the related disciplines who could give experts opinions and help SME units to resolve their policy-related and financial issues. He said that the basic objective of PUM is to help the SME sector so that it could contribute by creating new job opportunities. He said that according to his opinion, the non-availability of sufficient capital, low profitability and minimum productivity in addition to high cost of doing business are major problem faced by the SME sector of Pakistan. He said that he would have more discussions with owners of the SME units so that the programme launched by Dutch foundations could be made more productive and beneficial for the SME sector of Pakistan.

The Swiss Business Council of Pakistan, in collaboration its partners in Switzerland, is perusing Swiss SMEs to invest in Pakistan. Over the last two years over six Swiss SMEs have entered Pakistan. In 2017-18 six more Swiss SMEs will have their footprints in Pakistan through investments, technology transfer and joint ventures. The growth of foreign SMEs in Pakistan, especially from OECD countries, is a promising trend, which could bring in a great combination of FDI, technology and foreign branding into Pakistan. CPEC has positioned Pakistan well, economically and politically, and the nation needs to capitalize on the given opportunities.

(The writer is President Overseas Investors Chamber of Commerce & Industry)

Copyright Business Recorder, 2017