Difficult times when the country's economy was on the brink of collapse had passed and the leadership of President Pervez Musharraf had made Pakistan an economically stronger and politically stable place. Reforms introduced had started yielding results in terms of improved macro-economic environment and acceleration in growth.
Industrial sector was growing in the range of 16 to 18 percent per annum and GDP was likely to grow around 7 percent this year. All of this marked a sharp improvement from the difficult and testing times of the past when the country's economy was highly vulnerable to external shocks.
Pakistan had almost lost its financial sovereignty with international rating agencies downgrading it to a selective default level and rising debt burden, declining investment and decelerating growth were three major challenges facing the country by the end of 1990s.
Consistent efforts during the last five years have laid a strong foundation for the economy which is now set to grow more vigorously (8 percent per annum) with private sector playing the lead role. In fact, the economy is healthier today than ever before; economic policies are consistent, transparent and predictable. Expatriate Pakistanis have gained confidence in the economy and are bringing their capital back. Stock market and telecom sectors are booming, current account balance is in surplus and foreign exchange reserves are sufficient to provide cover to nine months of imports.
Country's debt burden had not only declined but was fast approaching to sustainable level and both S&P and Moody's had upgraded Pakistan's rating several notches during the recent years. As for the future, the government's reform agenda will now concentrate on strengthening institutions, improving competitiveness of industries, building a robust financial system, further strengthening of tax administration, promoting transparency in policy making and strengthening the country's physical and human infrastructure.
These second-generation reforms were needed to achieve a 7-8 percent growth on a sustained basis. Also, the challenge was how to translate the recent gains in the economy to improve the living standards of the common man and reduce overall social gap.
Inviting the Saudi businessmen to make a contribution as well as benefit from the country's growing economy, the Prime Minister referred to the immense investment opportunities offered by an aggressive privatisation programme and a market of 150 million people with a growing middle class. Pakistan's trade regime was highly liberal and open, the average traffic rate was only around 11 percent and there was no exchange control of any sort.
All economic sectors were open for foreign investment, foreign equity up to 100 percent was allowed, foreign private investment was fully protected and there was no restriction on remittances of profits, dividends, royalty and technical fees. Oil & gas, IT & Telecom, agriculture, tourism, chemical and engineering were some of the exciting areas of Pakistan's economy. Gwadar seaport had been completed and special economic zones adjacent to the port were being developed. A textile city in Karachi was being established. Relations between India and Pakistan were also improving.
There is no doubt about the eloquence and skill of the Prime Minister to plead Pakistan's case for increased flow of foreign investment before a distinguished group of financiers and he seemed to have done particularly well this time by selecting and emphasising the most appropriate theme for the occasion.
Investors have generally a long-term perspective and are attracted towards a place where their capital is safe and the returns are high and that is possible only in a booming economy. Shaukat Aziz did not spare any effort to assure the audience that Pakistan is a place which deserved to be looked at seriously for investment purposes.
This definitely was the need of the hour because of very poor economic performance in the past, particularly in the external sector and the old perception needed to be dispelled by a forceful defence of the present policies, their outcome and by presenting the future strategy of the government. A closer and comfortable relationship with India, which Shaukat Aziz mentioned in his address was of special importance because continued tension between the two neighbours had been a major factor in impeding the flow of investment in Pakistan in the past.
However, this was not the first time for the Prime Minister or the President to woo foreign investment by citing all the favourable factors in a persuasive manner. Such an effort has been made a number of times in the past but the results have been poor as evident from the total inflow of foreign investment which has not shown a marked increase and remains meagre compared to some other countries like India and China.
This shows that something more needs to be done to impress the foreign investors. Clearly, the law and order problem in the country and lack of good governance continues to be a major concern. Cost of doing business is still very high.
Energy and transportation costs are not only too high but are invariably associated with low quality of service. The government is yet to find a remedy for red tape that entrepreneurs have to confront at every step. It is apparent that efforts to portray Pakistan as a land of opportunity would remain largely unsuccessful if there is no quick redressal of their difficulties on the ground. Also, we would have preferred if the Prime Minister had not gone overboard in trying to convince the foreign investors.
For instance, his statement that current account balance was in surplus is no more correct. According to State Bank's latest data, it was in deficit during July-December 2004. Also, expatriate Pakistanis are not bringing their capital back into the country because they are gaining confidence in the economy but mainly due to apprehensions about the safety of their funds abroad after the events of 9/11.
Anyhow, we feel that it is more important to remove real domestic constraints on the flow of foreign investment than the use of persuasive skills, which can have only negligible impact.