Without structural reforms, SIFC will not succeed
The mandate of Special Investment Facilitation Council (SIFC) neither include institutional reforms nor simplification of procedures despite the acknowledgement that complexity of business regulations and bureaucratic hurdles are the reasons behind dismal state of economy.
Reforms should start from the government departments to create ease for the Pakistani entrepreneurs and improve provision of public services instead of creating new councils and adding more complexities. Creation of a parallel body to expedite the decision making process and requisite approvals may not be a sustainable solution until the concerned government departments are reformed.
PRIME has published its quarterly assessment report, PRIME Plus October 2023, which analyzes the efficacy of the Special Investment Facilitation Council (SIFC), the macroeconomic performance of the country in Q1- FY2024, and potential challenges.
The report scrutinizes the establishment of SIFC which the government has proclaimed as its “Plan B” to overcome the recurring balance of payment (BoP) crises by attracting foreign investment in the country. SIFC has identified projects in 4 sectors: Agriculture, Mining and Minerals, I.T., and Energy. The establishment of SIFC under the umbrella of the BOI with separate management and objectives highlights the acknowledgment of the failure of BOI by the government and the need to have an alternative body.
The report “Prime Plus” concludes that the efficacy of SIFC as a “Plan B” needs to be evaluated meticulously. The inefficiency of BOI has failed to prompt the government towards carrying out institutional and regulatory reforms that have been responsible for the reluctance of foreign investors. The establishment of SIFC indicates that the government has neglected to address the bureaucratic hurdles and associated inefficiencies.
The report highlights that the policy environment of the country is unconducive for business growth. The
frequent changes and the repetition of ineffective policies have weakened the interest
of foreign investors.
The local business community is excluded from the decision-making process and no effort has been made to mobilize domestic resources. The structure and objectives of SIFC are unclear. Moreover, higher involvement of the military in decision-making and implementation will not be help to restore investment climate, which require deregulation and tax reforms.
The country’s economic performance has remained unsatisfactory while external financial obligations continue to mount. Against the target of 3.2 percent GDP set by the government, international financial institutions have downgraded their forecasts to around 2 percent. On the external front, the financial obligations in FY 2024 are around $28 billion. On the domestic front, the government faces a significant financial burden as 79 percent of the expected FBR revenues will be spent on debt servicing while leaving little space to carry out other expenditures.
Inflation continues to remain a challenge and people have experienced an exponential fall in their purchasing power. The CPI inflation stood at 31.4 percent in September 2023 while average CPI inflation in Q1 FY 2024 cloaked at 29 percent. The government’s decision to pass on the cost of utilities to the consumers without addressing policy and institutional inefficiencies may prove to be futile and keep inflation unanchored.
The political environment in the country remains uncertain as the schedule of elections is still not announced by the Election Commission and rumors about delays continue to prevail. Political stability is likely to improve when elections are announced. The crackdown started by the government against deviants in the currency and gold markets to curtail smuggling will not bear fruit unless policy uncertainties are addressed.
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