Can Pakistan's allies help revive its economy by investing dollars? | Explanation

Islamabad, Pakistan During a series of trips over the past three months, Pakistani Prime Minister Shehbaz Sharif has tried to convince the country's three closest allies, China, Saudi Arabia and the United Arab Emirates, to invest in the country, while its economy in a precarious position seeks it. green signals.

In June last year, during Sharif's first term as prime minister, the government formed a Special Investment Facilitation Council (SIFC), a high-level body composed of Pakistani civil and military leaders, to promote investments in Pakistan.

After visits to Beijing, Riyadh and Abu Dhabi, the Sharif government points to a series of memorandums of understanding signed during these trips as indicators of potential investments in Pakistan.

However, analysts warn that attempts to attract foreign direct investment (FDI) will only work if Pakistan can promise a stable political landscape and introduce structural reforms in its economy.

So what did Pakistan gain from Sharif's trips, and what should it do to attract investment as it prepares to negotiate with the International Monetary Fund (IMF) to participate in its 24th lending program since 1958?

5 billion dollars from Saudi Arabia?

After taking office in March for the second time, Sharif made two visits to Saudi Arabia in April. These tours were followed by a series of visits by senior Saudi officials, including defense and foreign ministers, to Pakistan. In early May, a 50-member Saudi business delegation also visited to participate in an investment conference.

During his two meetings with Saudi Crown Prince Mohammed bin Salman in April, Sharif discussed opportunities to strengthen economic cooperation between the two countries and explored the possibility of a $5 billion investment program.

We have identified areas of cooperation, both at a government-to-government and business-to-business level, and this has been clearly identified. We now have a clear path forward, Sharif told Al Arabiya television news in May.

Last year, caretaker Prime Minister Anwaar-ul-Haq Kakar also claimed that Saudi Arabia had agreed to invest $25 billion in various sectors of Pakistan, without giving any details.

Ali Farid Khwaja, investor and chairman of KTrade Securities, said Pakistan had presented opportunities for Saudi investment in six different areas, including an oil refinery project, agriculture, mining, energy sector , technology and aviation.

There is no doubt that Pakistan needs investment. Just 18 months ago we were on the verge of default, but through these dialogues and engagement with friendly countries we are letting them know what we can offer, he told Al Jazeera .

A senior Pakistani government official who participated in negotiations with Saudi delegations said Pakistan hoped Riyadh would invest from its Public Investment Fund (PIF), the kingdom's sovereign wealth fund whose assets are estimated at more than 900 billion dollars. They are obviously looking for investment opportunities and trying to follow their vision, the official said on condition of anonymity.

Negotiations on the proposed $5 billion investment are underway, the official added.

We are currently in a discussion phase which has begun. As these negotiations mature, things will become clearer and we will see what the final agreements will be, he added.

And 10 billion dollars from the United Arab Emirates?

Sharif continued his Saudi visits by paying a one-day visit to the United Arab Emirates, another long-standing partner of the country, in late May, during which he met President Sheikh Mohammed bin Zayed Al Nahyan.

Following the meeting between the leaders, the Pakistani Prime Minister's Office announced that the UAE had committed to invest $10 billion in Pakistan in various areas.

The UAE Ministry of Investment confirmed this commitment. But a month later, few details are available on which sectors the UAE might invest in and whether the two sides have agreed on a timetable for the investments.

The list of Chinese MoUs

But it was Sharif's five-day visit to China in June, the first of this term, that analysts say was the most critical of his foreign trips.

He was accompanied by military chief General Syed Asim Munir, and Pakistani leaders held dialogues with Chinese President Xi Jinping, Prime Minister Li Qiang and other leaders in Beijing.

The visit came two months after gunmen attacked a bus carrying Chinese engineers working on a major hydroelectric plant in northern Pakistan, killing at least five Chinese nationals and one Pakistani.

The attack is part of a series of setbacks against projects built under the ambitious China-Pakistan Economic Corridor, a $62 billion project launched a decade ago when Sharif's older brother, Nawaz , himself a three-time prime minister, was the country's prime minister. .

Over the past decade, Pakistan's dependence on China has increased significantly, as the relationship, once centered on military ties, has expanded significantly into the economic realm: Pakistan must China almost 30 billion dollars out of a total external debt of 30 billion dollars. almost 130 billion dollars.

The country's economic officials have stressed that unless there is significant foreign investment, Pakistan will not be able to achieve its ambitious growth rate of 3.6 percent, which the country has set for the next fiscal year. budgetary.

After Sharif's return from Beijing, the Chinese and Pakistani governments issued statements on increased emphasis on security, as well as developing an improved version of CPEC to better aid Pakistan's economic and social development .

But despite the signing of 23 memoranda of understanding in various sectors during Sharif's visit, there has been no concrete agreement, beyond expressions of intent, on projects that the two countries could prioritize.

What should Pakistan do?

Since the establishment of the SIFC last June, the government has credited the organization with helping to facilitate investment opportunities from outside the country.

The latest available data from the central bank reveals that from July to April this year, Pakistan received $1.45 billion in investments, a paltry 8.1 percent increase over last year.

However, analysts say that while the three recent visits have shown Pakistan's desperation to secure financial support, whether in the form of bank deposits or investment projects, the failure to substantively realize the projects was due to the unstable landscape of Pakistan.

The reason for non-materialization of any investment or such projects lies in the country's chronic political instability and structural problems plaguing Pakistan's economy, Umer Karim, associate researcher at the King Faisal Center for Development, told Al Jazeera. Islamic research and studies.

Economic analyst Uzair Younus also agrees, saying the fundamental issue for Pakistan remains the issue of the country's broader environment.

At a time when domestic companies are reluctant to invest in the economy, foreign capital will be even more conservative. For Pakistan to attract capital flows, it must embark on comprehensive reforms and provide a credible roadmap that excites domestic and foreign investors. So far, this does not appear to be the case under the Sharif government, the Washington-based analyst told Al Jazeera.

The challenge for the Sharif government comes from political instability in the country after the elections, marred by allegations of manipulation and rigging.

Increasing attacks on law enforcement officials over the past 18 months have added another level of challenge to the country's overstretched military, which must secure both its eastern border with rival India and its Western alliance with Afghanistan.

But KTrade Securities' Khwaja, on the other hand, painted a more cautiously optimistic picture.

The London-based investor said Pakistan's three major lenders were clearly working together for a broader investment plan in the country.

Pakistan is being presented as a country where Saudi software is installed on Chinese hardware, and now the links are becoming clearer, he said.

Karachi-based economist Khurram Husain, however, points out that the three countries visited by Sharif also happen to be Pakistan's largest bilateral creditors.

Pakistan is seen by all foreign investors as a high-risk country, so the state is struggling to find a way to make big government-to-government deals. The problem is that they need financial support right now, and these deals, even if they come to fruition, will not bring in much money, Husain told Al Jazeera.

The analyst added that Pakistan's best way out of the current economic woes lies in domestic reforms and not foreign support.

Realistically, Pakistan should try to manage its external debt profile rather than seeking more cash support from its bilateral creditors, he added.

However, Riyadh-based Karim said foreign visits have developed a political aspect where Pakistani governments use optics as signs of international trust and support, but some attention needs to be paid to national investors to revive the economy.

FDI certainly remains an important element of economic expansion and growth; However, the government could have started by helping local investors and businesses develop a roadmap that could then be offered to foreign investors, he said.