Saudi Arabia and the IMF are both demanding economic reforms from Pakistan, with the kingdom no longer prepared to bailout Islamabad
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Najeeb argues that with high inflation, slow growth and high interest rates around the world, there is less money available for emerging markets like Pakistan, and that without the IMF's “stamp of approval” even friendly Gulf kingdoms will remain shy of investing in the country.
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Friendly countries too want to see reforms in Pakistan, however this time they are going for an investment model as opposed to previously when they would simply deposit a few billion dollars in Pakistan's state bank. This might turn out to be better for the country,” Najeeb told MEE.
What to reform and what follows that?
Kamal Alam told MEE that it was “very obvious” that “the delay in implementing IMF reforms is because the political elite wants to avoid them - deep-set corruption in government is at the heart of it.”
Alam said that a culture of “zero accountability has completely wrecked trust in Pakistani leadership, at home and abroad”.
Pakistan is ranked 140 on Transparency International's Corruption Perceptions Index for 2022, not a favourable ranking, Alam said, if the country wants to attract foreign investment.
Najeeb, who worked in government, said that just attracting foreign investment will not solve Pakistan's problems in the long-term and that the country needs to expand its tax base and improve tax collection.
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“Pakistan's agriculture sector contributes 23 percent of total GDP, while tax collection across the sector is very poor,” he said. “Similarly Pakistan's retail and real estate sectors also contribute heavily to the GDP but almost completely avoid taxation.”
The Saudis are also unhappy with the way Islamabad is behaving these days, said Umar Karim.
“The current prime minister has a 77-member ministerial cabinet, the largest in the world; they all receive full perks and privileges. Why would the Saudis help you if you continue to afford yourself such luxuries while they are putting themselves through a cost-cutting drive?” he told MEE.
Karim believes the Saudis are interested in investing in Pakistan's energy sector - both fossil fuels and renewables – and that they are also interested in investing in the country's booming IT sector. But this investment, he said, would only happen after Pakistan implemented economic reforms.
While Pakistan is besotten with a crippling power crisis, Saudi investment in the renewable energy sector could be crucial. A 2020 report from the World Bank suggests Pakistan has immense potential for generating power through solar energy.
“Utilising just 0.071 percent of the country's area for solar power generation would meet Pakistan's current electricity demand,” the report said.
In 2019, however, the Saudi government expressed interest in setting up an oil refinery and in making other investments totalling $10bn in Pakistan. But, Najeeb said, Pakistan would need to “revamp its board of investment” and bring in “specialist human resources and incentives” in order to take advantage of this opening.
The former finance ministry adviser said that a reset in relations with Saudi Arabia would be good for Pakistan and could prove to be a wake-up call.
For Pakistan, the days of easy money are over.
