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Special Investment Facilitation Council (SIFC) Faces Backlash Over Asset Sales in Pakistan

On September 9, 2023, the Special Investment Facilitation Council (SIFC) got back to work in the 5th Apex Committee Meeting. Care Taker PM organized a second session to hear from important Ministries like Foreign Affairs, Interior, Information Technology and telecommunications, National Food Security and Research, and Water Resources. We wanted to find ways to make the business and investment scene in our Country even better.

The Special Investment Facilitation Council (SIFC) reconvened for the 5th Apex Committee Meeting. The second session was convened to gather insights from the Ministries of Foreign Affairs, Interior, Information Technology & Telecommunications, National Food Security & Research, and Water Resources, aiming to enhance the business and investment environment in the country. The meeting, presided over by caretaker Prime Minister Anwaar-ul-Haq Kakar, saw the attendance of the Chief of Army Staff, Federal Cabinet, Provincial Chief Ministers, and senior government officials. The ministries presented comprehensive plans, outlining specific milestones, timelines, and strategies to tackle significant challenges.

The Committee unanimously agreed to make decisions in the best interests of the country, and to combat issues such as smuggling, hoarding, and market manipulations with a robust enforcement mechanism. The Prime Minister urged the ministries to make the most of the brief interim period by making positive contributions and initiating medium and long-term policy measures. The Chief of Army Staff assured unwavering support from the Pakistan Army in bolstering the government’s efforts towards the economic revival of the country.

The second session of the 5th Apex Committee Meeting of SIFC

Our caretaker Prime Minister, Anwaar-ul-Haq Kakar, led the meeting, and we were joined by the Chief of Army Staff, Federal Cabinet members, Provincial Chief Ministers, and other high-ranking government officials. The Ministries came prepared with detailed plans, including important steps, schedules, and solutions to tackle the big challenges.

As a Committee, we all agreed to make decisions that would benefit our Country as a whole. We promised to take strong action against smuggling, hoarding, and market manipulations using a thorough enforcement system.

Our Prime Minister urged the Ministries to make the most of the short time we have to make a positive impact, and also to start working on policies for the long run.

The Chief of Army Staff assured us of the unwavering support of the Pakistan Army in helping the Government with the ‘Economic Revival’ of our beloved Country.

Trepidation Amidst Special Investment Facilitation Council (SIFC) Formation

With the establishment of the Special Investment Facilitation Council (SIFC), a prevailing sentiment is that the military is taking the reins, ostensibly to provide foreign investors with a signal of stability. Yet, investors are discerning and seek assurances that their financing will be safeguarded.

Where Does Pakistan Stand in the Pakistan/SIFC Deal?

The recent partnership between Pakistan and the Special Investment Facilitation Council (SIFC) has raised significant questions about the fate of Pakistan’s valuable assets. Critics argue that Pakistan is on the brink of a detrimental deal, echoing the controversial PLMN IPP contracts of the 2010s. This prompts us to ask: is the future of Pakistan being jeopardized for individual gain?

Unpacking the Pakistan/SIFC Deal

At the heart of the debate lies the sale of Pakistan’s assets, which some claim is occurring at distressingly low prices. This situation draws parallels to the regrettable PLMN IPP contracts, which left a lasting impact on the country’s economy. The apprehension is palpable as Pakistan watches this new deal unfold.

In a bid to lure foreign investments, Pakistani rulers have touted a potential windfall of up to $70 billion. However, analysts and experts are grappling with the feasibility of such a massive influx, given the current precarious state of the nation’s economic fundamentals.

Stability, Institutional Strength, and Global Economic Climate: Key Indicators for Investment

Faisal Mamsa, CEO of Tresmark, emphasizes the importance of stability, robust institutional capacity, and a favorable global economic environment for investors. Given Pakistan’s current standing, these crucial factors appear to be working against it, particularly if the details of the proposed $70 billion investment remain nebulous.

The Special Investment Facilitation Council (SIFC) offers advantages for agricultural investment, including a 25% tax reduction and exemption from customs duties on imports.

Learning from History: The PLMN IPP Contracts

The PLMN IPP contracts of the past serve as a cautionary tale. Similarities between that episode and the current situation are hard to ignore. Both involve significant economic decisions with far-reaching consequences. Understanding the repercussions of the IPP contracts should inform our approach to the Pakistan/SIFC deal.

The SIFC is emulating the PMLN model of 2014 by implementing take-or-pay agreements in the power sector to draw in investments. Notable projects include the $1.2 billion Thar coal venture, generating 1320MW, the $800 million 1200MW solar project in Layyah, and the $400 million 600MW solar undertaking in Jhang. It is suggested that a shift towards prioritizing mining and agriculture would be more beneficial, without the need for additional sovereign guarantees.

When consumers are willing to bear all the risks and invest in solar projects without seeking any assurance from the government for capacity payments, it raises the question of why the government is inclined to take on this liability. This becomes particularly puzzling considering their efforts to distance themselves from the sector through the introduction of CTBCM. It’s only fair that investors receive guarantees to protect their investments, given that they will be entering a market where power demand is decreasing while generation capacity is on the rise.

The upcoming power projects indicate that we will have an excess of capacity for the next two decades. Reports of SIFC obtaining duty-free import permits seem wasteful, as imported Independent Power Producer (IPP) plants cannot operate without incurring capacity charges, all while not generating any electricity. This exacerbates the issue, which lies not in generation capacity, but in the failing distribution system that can only handle 23-24K, as well as imported fuels.

We are already grappling with an excess of electricity, and further capacity payments are not a viable solution. While the 1320MW Thar project still holds merit, borrowing for solar plants appears to be an ill-advised idea. It would be more prudent to make solar energy accessible to the general public, enabling them to meet their own energy needs.

Currency Crisis and Economic Slowdown

The heart of the crisis lies in the scarcity of foreign exchange reserves, resulting in curtailed imports and a de facto halt in the issuance of letters of credit (LCs) by the central bank. This, in turn, has dealt a severe blow to economic growth, pushing it to its lowest ebb.

Currency Markets React to Government Actions

Recent developments in the currency market have garnered attention. The notable decline in the dollar’s value, particularly in the open market, is attributed to the government’s crackdown on illegal currency exchanges and hundi/hawala networks. This move, especially in trade hubs like Peshawar and Quetta, has prompted the closure of numerous currency shops.

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If we effectively curb smuggling and enforce regulations on exchange companies to combat ‘hawala’, it’s better to offer wholehearted support to the government instead of issuing futile statements. Half of Pakistan’s economic challenges are a result of our own actions. Whoever takes steps to rectify this will be commended. What’s needed now are concrete actions!

Asim’s Influence: Motivations and Implications

The role of Asim in this deal cannot be underestimated. Understanding his motivations is crucial to evaluating the potential impacts on Pakistan’s economic future. Is this a pursuit of genuine economic growth, or are there ulterior motives at play? The answers will shape the narrative around this partnership.

Following an unforeseen move by the Pakistan central bank to maintain unchanged rates, the six-month benchmark lending rate (KIBOR) has experienced a significant drop. Today, the six-month KIBOR has decreased by 159 basis points, declining from 24.68% to 23.09%. A comparable pattern is observed in T-bill rates, with the three-month rate decreasing from yesterday’s 23.78% to currently trading around 22.5%.

SIFC’s Potential to Reshape Economic Landscape

Nevertheless, the SIFC’s push for foreign investment is viewed as a potential game-changer. The sheer scale of the proposed investment holds the promise of a dramatic shift in the country’s economic outlook, potentially alleviating a myriad of external account-related challenges.

HRH Crown Prince Mohammed bin Salman’s Presence at G20

The participation of HRH Crown Prince Mohammed bin Salman in the economic events of G20 further underscores the gravity of this partnership. It signifies not only an economic endeavor but also potentially transformative regional implications. The global community is watching closely.

Optimism Tempered by Lack of Specifics

However, key details remain elusive. While Caretaker Prime Minister Anwaarul Haq Kakar has indicated Saudi Arabia’s pledge of $25 billion over two to five years, comprehensive specifics are still scarce. Efforts to obtain a breakdown of the proposed investment from Caretaker Finance Minister Shamshad Akhtar have gone unanswered.

Market Skepticism and Call for Stability

Market sentiments echo the need for stability before courting foreign investments. With the cost of doing business still prohibitively high and inflation hovering above 26 percent, stakeholders are seeking concrete offerings to entice foreign investors, especially with general elections on the distant horizon.

Beyond Meetings and Speeches: A Call for Real Effort

While meetings and speeches are important, genuine economic development requires much more. It demands sustained dedication, trust-building, and the creation of a conducive environment. The process is intricate and multifaceted, and shortcuts are simply not an option.

Mixed Reactions to Government Measures

The government’s swift action led to mixed accounts from exchange companies. While some initially reported the presence of plainclothes officers, these claims were later refuted. Critics question whether the rapid depreciation of the dollar was a calculated intervention or an organic market response.

Some claim that Hafiz Sahib, finding himself with idle time in the office, turned to his Brigadier and urged him to devise a plan to rescue the nation, harboring ambitions of becoming a national hero.

In response, the Brigadier took inspiration from Musharraf’s CIRC and rebranded it as SIFC, reminiscent of an old wine repackaged in new bottles.

Empowering the Overseas Pakistani Community

The overseas Pakistani community holds a pivotal role in driving economic growth. However, they require more than reassurances; they need genuine political stability to confidently invest in their homeland. Their contributions should be nurtured and valued.

Striking a Balance: Growth and Asset Protection

Balancing economic growth with the protection of national assets is a delicate task. Navigating this challenge requires prudence and foresight. The lessons of history should guide us as we tread this path.

IMF Scrutiny on Coercive Measures

Currency experts raise concerns about the IMF’s stance on the use of coercive measures to influence the dollar’s rate. While the actions have narrowed rate differentials, ensuring sustained progress hinges on the promised inflows of $70 billion.

In Conclusion: A Call for Prudent Economic Policy

The weight of the Pakistan/SIFC deal cannot be understated. It has the potential to shape Pakistan’s economic trajectory for years to come. As we move forward, let us do so with a clear-eyed understanding of the past and a commitment to a prosperous future.

As Pakistan navigates these economic complexities, the potential for transformative change looms, contingent on the delicate balance of attracting foreign investments while upholding economic stability.

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