Shamshad Akhtar, governor of the State Bank of Pakistan, has expressed confidence that foreign investment can go a long way to covering the country’s funding shortfall.
“We see interest in Pakistan from virtually all the key parts of the world,” she told Emerging Markets, striking a sharp contrast with sceptics who believe the government has lost valuable opportunities for reform in recent years. Akhtar argues that FDI can rise to $7 billion per year, the level economists say is needed to fund the external gap. “The growth in foreign investment has been phenomenal,” she said.
“It has grown from $500 million to $3.5-4 billion since 1999: a combination of FDI coming in to finance privatisation, and into all strategic sectors like oil and gas and telecoms. We need a steady inflow now of at least $7-8 billion.” FDI will enable Pakistan to cut its borrowing.
FDI not only corrects imbalances in current accounts, which are grossly excerbated by oil costs, but is also key to supporting Pakistan’s woeful infrastructure. “That is at the heart of the competitiveness of Pakistan,” Akhtar said.
And it’s not just about financing. “More important than this is the technology transfer, the efficiency that FDI will give,” she said.
Other priorities that Akhtar identifiesare political continuity, a focus on macroeconomic imbalances, and “making sure we achieve our growth in a way that does not aggravate inequalities”.
Akhtar accepts that the authorities have not changed things as quickly as they had hoped to. Policies have “not yet shown the desired results” and “the impact is yet to filter in,” she said.
She said Pakistan had made efforts to diversify its agriculture sector, encouraging areas like farming and livestock. “That augurs very well for our external account, because ultimately we’d like to see more diversifiaction in our exports.”
Commenting on widespread criticism of Pakistan’s record on terror funding, Akhtar concedes: “It’s not very convenient to have political disruption in any part of the country, because it hits economic activities and results in implications for the credits. We clearly don’t welcome that.”
And on India relations, she will soon be making a gesture by attending a conference in Mumbai. “I have very good relations with my counterparts in the central bank,” she said.
Akhtar’s upbeat view finds support from UBS, which proclaimed in a report on Friday that the economy is witnessing “an upswing not seen since the early 1960s and 1970s”.
The report points to 7.8% real economic growth in 2004-05, a closure of the savings investment gap, and improved FDI.