Can Pakistan’s allies help the country’s economic recovery through investment funds? | Commentary

Islamabad, Pakistan — In a series of visits over the past three months, Pakistan Prime Minister Shehbaz Sharif has sought to persuade his debt-ridden country’s closest allies — China, Saudi Arabia and the United Arab Emirates — to invest in the country as its shaky economy shows signs of recovery.

In June last year, during Sharif’s first term in office, the government set up the Special Investment Promotion Council (SIFC), a powerful body made up of Pakistan’s civilian and military leaders, to promote investment in Pakistan.

The Sharif government has followed up on visits to Beijing, Riyadh and Abu Dhabi, pointing to a series of memorandums of understanding signed during these visits as a sign of potential investments in Pakistan.

However, analysts have warned that attempts to attract foreign direct investment (FDI) will only be successful if Pakistan can commit to a stable political situation and bring about structural reforms in the economy.

So what did Pakistan get out of Sharif’s visit, and what does it need to do to attract investment as it prepares to negotiate with the International Monetary Fund (IMF) to join its 24th lending program since 1958?

$5 billion from Saudi Arabia?

Sharif visited Saudi Arabia twice in April after taking office for the second time in March. This was followed by a series of visits to Pakistan by senior Saudi officials, including the defense minister and foreign minister. In early May, a 50-member Saudi business delegation also visited Pakistan to attend an investment conference.

Sharif met twice with Saudi Arabia’s Crown Prince Mohammed bin Salman in April to discuss opportunities to strengthen economic cooperation between the two countries and explore the possibility of a $5 billion investment package.

“We have identified areas of cooperation both at the government-to-government and business-to-business level and they have been clearly identified. We now have a clear path forward,” Sharif told Al Arabiya TV news in May.

Last year, caretaker Prime Minister Anwar-ul-Haq Kakar also claimed that Saudi Arabia had agreed to invest $25 billion in various sectors in Pakistan, but gave no details.

Ali Farid Khwaja, investor and chairman of K-Trade Securities, said Pakistan has presented the potential for Saudi investment in six different areas, including oil refining projects, agriculture, mining, power sector, technology and aviation.

“There’s no question that Pakistan needs investment. Just around 18 months ago we were on the brink of defaulting on our debt, but these conversations and engagements with friendly countries allow us to let them know what we can offer,” he told Al Jazeera.

A senior Pakistani government official who took part in talks with the Saudi delegation said Pakistan expected the Saudis to invest through the country’s sovereign wealth fund, the Public Investment Fund (PIF), which has assets estimated at more than $900 billion. “They are clearly looking for investment opportunities and are looking to pursue their own vision,” the official said, speaking on condition of anonymity.

The official added that negotiations on the proposed $5 billion investment are ongoing.

“Right now we are in the discussion stage, which has just begun. As the negotiations mature, the situation will become clearer and we will see what the final agreement will look like,” he added.

And $10 billion from the UAE?

Following his visit to Saudi Arabia, Sharif made a one-day visit to the UAE, another long-term partner of Saudi Arabia, in late May, where he met with President Sheikh Mohammed bin Zayed Al Nahyan.

After the summit, the Pakistani Prime Minister’s Office announced that the UAE had committed to investing $10 billion in various sectors in Pakistan.

The UAE Ministry of Investment confirmed the commitment, but a month later few details are available about which sectors the UAE might invest in or whether the two sides have agreed on a deadline for investment.

China Memorandum List

But analysts say Sharif’s most criticised overseas trip was his five-day visit to China in June, his first in his term.

Accompanied by Pakistan Army Chief General Syed Asim Munir, the Pakistani leadership held talks with Chinese President Xi Jinping, Premier Li Qiang and other leaders in Beijing.

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

The attack was one in a series of setbacks for projects built as part of the ambitious China-Pakistan Economic Corridor, a $62 billion project launched a decade ago when Mr Sharif’s brother Nawaz, himself a three-time prime minister, was the country’s prime minister.

Pakistan’s reliance on China has grown significantly over the past decade, expanding what was once primarily a military relationship into a major economic one. Pakistan owes China about $30 billion out of its total foreign debt of about $130 billion.

Economic leaders in the country have stressed that without significant foreign investment, Pakistan will not be able to achieve the ambitious 3.6 percent growth rate it is targeting for next fiscal year.

After Sharif returned from Beijing, the Chinese and Pakistani governments issued statements on strengthening their focus on security and building an “upgraded version of CPEC” to better contribute to Pakistan’s economic and social development.

However, despite the 23 memorandums of understanding signed in various fields during Sharif’s visit, there were no concrete agreements beyond indications of intent on projects that the two countries might prioritize.

What does Pakistan need to do?

Since its establishment in June last year, the government has credited the organisation for helping to promote investment opportunities from abroad.

According to the latest available central bank data, Pakistan received $1.45 billion in investments from July to April this year, up just 8.1 percent from last year.

However, analysts say the three recent visits have shown Pakistan’s desperation to get financial support, be it in the form of bank deposits or investment projects, but its failure to materialise projects is due to instability in Pakistan.

“The reason why any investment or such projects are not materialising is due to chronic political instability in the country and structural problems plaguing Pakistan’s economy,” Umer Karim, associate research fellow at the King Faisal Centre for Studies and Islamic Studies, told Al Jazeera.

Economic analyst Uzair Yunus agreed, saying the fundamental issue for Pakistan remains one of the broader domestic environment.

“Foreign capital will become more conservative at a time when domestic businesses are hesitant to invest in the economy. For Pakistan to attract capital inflows, it must embark on comprehensive reforms and provide a credible roadmap to incentivize domestic and foreign investors. So far, this does not seem to be happening under Sharif’s government,” a Washington DC-based analyst told Al Jazeera.

Challenges for Sharif’s government stem from domestic political instability marred by allegations of post-election rigging.

An increase in attacks on law enforcement officials over the past 18 months has added new challenges to the country’s overburdened military, which must staff both its eastern border with arch-rival India and its western border with Afghanistan.

But K-Trade Securities’ Khwaja painted a more cautiously optimistic outlook.

The London-based investor said Pakistan’s three biggest lenders appeared to be working together on a broader investment plan for the country.

“Pakistan has been in the headlines as a country where Saudi software is being put on Chinese hardware, and now the link is becoming clear,” he said.

But Khurram Hussain, a Karachi-based economist, points out that the three countries Sharif visited are also Pakistan’s largest bilateral creditors.

“Pakistan is considered a high-risk country by all foreign investors, so the government is focused on finding ways to make big government-to-government deals happen. The problem is that right now, these deals, even if they do happen, don’t bring in a lot of money, because they need financial assistance,” Hussain told Al Jazeera.

The analyst added that Pakistan’s best way out of its current economic difficulties is through domestic reforms, not foreign aid.

“Realistically, Pakistan should seek to manage its external debt profile rather than seeking further cash-based support from bilateral creditors,” he added.

But Riyadh-based Karim said foreign visits had taken on a political dimension and that while the Pakistani government was using them as a “signature of international trust and support”, there also needed to be some focus on domestic investors to revive the economy.

“FDI certainly remains a key driver of economic expansion and growth. But the government could have started by supporting local investors and businesses and creating a roadmap that can be offered to foreign investors,” he said.