Investment ratio records major boost, just short of target

Pakistan has missed its targeted investment ratio despite the federal government’s best efforts. However, details from reports reveal that the investment ratio has improved, rising to 13.8 per cent of the economy’s size in the current fiscal year (FY).

Islamabad has been working to raise investment inflows, particularly those that do not contribute to the national debt stock. Figures approved by the National Accounts Committee, however, indicate that the government was unable to meet the official investment ratio target.

A possible contributing factor is the inelastic nature of private investments. Moreover, the Pakistan Sovereign Wealth Fund (PSWF) remains largely idle despite being set up about two years ago.

The PSWF’s dormancy is linked to disagreements with the International Monetary Fund (IMF), with reports suggesting that the IMF is concerned about its legal framework.

Lawmakers and authorities intended to boost the investment-to-GDP ratio up to a respectable 14.2 percent. While this conclusion has been based on provisional figures, reports have revealed that the result will become official next Sunday when authorities launch the Economic Survey of Pakistan. 

Analysts note that despite missing the investment-to-GDP ratio target, the figure has logged a remarkable improvement from the previous fiscal year, as it sat at an abysmal 13.1 percent - the lowest investment ratio in 50 years.

Pakistan is now relying on the Special Investment Facilitation Council (SIFC) to boost domestic investment levels while simultaneously assisting the federal government with the implementation of policies. Private sector investment levels increased marginally to settle at 9.1 percent of the Gross Domestic Product (GDP) - well below the target of 9.7 percent. 

According to reports, the fixed investment-to-GDP ratio climbed up to 12 percent, a stark improvement from the 11.4 percent recorded during the previous FY. However, the targeted level was 12.5 percent, implying that the economy missed yet another investment goal. 

Reports reveal that if the federal government exhausts its development budget of Rs1.1 trillion, the public sector investment-to-GDP ratio will be able to climb up to 2.9 percent. 

The lack of investments suggests that the government will have to finance projects by taking out loans. However, the cash-strapped country is already beset by external financing issues; taking up additional loans will only serve to exacerbate financing problems.

As per a recent staff report released by the IMF, Pakistan needs to ease its trade policies, which the IMF considers to be restrictive. The IMF believes that the removal of trade-hindering policies, with a focus on abolishing the existing inefficient tariff system, could result in increasing private investment levels.