Govt asked to do away with restrictions on dollar outflows
KARACHI: The country should do away with restrictions on dollar outflows to attract long-term foreign investment in efficiency-seeking sectors, said economist Ali Khizar in a webinar on Wednesday.
Taking part in a panel discussion on the challenges in attracting foreign investment, Mr Khizar listed several structural problems that have led to foreign investors exiting the Pakistan market with negative returns in banking and telecommunication sectors.
Referring to semi-official curbs on the repatriation of profits by multinational companies operating in Pakistan, he said such short-sighted moves to arrest the outflow of dollars are counterproductive.
Restrictions on the free flow of capital have led to the creation of a grey market as local companies are financing their imports using dollars that they remit to Dubai through illegal channels, he added.
Mr Khizar urged policymakers to attract foreign direct investment (FDI) to the export-oriented, manufacturing sector instead of consumption-led industries.
There was a net foreign inflow of only $101 million in February, up 11 per cent from a year ago. Net FDI in the first eight months of 2022-23 dropped 40pc year-on-year to $784m, according to data from the State Bank of Pakistan.
Repatriation of profits in the first seven months of the current fiscal year dropped to $220.1m, down 78.3pc from a year ago.
He also highlighted the lopsided revenue policies that heavily tax the manufacturing sector while letting real estate and retail trade segments stay largely out of the tax net.
Highlighting the poor understanding of economic matters at the top level of the judiciary, he said once a judge mistook “discounted cash flow” — a valuation method based on expected future cash flows — for the word “discount” meaning reduced price during a hearing in the Pakistan Steel privatisation case.
He said all state institutions should stay in their respective domains to ensure a steady flow of FDI.
Lawyer Mirza Moiz Baig emphasised the importance of instituting an arbitration system for foreign investors, saying that the current set of rules was framed back in the 1940s. He cited a research study that showed a civil case in Pakistan lasts on average for 25 years.
Former intelligence officer and researcher Amir Mughal said multiple stakeholders try to run a parallel government while trying to protect their narrow interests at the cost of economic stability.
He advised politicians from the ruling coalition government to publicly ask the Supreme Court judges to either formally take over power or let them run the government.
Journalist Naimat Khan said political uncertainty and poor security are major obstacles to FDI flows.
Published in Dawn, March 30th, 2023