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SIFC is not the solution for Pakistan’s economy: Atif Mian

SIFC is not the solution for Pakistan’s economy: Atif Mian
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September 18, 2023 (MLN): The newly constituted Special Investment Facilitation Council (SIFC) aimed at boosting the economy is not sustainable, SIFC is doomed to fail, just as previous similar projects have always failed, Atif Mian, a renowned Pakistan-US economist stated during a podcast on Friday.

The economist delved into crucial topics such as external loans, foreign investment, repayments, building Pakistan's long-term competitiveness, etc.

He challenged the conventional wisdom of policymakers, comparing SIFC to past endeavors that had not yielded the expected results, such as the China-Pakistan Economic Corridor (CPEC).

He cited an example where an official from the Planning Commission claimed that CPEC would account for 4% of total global trade by 2020, a projection he deemed unrealistic.

He commented, "This was extremely delusional. It can not even be 0.04%. This is how off these people are."

In addition to this, Atif Mian also cited the previous government's ambitious "Naya Housing Scheme," which aimed to build 5 million houses in a short period.

He questioned the feasibility of such an undertaking, given Pakistan's historical track record in housing construction. Mian stated, "This is not physically possible.”

“We have barely made this much since independence, how can you make it in 3-4 years." He added.

His critique underscored the need for evidence-based and achievable goals in policy planning and highlight the importance of grounded and realistic projections in economic planning.

Arab countries to rescue Pakistan by providing $25bn?

Switching to the latest news circulating around the media of the $25 billion investment from Arab countries, the economist questioned the pricing of this $25bn investment, which the country intends to borrow in the form of equity.

He raised concerns that if the investment is not properly priced, it could result in a significant loss for the country in the long run.

He stated according to the government’s “claims”, its assets are worth $6.1 trillion. In this case, how much are we offering to Arab countries in exchange for a mere $25bn investment? It is worth noting that this investment amounts to less than 0.5% of the total “claimed” assets.

To illustrate with some hypothetical numbers, if we were to allocate a 50% stake to them, this would mean they are only contributing $25bn for a three trillion-dollar valuation.

Strategic Borrowing for Sustainable Economic Growth

One of the central themes Mian emphasized was the importance of evaluating the long-term benefits to the country and its citizens when making economic decisions.

He argued that focusing solely on covering current account and fiscal gaps with foreign loans, such as $5bn or $10bn, is shortsighted.

Instead, he emphasized the need for productive borrowing that contributes to long-term economic growth.

He emphasized the investment strategies employed by nations such as Saudi Arabia, where investments are made only if the investment can generate export surpluses, highlighting the importance of economic viability.

Atif Mian underscored that successfully borrowing from foreign sources is a substantial obligation and that relying heavily on external borrowing is an expensive route to economic development.

The economist urged policymakers to consider the interests of the common people and ensure that foreign investors' returns align with the country's long-term development goals.

He pointed out that countries like China and India have adopted different borrowing strategies compared to Pakistan, stressing the risks associated with high sovereign borrowing, especially in dollars, and the challenges of repaying these loans.

He also raised concerns about the practice of foreign investors to repatriate their returns, potentially draining valuable resources out of the country.

Atif remarked, "Because once it (SIFC) starts operating, they will obviously take their return out, they will not leave them in Pakistan."

He urged a systematic study of international finance to make better-informed decisions.

One of the riskiest forms of borrowing is undertaken by the government or public sector, often involving the utilization of sovereign guarantees and relying on the government's balance sheets as collateral for loans.

This type of borrowing is compounded by the practice of borrowing to cover fiscal deficits, which is what Pakistan is doing.

Countries such as Pakistan are particularly vulnerable to what is known as "bank runs." These situations tend to occur during periods of economic turbulence, such as the COVID-19 pandemic or a recession.

In such times, lenders often prioritize the retrieval of funds from these countries, which may not be perceived as highly creditworthy.

Unlike investments that generate returns, these loans do not contribute to the production of goods or services.

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Posted on: 2023-09-18T15:46:03+05:00