Pakistan and Saudi Arabia have signed 28 agreements worth $2.2 billion. The ceremony, attended by Prime Minister Shehbaz Sharif, included prominent Saudi investors, business leaders from Pakistan’s leading commercial firms, and high-ranking government officials. The Prime Minister highlighted the importance of the visit by the Saudi delegation led by the Saudi Minister of Investment, expressing gratitude for the support of Saudi Arabia, China, and the UAE for the IMF program.
Undoubtedly, Saudi Arabia has been a steadfast partner in Pakistan’s economic stability, with over fifty of its companies participating in discussions on business opportunities within Pakistan. Saudi Arabia has consistently supported Pakistan during difficult times, maintaining this tradition of friendship that stands as a commendable example on the world stage. There is no doubt that Prime Minister Shehbaz Sharif’s government has successfully prevented the country from defaulting and has kept the economy on track.
Indeed, the current government has made tough decisions to support the economy and prevent default. It accepted stringent conditions from the IMF to resume the previously stalled program, securing a three-year deal. Furthermore, efforts to bring reforms and boost productivity in agriculture, livestock, minerals, mining, IT, and telecom sectors through the platform of the Special Investment Facilitation Council (SIFC) have started showing positive results.
The SIFC’s positive role can also be observed in actions like curbing smuggling, cracking down on tax evaders and electricity thieves, and boosting agricultural production, particularly in cotton and the current wheat harvest. Relations between Saudi Arabia and Pakistan have entered a new era, with Saudi Arabia planning to invest billions of dollars in Pakistan. It is essential for Pakistan to ensure the completion of these projects. A significant aspect of the agreements is Saudi Arabia’s commitment to providing preferential employment opportunities for Pakistanis, which will help reduce unemployment and bring valuable foreign exchange through increased remittances, thus leaving a positive and long-lasting impact on the economy.
Investments by Gulf countries, including Saudi Arabia, and Central Asian states in Pakistan signify the growing global trust and confidence in Pakistan, which bodes well for the country’s economy. Additionally, the upcoming Shanghai Cooperation Organization (SCO) summit in Islamabad, which includes key regional nations, is expected to further enhance foreign investment prospects in Pakistan. At this time, Pakistan needs more investment to boost its productive capacity. The country needs an industrial policy that makes its products competitive in global export markets.
In other encouraging news, the central bank has reported an increase of $106 million in foreign exchange reserves, which now stand at $10.808 billion. According to the State Bank, as of October 4, total national reserves were at $16.047 billion, with commercial banks holding $5.239 billion. The increase in reserves signals positive economic progress.
In the energy sector, the government has terminated power purchase agreements with five private companies, including one with the country’s largest utility company, which was supposed to last until 2027. This aligns with Energy Minister Owais Leghari’s statement last month to Reuters, where he mentioned that the government was renegotiating with independent power producers (IPPs) to reduce tariffs as households and businesses struggle with rising energy costs.
We are aware that the energy sector places a heavy burden on the country due to circular debt. Reviewing or renegotiating IPP agreements could alleviate some of this debt and lower electricity prices, providing relief to the public. We urge that any savings from ending these power purchase agreements should be passed on to the people.
Given the significant impact of IPPs on our economy, we recommend that the Government of Pakistan take bold and innovative steps to find a fair solution through mutually agreeable terms. The current situation is not beneficial for IPPs either, as their profits are under pressure due to rising trade receivables and payable balances. The IPPs, while seemingly profitable on paper, face unmanageable receivables, especially as reduced demand could impact their revenue.
At the same time, Pakistan’s manufacturing sector is facing a decline. Companies still generating profits are reinvesting in other sectors. The government’s agreements with IPPs shift most business risks and costs to consumers and taxpayers. While stepping back from these agreements is not ideal, the severity of the issue necessitates a change in approach. Our priority should be a mutually agreed solution that balances risks and benefits.
Globally, commodity prices are falling, which could provide more fiscal space without inflation. Falling oil prices allow the government to increase the petroleum levy without raising prices. Lower inflation and stability in external accounts enable the State Bank to reduce interest rates without devaluing the currency.
In summary, current government measures appear to be creating favorable conditions for growth compared to recent times. However, for sustainable development, it is essential to address factors like energy prices, taxes, and political stability. In the coming months, foreign investments are expected to yield encouraging results, and the economy seems to be on the right track. This momentum should continue to establish Pakistan as a strong economic force in the region.