Previous Editions
  • Pakistan’s economy is sinking into a quagmire of corruption and elite capture
  • Political stability, policy credibility and commitment are helpful for more FDIs

Interview with Mr. Majyd Aziz — President, Global Compact Network Pakistan

PAGE: Tell me something about yourself, please:

Majyd Aziz: I am an industrialist and businessman. Presently, I am the President of Global Compact Network Pakistan. I am the former President of the Employers Federation of Pakistan, South Asian Forum of Employers, and Karachi Chamber of Commerce and Industry, the former Chairman of SITE Association of Industry, and a former Member Board of Directors of Zarai Taraqiati Bank Ltd, KESC, and SITE Limited.

I was Chairman of the Board of Directors of SME Bank Limited. I am a Senior Advisor for Pakistan for Transnational Strategy Group, Washington. I am also Secretary General of the English Speaking Union of Pakistan, besides being Founding Chairman of Pakistan Sri Lanka and Pakistan Indonesia Business Forums and was Founding Secretary General and Vice Chairman of Pakistan Japan Business Forum.

PAGE: How would you comment on the current state of the economy of Pakistan?

Majyd Aziz: Frankly speaking, the decision-makers are up the creek without a paddle. There is no end to the deteriorating situation in Pakistan. SBP jacks up interest rates and claims that it would curb inflation. Exports are diving south, while substantial official remittances have switched to Hawala and Hundi because of the favourable rates in the grey market. Industries are not operating at full capacity (check the reduced number of workers going in or coming out of factories). Unemployed workers are ready to work at less than minimum wage. There is an unstoppable exodus of talent and brains to foreign lands and this is negatively impacting the IT sector.

The dwindling Rupee has become a matter of serious concern for all, especially industries that require imported inputs. All signs point towards a deluge of disaster and it would perhaps take three or more years to stabilize the economy. Of course, banks are making windfall profits but these are primarily due to the interest received on loans to the government.

Every week minister or government official comes on media and talks about this reform or that reform, this strategy or that strategy, this vision or that vision. The private sector is seldom consulted, and hence the business community takes each pronouncement with a pinch of salt and a hearty guffaw. They have heard it before ad nauseam.

The private sector is well aware that the government has no pragmatic vision to extricate the nation from the shattered economy. The only route available for the government is to tax the already taxed. Moreover, with each passing day, corruption becomes drastically endemic and further institutionalised. Any country that is sinking in the quagmire of corruption and elite capture would take a long, long time to get out. Pakistan is in this menacing ecosystem.

PAGE: What is your standpoint on the inflated electricity bills?

Majyd Aziz: The government has mortgaged its independence, authority, and sovereignty to the dictates of the IMF. Every economic decision, especially difficult ones, is attributed to the conditionalities of the IMF. That is the usual mantra of all governments IMF, IMF, IMF. The unbridled inflation is a manifestation of the abdication of the government’s writ. The frequency of increases in power rates has created a vicious circle engulfing all sectors. There are the usual protests, dharnas, blocking of roads, burning of tires, and ransacking offices of the electricity-providing companies. But for how long?

The business community has restrained itself from these protests, barring a few isolated incidents. Its leaders issue diluted press releases and take up the issue by inviting the concerned persons to meet the members. However, the water has gone over the bridge. It is high time the over 200 Chambers and Associations convene a Convention, chalk out the strategy, pledge to become united, and then give a final call to the government that enough is enough. This would give a rational excuse to the government to tell the IMF that it would not be possible for people in corridors of power to alienate the private sector. This is one pragmatic solution. Just shoving the serious issue under the carpet would give impetus to the government to carry on with the rate increases.

PAGE: What is your perspective about business activities at this juncture?

Majyd Aziz: With the recent increase in electricity and petrol rates, and news about the huge increase in gas rates, the backbreaking decision to enhance the policy rate, and the impending global recession, the economic situation in Pakistan is teetering and tottering. It is, therefore, incumbent upon major business organisations such as KCCI, LCCI, OICCI, ABC, PBC, as well as FPCCI, to hold a focused conference to deliberate and agitate on the issues and then sign a strongly worded declaration to compel the government to revisit the policies and create a promising and profitable environment for foreign and domestic investors.

The total reliance on loans by successive governments has probably induced a false sense of comfort zone in the corridors of power. Usually, when any nation, faced with an economy that is headed for ruination, seeks loans from development financing institutions and accepts the tough conditionalities, navigates through the rough seas and achieves economic sanity to a large extent. This depends on political stability, belt-tightening, and favourable environment for investors. However, the situation in Pakistan is such that there is no will to get out of the morass and thus the economic environment is chaotic, confused, and complicated. Many large corporations including multinationals are regularly consulting financial advisors on ways and means to shift substantial sales off the books or maybe over-invoice through transfer invoicing.

Of course, for SMEs, this is no problem. Most of them have been doing it for decades. But they too are facing the brunt and that too more seriously. Despite the GDP of $376 billion, the total FDI in FY23 amounted to $0.427 billion, marking a significant 77 per cent drop compared to FY22. This stark decrease clearly underscores how political instability can detrimentally affect investments.

Furthermore, this situation highlights a complete failure of economic policy. An ominous worry is that foreign investors, already operating plants and businesses in Pakistan, have commenced planning their exit strategy. This would ensue in a doom and gloom situation that would surely threaten all efforts to attract foreign investment in Pakistan.

To foster a more conducive environment for FDI, it is imperative to focus on enhancing political stability, bolstering policy credibility, and upholding the commitment to honoring contracts. These strategic measures will play a pivotal role in attracting much-needed foreign investment and driving economic progress. Of the utmost importance is facilitating the existing investors in Pakistan (both local and foreign). Without satisfying the existing investors, efforts to attract FDI are not sustainable.

The future of the country’s survivability is at stake and this is a foreboding sign of debacle. The security, sovereignty, and credibility of the country are negatively and critically affected. All macroeconomic indicators are in a downward spiral. The disconsolation very apparent in the feelings of 245 million citizens has been a demoralizing factor leading to a surge in the exodus of talent as well as families to greener pastures in foreign lands. This is compounded by an obvious flight of capital, cessation of new industrial investment, a growing number of bankruptcies, and a massive increase in unemployment. All dangerous signals for any country, more so for Pakistan.

PAGE: What is your take on the IMF programme for Pakistan and its ramifications?

Majyd Aziz: IMF gives loans to developing countries not for improving the economy or implementing reform but as sweeteners for the elite capture. In this way, those in the corridors of power are indebted to the IMF and through the IMF forever indebted to the USA. This has been going on for decades.

Countries like Pakistan continuously keep going to the IMF because getting loans means enjoying the wagon ride. Meanwhile, industries keep closing down, citizens run after trucks for flour, the law and order situation deteriorates, poverty expands substantially, the flight of capital and flight of human resources increases daily, the country’s credit rating dives deep down, and people suffer and suffer.

The governments play a game of charade, hoodwinking the public that the IMF demands certain conditionalities and they have to either comply or profess that it is difficult politically to comply. But, in the meantime, the government raises rates of infrastructure etc, and ends subsidies so that the money saved could be used for the people’s welfare but in actuality, this is used exclusively for the prosperity of the elite capture. When IMF approved the recent loan, the policymakers as well as their minions and hanger-on patsies were jumping with joy. They were exuberant and elated. Euphoria reigned supreme. They were thanking Almighty Allah that IMF finally succumbed and an agreement was signed.

World trust, confidence, and respect for Pakistan increased manifold in just one day was the boast of the government. What more did Pakistan, ostensibly on the verge of default, needed? Good times were around the corner according to armchair economic analysts.

If there had been no agreement with the IMF, Pakistanis would have had to brace for hyperinflation, more factory closures, petrol only every Saturday and Sunday, no new cellphones, no new cars, a surge in smuggling, a huge rise in crimes, no opening of L/Cs, increase in suicides, and of course mega default. Why doesn’t the IMF advise rulers to cut down on their expensive foreign tours/lodging/boarding in top hotels, end the colonial protocol for dignitaries to save petrol and human resource costs, do away with lavish dinners, and slash down expenses of PM, President, CMs, Governors, ministers, judges, generals and bureaucrats?

Why doesn’t the IMF force the government to curtail free electricity to WAPDA employees and even those in the government who get free units as a privilege? Why doesn’t the IMF demand that the authorities recover all waived-off bank loans and corruption money from those who looted the nation? Why doesn’t IMF stress cutting down all government expenses by at least 70 per cent? However, IMF gives them a billion-dollar solution to tax the already taxed, increase power and gas tariffs, and burden the over-burdened. US President Abraham Lincoln once said, “You may fool all the people some of the time, you can even fool some of the people all of the time, but you cannot fool all of the people all the time”. A silent message for those in the corridors of power.