KARACHI: The United States has urged Pakistani leaders to combat corruption and red tape which was discouraging Foreign Direct Investment. It was also hampering economic growth and private sector development in the crises-hit country.
In addition, Washington snubbed local federal and provincial governments for lacking respect for ‘budget discipline’ that resulted in excessive borrowing from the central and private sector banks. The US was also critical of Islamabad’s lukewarm response to the Pak-US joint energy companies whose various energy-related proposals were pending for approval from local authorities.
The ambassador said that the above factors had dampened FDI flows to Pakistan by 60 percent from the levels seen in 2007 and 2008 besides a difficult security environment.
“The United States is engaged with government officials on all levels to improve the business climate in Pakistan, by reducing corruption, improving transparency and strengthening effective dispute mechanisms,” he added.
Hailing government’s efforts on reformed GST, Munter took the local federal and provincial governments to task for, what he said, not building a ‘solid foundation’ for fiscal reforms through showing respect to ‘budget discipline’.
“As Finance Minister Shaikh said that during the Pakistan Development Forum, such discipline was lacking, resulting in excessive borrowing from the State Bank and private sector banks,” he said adding that “Key to building that platform is ensuring that the central government and the provinces demonstrate budget discipline.”
He maintained that even if Islamabad succeeded in implementing the proposed but ‘urgently needed’ reforms like reformed GST, it would have to base the same on a solid foundation, namely fiscal discipline. The government spends more than it collects,” Munter said.
According to the US envoy, this government borrowing was feeding inflation which was affecting the poor, crowding out loans available to the private sector and limiting prospects for growth of businesses.
The ambassador was, however, convinced that legislating on the tax, budget and economic reforms was a daunting task. “Let us not kid ourselves, this is not easy, this legislation is critical to enable the private sector to grow and create jobs.”
The proposals, he said, also included an agreement signed last month to build a $150 million wind power plant in Gharo corridor of Sindh and a full range of other investments. “Other projects supported by US investors are pending, which include several proposals to build facilities to import LNG, that we hope that the Government of Pakistan will quickly approve them,” he said.
“Frankly, it makes little sense for the Government of Pakistan to continue to drain the government budget by paying huge subsidies to support the power sector,” he said.
He also lambasted the previous Musharraf-led government for its failure to implement energy development plans in a timely manner, state regulatory interventions in the sector, insufficient focus on private-sector solutions and continued questions about the security situation that, Munter said, had dampened investor interest in Pakistan.
“This is in addition to more than $185 million pledged under the Signature Energy Program announced by Secretary Clinton to improve efficiency of Pakistan’s energy sector.”
Regarding the broader scheme of economic reforms, the US official said whereas the reform and privatisation of “inefficient” state-owned enterprises was crucial for Pakistan, the country had stalled the privatisation process since 2008.
“In fiscal year 2010, these enterprises cost the Government of Pakistan almost $3.0 billion in state subsidies – twice the amount of Kerry-Lugar-Berman assistance,” he stated with concern.
