According to a report issued by a western research agency, risks for the foreign investors are very high in Pakistan due to fiscal and trade barriers as well as due to the country’s bureaucratic rigmarole. The report describes the security situation as volatile with slow outflow of investment that is expected to continue in the foreseeable future. However, the report says that a developed banking system provides good access to international financial markets whereas the country has an overall score of 29.5 out of 100 for trade and investment, putting it in 24th position out of 30 countries in Asia.The flow of foreign direct investment has slowed down since 2008, which had risen sharply from the mid-1990s to the mid-2000s. Currently, the foreign direct investmentaccounts for just 11.8 percent ofthe total GDP due to inconsistent economic policies, high fiscal and trade barriers, high corporate tax rates and poor infrastructure. The country receives a low score of 37.9 out of 100 for economic openness, putting it in 23rd position in the list of regional countries.However, the report says that the country has a sound banking system as well as good access to international financial markets and a high number of listed companies. The presence of international banks in the country facilitates the flow of funds into the country without the risk of losing money in transfer fees.
As a matter of fact, it is the common feature of the western research agencies to depict a bleak picture of the Pakistani economy. On one hand, the agency report warns the foreign investors about the perils of investment in Pakistan and on the other hand, it appreciates strong banking institutions in the country. However, the agency seesgradual privatisation of banking sector as crucial aspect to increase overall efficiencyfrom a medium-term perspective.The government recently raised $1.02 billion by selling 609 million of its remaining government shares in the largest bank of the country. The government also wants to privatise 68 public companies, including 10 banks. Pakistan and China have recently signedagreements worth $45 billion which will boost economic activities and stimulate the banking sector. The Chinese investment is a big leap in the right direction as it is 28 times more than the foreign direct investment to Pakistan and both Pakistan and China will allow banks to open branches in each other’s country. The State Bank of Pakistan has also evaluated and identified the ‘encouraged’ set of financial services institutes to further improve the market discipline and enhance assessment of the financial sector.
