Direct foreign investment (DFI) inflow in Pakistan as percentage of GDP in the year 2009-10 remained 1.33 percent. The debt to GDP ratio has crossed the mark of 61 percent. The tax-GDP ratio is awfully low, barely 9 percent. Current account deficit is 1.9 percent of GDP. In the past four years, the inflow of foreign direct investment has driven in a downward direction by 50 percent.

Looking at the afore-refereed rundown of our economy, an ordinary person can state with much degree of confidence that the country is deeply debt-ridden, lack investment and capital accumulation. According to the World Investment Report, 2012 published by the UNCTAD, FDI from developed countries in 2011 remained to the tune of $1.24 trillion. In South Asia, the FDI inflows reached at $39 billion due to rising inflow to India. The report does recognise that improving relations between India and Pakistan have heightened new opportunities. Today’s world, led by the forces of the fastest means of communication is narrowing down the time distance among countries and continents. With many thanks to the social media, people and cultures around the globe are positively learning out of each other experiences and have become more diversified.

Transnational companies and host countries are exploring new avenues of investment to bring prosperity and happiness on the face of the planet. Pakistan offers an ideal situation for investors due to its rich resources and a potential bigger size of the market. Cost of labour is cheap. The continuing problem of governance and the present standoff between the lawmakers of the ruling party and judiciary has created a sort of political instability in recent past. A little fine-tuning and analytical understanding is imperative to come out of the morass, which is perturbing poor maximally, comprising almost half of the country’s population. ‘It is the legislator’s task to frame a society which shall make the good life possible’, Aristotle stated thousands years ago. To him lawgiver is not an ordinary politician, but a state doctor. While Plato, another founding father of an ancient democracy states in his famous book ‘Laws’ that let the judge be accomplished in the laws. Democracy is not meant to concentrate powers, but on the principle of check and balance, it separates the powers of legislative, executive and judiciary. Law is applicable across the board regardless of one’s position.

One should also not forget the famous dictum of Adam Smith, the father of economics for embarking the country on the path of economic prosperity, which states that ‘Little else is required to carry a state to the highest degree of opulence from the lowest barbarism than peace, easy taxes and a tolerable administration of justice.’ There is an urgent need to improve the macroeconomic fundamentals. Low tax rate stimulates private sector investment. In order to improve tax-GDP ratio, tax base has to be increased, instead of over-taxing the existing taxpayers. High Inflation and DFI are inversely correlated. The inflation has to be brought down to single digit. Modern economists do not see state as an engine of growth, but private sector is a prime driver of growth. State is deemed a facilitator of promoting investment and economic growth and regulator to safeguard the risks of externalities.

No country in today’s swiftly changing world can perform well without the involvement of FDI, which brings new knowledge, technology, capital and skills in host countries. Moreover, big transnational companies maintain high level of corporate social responsibility with Melinda Gates, for example giving charities in $billions in different countries. Given the frail base of the state-led and debt-driven economy and widespread poverty, foreign direct investment inflow should become a new trajectory of economic growth that would bring a real change in transforming the society from poverty to prosperity.


Lahore, July 23.