ISLAMABAD — Pakistan Finance Minister Ishaq Dar lauded the resumption of the Saudi-Pak Economic Commission, which was not active for several years. He also termed the recent visit of Prince Saud Al Faisal to Pakistan as historic since it was the first high-level visit by any Saudi leader in the last six years. Dar said that the reactivation of the Joint Economic Commission of the two countries was one of the major achievements of the visit. The revival of this Commission will provide a forum to both the countries to explore new areas of cooperation and synergize efforts at harnessing their economic strengths and potentials for mutual benefit and prosperity. Dar, in an interview with Okaz/Saudi Gazette's Faheem Al-Hamid, said: “I am hopeful that the next session of the Commission will facilitate in-depth review for the existing economic relations and identification of new opportunities. Positive results from the session will provide additional momentum to our multi-faceted cooperation, provide adequate framework necessary to promote our bilateral trade and investment and in also helping to finalize an action plan for implementation in the energy, trade and education sectors.” Following are the excerpts from the interview. Q: How can this reactivated Commission become operational? A: The decision to reactivate the Saudi-Pak Economic Commission, established in 1974 with the last of the nine sessions held in Islamabad in Sept. 26, 2012, has been made. Now all that remains to be done is to arrange a meeting of the Commission at the earliest. I am sure this will be done and the meeting will open up further avenues for trade and investment cooperation between our countries. The bilateral trade between Pakistan and Saudi Arabia in 2012 stood at $4.7 billion of which Pakistan's exports to Saudi Arabia accounted for $456 million whereas imports from Saudi Arabia stood at $4.29 billion. Pakistan's exports to the Kingdom have more or less been stagnant during the last 10 years and have been hovering around $300 to 400 million. In 2012 Pakistan's exports for the first time crossed the $450 million mark. The balance of trade between the two countries has historically been in favor of Saudi Arabia, due to Pakistan's dependence on imports of oil and petroleum products for its local needs, which accounts for approximately 75% of Pakistan's total imports from Saudi Arabia. On the other hand, Pakistan has not been able to tap the substantial potential that the $130 billion Saudi import market has to offer. I am happy to note that the Saudi authorities are already in the process of lifting the ban on poultry imports from Pakistan, which will allow us to tap into the $400 million Saudi poultry import market. Q: The Saudi-Pak Business Council has been also revived. What will be you road map to attract the Saudi businessmen? A: In Pakistan investment is protected under the law, no foreign investment has ever been nationalized in Pakistan and international companies who have invested in Pakistan have experienced the highest rate of return/growth in the last couple of years globally. Some international companies like Unilever, Toyota and Honda have experienced phenomenal growth. Pakistan has seen an increase in economic activity since our government has come into office. Large-scale manufacturing has been on the rise and we have experienced an average 6.8% increase in the last 5 months. Further, Pakistan has experienced a GDP growth to 5% in the first quarter since our government took office. Q: What are the areas you think need to be explored in the Saudi-Pak economic relations? A: Pakistan seeks Saudi assistance to meet its energy requirements and expects Saudi investors to benefit from the attractive investment opportunities in Pakistan and its huge market potential. Pakistan would, however, welcome investment in the energy sector and to cooperate and assist the Kingdom in the field of agriculture. The government also intends to disinvest its Public Sector Entities (PSEs), which can be another area of interest to Saudi businessmen. The government is also working on a new exploration policy to tap the huge natural resources in the country. We expect Saudi businessmen to invest in the field of exploration that would be a win-win for all. Q: What incentives your government will give to Saudi businessmen who want to invest in Pakistan? A: Pakistan's economic policy is based on deregulation, privatization and liberalization. The government would be ready to provide sovereign guarantee on a case-to-case basis.
* Pakistan is strategically located to become Asia's premier trade, energy and transport corridor. * 55 % of our population is below the age of 19, which bodes well for long-term sustainable economic growth. * Pakistan has one of the largest natural resources including coal, gas, copper and gold.
* It has the most liberal and business friendly investment policy in the entire region. The policy allows foreign investors 100% equity holding, 100% repatriation of profits, easy convertibility into foreign exchange and many other incentives. Our investment policy does not differentiate between domestic and foreign investors.
* Pakistan is providing tax incentives for foreign investment and has recently enacted Special Economic Zone Act, which provides tax/duty free incentives and investment protection.
* These incentives include Corporate Income Tax Holiday for five years for investors, duty free import of capital goods, provision of one window facility and government's commitment to provision of infrastructure and utilizes up to the gate level of the zone. Q: Can you give us feedback about the investment in Gwadar port? What are the areas the Saudi businessmen can invest in Gwadar? A: The government of Pakistan approved a master plan for the development of Gwadar City with land zoning and internal infrastructure networks in 2003. The Gwadar Development Authority (GDA) is charged with the execution of this master plan. A major part of its current work program is focused on the fast-track construction of roads, other infrastructure and public buildings. Recently, Pakistan and China signed an agreement for the establishment of Pak-China Economic Corridor from Gwadar to Kasghar. It would connect Pakistan with China and the Central Asian Countries making Pakistan a hub for trade. The establishment of Pak-China Economic Corridor would bring huge economic benefits to the region including rail link, roads, oil pipelines and other infrastructure projects. I believe that Saudi Arabia can also participate in the development of Gwadar by providing financing or investing in some of the areas mentioned below:
* Port related infrastructure such as storage, warehousing etc. hotels, motels, travel and tourism. * Industrial sector, seafood processing and export, date processing and export, construction office spaces etc. * Social sector and other. Infrastructure Projects. Telecommunication, road, network extension of airport, railways, special economic zone. * Refineries. Pakistan is consuming about 220,000 barrels of crude oil per day out of which 110,000 barrels is being procured from Saudi Arabia. Moreover, Gwadar is the closest port in Pakistan to Saudi Arabia. The crude oil imported from Saudi Arabia can be refined in refineries set up in Gwadar. Q: What are the major economic challenges facing Pakistan? A: When our government took over, we inherited a weak and fragile economy. Growth rate had averaged less than 3% in the last five years, which was significantly below our potential. The other economic indicators also left much to be desired. Inflation averaged around 12%, investment/GDP ratio had declined to 12.6%, tax/GDP ratio was a poor 8.5% and the fiscal deficit was close to 8.8%. The foreign direct investment was wiped out and reached to the level of only $708 million in FY12. Debt sustainability is another challenge when the Fiscal Debt Responsibility Act was breached and when Debt to GDP ratio in FY12 reached to 63%. The unemployment ratio significantly increased to 6.2% owing to less public spending and low GDP growth. Foreign Exchange Reserves had fallen to $11 billion despite significant support from IMF during last 5 years while circular debt of $5 billion was crippling the power sector and the economy.The main reasons for the under performance of the economy is the subdued performances of real sector such as agriculture, services and manufacturing. The adverse impacts of these economic difficulties were further compounded by ongoing war against terrorism, which continued unabated causing irreparable loss to the economy. In order to realize our economic vision, the government has developed a medium term macroeconomic framework for the next 3 years. The main features of this framework include:
* GDP growth to rise gradually to 6-7% by FY16. * Fiscal deficit to be brought to 4% of GDP by FY16.
The government has taken a number of far-reaching and critical steps since taking over in June to put the economy on track. We began by immediately putting in place strict austerity measures to cut unnecessary expenditures. Almost simultaneously, we settled the circular debt, which had immediate and significant beneficial impact in the shape of reduction in load-shedding leading to growth in large scale manufacturing. We entered into an IMF program, mainly to pay back our previous loans. Other important steps taken by the government include putting in place a comprehensive plan to increase our foreign exchange reserves, arranging financing for energy sector projects, new incentives for taxpayers and youth as well as ensuring transparency in all government actions.
