Last year, 832,339 Pakistanis left the country for overseas jobs. In nine months of this year, 633108 more have followed suit to join the 11 million-plus Pakistani diaspora across the world, according to the Bureau of Emigration and Overseas Employment.

The foreign exchange sent back home in 2022 stood at around $29.9 billion, an average of $2.49bn per month, and in ten months of 2023, their remittances totalled $21.7bn or $2.17bn per month.

Pakistani professionals and skilled and non-skilled workers have been leaving their homeland in large numbers for multiple reasons. First, there are not enough jobs; second, wages are not sufficient and low wages and remunerations become painfully lower in real terms when adjusted against high inflation — and third and most importantly, many of them have started losing confidence in Pakistan’s economy and political system.

Firms and businesses are not happy with the policymakers either. From the Pakistan Business Council to the Federation of Pakistan Chambers of Commerce and Industry to regional chambers and the lobbies representing specific industries and businesses keep complaining about the ever-increasing cost of production, lack of policy consistency, corruption in bureaucracy and absence of a clear roadmap for the economic revival. Their occasional statements on the state of the economy differ in tone but not in essence.

Despite some improvements in indicators, future improvements in the economy seem more based on hope than structural changes

The recent creation of the Special Investment Facilitation Council with the onboarding of the army leadership may have reassured some top industrialists and businessmen and rekindled their optimism in Pakistan’s economic future. But this is not a general feeling across all industries and all businesses.

For obvious reasons, they do not express their despondency openly. But privately, most of them sound confused and even pessimistic. Some multinational companies are also divesting their shares in the country. That’s why you see that the outflow of foreign investment from the country is growing in terms of percentage of the total inflows.

In FY22, the outward flow of foreign investment from Pakistan totalled $756m or 28 per cent of the gross inflows of $2.692bn. In FY23, this percentage rose to 34.8pc with outflows totalling $828m against the inflows of $2.376bn.

Decades of inconsistent policymaking and short-termism and years of serious economic mismanagement have created mountains of economic challenges for Pakistan. And with every passing day, those challenges are compounding.

The external debt burden has become too heavy. Heavier is the stock of domestic debt. Both make it difficult for the government of the day to reduce the debt stocks significantly.

The ever-increasing domestic debt servicing belittles whatever increase is achieved painstakingly in revenue generation, and it also requires excessive government borrowing from banks. And growing requirements of external debt servicing keep forex reserves thin and the rupee vulnerable to even a slight increase in market-driven demand for foreign exchange.

Now, the Special Investment Facilitation Council (SIFC) has been set up in the hope that its particular structure (and clout) will help the country attract big-ticket foreign investment (in addition to China-Pakistan Economic Corridor-related investment) from pre-identified countries. Currently, the focus is on the Gulf Cooperation Council nations.

But quite expectedly, the International Monetary Fund (IMF) isn’t happy with the idea of creating SIFC. More specifically, it has serious reservations about the concept of reaching out to “preferred investors” and has advised Pakistan to ensure “transparency and accountability” in matters related to SIFC.

It is also unclear what the elected government’s policy will be installed after the February 8 elections towards SIFC. In the recent past, we have seen the PML-N-led coalition government dismantle the CPEC Authority created during the PTI government.

Even if SIFC survives in its present formation during future elected government, will it succeed in attracting massive foreign exchange in the short term just because of its unique composition? That remains a big unknown.

Foreign states and foreign firms, regardless of their friendliness towards Pakistan due to historical ties or thanks to rapidly changing geopolitical necessities, may naturally like to determine the pace of injection of funds according to their own specific strategies.

This means the external financing gap will not go away anytime soon. But can this gap be narrowed to the extent that we get rid of the IMF as many politicians and some elements of the establishment like us believe?

We must not forget that even if all the foreign funding pledges made by our friendly countries materialise, Pakistan will still face a $6.5bn external financing gap this year — $5bn projected to have come from commercial banks and $1.5bn to be obtained through the launch of sovereign bonds both of which now seem a distant possibility under the present domestic economic situation and international market conditions.

Anticipating increased import payments and outward remittances of foreign funds due to profits and dividends earned in Pakistan by foreign investors, the Pakistani rupee has faced renewed pressure amidst the prevailing financing gap.

In one month (between October 17 and November 16) the rupee has gradually lost more than 3.8pc value against the US dollar. Goods’ imports in October consumed 20.3pc more foreign exchange ($4.806bn) than in September ($3.994bn).

Large-scale manufacturing output has restarted growing (up 1pc in September), and the State Bank of Pakistan (SBP) has already liberalised the imports regime. So, import payments are expected to continue to grow, which can lead to further erosion in the rupee value.

Published in Dawn, The Business and Finance Weekly, November 20th, 2023