In the development decade of the 1960s, the issue of trade and not aid cropped up because much of the industrialisation was debt-driven and business leaders started talking about increasing domestic savings, investment, production and exports.

But over time, the trade gap mostly continued to widen. Tight monetary policy to depress domestic demand and ease external sector pressures resulted in de-industrialisation. Farm production suffered badly due to backward cultural practices and a lack of modernisation of agriculture. Agri-food imports rose by 64 per cent to $3.847 billion during July-December 2023.

Foreign investment was attracted with no priority set for development but to shore up dollar reserves, ignoring its overall economic impact. Now, repatriation of dividends and profits invariably exceed foreign direct investment (FDI) inflows, forcing the authorities to restrict remittances to their parent companies.

Foreign firms are reported to have divested their assets or temporarily reduced or halted their operations in Pakistan since 2022. Ignoring past experience, an effort is being made to attract FDI from friendly Arab countries without rationalising FDI policy.

All sub-nationalities need to be equitably empowered to work together to mobilise the country’s unutilised local resources

The thinking (of the caretaker government) that we must first bring foreign investment is flawed, said one of the country’s leading entrepreneur’s Muhammad Ali Tabba in an interview.

Stressing the need for a long-term investment policy, he pointed out that there is a lot of cash in the private sector and system. It is just that it is not being motivated to invest locally. Similarly, he also identified sectors which could be developed through joint foreign-local ventures based on indigenous resources.

Often aware of the hassles involved in setting up new projects, some foreign investors prefer to work with local partners. This is also evident from foreign investors currently taking up stakes in existing companies where risks are much lower and returns much quicker.

Unless foreign investment in joint ventures is matched by sizeable local equity, the bulk of dollars would be spent on new projects and would not provide much support for building up dollar reserves. Foreign investors also expect more incentives for new projects in adverse business environments.

Foreign investors expect more incentives for new projects in adverse business environments

Among other factors, political uncertainty weighed heavily on business and consumer sentiments, resulting in a contraction of 0.2pc real GDP in FY23, says State Bank Governor Jameel Ahmed. That brings into question whether economic stability can be achieved without political stability.

Some pin hopes that the next government, empowered with a fresh electoral mandate, will undertake long-term reforms to build upon short-term improvements in some macroeconomic indicators, including a reduction in trade and current account deficit as a result of administrative and regulatory actions taken by the caretaker government and the central bank.

The view is not shared by many others. With the impression that electoral manipulation is afoot, analysts fear such an eventuality could damage democracy and national cohesion. The outlook for political stability after the general elections appears murky.

Speaking at a press conference after the rejection of the nomination papers of his and his party candidates, Balochistan National Party chief Akhtar Mengal warned that if justice was not served, the matter would be taken to the people of Balochistan. “If you weaken the political parties, you weaken the federation,” warned PML-N Senator Mushahid Hussain Syed, addressing the Senate recently.

Dealing with Pakistan’s estranged nationalists needs political sagacity and a willingness to accept them as equal citizens of Pakistan who have been wronged, says Pervez Hoodbhoy. Otherwise, he warns, be prepared for unending militancy and a miserable 2024.

As it appears, Pakistan’s external sector challenges will also become more formidable. Among the big issues and trends listed by eminent international scholars and political economists that will dominate global attention in 2024 are threats to democracy, major wars, looming economic risks and multiplying humanitarian crises. The Israeli massacre of Palestinians, it is argued, will bring seismic change in global geopolitics as ‘guns do not kill ideas but reinforce them’.

It is time for people of all sub-nationalities to be equitably empowered to work together in harmony to unleash the potential for mobilising the country’s unutilised local cash, human, and physical resources required for national reconstruction.

Published in Dawn, The Business and Finance Weekly, January 8th, 2024