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SIFC making waves?

Special Facilitation Investment Committee (SIFC) was established by the Shehbaz Sharif-led government on 17 June 2023, and has since come under considerable criticism – by Shahbaz Sharif haters who maintain that it reflects his sustained capitulation to the establishment, this time at the cost of democracy, by Finance Ministry officials (reportedly led by former finance minister Ishaq Dar whose flawed economic policies have significantly contributed to the current appalling state of the economy) for not subordinating the entity to the Finance Ministry, and by analysts for inducting army personnel in an area for which they may not have the necessary expertise.

Criticism is therefore not focused on SIFC’s objectives or functions but on the chain of command and the composition of its membership. SIFC has three tiers of decision making: (i) apex committee headed by the Prime Minister and including provincial chief ministers and the chief of army staff – a membership designed to ensure smooth synchronized implementation of policy decisions to achieve the best results; (ii) Executive Committee (to be headed by the Planning, Development and Special Initiatives Minister with representation from all relevant ministries/provincial secretaries and a Major General from the Pakistan Army); and (iii) Implementation Committee organised into SIFC Secretariat with Sectoral Divisions for planning, coordination and execution of projects as well as a Director General from Pakistan army and five coordinators from the army.

The twin salutary objectives of SIFC are facilitating foreign investment inflows (immediate target of 5 billion dollars, 60 billion dollars in five years and 100 billion dollars in the long term) and economic revival. Details of the SIFC functions are noted in the 4 August 2023 Act No XLI of 2023 published by the Gazette of Pakistan ranging from acting as a single window for multi-domain cooperation in relevant fields with Gulf Cooperation Countries (GCC) in particular and other countries in general for facilitation of investment and development of an enabling policy environment to recommending approvals, to executing commercial transactions and/or entering into arrangements for agreements, directly or indirectly, with local and foreign investors, to considering individual investment proposals as well as categories of investment that require special treatment and recommending where appropriate, additional incentives for relaxation in the regulatory and policy framework.

For the fulfilment of these functions the SIFC was granted the power to issue directives/summon regulatory bodies, public sector entities, divisions and departments of the federal government. And, finally, the standard addition in the stated functions notably SIFC could perform any other function assigned by the federal government. Immunity has been granted to SIFC (or any of its members or consultants) for any act done, procedural lapse suffered or omission made in exercise of performance of any functions, power or duty conferred.

The objectives specified have to-date enabled the SIFC to take decisions relating to privatization of two white elephants – Pakistan Steel and Pakistan International Airlines – and in functions associated with the Board of Investment. The following recommendations/decisions have been reported so far: (i) Finance Division and the State Bank of Pakistan to clear the outstanding bills due to Chinese Independent Power Producers (IPPs) as the failure to release the funds, due to paucity of foreign exchange reserves, has reportedly led to increasingly acrimonious exchange with the Chinese that is compromising the inflow of other project assistance under China Pakistan Economic Corridor (CPEC) umbrella; foreign exchange reserves on 3 November were a low of 7511.5 million dollars – less than two months of imports and with the failure of the government to secure the budgeted market financing of around 6 billion dollars at affordable rates (due primarily to no upgrade by rating agencies subsequent to the International Monetary Fund’s approval of the Stand By Arrangement) clearing the dues to the Chinese IPPS may have to be further deferred; (ii) to scrap the previous three elected governments’ proposal to provincialize distribution companies and instead to implement private sector management control; (iii) take PSM out of the list of privatization and to consider use of PSM land for setting up an export processing zone; (iv) appoint a financial advisor for sale of PIA assets; and (v) talks on possible Saudi Arabia partnership/investment in the Reko Diq deal.

These measures, apart from (v), were extensively debated during previous administrations, including during the tenure of the deceased powerful dictator Musharraf, however implementation remained pending due to lack of an appropriate environment conducive to attract investment and in terms of (iii) and (iv) due to organised resistance by powerful unions, many a time supported by opposition leaders. It would undoubtedly be deemed a success if the SIFC decisions are implemented where previous three civilian and a military administration failed. Success, however, is likely to be undermined by the expected return of a civilian set-up that had failed to implement these policies in the past.

If the next government is led by Nawaz Sharif, as is widely believed, then in spite of the honeymoon period he is currently enjoying after his four-year absence from the country the chances of Ishaq Dar’s reappointment as the finance minister are high – a decision that would almost certainly upset the applecart in general and the SIFC applecart in particular sooner rather than later.

Reports also indicate that the Finance Division has given a detailed briefing to the SIFC on the state of the economy though the recommendations/directives, if any, have not been made public. Suggestions relating to economic policy decisions by the SIFC are as follows: (i) provinces must share the expense of subsidies (particularly for supply of urea); and (ii) provinces must share the cost of Benazir Income Support Programme to the extent of the numbers served in a particular province. Again these proposals have been on the cards for quite a while and, if implemented, would strengthen support for SIFC.

Two possible areas of concern with respect to the SIFC decisions and their implementation are as follows: (i) foreign investment inflow at whatever cost must not be the overarching objective with little attention paid to the terms of the contract. The contracts signed with IPPs under CPEC are the reason for high tariffs today; and (ii) logjams may occur due to political considerations; especially, when the centre and any of the federating units are being administered by different political parties, as is widely expected. In this context it is relevant to note that the 2010 passage of the eighteenth amendment that envisaged devolution of social sector subjects to provinces (based on the tenth National Finance Commission award also agreed in 2010) that raised the share of the provinces in the divisible pool remains unimplemented to this day.

To conclude, SIFC’s membership can be supported given the current rise in security threats and the red tapism due to persistent lack of federal and provincial coordination on several matters as is the intent of the SIFC members to attain development not by increasing borrowing, as in the past, but by attracting foreign investment but one would caution given our past: economic policies (monetary and fiscal) must not be held subordinate to political considerations.

Anjum Ibrahim, "SIFC making waves?," Business recorder. 2023-11-20.
Keywords: Political sciences , Economic revival , Foreign investment , Political parties , Foreign exchange , Public Sector , Shahbaz Sharif , Ishaq Dar , State Bank , Pakistan , SIFC , IPPs , PSM , CPEC

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