Can Pakistan's partners assist in revitalizing its economy through investment funds?

Pakistani PM Shehbaz Sharif recently traveled to China, Saudi Arabia, and the UAE seeking investments, but experts suggest he must first address domestic issues.

Islamabad, Pakistan — Over the past three months, Prime Minister Shehbaz Sharif has embarked on a series of visits aimed at persuading Pakistan’s three closest allies — China, Saudi Arabia, and the United Arab Emirates — to invest in the nation, which is grappling with economic challenges.

Under Sharif’s leadership, the government established a Special Investment Facilitation Council (SIFC) last June to bolster investment in Pakistan.

Following his trips to Beijing, Riyadh, and Abu Dhabi, the Sharif administration highlights a series of memorandums of understanding signed during these visits as indicators of potential foreign investment flowing into Pakistan.

However, analysts caution that attracting foreign direct investment (FDI) hinges on Pakistan ensuring a stable political environment and implementing structural reforms in its economy.

So what have Pakistan gained from Sharif’s visits, and what steps must it take to secure investments as it prepares to engage with the International Monetary Fund (IMF) for its 24th loan program since 1958?

$5bn from Saudi Arabia?
Shortly after assuming office in March for the second time, Sharif made two visits to Saudi Arabia in April. These visits were followed by visits from senior Saudi officials, including defense and foreign ministers, to Pakistan. In early May, a 50-member Saudi business delegation attended an investment conference in Pakistan.

During his two meetings with Saudi Crown Prince Mohammed bin Salman in April, Sharif discussed enhancing economic cooperation and explored the possibility of a $5bn investment package.

“We have identified areas of cooperation, both government-to-government and business-to-business, and have a clear way forward,” Sharif told Al Arabiya TV news in May.

Last year, caretaker Prime Minister Anwaar-ul-Haq Kakar claimed Saudi Arabia agreed to invest $25bn across various sectors in Pakistan, although specifics were not provided.

Ali Farid Khwaja, an investor and chairman of KTrade Securities, stated that Pakistan outlined potential Saudi investments in six sectors, including an oil refinery project, agriculture, mining, power, technology, and aviation.

“There is no doubt Pakistan needs investment. Just over a year ago, we were on the brink of default, but through these dialogues and engagements with friendly countries, we are conveying what we have to offer,” he told Al Jazeera.

A senior Pakistani government official involved in negotiations with Saudi delegations expressed optimism that Riyadh would invest through its Public Investment Fund (PIF), which has assets exceeding $900bn. “They are exploring investment opportunities and are committed to their vision,” the official said on condition of anonymity.

Negotiations for the proposed $5bn investment are underway, the official added.

“We are currently in the discussion phase, which has begun. As these negotiations progress, the situation will clarify, and we will see the final agreements,” he added.

Following meetings between leaders, the Pakistan Prime Minister’s Office announced the UAE’s commitment to invest $10bn across various sectors in Pakistan.

The UAE Ministry of Investment confirmed this commitment, although few details have emerged regarding sectors for investment or a timeline for these investments.

Chinese MoU List
Sharif’s most crucial foreign visit during this term was his five-day visit to China in June, accompanied by military chief General Syed Asim Munir. The Pakistani leadership held talks with Chinese President Xi Jinping, Premier Li Keqiang, and other Beijing leaders.

The visit occurred two months after armed assailants attacked a bus carrying Chinese engineers working on a major hydropower project in northern Pakistan, resulting in the deaths of at least five Chinese nationals and one Pakistani.

This attack was one of several setbacks for projects under the ambitious China-Pakistan Economic Corridor (CPEC), a $62bn initiative launched a decade ago during the premiership of Sharif’s elder brother Nawaz.

Over the past decade, Pakistan’s dependence on China has grown significantly, shifting from primarily military ties to a robust economic relationship: Pakistan owes China nearly $30bn of its $130bn foreign debt.

Pakistan’s economic managers stress that significant foreign investment is necessary to achieve the targeted 3.6% growth rate for the next fiscal year.

Following Sharif’s return from Beijing, both Chinese and Pakistani governments emphasized enhanced security measures and discussed an “upgraded version of CPEC” to better support Pakistan’s economic and social development.

Despite signing 23 MoUs across various sectors during Sharif’s visit, no concrete agreements were reached on prioritized projects between the two nations.

What Must Pakistan Do?
Since the establishment of SIFC last June, the government credits the council with facilitating investment opportunities.

Recent central bank data shows that from July to April this year, Pakistan received $1.45bn in investments, an 8.1% increase from the previous year.

However, analysts note that while these visits underscore Pakistan’s desire for financial support through bank deposits or investment projects, the failure to materialize substantial projects stems from the country’s volatile internal landscape.

“The primary reason for the lack of materialization of investments or projects lies in Pakistan’s chronic political instability and structural issues plaguing its economy,” said Umer Karim, associate fellow at the King Faisal Center for Research and Islamic Studies.

Economic analyst Uzair Younus agrees, highlighting that Pakistan’s fundamental challenge lies in its domestic environment.

“At a time when domestic businesses hesitate to invest in the economy, foreign capital will be even more cautious. To attract capital inflows, Pakistan must embark on comprehensive reforms and provide a credible roadmap that excites both domestic and foreign investors. This appears lacking under the Sharif government,” the Washington, DC-based analyst told Al Jazeera.

The Sharif government faces challenges stemming from political instability following elections marred by allegations of manipulation and rigging.

Increased attacks on law enforcement in the past 18 months have further strained Pakistan’s overstretched military, responsible for safeguarding both its eastern border with India and western border with Afghanistan.

However, Khwaja from KTrade Securities strikes a cautiously optimistic tone.

The London-based investor suggests that Pakistan’s major creditors are collaborating on a broad investment plan for the country.

“Pakistan is seen as a country receiving Saudi software on Chinese hardware, and the connections are now becoming clearer,” he remarked.

But Karachi-based economist Khurram Husain points out that the three countries Sharif visited also represent Pakistan’s largest bilateral creditors.

“Pakistan is perceived as a high-risk country by foreign investors, prompting the state to focus on making large-scale government-to-government deals happen. The challenge is that, at this juncture, they need cash support, and even if these deals materialize, they won’t bring in much cash,” Husain told Al Jazeera.

The analyst suggests that Pakistan should focus on managing its external debt profile rather than seeking further cash-based support from bilateral creditors.

However, Karim in Riyadh argues that the foreign visits have acquired a political dimension, where Pakistan leverages optics as “signs of international trust and support,” while stressing the need to revive the economy through domestic investor facilitation.

“FDI remains crucial for economic expansion and growth, but the government could start by facilitating local investors and businesses to develop a roadmap that can then be presented to foreign investors,” he suggested.