Pakistan upgraded to middle-income country but struggles with infrastructure

Writing for Express Tribune, author Salman Siddiqui points out that Pakistan has recently been upgraded to a middle-income country, but it faces numerous challenges in its economic development. 

The author explains that the country’s infrastructure and human development have been compromised by piling debt for non-development purposes, resulting in devastating floods in 2022 and decelerating economic growth. Pakistan has now begun mobilizing infrastructure investment from local banks to address these challenges, as foreign investment remains choked and awaits the revival of the International Monetary Fund (IMF) loan program worth $6.5 billion.

At the “Infrastructure Summit 2023 – Building for Impact,” organized by the Nutshell Group and InfraZamin, State Bank of Pakistan Governor Jameel Ahmad spoke about the importance of infrastructure spending in Pakistan. He highlighted that the country’s current spending of 2.1% of Gross Domestic Product (GDP) is amongst the lowest in the region and well below the national GDP level requirement of 8% to 10%. According to Ahmad, investing in infrastructure like energy, telecommunications, safe drinking water and sanitation, transportation network, health, and education helps increase competitiveness, improve productivity, facilitate economic development, and enhance social well being of the society.

Maheen Rehman, CEO of InfraZamin, also spoke at the summit and discussed the challenges faced by Pakistan’s debt issues, which have become increasingly urgent in the absence of the resumption of the IMF loan program. She emphasized the importance of mobilizing local financing for infrastructure projects, citing India and Bangladesh as examples of countries that have successfully done so and emerged on the world economic map. Rehman pointed out that mobilizing local financing could help to develop bond markets more significantly and finance projects in the Pakistani currency instead of foreign currency.

InfraZamin and its parent company, Private Infrastructure Development Group (PIDG), which is an initiative among six European countries including the UK, provide financial guarantees for local banks and have recently kicked off supporting infrastructure projects. Despite the challenges faced by Pakistan, PIDG has recently begun offering its services in Pakistan with a focus on utilizing local markets and currency financing.

The British High Commission Islamabad Development Director, Jo Moir, expressed concern about Pakistan’s current economic situation. She highlighted that the British High Commission and PIDG have identified three priority areas for international support, including fostering climate innovation and early-stage risk capital, creating innovative financial instruments within the capital markets, and unlocking international climate finance. Moir argued that aid reductions could be viewed positively given Pakistan’s progress in becoming a middle-income nation. However, she also emphasized the urgent need for investment in Pakistan’s infrastructure, particularly in light of the country’s vulnerability to climate risks.

In conclusion, Pakistan faces numerous economic challenges, including piling debt, inadequate infrastructure spending, and vulnerability to climate risks. Mobilizing local financing for infrastructure projects could help to address these challenges and enhance the country’s economic development. The international community, including PIDG and the British High Commission, have identified priority areas for support in Pakistan and have started working towards addressing them.

To read the full article visit www.tribune.com

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