ISLAMABAD: An official of Pakistan’s top investment body said on Thursday that high energy costs, tax constraints and expensive financing were hampering the country’s efforts to attract foreign investment, despite identifying a pipeline of potential projects that can attract investment of over $40 billion.

Pakistan established the Special Investment Facilitation Council (SIFC), a hybrid civil-military government body aimed at attracting foreign investment in priority sectors, in June 2023. The SIFC was formed as the country faced the risk of sovereign default amid dwindling foreign exchange reserves, a weakening currency and mounting external obligations.

Speaking to the Senate Standing Committee on Cabinet Secretariat, SIFC Additional Secretary Sajid Qazi told lawmakers that the body had identified 41 projects worth a combined $34 billion. The broader investment pipeline exceeded $40 billion when sectoral studies were included, according to the presentation.

He said the projects spanned energy, transport, manufacturing, technology, agriculture, minerals, health care and tourism.

“Unfortunately, right now in our country, the electricity and gas rates, our interest rate, and generally the cost of doing business, are quite high region-wise,” Qazi said.

“So, because of this, the SIFC also struggles.”

According to a copy of the presentation seen by Arab News, the SIFC had identified potential investments worth $19.3 billion in the energy and power sector, followed by $3.9 billion in industry and manufacturing and $3.4 billion in transport and logistics.

But the official acknowledged that identifying projects and engaging potential investors had not removed the structural problems that make Pakistan less competitive than other countries.

The presentation identified unreliable electricity and gas supplies, high energy tariffs and inadequate infrastructure connecting special economic zones (SEZs) to essential utilities as major obstacles to investment.

Pakistan has taken difficult economic measures, including raising taxes and removing subsidies, as part of reforms linked to a $7 billion loan program with the International Monetary Fund (IMF).

“Phasing out of income tax exemptions under the IMF’s Extended Fund Facility (EFF) commitments weakens the traditional incentive model; need to pivot to competitiveness-based attraction,” the presentation stated.

Other challenges identified by the SIFC included overlapping federal and provincial responsibilities, lengthy approval procedures, low occupancy rates and limited export orientation.

The SIFC was also mapping regulatory requirements and working to simplify procedures, including through a proposed regulatory bulletin and efforts to reduce the number of approvals required from different departments, the presentation said.

SMUGGLING, FDI INFLOWS

During the committee discussion, lawmakers questioned whether the council had done enough to remove obstacles for investors and asked what tangible results it had delivered since its establishment.

Officials said the council was also working with provincial governments to map regulatory requirements at district and provincial levels, with the aim of involving them in reforms.

They said interviews with companies that had reconsidered or withdrawn investment plans revealed a mix of reasons, including changes in regional business strategies and concerns about Pakistan’s business environment.

Some companies complained that they were struggling to compete with goods entering the country through smuggling or tax evasion, despite complying with domestic tax and environmental regulations, the SIFC official said.

“Smuggling cannot be competed with at all,” another SIFC official said, explaining that local manufacturers faced higher production costs because of expensive energy and other inputs.

The SIFC told the committee that Pakistan’s central bank had cleared all pending cases involving the repatriation of foreign investors’ profits that had accumulated during the foreign exchange crisis of 2022-23.

The cases had been processed on a first-in, first-out basis, and the backlog had been cleared, officials said.

Separately, Pakistan recorded approximately $6.24 billion in net foreign direct investment (FDI) and $10.41 billion in gross FDI inflows from fiscal year 2023-24 through April 2026, according to figures cited in the presentation and based on central bank data.

These figures cover investment flows nationwide. Qazi did not specify how much of the investment was directly attributable to the SIFC during this period.

The council also presented a range of projects that it said had progressed from memorandums of understanding to agreements, including initiatives in fertilizer, electric vehicles, solar energy, pharmaceuticals, e-commerce and battery storage.

Officials said some projects had moved into implementation, while others remained at earlier stages of development.

The presentation also showed that, across 583 SIFC initiatives, 37 percent had been completed, 38 percent were ongoing and 25 percent remained in progress.