Why foreign investors stay away

Business Recorder

2 days ago

EDITORIAL: That Rs 431 billion in payments to Chinese power projects is reportedly stuck in the local banking system would be alarming on its own. That the State Bank of Pakistan (SBP) says no such backlog exists — except for one profit repatriation worth USD26.5 million — makes the matter downright incomprehensible. If the Power Division and SBP are reading from such different books, it's no wonder foreign investors view Pakistan as a risky and opaque environment.
This discrepancy came to light in a recent meeting of the Sub-Committee on Reforms, where the Power Division insisted that outstanding dues for non-energy components of Chinese projects like Port Qasim and Sahiwal remain unpaid. The SBP, on the other hand, rejected these claims entirely, asserting that no loan repayments or repatriation payments are pending, nor were any instructions issued to delay such transfers.
At the core of the issue is not just a missing paper trail, but a complete breakdown in inter-agency coordination — at the highest level. If one arm of government says Rs 431 billion is stuck in commercial banks and the other flatly denies it, there is clearly no shared definition of accountability or transparency. The meeting's failure to produce a conclusive way forward reflects how institutional dysfunction now operates in broad daylight.
It does not help that this comes at a time when Pakistan is trying to attract investment into its Special Economic Zones (SEZs) and Export Processing Zones (EPZs), with particular emphasis on drawing more Chinese capital. Despite land availability and marketing efforts by the Board of Investment, no investor is likely to commit capital without guarantees of smooth and timely repatriation of profits — or at the very least, clarity on the state of payment systems.
What makes the current situation even more damaging is that it follows closely on the heels of revelations that SBP had intervened in the foreign exchange market, while publicly denying doing so. That episode had already eroded trust. The present dispute only reinforces the perception of an institutional credibility gap. The central bank's repeated insistence that no directives were issued to delay payments means either the Power Division is misinformed or there are informal controls at play that no department is willing to admit to.
Foreign investors value predictability, due process, and contract enforcement. These were the very principles stressed by the subcommittee chair, and rightly so. Yet the country continues to fail on all three fronts. Contract sanctity is routinely questioned, policy shifts occur without warning, and due process is often bypassed in favour of short-term administrative improvisation.
Meanwhile, key regulatory institutions like Nepra failed to even attend the meeting, and were asked to report separately on eight unresolved cases. That, too, speaks volumes about the level of urgency, or lack thereof, with which core stakeholders treat matters related to investor confidence.
If Pakistan is serious about attracting foreign capital, this kind of governance must end. A written, reconciled report from the SBP on all pending payments to Chinese companies, complete with ageing data, is the bare minimum. The fact that this was only requested now, despite years of complaints from Chinese project operators, is further evidence of systemic negligence.
The way forward is not difficult to imagine, but it does require political will. First, all departments must operate with a single, verifiable version of financial data. Second, any capital controls or payment prioritisation policies must be disclosed openly, with reasons. And third, the government must hold responsible any entity, public or private, that obstructs or delays legitimate payment flows to foreign investors.
Until then, the country will continue to suffer from a credibility deficit that no amount of investment promotion campaigns can fix.
Copyright Business Recorder, 2025