Pakistan has confronted
economic underdevelopment and sluggish growth in the last few decades owing to
political unrest and increasing security concerns. The economy has faced serious
negative trend from the past few years following the world worst recession. In
the last few months the situation has worsened due to political situation and
elections. The political uncertainty is the main contributor for this downfall
as government plays a vital role in any economy by acting as the agents and
catalyst and devising economic plans. In the year 2013 Pakistan’s foreign
exchange reserves dropped to $12.202 billion and Pak Rupee has declined to
lowest ever this year crossing the hundred marks depreciating more than 40%
since 2007. This fiscal year the trade deficit fell 10% for starting eight
months. Undeniably the fiscal year ending 2012 was the fifth consecutive year
with an annual growth below 4 %. CPI inflation has gone down from 25% to 7%. The
situation of financial institutions is not different. Domestic public debt
reached the level of 40% of GDP and private sector loans have reduced to 16%.
Banks are facing investment problems and due to economy crisis bank deposits as
ratio of GDP have gone down to 28% from the level of 33% in last five years. To
make things worse, budget deficit has reached unsustainable levels. The
government has pursued a new bailout from the IMF but due to general elections
there is an uncertainty how the winning party will implement tax reforms and
impose spending cuts. The real need of the time is huge investments in Pakistan.
Whenever any economy faces economic recession and imbalance the government have
only two options to cope with that. First, the government along with central
bank pledges to pump in direct money to accelerate the circulation cycle. Second
and the most effective option is announcing large scale projects and encouraging
investments to uplift the economy. This will create new jobs, ease poverty and
can help in sustained long term growth of an economy. If Pakistan is interested
in attracting foreign investments it have to first create the healthy investment
climate by reducing security concerns and stable macro-economic climate. Debt to
GDP ratio should be lowered by cutting down the expenditures. This can be
achieved by controlling the corruption as transparency international reveals
that corruption has increased and has score of 2.5 standing among top corrupt
countries of the world. Global peace index places Pakistan as one of the top
five dangerous countries in the world. Pakistan should devise new investment
strategy keeping in mind that without good and stable political environment and
secure and liberal investment policy nothing can be achieved. Pakistan should
enhance domestic investment by increasing national savings and should align
provincial and federal investment policies. Investment banks can play a vital
role in easing the stressed economy. Investment bank as as a financial
intermediary that facilitates investing public and issuer of security.
Investment bank also as an underwriter and facilitates mergers and other
corporate restructurings. Investment bank can help by bridging the gap between
investors and firms and also acting as a guarantor. Investment banking has its
roots in Pakistan since 1980s and has seen tremendous growth in last decade of
previous century. However, due to non-diversification of portfolios and lack of
interest shown by financial players, investment banking has witnessed severe
problems and now there are only seven functioning banks as matched to 13 in
2005. A special attention should be given to this sector which can play a vital
role in mobilizing Small and medium enterprises and gathering funds which in
turn can gear the circulation of money and ease the economic tensions.