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Executive Summary

Despite a relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors. An improving but unpredictable security situation, chronic energy shortages, and a difficult business climate – including lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, and inconsistent taxation policies – have contributed to a drop in Foreign Direct Investment (FDI) in recent years. Pakistan ranked 144 out of 190 countries in the World Bank’s Doing Business 2017 rankings, improving two places from the previous year.

The Pakistan Muslim League-Nawaz (PML-N) government was elected in May 2013 on pledges to improve Pakistan’s economy, enhance trade and investment, and resolve the chronic energy shortages. In September 2013, the Government of Pakistan and the International Monetary Fund (IMF) entered a three-year $6.8 billion Extended Fund Facility (EFF) arrangement which included a series of reform benchmarks. The government successfully completed the EFF program in September 2016, and with the help of the IMF, implemented some macroeconomic reforms. Progress on other key areas, however, including privatization, has been slow, impeded by strong domestic political pressures.

The United States has consistently been one of the largest sources of FDI in Pakistan and one of its most significant trading partners. Two-way trade in goods between the United States and Pakistan exceeded $5.5 billion in 2016, including a 14 percent increase in U.S. exports to Pakistan over 2015. The Karachi-based American Business Council, an affiliate of the U.S. Chamber of Commerce, has a membership of 68 U.S. companies, most of which are Fortune 500 companies, operating in Pakistan across a range of industries. The Lahore-based American Business Forum also provides assistance to U.S. investors. American companies have profitable investments across a range of sectors, notably, but not limited to, fast-moving consumer goods and financial services. Other sectors attracting U.S. interest have been: franchising, information and communications technology (ICT), thermal and renewable energy, and healthcare services.

In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) to serve as a key forum for bilateral trade and investment discussion. The TIFA seeks to address impediments to greater trade and investment flows and increase economic linkages between our respective business interests. TIFA meetings are held annually, the most recent of which was led by USTR Michael Froman in October 2016 in Islamabad.

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. A list of countries/economies with MCC scorecards and links to those scorecards is available here: Details on each of the MCC’s indicators and a guide to reading the scorecards are available here:

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 116 of 175
World Bank’s Doing Business Report 2017 144 of 190
Global Innovation Index 2016 119 of 128
U.S. FDI in partner country ($M USD, stock positions) 2016 USD 392
World Bank GNI per capita 2016 USD 1,440

9. Corruption

In 2016, Pakistan ranked 116 out of 175 countries on Transparency International’s Corruption Perceptions Index. Although the PML-N has made progress in its anti-corruption agenda, including introducing new anti-corruption policies and prosecuting officials accused of illegal activity, corruption remains a widespread and pervasive problem in Pakistan. Moreover, anecdotal evidence suggests that corruption has increased at the provincial level following the 2010 constitutional amendment that devolved certain authorities from the federal to the provincial governments. According to Transparency International, major causes of corruption are the lack of accountability and enforcement of penalties, followed by the lack of merit-based promotion, and relatively low salaries.

Offering and accepting bribes are criminal acts punishable by law. Nonetheless, corruption within the lower levels of the government bureaucracy is common, and even considered normal by most Pakistanis. Lower courts are often considered corrupt, inefficient, and subject to pressure from prominent wealthy, religious, and political figures. Political involvement in judicial appointments increases the government’s influence over the court system.

Established under the 1999 National Accountability Ordinance, the National Accountability Bureau (NAB) is the country’s premier anti-corruption organization, with a mandate to expose and prevent corrupt activities and to enforce anti-corruption laws, but the organization suffers from insufficient funding and staffing. In addition to NAB, the CCP’s mandate also includes anti-corruption authorities, but like NAB, CCP’s effectiveness is hindered by resource constraints.

The 2007 National Reconciliation Ordinance (NRO) provided for amnesty to certain public officials accused of corruption, embezzlement, money laundering, murder, and terrorism between January 1, 1986, and October 12, 1999. In December 2009, the Supreme Court invalidated the NRO and reopened all 8,000 cases against those who had received amnesty, including President Musharraf. The implementation of Supreme Court’s decisions about the NRO beneficiaries is still pending.

UN Anticorruption Convention, OECD Convention on Combating Bribery

Pakistan is not a signatory to the OECD Convention on Combating Bribery, but is a signatory to the Asian Development Bank/OECD Anti-Corruption Initiative. Pakistan has also ratified the UN Convention against Corruption.

Resources to Report Corruption

Major Qamar Zaman Chaudhary
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad

Sohail Muzaffar
Transparency International
5-C, 2nd Floor,Khayaban-e-Ittehad, Phase VII, D.H.A., Karachi

Investment Climate Statements
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U.S. Department of State

The Lessons of 1989: Freedom and Our Future