Although I concurred – but I tried to play the devils advocate and argued that in 1999 when Gen. Pervez Musharaff took over, Pakistan was on the verge of bankruptcy with only a billion dollars in foreign exchange reserves; 65% of GDP was used for debt servicing. I also reminded him that Pakistani stock market was stuck at 10,000 points and exports were less than $8 billion. In 2006, I told him, Pakistan’s foreign exchange reserves had peaked to more than $16.5bn and rupee was stable at around 60-61 to a dollar. I told him that Pakistan grew at 7% annually under Musharraf , debt servicing was lowered to less than 30% and the Karachi stock market peaked as well. Pakistani exports, I asserted, reached $18 billion and the economy 
doubled in seven years reaching $160 billion from a mere $70 billion in 1999. I also reminded my successful Pakistani entrepreneur that the IT industry in Pakistan was virtually non-existent in 1999 but in the magical seven years grew to $2 billion and employed 90,000 people.

Knowing that I didn’t mean a word of what I said he chuckled and engaged me in a polite debate. He claimed under Musharraf Pakistan had a ‘casino economy’ – and due to adventurism of a dictator and his cronies, trade deficit had increased to a point where balance of payments had become a balancing act. He claimed Musharaf-Aziz ponzi scheme led to higher inflation and exposed banks to a wide variety of consumer loans. Pakistan in those seven years, my friend said, had decaying asset base and only speculative investments were made.  He said it is because of Musharaf-Aziz Ponzi Scheme that Pakistan is facing the worst recession.

I said, hey that’s not fair all at all. Why are you blaming Musharaff-Azia – isn’t it similar to what Bush-Cheney did to the American economy? I reminded him that for first seven years of Bush presidency economy seemed fine. Everything worked like a charm. But one fine morning we woke up with the news flash that the huge debts incurred by consumers around the world and most particularly in the US and UK have increased so much in size that the interest rates had go up to control the borrowing patterns. Many Americans soon realized that each one of them owed these creditors hundreds of thousands of dollars on top of the hundreds of thousands they already owed on mortgages, credit cards and cars. According to the Census Bureau, during Bush’s two terms the US economy lost ground on every major measurement; the median household income declined, poverty increased, childhood poverty increased even more, and the number of Americans without health insurance spiked.

But Pakistan was doing well under Musharaff- I pushed further, and asked him look at the State Bank of Pakistan press release issued in 2008 that says Foreign Direct Investments (FDI) declined by 54.6%, in the first seven months of the fiscal year 2008 with investments falling to only $1.18 billion. State Bank had stated, “investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago.”

Being the devils advocate that I am – I said, you can’t blame Musharaff – FDIs stopped because of political instability, terrorist attacks, power, gas and water shortage and weak law order control. I said Pakistani firms were unable to sign agreement with foreign investors primarily because of abysmal law and order situation.

My friend reminded me that Pakistan had the highest FDI inflow in 1996. He said, since 1996, when Pakistan received highest amount, FDI has been experiencing a declining trend and pointed out that the share of foreign direct investment, flowing into Pakistan, is negligible- less than one per cent of its total, made globally.

At this point I was at my wits end – I said, you can’t blame Mush for Pakistan’s economic ruins. Global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI.

My friend responded- that’s exactly right; Musharaff can’t take credit for Pakistan’s superficial economic activities between 2000 and 2007. Investors around the world were looking for safe havens to bring their capital without any restrictions to repatriate their earnings, profits, debt servicing, royalties, technical fees and capital. Pakistan was the classic ‘pump-and-dump’ ground for Shaukat Aziz’s investment buddies in the US and Europe.

And, at that moment a light bulb went on; I vividly remembered Shaukat Aziz (who was Finance Minister in June 2003) in New York pitching S&P and Moody’s to increase the credit rating for Pakistan. He was successful. But so were millions of other defaulters – Joe, Jill, Mike, Jesus – sub-prime market was at prime.

I understood why my friend was calling it “Musharaff-Aziz Ponzi Scheme” – because during their rule FDI increased but the domestic savings declined. You don’t need to be an economist to understand what happens when FDI grows and savings shrink – you create a hollow economy that collapse the minute foreign investors pull out. That’s exactly what happened to Pakistan.

Musharaff told his audience in Washington last week that he enjoys popular support in Pakistan. He said, “when I resigned from my presidency, many, many people were crying in Pakistan. There were six cameramen who were filming me and four of them were crying right in front of me and it was a great distraction because I was speaking at that time.”

What he didn’t say is that after he left, nearly 40 million poverty stricken Pakistanis have been crying because of his economic adventurism. Is he popular or infamous?

State Bank of Pakistan

According to State Bank Of Pakistan the FDI flow into the state during July to November period of this fiscal year fell by 54% but when combined with portfolio investment reported a decline was 25.6%.

State Bank in an email stated, “investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago.”

In Geneva on 19 January 2009 , Global foreign direct investment (FDI) inflows were estimated to fall by 21% in 2008 to an estimated $1.4 trillion, and were estimated to further decline in 2009.

Political instability, terrorist attacks, power, gas and water shortage and weak law order control has led to falling trend in FDI. These are the major reasons due to which the foreign investors are not interested in investing their capital in Pakistan.

Pakistani firms are unable to sign agreement with foreign investors due to the prevailing abysmal law and order situation.

According to economists, “although the global economic meltdown was also a reason of slow growth in FDI, the domestic shocks were major contributors in the declining trend of FDI. November was the third consecutive month in which the country posted decline in foreign direct investment. We were expecting some increase in the FDI during the current fiscal year ahead of positive economic indicators. The ongoing war in the northern areas and suicide attacks in different cities had restricted the foreign buyers from new investment in Pakistan.”

The State Bank of Pakistan (SBP) on has said, “FDI had posted a decline of 52.2 percent during July-November period of current fiscal year. Although, some increase was registered in portfolio investment in the first five months of current fiscal year, FDI still remained on decline.”

FDI reduced to $774 million during July-November of current fiscal year in last fiscal year it was $1.62 billion, depicting a decrease of 846.7 million dollars. Portfolio investment have reached to $311.3 million in July-November of fiscal year 2010. In 2009 it was 162.9 million dollars. The government expects gross domestic product will grow 3.3 percent this fiscal year.

Current global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI. This economic crisis has affected every region with varying geographical impacts. This crisis originated in developed countries and their major effects on the developing world have been indirect up till now which has affected FDI flow.

The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of its total, made globally. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining trend.

According to UNCTAD, “all experienced sharp foreign direct investment declines, except for the Netherlands and China. The overall environment for international investment is slowly improving. As a consequence, it expects global FDI flows will rebound modestly in 2010. The economists say improving conditions will ultimately encourage companies to invest more in foreign countries this year, prompting a stronger recovery in 2011.”

To emerge as a promising nation Pakistan has to provide conductive environment for external economic flows.

Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement. The FDI has played a vital role in the economic growth of Pakistan.